Gard Marine & Energy v China National Chartering - The Ocean Victory - Court of Appeal
Gard Marine & Energy Ltd (Respondents/Claimants) v China National Chartering Co. Ltd (Intermediate Charterers) and China National Chartering Co. Ltd v Daiichi Chuo Kisen Kaisha (Charterers/Appellants)- The “Ocean Victory”
English Court of Appeal: Longmore, Gloster and Underhill LJJ:  EWCA Civ 16: 22 January 2015:[]
Dominic Kendrick QC & David Goldstone QC (instructed by MFB Solicitors) for the Appellants (Daiichi Chuo)
Jeremy Russell QC & James Turner QC (instructed by Ince & Co LLP) for the Respondent (Gard)
Timothy Saloman QC (instructed by Winter Scott LLP) for the Intermediate Charterers (China National Chartering)
SAFE PORT: WHETHER COMBINATION OF ‘LONG WAVE’ SWELL AND A SEVERE GALE AN ‘ABNORMAL OCCURRENCE’: SUBROGATION: WHETHER INSURER OF BOTH PARTIES TO A BARECON CHARTERPARTY MAY SUE AN ASSURED FOR BREACH OF CHARTER
The Court of Appeal, reversing the judgment of Teare J in the High Court (fn.1) in favour of the Claimant, held that the port of Kashima in Japan was not an unsafe port and that, in consequence, the Defendant was not in breach of its safe port warranty in the relevant charterparty. The Court of Appeal also held, reversing the first instance decision, that, the demise charterers - at the ‘top of the chain’ - having paid for the hull insurance (for their own and the head owners’ benefit) - would not have been liable to the Claimant insurers for the loss of the vessel, had they been in breach of the safe port warranty in the bareboat charterparty. This meant that the demise charterers had no liability to pass down the line to the end charterers.
This note is based on a note on the case prepared by Michael Biltoo, David Perry and Mark Lloyd, solicitors at Waltons & Morse LLP, a firm of solicitors based in London, United Kingdom
Note: This decision has been upheld by the Supreme Court in its judgment of 10 May 2017:Link title
The “Ocean Victory” (the “Vessel”) had been lost trying to leave the port of Kashima in Japan. The loss of the Vessel gave rise to substantial claims, as follows:
US$ 88.5million in respect of the loss of the vessel (which was its agreed market value);
US$ 12 million in respect of the cost of salvage services; US$ 35 million in respect of the cost of wreck removal; and US$ 2.68 million in respect of loss of earnings.
The safe port issue
Kashima port in Japan is a large, man-made, modern day port, the construction of which began in 1969. In the words of the Court of Appeal, up until the date of the incident involving the Vessel, the safety record of the port had been “impeccable”.
The Vessel had been time chartered by its demise charterers to China National Chartering Co. Ltd, who in turn sub-chartered the vessel to Daiichi Chuo Kisen Kaisha (“Daiichi”) who had ordered the vessel to Kashima. Whilst she was there, on 24th October 2006, the port was exposed to swell from ‘long waves’ and, separately, to a very severe northerly gale. Consequently, the Master of the Vessel decided to leave the port. In doing so, the Vessel was driven onto the breakwater as she was trying to navigate the Kashima fairway, and lost.
Gard, the Vessel’s hull insurers, who pursued the claim as assignees of the head owners and the demise charterers, claimed that Daiichi were in breach of their safe port obligation. Daiichi argued that the combination of the weather phenomenon (the long waves and the northerly gales) was an ‘abnormal occurrence’. If that were the case, in accordance with the classic ‘safe port’ definition in the Eastern City  2 Lloyd’s Rep. 127 at 131 that:-
“A port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good seamanship and navigation”
Kashima would not be an unsafe port.
Teare J., the judge at first instance, was not persuaded by Daiichi’s arguments. He found that both of these features were (individually) characteristics of the port (albeit infrequent in the case of long waves) and that, because they might coincide, the combination of those features should not be regarded as abnormal. Accordingly, he found for the insurers.
The Court of Appeal Judgment
The Court of Appeal considered each weather phenomenon and decided that Teare J should not have considered each feature separately but rather what the combined effect of them was. In paragraph 55, the Court stated that Teare J. “failed to formulate the critical – and unitary – question which he had to answer: namely, whether the simultaneous coincidence of the two critical features … was an abnormal occurrence or a normal characteristic of the port of Kashima.”
Teare J. was then criticised for failing to take into account “significant factors such as the actual evidence relating to the past history of the port, the frequency (if any) of the event, the degree of foreseeability of the critical combination and the very severe nature of the storm on the casualty date.”
The Court of Appeal was clearly influenced by the fact that Kashima is a modern port with a “first-class safety record”. Therefore, whilst long waves might be foreseeable and, separately, northerly gales were also foreseeable, the Court of Appeal held that that was not enough. There were other factors which a Court or Tribunal must take into account when considering the abnormality of an occurrence, which Teare J. had failed to do. As the Court of Appeal stated in paragraph 59, “otherwise the consequences of a mere foreseeability test lead to wholly unreal and impractical results.”
