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Contact with chambers should be made through the Practice Management Team. They are happy to discuss client requirements and provide further information on such matters as the expertise and experience of individual members, fees, working practices and languages spoken. We have members able to work in French, German, Italian, Spanish, Dutch, Swedish, Greek and Chinese (Mandarin).

Outside working hours, a member of our team is always available to be contacted on matters of an urgent nature. Contact should be made using the Chambers main number or email.

To contact our Singapore office, please contact our BD Director, Asia, Rachel Foxton. Out of office hours calls will automatically be diverted to our clerking team in London.

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London
WC2R 3AL

enquiries@twentyessex.com
t: +44 20 7842 1200
DX 0009 Lond/Chan Lane

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28 Maxwell Road
#02-03
Maxwell Chambers Suites
Singapore 069120

singapore@twentyessex.com
t: +65 62257230

Contact

Contact with chambers should be made through the Practice Management Team. They are happy to discuss client requirements and provide further information on such matters as the expertise and experience of individual members, fees, working practices and languages spoken. We have members able to work in French, German, Italian, Spanish, Dutch, Swedish, Greek and Chinese (Mandarin).

Outside working hours, a member of our team is always available to be contacted on matters of an urgent nature. Contact should be made using the Chambers main number or email.

To contact our Singapore office, please contact our BD Director, Asia, Rachel Foxton. Out of office hours calls will automatically be diverted to our clerking team in London.

London

Twenty Essex
London
WC2R 3AL

enquiries@twentyessex.com
t: +44 20 7842 1200
DX 0009 Lond/Chan Lane

Singapore

28 Maxwell Road
#02-03
Maxwell Chambers Suites
Singapore 069120

singapore@twentyessex.com
t: +65 62257230

01/12/2021

Court of Appeal decision on the incorporation of charter terms into bills of lading, and joint insurance funds for war risks / K&R losses

Herculito Maritime Ltd and others v Gunvor International BV and others (the “POLAR”) [2021] EWCA Civ 1828

Oliver Caplin acted for the successful respondents in persuading the Court of Appeal to dismiss the appellants appeal from the 2020 decision of Sir Nigel Teare. That decision had held that the contracts of carriage contained in or evidenced by a series of bills of lading did not preclude the shipowner, and thus its subrogated insurers (the respondents), from seeking a contribution in General Average from Cargo Interests and their subrogated insurers (the appellants) after a piratical seizure of the POLAR in the Gulf of Aden had necessitated the payment out of a US$7 million ransom.

Background to the appeal

The case ultimately concerns a claim by Owners and their subrogated insurers (the respondents) for a contribution in General Average from Cargo Interests and their subrogated insurers (the appellants). The General Average expenditure in the main part took the form of a ransom payment of around US$7 million paid out to pirates to secure the release of the POLAR after its seizure in the Gulf of Aden. Cargo Interests defend the claim for a contribution on the basis that the bills of lading, properly construed, preclude a claim by Owners against Cargo Interests for a contribution in General Average. The basis for that argument is that the bills of lading, which it was common ground incorporated at least some terms from a particular voyage charterparty, in particular incorporated a series of terms which made up an exclusive “insurance code” from the charterparty for losses suffered as a result of war or K&R risks eventuating. Those charter terms amongst other things imposed an obligation on the charterers to pay the war and K&R risk premia, up to a certain amount. An arbitral award in 2019 found in Cargo Interests’ favour.

That position was reversed by Sir Nigel Teare in 2020 in the Commercial Court upon a section 69 Arbitration Act 1996 appeal. Whilst the Judge found there that there was an “insurance code” in the charterparty, and that it was incorporated into the bills of lading, he refused to engage in verbal manipulation of the charter clauses once they were sat in situ in the bills of lading so that the party required to pay the premia was “bill of lading holders” instead of “charterers”. Thus, the clauses still referred to “charterers” being obliged to pay the insurance premia, and he therefore held that there was no effective code as between Owners (the carrier) and Cargo Interests (the bill of lading holders).

Cargo Interests appealed.

The appeal

Cargo Interests challenged the notion that manipulation of “charterer” to “bill of lading holder” was necessary in order that the code evidenced by the incorporated charter terms would have effect as against the carrier and the bill of lading holders. Alternatively, they said the judge was wrong not to engage in manipulation.

Owners, on the other hand, filed a Respondent’s Notice arguing, amongst other things, that the Judge had been wrong to find that an insurance code existed at all in the charter, and thus the question of incorporation was academic (if there was no code in the charter, there could be no code in the bills of lading). Oliver performed the oral advocacy relating to the Respondent’s Notice at the hearing.

The Court of Appeal’s decision

The Court of Appeal dismissed the appeal. Males LJ, who delivered the only reasoned judgment, held that (i) manipulation was inappropriate and (ii) when sat in the bills of lading, the relevant clauses served only as a record of the terms agreed between shipowner and charterer, and did not act as between Owners and Cargo Interests to form an insurance code precluding Owners from claiming a contribution in General Average.

Key considerations weighing against manipulation included: it not being clear how liability to pay for the insurance premiums would be apportioned between different bill of lading holders; and it was not clear how any rights of reimbursement between different bill of lading holders could be exercised in practice.

In the course his judgment, Males LJ gave a useful and clear reminder that whilst there are special tools and rules when considering the incorporation of charter terms into bills of lading, one must not lose sight of the fact that the ultimate process is one of construction of the bill of lading. One should not, therefore, apply the stepwise rules relating to incorporation too rigidly.

As for the absence of a code, Males LJ applied the famous presumption from Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 in holding that in all the circumstances it could not be said that Owners had agreed by the terms of the bills of lading to have given up their rights to claim a contribution from Cargo Interests in General Average.

Males LJ did not consider that the Court needed to decide whether there was an insurance code in the charter, commenting though that the position was weaker than that in The Evia (No.2) [1983] AC 736 and The Ocean Victory [2017] 1 WLR 1793, two leading cases on insurance funds, which contained more complex regimes which were found to amount to agreements to an insurance solution.

Conclusion

The judgment is of interest as it provides a useful, if orthodox, reminder that the approach to the incorporation of charter terms into bills of lading is ultimately a process of interpretation of the bills of lading. Although every case will turn on the wording of the relevant contracts, the judgment will also be of interest to owners and bill of lading holders as the Judgment suggests clear words in a bill of lading will be needed to exclude an owner’s right to contributions in GA, even if such rights have been excluded in the underlying incorporated charter party.

Oliver Caplin is co-author of the 4th Edition of Miller’s Marine War Risks. He was instructed in this case by Richard Neylon and Jenny Salmon of HFW, and was led by Guy Blackwood QC.

Read the full judgment online

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Oliver Caplin
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