The case of The Polar (Herculito Maritime Ltd and others v Gunvor International BV and others) [2024] UKSC 2,involved a general average claim by shipowners against the cargo owners under the bills of lading, which incorporated the terms of the charter, arising out of the payment of ransom following the detention of the vessel by pirates in the Gulf of Aden. Clause 39 of the charter was a Gulf of Aden clause and provided that charterers were to make a contribution to the cost of additional war risks and Kidnap & Ransom (K&R) insurance up to a maximum of US $40,000. Cargo interests disputed the shipowner’s claim in general average against them on the basis that on the true construction of the bills of lading and/or by implication, agree to look solely to its insurance cover under the war risks and/or K&R insurance in the event of a loss covered by that insurance.
Teare J found that that the part of the Gulf of Aden clause which referred to payment of additional premium, although incorporated into the bills of lading, did not impose any liability on the bill of lading holders and found that the parties had agreed that the shipowner would look to the insurers for indemnification in respect of such losses and not to the charterer. Accordingly, the shipowner was precluded by that agreement from seeking to recover the loss by way of a contribution in general average from the charterer. However, there was no proper basis for concluding that, in the event of general average arising from payment of a ransom to pirates, the shipowner had agreed not to look to the cargo owners for a contribution. It was not appropriate to substitute the “bills of lading holders” for “charterers” so as to impose a liability on them to pay the premium.
The Court of Appeal appeal upheld the judgment, finding that the contractual obligation of charterers to contribute to the costs of the war risk and kidnap and ransom insurances did not amount to a complete code excluding charterer’s liability in general average. Neither the bills nor the charterparty suggested that the bill of lading holders were intended to be liable for the premium, although the incorporation of these terms did serve a useful purpose as the basis on which the shipowner had agreed in the bill of lading contract that the voyage was to be via Suez and the Gulf of Aden, without which there would be uncertainty as to the vessel’s route.
Today the Supreme Court has dismissed the cargo interests’ appeal against the finding that they remain liable for general average contributions arising out of the piracy and ransom of the vessel. The appeal gave rise to four issues.
Issue (1) – Whether on the proper interpretation of the charter, and in particular the war risk clauses and the additional Gulf of Aden clause and/or by implication the shipowner was precluded from claiming against the charterer in respect of losses arising out of risks for which additional insurance had been obtained pursuant to those clauses.
The Supreme Court held that this was not the case. Most cases in which there has been held to be an insurance code or fund have involved joint names’ insurance. Although the agreement to joint names insurance was clearly a powerful factor in favour of there being an insurance code or fund, in The Ocean Victory [2017] UKSC 35 it was not treated as being decisive. Various other factors were taken into account and relied upon such as the fact that charterers were to effect all insured repairs and pay for them, and then be reimbursed by insurers; time used for repairs was to remain on hire and form part of the charter period, and, if the vessel was to become a total loss, the insurance monies were to be split between the mortgagee, owners, and charterers, in accordance with their interests. Further, clause 13 of the Barecon 89 form, which allowed for owners’ insurances to be carried on if the bareboat charter was for a short period, expressly excluded rights of recovery or subrogation for loss or damage covered by the insurance.
The Evia (No 2) [1983] 1 AC 736 [HL] remains the only time charter case in which there has in effect been held to be an insurance code or fund. In all other reported cases in which such an argument has been raised it has been rejected – see The Helen Miller, [1980] 2 Lloyd’s Rep 95 (Mustill J); The Concordia Fjord, [1984] 1 Lloyd’s Rep 385 (Bingham J) and) [1993] 1 Lloyd’s Rep 508 (Gatehouse J). These cases make it very clear that the mere fact that charterers pay an extra insurance premium is not enough to create an insurance code or fund. The present case was distinguishable from The Evia (no 2) in that cl.39 contained no “absolute veto” comparable to that of clause 21 of the Baltime form. Clause 39 had to be construed in its contractual context and against the background of the circumstances existing at the date of the charter In the present case the shipowner, in the context of well-known piracy risks, had agreed to pass through the Gulf of Aden on the terms set out in the Gulf of Aden clause. It would be inconsistent with that express agreement to construe clause 39 in such a way as to permit the shipowner to refuse to transit the Gulf of Aden on account of such piracy risks.
