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CASE NO.: Appeal (civil)  5608 of 2006

PETITIONER: M/s. Peacock Plywood Pvt. Ltd.

RESPONDENT: The Oriental Insurance Co. Ltd.

DATE OF JUDGMENT: 05/12/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G M E N T [Arising out of S.L.P. (C) No. 7392-7393 of 2005]

S.B. SINHA, J :

       Leave granted.                  Interpretation of a policy of marine insurance entered into by and  between the parties herein covering goods in transit is in question in this  appeal which arises out of a judgment and order dated 16th December, 2004  passed by the High Court of Calcutta in APO No. 363 of 2000 whereby and  whereunder the appeal preferred by Respondent \026 Insurance Company  herein from a judgment and order dated 3rd December, 1999 passed in C.S.  No. 480 of 1992 passed by a learned Single Judge of the said Court was  allowed.

       Appellant herein agreed to purchase 4000 cu. mt. of ’Sabha Log’  (logs) at a total price of US $6,00,000/- from a Malaysian firm.  474 pieces  of logs were loaded on a vessel known as ’Indera Pertama’ (vessel) at the  port of Western Sabah, Malaysia for their delivery at Calcutta.  The ship left  the Malaysian Port with cargo on 16th February, 1988.  The logs were  insured by Appellant with Respondent \026 Insurance Company for a sum of  Rs. 39,90,122/- against the peril and/ or risk of non-delivery of said goods.   The policy contained Institute Cargo Clause (C).  It also expressly included  the risk of non-delivery of even single piece of log.

       The relevant clauses of the said contract are as under: "Institute Cargo Clause (C) Risks covered: 1.      This insurance covers, except as provided in  Clauses 4, 5, 6 and 7 below, 1.1     *** 1.1.1   *** 1.1.2   vessel or craft being stranded grounded,  sunk or capsized\005"

***      ***      ***      ***      ***      ***

       The insurance contract contained exclusion clauses, some of which  are as under:

"4. In no case shall this insurance cover ***      ***      ***      ***      ***      *** 4.6 loss, damage or expense arising from  insolvency or financial default of the owners,  managers, chaterers or operators of the vessel. ***      ***      ***      ***      ***      ***

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5.1 In no case shall this insurance cover loss  damage or expense arising from unseaworthiness  of vessel or craft; Unfitness of vessel craft conveyance container or  lift-van for the sale carriage of the subject-matter  insured. Where the assured or their servants are privy to  such unseaworthiness or unfitness, at the time the  subject-matter insured is loaded therein. ***      ***      ***      ***      ***      *** 6. In no case shall this insurance cover loss,  damage or expenses caused by ***      ***      ***      ***      ***      *** 6.2 capture, seizure, arrest, restraint or detainment  and the consequences thereof or any attempt  thereat;" ***      ***      ***      ***      ***      *** 8.3 This insurance shall remain in force (subject to  termination as provided for above and to the  provisions for clause 9 below) during delay  beyond the control of the Assured, any deviation,  forced discharge, re-shipment or trans-shipment  and during any variation of the adventure arising  from the exercise of a liberty granted to  shipowners or charterers under the contract of  affreightment.  9. If owing to circumstances beyond the control of  the Assured either the contract of carriage is  terminated at a port or place other than the  destination named therein or the transit is  otherwise terminated before delivery of the goods  as provided for in clause 8 above, then this  insurance shall also terminate unless prompt notice  is given to the Underwriters and continuation of  cover is requested when the insurance shall remain  in force, subject to an additional premium if  required by the Underwriters, either ***      ***      ***      ***      ***      *** 9.2 if the goods are forwarded within the said  period of 60 days (or any agreed extension therein)  to the destination named herein or to any other  destination, until terminated in accordance with the  provisions of clause 8 above. ***      ***      ***      ***      ***      *** 13. No claim for Constructive Total Loss shall be  recoverable hereunder unless the subject-matter  insured is reasonably abandoned either on account  of its actual total loss appearing to be unavoidable  or because the cost of recovering, reconditioning  and forwarding the subject-matter to the  destination to which it is insured would exceed its  value on arrival."

       An extended warranty clause was endorsed in the policy wherefor  additional premium was paid in the following terms:

"Notwithstanding anything contained herein to the  contrary, it is hereby declared and agreed that the  coverage granted under the within mentioned  policy be extended to include the risks of "Theft,  Pilferage and Non-Delivery" as well as "War and  S.R.C.C." as per attached clause 6 & 11.  In  consequence above extension of risks, an  additional premium of Rs. 1,496/- is hereby  charged to the insured."

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       The ship developed engine troubles and was held up at Singapore Port  till 13th March, 1988.  It sailed for Port of Calcutta thereafter.  It was,  however, immobilised on reaching high sea at Anadamans.  It underwent  repairs but eventually returned back to Malaysia.  Indisputably, Appellant  kept Respondent \026 Insurance Company informed all through.  While at  Malaysian Port, the ship was arrested at the instance of one Gobsobs, one of  the owners of the cargo in May, 1988.  Appellant filed a caveat in the said  proceedings with a view to take appropriate steps to have the logs belonging  to it released.   

