Herculito Maritime v Gunvor International - Supreme Court Decision - The Polar
DMC/SandT/24/03
England
Herculito Maritime Limited v Gunvor International BV (The “Polar”)
UK Supreme Court: Lord Hodge, Lord Hamblen, Lord Leggatt, Lady Rose and Lord Richards: [2024] UKSC 2: 17 January 2024
Judgment Available on BAILII @ https://www.bailii.org/uk/cases/UKSC/2024/2.html
Guy Blackwood QC and Oliver Caplin (instructed by Holman Fenwick Willan LLP) for Herculito (Contractual Carriers/Owners)
Stephen Hofmeyr QC and Mark Jones (instructed by Tatham & Co) for Gunvor (Bill of Lading Holders/Cargo Interests)
BILL OF LADING: VOYAGE CHARTER: WHETHER BILLS OF LADING INCORPORATED CHARTERPARTY “CODE” BY WHICH CHARTERERS’ OBLIGATION TO PAY ADDITIONAL WAR RISKS INSURANCE PREMIA HAD ENTITLED THE BILL OF LADING HOLDERS TO THE BENEFIT OF THE WAR RISK INSURANCES: WHETHER BILL OF LADING HOLDERS LIABLE TO COMPENSATE OWNERS FOR CARGO’S PROPORTION OF GENERAL AVERAGE ARISING FROM PAYMENT OF RANSOM TO PIRATES: ARBITRATION ACT 1996 SECTION 69 APPEAL ON QUESTION OF LAW
Summary
The UK Supreme Court, in upholding the decisions of the High Court and the Court of Appeal, dismissed bill of lading holders’ appeal against their liability to contribute in general average to the ransom payment made to pirates, who had seized the vessel whilst she was in transit in the Gulf of Aden, for the release of the vessel and her cargo. Although the Gulf of Aden and War Risk clauses in the voyage charterparty were incorporated into the bills of lading, they did not – as a matter of interpretation – exclude the bill of lading holders from such a liability. This conclusion was based on the grounds that there was no insurance “code” or “fund” arrangement under the voyage charterparty as between the shipowners and the charterers, whereby the charterers, by reimbursing the owners for the war risk premia, became joint insureds under the war risk policies, with the result that the owners could not recover from them losses insured under those policies. Even if there such a code or fund, there was no necessity to manipulate/change the language of those clauses to substitute references to the bill of lading holders in place of the references to the charterers therein.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes
Background
The fuller facts and background to the case can be found in the background section of the High Court case note, which can be found here. The Gulf of Aden clause and the War Risk clause can be found at footnote 1 below. The voyage charter also included an amended version of the BPVoy 4 War Risks clause (clause 39), which can be found in the annex to the judgment accessible through the BAILII hyperlink given above.
Judgment
Lord Hamblen, who dismissed bill of lading holders’/cargo interests’ appeal for the following reasons, delivered the unanimous judgment of the Court. There were four issues before the Court, which were each addressed in turn.
(1) - Whether on the proper interpretation of the charter, and in particular the War Risk clauses and the additional Gulf of Aden clause and/or by implication the shipowner was precluded from claiming against the charterer in respect of losses arising out of risks for which additional insurance had been obtained pursuant to those clauses
In The Evia (No 2) (fn.2), Lord Roskill identified features which justified his conclusion that the shipowner and the charterer had agreed an insurance “code” or “fund” arrangement, at clause 21 of the Baltime charter, which precluded the shipowner from claiming insured losses from the charterer. Three of these were:
1. The owner had an unqualified right/absolute veto to refuse to accept orders for the vessel to go or to continue to any place or on any voyage or to be used in any service which would subject her to war and related risks;
2. The owner could, when required to do so by reason of an order to enter an additional premia War Risks area, insure the vessel and charge the premiums to the time charterer;
3. Notwithstanding the off-hire clause, the vessel was to stay on-hire in the event of loss of time due to loss or injury to the crew or their refusal to proceed to a war or related risks zone or to be exposed to such risks.
The Court considered that the terms of the voyage charterparty in this case were materially different to those of the Baltime charter in The Evia (No 2), such that the decision in that case could and should be distinguished. As such, that judgment provided no support for there being in the voyage charterparty a “code” or “fund” arrangement such as previously described. But the presence of such a “code” or “fund”, precluding the shipowner’s entitlement to claim against the charterer for any insured losses, was a prerequisite to enabling the bill of lading holders to argue that they too were protected by such a “code” or “fund” by reason of the incorporation of the voyage charterparty into the bill of lading contracts.
That was because the decision in The Evia (No 2) turned on the particular terms of the charter in that case. That judgment also did not purport to establish any general principle, nor did it do so. The Court considered that tribunals should, therefore, be cautious before concluding that the reasoning and decision in The Evia (No 2) should be followed in relation to charters on different terms.
In view of the decision on the first issue, the further three issues did not strictly have to be decided, because they assumed that there was a “code” or “fund”, but the Court, nevertheless, expressed its obiter (non-binding) views, given that the Court of Appeal had addressed the further issues on that assumed basis.
(2) - Whether all material parts of those clauses were incorporated into the bills of lading
Under this heading, the shipowner had argued that the parts of the war clauses which concerned the obligations for payment of insurance premia were not appropriate for inclusion in the bills of lading, since they were not directly relevant to the loading, carriage, and discharge of the cargo. However, the Court disagreed, for the same reasons as those given by the Court of Appeal, namely that those clauses were directly relevant to the carriage of the cargo because they related to the route to be taken by the vessel.
