The court decided that the cargo owner, under the terms of the bill of lading, was obliged to pay a general average contribution in connection with the payment of ransom to the pirates. At the same time, there was a condition in the charter that the shipowner should apply in such cases only to the insurer, but these conditions, in the court’s opinion, were not incorporated into the bill of lading.

Facts: In October 2010, while sailing from St. Petersburg to Singapore, the vessel Polar was hijacked by Somali pirates in the Gulf of Aden. In August 2011, the pirates were paid a ransom of $ 7.7 million and the vessel was released. During the seizure, a general average was declared, the cargo insurer provided a GA guarantee, the cargo owner provided a GA bond and, as a result, an average statement was issued, according to which about 5 million US dollars had to be paid by the cargo owner. The shipowners have applied to arbitration with a claim to recover this amount.

The charter was based on Form BPVOY4 and included the War Risks Clause and the Gulf of Aden Clause under which an additional $ 40,000 premium for theft and ransom coverage was paid by the charterer. The shipowner, in turn, undertook to contact only the insurer (“exclusive insurance fund”) in the event of losses covered by such insurance. The bill of lading contained a general clause about the incorporation of the charter conditions (all terms and conditions, liberties and exceptions).

The arbitrators had to decide whether the bill of lading excluded the liability of its holder for general average contributions if the bill of lading included “exclusive fund” provisions from the charter. The arbitrators decided the case in favor of the cargo owner. The shipowner appealed the decision of the arbitrators in court.

Ruling of the court: to resolve the case, the court had to establish whether the War Risk and the Gulf of Aden charter clauses were incorporated into the bill of lading.

The court ruled that even if the clauses were incorporated, in their meaning the obligation of the charterer to pay the insurance premiums was not shifted to the holder of the bill of lading. This is in line with the general rule that when the terms of the charter are incorporated into the bill of lading, there is no presumption that the court will replace the obligated parties in the text. That is, if the terms of the charter establish the responsibility of the charterer to pay certain amounts or take actions, then after the incorporation of these conditions into the bill of lading, the charterer will still be obligated. The shipowner will not be able to make claims against the holder of the bill of lading on the basis of such incorporated terms. To change the obligated party, clear wording is needed.

As an additional argument, the court pointed out that even if the incorporated clauses in this case assigned responsibility for the payment of insurance premiums to the holder of the bill of lading, it was completely unclear how to distribute such responsibility in the event that several bills of lading were issued to different holders.

The court agreed with the conclusion of the arbitrators that, within the meaning of the charter clauses, the shipowner and the charterer had agreed to pay an additional insurance premium by the charterer, in return for which the shipowner agreed to contact only the insurers in the event of an insured loss, including the requirement for general average premiums. Otherwise, the charterer would not have had the benefit of agreeing to pay additional premiums.

At the same time, given that the clauses did not impose on the holder of the bill of lading the obligation to pay additional insurance premiums, the agreement between the shipowner and the charterer on the procedure for contacting the insurer did not apply to the bill of lading and its holder. As a result, the bill of lading did not exclude the holder’s liability for making contributions for general average or any other loss or damage covered by additional insurance.

The court overturned the arbitrators’ decision¹.

Commentary: this case is notable since the court considered for the first time the issue of including military and other similar clauses in the bill of lading, as well as the application of insurance provisions from charters to relations with bill holders regarding claims from general average. It should be noted that the court applied the standard approach to incorporation.

Shipowners may be advised to pay attention to the wording of provisions in charters and bills of lading in order to avoid possible differences in interpretation of their applicability or inapplicability to bill of lading holders. Thus, a direct statement in the charter that, notwithstanding all other provisions, the cargo owner or the holder of the bill of lading is liable for claims for contributions in general average could prevent this dispute. ■

Notes