Involnert Management Inc v Aprilgrange Ltd & Ors, Court of Appeal - Commercial Court, October 08, 2015, [2015] EWHC 2225 (Comm)

Resolution Date:October 08, 2015
Issuing Organization:Commercial Court
Actores:Involnert Management Inc v Aprilgrange Ltd & Ors
 
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Neutral Citation Number: [2015] EWHC 2225 (Comm)

Case No: 2012 FOLIO 1569

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 10 August 2015

Before :

MR JUSTICE LEGGATT

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Between :

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Akhil Shah QC and Paul Sinclair (instructed by Jones Day) for the Claimant

Alistair Schaff QC and David Walsh (instructed by Ince & Co) for the Defendants

Daniel Shapiro (instructed by CMS Cameron McKenna) for the First Third Party

James Brocklebank and Sushma Ananda (instructed by Clyde & Co) for the Second Third Party

Hearing dates: 4-5, 8-11, 15-17, 23-24 June 2015

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Mr Justice Leggatt:

A. Introduction

  1. In the early morning of 3 December 2011 the claimant's yacht ``Galatea'' (``the Yacht'') caught fire at her mooring in the Athens Marina. As a result of the fire, the Yacht was damaged beyond economic repair. The defendants (``Insurers'') had agreed to insure the Yacht against all risks for an agreed value of €13 million. In this action the claimant is seeking to recover that sum from Insurers. Insurers accept that the loss was an accident of a kind which the policy was intended to cover. They deny liability to pay the claim, however, on a number of grounds.

  2. The Insurers' principal complaint is that the Yacht was over-valued. They contend that, although insured for €13m, the market value of the Yacht was and was believed by the claimant to be no greater than €7-8m. In particular, the claimant had obtained a professional valuation in November 2009 which had valued the Yacht at about €7m (net of VAT); on 2 March 2011 the claimant had been advised by the Yacht's manager that, if put on the market for sale, the Yacht should be listed for a maximum asking price of €8.5m and that the claimant should be happy to get €7m; and by the time the contract of insurance was concluded on 17 May 2011 the Yacht was actually being advertised for sale at an asking price of €8m. These facts were not disclosed to Insurers. It is the Insurers' case that these facts were material and should have been disclosed to them, and that this non-disclosure induced them to insure the Yacht on the terms agreed. They say that in these circumstances they were entitled to avoid, and have validly avoided, the policy. In addition and as an alternative to this defence, Insurers contend that they were discharged from liability as result of a misrepresentation in the proposal form that the market value of the Yacht was believed by its manager to be €13m. Further defences on which Insurers, if necessary, rely are that the claimant is not entitled to maintain this action because of failure to comply with requirements of the policy regarding the provision of a sworn proof of loss and the production of documents reasonably requested by Insurers after the fire, and that the claimant cannot in any event recover for a total loss because it did not give a valid notice of abandonment.

  3. The claimant maintains that all these defences are without merit. Without prejudice to that position, the claimant has joined as additional parties to the proceedings the two firms of insurance brokers which were responsible for arranging the insurance. The first third party, AIS Insurance Services Limited (``AIS''), is a Greek company which acted as a producing broker. The second third party, OAMPS Special Risks Limited (``OAMPS''), is an English broker which placed the insurance in the London market. In the event that the claimant fails to recover the amount claimed from Insurers under the policy, it claims damages from AIS and/or OAMPS on the ground that their negligence has led to this result. The brokers each deny that they were negligent or that, even if they were, this has caused the claimant's loss. OAMPS further denies that it owed any duty directly to the claimant in circumstances where it was acting as the agent of AIS and had no direct dealings with the claimant or its manager.

  4. I will address in turn the claims made by the claimant against Insurers and against its brokers. Before doing so, however, I will first describe the factual background in more detail and make findings on certain disputed questions of fact.

    B. Factual background

    The lineslip

  5. The contract of insurance under which the claim is made was effected by way of a declaration to a lineslip operated by the placing broker, OAMPS. A lineslip is a facility whereby a number of insurers authorise one or more leading underwriters to accept on their behalf risks presented by a particular broker, provided the risks fall within a pre-defined scope. As described in MacGillivray on Insurance Law (12th Edn, 2012) at para 2-034, a facility of this kind is not a contract of insurance but ``is in the nature of a standing offer by subscribers to be bound to particular risks by their designated underwriter.'' Such a facility assists the broker in placing insurance as it avoids the demands of having to broke each risk individually to each insurer. It is also convenient for insurers as it provides them with simple access to business.

  6. At the relevant time OAMPS had two lineslips which were led by Travelers Syndicate 5000 (``Travelers''), which is represented in this action by the first defendant. One was for yachts with a value below US$/€10m; the other lineslip, under which the insurance of the Galatea was placed, was for ``mega yachts'' with a value in excess of US$/€10m up to US$/€50m.

  7. Under the terms of the relevant lineslip, Travelers was designated as the ``slip leader''. To bind or alter an insurance contract written under the lineslip required the agreement of both the slip leader and the second defendant, Royal & Sun Alliance Insurance PLC (``RSA'').

  8. The way in which the lineslip operated in practice was as follows. To obtain a quote for insurance, OAMPS would draw up a quotation slip and take it to Travelers to review and rate. If Travelers agreed to quote for the risk and the quotation was accepted by the prospective assured, OAMPS would then prepare a formal declaration to bind the risk. After the declaration was signed by Travelers, it would be taken to RSA to sign. Provided that RSA accepted the declaration, the following market would be bound.

  9. Unlike insurance on commercial vessels, yacht insurance business is typically written on the basis of proposal forms. The brokers who placed business with Travelers tended to have their own proposal forms. That was true of OAMPS. When broking a risk under one of the lineslips led by Travelers, OAMPS would either present a completed proposal form with the quotation slip or would ask Travelers to quote subject to receiving a satisfactory proposal form before inception (or if time was short, within a short period after inception).

