The UK Supreme Court gives an interpretation of contractual terms related to war risks and additional insurance premiums

Summary

The United Kingdom (UK) Supreme Court considered the case of Herculito Maritime Limited v Gunvor International BV (The “Polar”), and in doing so providing an analysis involving maritime law and the interpretation of contractual terms related to war risks and additional insurance premiums. The decision discusses the application of legal principles from previous cases, such as The Evia (No 2) and The Product Star, to the specific terms of the charter involved in the case.

Background

The Claimant, Herculito Maritime Limited (“Herculito”), was the owner of the vessel “POLAR”. POLAR was engaged on a voyage from St Petersburg in Russia to Singapore with a cargo of fuel oil owned by the Defendant, Gunvor International BV (“Gunvor”), for which multiple bills of lading were issued. POLAR was then unfortunately seized by Somali pirates while transiting the Gulf of Aden which was known to be exposed to piracy risks. POLAR was only released after part of the cargo was extracted by the pirates, and payment of a ransom to the same.

Herculito made a claim against Gunvor for the ransom paid to the pirates as general average expenditure under the relevant bills of lading, on the grounds that these bills of lading had successfully incorporated certain terms in relation to additional War Risks premiums under the voyage charter. Of particular relevance, the charterparty and the bills of lading contained the following terms:

(i) Clause 39 of the charterparty provided (among other things) Herculito with the right to change the route or not continue with the voyage if POLAR were exposed to war risks.

(ii) Another clause in the charterparty, known as the “Gulf of Aden clause” – see footnote 1 – provided (among other things) that all additional insurance premiums payable by Herculito for War Risks and Kidnap & Ransom risks would be for the charterer’s account.

(iii) The bills of lading provided that the holders were to pay freight as per the charterparty, and they were also subject to “all terms and conditions, liberties and exceptions” of the charterparty.

The arbitration tribunal held that the proper construction of the aforementioned terms as a whole was such that the charterparty contained a “code” for the losses resulting from piracy risks in the Gulf of Aden area under which Herculito agreed to look only to their insurance provider to cover these losses and not claim any contributions from anyone else. The tribunal further held that Clause 39 and the Gulf of Aden clause were both successfully incorporated into the bills of lading, and therefore the aforementioned incorporated “code” prevented Herculito from making the present claim against Gunvor.

Herculito obtained leave to appeal to the High Court under s69 of the Arbitration Act 1996.

The High Court allowed the appeal against the tribunal’s decision and held that the contract of carriage contained in or evidenced by the bills of lading did not contain an agreement that Herculito was not to seek a contribution in general average from the holders of the bills in respect of the losses covered by the additional insurance taken out by Herculito.

An appeal was proffered to the UK Court of Appeal against the decision of the High Court and the Court of Appeal upheld the decision of the UK High Court. An appeal was filed to the UK Supreme Court from the decision of the UK Court of Appeal and the brief analysis of the decision of the UK Supreme Court is as follows:

Analysis

The Supreme Court focuses on several key points:

1. Agreement to Pass Through Gulf of Aden: The Court discussed Herculito’s agreement to transit the Gulf of Aden, a known high-risk area for piracy, as specified in the contractual terms. It considered the implications of this agreement on Herculito’s rights under the charter, emphasizing that Herculito’s stipulated agreement to transit the Gulf of Aden may limit their ability to refuse to do so based on piracy risks.

2. Obligation to Pay Additional War Risk Premiums: The Court also considered the specific obligation of the charterers to pay additional war risk premiums, noting the contractual arrangement for sharing costs and risks related to war risks. It highlights the importance of the charterers’ financial contribution to the insurance arrangements but emphasizes that this factor alone may not necessarily determine the existence of an insurance code or fund.

3. Precedent from Previous Cases: The Court referenced previous legal precedent, such as The Evia (No 2) and The Product Star, to support its interpretation of the contractual terms in the current case. It draws parallels with similar cases and considers the reasoning and decision-making in those cases as supportive of its conclusions.

Conclusion

The decision provides a detailed examination of the legal and contractual principles at play in the specific case, effectively applying legal reasoning and precedent to the interpretation of the contractual terms involved. The decision is useful to, not only the UK, but to those countries that have adopted UK law for determining admiralty and maritime disputes and to those who prefer, as in this case, to use UK law as the law to determine their disputes.

The decision is available on the following link, i.e., https://www.bailii.org/uk/cases/UKSC/2024/2.pdf