Does the Nordic Plan provide war risk cover when a vessel is detained because it has escaped from a law enforcement operation, and/or does the Nordic Plan provide war risk cover against perceived pirates? 'No' says a recent Norwegian arbitral award handled under the NOMA arbitration rules.
Introduction
A recent arbitral award rejected several insurance claims set forth against the Norwegian Shipowners' Mutual War Risks Insurance Association ("DNK") by the Owners of the vessel MV Heroic Idun following a nine-months detention in West Africa. The award is a valuable contribution to the understanding of the Nordic Plan, both with respect to the provisions that define the relevant war risks, and with respect to questions of general relevance, such as the general approach to the interpretation of the Nordic Plan.
The main question was whether the detention qualified as a war risk under the Nordic Marine Insurance Plan (the "Nordic Plan"). That question turned on the interpretation and application of Clause 2-9 which makes foreign state interventions "made for the furtherance of an overriding … political objective" a covered war risk. If this condition was met, the Owners would have been entitled to total loss compensation. The Owners also claimed cover for sue and labour (mitigation) costs. This latter claim depended on whether a perceived piracy attack could qualify as a war peril, namely as "piracy". The reason for this latter question arising, was that Heroic Idun's crew, allegedly, thought that they were under attack by pirates and therefore decided to escape. In reality, the Heroic Idun was approached by the Nigerian Navy on routine patrol.
The tribunal ruled in favor of DNK: The detention was not a war peril. The arrest and detention of the vessel and crew was made for the purpose of law enforcement to investigate suspicion of criminal offences. Further, measures taken against perceived war perils do not qualify for cover under the war risks insurance. Piracy means pirate attacks, and Heroic Idun was never attacked by pirates.
Advokatfirmaet Thommessen assisted DNK in this case, with a team consisting of partners Andreas Meidell and Henrik Møininchen, managing associate Vetle K. Nordstoga, and senior associates Helene Mauritzen and Emilie Gulbrandsen-Dahl. We shall in the following account for the key facts, the claims, and the arbitral award. However, we shall begin with our own high-level comments on the award and its significance. The arbitral award will be published in its entirety.
General observations and key takeaways
We will start off by setting out our own views on the arbitral award's points of general interest, before digging into further details.
First: The arbitral tribunal is clear that the interpretation of the Nordic Plan must be based on an objective approach. Such a starting point may not seem controversial. However, it is nevertheless of value that this rule of interpretation is underlined in arbitral practice. In particular because the tribunal couples the starting point with the observation that the Nordic Plan is an agreed document. Revision should therefore be done through, precisely, revision of the Nordic Plan itself, and not through expansive interpretation. The tribunal further underlines that considerations of reasonableness and fairness cannot displace a solution that follows from the wording itself. The tribunal also confirms the significance of the Commentary, in particular in cases when the Commentary provides clear interpretations of specific provisions. The significance of more general accounts may, however, vary.
Second: Clause 2-9 (1) (b) makes certain foreign state interventions a war peril provided that "any such intervention is made for the furtherance of an overriding national or supranational political objective". However, to delimitate the exact scope of cover based on this wording may be difficult: what is an "overriding" political objective, and what kind of "political objective" is relevant? The tribunal went into great detail delineating these terms. The Commentary provides some guidance by clarifying that the motive for the intervention must be typical for "times of international crisis" and that it can often be explained "by foreign policy considerations". However, neither these latter terms are entirely clear. By analysis of former arbitration and adjustment practice, the tribunal provided further guidelines. In particular, the tribunal emphasised the practically important rule that interventions made as part of law enforcement do not fall within the scope of Clause 2-9 (1) (b), which is also stated in the Commentary. Whether an intervention is made for law enforcement, is to be based on an assessment of the real (as opposed to the formally invoked) motives. It was reaffirmed that only motives that are typical for war or times of crisis are "overriding" and may give basis for cover under the war risks insurance. Ae example is a crisis due to hostile tensions arising between states, as we, unfortunately, have seen recent examples of. The tribunal also reaffirmed that piracy is not a times of crisis: While piracy is a rather long-lasting problem in Nigeria, measures taken by Nigerian authorities to combat piracy fall within the scope of police regulation and law enforcement, which in no case qualify as a war peril.