       The Malaysian Court discharged the order of arrest on 30th December,  1988 and the ship eventually proceeded again towards Singapore.  At  Singapore, the ship became stranded.  On 3rd January, 1989, it offloaded its  cargo and did not resume its journey.  Appellant, however, with a view to  minimise its loss due to non-delivery, took steps to recover the cargo or its  value and on an application filed by it, the High Court of the Republic of  Singapore in suit No. 711 of 1989 passed an order on 9th June, 1989  allowing the sale of the cargo.  Admittedly, Appellant had received a sum of  Rs. 20,01,743.53 out of the sale proceeds.

       A claim by way of constructive total loss was raised by Appellant  with the Insurer in terms of its letter dated 12th August, 1989 which was  repudiated by Respondent in terms of its letter dated 1st April, 1991.  The  said stand was reiterated by it in terms of a letter dated 22nd October, 1991.   

       Appellant filed a suit before the original side of the Calcutta High  Court which was marked as CS No. 480 of 1992 praying for a decree for a  sum of Rs. 49,48,407/- with interest.   

       The Singapore Court, however, during pendency of the said suit on or  about 19th May, 1995 released the money in favour of Appellant.  The said  sum being 20,01,740.53 was received by it at the then prevailing exchange  rate on 22nd June, 1995.   

       The learned Single Judge in the suit inter alia framed the following  issues:

"1.     Is the plaintiff the owner of the subject  goods? ***             ***             *** 2(b)    Was there any constructive total loss as  alleged in paragraph 8 of the plaint? 3.      Is the suit barred by the laws of limitation? 4.      To what relief, if any, is the plaintiff  entitled?"

       In regard to Issue No. 1, the learned Judge opined:

"It follows therefore that the said Clause 6 cannot  be set up by the defendant against the plaintiff’s  claim on account of non-delivery i.e. the peril  insured against.  Further in any event I am satisfied  on the evidence adduced at the trial that the  plaintiff had given prompt notice of the  termination of the voyage at the Singapore Port but  the defendant did not ask for payment of additions,  premium for continuation of the said policy.  The  defendant therefore must be considered to have  acquiesced in the continuation of the said policy at  any rate it must be taken to have waived the  condition prescribed in the said clause.  I,  therefore, answer this issue in the affirmative."

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       So far as Issue No. 2(b) is concerned, the learned Judge noticed the  definition of ’constructive total loss’ as contained in Section 60 of the  Marine Insurance Act, 1963 and opined:

"There is no "express provisions" to the contrary  in the said policy and as such it cannot be disputed  that there has been constructive total loss of the  said consignment.  There is evidence on record to  show that the cost of bringing down the said  consignment to the Calcutta Port from the  Singapore Port would be more than it is actual cost  (see exhibit ’S’ supra).  I, therefore, here (sic) that  this issue should be answered in the affirmative."

       As regards, Issue No. 3, the learned Judge noticed the Respondent’s  contention which is in the following terms:

"\005Plaintiff’s claim was wrongful and not  maintaining and the same was repudiated by this  defendant’s letter dated April 1, 1991 and October  22, 1991."   

       In regard to the said contention, it opined that the said repudiation was  made on 1st April, 1991 and 22nd October, 1991.

       As regards Issue No. 4, it was held that the suit was within limitation.

       Keeping in view the fact that Appellant had received a sum of Rs.  20,01,740.53, it was opined that it was entitled only to a sum of Rs.  8,48,259.47 and the suit was decreed therefor together with simple interest at  the rate of 18% per annum.   

       Aggrieved thereby, Respondent filed an intra-court appeal before a  Division Bench of the said High Court which was marked as APD No. 363  of 2000.  The High Court held that the repudiation of claim having been  made on 8th July, 1988, subsequent correspondences having been marked as  ’without prejudice’, the same would not amount to extension of period of  limitation as the suit was filed on 7th August, 1992.  In regard to the  correspondences passed between the parties, it was opined:

"\005The conduct of the defendant/appellant in this  regard clearly indicates that in order to help tracing  out the situation, the defendant had extended its  good office and that too without prejudice. Such a  gesture does not seem to extend the period of  limitation by admission or otherwise when on the  face of Exhibit 5 (8th July, 1988), the defendant  had already declined/denied its liability\005"

       It was furthermore held that having regard to Clause 9 of the policy,  the contract of carriage stood terminated.  On merit of the matter, the court,  on the question as to whether the claim was established, held that the same  had not been quantified in the absence of any definite proof with regard to  the amount to be ascertained as claimable.

       In regard to the question as to whether the policy was an all risk  policy, the Division Bench opined that the policy was not an all risk policy  and the exclusion clause contained in Clause 4.6 would operate.     

       In regard to the question of constructive total loss, keeping in view the  fact that the goods were in existence, the court purported to have relied upon  Middows v. Robertson [(1940) 67 Lloyd’s Law Report 484] opining:

"\005The unseaworthiness would not come within

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the peril of the insured against as was held in  Wadsworth Lighterage Co. Ltd. (supra). The  unseaworthiness of the vessel is a ground excluded  in the policy as referred to hereinbefore. There is  no pleading or any attempt to prove that the  plaintiff or its servant was not privy to the  unseaworthiness of the vessel at the time of  loading."

