The plaintiffs were mortgagees of the Alexion Hope. As such, they were the assignees of the benefit of the hull and machinery policy on the vessel. The ship was lost by fire. The hull underwriters sought to defend the plaintiffs’ claim on the ground that the fire had been deliberately caused by the shipowner. The prospect of a trial against the hull underwriters loomed. Thereupon, the plaintiffs sought an order on preliminary issues against the defendants, their mortgagee’s interest underwriters, taking the view that, if they could recover under their mortgagee’s interest insurance, then the plaintiffs need not continue with an action against the hull underwriters. This required an interpretation of the mortgagee’s interest insurance.

The crucial issue was to establish the effect upon the mortgagee’s interest cover of a refusal by the hull underwriters to pay for a constructive total loss of the vessel on the ground that it was attributable to the wilful misconduct of the owner. This question arose because the mortgagee’s interest insurers sought to defend the claim against them on grounds similar to those raised by the hull underwriters, namely, that on the true construction of the policy, a loss caused by the wilful misconduct of the owner fell outside the cover.

That cover was contained in a contract composed of a “mortgagee’s interest clause”, translated from an original Swedish example (Sweden being the country in which such cover first evolved), coupled with the standard Lloyd’s SG Policy. The “mortgagee’s interest” clause laid down the following “conditions of insurance”: