17/01/2024

The Polar: Important war risks decision from the Supreme Court

The Supreme Court has today handed down its judgment in The Polar, a very important decision for anyone advising clients on trade and insurance issues arising out of the Houthi attacks in the Red Sea or the Ukraine/Russia war.

The Polar case itself arose out of a piratical attack on the vessel in the Gulf of Aden by Somali pirates. The vessel was seized, and in the end a ransom of around US$7 million was paid to obtain the vessel’s release. Owners declared general average. The majority component of the later adjustment was the ransom.

The cargo owners had argued that they benefited from an exclusive insurance code in the charter (between owners and charterers) or the bills of lading (to which they were themselves a party), the effect of which was to preclude the owners from claiming a contribution from cargo in general average.

The key legal issues in the case concerned: (i) the approach to ascertaining if an implied insurance fund exists in a charterparty (looking to in particular the House of Lords decision in The Evia (No.2), and (ii) the extent to which charter terms concerning war risks are to be incorporated into a bill of lading – and if they are, whether manipulation of ‘charterer’ to ‘bill of lading holder’ was permissible.

Lord Hamblen (with whom the other JSCs agreed) dismissed the appellate cargo interests appeal, upholding the decisions of Males LJ and Sir Nigel Teare. Lord Hamblen determined that there was no insurance fund in the charter – and that even if there was, even though the terms concerning war risks would be incorporated, they would not be manipulated (such that cargo interests could not take the benefit of any extant insurance code).

Of immediate interest to those advising clients operating in the Red Sea, the Supreme Court also dismissed a challenge to The Product Star (No.2), and approved of the reasoning of Teare J in The Paiwan Wisdom. These are two cases which consider the extent to which an owner can refuse to enter into an area on the basis of a perceived risk of exposure to war risks where it has previously agreed to sail to that very area.

The case makes, on many bases, essential reading for anyone advising maritime and trade clients caught up in the Red Sea attacks or the Ukraine/Russia war.

Oliver Caplin acted for the successful respondent shipowners, led by Guy Blackwood KC of Quadrant Chambers, and instructed by Richard Neylon and Jenny Salmon at HFW. Oliver, who is is the co-author of the 4th edition of Miller’s Marine War Risks, in this case performed substantial advocacy in the Supreme Court (on the incorporation and manipulation issue) and in the Court of Appeal (on the insurance funds issue).