The High Court has held that cargo owners were liable to pay a contribution in general average in respect of a ransom payment to pirates pursuant to the terms of the bills of lading. CJC London Trainee Christopher Chane summarises the outcome of Herculito Maritime Ltd and others v. Gunvor International BV and others (mv Polar)  EWHC 3318 (Comm).
The Vessel was seized by Somali pirates whilst transiting the Gulf of Aden in 2010 on a voyage from St Petersburg to Singapore. The Vessel was released the following year after payment of a US$7.7m ransom. General Average was declared, and Owners made a claim for contribution from cargo interests in respect of the ransom payment. The Cargo interests refused, and an arbitration was commenced.
The charterparty was on an amended BPVOY4 form with additional clauses, including a War Risks clause, an additional War Risks clause and an additional Gulf of Aden clause (providing that additional premiums for K&R cover to be for charterers’ account up to a maximum of U$40,000).
Cargo Interests’ subrogated insurers therefore argued that the charterparty terms incorporated by the bills of lading excluded their holders’ liability in respect of a GA contribution since it incorporated the clause-allocating liability for the payment of insurance premiums as between Owners and Charterers. The result of this was that Owners could only look to their insurers where the losses sought were covered under the insurances.
The Tribunal was asked to determine the following two preliminary issues:
- What terms of the charterparty were incorporated into the bills of lading?; and
- Did they, on their proper construction, provide Owners’ agreement to look solely to their insurance cover, and not to their counterparties under the bills of lading, in the event they suffered a loss covered by that insurance cover?
The Tribunal found in favour of Cargo Interests and Owners appealed under s69 of the Arbitration Act on two points of law:
- Whether the terms of the charterparty allocating responsibility for the payment of additional War Risk and/or K&R premia were incorporated into the bills of lading by the general words of incorporation?
- Does an agreement between a Shipowner and bill of lading holder concerning allocation of responsibility for payment of War Risks, H&M, and K&R premiums give rise to an exclusive insurance fund which precludes the Shipowner from recovering a GA contribution from Cargo Interests in respect of any losses suffered which are covered by the insurances?
In respect of the first question, the Court considered whether it was appropriate to substitute “Charterer” with “consignee of the cargo” or “bill of lading holder”.
- It held that charterparty terms that were directly germane to the loading, carriage and/or discharge of the cargo would usually be incorporated, but there was no automatic presumption of incorporation and this would depend on the particular term in question.
- The Judge decided that whilst an obligation to pay the insurance premiums was, in principle, directly germane to the carriage of cargo and therefore capable of incorporation, it was not appropriate, in this case, to substitute “Charterer” with “bill of lading holder”. In doing so, the Judge had regard to “(a) the express obligation of the bill of lading holder to pay freight… and (b) the absence of any indication in the bills of lading as to how much of the premium each holder was to pay or how apportionment of the premium between the holders was to be assessed”.
In regards the second question, the Court decided that whilst a joint insurance fund had been agreed between Owners and Charterers, it was not persuaded that any such agreement was reached between Owners and the holders of the bills of lading. Having resolved the first question, that “bill of lading holder” was not to substitute “Charterer” in the bills of lading, the Court held that the bills did not exclude holders’ liability in GA or in respect of other losses covered by the additional insurances.
Construing charterparty terms and their applicability to bills of lading when incorporated is often an important issue in determining contractual rights between owners and cargo interests. It has long been held that only those terms that are germane to the shipment as to be incorporated. This decision focussed on the application of war risk clauses contained in the charterparty to the bills of lading, in particular the effect of insurance provisions impacting the recoverability of general average from cargo interests under bills of lading. It is understood that the decision is being appealed so there may be further developments to come.