       It was held:

"6.15 If in a situation, loss occurs due to  combination of more than one factors then if one  factor is excluded the claim of the plaintiff cannot  succeed. In the instant case, the proximate cause  was delay and defaults committed by the plaintiff  as mentioned aforesaid. Hence, the plaintiffs claim  must fail."

       In regard to the issue of loss caused by measures taken by Appellant  to avert or minimize the effect of an insured period, it was opined that as the  ship was detained due to unseaworthiness which is exclusionary clause the  plaintiff cannot succeed in its claim.  It was further opined that the insurance  was hit by ’sue and labour clause’ and Appellant has not been able to  discharge its burden.

       In regard to warehouse to warehouse loss, it was held that the policy  did not include the risk of loading the goods in vessel which were  unseaworthiness.  It being a maritime industry peril, the enforcement would  be against the exclusion clause contained in Clause 5.1.   

       It was concluded:

"10. For all these reasons, we are of the view (1)  that because of the fact of denial by the insurer by  its letter dated 8th July, 1988 (Ext. 5) coupled with  the termination of the policy and its non-extension  after the Cargo Safety Construction Certificate and  Load Line Certificate expired on 15th July, 1988  and on account of plaintiff’s failure to discharge its  obligation either to obtain re-shipment of the  goods soon thereafter and the failure to take a  decision to sell the goods locally immediately and  filing of the suit after 7th August, 1992 clearly  indicates that the claim of the plaintiff was barred  by limitation and the suit ought to have been  dismissed; (2) the plaintiff has not been able to  prove that he had taken all steps to avoid the delay;  (3) the policy was not an all risk policy but was  circumscribed and restricted by reason of the  Institute Cargo Clause (c) containing the restrictive  clauses enumerated in paragraph 5 hereinbefore;  (4) the plaintiff has not been able to establish its  claim by discharging the burden lay upon it to  sustain the claim on merit and that the goods were  not lost when the claim was lodged; (5) the  plaintiff has not been able to prove constructive  loss by reason of abandonment; (6) that by reason  of Sections 20 and 32 of the Evidence Act, it was  proved that the goods were still in existence and  were in good condition; and (7) that the loss  cannot be ascribed to any peril insured as  discussed hereinbefore."

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       Mr. Prasenjit Keswani, learned counsel appearing on behalf of  Appellant, would submit that the Division Bench of the High Court  committed a serious error in arriving at its conclusions insofar as it failed to  take into consideration that once the goods were stranded, it was covered by   the terms of extended insurance policy which would include non-delivery  for any reason whatsoever.  Non-delivery of goods, the learned counsel  urged, would bring within its fold constructive total loss as there is no  serious dispute in regard to the fact that cost of transportation of goods from  Singapore to Calcutta was much higher than the actual costs of the goods.   The burden of proof to show that the exclusionary clauses are attracted being  on the insurer and such burden having not been discharged the decision of  the Division Bench should not be upheld.   

       It was furthermore pointed out that neither any case of applicability of  the exclusion clauses was made in the written statement nor any issue was  raised.  In any event, in case of an ambiguity, a contract of insurance should  be construed in favour of the insured.  Reliance in this behalf has been  placed on United India Insurance Co. Ltd. v. Pushpalaya Printers [(2004) 3  SCC 694].

       Mr. Vishnu Mehra, learned counsel appearing on behalf of  Respondent, on the other hand, would submit that Institute Cargo Clause (C)  contained restrictive clauses.  Drawing our attention to Section 78 of the  Marine Insurance Act, he would submit that the Division Bench of the High  Court has rightly construed the words ’any peril’.  It was submitted that  having regard to Sub-section (4) of Section 78 of the Marine Insurance Act,  the insured had a duty to minimize the loss and only in that view of the  matter, Respondent extended its assistance which cannot be said to be an  admission of its liability.  It was urged that the insurance policy would cover  only the perils mentioned therein and no case has been made out that the  vessel was stranded.   

       Having regard to Clause No. 9 of the policy, it was contended that the  contract became terminated and there being no request for continuation of  the contract, it came to an end in December, 1988 when it was stranded at  Singapore.

       In regard to claim of Appellant on constructive total loss, it was  submitted that the contract came to an end in December, 1988 and, thus, the  case would come within the purview of Section 60 of the Marine Insurance  Act.  Constructive total loss, it was urged, must be commensurate with  actual total loss, but, no case has been made out that it was a case of actual  total loss as goods were existing and they were sold and the insured,  therefore, have never been deprived of possession of the entire goods.

       It was further submitted that even if the broad meaning is given to the  term ’stranded’, the insured having not been deprived of the possession of  the goods, no loss occurred.   

       The questions which arise for consideration before us are:

(i)     Whether the suit was barred by limitation. (ii)    Whether the policy of insurance was an all risk policy. (iii)   Whether the policy covered constructive total loss. (iv)    Whether the exclusion clauses in the policy are applicable in the  facts of this case so as to repudiate the claim of Appellant.

