View source for Herculito Maritime Ltd v Gunvor International BV

DMC/SandT/21/08

'''England'''

'''Herculito Maritime Ltd v Gunvor International BV'''

'''English High Court: Teare J.: [2020] EWHC 3318 (Comm): 4 December 2020'''

Guy Blackwood QC and Oliver Caplin, instructed by HFW LLP, for the Claimant, Herculito

Stephen Hofmeyr QC and Mark Jones, instructed by Tatham & Co, for the Defendant, Gunvor International 

'''ARBITRATION ACT 1996 SECTION 69 APPEAL ON POINT OF LAW: VOYAGE CHARTER: WHETHER BILL OF LADING INCORPORATED CHARTERPARTY “CODE” REGARDING ADDITIONAL WAR RISKS PREMIUMS: WHETHER BILL OF LADING  HOLDERS LIABLE TO COMPENSATE SHIPOWNERS FOR LOSSES COVERED BY INSURANCE AGAINST PIRACY RISKS'''

Note: the judgment in this case was upheld by the Supreme Court in a decision dated 17 January 2024, a note on which is available here [[https://www.onlinedmc.co.uk/index.php?title=Herculito_Maritime_v_Gunvor_International_-_Supreme_Court_Decision_-_The_Polar]]

'''Summary'''

'''In this appeal on a point of law against an arbitration award, the English High Court allowed the appeal in finding that the bills of lading involved in the case did not incorporate the terms of the charterparty relating to an alleged agreement that all losses from piracy risks during the voyage were only to be covered by the insurance provider and were not recoverable from any other party.'''

Note: The decision in this case has been upheld by the Court of Appeal, in a judgment dated 1 December 2021: A Note on the Court of Appeal decision is here [[https://www.onlinedmc.co.uk/index.php?title=Herculito_Maritime_v_Gunvor_International_-_The_Polar]].

'''This case note is contributed by Wing So, a barrister at Sir Oswald Cheung’s Chambers, Hong Kong, and Distinguished Professor of Law at the China University of Political Science & Law in Beijing.'''

'''Background'''

The Claimant, Herculito Maritime Limited (“Herculito”), was the owner of the vessel  “POLAR”.  POLAR was engaged on a voyage from St Petersburg in Russia to Singapore with a cargo of fuel oil owned by the Defendant, Gunvor International BV (“Gunvor”), for which multiple bills of lading were issued.
POLAR was then unfortunately seized by Somali pirates while transiting the Gulf of Aden which was known to be exposed to piracy risks.  POLAR was only released after part of the cargo was extracted by the pirates, and payment of a ransom to the same.

Herculito made a claim against Gunvor for the ransom paid to the pirates as general average expenditure under the relevant bills of lading, on the grounds that these bills of lading had successfully incorporated certain terms in relation to additional War Risks premiums under the voyage charter.  Of particular relevance, the charterparty and the bills of lading contained the following terms:

(i)	Clause 39 of the charterparty provided (among other things) Herculito with the right to change the route or not continue with the voyage if POLAR were exposed to war risks.

(ii)	Another clause in the charterparty, known as the “Gulf of Aden clause” – see footnote 1  - provided (among other things) that all additional insurance premiums payable by Herculito for War Risks and Kidnap & Ransom risks would be for the charterer’s account.

(iii)	The bills of lading provided that the holders were to pay freight as per the charterparty, and they were also subject to “all terms and conditions, liberties and exceptions” of the charterparty.

The arbitration tribunal held that the proper construction of the aforementioned terms as a whole was such that the charterparty contained a “code” for the losses resulting from piracy risks in the Gulf of Aden area under which Herculito agreed to look only to their insurance provider to cover these losses and not claim any contributions from anyone else.  The tribunal further held that Clause 39 and the Gulf of Aden clause were both successfully incorporated into the bills of lading, and therefore the aforementioned incorporated “code” prevented Herculito from making the present claim against Gunvor.

Herculito obtained leave to appeal to the High Court under s69 of the Arbitration Act 1996. 

'''Judgment'''
	
Teare J allowed Herculito’s appeal.

The court first considered the question of whether Clause 39 and the Gulf of Aden clause were incorporated into the bills of lading.

