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Bentleys' Bulletin

Published July 2017

UNSAFE PORTS AND CO-INSURANCE IN THE SUPREME COURT

The Supreme Court has recently handed down judgment in the "OCEAN VICTORY" [2017] UKSC Civ 35. Earlier stages of this case have appeared in October 2013 and April 2015 Bulletins. The ship, a Capesize bulk carrier, grounded and eventually broke up when attempting to leave Kashima, Japan in high winds and heavy seas in October 2006. A second ship, again attempting to leave the port shortly after, also grounded but not with the same catastrophic results.

The owners claimed that the casualty was caused by Kashima being an unsafe port. The inherent characteristics of Kashima included the risk of ships moored in port being exposed to long waves. In that event they might need to leave the berth via the Kashima Fairway. That seaway was itself vulnerable to northerly gales.

The charterers denied that the port was unsafe. They argued that the conditions at the relevant time were abnormal in that the rapid development, duration and severity of the storm were exceptional and it was rare for the two factors outlined above to occur at the same time. So there had been an abnormal occurrence, which in the context of the safe port undertaking in the charterparty meant there had been no breach of charterparty.

Lord Clarke, with whom all the other judges agreed on the safety issue, stressed at some length that the question revolved around the test of what was meant by "an abnormal occurrence". A test which he said had "had stood the test of time". The words "abnormal occurrence" were to be given their ordinary meaning, something "rare and unexpected" or "well removed from the normal". In this case, the characteristics of the port were such that the ship was prospectively safe, but events unexpectedly combined in a critical way so as to create an exceptional, and apparently unprecedented, danger. The test is not whether this combination of events was theoretically foreseeable, it is whether it was abnormal or unexpected and this involves an examination of the past history of the port and the likelihood of the event occurring. The casualty was, therefore, caused by an abnormal occurrence and the port was safe.

Lord Clarke briefly alluded to owners' case that Kashima port authority had failed to carry out appropriate risk assessments and to put in place a proper safety system to deal with the risk of the two types of weather conditions occurring at the same time, something which perhaps we might expect to be a feature of a modern port. Nevertheless, and this may be a conclusion that provokes debate about the "abnormal occurrence" test in the modern world, he concluded:

"this was one of those rare cases in which the correct conclusion is that the casualty was caused by an abnormal occurrence."


The Co-Insurance Clause

Clause 12 of the Barecon form provides that the bareboat charterers will insure the vessel at their expense but "in joint names of the owners and charterers as their interest may appear". The charterers argued this provided an exclusive code in respect of insured losses, so that the owners could not sue the bareboat charterers to recover for insured losses caused by a breach of the safe port warranty. If that was right, then the bareboat charterers had no liability to pass down the charter chain.

Shipbroker's commission cases are quite rare

The Supreme Court was split on this issue, with Lords Clarke and Sumption dissenting. In the majority's view the charterers were correct. Clause 12 was intended to be comprehensive as to the total loss of the vessel. The insurance arrangements provided a fund and the avoidance of commercially unnecessary and undesirable disputes between the co-insureds.

The minority's view was based on the consideration that Clause 12 did not expressly remove the owners' right to claim against the bareboat charterers for breach of the safe port warranty and, further, that the majority's interpretation would render that warranty meaningless with regard to insured risks.

However, their Lordships hinted that there could potentially have been other ways for the bareboat charterers to claim against time charterers e.g. (i) on the basis that their possessory title gave them a sufficient interest to claim for the hull loss; or (ii) based on cases where a contracting party has recovered damages for loss of or damage to property, when another person has actually borne such loss or damage (see e.g. the "ALBAZERO" [1977] AC 774).



Limitation

The charterers also argued that they were entitled to limit any liability on their part for breach of the safe port warranty under the Merchant Shipping Act 1995, which gave effect to the 1976 Limitation Convention. Following a detailed analysis of the 1976 Convention, the Supreme Court dismissed this argument on the basis that, although a charterer could limit its liability, limitation did not apply where the damage was to the very vessel whose tonnage was being used to calculated the limitation fund itself.


OTHER ARTICLES IN THIS ISSUE

Post-Termination Benefits and Damages

Unsafe Ports and Co-Insurance in the Supreme Court

Electronic Release Systems and Theft of Cargo: MSC v Glencore [2017] EWCA CIV 365

Escalated Demurrage Rate Clauses Under Examination

Aggrieved Shareholders and Settlements






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