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Piracy, THE EVIA No.2, THE OCEAN VICTORY and the issue of incorporation of a charter “insurance code” into bills of lading

17th Jan 2024

Herculito Maritime Ltd and others (Respondents) v Gunvor International BV and others (Appellants) [2024] UKSC 2

The Supreme Court (Lord Hodge, Lord Hamblen, Lord Leggatt, Lady Rose and Lord Richards) gave judgment in this important appeal on 17 January 2024, having heard argument on 4 and 5 October 2023 .  The judgment of the Supreme Court (given by Lord Hamblen) may be found here.

The facts of the case are that, during a voyage from St Petersburg to Singapore with a cargo of 69,493.28 metric tons of fuel oil, MV POLAR was seized by Somali pirates while she was transiting a designated ‘High Risk Area’ in the Gulf of Aden off the east coast of Africa. She was held for ransom. The seizure was on 30th October 2010 and the Vessel was held for 10 months before she was finally released on 26th August 2011. The release followed the payment of a ransom of US$7,700,000 by or on behalf of the Vessel’s registered owners, Herculito Maritime Limited, and owners’ underwriters. Some of the cargo had been abstracted during the period of seizure, but most of it was intact and needed to be carried to its destination. After diverting for repairs, supplies and re-crewing, the Vessel successfully continued her voyage and delivered the balance of the cargo.

General Average was declared by the Owners and a General Average Guarantee and a General Average Bond were provided to the owners before discharge. In due course, a General Average adjustment was issued. It concluded that a sum of nearly US$5 million was due to the Owners from the cargo interests. The Owners claimed this sum from cargo interests in arbitration.

In the arbitration it was agreed that two preliminary issues should be determined: (1) whether the “war risks” provisions of the relevant voyage charter, pursuant to which charterers were liable for additional war risks premiums for transiting the Gulf of Aden, were incorporated into the bills of lading; and, if so, (2) whether, on a true and proper construction of the bills of lading, the owners agreed to look solely to their “war risks” insurers and not to the holders of the bills of lading to recover the ransom. An experienced arbitral tribunal (Timothy Young KC, Dominic Kendrick KC and Simon Gault), accepting Stephen Hofmeyr KC’s submissions, answered the two questions in the affirmative.

An appeal against the award of the arbitrators was upheld by Sir Nigel Teare, sitting as a Judge of the Commercial Court. He agreed with the Tribunal on the first preliminary issue, but on the second preliminary issue he took a different view. He concluded that the charter provisions requiring the additional war risks premiums to be paid by “the charterers” could not be manipulated so as to place the obligation on “the holders of the bills of lading”, and that the bill of lading holders could only have taken advantage of the “insurance code” incorporated into the bills of lading if they had been made liable to pay the additional war risks premia (which, in his view, they had not been).

Both the Court of Appeal and the Supreme Court affirmed the ultimate conclusion of the Judge, rejecting the views of the experienced Tribunal.

The case is significant because it raises two novel and interesting problems. No previous case has considered the incorporation from a charterparty into bills of lading of war risks clauses or their equivalent. Nor has a previous case considered the effect of “insurance provisions” (such as those considered in The Evia (No. 2) and The Ocean Victory appearing in bills of lading by reason of the incorporation of charterparty terms.

Stephen Hofmeyr KC was assisted by Mark Jones and they were instructed by Stephen Askins of Tatham & Co.