       In the plaint it was stated:

"13. By letters dated April 1, 1991 and October 22,  1991 the defendant wrongfully rejected the claim  of the plaintiff."  

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       In response to the said contentions, Respondent averred:

"15. With reference to paragraph 13 of the plaint  this defendant denies that this defendant has  wrongfully rejected the claim of the plaintiff.   Plaintiff’s claim was wrongfully and not  maintainable and the same was repudiated by this  defendant’s letters dated April 1, 1991 and October  22, 1991.  This defendant states that the contents  of the said two letters are true and correct."   

       Appellant lodged its claim on 24th June, 1988.  On or about 8th July,  1988, the Insurance Company purported to have repudiated the claim  stating:

"We acknowledge receipt of your letter of 24th  ultimo and note what you write.  We would like to  invite your attention to our letter dated 3.6.88,  wherein requested you to take sincere and serious  efforts to get the cargo landed at Calcutta Port  before 11.7.88 even if necessary, by taking  appropriate action that may be deemed fit.  We  also advised you to utilize the assistance of our  Singapore Office, as and when necessary.

It is not clear from your letter under reference what  steps have been taken to compel the ship owners to  deliver the cargo at Calcutta Port as lading issued  by them.

Please note that as the vessel loaded with full  cargo has been located the question of ’Non- delivery’ does not arise and no claim will be  admissible by the underwriters where the existence  of the goods is there.  As per the terms and  conditions of Marine Insurance Policy "Delay" is  the excluded peril which note."

         From a perusal of the said letter, it is evident that the only ground on  which the claim of Appellant was not accepted was that the question of any  ’Non-delivery" did not arise as the cargo had been in existence.  Other  contentions of Appellant in the said letter had not been repudiated.

       On or about 11th August, 1988, Appellant herein served a notice of  abandonment inter alia stating:

"In the circumstances of the case, we are to give  you this Notice of abandonment of the  consignments to you and you are at liberty to take  possession of the subject matters insured.

In this connection, we may state that in a similar  case in British & Foreign Marine Insurance  Company Limited vs. Sanday & Another it was  held that "Consequent on the adventure being  frustrated by an insured peril the assured may  abandon it and rever for a constructive total loss on  the ground that the actual loss of the subject matter  insured appears to be unavoidable, even though the  goods themselves are uninjured."

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       It was stated:

"We lodged our formal claim with the shipowners  at Kuala Lumpur as required under the Policy and  copy of the same was endorsed to you.  The  shipowners have not acknowledged our claim  notice and they have purposely kept silent.   However, on any recovery proceedings we would  render our full assistance even by signing the  plaint etc."          

       Respondent admittedly got a survey conducted in March, 1989.  Even  in December, 1988, the ship had proceeded towards Singapore but only upon  reaching the port of Singapore in January, 1989, the cargo was offloaded.  A  finding of fact has been arrived at by the learned Single Judge that the ship  did not proceed due to its unseaworthiness.  It is not in question.

       We have noticed hereinbefore that indisputably Appellant on its own  as also at the behest of Respondent took steps for realisation of cargo to the  extent possible.  It moved the Singapore High Court for sale of the cargo.  It  had also opposed the prayer of arrest of ship before a Malaysian Court.   Respondent itself contended that Appellant made a pre-mature claim of  constructive total loss.  Having said so, it could not have raised a plea of  limitation.

       Our attention has been drawn to correspondences between the parties.   In response to the Appellant’s letter dated 11th August, 1988, Respondent in  its letter dated 2nd September, 1988 stated that the settlement of claim would  be considered strictly in terms of the policy.  It was, however, stated:

"\005So that the goods are not sold at the interest of  the one consignee alone who has already taken  action in Kuala Lumpur Court, we would without  prejudice strongly recommend in your interest that  action be taken by you as consignees and owners  of the goods in proper Court at Kuala Lumpur to  compel the shipowners to complete the voyage and  meantime, ’restraint order’ should also be secured  to protect your interest as well alongwith the other  interested Consignee so that no single or arbitrary  action is taken by the Court jeopardizing your  other consignee’s interest.  

We may here draw your attention that in terms of  the Loss Minimisation Clause in the Policy, you  are in duty bound to see that all protective  measures are taken adequately against Carriers.

However, settlement of the claim under the policy  would be considered only strictly in terms and  conditions of the policy of insurance.  This is  without prejudice."   

       There had been no repudiation even at that stage.  It was only when  the ship could not leave the Singapore Port due to unseaworthiness, a claim  of constructive total loss was made.  Terms of the policy would indisputably  have to be invoked for determining the rival clauses.  But, it is one thing to  say that the claim was barred by limitation or the exclusionary clauses would  apply; but it is another thing to say that the question of invoking the said  clause did not arise in terms of the contract of insurance.