  10. At the relevant time the senior yacht underwriter at Travelers was Mr John Higham. His deputy was Mr Jason Stephenson. The senior yacht underwriter at RSA was Mr Wesley Absolom. The broker at OAMPS who placed the policy in this case was Mr Lee Ranson. The broker at AIS who instructed OAMPS was Mr Colin Birch. All these individuals were witnesses at the trial.

    The policy

  11. As described in more detail below, the contract of insurance in this case (``the policy'') is contained in a declaration made under the lineslip which was signed by Travelers on 13 April 2011 and by RSA on 14 April 2011. The insurance was bound subject to a satisfactory proposal form. A proposal form was presented to Travelers and scratched by Mr Stephenson on 17 May 2011. The period of cover, as finally agreed, was from 13 May 2011 to 12 May 2012.

  12. Under the policy the Yacht was insured against all risks for an agreed value of €13m. This cover was split between two separate sections of the policy: Section A, which provided Hull and Machinery cover in an amount of €9.75m; and Section B, which provided cover for the ``Increased Value of Hull and Machinery'' in an amount of €3.25m. I will consider the inter-relationship of these sections in more detail later. Essentially, however, the rationale for the split was that the Increased Value section provided cover only for a total loss (measured by reference to the limit of cover under Section A) and thus carried a significantly lower rate of premium than Section B.

  13. The policy incorporated the American Yacht Form R12 (the ``R12 Clauses''). In addition, the Increased Value cover under Section B was subject to the American Institute Increased Value and Excess Liabilities Clauses (the ``IV Clauses'').

    The Yacht

  14. The claimant purchased the Yacht in May 2007 for €13m. The Yacht, which was new when purchased, was manufactured in Italy by Riva, which is part of the Ferretti Group. The model was known as the ``Athena 115'' reflecting the fact that the boat was 115 feet, or about 35 metres, in length. Only nine Athena 115 yachts were built, of which ``Galatea'' was the second. She was customised for the claimant so that she had four cabins and a sky lounge, whereas the other Athena 115s had five cabins.

    The claimant

  15. The claimant is a company incorporated in the British Virgin Islands whose ultimate beneficial owner is a wealthy businessman, Mr Filaret Galchev, and the Yacht was acquired as a pleasure vessel for the use of Mr Galchev and his family. From June 2007 until January 2009 the sole director of the claimant was Mr Andreas Nianias, a former banker who works for Mr Galchev and assists in managing his private assets. In January 2009 Mr Nianias was replaced as the sole director of the claimant by Mr Ilias Kaltsidis. Mr Kaltsidis is a nephew of Mr Galchev and describes himself as Mr Galchev's ``first assistant''. Both Mr Nianias and Mr Kaltsidis gave evidence at the trial, although Mr Galchev did not.

    The manager

  16. From November 2008 the Yacht was professionally managed by A1 Yacht Trade Consortium SA (``A1''). A1 is one of the leading international managers of luxury yachts. It is based primarily in Greece but has offices in a number of countries. A1 provides a range of services for owners of luxury yachts, including management, brokerage, chartering and provisioning. It manages some of the largest private yachts in the world.

  17. The yacht brokerage and yacht management departments of A1 are managed by Mr Andreas Polemis, who is Joint Managing Director of A1. His assistant, since 2007, has been Ms Paraskevi Koronaiou. Both Mr Polemis and Ms Koronaiou were called as witnesses by the claimant.

  18. A formal management agreement between the claimant and A1 was entered into on 27 February 2009. One of the services which, under the terms of the agreement, A1 undertook to provide was arranging and maintaining all the insurances in connection with the vessel in accordance with the claimant's instructions. In the event, as described below, until 2011 the claimant arranged insurance for the Yacht without A1's assistance.

    The MTC valuation

  19. In November 2009 A1 was asked by Mr Nianias to obtain a valuation of the Yacht. It appears that the request emanated from Mr Galchev's accountant who was conducting an exercise to assess the value of his assets. A1 instructed a firm of professional valuers, MTC Company Limited, who inspected the yacht on 17 November 2009 and issued a valuation certificate stating their opinion that the sound market value of the Yacht inclusive of VAT as at that date was in the region of €8.5m. Excluding VAT (which was not paid on the purchase price of the Yacht), this valued the Yacht at around €7m.

  20. On 25 November 2009 Ms Koronaiou sent a copy of the MTC valuation certificate by email to Mr Nianias and filed the original document. It appears that neither Mr Nianias nor anyone at A1 gave any further thought to this valuation or had regard to it when arranging insurance for the Yacht. The certificate came to light after the loss, in April 2012, when Bargate Murray who were the claimant's solicitors at that time specifically asked A1 whether any valuations of the Yacht had ever been carried out.

    Purchase of the ``Sapphire''

  21. In April 2011 Mr Galchev took delivery of another, bigger and much more expensive yacht which was named ``Sapphire''. The Sapphire was around 73 metres in length and had been custom built by a German manufacturer, Nobiskrug. The purchase price was €65m. The Sapphire was not owned by the claimant but by a different company also under the ultimate control of Mr Galchev. A1 was appointed to manage the Sapphire as well as the Galatea.

  22. When this new yacht was acquired, Mr Galchev was interested in selling the Galatea.

    The March 2011 email

  23. On 2 March 2011 Mr Polemis sent an email to Mr Galchev and Mr Kaltsidis. In this email (the ``March 2011 email'') Mr Polemis referred to the fact that he had received an enquiry from a broker acting for a client who had expressed interest in Galatea. Mr Polemis went on to say that he had ``also made a research on your behalf in order to guide you for the price status of such a yacht''. Mr Polemis reported that the Riva Athena 115 was now being built only on request and that the list price for building a brand new Athena 115 was €12m. Mr Polemis had also established that there was no other used Riva Athena 115 for sale. His email continued:

    ``If you ask me for a valuation, I would comment:

    The identical Ferretti 112' of 2007-2008 is listed from 6 to 7.3m euro.

    Various other same category yachts 2007-2008 are listed from 5 to 5.6m euro.

    The smaller Riva 92' called Duchessa of 2008 is listed between 5 to 5.5m euro in various broker sites.

