Herculito Maritime Ltd and others v Gunvor International BV and others [2024] UKSC 2

A vessel was seized by Somali pirates in the Gulf of Aden. The shipowner paid ransom and claimed general average contribution from cargo interests. The cargo interests argued charter terms created an insurance code precluding such claims. The Supreme Court held no insurance code existed and cargo interests must contribute to general average.

Facts

On 30 October 2010, the vessel MT POLAR was seized by Somali pirates while transiting the Gulf of Aden during a voyage from St Petersburg to Singapore laden with fuel oil. The vessel was held for ten months before being released following payment of a US$7,700,000 ransom by the shipowner (Herculito Maritime Ltd). The voyage charter incorporated war risk clauses and a Gulf of Aden clause which provided that additional insurance premiums, including for kidnap and ransom cover, were payable by the charterer subject to a cap. General average was declared, and the shipowner sought contribution from cargo interests (Gunvor International BV) who were the lawful holders of the bills of lading.

The Charterparty and Bills of Lading

The charter was agreed on the basis that the voyage would be via Suez, necessarily transiting the Gulf of Aden High Risk Area. The Gulf of Aden clause specifically addressed additional insurance premiums and allocated responsibility to the charterer. The bills of lading incorporated charterparty terms through general words of incorporation.

Issues

Four principal issues arose: (1) Whether the charter contained an insurance code precluding the shipowner from claiming against the charterer for losses covered by additional insurance; (2) Whether all material parts of the war risk clauses were incorporated into the bills of lading; (3) Whether any such insurance code applied to bill of lading holders; (4) Whether charter terms should be manipulated to substitute ‘charterers’ with ‘bill of lading holders’.

Judgment

Issue 1: Insurance Code in the Charter

Lord Hamblen, delivering the unanimous judgment, held there was no insurance code in the charter. The court distinguished this case from The Evia (No 2) and The Ocean Victory. Key reasoning included:

“Having agreed the vessel’s route and the terms upon which the Gulf of Aden would be transited neither the shipowner nor the master could then turn round and say that they had changed their mind and were no longer willing to take on the known piracy risk of transiting the Gulf of Aden on the terms agreed.”

The charterer obtained real benefit from paying premiums – namely the shipowner foregoing liberties under clause 39 regarding known piracy risks. There was no ‘unqualified right’ or ‘absolute veto’ comparable to The Evia (No 2).

“There is no principle exempting charterers from liability for their breaches of contract merely on the ground that they have directly or indirectly provided the funds whereby the owners insured themselves against such damage.”

Issue 2: Incorporation into Bills of Lading

The court held that all material parts of the war risk clauses were incorporated. The clauses related to the route and carriage, and both the liberties and their limitations should be incorporated together to give effect to the agreed allocation of risk.

Issue 3: Application to Bill of Lading Holders

Even assuming an insurance code existed in the charter, it would not apply to bill of lading holders. The cornerstone of any insurance code – the obligation to pay premiums – rested on the charterer alone, not bill of lading holders.

“The bargain made is that the parties will not look to each other to make good an insured loss. That is a bilateral agreement.”

Issue 4: Manipulation of Terms

No manipulation was appropriate. The clauses made sense in the bill of lading context without substitution, and there were positive reasons against manipulation including the implausibility of bill of lading holders accepting unknown liabilities.

Implications

This judgment provides important clarification on insurance codes in shipping contracts. It establishes that: (1) mere payment of insurance premiums by charterers does not create an insurance code precluding claims; (2) the threshold for finding an implied insurance code is high and requires necessity; (3) incorporated charter terms affecting voyage risks should be read together; (4) insurance code arrangements, if they exist, operate bilaterally between contracting parties and do not extend to third parties under bills of lading without clear agreement. The case demonstrates judicial caution about extending The Evia (No 2) reasoning to differently-termed charters, emphasising certainty and predictability in commercial law.

Verdict: Appeal dismissed. The shipowner was entitled to recover general average contribution from the cargo interests. There was no insurance code in the charter precluding such claims, and even if there had been, it would not have applied to bill of lading holders.

Source: Herculito Maritime Ltd and others v Gunvor International BV and others [2024] UKSC 2