       Only because the expression "without prejudice" was mentioned, the  same, in our opinion, by itself was not sufficient and would not curtail the

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right of the insured to which it was otherwise entitled to.  The expression  "without prejudice" may have to be construed in the context in which it is  used.  If the purpose for which it is used is accomplished, no legitimate  claim can be allowed to be defeated thereby.  [See Cutts v. Head and  Another, (1984) 2 WLR 349 and Rush & Tompkins Ltd v. Greater London  Council and another, (1988) 1 All ER 549]

       In Phipson on Evidence, Sixteenth Edition, pages 655-657, it is stated:

"Without prejudice privilege is seen as a form of  privilege and usually treated as such.  It does not,  however, have the same attributes as the law of  privilege.  Privilege can be waived at the behest of  the party entitled to the privilege.  Without  prejudice privilege can only normally be waived  with the consent of both parties to the  correspondence.  Whilst the rule in privilege is  "once privileged, always privileged", the rule for  without prejudice is less straightforward, and at  least in three party cases, this will not always be  the position.  A third distinction is that in the three  party situation, which is not governed by contract,  without prejudice documents are only protected in  circumstances where a public policy justification  can be provided, namely where the issue is  whether admissions were made.  That is not a  principle applicable in the law of privilege.   Fourthly, whereas legal professional privilege is a  substantive right, without prejudice privilege is  generally a rule of admissibility, either based on a  contractual, or implied contractual right, or on  public policy.  This may have consequences  relevant to proper law issues.  Finally, if a party  comes into possession of a privileged document,  subject to equitable relief for breach of confidence,  there is no reason why he should not use it and it  will be admissible in evidence.  But, the mere fact  that a party has a without prejudice document does  not entitle him to use it without the consent of the  other party.

(c)     When is correspondence treated as within  the rule?

The first question is to determine what  communications attract without prejudice  privilege.  The second stage is to consider when  the court will, nevertheless, admit such  communications.

       Correspondence will only be protected by  without prejudice privilege if it is written for the  purpose of a genuine attempt to compromise a  dispute between the parties.  It is not a  precondition that the correspondence bears the  heading without prejudice.  If it is clear from the  surrounding circumstances that the parties were  seeking to compromise the action, evidence of the  content of those negotiations will, as a general  rule, not be admissible.  The converse is that there  are some circumstances in which the words are  used but where the documents do not attract  without prejudice privilege.  This may be because  although the words without prejudice were used,  the negotiations were not for the purpose of a

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genuine attempt to settle the dispute.  The most  obvious cases are first, where the party writing was  not involved in genuine settlement negotiations,  and secondly, where although the words were  used, they were used in circumstances which had  nothing to do with negotiations.  Surveyors  reports, for example, are sometimes headed  without prejudice, although they have nothing to  do with negotiations.  The third case is, where the  words are used in a completely different sense.   Thus, in Council of Peterborough v. Mancetter  Developments, the documentation was admissible  because in context the words meant "without  prejudice to an alternative right and without  concession to the other application" and had  nothing to do with settlement.

       There are circumstances in which the  correspondence is initiated with a view to  settlement but the parties do not intend that the  correspondence should be without prejudice.  It  may be that the parties positively want any  subsequent court to see the correspondence and  always had in mind that it should be open  correspondence.  It may be a nice point whether  negotiations at which no one mentioned the words  "without prejudice" should be admitted in  evidence: for example at an early meeting between  the parties when the dispute first developed.  There  is no easy rule here.  On the other hand, even when  a letter is sent as the "opening shot" in  negotiations, and is not preceded by any previous  correspondence, it may be without prejudice.   There are authorities in both directions on this and  it will depend on the facts.

       It has been said that if one is seeking to  change the basis of the correspondence from  without prejudice to open it is incumbent on that  person to make the change clear, although that  may be more a pointer than a rule.  There is no  reason why every letter for which without  prejudice is claimed should contain an offer or  consideration of an offer, so long as the without  prejudice correspondence is part of a body of  negotiation correspondence."

       The actual repudiation was made on 1st April, 1991 and, thus, the suit  having been filed on 7th August, 1992 was within the period of limitation in  terms of Article 44 of the Schedule appended to the Limitation Act, 1963,   the relevant portion whereof is as under:

"Description of suit  Period of  limitation Time from which period  beings to run 44   (a)     ***  

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   (b)     On a policy of  insurance when  the  sum insured is payable  after proof of the loss  has been given to or  received by the  insurers.   Three years   The   date   of  the     occurrence causing the loss,  or where the claim on the  policy is denied, either     partly  or  wholly, the date  of such denial."

       When the termination of the contract of insurance has actually taken  place is essentially a question of fact.  An insurance policy is to be construed  in its entirety.  A marine insurance policy does not come to an end only  because the ship became stranded at a port.   

       Termination of the transit before delivery of goods is subject to  Clause 8 of the contract.  The duration of contract is mentioned in Clause 8  of the contract of insurance.  It commences from the time the goods leave  the warehouse or other contingencies mentioned therein.  It terminates:

(i)     on delivery to the Consignees or other final warehouse; (ii)    on delivery to any other warehouse or place of storage; (iii)   for storage other than in the ordinary course of transit; or (iv)    for allocation or distribution or on the expiry of 60 days after  completion of discharge overside of the goods insured from the  oversea vessel at any final port of discharge.

