CA-2024-000950 - [2025] EWCA Civ 1019

We were referred to one American case, Blaine Richards & Co Inc v Marine Indemnity Insurance Company of America 635 F.2d 1051 (1980), in which the meaning in a cargo policy of an exclusion for seizure and destruction of cargo under ‘customs regulations’ was considered. The cargo was detained upon arrival in the United States by the Food and Drug Administration because it had been fumigated with a pesticide widely used in Europe, but not approved by the FDA. The Court of Appeals for the Second Circuit held that the ‘customs regulations’ exclusion applied (it appears that no consideration was given to whether this was a detention pursuant to a quarantine regulation):

‘Although FDA regulations are not technically United States Customs Regulations, which are issued by the United States Customs Service pursuant to the Customs statutes set out in Title 19 of the United States Code, we believe that the phrase “customs regulations” in the War Risks policy should be construed in a reasonable manner which would give proper effect to the intentions and expectations of the parties. Therefore, detention due to regulations concerning imported food should be regarded as “customs regulations”.’

I agree with this approach. What matters is not whether the regulation in question is characterised as a customs regulation under the domestic law of the state in which the vessel is arrested, but whether it regulates matters which commercial people would regard as typically governed by customs regulations. In this way, proper effect is given to the reasonable intentions and expectations of the parties.

The same approach can be seen in the English cases concerned with clause 4.1.5 of the English Institute clauses.

In The Anita [1970] 2 Lloyd’s Rep 365 the vessel was seized in Vietnam pursuant to a law concerned with smuggling offences when large quantities of unmanifested goods were found hidden in a cavity behind the ship’s rudder. This was held to be a breach of customs regulations for the purpose of the war risks policy, even though the smuggling law was not part of the Vietnamese customs code. As Lord Denning MR put it:

‘The underwriters said that there was infringement of the Vietnam “customs regulations”. The shipowners denied it. I think the underwriters are clearly right. The words “customs regulations” must be given a businesslike interpretation. They cover the Customs code of 1931 which dates from the French regime. Also the special Decree No. 4/65 which was passed by the new regime in Vietnam to deal with emergency conditions. The regulations contained in it were plainly broken.’

Although it has sometimes been said in later cases, and it is said in Arnould, Law of Marine Insurance and Average, 20^th Ed (2021), para 24-43, that The Anita gave the words ‘customs regulations’ a wide meaning, I respectfully disagree. As I understand the decision, the Court of Appeal did not need to give these words a wide meaning. It simply gave them, in the context of a war risks policy, what it regarded as ‘a businesslike interpretation’, that is to say it interpreted the words as they would ordinarily be understood by business people, who would regard a regulation prohibiting and punishing smuggling as a customs regulation. Indeed, in The Kleovoulos of Rhodes [2003] EWCA Civ 12, [2003] 1 All ER (Comm) 586, para 38, Lord Justice Clarke echoed Lord Justice Fenton Atkinson’s comment in The Anita that he could ‘see no distinction between smuggling and infringement of customs regulations’, while smuggling was described by Lord Justice Christopher Clarke in The B Atlantic [2016] EWCA Civ 808, [2017] 1 WLR 1303, para 36, as ‘a paradigm case’ in which detention occurs because of an infringement of customs regulations.

The Kleovoulos of Rhodes was another case where the vessel was detained because of smuggling. It is valuable for present purposes because of what was said by Lord Justice Clarke about the approach to the construction of a clause such as clause 4.1.5 in the English clauses:

‘29. As just stated, the expression “customs regulations” must be construed in its context. Thus it must be construed having regard to its place in the contract as a whole and the contract must be construed having regard to the surrounding circumstances. The most important of the surrounding circumstances in this case seems to me to be that the Institute Clauses were drafted for use in insurance contracts throughout the world. It is common ground that they date from 1959 and that the present clause 4.1.5 is in the same form now as it was in 1959 except that the words “or trading” did not then appear in the clause. They were added when the Institute Clauses were reviewed in 1983.