Issue (2) – whether all material parts of those clauses were incorporated into the bills of lading
The answer was ‘yes’. There was a prima facie case that cl.39 of the charter and the liberties given to the shipowner thereunder were incorporated. These provide an important protection to the shipowner in relation to voyage war risks and were clearly relevant to carriage. That being the case, it was equally important that charter provisions which limit or qualify the wide liberties given under clause 39 were also incorporated. The intention must surely be to incorporate the entirety of the relevant contractual regime set out in the charter rather than to do so partially or incompletely. The Gulf of Aden clause and the War Risk clause both bore on the liberties conferred under clause 39 and meant that they could not be relied upon in relation to the known piracy risk of transiting the Gulf of Aden. The charterer’s obligation to pay insurance premia was an important element of the agreement of the shipowner to accept that risk. To give effect in the bills of lading to the agreed allocation of risk in relation, in particular, to transiting the Gulf of Aden, the entirety of the Gulf of Aden clause and the War Risk clause should be regarded as incorporated in the bills of lading so as to be read alongside clause 39, as they would be in the charter.
Issue (3) – Whether on the proper interpretation of those clauses in the bill of lading and/or by implication the shipowner was similarly precluded from claiming for such losses against the bill of lading holders
This issue proceeded on the assumption that the charter contained an insurance code or fund, contrary to what was decided on issue one. If there were no manipulation of the wording of the incorporated clauses, then the obligation to pay the insurance premia rested on the charterer alone. There was no such obligation on the bill of lading holder. If so, then an essential reason for holding there was an insurance code or fund was inapplicable. The obligation was that of the charterer who had its own interest in ensuring proper performance of the charter. Moreover, there was no insurance code or fund case which extends any understanding to that effect beyond the parties to the relevant contract. The bargain made is that the parties will not look to each other to make good an insured loss. That is a bilateral agreement.
Issue (4) – If necessary, whether the wording of those clauses should be manipulated so as to substitute the words “the Charterers” with “the holders of the bill of lading” in the parts of those clauses allocating responsibility for the payment of the additional insurance premia.
Manipulation of charter clauses incorporated by general words of incorporation may be permissible if it is necessary to do so in order to make the wording fit the bill of lading. There was no such need in this case. The Gulf of Aden and the War Risk clause made perfectly good sense in the context of the bills of lading as a record of the terms upon which the shipowner had agreed to transit the Gulf of Aden. They were both relevant and sensible in the bill of lading context in the terms set out in the charter, referring as they did to the charterer rather than the holders of the bill of lading. There was therefore no justification for manipulation.
Further, as held by both the judge and the Court of Appeal, there were positive reasons why there should be no manipulation. The Miramar [1984] AC 676, involving a demurrage clause, referred to the implausibility of bill of lading holders accepting a potential liability to pay unknown and unpredictable amounts. Similar considerations applied here. If the holders of the bills of lading are liable to pay the insurance premia the basis of that liability vis a vis the shipowner and each other would be wholly unclear, particularly as the bill of lading holders might be holders for different parcels of cargo for different lengths of time and only for a period if the cargo were traded afloat.
Accordingly, the Supreme Court dismissed the appeal of the bill of lading holders, finding that [99]:
“(1) on the proper interpretation of the voyage charter, and in particular the war risk clauses and the additional Gulf of Aden clause, the shipowner was not precluded from claiming against the charterer in respect of losses arising out of risks for which additional insurance had been obtained pursuant to those clauses;
(2) all material parts of those clauses were incorporated into the bills of lading;
(3) on the proper interpretation of those clauses in the bill of lading the shipowner was not precluded from claiming for such losses against the bill of lading holders;
(4) the wording of those clauses should not be manipulated so as to substitute the words “the Charterers” with “the holders of the bill of lading” in the parts of those clauses allocating responsibility for the payment of the additional insurance premia.”