       None of the aforementioned clauses are attracted in the facts and  circumstances of the present case.

       Clause 8.3, subject of course to the operation of other provisions  contained in Clause 8 as also the provisions contained in Clause 9, remains  in force during delay beyond the control of the assured, any deviation,  forced discharge, reshipment or transshipment and during variation of the  adventure arising from the exercise of a liberty granted to ship owners or  charterers under the contract of affreightment.   

       The Division Bench of the High Court committed an error in holding  that the insurance policy stood terminated after June/ July, 1988 in terms of  clause 9 of the policy when the contract of carriage had terminated on  account of the unseaworthiness of the ship.  Even Respondent had not made  out any case to the said effect in the pleadings.  If the contract of insurance  did not terminate on its own, as was wrongly opined by the Division Bench  of the High Court, the question of any request for its extension did not arise.

       Undoubtedly, the contract of insurance was covered under Institute  Cargo Clause (C).  However, it included expressly the risk of non-delivery  of even single piece of log.  It included the risk of the vessel or craft being  stranded or grounded.  It also included the risk of institute theft pilferage and  non-delivery.   

       Yet again on 2nd March, 1988 and 11th March, 1988, evidently, the  scope of aforesaid policy was enlarged pursuant whereto or in furtherance  whereof further endorsements were made by paying additional premium, in  terms whereof the risk of non-delivery was specifically covered.  It will bear

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repetition to state that the vessel could not proceed from Singapore owing to  its unseaworthiness.  It was, thus, covered by the terms of the extended  terms of  insurance policy.  The Division Bench failed to consider this aspect  of the matter.

       Clause 1.1.2 included the risk of the vessel or craft being stranded or  grounded.  The word ’stranded’ is not a term of art.  The expression has also  been used in the Navy Act.   

       In Stroud’s Judicial Dictionary of Words and Phrases, Fifth Edition,  Volume 5, the word ’strand’ has been defined as :

"’Strand’ is a Saxon word, signifying a shore or  bank of a sea or any great river"

       In The New Lexicon Wesbter’s Dictionary of the English Language,  Volume 2, the word ’strand’ has been defined as:

"strand: 1. the shore of body of water (esp. of a sea  or lake). 2 to drive onto the shore/ to run (a boat)  aground/ to cause (someone) to find himself  accidentally and unwillingly held up on a journey  or left suddenly somewhere without resources, the  fog stranded passengers at the airport (esp. pass.)  to leave ashore when the tide goes out or water  level sinks, the whale was stranded."

       In P. Ramanatha Aiyar’s Advanced Law Lexicon, 3rd edition, page  4494, it is stated: "Strand. The word "strand" means the verge of the  sea, or of any river. Strand (Sax.) is any shore or bank of a sea or river.   Hence the street in the west suburbs of London,  which lay next the shore or bank of the Thames, is  called the Strand."

       In Black’s Law Dictionary, Fifth Edition, the word ’strand’ has been  defined as :

"A shore or bank of the sea or a river."           If the ship was stranded at Singapore and goods were offloaded from  it, Appellant must be held to have discharged its burden.  Findings of fact  were arrived at by the learned Single Judge on the basis of the pleadings of  the parties.  If a clause of Marine Insurance policy covers a broad fact, in our  opinion, it would be inequitable to deny the insured to raise a plea  particularly when the insurer being a State within the meaning of Article 12  of the Constitution of India is expected to act fairly and reasonably.  The  purport and object for which goods are insured must be given full effect.  In  a case of ambiguity, the construction of an insurance policy should be made  in favour of the insured and not insurer.   

       In Pushpalaya Printers, this Court held:

"\005Where the words of a document are  ambiguous, they shall be construed against the  party who prepared the document. This rule  applies to contracts of insurance and clause 5 of  the insurance policy even after reading the entire  policy in the present case should be construed  against the insurer\005"

       Section 60 of the Marine Insurance Act defines ’constructive total  loss’ in the following terms:

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"60. Constructive total loss defined.-- (1) Subject to any express provision in the policy,  there is a constructive total loss where the subject- matter insured is reasonably abandoned on account  of its actual total loss appearing to be unavoidable,  or because it could not be preserved from actual  total loss without an expenditure which would  exceed its value when the expenditure had been  incurred. (2) In particular, there is a constructive total loss-- (i) where the assured is deprived of the possession  of his ship or goods by a peril insured against, and (a) it is unlikely that he can recover the ship or  goods, as the case may be, or (b) the cost of recovering the ship or goods, as the  case may be, would exceed their value when  recovered; or (ii) in the case of damage to a ship, where she is so  damaged by a peril insured against that the cost of  repairing the damage would exceed the value of  the ship when repaired. In estimating the cost of repairs, no deduction is to  be made in respect of general average  contributions to those repairs payable by other  interests, but account is to be taken of the expense  of future salvage operations and of any future  general average contributions to which the ship  would be liable if required; or (iii) In the case of damage to goods, where the cost  of repairing the damage and forwarding the goods  to their destination would exceed their value on  arrival."

       The definition of "constructive total loss" contained in Section 60 is  not exhaustive.  The opening words of Section 60 of the Marine Insurance  Act are important.