    Taking the above into consideration I would say the Galatea should be listed for 8.5m MAX and you should be happy to get 7m NET to your pocket.

    Hope the above comments would be of assistance to you to set her asking price.''

  24. The expression of interest referred to in this email had come from a broker in Qatar. The broker had contacted Mr Kostis Pontifex of Ekka Yachts SA, a yacht broker which specialises in Italian luxury boats and represents the Ferretti Group in Greece. On 1 March 2011 Mr Pontifex sent an email to the Qatar broker stating:

    ``We contacted the owner of the Riva 115 with hull #2 which is in Athens, Greece. He is interested to sell her, BUT he wants to hear an offer for you. ...

    Waiting an offer indication ... subject to viewing, testing ... etc.''

    On the same day the broker replied:

    ``We have a client for 8 million euros, please forward this to the owner.''

  25. Mr Pontifex gave evidence for the claimant at the trial as an expert valuer. He said that this enquiry was handled by a colleague of his at Ekka Yachts, Mr Themelis. Mr Polemis gave evidence that he recalled a telephone conversation with Mr Themelis in which Mr Themelis said that he had a potential purchaser for a yacht such as Galatea, that this potential purchaser had a budget of €8m and that he thought this price was about right for Galatea. It is likely that it was this conversation which led to the March 2011 email.

  26. It is apparent that nothing further came of this expression of interest. I find that the most likely reason for this is that the client of the Qatar broker decided not to pursue the enquiry any further. Although Mr Pontifex said in evidence that he thought the reason was that Mr Polemis of A1 responded to this expression of interest by saying that the Yacht was not for sale, I am satisfied that Mr Pontifex was mistaken in suggesting this. It is clear from the March 2011 email and subsequent events that Mr Galchev was indeed interested in selling the Galatea and that, if someone had shown serious interest in buying her for a price of around €8m, negotiations would certainly have ensued.

    Marketing the Yacht

  27. From early May 2011 onwards, A1 marketed the Yacht for sale. In particular, the documents disclosed by the claimant show the following:

    i) The brokerage department of A1 first proposed the Galatea for sale in messages sent to other brokers on 9 and 10 May 2011.

    ii) On 11 May 2011, A1 sent an advertisement to Boats & Yachts for publication in the June edition. The advertisement included the asking price of €8m.

    iii) By 17 May 2011, A1 had received an enquiry from Burgess (a large yacht broker) asking for full information and images and saying that they ``might have a client''. In sending the specification and pictures of the Yacht in response to this enquiry, Mr Karalis (the broker at A1 responsible for marketing the Yacht) mentioned that the asking price was €8m but said that it was negotiable.

    iv) On 2 June 2011, a full advertisement with professional photographs of the Yacht was sent to various brokers. The advertisement was also published in various yacht publications and on 9 June 2011 Brokerage News reported news sent by Mr Karalis of A1 that ``he's signed the 35.4m motor yacht Galatea for sale''.

    v) On 8 June 2011, A1 sent another circular announcing their appointment as central agents for the sale of the Yacht, described as being in ``turn key condition'' with an asking price of €8m.

    vi) On 12 September 2011 Mr Karalis replied to a broker who asked how long the boat had been on the market that the Galatea had been for sale ``since the 73m new build megayacht was delivered to the owner, last May''.

    vii) On 3 November 2011 the description of the Yacht in A1's circular was revised to state ``Two-yacht owner wants her sold''.

    viii) At around the same time A1 approved the proof for an advertisement of the Yacht to go in the December issue of Boat & Yachts.

    ix) At the time of the fire the Yacht was listed on the Boat International website and this listing was not in fact removed until February 2012.

  28. In all, the documents disclosed by the claimant record 12 requests for more details of the Yacht and at least seven expressions of interest, including from big yacht brokers such as Burgess, Camper & Nicholsons and Edmiston.

    The claimant's marketing instructions

  29. Mr Kaltsidis gave evidence that neither he nor Mr Galchev ever authorised A1 to advertise the Yacht for sale with an asking price of €8m. Mr Kaltsidis said that, when he received the March 2011 email, he did not agree with the advice of Mr Polemis. He personally thought that the Yacht was worth €10-11m and should be advertised at such a price. He said that he told Mr Polemis this and understood Mr Polemis to agree with him. Mr Kaltsidis said that he was not asked to approve any of the advertisements and was not aware that the Yacht was being advertised with an asking price of €8m until a few days before the fire, when he found this out. He then asked Mr Polemis to take the advertisement down because the asking price was too low. Mr Kaltsidis attributed the fact that the Yacht had been marketed by A1 at a price of €8m for some seven months to a ``misunderstanding'' between himself and Mr Polemis.

  30. Mr Polemis in his evidence on this point gave the impression that he was trying to support the claimant's case while at the same time not accepting that A1 had acted without its client's authority. This was a difficult course to steer. On the one hand, Mr Polemis said that he would not have marketed the Yacht without instructions from Mr Kaltsidis to do so. He was equivocal, however, about whether the asking price of €8m was specifically approved by Mr Kaltsidis. Mr Polemis said that Mr Kaltsidis had merely asked him to ``fish the market'' and that brokers such as A1 often ``do tricks'' to test the reaction of the market. Mr Polemis also said that he remembered a conversation with Mr Galchev some time in the summer of 2011 in which Mr Galchev mentioned that he was minded not to sell Galatea as he had good memories of using her and no real reason to sell, and that he might want to give the Yacht to his daughter. Mr Polemis said that this was a very casual conversation but that, after this, A1 stopped actively marketing the Yacht for sale although they did not take down the advertisements which had been placed online for the vessel.