In our opinion, and with respect to the understanding of Clause 2-9 (1) (b), the greatest significance of the award is probably to find in its emphasis of the following: It is the specific intervention which is under scrutiny, that must be "made for the furtherance" of the motives accounted for above. Consequently, it is not sufficient to point at, somewhere in the facts surrounding the intervention, that e.g. a president has been involved, or that the intervention is based in statutory law which generally can be said to promote public safety or the similar. In order to trigger the war risk cover, this particular intervention has to be made for the furtherance of a relevant overriding political objective. In this particular case, the tribunal took the view that Heroic Idun had been detained as part of a law enforcement action, and not for the furtherance of relevant political motives. That a vice president had been involved in the detention, in and of itself, was not proof of anything else. Neither was it particularly relevant that the Gulf of Guinea has a piracy problem, because the piracy problem had little or nothing to do with Nigeria's intervention against Heroic Idun (but all to do with Heroic Idun's suspicious acts on 8 August 2022).
Third, while in our own opinion unsurprising, it is important that the tribunal rejected the possibility of granting war risk cover under Clause 2-9 (1) (d), or Clause 2-9 (1) (a), in a case which did not involve an actual peril, but a perceived peril, i.e. perceived piracy. If the Owners had been allowed to claim sue and labour (mitigation) costs on the basis of perceived piracy, it would not only extend the war risk cover substantially when compared to the wording of the Nordic Plan, but it would potentially open the door to significant claims based on a rather unmanageable evidentiary question, as the key trigger for cover would have been the crew's subjective perceptions.
It is also important to note that the tribunal did not simply accept the contended "Solglimt exception", which is discussed in the Commentary to Clause 2-9 (1) (a), and which concerns precisely a perceived war peril. Instead, the tribunal made a careful assessment of the Supreme Court's Solglimt decision, and the Commentary and its persuasive value, before reaching the (obiter dictum) conclusion that the Solglimt exception would have to be a very narrow exception, which in any case would not be applicable to piracy as a war peril.
Fourth, the arbitral tribunal dismissed the argument that the cover available under the Nordic Plan's rules on sue and labour may somehow be wider, because Clause 4-7 requires the sue and labour to be done on account on account of a peril which is covered under the war risk insurance ("on account of a peril insured against"). A perceived pirate attack was not accepted as a war peril, i.e. "piracy".
The award makes it clear that the war risk cover provided by the Nordic Plan does not provide cover for purely "political risks".
The key facts in brief
The very large crude carrier Heroic Idun entered the area of a Nigerian offshore terminal (an FPSO) in August 2022. The relevant charter parties had led Heroic Idun to the terminal to load a cargo of oil, but Heroic Idun never got as far as to load the cargo. On 8 August 2022, while drifting outside the terminal, Heroic Idun was approached by the Nigerian Navy vessel "Gongola". Gongola asked Heroic Idun over VHF radio if Heroic Idun was in possession of certain clearances, including naval clearance, which Heroic Idun responded that she did not have. Gongola then asked Heroic Idun to follow her wake, and that Heroic Idun would be released once the clearances were given. However, Heroic Idun's crew, allegedly, suspected that the approaching vessel was in fact a pirate vessel and not a navy vessel. Long story short: Heroic Idun disobeyed the Nigerian Navy's orders and escaped out of Nigerian waters. During the last part of the encounter, Heroic Idun transmitted piracy alarms against the Nigerian Navy on the VHF system.
Nigeria later asked the neighboring country Equatorial Guinea to arrest Heroic Idun, which the Equatoguinean Navy did in the Exclusive Economic Zone of São Tomé and Príncipe on 12 August 2022. Heroic Idun and her crew were thereafter detained in Equatorial Guinea for approximately three months. During that period, Equatoguinean authorities issued a fine of approximately EUR 2 million, and it appears that the country's Vice President was directly involved in handling the Heroic Idun case.
Mid-November 2022, Equatorial Guinea "transferred" Heroic Idun to Nigeria's custody, following a Nigerian request for extradition. Heroic Idun and her crew were then faced with criminal charges in Nigeria, and the charges were based on the events that had taken place in Nigeria on 8 August 2022. An arraignment hearing took place before Nigerian courts almost immediately after the vessel's arrival in Nigeria, where all crew members plead 'not guilty'. A trial date was then set, but the criminal trial was postponed pending the outcome of plea bargain negotiations initiated by the vessel's and crew's Nigerian lawyer. A plea bargain agreement that reduced the number and nature of the charges was reached in April 2023. The plea bargain further entailed, inter alia, an obligation for the Owners of Heroic Idun to pay USD 15,000,000 as "restitution" to Nigeria. Heroic Idun and her crew left Nigeria in end-May 2023, after having complied with the terms of the plea bargain.
The claim for total loss compensation
The most substantial of the Owners' unsuccessful claims was the USD 180,000,000 claim for total loss compensation. In brief, the claim for total loss was based on the allegation that the nine-months detention of Heroic Idun in Equatorial Guinea and Nigeria constituted a war risk pursuant to Clause 2-9 (1) (b) of the Nordic Plan, and that the Owners, therefore, were entitled to total loss compensation under Clause 14 of the insurance policy (mirroring Clause 15-11 of the Nordic Plan of 2013, version 2019).
