Case law: Herculito Maritime Ltd and Others v Gunvor International BV and Others (The “Polar”) – Court of Appeal [2021] EWCA Civ 1828

General average – Piracy – Owners seeking to recover ransom payment from bill of lading holders

This is a Court of Appeal decision following the cargo interests’ appeal of the Commercial Court decision that was issued in 2020 in favour of the owners. The main question was whether the cargo interests were liable to contribute towards general average (GA). The club’s summary on the Commercial Court decision, including the background facts, can be found here.

On appeal, the cargo interests argued that:

1. the owners’ agreement in the charterparty to claim exclusively under their insurance for the costs incurred following a seizure by the pirates was incorporated in the bills of lading; and,
2. if necessary, the terms of the bills of lading should be manipulated to impose an obligation on the cargo interests to pay jointly and severally any additional premium for the level required by the charterers.

On the other hand, the owners argued that:

1. the term in the charterparty only amounted to an agreement by owners not to seek contribution for GA from the charterers; and,
2. if the owners intended to waive their right for contributions under GA from another party, clear words of intention were required.

Court of Appeal decision

The Court of Appeal found in favour of the owners and dismissed the appeal. It held that:

1. the incorporation of the terms of the charterparty into the bills of lading is a question of construction and business common sense must be applied;
2. although the term obliging charterers to pay for the K&R premium was directly relevant to the contract of carriage and therefore would be incorporated in the bill of lading, it would not justify a manipulation such that it would extend owners’ agreement to waive rights to claim a GA contribution from cargo owners; and,
3. in the absence of express words rebutting the presumption that the owner did not intend to abandon its right to a contribution from the cargo owners in GA meant that the cargo owners and their insurers could not escape liability for a risk they had assumed.

Comment

The decision provides a useful reminder on the courts’ approach to the incorporation of charterparty terms into bills of lading.  The approach will depend on the terms incorporated and the facts of each individual case, but some of the key issues to consider include:

1. Whether there was an express agreement in the bill of lading dealing with the key issue.
2. If not, then was there anything in the incorporated charterparty that could be relevant.  That first required the incorporating words in the bills of lading to be reviewed.  In this case, they were very wide referring to “all terms and conditions, liberties and exceptions”.  
3. Whether the relevant charterparty clause, if prima facie incorporated into the bill of lading, requires ‘manipulation’ so as to impose that obligation on the bill of lading holder, for example, by ‘manipulating’ the clause to read ‘bill of lading holder’ in place of the express word ‘charterer’ in the clause.
4. If the prima facie answers to (a) and (b) are respectively ‘yes’ and ‘no’ (as in this case), then the court considered the ‘useful purpose’ test or, looked at another way, what the purpose of incorporating the clause into the bill of lading was if it imposed no liability on the bill of lading holder.
5. This approach allows the terms of the bill of lading to be identified, following which the court moved on to the core issue, namely whether the bills excluded liability on the part of the bill of lading holders to pay cargo’s contribution in GA in the event the vessel encountered a peril insured under any of the insurances. 

There was no such clear wording in these bills, hence the appeal was rejected, and thus the common practice in piracy / ransom cases that the holders of the bills of lading are generally liable to make a GA contribution was upheld by the Court of Appeal.

1. Link to i-law can be found here
2. Link to the Court of Appeal decision can be found here
3. Link to club’s summary on the Commercial Court decision can be found here
4. Link to commentary by Hill Dickinson can be found here

Category: Caselaw