       In Mukesh K. Tripathi v. Senior Division Manager, LIC and Others  [(2004) 8 SCC 387], this Court observed:

"The interpretation clause contained in a statute  although may deserve a broader meaning having  employed the word "includes" but therefor also it  is necessary to keep in view the scheme of the  object and purport of the statute which takes him  out of the said definition. Furthermore, the  interpretation section begins with the words  "unless the context otherwise requires". 40. In Ramesh Mehta v. Sanwal Chand Singhvi it  was noticed: (SCC p. 426, paras 27-28) "27. A definition is not to be read in isolation. It  must be read in the context of the phrase which  would define it. It should not be vague or  ambiguous. The definition of words must be given  a meaningful application; where the context makes  the definition given in the interpretation clause  inapplicable, the same meaning cannot be  assigned. 28. In State of Maharashtra v. Indian Medical  Assn. one of us (V.N. Khare, C.J.) stated that the  definition given in the interpretation clause having  regard to the contents would not be applicable. It  was stated: (SCC p. 598, para 8) ’8. A bare perusal of Section 2 of the Act shows

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that it starts with the words "in this Act, unless the  context otherwise requires \005". Let us find out  whether in the context of the provisions of Section  64 of the Act the defined meaning of the  expression "management" can be assigned to the  word "management" in Section 64 of the Act. In  para 3 of the Regulation, the Essentiality  Certificate is required to be given by the State  Government and permission to establish a new  medical college is to be given by the State  Government under Section 64 of the Act. If we  give the defined meaning to the expression  "management" occurring in Section 64 of the Act,  it would mean the State Government is required to  apply to itself for grant of permission to set up a  government medical college through the  University. Similarly it would also mean the State  Government applying to itself for grant of  Essentiality Certificate under para 3 of the  Regulation. We are afraid the defined meaning of  the expression "management" cannot be assigned  to the expression "management" occurring in  Section 64 of the Act. In the present case, the  context does not permit or requires to apply the  defined meaning to the word "management"  occurring in Section 64 of the Act.’"

       [See also M/s. Pandey & Co. Builders Pvt. Ltd v. State of Bihar &  Anr. 2006 (11) SCALE 665]

       Interpretation of ’constructive loss’ contained in Section 60 is subject  to any express provision in the policy.  The definition of constructive total  loss, therefore, as contained therein would be subject to any other clause  which may be in the policy.  The policy contained a clause which was not in  commensurate with the said provision.  We, in a case of this nature, have to  give effect to the terms of insurance.

       The Division Bench of the High Court has referred to Middows  (supra), which has expressly been reversed by the House of Lords in  Rickards v. Forestal Land Timber and Railways Co., Ltd. 1941 (3) All ER  62] wherein it was clearly held that the notice of abandonment can be given.

       In Halsbury’s Laws of England, Fourth Edition Volume 25, Reissue  2003, page 257, ’constructive loss’ has been defined as follows:

"Subject to any express provision in the policy,  there is a constructive total loss where the subject  matter insured is reasonably abandoned on account  of its actual total loss appearing to be unavoidable,  or because it could not be preserved from actual  total loss without an expenditure which would  exceed its value when the expenditure had been  incurred.  Whether these conditions as to  constructive total loss are or are not satisfied is in  each case a question of fact. In particular, there is a constructive total loss-- (1) where the assured is deprived of the possession  of his ship or goods by a peril insured against, and: (a) it is unlikely that he can recover the ship or  goods, as the case may be, or (b) the cost of recovering the ship or goods, as the  case may be, would exceed their value when  recovered;"

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       The likelihood of recovery must be judged in the light of the  probabilities as they would have appeared to a reasonable assured at the  moment when he knew of his loss and could have given notice of  abandonment. The former rule of law that a frustration of the venture by an  insured peril gives rise to a constructive total loss under a voyage policy on  goods, although the goods themselves are not damages, has not been altered.  [See Rickards (supra)]

       It is again undisputed that after the ship became unseaworthy,  Appellant took steps to recover the value of the cargo with a view to  minimize its loss due to non-delivery.  It, therefore, fulfilled its contractual  obligation in that behalf.  Sale of cargo was allowed by the High Court of  Singapore in suit No. 711 of 1989.  It was only at that stage, Appellant could  come to the conclusion that the cost of recovering and getting the cargo back  to Calcutta would cost more than if the sale was effected at Singapore.  The  cause of action arose then.  The learned Single Judge has taken specific note  of the said fact stating that Appellant had sought for advice of Respondent as  to whether the sale would go through at Singapore or in Calcutta by its letter  dated 12th August, 1989 which was marked as Ex. S, relevant portion  whereof reads as under:

"Local Sale in Singapore" On Solicitor’s request the Court has given  permission to dispose off the cargo in order to  minimize the loss in view of the deterioration in  quality of material.  Accordingly, the Solicitors  appointed M/s. Toplings, Recovery Agent, who  advertised the sale in newspapers and the best offer  received for the cargo consisting of 2300 CBM  now lying over there is U.S. $ 85,000.  Out of this  our share comes as under:

Total value offered for 2300 CBM = US$ 85,000.   Therefore, our shoare 85000 x 2057.73/ 2300 =  US$ 76,046.54

US$ 76,046.54 x Rs. 16.90 = Rs. 12,85,166.50

Whereas we have already paid Rs. 12,85,166.50  towards the consignment of 296 logs measuring  1268.99 CBM under the L/C and US $ 1,18,416/-  is still payable to the shipper against the  documents for 178 Logs measuring 789.74 CBM  received under the D.A.  Thus, there is a loss of  around over 30 lakhs while disposing the entire  consignment in Singapore.