Given that Teare J. had stated in his judgment that the combination of these two features was “rare” and given the good safety record of the port, the Court of Appeal was able to find, on the facts before Teare J., that the combination of these two features was an abnormal occurrence and, accordingly, that there was no breach of the safe port obligation. Daiichi’s appeal was therefore allowed in full.
The Recoverability Issue
There was a further argument run by Daiichi in the High Court which was unsuccessful before Teare J. but for which he gave permission to appeal. While it was unnecessary to determine the recoverability issue because of the Court of Appeal’s findings on the safe port issue, the recoverability issue had been fully argued and raised an important issue of principle.
The head owners had demise chartered the vessel to the demise charterers on an amended BARECON 89 Standard Bareboat Charter form and Clause 12 (fn.2 ) contained insurance and repairing terms providing for the demise charterers to take out insurance on behalf of themselves and the head owners.
Daiichi had argued before Teare J. that Clause 12 of the BARECON provided a ‘complete code’ so that there was an insurance funded solution as between the head owners and the demise charterers for the insured losses. If that were the case, then even in case of a breach of the safe port warranty, the head owners would claim on the insurance taken out by the demise charterers for the joint benefit of the parties and the insurers could not pursue a subrogated claim against their own insured (that is, the demise charterers). Gard argued that this was contrary to the express terms of the charterparty which undoubtedly contained a safe port warranty which, Gard said, had been breached.
It was also relevant that the alternative Clause 13 (fn.3) (which could be selected in place of Clause 12, but had not been selected in this case) expressly provided that the insurers would not have subrogation rights against the demise charterers where the head owners took out the insurance. Teare J. found in favour of Gard in the High Court. Again, Daiichi appealed.
The Court of Appeal Judgment
The Court of Appeal considered all the case law that had been referred to in the High Court, in particular Mark Rowlands Ltd v Berni Inns QB 211 and The Evia (No. 2)  2 A.C. 766. The Court of Appeal came to the conclusion that the general position was that:
“Thus even in a case where there was no provision for joint insurance but the insurance was paid for by the “guilty” party, the insurance was held to cover the liability of that party and no rights of subrogation existed. Clear words to exclude that possibility were not required, once it was evident that the insurance was intended to be for the joint benefit of the parties.”
In this case, the BARECON charterparty did provide for joint insurance and so that made Daiichi’s position even stronger. Applying this principle to Clause 12 therefore, the Court of Appeal found that it would be “nonsensical” if, where there are joint assureds, a party could then sue the other for breach of contract – “…the insurance is paid and the insurers are discharged from liability, the contractual scheme has been accomplished.” The Court of Appeal also took into account the additional circumstances in this case, namely that the head owners and the demise charterers were associated companies in the same group of companies and also that this was not a case of negligence.
It is also clear that the Court of Appeal was influenced by the BIMCO documentation which accompanied the introduction of the BARECON Charter 1989. The Court of Appeal explained the reason, as they saw it, why Clause 13 of the BARECON specifically provided that the owners/their insurers did not have the right of subrogation against charterers, but Clause 12 was silent on this point. It was because Clause 12 did not need to say anything – where there was joint insurance (as in Clause 12), there was, ipso facto, no right of subrogation. Indeed the Court of Appeal used the fact that Clause 13 explicitly stated that there was no subrogation to support their finding of the construction of Clause 12. Whilst the Court of Appeal acknowledged that there might be some problems which arise from this (as submitted by Gard), the Court found that this did not affect their construction of the charterparty. Accordingly the Court of Appeal also found in Daiichi’s favour on this aspect of the case.
The decision of the High Court in this case had surprised many. Kashima port, as the Court of Appeal had been keen to stress, was a modern day port with an excellent safety record. The view of many, including now the Court of Appeal, was that a more realistic picture of the safety of the port had to be looked at, rather than taking separate factors which would individually be characteristics of the port. The Court of Appeal was influenced by Daiichi’s example of an earthquake in San Francisco being foreseeable but, if it were to happen, it would not render San Francisco unsafe. The decision is one, in our view, to be welcomed.
As far as the recoverability issue is concerned, there was perhaps more debate about this aspect following the High Court’s decision. The Court of Appeal’s judgment will no doubt mean more debate about the construction of BARECON 89. However in our view, the Court of Appeal has made the right decision. In particular the fact that Clause 13 specifically states that there is to be no right of subrogation does, as the Court of Appeal found, support Daiichi’s position that neither is there to be any right of subrogation in Clause 12. Clause 13 makes clear that although the insurance is taken out by the head owners the demise charterers are also protected by the insurance. Those drafting BARECON 89 would not have seen any need to include a similar provision in Clause 12 because it is self-evident that a party taking out insurance for their own (as well as the head owners’) benefit cannot be liable to their own insurers.
The value of the claim and the issues raised means that an appeal to the Supreme Court may follow. We may not, therefore have seen the end of this matter yet.