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Web Alert: The Ocean Victory – Supreme Court Decision

12 May 2017

The UK Supreme Court has upheld the Court of Appeal’s ruling in The 'Ocean Victory' (Gard Marine and Energy Limited v China National Chartering Company Limited and Daiichi Chuo Kisen Kaisha (2017)) that the port of Kashima in Japan was legally safe.

The Facts

The 'Ocean Victory', a capsize bulk carrier, was discharging iron ore at Kashima in October 2006 but had to leave the berth because of long waves that were affecting the port. The vessel encountered gale force winds at the port entrance and subsequently ran aground, broke apart and was deemed a total loss. Losses amounted to some US$ 170 million.

High Court Decision and Appeal

The trial judge held that the port was unsafe and so charterers should bear the losses because it was well known that Kashima was often affected by long waves and/or gale force winds and there was no system in place to allow the vessel to safely leave. Therefore, the charterers’ defence to the claim that the event was an 'abnormal occurrence' – one of the key legal defences open to charterers – failed. 

The Court of Appeal criticised the trial judge’s consideration of the two weather events individually. Instead, the court held that the likelihood of the events happening in combination had to be assessed and looked at whether it was unexpected that capsize ships would find it necessary to leave due to the two events happening at the same moment. On the facts, the court held that the combination of events was not characteristic of the port and reversed the decision.

The Supreme Court Decision

The Supreme Court dismissed owner’s appeal and held that the port was indeed safe. The Court re-affirmed the legal test for what makes a port unsafe as set out in The 'Eastern City' and agreed that one must look at the frequency of the events happening in combination when assessing whether they were an abnormal occurrence, not individually. Therefore, charterers were not in breach of their safe port warranty.

Comment

Although charterers were able to rely upon the ‘abnormal occurrence’ defence in this case, members should bear in mind that the burden of proof is on charterers to prove their defence and the legal bar to overcome is a high one. Therefore, the traditional protection offered by the safe port warranty has not been weakened, but the possibility of a charterer having a successful defence via the abnormal occurrence exception remains open in the right situations and should be assessed on a case by case basis.

The Court also ruled upon two other issues that will be of interest to members.

Firstly, they held that a registered owner could not look to recover such losses from a bareboat charterer where the owner could instead recover from their insurers. Therefore, disponent owners cannot make a recovery from time/voyage charterers for breach of a safe port warranty when they themselves are bareboat charterers of the vessel.

Secondly, the court also upheld the decision in The 'CMA Djakarta' which held that charterers are not able to rely upon 1976 Convention on Limitation of Liability for Marine Claims. Therefore, if owner’s claim had succeeded, charterer’s would have been liable for the total loss value of the vessel.

This article intends to provide general guidance on the issues arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. Members requiring further information on this topic should direct their enquiries to either their usual contact at the club, or to the authors of this article.

Defence cover is, by its very nature, discretionary in that the club must be satisfied as to the merits and quantum of the claim in question and the likelihood of achieving a successful outcome, if it is to lend support.

 

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[1] [1958] 2 Lloyd’s Rep 127

[1] [2004] 1 Lloyd’s Rep. 460