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Web alert: ‘The critical combination’: what constitutes an unsafe port?

10 March 2015

The ‘Ocean Victory’ [2013] EWHC 2199 (Comm)

The safe port warranty in charterparties (time and voyage) offers an important protection to owners. It holds a charterer liable for any loss occasioned by their nomination of a port that is deemed ‘unsafe’. The classic definition of a ‘safe port’, which still holds true today, was given by a judge back in 1958. It is a port which ‘at the relevant time, the vessel can reach, use and return from without, in the absence of some abnormal occurrence, being exposed to dangers which cannot be avoided by good navigation and seamanship’.[1] The consistent and rigorous application of this classic definition has given clarity to a contentious area of the law.
 
On 24 October 2006 the Ocean Victory, a capesize bulk carrier laden with iron ore, lost control when leaving the port of Kashima during a severe gale. As the crew were airlifted out and the ship became a total loss, claims in excess of $135 million became the subject of intense legal scrutiny. Even beyond matters of quantum, this case was a remarkable maritime incident. A ship was dramatically lost whilst exiting a modern and purpose-built port (with an ‘impeccable’ safety record) under complicated weather conditions. The key issue became whether the charterer had breached their duty under the charterparty to nominate a safe port.

The owner claimed that the loss was occasioned by a lack of port safety procedures. Relying on the classic definition provided by The Eastern City, the owner submitted that, although Kashima was only prospectively unsafe for a capesize bulk carrier, the safety standard was rigorous enough to cover remote but prospective events. Though long waves and gale force winds had never previously coincided, here they had both occurred independently, the combination should not amount to an ‘abnormal occurrence’. There was a clear risk that ships such as this one would be advised to leave this port in bad weather, yet there was no system to ensure that they could do so safely. 
 
The charterer submitted that a port was safe even if it did not address every conceivable hazard. The charterer argued that emphasis should be on ‘reasonable safety’ and the taking of reasonable precautions. It was emphasised that the risk of a ship being trapped in this port by such weather was so remote that it would indeed be ‘isolated, abnormal or extraneous’. Therefore the lack of a specific procedure was ‘reasonable’ and the port was not ‘unsafe’.
 
English High Court 
 
Upholding the owner’s claim, the High Court judge confirmed that the legal authorities contained no ‘reasonable’ qualification.  The judge suggested that adding one now would present an ‘unwelcome and inappropriate measure of uncertainty in the meaning of the safe port warranty’. Whilst the safe port warranty is not absolute, it is not intended to be qualified by what is ‘reasonable’. The question remained ‘whether any dangers in a port can be avoided by good navigation and seamanship’.
 
The court found that, as the port of Kashima was regularly exposed both to long waves and to gale force winds, there was a genuine risk that both might occur at the same time. In those circumstances ‘… ordinary seamanship and navigation could not ensure a safe exit from Kashima… good luck [would be] also required’. Though unprecedented, the combined weather events of 24 October 2006 were not deemed sufficiently ‘fanciful’ to constitute an ‘abnormal occurrence’.[2]
 
It was also likely that the Ocean Victory would be required to leave port in such circumstances. There was no ‘system for ensuring that such advice [to leave port] was given only when it was safe’ to do so. Therefore, at the ‘relevant time’ it was unsafe for the charterer to have chosen Kashima as a port.

On Appeal 

The Court of Appeal criticised the High Court judge’s consideration of the two weather events as individual. The abnormal occurrence relied upon by the charterer was the combination of the two forces, which was indeed unprecedented. This abnormal occurrence became known as ‘the critical combination’.
 
The Court of Appeal asked whether it was unexpected that capesize ships would find it necessary to leave the port due to danger from a long-wave swell at the same moment as it became dangerous to transit the fairway due to gale force winds.
 
In reaching their conclusion, the court clarified the process for assessing the existence of an abnormal occurrence: ‘realistically, and having regard to whether the event had occurred sufficiently frequently so as to become a characteristic of the port’. In summary, the regularity of the events occurring in combination and the likelihood of a future repetition should both be evaluated. The regularity of each individual feature was not considered.
 
The Court agreed with the High Court judge that ‘the concurrent occurrence of those events was rare’ and that, consequently, the charterer should not be held liable. This conclusion was corroborated by the exceptionally rapid development of the storm, its duration and severity.

Conclusion 

The first instance decision was described as setting a ‘worryingly high bar’ for the defence of safe port claims. However, this high bar was not new. It has been consistently applied for several decades, providing clarity and exhaustive standards. In contrast, the extension of the ‘abnormal occurrence’ concept can only lead to blurred boundaries. The court presented ‘simultaneous coincidence’ as the critical feature in this case, but for all parties this criterion only creates more questions than it answers. For instance, how frequently do the component parts need to occur independently for their coincidence to be considered ‘expected’? Whilst it may seem harsh to hold charterers liable for unprecedented events in an otherwise safe port, it is also illogical to assume that an unprecedented coincidence will never occur, particularly if its component parts have occurred.
 
The quantum of damage in such cases makes it more than merely attractive to maintain a ‘high bar’, it makes it crucial for shipowners' commercial viability. It remains to be seen whether the owner and insurers of the ‘Ocean Victory’ will appeal this second decision to the English Supreme Court. Whilst the reasoning behind this judgement was strengthened by the truly exceptional nature of the storm, owners should be wary of a ‘critical combination’. Traditional protection offered by the safe port warranty has not been weakened, but the possibility of a charterer’s successful defence via the abnormal occurrence exception has been strengthened - at least for the time being. 
 
Members requiring further information on this topic should direct their enquiries to either their usual contact at the club, or to olivia.furmston@ctplc.com. The club wishes to thank Charlotte Baly for her assistance in preparation of this web alert.

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[1] The Eastern City [1958] 2 Lloyd’s Rep 127
[2] According to perhaps the most eminent English judge, Lord Denning, abnormal occurrences had to be ‘unconnected with the port set up’. His examples included a competent berthing master making an isolated mistake, ships being run in to by another ship, a spreading fire or when a hurricane strikes unaware. In short, there was a very high standard.