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Court construes in-transit loss clause in voyage charterparty

News / / Court construes in-transit loss clause in voyage charterparty, Court construes in-transit loss clause in voyage charterparty

Trafigura Beheer BV v. Navigazione Montanari Spa (Valle di Cordoba) [2014] EWHC 129 (Comm)

The Commercial Court has recently considered the meaning of the expression “in-transit loss” in a voyage charterparty.

The Valle di Cordoba was attacked during the voyage by pirates, who forced the crew to transfer some of the motor oil cargo onto a lightering vessel and stole it. The Court held that the transferred cargo was not “in-transit loss” or “lost cargo” within the meaning of the in-transit loss (“ITL”) clause in the charterparty. So the owners were not liable for the loss. The Court further held that, if it was wrong on this, the Owners could nonetheless rely on the protection of the charterparty exceptions clause, which incorporated the Hague-Visby Rules exceptions.

Ince & Co acted for the successful Owners. The decision is important because of the nature of the alleged in-transit loss that was claimed. In addition, if the Owners had been held liable, they would have lost their P&I cover because of the standard provisions in Club rules, providing that Club cover is lost if owners agree to a regime that is more onerous for them than the Hague-Visby Rules regime.

The background facts

The Valle di Cordoba was chartered for the carriage of a consignment of premium motor oil from Abidjan, Cote d'Ivoire to Lagos, Nigeria. Having tendered NOR on arrival offshore Lagos, the vessel sailed to a position about 55nm south-west of Lagos and awaited the Charterers' orders. The vessel was then attacked by pirates, who arranged for an STS transfer of some 5,300 mts of the cargo to an unknown lightering vessel that then departed with the cargo. The Valle di Cordoba was later released by the pirates and the remaining cargo was discharged. The Charterers claimed against the Owners for the value of the transferred cargo.

The charter was on a Beepeevoy 3 (“BP3”) form plus Trafigura Chartering terms of 1 August 2005. The Charterers brought their claim under clause 4 of the Trafigura terms, the ITL clause, which provided as follows:

In addition to any other rights which Charterers may have, Owners will be responsible for the full amount of any in-transit loss if in-transit loss exceeds 0.3% 0.5% and Charterers shall have the right to deduct from freight claim an amount equal to the FOB port of loading value of such lost cargo plus freight and insurance due with respect thereto. In-transit loss is defined as the difference between net vessel volumes after loading at the loading port and before unloading at the discharge port."

The charter terms provided for payment of freight to be made less any sum derived from the operation of certain of the Trafigura clauses, including the ITL clause; a Clause Paramount; and an exceptions clause which, among other things, gave the Owners the benefit of the Hague-Visby Rules exceptions.

The Judge had to decide whether the transferred cargo was an “in-transit loss” or “lost cargo” for the purposes of the ITL clause and, if it was, whether the ITL clause imposed strict liability on the Owners in respect of the transferred cargo or whether the exceptions clause applied to exclude that liability (it being accepted by the Charterers that if the Hague-Visby Rules applied, the Owners would have no liability).

The Commercial Court decision

The Judge found in favour of the Owners. In his view, the ITL clause defined how the amount of in-transit loss is determined, rather than specifying the kinds of loss that qualify as in-transit loss. Ascertaining any short delivery in the bulk carriage of oil was difficult because there is no absolutely correct measurement. The practice in the oil trade is to make allowances of about 0.5% to account for discrepancies that invariably take place when measurements are made. In-transit loss clauses were designed to reflect this by stipulating a cut-off point above which differences in volumetric measures could not simply be explained as reflecting the normal incidents of carriage for which owners would not be liable.

Against this commercial background, the Judge ruled that the expression “in-transit loss” means loss that is incidental to the carriage of oil products and does not extend to losses such as those caused by the action of pirates. The Judge recognised that the limits of in-transit loss were not precisely defined. Uncertainties could arise in some cases about whether particular losses would fall within the expression as a matter of general trade usage. He did not, however, have to examine those uncertainties in this case as he considered that loss from the pirates' activities was clearly not covered.

Even if he was wrong on that, the Judge held that the Owners were nonetheless entitled to the protections afforded to them by the exceptions clause and the Hague-Visby Rules incorporated into the charterparty. He rejected the Charterers' argument that the ITL clause made the Owners strictly liable for loss of cargo. It was highly unusual for owners to accept absolute liability for cargo loss in a charterparty. Furthermore, given that the Owners would have the benefit of the Hague-Visby Rules exceptions if sued under the bills of lading, it did not make sense that they should be under an absolute liability if sued instead by the Charterers under the charterparty. The Charterers' interpretation of the ITL clause would have surprising results: the Owners would be strictly liable only in respect of differences between vessel measurements after loading and before discharge. This would mean, among other things, that the Owners would be strictly liable for loss of cargo, but not for damage to it. The Judge concluded that the parties could not have intended to agree to a term under which strict liability would give rise to “inconsistencies and absurdities”.

The Owners' responsibility was, therefore, subject to the exceptions clause, which provided that the Owners were entitled to the protection of the relevant articles in the Hague-Visby Rules “in respect of any claim made” under the charterparty. There was no good reason to limit the natural meaning of “any claim” by excluding claims under the ITL clause.

Comment

Whilst this decision does not determine the kinds of loss that will qualify as in-transit loss, it is helpful in indicating that such loss is likely to be confined to loss that occurs as a direct result of the transit during the course of a routine or ordinary voyage.

The Charterers have obtained leave to appeal. We will report on the outcome of the appeal hearing in due course.

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