Paul Bugden, Bugden + Co., London
Ref: Gard Marine and Energy Ltd v China National Chartering Company Ltd [2017] UKSC 35; [2017] WLR 1793.
By a demise charterparty the vessel’s owners, Ocean Victory Maritime Inc. (“the owners”) chartered the vessel to Ocean Line Holdings Ltd (“the demise charterer”) on the widely used Barecon 89 form, as amended. It provided for the demise charterers to procure insurance for the vessel at their expense against marine, war and protection and indemnity risks for the joint interest of themselves and the owners. The demise charterer time chartered the vessel to China National Chartering Co Ltd (“Sinochart”), who sub-chartered the vessel to Daiichi Chuo Kisen Kaisha (“Daiichi”). The demise charter and both time charters contained the same undertaking in the usual form to trade the vessel between safe ports.
In September 2006, Daiichi gave the vessel instructions to load at Saldanha Bay in South Africa and discharge at the port of Kashima in Japan. The quay at Kashima was vulnerable to long waves which could result in a vessel being required to leave the port. The only route in and out of Kashima is by a narrow channel, the Kashima Fairway, which is vulnerable to northerly gales. There is no meteorological reason why these two events should occur at the same time but nevertheless on 24 October 2006, they did and as the vessel sought to leave the port due to the long waves in a severe northerly gale it was wrecked in the Fairway and became a total loss.
Gard Marine & Energy Ltd (“Gard”), one of the vessel’s hull insurers, took assignments of the rights of the owners and the demise charterer in respect of the grounding and total loss. It brought a claim against Sinochart (which Sinochart passed on to Daiichi) for damages for breach of the charterers’ undertaking to trade only between safe ports.
In the High Court, Teare J held that there had been a breach of the safe port undertaking. The combination of the two weather conditions was not an abnormal occurrence, even though the coincidence of the conditions was rare, because both conditions were physical characteristics of the port. The Court of Appeal allowed Daiichi’s appeal on this issue. The Court of Appeal also held that, due to the joint insurance provisions, the owners were not entitled to claim against the demise charterparty in respect of insured losses, also reversing Teare J’s finding on this issue. The Court of Appeal decision was the subject of a note at http://forwarderlaw.com/2015/07/22/gard-marine-energy-ltd-v-china-national-chartering-co-ltd-2015-ewca-civ-16-joint-insurance-and-subrogation/
Gard appealed to the Supreme Court on both the safe port and insurance points. In addition, the Supreme Court was asked to decide whether Daiichi would be entitled to limit its liability for loss of the ship pursuant to the 1976 Convention on Limitation of Liability for Maritime Claims (“the Convention”) enacted into English law by the Merchant Shipping Act 1995. This issue was not considered by the courts below as it was accepted that they were bound by the decision of the Court of Appeal in The CMA Djakarta [2004] 1 Lloyd’s Rep 460 which had held that such limitation was not possible.
The Supreme Court unanimously dismissed the appeal on the ground that there was no breach of the safe port undertaking. The other two issues in the appeal were as such strictly speaking irrelevant to the outcome but the Court considered them anyway.
It was common ground that the test for breach of the safe port undertaking is whether the damage sustained by the vessel was caused by an “abnormal occurrence” , that the date for judging the breach of the safe port promise is the date of nomination of the port and the promise is a prediction about the safety of the port when the ship arrives in the future. ‘Abnormal occurrence’ should be given its ordinary meaning; something rare and unexpected that the notional charterer would not have in mind. The test is not whether the events which caused the loss are reasonably foreseeable. The fact that the combination of long waves and northerly gales was theoretically foreseeable did not make it a “normal characteristic” of the port. Importantly no vessel in the port’s history had risked damage in the quay due to long waves at the same time the Kashima Fairway was un-navigable because of gale force winds. There was also evidence regarding the exceptional nature of the rapid development, duration and severity of the storm. On the basis of this evidence the conditions in question were an abnormal occurrence and there was therefore no breach by Daiichi of the safe port undertaking.
Furthermore, and assuming there had been a breach of the safe port warranty, Lords Toulson, Mance and Hodge held that the provisions of clause 12 of the demise charter (providing for joint insurance and a distribution of insurance proceeds) amounted to a comprehensive scheme for an insurance funded result in the event of loss of the vessel by marine risks so as to preclude the claim. Lord Sumption and Lord Clarke however took a contrary on this issue.
Had there been a breach of the safe port warranty the Supreme Court also unanimously agreed that Daiichi would not have been entitled to limit its liability under the Convention. Article 2(1)(a) of the Convention allows owners or charterers to limit liability for loss or damage to property “occurring on board the ship” or “in direct connexion with the operation of the ship”. The court agreed with the Court of Appeal in the earlier The CMA Djakarta case that giving the words their ordinary meaning, this category of claim did not include loss or damage to the ship itself. This interpretation was supported by Articles 9 to 11 of the Convention and there was nothing in the travaux préparatoires which supported any contrary conclusion.
Paul Bugden Bugden & Co September 2017