(3) - Whether on the proper interpretation of those clauses in the bill of lading and/or by implication, the shipowner was similarly precluded from claiming for such losses against the bill of lading holders
The Court indicated that if there were no manipulation of the wording of the incorporated clauses, then the obligation to pay the insurance premia remained on the charterer alone. If that were the case (as to which see issue four below), then an essential reason for holding that there was an insurance “code” or “fund” relevant to the bill of lading holders was inapplicable, since they would not have bought into or paid the price for the insurance “code” or “fund” arrangements.
Under such a “code” or “fund” the bilateral bargain made was that the parties (shipowner and charterer) would not look to each other to make good any insured losses. In that context, what necessarily followed in the charter context did not automatically transpose to the bills of lading context, since, in the absence of manipulation, they were on materially different terms. The result was, therefore, that absent manipulation, the shipowner would not be precluded from looking to the bill of lading holders to recover insured losses.
(4) - If necessary, whether the wording of those clauses should be manipulated so as to substitute for the words "the Charterers", the words "the holders of the bill of lading" in the parts of those clauses allocating responsibility for the payment of the additional insurance premia
The Court noted that, as a matter of principle, the manipulation of charter clauses incorporated by general reference into bills of lading was possible when necessary. But, in this case, the Gulf of Aden and War Risk clauses made perfectly good sense in the context of the bills of lading simply as a record of the terms upon which the shipowner had agreed to transit the Gulf of Aden, referring, as they did, to the charterer, who was to pay the insurance premia. As such, there was no necessity to manipulate the clauses in this case.
Accordingly, the Court concluded that the bill of lading holders’ appeal from the decisions of the High Court and the Court of Appeal should be dismissed.
Comment
This judgment, just like the High Court and the Court of Appeal decisions, undoubtedly comes to the right conclusion, based on the application of the general principles relevant to the issues in contention.
The discussion on the first issue notably – and most helpfully, given the current issues being grappled with on whether or not vessels are obliged to proceed via the Suez Canal, necessitating the transit of the Gulf of Aden/Bab-el-Mandab/Red Sea – approved the Court of Appeal decision in The “Product Star” (fn.3) and the ;obiter (non-binding) comments of Teare J at paragraph [17] in The “Paiwan Wisdom” (fn.4).
The result of those two judgments having been endorsed is seemingly that, in principle, where owners have agreed that the vessel will transit via the Suez Canal and charterers are to pay the additional War Risk insurance premia, if a different war risk materialised in the Gulf of Aden, or there were a change in the nature of the war risk or a change in the degree of the war risk sufficient to make it qualitatively different, compared to that at the time when the charter was fixed, then it may be that a CONWARTIME or similar clause could be lawfully relied upon by owners to refuse to proceed via the Suez Canal. But this would not be so if there had been no change in war risk between the time of fixing and that when the vessel had to proceed.
Footnote 1:
The “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 20,000 FOR CHARTERERS ACCOUNT.”
The “War Risk” Clause –
“ANY ADDITIONAL PREMIUMS PAYABLE BY OWNER IN RESPECT OF WAR RISKS UNDER THEIR POLICIES OF INSURANCE THAT ARE INCURRED BY REASON OF THE VESSEL TRADING TO EXCLUDED AREAS NOT COVERED BY OWNER'S BASIC WAR RISK INSURANCE SHALL BE FOR CHARTERER'S ACCOUNT. ANY BONUSES OR ADDITIONAL PREMIUMS PAYBLE (sic) BY OWNERS IN RESPECT OF THEIR CREW WHICH ARE DUE BY REASON OF TRADING TO SUCH EXCLUDED AREAS SHALL ALSO BE FOR CHARTERER'S ACCOUNT. FOR THE AVOIDANCE OF DOUBT IT IS AGREED THAT IF THE VESSEL IS BOUND TO ENTER AN EXCLUDED AREA IN ORDER TO ARRIVE AT THE LOAD PORT, OR IF THE VESSEL WILL HAVE TO STEAM AWAY FROM THE DISCHARGE PORT IN ORDER TO LEAVE AN EXCLUDED AREA THEN THE ADDITIONAL PREMIUMS AND BONUSES PAYABLE BY CHARTERERS SHALL INCLUDE THOSE PAYABLE FROM THE TIME THE VESSEL PASSES INTO THE EXCLUDED AREA INBOUND TO THE LOAD PORT AND UNTIL THE TIME THE VESSEL PASSES OUT OF THE EXCLUDED AREA OUTWARD BOUND FROM THE DISCHARGE PORT CALCULATED AT NORMAL SPEEDS AND PRUDENT NAVIGATION. SUCH ADDITIONAL PREMIUMS AND EXPENSES THAT ARE FOR CHARTERER'S ACCOUNT ARE PAYABLE BY CHARTERERS TOGETHER WITH FREIGHT AGAINST OWNER'S INVOICE SUPPORTED BY APPROPRIATE DOCUMENTS. IF SUCH DOCUMENTS ARE NOT AVAILABLE THEN SUCH ADDITIONAL PREMIUMS AND EXPENSES SHALL BE SETTLED NOT LATER THAN 2 WEEKS AFTER RECEIPT BY CHARTERER FROM OWNER'S INVOICE AND APPROPRIATE SUPPORTING DOCUMENTS. ANY DISCOUNT OR REBATE REFUNDED TO OWNER FOR WHATSOEVER REASON SHALL BE PASSED ON TO CHARTERER. ANY PREMIUMS AND INCREASE THERETO ATTRIBUTABLE TO CLOSURE MAX USD 20,000 CREW WAR BONUS FOR CHARTERERS ACCOUNT.”
Footnote 2: [1983] 1 AC 736 (H.L.)
Footnote 3: [1993] 1 Lloyd’s Rep. 397 (C.A.)
Footnote 4: [2012] EWHC 1888 (Comm), [2012] 2 Lloyd’s Rep. 416