  31. I reject as false the evidence given by Mr Kaltsidis and much of the evidence given by Mr Polemis on this point. I regard it as inconceivable that A1 would have advertised the Yacht for sale with an asking price of €8m unless they had been given express instructions to do so. It is notable that the figure of €8m was slightly lower than the €8.5m which Mr Polemis had recommended in the March 2011 email as the maximum price for which the Yacht should be listed. In the last sentence of that email Mr Polemis expressed the hope that his comments would be of assistance to Mr Galchev and Mr Kaltsidis in setting an asking price. I am sure that a specific decision to set the asking price at €8m was made following receipt of the email. My impression is that the decision was of sufficient importance that it would have been taken by Mr Galchev himself, although it is likely to have been communicated to Mr Polemis by Mr Kaltsidis. I am sure too that the instruction to market the Yacht at an asking price of €8m was never revoked and that, if it had been, A1 would not have continued to advertise the Yacht at this price.

  32. It is possible that there was a very casual conversation some time in the summer of 2011 in which Mr Galchev told Mr Polemis that he had fond memories of using the Galatea and would be sorry to sell her. There is no indication, however, that the level of A1's marketing activity changed at that time or at any time before the fire, and I am confident that any such conversation was not understood by Mr Polemis to signify any change in his client's instructions.

  33. The signs are that Mr Galchev was not in a rush to sell the Galatea and wanted to try to get the best price that he could. Thus, the Yacht was not laid up for sale and was kept ready for use. Moreover, the asking price was pitched higher than the amount of €7m which Mr Polemis had advised Mr Galchev that he should be happy to get. Although there was not much interest shown at the advertised price, at the time of the fire no decision had yet been taken that the asking price should be reduced.

    Previous years' insurance

  34. For three years from 15 May 2008 to 14 May 2011, the Yacht was insured with Allianz Suisse Insurance Company against all risks for an agreed value of €13m. The insurance was arranged on behalf of the claimant by Mr Nianias through a firm of insurance brokers in Switzerland. A1 was not involved in arranging the insurance with Allianz. There was an occasion, however, in early 2009 when A1 obtained a quotation for insurance of the Yacht which was not taken up.

    The 2009 quotations

  35. This occurred at the end of January 2009, some two months after A1 was engaged to manage the Yacht. Mr Birch of AIS was an insurance broker working in Athens who knew Mr Polemis and was also friendly with an Englishman who worked for A1 called Mr Mike Brewer. Mr Polemis knew that Mr Birch was a route by which A1 could obtain insurance for the Yacht at Lloyd's in London. On 27 January 2009 Mr Polemis asked Ms Koronaiou to send a copy of the Galatea's current insurance document to Mr Brewer for him to forward to Mr Birch. Mr Brewer did so, asking Mr Birch for his opinion on the current insurance and ``also if you have something better to offer''.

  36. The document sent to AIS contained a summary of the terms of the Allianz policy including the gross annual premium of €60,823. AIS sent a copy of this contract summary to two insurance brokers in London. One of them was Mr Ranson at OAMPS. Mr Ranson approached Mr Higham of Travelers and obtained a quote for insuring the Galatea under the lineslip with an insured value of €13m.

  37. The Travelers quote was sent by OAMPS to AIS on 3 February 2009. Nothing came of it, as Mr Birch did not consider the quote sufficiently competitive and did not forward it to A1. Instead, he pursued another contact in the London market and obtained a quote with a significantly lower premium of €50,000. This was sent on 13 April 2009 to A1 who forwarded the quote to Mr Nianias. However, Mr Nianias did not accept the quote and decided to renew the Allianz policy.

  38. The Allianz policy was again renewed by Mr Nianias for the 2010-11 year. For the year 2011-12, however, alternative quotations were again sought.

    The January 2011 quotations

  39. In January 2011 Mr Ranson of OAMPS was again asked to obtain a quotation for insurance of Galatea on terms matching the Allianz policy including the insured value of €13m. On this occasion the instructions did not come from AIS. Mr Polemis had asked a Greek insurance broker whom he knew, Mr Kalivas, at a firm called ``Life Partners'' to obtain a quote. Life Partners had an association with another broker, EXL, who contacted a London broker called InetAssure, who in turn approached OAMPS. InetAssure was sent, and forwarded to Mr Ranson, a copy of the Allianz contract summary for the 2010-11 year to show the terms which the quote needed to beat. Mr Ranson again obtained a quote from Mr Higham at Travelers and another one from Groupama. As the Groupama quotation was the cheaper of the two, only this quote was sent by OAMPS to InetAssure and passed back by Mr Kalivas of Life Partners to A1.

  40. It seems clear that Mr Kalivas was told at one stage by Mr Polemis that he had won the order. On 3 February 2011 and again on 11 March 2011, InetAssure sent emails to OAMPS reporting that the quotation from Groupama was going to be taken up. As late as 26 April 2011 Mr Kalivas was asking to know ``what to do with the insurance of Galatea as the renewal date approaches''. By this time, however, the claimant had already accepted a different London market quotation. That quotation, obtained through AIS, became the policy which is the subject of this action.

    The instruction of AIS

  41. In late March 2011 Mr Galchev and Mr Kaltsidis were anticipating the delivery of the new yacht later named ``Sapphire'', and A1 was asked to arrange insurance for her. Mr Polemis believed that the best place in which to seek such insurance was the London market. He instructed AIS to obtain a quote. It is not clear why Mr Polemis decided to use Mr Birch of AIS for this purpose rather than Mr Kalivas of Life Partners, but I think the most likely explanation is that he regarded Mr Birch as having much greater expertise in arranging insurance in the London market than Mr Kalivas, and while he was prepared to use Mr Kalivas for what was seen as a simple renewal of insurance for the Galatea, he preferred to use Mr Birch for this very important piece of new business.

  42. On 29 March 2011 Ms Koronaiou of A1 sent an email to Mr Birch instructing him:

    ``As there is going to be a new delivery for a 73m new building megayacht, please be so kind to make your best offer for its insurance.''

    It is apparent from the email sent by Mr Birch the next day in reply that he must have spoken to Ms Koronaiou and learnt that the owner of the new yacht also owned the Galatea. Mr Birch suggested in his email that, at the same time as obtaining a quotation for the new yacht, he would also be able to get a ``very competitive indication'' for the Galatea.