The crucial question for the total loss claim was whether the detention of Heroic Idun was "made for the furtherance of an overriding national or supranational political objective" within the meaning of Clause 2-9 (1) (b) of the Nordic Plan. The Owners relied on the following alleged facts: Heroic Idun was captured and detained as part (or in the context) of West African states' fight against piracy and maritime crime; the capture, transfer and detention of Heroic Idun was effected by two foreign states in cooperation, of which especially one (Equatorial Guinea) had an interest in maintaining good diplomatic relations with the other (Nigeria); high-ranking officials of both countries were involved in the case; the initial capture was allegedly unlawful under public international law; and it was an overriding priority for Nigeria to make an example of Heroic Idun to demonstrate the state's ability to protect its waters. Hence, law enforcement could not be seen to reflect the real and underlying cause of the prolonged detention.
In DNK's view, the detention formed part of law enforcement (criminal prosecution). Heroic Idun had disobeyed orders and escaped from Nigerian waters when she was approached by the Nigerian Navy due to lack of necessary clearances, and Heroic Idun had incorrectly, during the escape from the Nigerian Navy, broadcasted over VHF that she was being attacked by pirates; all of which established legitimate prima facie criminal charges against Heroic Idun and her crew. The subsequent arrest and detention of Heroic Idun was part of Nigeria's law enforcement operation (the investigation and prosecution of potential crimes). That Equatorial Guinea was involved, did not deprive the detention its character of law enforcement: Cross-country requests for legal assistance and extradition are inherent parts of criminal procedure, and such procedures were necessitated by Heroic Idun's own decision to escape from Nigeria. That the detention was part of law enforcement, was evidenced by the charges and criminal proceedings initiated in Nigeria (which was eventually resolved by the plea bargain agreement). DNK argued that it follows clearly from the Nordic Plan, including its Commentary and established case law, that detentions forming part of such law enforcement are not interventions "made for the furtherance of an overriding national or supranational political objective." DNK also opined that the piracy threat in the Gulf of Guinea would not in any case amount to an international crisis, as required by the Commentary.
The tribunal fully supported the view taken by DNK.
First: The tribunal concluded that the Nigerian Navy's initial approach to Heroic Idun on 8 August 2022 was a routine operation due to lack of clearances. That the Nigerian Navy also, on a more general level, was tasked with fighting piracy and oil theft, did not alter that observation.
Second: Neither was Equatorial Guinea's capture of Heroic Idun on 12 August 2022 a war peril. Equatorial Guinea acted on Nigeria's request, and Nigeria's request had referred to a need to investigate the events that had taken place in Nigerian waters, making the capture on 12 August 2022 a prima facie law enforcement operation. None of the circumstances referred to by the Owners could rebut that observation: That high-ranking officials and governmental bodies, including the Vice President of Equatorial Guinea, had been involved, did not in itself mean that the detention was motivated by an overriding political objective. That the 12 August capture allegedly was in breach of public international law[1], and that Equatorial Guinea had political interests in maintaining good relations with Nigeria, did not take away the underlying purpose of law enforcement. Any such potential political aspects could not in any case be seen as "overriding … political" motives, by being typical for war or times of crisis.
Third, the tribunal considered if the continued detention of Heroic Idun in Equatorial Guinea triggered the war risk cover, and responded "no". That Equatorial Guinea may have taken the opportunity to abuse its power by levying an illegitimate fine upon Heroic Idun, and that the general procedure and treatment of Heroic Idun's crew were at odds with Scandinavian views on due process, were not sufficient to overshadow Equatorial Guinea's motive to assist Nigeria with its law enforcement operation.
Fourth: Neither the "transfer" of Heroic Idun and her crew from Equatorial Guinea to Nigeria was an intervention that triggered the war risk cover. Again, the tribunal held that the transfer (extradition) was part of Nigeria's law enforcement operation. That the transfer was not based on an established extradition treaty, that there might have been some procedural irregularities, and that Equatorial Guinea may have had other motives (as well), such as strengthening its relations with Nigeria, did not overshadow the law enforcement motive. Any such motives would, in any case, not be deemed as an "overriding … political objective".
Fifth: Neither was the continued detention in Nigeria motivated by objectives triggering the war risk cover under Clause 2-9 (1) (b). The tribunal's reasoning was, in large, the same as already accounted for with regard to the acts discussed above; the events in Nigeria on 8 August 2022 established a prima facie law enforcement purpose behind the Nigerian authorities' actions, and none of the circumstances referred to by the Owners could rebut that observation. Whether or not all charges would eventually hold up in court, was not decisive. Charges may fail at trial without this meaning that the case was not motivated by law enforcement purposes. Neither did a certain "overreach" by Nigerian authorities and their desire to set an example in a high-profile matter, including the USD 15,000,000 restitution payment made as part of the plea bargain, mean that the intervention against the vessel was not motivated by reasons of law enforcement, and would in any case not constitute an "overriding … political objective", as required.
