1. GLOBAL PROCESS SYSTEMS v SYRIKAT TAKAFUL MALAYSIA (2011) The “Cendor Mopu” The Scope of “Inherent Vice” Exclusion Paul Davison Partner Beachcroft LLP

2. Overview  The Cendor Mopu – the Facts  Supreme Court Decision and Reasoning  Wider Implications of the Decision

3. The Cendor Mopu – The Facts  Oil Rig – laid up in Texas  2005 – purchased by Insured  To be used for offshore production off coast of Malaysia  Transferred by barge - 3 legs 300ft in the air  Off Cape of Good Hope –  1 leg broke off  Next day followed by other 2 legs

4. The Cendor Mopu – The Insurance  Insured purchased a marine cargo policy for the journey  Indemnity : “all risks” – including perils of the seas  Excludes:- “Loss, damage or expense caused by inherent vice or nature of the subject matter insured” – clause 4.4

5. Supreme Court Decision – The Issue  What caused the loss  Inherent vice (excluded); or  Perils of the sea (insured)

6. Supreme Court - Decision  Proximate cause of loss - a large wave:-  Caught leg at right moment – causing collapse  Led to unexpected stress on and collapse of the other 2 legs  Cause of loss– perils of the seas - not “Inherent Vice”  Loss covered by the policy

7. Supreme Court - Reasoning What is “Inherent Vice”?  Does note encompass intervention of any fortuitous external accident  Limited to “natural behaviour of goods …. in the circumstances in which they are expected to be carried” per Donaldson LJ

8. Supreme Court - Reasoning What are “Perils of the Seas”?  Must be fortuitous accident  Not ordinary action of wind and waves Held  Weather encountered was contemplated for the voyage  Sufficient if wind and waves had an extraordinary effect rather than being extraordinary in themselves

9. Wider Implications  Inherent vice exclusion - Narrowed  Does not apply where there is any fortuitous external event - even if the event is to be expected  Applies only where the loss is caused entirely by the internal state of the insured subject matter  Proximate cause of loss - key issue  External straw that broke the camels back= not inherent vice

10. Wider Implications  Insurers can only deny such claims if loss caused by:  Ordinary wear and tear – i.e. cause was inevitable; or  Inherent vice – if due entirely to characteristics of the goods  Key – absence of any fortuitous external accident or casualty