To bring the Cargo to Calcutta for Sale in India:

To bring the cargo from Singapore to Calcutta for  sale in India, the position will be as under:

a)      Expenditure to be borne by insurance co.  towards freight and other charges like loading into  ship etc. at Singapore i.e. US $75/- per CBM i.e. 2057.73 CBM x US $ 75 $1,54,329.75 x Rs. 16.90 = Rs. 26,08,172.77

b)      Expenditure to be borne by us towards Duty  and clearing expenses i.e. Rs. 721/- CBM i.e.  2057.73 CBM x Rs. 721/- per CBM comes = Rs.  14,83,623.30

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Total  = Rs. 40,91,796.07

       The best price that we can get for the said  Cargo in Calcutta is Rs. 1942/- per CBM.   Therefore, the total sale realization will be as  under:

2057.73 x Rs. 1942 = Per CBM Rs. 39,95,700/-"

       In that view of the matter, Respondent was held to be entitled to get  credit thereof.  Clause 13 of the insurance policy was, thus, clearly attracted.

       Reliance has strongly been placed on a decision of this Court in Bihar  Supply Syndicate v. Asiatic Navigation and Others [(1993) 2 SCC 639 : AIR  1993 SC 2054] wherein this Court was dealing with a different fact situation.   In that case, the vessel in question was diverted to Vishakhapatnam along  with cargo where the repairs of the vessel were expected to be completed.   The vessel was, however, not repaired nor the wages of the crew members  were paid as a result whereof the ship was directed to be arrested.  It was in  the aforementioned fact situation opined:

"\005It is thus clear, after knowing the fact, that we  are dealing with a Marine Insurance Policy with  Institute Cargo Clauses (FPA) attached against the  Insurance Company, it is the duty of the plaintiff to  prove as a fact that the cargo was lost due to perils  of the sea. Since the finding of the High Court is  that no sea water entered in the engine room and  the fact that the cargo was intact even after the ship  was towed to Vishakhapatnam showed that no sea  water entered the ship and, therefore, the loss to  the plaintiff was not on account of perils of the sea  and the suit of the plaintiff against the Insurance  Company i.e. defendant 4 was rightly dismissed by  the High Court."

         The said decision cannot be said to have any application in this case in  view of the extended terms of policy.  Non-delivery of goods may be on any  account.  It need not always be a ’case of reasonably abandoned’.  The  meaning of the expression ’peril insured against’ would depend upon the  terms of the policy.  The policy was extended to a case where the costs of  transportation would be more than the value of the goods.  Marine Insurance  Act is subject to the terms of insurance policy.  Where the insurer takes  additional premium and insure a higher risk, no restrictive meaning thereto  need be given.  A term of the policy must be given its effect.  While  construing a contract of insurance, the reason for entering thereinto and the  risks sought to be covered must be considered on its own terms.

       When the entire case is based on a construction of insurance policy,  the question of adduction of any oral evidence would be irrelevant  particularly when the learned Single Judge gave due credit of the amount  received on auction of the goods under the orders of the Singapore Court.   The value of the cargo was known.  It is not a disputed amount.  Thus,  whatever has been recovered by way of sale of the said logs, the same has to  be credited for and Appellant should be held entitled only to the balance  amount.   

       What would, thus, be the meaning of the word ’possession’ under  Sub-section (2) of Section 60 of the Marine Insurance Act read with Clause  13 of the policy?  It is not the case of any of the parties that Appellant was

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given actual possession of the goods.  Unseaworthiness of vessel due to  which it became stranded as a result whereof the goods could not be  delivered to Appellant, in our opinion, would come within the meaning of  the expression "peril insured against".

       This leaves us to the question as to whether the exclusionary clauses  contained in the insurance policy are attracted.

       Respondent in its written statement did not raise such a contention.  It  was required to be specifically pleaded and proved by Respondent.  The  burden to prove the applicability of exclusionary clauses was on  Respondent.  Neither any issue has been raised, nor any evidence has been  adduced in this behalf.  It is also not a case that the servants of the assured  were privy to the unseaworthiness as provided for in Clause 5.5.1 of the  insurance policy.  There has been no evidence to that effect.  Even the said  provision has not been applied by the learned Single Judge.

       For the reasons aforementioned, the appeal is allowed and the  impugned judgment of the Division Bench is set aside and the judgment and  order of the learned Single Judge is restored.  Appellant shall be entitled to  costs throughout.  Counsel’s fees in this appeal assessed at Rs. 10,000/-.