‘Blind Eye’ Knowledge

Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd and Others (H of L TLR 23 January)

Section 17 of the Marine Insurance Act 1906 provides: ‘A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party’. Section 39 of the Act provides: ‘(5) In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness’. The assured ship owners’ vessel had become a constructive total loss after an engine room fire as the result of what was admitted to be the vessel’s unseaworthiness. It was accepted that the owners did not have actual knowledge of the relevant unseaworthiness. But it was argued that the owners had a state of mind which was equivalent to knowledge: so-called ‘blind eye knowledge’. If the facts are there staring the assured in the face he cannot escape from being held privy to the unseaworthiness by blindly or blandly ignoring those facts or by refraining from asking relevant questions regarding them, in the hope that by his lack of inquiry he will not know for certain that which any inquiry must have made plain beyond possibility of doubt. The illuminating question therefore was ‘Why did he not inquire?’ If the judge was satisfied that it was because he did not want to know for certain, then a finding of privity should be made. If, on the other hand, he did not inquire because he was too lazy or he was grossly negligent or believed that there was nothing wrong, then privity had not been made out. The test was subjective: Did the assured have direct knowledge of the unseaworthiness or an actual state of mind which the law treated as equivalent to such knowledge?