Christian Dwyer Global Head of Admiralty
Cargo owners liable to pay contribution in general average in respect of ransom payment to pirates
Herculito Maritime Ltd and others v. Gunvor International BV and others (mv Polar)  EWHC 3318 (Comm)
The Court has held that, pursuant to the terms of the bills of lading, cargo owners were liable to pay a contribution in general average in respect of a ransom payment to pirates. While the insurance provisions of the underlying voyage charterparty meant that the shipowners had agreed to look solely to their insurers in respect of additional War Risks and Kidnap and Ransom premiums vis a vis the charterers, the terms of this exclusive insurance fund arrangement had not been incorporated into the bills of lading and did not, therefore, exclude the bill of lading holder’s liability in general average.
The background facts
In 2010, whilst transiting the Gulf of Aden on a voyage from St Petersburg to Singapore carrying fuel oil, the vessel was seized by Somali pirates and held for ransom. The vessel was eventually released in August 2011, following the payment of a US$ 7.7 million ransom. General average (GA) was declared, cargo underwriters provided a GA guarantee, cargo owners provided a GA bond and subsequently a GA adjustment was issued. The vessel’s Owners made a claim for a GA contribution in respect of the ransom payment but the cargo interests refused to pay and the dispute went to arbitration.
The underlying voyage charterparty was on an amended BPVOY4 form with additional clauses. It contained a long War Risks clause, together with an additional War Risks clause (with additional premiums to be for charterers’ account) and an additional Gulf of Aden clause (with additional premiums for Kidnap & Ransom cover to be for charterers’ account up to a maximum of US$40,000). The terms of the charterparty, therefore, allocated responsibility for the payment of insurance premia as between the Owners and the Charterers. The bills of lading contained a generally worded incorporation clause purporting to incorporate all terms and conditions, liberties and exceptions of the charterparty as identified on the bills. No charterparty was identified on the bills but it was common ground between the parties that the voyage charter terms were incorporated.
The tribunal was asked to determine, by way of preliminary issues, whether the bills of lading excluded their holders’ liability in respect of a GA contribution because they incorporated the “exclusive insurance fund” found in the charterparty, with the result that the Owners could only look to their insurers where the losses they sought to recover were covered by the insurances. The tribunal found in favour of cargo interests. The shipowners appealed.
The Commercial Court decision
The Court allowed the appeal.
The Court considered which terms of the charter party had been incorporated into the bills of lading. Specifically, had the clauses dealing with responsibility for the payment of additional War Risk and/or Kidnap & Ransom premia been incorporated by the general words of incorporation?
As a general rule, charterparty terms that were directly germane to the loading, carriage and/or discharge of the cargo would be incorporated, but there was no presumption of incorporation and it would depend on the particular terms of the contracts in question whether manipulation of the wording or substitution (i.e. substituting “charterers” with “bill of lading holders”) would be appropriate.
Whilst the Court found that the obligation to pay for the additional insurance premia was “directly germane” to the carriage and delivery of the cargo, it concluded that it would not be appropriate, when reading the terms of the relevant clauses into the bills of lading, to substitute the “holders of the bills of lading” for “the Charterers”.
This was on the basis that the bills expressly obliged the holders to pay freight as the price of the carriage of the goods to destination and it was unlikely that they would have accepted liability for such additional sums that would be unknown and unlimited. Clear words would be needed to impose such an obligation on them. Further, it was unclear how the liability to pay such additional expenses would be apportioned among different bill of lading holders where there was more than one. The fact that these questions were unanswered by the terms of the bills indicated that it would not be appropriate to manipulate the clauses so as to impose on the holders a liability to pay the additional insurance premia.
The Court then considered the consequences of the insurance provisions in the charterparty both as between the Owners and the Charterers and also as between the Owners and the bill of lading holders. The Court agreed with the tribunal that the terms of the charterparty meant that the Owners and Charterers had agreed to an arrangement whereby the Charterers paid the additional insurance premia and, in return, the Owners agreed to look solely to their insurers in respect of losses covered by the insurance, including their claim in GA. This made sense because otherwise there would be no benefit to the Charterers in agreeing to pay the additional premia.
However, disagreeing with the tribunal on this point, the Court concluded that this insurance “code” did not extend to the position between the Owners and the bill of lading holders. On the basis that the latter had not agreed to pay the additional insurance expenses, it could not be said that the bills imported an agreement that the Owners would not seek a contribution in GA from the holders. On their true construction, therefore, the bills did not exclude the holders’ liability in GA or in respect of other losses covered by the additional insurances.
This case is of interest because the Court considered for the first time whether and to what extent war risks clauses and similar provisions in a charterparty are incorporated into a bill of lading. It also considered the novel issue of the effect of charterparty insurance provisions on claims in general average against bill of lading holders. In deciding which charterparty provisions were incorporated into the bills of lading, the Court applied the rules of construction “intelligently and not mechanically”.
The decision is a reminder that owners should ensure that their contractual arrangements accurately reflect the way in which the parties intend risk to be allocated for piracy losses.
This decision is being appealed.
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