  43. On 4 April 2011 Mr Birch sent an email to Mr Ranson at OAMPS giving details of the new yacht received from Ms Koronaiou and asking for an indication ``sub to prop'' (i.e. subject to a proposal form) for insurance of the new yacht and also for the Galatea. In the email Mr Birch said that the managers, A1, had been ``friends and clients of mine for many years'' and described them as ``very serious people'' who ``have offices on every island in Greece''. The details for the new yacht included a proposed sum insured of €65m. For details of ``the other vessel owned by the same people'' (i.e. the Galatea) Mr Birch attached a link to a website which listed the specification of the Galatea including such information as the manufacturer, year of launch, length, cruising speed etc. In his email instructing Mr Ranson Mr Birch also wrote that:

    ``... the current insurance expires on around the 14th April the vessel is currently valued at 13,000,000 Euros, no claims have been reported. ... I can advise that under their current policy with Allianz the premium is 60,000, including all the frills and spills P&I and Pa, Ded hulls 30,000.''

  44. Some of the information given by Mr Birch in this email about the current insurance policy for the Galatea was incorrect. In particular, the Allianz policy expired on 14 May and not 14 April, and the premium was just over €55,000 and not €60,000. It was suggested by counsel for the claimant that the likely source of Mr Birch's information about the Allianz policy was the contract summary for the year 2008-09 which he had been sent when asked to obtain a quote for insurance of the Galatea two years earlier in 2009. The main basis for this suggestion was the fact that the premium under the Allianz policy in 2008-09 was €60,823, whereas in 2010-11 the premium was €55,233.

  45. For several reasons, I think it improbable that, when sending his email dated 4 April 2011 to OAMPS, Mr Birch looked back at the Allianz contract summary for 2008-09 and derived his information about the Allianz policy from that source. In particular:

    i) Mr Birch said in evidence that in April 2011 that he had forgotten that he had obtained a quote for insurance of the Galatea two years earlier. Whether that was so or not, I see no reason to suppose that, even if he had a recollection of obtaining such a quote, he would have thought it useful to search through the box files kept at AIS to see what information he had been sent two years before.

    ii) Even if Mr Birch had found and looked at the 2008-09 Allianz contract summary, it would not have told him that the vessel was ``currently valued'' at €13m nor that the premium figure of €60,000 was still current. It would only have told him what the sum insured and premium had been two years earlier, which might well not be the current figures. Mr Birch would, on the other hand, have been able to take from that document details of the specification of the Yacht instead of relying, as he in fact did, on the fruits of an internet search.

    iii) The understanding that ``the current insurance expired on around the 14th April'' could not have come from the 2008-09 contract summary and was indeed inconsistent with it as that document showed the renewal date to be 14 May.

  46. I find that the most likely source of Mr Birch's information about the current policy with Allianz was a telephone conversation with Ms Koronaiou. How she came to make the mistakes about the current premium and the renewal date is unclear, but I have noticed that, when seeking a quotation earlier in the year, EXL had been erroneously advised - evidently by A1 - that the Yacht's current insurance expired on 15 April 2011.

    Obtaining the April 2011 quotations

  47. On receipt of the instruction email from AIS sent on 4 April 2011, OAMPS obtained quotations for the new yacht and for the Galatea from Mr Higham at Travelers. Mr Ranson recalled - and I do not doubt his recollection - that Mr Higham was very excited at the prospect of writing such substantial business.

  48. Quote slips for insurance under the lineslip were scratched by Mr Higham and sent as email attachments by Mr Ranson to Mr Birch on 5 April 2011. Mr Birch forwarded the quotations to Mr Polemis and Ms Koronaiou at A1 on the same day, describing them as ``extremely competitive''. Both quotations were ``subject to satisfactory proposal form and crew details prior to inception''. Mr Ranson included this subjectivity when preparing the quote slip because he knew from experience that, where no proposal form was yet available, Travelers would have added this subjectivity when giving a quote if it had not already been included in the slip.

  49. On 12 and 13 April 2011 there were telephone conversations involving Mr Polemis, Mr Kaltsidis and Mr Nianias to discuss the insurance of the two yachts. Mr Kaltsidis decided to accept the quotations for insuring both yachts at Lloyd's which had been obtained by AIS. Mr Birch was informed of this decision by email, and he in turn notified Mr Ranson by email, on 13 April 2011. Because it was believed (wrongly) that the current insurance for the Galatea was about to expire, Mr Birch instructed Mr Ranson to hold the Galatea covered ``sub[ject to] prop[osal form]''.

    The declarations

  50. On receiving the order, Mr Ranson sent to Mr Birch by email a blank proposal form to use for both vessels, which Mr Birch sent on to Ms Koronaiou at A1. The form was a standard proposal form designed and used by OAMPS, headed ``Mega yacht Insurance Application''.

  51. Mr Ranson prepared declarations for each of the two yachts and took them to Travelers on the same day (13 April 2011). He saw Mr Higham's deputy, Mr Stephenson, who scratched the declarations. The declaration for the Galatea stated, opposite the description ``subjectivities'':

    ``Subject to satisfactory proposal form and crew details within 7 days of inception.''

    On the following day (14 April 2011) Mr Ranson saw RSA's underwriter, Mr Absolom, and obtained his signature on the declarations. Mr Ranson then informed Mr Birch by email that the risks had been bound.

  52. Mr Birch had by this time found out that the existing insurance of the Galatea did not in fact expire for another month. On the morning of 15 April 2011 he sent an email to Mr Ranson confirming a telephone conversation the previous evening in which he had informed Mr Ranson that Galatea ``will attach on the 15 May as this is when their existing insurance expires''. Mr Ranson accordingly returned to the market and obtained the agreement of Travelers and RSA to the amended inception date.

    Completing the proposal form

  53. On 14 April 2011 Ms Koronaiou partially completed proposal forms for the Galatea and for the Sapphire. On each form she left blank several of the items of information requested, including the ``purchase date'' and ``purchase price'' and a section headed ``Amount of Coverage''. Each proposal form was signed by Ms Koronaiou on behalf of the insured and dated 14 April 2011.

