The facts in the English High Court decision in Engelhart v Lloyds Syndicate 1221 (2018)2 Lloyds Rep. 24 should cause concern to anyone involved in the international carriage of goods by sea, whether as traders or insurers. Engelhart shows that to cover financial losses that do not result from physical loss or damage, the open cover cargo policy must contain clear words to that effect.

The claimant's first shipment of copper ingots to a consignee in China arrived but the second had never been shipped, and there was no cargo to be physically lost or damaged. The losses were therefore treated as economic losses due to the cargo owner's acceptance of fraudulent documents in the expectation that they covered physical goods.

Cargo interest's argument that physical loss claims included circumstances where an Assured had been defrauded into taking out documents of title for non-existent goods was not accepted.

Given the prevalence of cybercrime and the ease with which it appears to be possible to insinuate fraudulent documents into international trading and carriage of goodstransactions, it would be appropriate for insurers, insureds and brokers to review their policy wordings to ascertain whether they would be covered.

The need for heightened security and to use processes such as Blockchain are becoming ever more significant. Also, an international liability regime that permits paperless trade, such as the Rotterdam Rules, should be brought into international usage as a matter of urgency.

Stuart Hetherington, Partner, Colin Biggers & Paisley



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