Herculito Maritime v Gunvor International - The Polar

DMC/SandT/22/01

England

Herculito Maritime Limited v Gunvor International BV (The “Polar”)

Court of Appeal: Peter Jackson and Males LJJ and Sir Patrick Elias: [2021] EWCA Civ 1828: 1 December 2021

Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWCA/Civ/2021/1828.html

Guy Blackwood QC and Oliver Caplin (instructed by Holman Fenwick Willan LLP) for Herculito (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 PREMIUMS HAD BEEN ASSUMED TO ENTITLE THEM 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 POINT OF LAW

Note: the decision in this case has been upheld by a judgment of the Supreme Court, released on 17 January 2024, a note on which can be found here [[1]].

Summary

The Court of Appeal, in upholding the decision of the High Court, dismissed bill of lading holders’ appeal against their liability to contribute in general average to a ransom payment made to pirates who had seized the vessel whilst in transit in the Gulf of Aden. Although the Court held that the charterparty war risks clauses were incorporated into the bills of lading, they did not – as a matter of interpretation – exclude the bill of lading holders from liability to contribute in general average to the ransom paid to release the vessel and her cargo. Such a conclusion reflected the fact that both owners and the bill of lading holders were insured for piracy risks and the result meant each set of insurers would bear its proper share of the risk it had agreed to cover.

Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, 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 [[2]]

Judgment

Males LJ, who dismissed bill of lading holders/cargo interests’ appeal for the following reasons, delivered the judgment of the Court.

Without deciding the issue, the Court approached the case on the assumption that the Gulf of Aden clause – see footnote 1 – amounted to an agreement on the part of Owners that they would not seek a contribution from Charterers in general average. The reason for this was that, by agreeing to pay the insurance premiums (at least up to the cap of USD40,000), Charterers were entitled to the benefit of that insurance, even though they were not named as joint assureds under the policy.

The key question on the appeal was whether, by reason of the incorporation into the bills of lading of the charterparty war risks clauses, the bill of lading holders were similarly entitled, with the result that Owners could not seek a general average contribution from them.

Taking the process step by step, the Court found that the incorporating words in the bills of lading were wide, and were wide enough to include the additional war risks and Gulf of Aden clauses in the charterparty. However, it was doubtful whether they were wide enough to incorporate something that was not in the charterparty’s express terms taken as a whole. That was particularly so when the bills of lading were not intended to incorporate all the charterparty terms dealing with war risks, other than to the extent they were directly relevant to the carriage and the discharge of the cargo. On that basis, such an agreement had to be implicit based only on what the bills of lading did incorporate from the charter.

As the relevant charterparty terms were incorporated, the next logical question was whether those terms should be manipulated, to switch “chrtrs” to “bill of lading holders”, in order to impose the obligation to pay the insurance premiums on the bill of lading holders. The Court was not persuaded that such manipulation was required because there was nothing in the bills (or the charterparty) to say how liability for the premium would be apportioned between different bill of lading holders.

An individual bill of lading holder would want to know for how much of the premiums it was liable. It was by no means obvious that either each bill of lading holder should be jointly and severally liable for the full amount or that each bill of lading holder should be liable for a proportionate amount of the premiums, whether calculated by reference to cargo value or volume. The fact that neither the bills nor the charterparty addressed this question tended to suggest that it was not intended that the bill of lading holders were to be liable for the premiums.

That the relevant charterparty terms were incorporated into the bills on the one hand, yet seemingly had no effect on the other, placed the issue of their incorporation in doubt. However, the Court was of the view that the incorporation did serve a useful purpose. It made clear, even if only as a record of the terms agreed between Owners and Charterers, the basis on which the Owners had agreed in the bill of lading contracts that the voyage would be via Suez and the Gulf of Aden, instead of via the longer Cape of Good Hope route. That basis was that Owners would have insurance against the risk of piracy, albeit paid for by Charterers and not the bill of lading holders. Without the incorporation of these terms, the important issue of the vessel’s route under the bills would at best have been highly uncertain.

Turning to the ultimate question of the appeal, namely, whether the bills of lading excluded the holders’ liability to contribute in general average for the piracy ransom, then, if that were the case, they – and not Charterers – would be directly concerned with any general average contribution in the event of a ransom payment. On that basis, the holders submitted that Charterers could properly be regarded as paying the insurance premiums for the benefit of the bill of lading holders.

However, the Court did not accept this proposition. The risk of piracy and the potential need to pay a ransom were not only foreseeable but were foreseen by the parties to the bill of lading contracts and dealt with expressly by them. They knew that, if Owners were to allow their vessel to transit the Gulf of Aden, insurance against this specific risk would need to be taken out. They knew or could be taken to have known that payment of such a ransom would give rise to general average. It would have been straightforward in the circumstances, if that is what they intended, to say in terms that cargo was not to contribute in general average in the event of such a payment. But they did not do so, instead leaving an implicit understanding to this effect to be inferred (on the bill of lading holders’ case) by reference to complex arguments concerning the incorporation of charterparty terms into bill of lading contracts. That, to the Court, seemed an unnecessarily convoluted way to express a simple concept, which at least called into question whether that was what the parties intended.

In the Court’s view, there were no clear express words to rebut the presumption that Owners did not intend to abandon their right to a contribution from the bill of lading holders in general average and any “implicit understanding” was not so clear that the Court could be confident that it was what the parties intended, not least where Charterers were not necessarily paying the whole of the additional premiums necessary to obtain the cover required, given the limit of USD40,000 set out in the Gulf of Aden clause.

Further, the Court considered that there was no commercial imperative for the bill of lading holders’ interpretation, because both of the parties to the bill of lading contracts were insured. As such, neither Owners nor the bill of lading holders had a financial interest in the claim, such that Owners’ insurers’ subrogated claim against the bill of lading holders’ insurers for the contribution in general average was neither remarkable nor uncommercial, where both parties had been insured for the risk of piracy.

Accordingly, the Court concluded that the bill of lading holders’ appeal from the decision of the High Court should be dismissed.

Comment

This judgment, just like the High Court decision, undoubtedly comes to the right conclusion, based on the application of the general principles relevant to the issues in contention.

The rules of interpretation are applied restrictively to the incorporation of charterparty terms into bills of lading, encompassing only terms directly germane to performing the bill of lading contract.

It is usually the contractual carriers who seek to read charterparty terms incorporated into bills of lading more widely. However, there is no reason, in principle, to apply a different approach when it is bill of lading holders seeking to do so instead.

The Court of Appeal also appropriately recognised the commercial reality that cargo interests ordinarily obtain insurance for risks related to the carriage of cargo, including the liability to contribute in general average, making it inappropriate to saddle carriers’ insurers solely with the risk.

Footnote 1:

“Gulf of Aden Clause – … … 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”