The MT Polar: cargo interests remain liable in GA for ransom payment to Somali pirates

The Supreme Court has dismissed cargo interests’ appeal, holding that they were liable in general average (GA) to contribute cargo’s proportion of US$7.7m paid by the owners of the MT Polar as a ransom to release the vessel and fuel oil cargo onboard after it was seized by Somali pirates in 2010.

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. The bills of lading stated that all terms and conditions, liberties and exceptions of the charterparty were incorporated.

Supreme Court decision

Cargo interests’ unsuccessfully argued that:-

• on the true construction of the terms of the six bills of lading issued by the owners they had no liability in GA for the USD 7.7m ransom; and
  
  
• the owners’ sole remedy was under the additional Kidnap and Ransom and War Risks insurance cover taken out pursuant to the voyage charterparty (prior to entering into the ‘High Risk Area’ of the Gulf of Aden) because the charterer’s obligation to pay the premium for the additional cover evidenced the parties’ agreement to look to insurers rather than to each other in order to make good any loss.

Cargo interests were unable to meet the high threshold required to establish that an implied ‘insurance code’ existed within the contractual arrangements between the parties. The obligation of the charterer to pay the premium for the additional War Risks cover under the charterparty was in respect of its own interest in performance under the charterparty, and not for the benefit of cargo interests. The Supreme Court found that if the parties wanted to establish an arrangement whereby there could be no right of recovery or subrogation in respect of a loss, this could easily have been expressly provided for in the contract.

Another point to note is the charterparty was expressly for a voyage “via Suez” and contained a Gulf of Aden clause, setting out a regime for allocation of security responsibilities as between the parties. It also contained an unqualified war clause giving owners the option to refuse to sail into certain affected areas.

The Supreme Court held that the owners would not have been able to invoke the war clause and refuse to go into the Gulf of Aden unless the risks then were to a significant degree greater than at the time when the charterparty was agreed or unless the Gulf of Aden had become affected by an entirely different war risk. As it was found that there had been no significant escalation of the piracy situation since the charterparty was agreed, the owners would not have been able to refuse.

Comment

This judgment may preclude shipowners from refusing to sail through the Red Sea or Gulf of Aden for fear of attack by Houthi rebels where those risks were known at the time of contracting and the charterparty stipulates for a passage through that region (including, for example, “via Suez” or because it provides for loading or discharging at a Red Sea or Gulf of Aden port).

 

Related item:

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