30.

The Institute Clauses are intended for use in policies insuring vessels trading worldwide and wherever they are owned or managed. Thus there is no reason to construe them by reference to European as opposed to international practices. Equally I do not, for my part (and contrary to the respondents’ submissions), think it is appropriate to construe the expression “customs regulations” by reference to the English statutes which confer powers and impose duties on HM Customs and Excise. While they no doubt throw some light on matters which might be regarded as the subject of “customs regulations”, given that the Institute Clauses are intended to operate in an international sphere and that they are more likely than not to be used in cases which have no connection with England at all, English statutes of that kind do not seem to me to be of particular significance. The express provision that “this insurance is subject to English law and practice” does not have the effect that terms intended for use in an international context should be construed by reference to English statutes such as the Customs and Excise Management Act 1979 or the Misuse of Drugs Act 1971 or their predecessors the Customs and Excise Act 1952 or the Dangerous Drugs Act 1951.

31.

Similarly, it does not seem to me to be to be correct to approach the construction of the expression “customs regulations” in clause 4.1.5 by trying to ascertain the meaning of the word “customs” in an English legal dictionary, or indeed in English law and, having done so, by holding that “customs regulations” should be construed accordingly. To do so seems to me to run the risk of failing to construe the expression “customs regulations” in the context of the Institute Clauses.’

Applying this approach, Lord Justice Clarke concluded that:

‘41. Quite apart from the question whether The Anita gives the expression “customs regulations” a settled meaning, the construction of the term adopted by the court seems to me to be correct. In ordinary parlance I would describe customs regulations as including both regulations imposing duties and regulations prohibiting imports altogether. It seems likely that both might be drafted in the same way. Thus a regulation might provide that the import of goods is absolutely prohibited or prohibited unless duty at a certain rate is paid. It does not seem to me to make sense to construe “customs regulations” in clause 4.1.5 as including the latter but not the former because I can see no reason why the parties to an insurance contract of this kind should draw that distinction. In particular I can see no reason why the parties should agree to exclude a CTL arising from detention caused by the infringement of a regulation prohibiting the import unless duty is paid and not to exclude a CTL caused by detention caused by the infringement of a regulation which prohibits the import absolutely. Such a distinction seems to me to make no commercial sense.

42.

In all the circumstances I agree with the judge that, when construed in its context in the light of the principles identified above, the expression detainment “by reason of infringement of any customs or trading regulations” in clause 4.1.5 of the Institute Clauses includes both the above types of regulation. In short, it naturally includes regulations absolutely banning imports just as it includes regulations imposing import duties and any other construction would make no commercial sense in the context of the Institute Clauses.’

The same approach is equally applicable to exclusion 1(e) in the American Institute clauses.

Similarly in The Aliza Glacial [2002] EWCA Civ 577, [2002] 2 All ER (Comm) 39, a case concerned with the term ‘trading regulations’ in clause 4.1.5 in the English clauses, the critical question was how that term would be understood ‘in the ordinary language and understanding of commercial men’, so as to give it a ‘businesslike interpretation’: see paras 30 to 35. This approach was followed in The B Atlantic [2012] EWHC 802 (Comm), [2012] 1 Lloyd’s Rep 629, paras 22 and 23, where Mr Justice Hamblen said that the exclusions contained in clause 4.1.5 must be given a ‘businesslike interpretation in the context in which they appear’, in the light of the fact that the clauses are to be used worldwide and are intended to cover laws in force anywhere in the world without turning on niceties of local law.

Applying this approach, I would accept Ms Hopkins’ submission that ‘customs regulations’ in the American clauses’ exclusion 1(e) should be interpreted in the same way as the same words in clause 4.1.5 in the English clauses have been interpreted. Giving those words a businesslike interpretation, they refer to laws, however classified under domestic law, which regulate the import of goods into the territory of the state concerned, either by prohibiting such imports or by imposing a liability to make payment as a condition of importation.