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Incorporation of insurance provisions into bills of lading: shipowner entitled to seek piracy ransom payment from cargo owners

Incorporation of insurance provisions into bills of lading | BDM Blog | BDM Law

Herculito Maritime Ltd and others v Gunvor International BV and others (the “POLAR”) [2020] EWHC 3318 (Comm)

For the first time, the English High Court has considered whether a war risks insurance clause (or equivalent) in a charterparty is incorporated into a bill of lading. The court also considered the novel point relating to the effects of insurance provisions in a charterparty on a claim for general average (“GA”) against bill of lading holders. This case is also a rare example of a successful appeal of an arbitration award to the English High Court on a point of law, under section 69 of the English Arbitration Act 1996.

Background

The mv POLAR was hijacked by pirates in October 2010 during a transit through the Gulf of Aden. The vessel was released following a ransom payment made by the shipowner, Herculito Maritime Limited (“Herculito”). Herculito then brought a claim in GA, to recover the expenditure incurred when making the ransom payment.

The GA claim was brought against Gunvor, who were the lawful holder of six bills of lading (“the Bills”) issued for the carriage of the cargo on board. The Bills contained general words which purported to incorporate “terms and conditions, liberties and exceptions” of the charterparty between Herculito and its charterers.

In defence of the GA claim, Gunvor argued that Herculito’s only remedy, for any ransom payment made, was to recover the same under their Kidnap and Ransom and War Risks insurance policies, the terms of which were incorporated into the Bills. Pursuant to the charterparty, the premium for these policies was payable by the charterers.

In the arbitration, the Tribunal was asked to rule on two preliminary issues:

  1. Were the War Risks provisions in the charterparty incorporated into the Bills?
  2. If so, do these provisions form a complete “code” whereby Herculito had agreed to look only to their War Risks insurers, and not Gunvor as holders of the Bills, to recover the ransom?

The Tribunal answered “yes” to both questions and therefore found that the Owners were not entitled to recover the ransom from Gunvor in GA. The Owners appealed to the English High Court.

The High Court’s decision

Sir Nigel Teare, presiding in the High Court, agreed with the Tribunal’s answer to the first question but took a different view regarding the second question.

On this second point, the Court held that the “code” included an agreement by Herculito not to seek contribution for piracy losses, but only as against its charterers. The Court agreed with the Tribunal that Herculito and its charterers had agreed for the charterers to pay the premium and, in return, Herculito would look to its insurers and not the charterers for losses covered by the insurance. Indeed, this was the benefit received by the charterers for paying this additional premium.

However, the Court held that there was no such code or agreement as between Herculito and cargo owners Gunvor and disagreed with the Tribunal’s findings on this point. The Court referred to recent cases such as the Evia No. 2 [1] and the Ocean Victory [2], both of which dealt with instances where one party agreed to look only to its underwriters for a particular loss. In each case, a key factor was an agreement that the contractual counterparty should pay for the relevant insurance premium.

Crucially, in this case Sir Nigel Teare held that Gunvor had not agreed to pay for the premium. In the absence of that agreement, there were no words in the Bills which established an insurance “code” or said that Herculito had agreed to look only to its insurers and not claim against Gunvor for its contribution in GA.

The Court therefore rejected Gunvor’s defence and held that there was nothing in the Bills preventing Herculito from seeking a contribution in GA from Gunvor for the ransom payment.

Comment

Although this judgment relates to piracy, it has wider application to many involved in the shipping, insurance and trade sectors. In particular, this decision is relevant to any agreement by charterers to pay insurance premiums for any types of losses and how this affects the liabilities of a bill of lading holder in respect of losses falling within the relevant insurance policy. In light of this decision, and as always, parties should be mindful to word relevant provisions carefully to reflect the agreed risk allocation between the parties.

The decision is being appealed and we will report more once the appeal judgment is handed down.

A link to the full judgment can be found here.

[1] [1981] 2 Lloyd’s Rep. 613
[2] [2017] UKSC 35

 

 

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