  54. It is common ground that Mr Birch attended the offices of A1 on that day. Ms Koronaiou said in evidence that she remembered sitting in the office of Mr Brewer at A1 going through the proposal forms with Mr Birch. In his evidence Mr Birch said he thought that Ms Koronaiou had filled out the proposal forms before he arrived and that he may have just picked them up. I think it more likely that Ms Koronaiou completed the proposal forms (to the extent that they were completed) when Mr Birch was present. There would have been no point in Mr Birch making what he said was a 45 minute journey each way to visit A1's offices simply to collect documents which could just as well have been sent as email attachments. Ms Koronaiou said in evidence that she had never previously completed a proposal form for yacht insurance. Even though Mr Birch may not have known this, I think it probable that the purpose of his visit was to provide any explanation and assistance required by Ms Koronaiou. It is therefore logical to conclude that she is right in recalling that she filled out the forms and signed them when Mr Birch was present.

  55. When Mr Birch returned to his office with the two proposal forms on 14 April 2011, they were scanned and sent as email attachments to Mr Ranson.

  56. Two weeks later on 28 April 2011 Mr Birch re-sent the proposal forms to Mr Ranson. Mr Ranson did not, however, present the proposal form for either yacht to underwriters at that time.

  57. On 9 May 2011 Mr Birch sent an email to Mr Ranson in which he said:

    ``Attached please find completed proposal as requested please incept cover as of Friday 13 [May] 2011.''

    The document attached to the email was a different version of the proposal form for the Galatea from the version which had previously been sent to OAMPS on 14 and again on 28 April 2011. The difference was that on the document which Ms Koronaiou had signed on 14 April 2011 some further details had now been added by Mr Birch. The information added comprised:

    i) the ``closing/renewal date'', which was entered as 13 May 2011;

    ii) the length and speed of the Yacht; and

    iii) some figures entered in the section for the ``Amount of Coverage'', of which the most significant was the figure of ``13,000,000'' on the line for ``hull market value''.

  58. It is likely, and the words ``as requested'' in the email from Mr Birch suggest, that further information had been included in the proposal form at the request of Mr Ranson. It is impossible to know, however, what exactly prompted Mr Ranson to make this request and why no similar request was made in relation to the proposal form for the Sapphire. There is no obvious reason for the difference in approach, as all the same information which had been missing for the Galatea, apart from the length of the yacht, was also missing for the Sapphire.

  59. There is a dispute between the claimant and AIS as to how Mr Birch obtained the further information which he entered on the proposal form. The evidence of Mr Birch was that he believes there was a second meeting between himself and Ms Koronaiou and that at this meeting she supplied additional details which he entered on the form in her presence. Ms Koronaiou's evidence was confused by the fact that when she made her first witness statement she was only shown the second version of the proposal form. This led her to ``remember'' that at her meeting with Mr Birch in A1's offices on 14 April 2011 she had filled in some parts of the proposal form and Mr Birch had filled in those parts which were in his handwriting. When it was appreciated by the claimant's solicitors that there were in fact two different versions of the proposal form, Ms Koronaiou made a further witness statement in which she said that she thought it most likely that the sections completed by Mr Birch were filled in by him some time after their meeting without any further input from her. A consistent feature of Ms Koronaiou's evidence was that she only recalled there being one meeting with Mr Birch.

  60. I find it more likely than not that Mr Birch entered the additional information on the form shortly before he sent it to OAMPS on 9 May 2011 and that he did this on his own, without reference to Ms Koronaiou. My reasons are these:

    i) I do not believe that Mr Birch would have thought it necessary to make another journey to A1's offices just to ask Ms Koronaiou to add to the proposal form a few further details which he regarded as entirely straightforward; and apart from his suggestion that he went there, there is no evidence that any further meeting took place.

    ii) Furthermore, it would not have given a good impression of Mr Birch's competence if, over three weeks after Ms Koronaiou had filled out and signed at a meeting with him a proposal form which he had led her (by implication if not expressly) to believe was sufficiently completed, Mr Birch had told Ms Koronaiou that the proposal form had still not been submitted but that the information on it was in fact inadequate and more information was required.

    iii) If the further information had been added at a meeting with Ms Koronaiou, it is improbable that Mr Birch would have written the further details himself on a document on which all the previous entries had been made by Ms Koronaiou and which she had signed; rather he would have asked her to do so.

    iv) Although the renewal date of 13 May 2011 must have reflected a further instruction received from A1, Mr Birch did not need to meet Ms Koronaiou in order to be told this date. Nor did he need to speak to her at all to find out the length and speed of the Yacht, which were available on the website to which he had previously referred Mr Ranson. Nor do I believe that he thought it necessary to speak to her in order to complete the details in the section headed ``Amount of Coverage'', which he regarded as already established.

    v) It appears from researches carried out by the claimant's solicitors that A1 did not have a copy of the final version of the proposal form in their possession until after the fire on Galatea, when they were provided with a copy of it by AIS on 28 December 2011.

    vi) If the further answers had been added to the proposal form with Ms Koronaiou's knowledge and authority, I think it likely that Mr Birch would have supplied her with a copy of the amended document, which the evidence suggests he did not.

    vii) My conclusion that Mr Birch probably added the further answers to the proposal form without consulting A1 or telling them that he had done so is not inconsistent with my general impression of Mr Birch and of his standard of diligence as a broker.

    Presenting the proposal form

  61. The request made by Mr Birch in his email dated 9 May 2011 to Mr Ranson which attached the revised proposal form to incept cover for Galatea as of 13 May 2011 was the second request made to change the inception date. Mr Ranson's reply on 10 May expressed his frustration at this:

    ``Don't say it's now the 13th May attachment! We bound this on the 13th April you then came back and said the actual attachment date was 15 May.... Can you please confirm the correct date of inception before underwriters rip my head off.''

    Mr Birch responded:

    ``Please apologise to underwriters as we are led by our clients, the inception is definitely Friday the 13th.''

    The reason for this second change to the inception date is unclear, as the existing Allianz policy was valid from 15 May 2010 until 14 May 2011, and 15 May 2011 therefore appears to have been the correct inception date.

