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The story of what really happened to the Brillante Virtuoso

It is well known that Somali pirates are still active in the Gulf of Aden.  Also known as Pirates Alley, the Gulf of Aden is located in the Arabian Sea between Yemen and Somalia. However, over the past 8 years, questions have arisen over the fate of the Brillante Virtuoso and whether what happened to the Brillante Virtuoso was really an attack by Somali pirates or something else entirely, an insurance fraud orchestrated by the ship's owner. In a Judgment handed down on 7 October 2019, the High Court considered the story as a whole and considered in particular issues of wilful misconduct (or scuttling) and insured perils under a war risks policy of insurance.

The Brillante Virtuoso was sailing from Ukraine to China with a cargo of fuel oil when she was allegedly boarded by pirates off the Gulf of Aden on 5 July 2011. The pirates directed the vessel to Somalia but when the engine stopped and could not be re-started, they allegedly placed a detonator in the engine room causing a fire and huge damage to the vessel.

The events gave rise to a claim on the vessel’s war risks policy by Suez Fortune Investments Limited, the vessel's owner ("the Owner"), and by Piraeus Bank AE ("the Bank"), the vessel’s mortgagee. The vessel’s insured value was US$55 million plus US$22 million for disbursements and increased value. Thus the claim is for the sum of US$77 million on the basis that the vessel was a constructive total loss by reason of the damage caused by the fire.

In the first stage of the trial, in January 2015, Flaux J. determined that the vessel was, as claimed by the Owner and the Bank but denied by the underwriters, a constructive total loss under s. 60(2)(i) of the Marine Insurance Act 1906 as she was damaged by an insured peril and the cost of repairs would exceed the insured value of the ship when repaired.

In 2016 the Owner’s claim was struck out after Flaux J. had found that Mr. Iliopoulos, the sole or principal beneficial owner of Suez Fortune, had refused, in breach of a court order, to provide his solicitors with an electronic archive of documents and had lied to the court in an attempt to prevent the claim from being struck out.

The second stage of the trial, looked at the issue of the liability of insurers after the claim had been continued by the Bank. The Bank also had a mortgagee interest insurance policy and the underwriters of that policy have paid out and thereby claim to be subrogated to the Bank’s claim. The Bank retained an interest in the claim, being the difference between the sum said to be payable under the war risks policy, some US$77 million, and the sum paid out by the mortgagee interest underwriters, some US$64 million.

The dispute in this case was therefore largely between one set of underwriters and another set of underwriters. The war risk underwriters said that the vessel was “scuttled” in the sense that the fire was deliberately started with the agreement of the Owner (so that this was a case of “wilful misconduct” of the assured). The mortgagee interest underwriters, and the Bank, said that it was not. However, as a co-assured under the policy, the Bank would not be disabled from claiming under the policy even if the Owner was disabled from claiming by reason of his wilful misconduct. In order to make a successful claim the Bank had to show that the loss was caused by an insured peril. The burden of proving, on the balance of probabilities, a loss by a named peril lay upon the Bank. The burden of proving, on the balance of probabilities, wilful misconduct or scuttling lay upon the underwriters.

In a Judgment handed down on 7 October 2019, after a trial that took 52 days and heard from numerous witnesses of fact and expert witnesses, Mr Justice Teare ruled that war risk underwriters did not have to pay the Bank US$77million for the explosion aboard an oil tanker because the Owner had orchestrated a fake pirate attack in an attempt to commit insurance fraud. Mr Justice Teare pointed specifically to several matters (many of them improbabilities) which, when viewed collectively, "cogently suggest that the supposed attack by pirates was a fake attack". The chosen method of scuttling was said to involve the Owner in orchestrating an extraordinary set of events. The Bank had also submitted that the loss was caused by one or more insured perils (namely piracy, "persons acting maliciously" and/or "capture, seizure, arrest, restraint or detainment"). The High Court dismissed the Bank’s claim in this action and found that there was no loss by an insured peril.

In conclusion, it was found that the constructive total loss of Brillante Virtuoso was caused by the wilful misconduct of the Owner, Mr. Iliopoulos. In those circumstances the Bank was unable to establish that the loss was caused by an insured peril. The Bank’s claim was therefore dismissed.

This judgment establishes that underwriters’ initial scepticism about the claim and their later allegation of fraud against the Owner was entirely justified.

Contact

For more information please contact Jonathan Moss, Partner & Head of Marine & Trade  T+44 (0)20 7280 8875 Jonathan.Moss@dwf.law or Laura Segger Associate, T+44 20 7220 5215 Laura.Segger@dwf.law

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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