Manifest Shipping Company Limited v. Uni-Polaris Shipping Company Limited and Others

Factual and Procedural Background

The Respondent owned the motor vessel “Star Sea,” insured for US $3.2 million against marine perils under English-law time policies placed through brokers on 25 November 1989. On 29 May 1990 an oxy-acetylene accident in the engine-room workshop ignited a fire which the crew failed to extinguish; the vessel was towed to port and declared a constructive total loss (CTL). Notice of abandonment was issued on 12 June 1990 and rejected by the Appellants (representative underwriters). Proceedings began with a writ dated 3 August 1990. At first instance Judge Tuckey limited recovery to a partial loss, accepting two insurer defences under sections 39(5) and 17 of the Marine Insurance Act 1906. The Court of Appeal reversed on both points and awarded the full CTL. The Appellants obtained permission to appeal to the House of Lords (now the Supreme Court).

Legal Issues Presented

1. Whether, under section 39(5) Marine Insurance Act 1906, the insurers could avoid liability for a CTL by proving the vessel was sent to sea in an unseaworthy state with the privity (“blind-eye knowledge”) of the assured.
2. Whether, under section 17 of the Act, the duty of “utmost good faith” continues after a claim is made and into contentious litigation, so that alleged non-disclosure or misleading conduct during the lawsuit entitles insurers to avoid the policy ab initio.
3. The correct legal standard for “blind-eye knowledge” and for post-contract good-faith disclosure.

Arguments of the Parties

Appellants' Arguments

• The vessel was unseaworthy because (a) the master was ignorant of proper CO₂ usage and (b) funnel dampers were defective; both caused the loss.
• Management’s response to two earlier fleet fires (on “Centaurus” and “Kastora”) showed “blind-eye” knowledge; therefore the Respondent was privy to the unseaworthiness under s. 39(5).
• Section 17 imposes an ongoing duty of full, frank disclosure; failure to reveal the two “Kastora” investigation reports and alleged misleading witness evidence constituted “culpable non-disclosure,” entitling insurers to avoid the policy entirely.

Respondent's Arguments

• No individual whose mind could be attributed to the assured suspected either the master’s incompetence or the damper defects; negligence is insufficient for privity.
• The duty of utmost good faith is confined to pre-contract matters and, at most, to fraudulent claims; it does not require voluntary disclosure of litigation materials protected by privilege.
• No fraud was alleged or proved; the insurers had full discovery remedies within the court process and suffered no prejudice.

Table of Precedents Cited

Court's Reasoning and Analysis

Section 39(5) Defence – Privity and “Blind-Eye Knowledge”
The Court accepted that the master’s ignorance of CO₂ deployment and defective dampers made the vessel unseaworthy and that both defects caused the CTL. However, privity requires subjective awareness tantamount to knowledge. Drawing on The Eurysthenes, The Gloria and Jones v Gordon, the Law Lords held that “blind-eye knowledge” demands (1) a targeted, firm suspicion of the specific unseaworthiness and (2) a deliberate decision not to verify it. The managers’ negligent failure to audit the master’s competence or to inspect dampers, even if “completely inadequate,” did not prove that any of the four relevant individuals deliberately avoided confirmation. The Court of Appeal’s reversal of Judge Tuckey on this factual inference was therefore upheld.

Section 17 Defence – Utmost Good Faith During Litigation
The House traced the historical scope of uberrima fides. While pre-contract disclosure is extensive, post-contract obligations are narrower and largely concerned with fraudulent claims. Authorities from Cory v Patton through Niger v Guardian establish no duty to volunteer information merely useful to an insurer’s defence or cancellation rights. Fraudulent claims jurisprudence (Britton, Goulstone, Orakpo, Galloway) shows that only dishonesty in making or pursuing a claim justifies forfeiture; negligent or strategic non-disclosure does not. Procedural rules and discovery orders (e.g., ship’s-papers cases) govern conduct once litigation has commenced, rendering section 17’s avoidance remedy unnecessary and disproportionate. Since no fraud was pleaded or proved against either the Respondent or its solicitors, the insurers’ section 17 argument failed.

Holding and Implications

APPEAL DISMISSED.

The insurers remain liable for the full constructive total loss of US $3.2 million. The decision clarifies that:

• “Blind-eye knowledge” under section 39(5) requires a conscious decision to avoid confirming a firmly-held suspicion of unseaworthiness; gross negligence alone is insufficient.
• The duty of utmost good faith after contract formation is confined to honesty; only fraudulent claims (not negligent non-disclosure during litigation) permit avoidance.
• Litigation conduct is policed by procedural rules, not by an expansive reading of section 17.

No new precedent was overruled, but the ruling narrows insurers’ scope to invoke avoidance and will influence the handling of post-loss investigations and discovery in marine insurance disputes.