UK Case law: Herculito Maritime Ltd and Others v Gunvor International BV and Others (The “Polar”) [2020] EWHC 3318 (Comm)

General average – Vessel kidnapped by pirates in Gulf of Aden – Whether shipowners can claim to recover ransom payment from bill of lading holders, as general average contribution 

In 2010 the M/V Polar (“Vessel”) was engaged on a voyage from St Petersburg to Singapore carrying fuel oil pursuant to a voyage charter ("Charterparty") between the owners, Herculito Maritime Ltd (“Herculito”), and Clearlake Shipping Ltd ("Clearlake"). Whilst transiting the Gulf of Aden, the vessel was seized by Somali pirates and held for ransom. She was released following payment of a ransom of US$7,700,000. The holders of all six bills issued in respect of the cargo carried on board were Gunvor International BV (“Gunvor”). 

Herculito had chartered the vessel to Clearlake on the terms of an amended BPVOY4 form and certain additional clauses, including a long War Risks clause, together with an additional War Risks and an additional Gulf of Aden clause. The latter required Clearlake to pay for additional War Risks and Kidnap and Ransom ("K&R") insurance to transit the Gulf of Aden. The bills provided that freight was payable as per the Charterparty.  The bills of lading contained general words of incorporation which purported to incorporate "terms and conditions, liberties and exceptions" of the Charterparty. 

General average was declared, and cargo underwriters provided a general average guarantee and Gunvor provided a general average bond.  An adjustment was issued pursuant to which US$4,829,393.22 was held to be the amount of Gunvor's contribution to general average. In due course, the vessel’s owners made a claim for GA contribution which was referred to arbitration.

The arbitrator, finding in favour of Gunvor, held that the Charterparty terms were incorporated in the bills of lading and, thus as per those terms , the owners’ only remedy was to recover the ransom sum from the insurers under the terms of the K&R insurance policy and the War Risks policy. 

The Commercial Court Judgement

On appeal, the court considered three distinct questions:

1. Had the provisions of the Charterparty relating to payment of additional War Risk and/or K&R premium been incorporated into the bills?

The court held that the words of incorporation in the bills of lading were wide enough to incorporate the above Charterparty provisions. In principle, charterparty terms that are directly connected to the loading, carriage and/or discharge of the cargo will be incorporated, but there is no automatic presumption of incorporation. Therefore, whilst the obligation to pay for additional insurance premium to transit the Gulf of Aden was directly germane to the carriage and delivery of the cargo, the particular terms of the contract had to be studied intelligently and not mechanically to see whether manipulation or substitution (i.e. substituting “charterers” with “bill of lading holders”) was appropriate. 

In contrast to the tribunal, and while the Charterparty insurance terms were incorporated into the bills of lading, the court concluded that it was not appropriate to substitute the words "holder of the bill of lading" for "charterers" so as to make Gunvor liable under the bills to pay the insurance premium on the bases that (a) Gunvor had agreed to pay freight “as per Charter Party” and had not agreed to pay any additional sums and (b) there was no indication in the bills as to how apportionment of the premium between Gunvor was to be assessed and therefore substitution was not appropriate.

2. Were the owners barred from recovering a contribution from the charterers in general average in respect of the ransom, and were they restricted to recovering an indemnity under their insurance policies?

Following the judgment in the Ocean Victory, where there is an agreement that owners obtain war risks insurance and charterers pay the premium, then the general rule is that the parties agree to look to the insurers for indemnification in respect of losses caused by such risks rather than to each other. If the charterers, as cargo interests, were to be liable in GA, the “remarkable result” would follow, namely, that charterers would have paid the premium as agreed and yet would still be liable in respect of losses caused by the peril insured against. Thus, on the true construction of the charterparty, owners were precluded from seeking to recover the loss from the charterers by way of a contribution in GA.

3. Did the insurance provisions incorporated into the bills of lading have the effect of precluding the owners from recovering a general average contribution from the holders?

As set out above, the provisions which obliged the charterers to pay for the additional war risk insurance premium, although incorporated into the bills, did not have the effect of making the holders of the bills of lading liable for such expenses or the additional insurance premium. Consequently, it could not be said that there was an agreement in the bills that the owners would not seek contribution in GA from the holders. Therefore, the bills did not preclude cargo interests’ liability in GA or in respect of other losses covered by the additional insurances. 

This decision is being appealed.

Comment

This case is of interest because the court considered whether the agreement by charterers to pay the insurance premium for any types of losses affects the liabilities of a bill of lading holder in respect of losses falling within the relevant insurance policy.

This decision also serves as a useful reminder that parties should ensure that their contractual arrangements accurately reflect the way in which the parties intend risk to be allocated for piracy and GA losses.

Full commentary can be found here.

Category: Caselaw