  62. Mr Ranson duly arranged for the declaration to be amended once more to show the policy period as being from 13 May 2011 to 12 May 2012. Mr Ranson gave evidence that he believed that this amendment was made on or about 10 May 2011. It is not clear why he did not present the proposal form at the same time as obtaining the underwriter's agreement to this amendment.

  63. On 13 May 2011 (i.e. the date on which the cover incepted) Mr Ranson sent a cover note for the Galatea to Mr Birch by email. The cover note recorded the subjectivities as ``none''. It was Mr Ranson's evidence that, when converting the declaration into a cover note on OAMPS' computer system, he would have had to delete manually the subjectivity which was contained in the declaration. Mr Ranson's explanation for why he did this was that he was confident that underwriters would accept the proposal form as satisfactory when it was presented to them.

  64. Mr Ranson took the proposal form for Galatea to Travelers on 17 May 2011. He saw Mr Stephenson. Mr Stephenson scratched the proposal form with his initials, the date and the words ``Please make assured aware of cruising and condition precedent''. The reference to ``cruising'' was to the fact that the geographical scope of cover was limited to the Mediterranean Sea excluding Libya and the reference to ``condition precedent'' was to the fact that the declaration included as a condition precedent to the validity of cover ``No towing of tenders''.

  65. The obvious meaning of Mr Stephenson's initialling of the proposal form was that he accepted it as satisfactory, thus removing the subjectivity. Although I should have reached this conclusion in any event, I note that it was the unanimous view of all the broking and underwriting experts that this is how the underwriter's act of scratching the proposal form would be understood in the market.

  66. The proposal form for the Sapphire was also scratched by Mr Stephenson on 17 May 2011 and it is likely that Mr Ranson presented the proposal forms for both yachts at the same time. The declaration for the Sapphire had provided:

    ``Subject to satisfactory proposal form and crew details prior to inception.''

    The original inception date for the Sapphire policy was 15 April 2011, which was then amended to 21 April 2011. OAMPS received the proposal form for Sapphire from AIS on 14 April 2011 at the same time as the first version of the proposal form for Galatea. It was not until 17 May 2011, however, some 26 days after the inception date, that the Sapphire proposal form was presented to Travelers. It does not appear that Mr Stephenson raised any point about this.

  67. On the Sapphire proposal form, as on the proposal form for the Galatea, the entries for ``purchase date'' and ``purchase price'' had been left blank when the form was signed and dated by Ms Koronaiou on 14 April 2011. So too had the section of the form headed ``Amount of Coverage''. Unlike the proposal form for Galatea, however, no further information was subsequently added to the proposal form for Sapphire, and so the ``Amount of Coverage'' section remained blank when the Sapphire proposal form was presented to Mr Stephenson on 17 May 2011. Mr Stephenson's response was to write on the proposal form the amounts of cover which had been agreed in the declaration for Hull and Machinery (€39m) and the Increased Value of Hull and Machinery (€26m). As with the Galatea proposal form, he also wrote ``Please make assured aware of cruising and condition precedent'' and scratched the form with his initials and the date.

  68. Neither of the two proposal forms was scratched by RSA. RSA's underwriter, Mr Absalom, confirmed Mr Ranson's evidence that an understanding had been reached with OAMPS that quotations and proposal forms need not be shown to RSA, but only declarations. On the question of whether a proposal form was satisfactory, RSA was therefore content to defer to Travelers.

    Expert evidence of market value

  69. The claimant and the Insurers each adduced evidence from an expert valuer as to the market value of the Galatea in May 2011. The claimant's expert, Mr Pontifex, estimated the market value of the Yacht at that time at just under €10m. By contrast, the opinion of the Insurers' expert, Mr Maclaurin, was that the market value fell within a range between €3.5m and €4.5m. For reasons which I will explain later, I do not think that it is in fact necessary to make any finding about the ``true'' market value of the Galatea in order to decide this case. If required to do so, however, I would find that the market value of the Yacht in 2011 was somewhat lower than the figure of €7m which Mr Polemis advised in his March 2011 email that the owner should be happy to get, and that a realistic figure would be €5-6m.

  70. I do not feel able to place any reliance on the opinion of Mr Pontifex. Mr Pontifex based his valuation primarily on his sense of the amount by which, after four years, a Riva 115 yacht could be expected to have depreciated as a percentage of the original purchase price. His opinion was that, if maintained in very good condition as he understood the Galatea to have been, the depreciation in value of such a yacht over that period would be of the order of 25%. Applying such a discount to the purchase price of €13m produced a value of approximately €9.75m.

  71. Mr Pontifex did not, however, point to any objective evidence to support his estimate of depreciation. Moreover, his method seemed to me to be flawed as it took no or no apparent account of market conditions. I accept the evidence of Mr Maclaurin, based on his many years of experience in working for one of the world's largest yacht brokers, that the amount by which a yacht depreciates, and indeed whether it depreciates at all, in its first few years of use is heavily dependent on the state of the market at the relevant time. There is accordingly no such thing as a typical or expected rate of depreciation. Mr Pontifex also placed considerable weight on his view of Riva as at the ``absolute top end'' of the range of yacht manufacturers, a view which I felt was probably influenced by the fact that his company represents Riva in Greece and his natural pride in the Riva brand. His view on this point was not shared by Mr Maclaurin nor by any other witness - the general perception being that Riva is well regarded but not seen as being at the very top end.

  72. Mr Maclaurin's valuation was based on a review of the asking prices of yachts broadly similar to the Galatea which were on the market for sale in 2011. He compiled a list of 13 such yachts. These included the ``Iona G'', another Riva 115, built in 2008 with five cabins, which was advertised for sale in late 2011 at a price of €6.9m. (No sale was achieved and this yacht remains on the market with a lower asking price of €4.95m.) The average asking price of the 13 yachts was €5.68m, and Mr Maclaurin took the view that the asking price for the Galatea could sensibly have been set in a range of between €4.95m to €6.95m, depending on the owner's appetite to achieve a quick sale. To arrive at his estimated sale price, he applied a discount of 30% to the average asking price. This reflected the average discount to the asking price agreed on sales of second hand yachts broked by his company between 2010 and 2012. Applying this discount produced a figure of approximately €4m. Mr Maclaurin estimated that the sale price for the Galatea would fall within a range of €0.5m on either side of this figure.

