MT Polar: novel incorporation and insurance code questions addressed by High Court

The “MT Polar” was an arbitration appeal to the English High Court relating to the vessel’s hijacking in 2010 and 2011 and subsequent general average (GA) claim by shipowners following the ransom payment for release. The case has raised two interesting, and novel, questions of law relating to the incorporation of terms from a charterparty into a bill of lading and the effect of insurance provisions in a charterparty.

Background

The bill of lading holders sought to defend a claim in GA on the basis that terms in the charterparty, including in particular an obligation on the charterers to pay additional premiums for sailing through the Gulf of Aden (where the vessel was hijacked), were incorporated into the six bills of lading (which stated that all terms and conditions, liberties and exceptions of the charterparty were incorporated).

The Tribunal decided that they were. Moreover they found that the terms in the charterparty contained a “code” for the losses resulting from piracy risks in the Gulf of Aden, meaning that the owners could not claim a GA contribution from the charterers. Instead, owners could look only to their insurers, who would not have any subrogation rights. That “code” was incorporated into the bills of lading and so the bill of lading holders were not liable in GA. The owners appealed.

Question 1 – were the charterparty terms incorporated into the bills of lading?

When considering the incorporation of terms into a bill of lading, two general principles should be kept in mind:

• A statement on a bill of lading that all terms and conditions, liberties and exceptions were incorporated is not enough in itself to incorporate all terms, because those terms might be inconsistent with the bill of lading or inappropriate in the context of a bill of lading.
• But if a term of the charterparty is “directly germane” to the loading, carriage and/or discharge of the cargo, it would usually be incorporated and, if necessary, it may be possible to manipulate the words of the claim to make them appropriate for the bill of lading.
  
  

The court considered various components of the relevant charterparty clauses in order to consider in this case whether they were incorporated. Where the owners had a liberty not to continue a voyage in a war risks area or a liberty to deviate, this was directly germane to the carriage of the cargo. The court was able to conclude (as the Tribunal did) that these liberties were incorporated.

But where the relevant clauses imposed an obligation on the charterers to make some additional payment, the position was not the same (even if they were directly germane to the carriage of the cargo) because it contradicts the provision on these bills of lading that freight was payable “as per Charter Party” (as is often found on a bill of lading). For example, in exercising the liberty to deviate, the charterparty provided separately that charterers shall bear all resulting costs. Incorporating that clause in respect of those resulting costs into the bill of lading would have meant that the bill of lading holders would be responsible for these additional costs in addition to the freight – however the bill of lading holders agreed to only paying freight “as per Charter Party”.

That being so, when the court had to consider whether a clause in the charterparty providing that charterers would pay the additional premium for transiting the Gulf of Aden was incorporated into the bills of lading so that the bill of lading holders could be obligated in respect of that additional premium, the court found that it was not. This was critical because if they had no obligations in relation to the additional premium, they were not party to the insurance of the Gulf of Aden transit and consequently could not rely on an insurance based solution.

Question 2 – was the ‘code’ incorporated into the bills of lading?

The court confirmed the Tribunal’s finding that, as between the owners and charterers, a code providing for an insurance based solution in respect of GA could exist. Owners would therefore be precluded from seeking to recover a contribution in GA from charterers.

The owners had challenged this arguing that whereas an insurance based solution might be applicable in the case of breach of contract (see the Evia (No. 2) [1983] and the Ocean Victory [2017]) it should not be in GA, because GA was different from breach of contract. The court agreed that GA and breach of contract were different concepts, but did not agree that the principles in support of an insurance based solution in the case of breach of contract should not apply to GA.

The court then had to turn to the question as to whether that “code” which existed in the charterparty could be incorporated into the bills of lading. The Tribunal had found that it was (regardless of the incorporation point discussed in Question 1) on the basis that the code in the charterparty was an agreement by owners that they would not seek a contribution for piracy losses. It was not a positive obligation on the charterers to be part of an insurance solution and so incorporating a positive obligation on the bill of lading holders was not necessary.

The court did not agree. The court found that the “code” did include an agreement by owners not to seek contribution for piracy losses, but only as against the charterers. In circumstances where it was found that the additional premiums provisions were not incorporated, the bill of lading holders could not be part of any agreement to such a code for an insurance based solution, because unlike the charterers, they had no obligation to pay the premium. The principles leading to the conclusion that charterers could avoid liability in GA simply could not apply to the bill of lading holders.

Accordingly, the court found that the owners’ appeal succeeded and that the cargo interests were liable for the general average contribution.

Comment

This case is important to the industry in a number of respects.

• It has dealt with important principles in relation to the incorporation of terms of a charter into a bill of lading, which is critical to understanding precisely what the relationship is between the vessel owner and the bill of lading holder. No previous case was found which concerned the incorporation of war risks clause or their equivalent and so this has now been decided by the High Court.
• The effect of insurance provisions in a charterparty has been addressed previously by the courts where there has been breach of contract but not so in cases of claims in general average against bill of lading holders.
• The court confirmed that if insurance provisions are contained the contract of carriage, it can affect the GA position as well as any breach of contract position. In this case, it would have meant that the charterers would avoid any liability. This is a valuable finding for future GA cases.
• However for those insurance provisions to affect the bill of lading, they must be incorporated.