The relevant principles for the incorporation of the terms of a charterparty into a billing of lading were summarised as follows, A court should first start by seeing whether the wording was wide enough to incorporate the terms in question, and the next stage would be to write those terms notionally into the bills of lading. Terms which were inconsistent with the terms of the bills of lading or inappropriate in the context of the bills of lading were to be deleted. Even if the relevant provision of a charterparty were directly germane to the loading, carriage and/or discharge of the cargo, there was no presumption, in and of itself, that the term would  be incorporated into the bills of lading by manipulating the language of the charterparty to make the incorporation work (such as reading “charterer” as “bill of lading holder”).  Rather, the question for the court remained to be whether it was “clear” that a particular term was intended to apply to the bill of lading contract or, in other words, there were good reasons to achieve such manipulation. However, if the relevant provision of the charterparty seeking to be incorporated was not directly germane as such, then there would usually be no good reason to incorporate the said term unless the language of the charterparty required no manipulation to fit into that of the bill of lading. That said, this process of determining whether the term of the charterparty being sought to be incorporated was inconsistent with the bill of lading had to be done intelligently rather than mechanically.

Applying these principles to the present case, one particularly relevant factor was the fact that the bills of lading provided that the holders were obliged to pay freight as per the charterparty. However, if one were to incorporate the Gulf of Aden clause (which included the charterer’s duty to pay insurance premiums) from the charterparty to the bills of lading by reading references to the “charterer” as “the holders of the bills of lading”, it would lead to the unusual conclusion that the bill of lading holders would now not only pay freight but also an additional sum for the insurance premiums. Given that the price payable by the bills of lading holders had already been defined as “freight as payable under the charterparty”, it was by no means “clear” that the price payable by the holders would then be increased to include the insurance premiums. Further, there was nothing to indicate how the insurance premiums would be apportioned between the various bill of lading holders.

The second issue considered by the court was whether the bills of lading gave rise to an exclusive insurance fund precluding Herculito from recovering from Gunvor a general average contribution in respect of any losses that fell within the insurances.

The relevant principles for this question were summarised as follows. Whether an insurance provision creates an insurance fund as the sole avenue for making good the relevant loss or damage (or in other words, a “code” governing as such between the parties) is in each case a matter of construction. In the event where a shipowner and a charterer agreed that one of them would be responsible for paying the relevant insurance premiums, the position at first impression (prima facie) would that they had agreed to look to the insurers for indemnification rather than to each other.

However, as applied to the terms of the bills of lading in this case, one strong factor influencing the court was the finding that the bills of lading did not indicate a duty to pay the insurance premiums.This was a “crucial component” that was missing and, as such, there was no basis to find that there was a prima facie position such that the parties agreed to look to the insurers for indemnification rather than to each other.

Accordingly, the court allowed the appeal against the arbitral tribunal’s decision and held that the contract of carriage contained in or evidenced by the bills of lading did not contain an agreement that Herculito was not to seek a contribution in general average from the holders of the bills in respect of the losses covered by the additional insurance taken out by Herculito.

'''Comment'''

Questions of incorporation of terms between the charterparty and the bill of lading typically concern arbitration or jurisdictional clauses. The present case serves as a relatively unusual example where this discussion is made in the context concerning “substantive” clauses such as War Risks/Kidnap & Ransom risks clauses.  The judgment provides an instructive example of the court’s reasoning process in workiing out whether substantive terms are incorporated from a charterparty into a bill of lading, clause by clause. This decision could provide some useful guidance not only for cases concerning incorporation of insurance terms but also other types of cases concerned with risk distribution.

Footnote 1:   The wording of the clause is as follows:

“Gulf of Aden Clause – For this CP only dated 20.09.10

In case the vessel for safety reasons is escorted by naval vessel(s) and/or restricted by daylight, and/or if a protection team and or any other protective measures is employed, all time used while awaiting escort and/or awaiting daylight and/or awaiting the protection team and/or awaiting implementation of protective measures to count at half time against used laytime or demurrage if vessel already on demurrage.

Furthermore if it is necessary for the vessel to follow a fixed route (way points) and/or to enter a convoy and/or to deviate to pick up/drop off a protection team and/or implement any other protective reasonable measure, and/or to deviate from the usual route, additional costs (including the costs of protection team and protective measures), time and bunkers used to be shared 50/50 between owners and charterers.

Any additional insurance premia (including, but not limited to, those in respect of H&M, Crew, P&I kidnap risks and ransoms), crew bonuses (which to be in accordance with the international standard) shall be for chrtrs account. Max USD40,000 for charterers account for any additional insurance premium except for crew bonus which to be max USD 20,00 for charterers account”.