  73. Mr Maclaurin did not include in his list of broadly comparable yachts another Riva 115, the ``Cleopatra'', which was built in 2009 (i.e. two years after the Galatea) and was on the market in 2011 with its list price on application. He had evidence, however, that the asking price for the Cleopatra was €9.8m and I cannot see that his view that this asking price was too high, which was the reason he gave, was a legitimate reason for excluding the Cleopatra from his analysis. The need to discount asking prices in estimating a sale price was already built into his approach and omitting the Cleopatra biased his sample. A further factor which seems to me likely to make his average asking price understated is his acknowledgement that the Riva brand is a higher quality yacht than some in his comparison table. Another bias occurred at the stage of calculating the 30% discount factor. Some 25% of the sales made in 2011 which were included in the calculation of this average were forced sales by banks - a type of sale which, as Mr Maclaurin accepted, was likely to depress the price and which was not apposite to a sale of the Galatea. It is not possible to quantify the overall effect of these biases, but it seems to me that they make Mr Maclaurin's estimates too low.

  74. In making a judgment about the market value of the Yacht, two pieces of hard evidence are that the Galatea attracted little interest at the list price of €8m and that neither of the other (slightly newer) Riva 115 yachts marketed for sale in 2011 was sold, tending to suggest that their asking prices were also too high. I cannot regard the fact that the Galatea had four cabins and a sky lounge, whereas they each had five cabins, either as an advantage (as Mr Pontifex claimed) or a disadvantage (as Mr Maclaurin suggested); it seems to me that it must depend on the preference of the individual buyer. My sense of the matter, taking account of Mr Maclaurin's evidence but making allowance for the factors I have indicated, is that a realistic estimate of the price for which the Galatea could have been sold or a comparable yacht purchased in 2011 is in the range of 10-30% below the price at which the Iona G was listed or the figure of €7m which Mr Polemis told Mr Galchev he should be happy to get. That puts the market value of the Yacht in the region of €5-6m.

    Why did the claimant insure the Yacht for €13m?

  75. When the decision was made on 13 April 2011 to accept the quotation from Travelers to insure the Yacht under the lineslip, the claimant did not of course have the benefit of the opinions of Mr Pontifex and Mr Maclaurin. The claimant had, however, received the MTC valuation and more recently the March 2011 email, both of which indicated that the market value of the Yacht was substantially less than €13m, and Mr Kaltsidis and Mr Galchev were considering the price at which the Yacht should be listed for sale. By 9 May 2011 at the latest, instructions had been given to A1 to put the Yacht on the market at an asking price of €8m. In these circumstances it is pertinent to ask why the claimant insured the Yacht for a much higher sum.

  76. The claimant's case at trial was that the Yacht was deliberately insured for her purchase price. Mr Nianias gave evidence that, when insuring the Yacht with Allianz, his instructions were to obtain insurance for the price paid to purchase the Yacht and he maintained the cover in this amount in order to preserve the value of Mr Galchev's investment and because this was what it would cost to buy a new yacht to replace the Galatea. He said that he never gave any thought to the Yacht's market value and, although he received the MTC valuation in November 2009 and passed it on to Mr Galchev's accountant, he did not see it as having anything to do with the insurance. Mr Kaltsidis also said in his witness statement that the Galatea was always insured for €13m because this was the purchase price paid for the Yacht. As it would also be the approximate cost of buying a new replacement yacht, there was no reason to consider the level of insurance as inappropriate. The decision taken by Mr Kaltsidis on 13 April 2011 to accept the Travelers quote was the first time that Mr Kaltsidis was directly involved in the renewal of the insurance. In his oral evidence he said that the question of the Yacht's market value never arose in the context of discussing the insurance and nobody suggested to him that it was relevant.

  77. In so far as Mr Nianias and Mr Kaltsidis suggested that a deliberate decision was made to insure the Yacht for a value higher than the current market value, I reject their evidence. The reality, as I see it, is that the Yacht was initially insured for the cost of purchase, which was the natural measure of value to take when the Yacht was new, and cover was then simply renewed in the same amount from year to year without any thought being given to whether it was still the appropriate value for insurance. I am sure that Mr Nianias and Mr Kaltsidis were truthful in saying that they never saw any connection between advice received about the market value of the Yacht and the renewal of the insurance. I do not accept the suggestion made by Mr Nianias, however, that he purposefully continued to insure the Yacht for the cost of purchase in order to preserve the value of Mr Galchev's investment. That suggestion makes no sense at all when the Yacht was known no longer to be worth what the claimant had paid for it: at that stage the value of the investment capable of being preserved was no longer the purchase price.

  78. Furthermore, whatever the position previously, once Mr Galchev was interested in selling the Yacht, there was no sensible reason to choose to insure the Yacht for an amount significantly higher than the maximum amount which the claimant could expect to receive from a sale. Nor is there any evidence to suggest that Mr Galchev and Mr Kaltsidis were looking to achieve a better result financially if the Yacht was lost than if the Yacht was sold. There is also no evidence, however, that Mr Polemis or anyone else pointed out to them that it was no longer necessary or appropriate to maintain the insurance cover at the same level as before. Had Mr Kaltsidis received such advice, I see no reason to think that he would not have acted on it and given instructions to renew the insurance for a lower amount. The logical amount of cover to buy would have been the amount which the claimant was hoping to get from a sale, that is, the asking price of €8m.

  79. I therefore find that the divergence which occurred in this case between the price at which the Yacht was put on the market for sale in May 2011 and the value for which the Yacht was insured came about by accident rather than design.

    The loss

  80. As mentioned at the start of this judgment, on 3 December 2011 there was a fire on board the Yacht which caused extensive damage. Surveyors appointed by Insurers attended the scene that same day. They sent...

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