The Civil Division of the Court of Appeal handed down its decision in the case of Masefield AG v Amlin Corporate Member Ltd (The Bunga Melati Dua) [2011] EWCA Civ 24 on 26 January 2011. In the first piracy case to be heard in an English court since Hicks v Palington (1590) Moo KB 297, the Court considered whether cargo seized by pirates and subsequently recovered after being ransomed by the ship-owners was “irretrievably lost” within the terms of section 57(1) of the Marine Insurance Act 1906 (“the Act”).

The Bunga Melati Dua was carrying the appellant’s cargo of biodiesel when she was captured in the Gulf of Aden by Somali pirates and taken into Somali coastal waters. Negotiations for the payment of a ransom and release of the vessel began almost immediately involving the vessel’s owner, MISC, and the ship, crew and cargo were released by the pirates on 29 September, less than six weeks after her capture. The appellant commenced proceedings on 19 September, on its insurers (the respondents) for financial loss resulting from the capture, and this was unaffected by the cargoes’ later recovery.

The appellant claimed that piracy created an immediate actual total loss, unless there was recovery before the date of commencement of proceedings and the law could not take account of the payment of a random as a relevant reason for calculating the possibilities of recovery. The respondent alleged that the appropriate test was “irretrievably deprived”, under section 57(1) of the Act and that this connoted a physical or legal impossibility of recovery.

Steel J, finding for the respondent, had held at first instance that although a loss by capture is in law an actual total loss, the possibility of securing return of the cargo could not be disregarded in assessing its total loss, and thus the appellant had not been “irretrievably deprived” under section 57(1).

Rix LJ, giving judgment for the Court of Appeal, found that negotiating and paying a ransom was “the only realistic and effective manner” of obtaining the release of a vessel held by Somali pirates, and this was done promptly upon capture. Reviewing authorities on the effect of piracy he concluded that there was no actual total loss where there was not only a chance but a strong likelihood that payment of a relatively small ransom relative to the value of the vessel and her cargo would secure recovery of both. This was despite the fact that some might regard the payment of a ransom as morally objectionable and it was something the owner was not required to do.

He further held that payment of a ransom being so undesirable from the point of view of the public interest could be no part of an insured’s duty to preserve his property. Property held to ransom must therefore be considered irretrievably lost if the only means of recovering it was to pay a ransom. However, the fact there was no duty to pay a ransom did not mean there was an obligation not to make such a payment. The fact that the ship-owners had paid a ransom defeated the insurance claim. The Court of Appeal thus dismissed the appeal.