The Supreme Court recently upheld the decision of the Court of Appeal and rejected cargo interests’ attempts to avoid contributing to general average following seizure, by pirates, of the MT Polar in the Gulf of Aden. Alex Hudson, Director, and David Fittis, Associate, summarise Herculito Maritime Ltd and others v Gunvor International BV and others (The Polar) [2024] UKSC 2.

Facts

By a fixture recap dated 20 September 2010, incorporating an amended BPBOY4 form and additional clauses (the “Charterparty”), the MT Polar (the “Vessel”) was chartered by the Vessel’s owner (“Owners”) to Clearlake Shipping Ltd (“Charterers”).

On a laden voyage from St Petersburg, Russia to Singapore, the Vessel was seized by Somali pirates in the Gulf of Aden off the East Coast of Africa. The seizure took place in a designated ‘High Risk Area’. Following a ransom payment of US$7.7m the Vessel was released.

After release, the Owners declared general average and a general average adjustment was issued. The ransom payment was a major element of the adjustment which concluded that the cargo interests under bills of lading issued for the voyage were to pay US$5,914,560.75 in general average to the Owners.

The cargo interests denied that they were liable in general average for the ransom payment. More particularly, they argued that the Charterparty (as incorporated into the bills of lading) contained an insurance code by which Owners and Charterers agreed that additional insurance cover would be purchased covering war risks in the Gulf of Aden and that Charterers would pay the insurance premium up to an agreed cap. The cargo interests therefore argued that Owners’ only recourse was to their insurer.

The Court considered four issues:

1. Were Owners precluded from claiming against Charterers for losses arising out of risks for which the above insurance had been purchased? (i.e. did the Charterparty contain a binding one stop “insurance code”);

2. Was this Charterparty insurance code incorporated into the bills of lading;

3. Were the Owners precluded from claiming against the bill of lading holders on proper interpretation of the insurance code; and

4. If incorporated into the bills of lading, should the wording of the insurance code be manipulated to substitute references to “Charterers” to “the holders of the bill of lading”.

Judgment

The Charterparty insurance code provision provided:

"Any additional insurance premia (including, but not limited to, those in respect of H&M, crew, P&I kidnap risks and ransoms), crew bonuses (which to be in accordance with the international standard shall be for chrtrs account. Max USD40,000 for charterer's account for any additional insurance premium except for crew bonus which to be max USD20,000 for charterers account."

The bills of lading incorporated the Charterparty terms.

Issue 1

The Charterparty did not contain a binding one stop insurance code.

The Court highlighted that it is well established that contractual parties may agree for specified loss or damage to be covered by insurance. The principle for whether an insurance code is formed was considered in The Ocean Victory. In that matter, the Court held that the critical issue is whether the parties intended to “create an insurance fund which would be the sole avenue of recovery.”

The Ocean Victory was, however, a case involving joint names insurance. The Polar Charterparty did not provide for joint names insurance. The only non-joint names insurance time charter case where an insurance fund was said to exist was The Evia (No 2). The Supreme Court held that The Evia (No 2) did not establish any general principle, turning as it did on the particular terms of the charter in that case. The mere fact that Charterers contractually agreed to pay an insurance premium was not enough to create a one stop insurance code.

The Court further considered that general average is a common law right. A clear agreement to vary that right must be established. The Charterparty terms were not sufficiently clear to establish this. The Owners had agreed to transit the Gulf of Aden and could not refuse Charterers’ orders to do so, unlike in The Evia (No 2) where the owners had an unqualified right to refuse orders.

The Evia (No 2) found that a “remarkable result” might transpire where the owners had an unqualified veto on voyage orders, the charterers had paid the additional insurance premia for the voyage but remained liable should the risks for which they have paid the additional premia materialise. This finding could be distinguished on the facts, however. Here, Charterers obtained the benefit of being able to order transit via the Gulf of Aden (without Owners having an unqualified right to veto the order) by paying the insurance premium.

Issue 2

It is common knowledge that general words of incorporation only incorporate the provisions of a Charterparty that are germane to the shipment.

The Court held that the Charterparty terms relating to payment of insurance premium were germane to the shipment. The insurance provisions were relevant to the Vessel’s route – the agreement to transit via the Gulf of Aden. The insurance provisions were therefore incorporated into the bills of lading (albeit, as per issue 1 above, they did not provide a one stop insurance code preventing an owner from recovering other than against its insurer).

Issue 3

Issue 3 was premised on the Charterparty containing a one stop insurance code. As per issue 1, the Court had earlier concluded that the Charterparty did not contain such insurance code and there could be no “remarkable result” as a result of such finding.

It therefore followed that where, in addition, the cargo interests had not paid /contributed to the additional insurance premia, there was certainly no “remarkable result” in finding that the Owners are not precluded from claiming against the cargo interests.

Issue 4

The Court held that manipulation of charterparty wording, i.e. substituting “Charterers” with “bill of lading holders”, is permissible if required to make the charterparty wording fit the bill of lading.

In this instance however manipulation was not required because the insurance clauses (as incorporated into the bills of lading) were a record of the Owners’ agreement to transit via the Gulf of Aden only. The Charterparty terms (as incorporated into the bills) made sense in this context and there was no need for manipulation.

Owners succeeded on issues (1), (3) and (4). The appeal was dismissed.

Comment

The Judgment seemingly puts to bed commercial concerns raised as to one stop insurance codes being inadvertently agreed between owners, charterers and cargo interests following the controversial judgment in The Ocean Victory.

This Judgment highlights the high threshold required before a binding one stop insurance code will apply and prevent recourse against parties other than an insurer. In this case, the Court was satisfied that if the Owners were content to vary their common law right to general average, the contractual terms would have very clearly stipulated so.

The Judgment also serves as a helpful reminder on the incorporation of charterparty terms into bills of lading and what will be considered as “germane to the shipment”.