Against this background, the tribunal concluded that the intervention against Heroic Idun was made for the purpose of law enforcement, and not overriding political objectives pursuant to Clause 2-9 (1) (b). The total loss claim therefore failed.
The Owners' additional claims - is perceived piracy a war peril under the Nordic Plan?
The Owners also set forth a long list of additional claims, some of which were said to come in addition to the claim for total loss compensation, while others were set forth as alternative claims. We will only elaborate on one point of general interest, which is whether the Owners could be entitled to compensation for sue and labour (mitigation) costs by fleeing away from perceived pirates.
"Piracy" is a war peril pursuant to Clause 2-9 (1) (d) of the Nordic Plan. However, the Owners argued that also perceived piracy can trigger war risk cover under Clause 2-9 (1) (d). If correct, it would entail a significant expansion of the war risk cover when compared to the ordinary understanding of the wording of the Nordic Plan. This argument, therefore, raised a question of general interest.
The Owners' position was in large parts based on the Commentary to Clause 2-9 (1) (a) of the Nordic Plan, and the latter's reference to the Norwegian Supreme Court's Solglimt case from 1921 (Rt. 1921 p. 424). The Solglimt concerned a ship that was eventually lost after the crew having abandoned it because they thought that they were under torpedo attack by German submarines during World War I. It was, however, never proved that Solglimt had in fact been attacked by torpedoes, and the Supreme Court rejected the claim against the war risk insurer. The Owners' argument was, inter alia, that the Commentary to the current Clause 2-9 (1) (a) suggested that the Solglimt case should have been resolved differently, a view which had also been suggested in legal literature.
The tribunal wholly rejected the Owners' argument, in line with DNK's position. The core of the tribunal's reasoning for rejecting the argument, was straightforward: Clause 2-9 (1) (d) refers to a named peril, namely "piracy", and perceived piracy would, on an ordinary understanding of the word "piracy", seem to fall outside its scope of cover. That argument was considered especially important for an agreement such as the Nordic Plan, which is an agreed document carefully discussed and agreed by industry representatives. To extend the scope of cover provisions (in a named risk policy), should, if at all desirable, be done during the revision of the Nordic Plan as such, and not through expansive interpretation by an arbitral tribunal. Consequently, perceived piracy was not covered under Clause 2-9 (1) (d) (or under Clause 2-9 (1) (a)). The tribunal also opined that the Commentary's reference and mentioning of the Solglimt case could not be cited in support of such wide-ranging conclusions on "perceived perils" as the Owners would appear to infer.
As an obiter dictum, on the presumption that the "Solglimt exception" discussed in the Commentary to Clause 2-9 (1) (a) could apply to piracy and Clause 2-9 (1) (d), the tribunal opined on what conditions would have to be met. (Presumably, these conditions would also have to be met to apply to exception in relation to Clause 2-9 (1)(a)). The tribunal opined that, first, the master and crew would have to have acted in good faith, having strong reasons to believe they were faced with a war peril and, second, they would have to be required to act urgently because of a significant and imminent risk, and therefore not have time to delay assessing the circumstances. The tribunal then concluded that these (hypothetical) conditions were not fulfilled in the present case.
It follows from the above that neither the Owners' claim under Clause 4-7 and 4-12 for costs of sue and labour measures could succeed. The reason being that Clause 4-7 requires the measures to have been taken on account of a "peril insured against", and perceived piracy is no such peril (see above).
Last, we mention that the tribunal clarified the following: In order to be recoverable as sue and labour costs under Clause 4-7, the costs must, inter alia, relate to (an attempt at) mitigating measures that are extraordinary. The point being that it is the mitigating measure that must be extraordinary; it is not sufficient that the situation is extraordinary. The assessment of whether the (potential) sue and labour measure is extraordinary, will have to be relative and it must be assessed in light of the situation as a whole. While this solution, in our own and in DNK's opinion, follows clearly from the wording of Clause 4-7, the tribunal was forced to opine on it because the Claimant argued that because the situation – with an (allegedly) unknown vessel approaching at night in a piracy prone area – was extraordinary, then the act of sailing away from the approaching vessel was extraordinary. The tribunal rejected the latter argument by saying that if Heroic Idun believed that she was under attack by pirates, then it would be reasonable and entirely ordinary for her to try and sail away from the approaching vessel. To sail away was in such a situation not an extraordinary measure.
