In its 10 May decision in the "OCEAN VICTORY" ([2017] UKSC 35) the Supreme Court addressed two familiar topics of great importance in shipping and international trade - safe port and tonnage limitation - and by its ruling on joint insurance it has probably added a third. This article discusses the significance of the outcome on each point.

Facts

In mid September 2006 the vessel sailed from South Africa laden with iron ore, arriving at the nominated discharge port of Kashima in Japan on 20 October. A long-wave Pacific swell developed, and to avoid damage the vessel left the berth and attempted to sail out. She was caught by a severe storm in the port’s access channel - the Kashima Fairway - and grounded and later broke in two. The H&M underwriters made a subrogated claim for the loss of the vessel, arguing that Kashima was unsafe.

Long-wave swell together with an intense storm had not happened at Kashima for a great many years, and that combination was accepted as rare.

The (Barecon 89) demise, time and sub-time charterparties all had materially the same safe port provision. In the demise charterparty this was additional clause 29, a tailored clause which replaced the standard trading limits clause 5, and set out charterers’ liability for an unsafe port.

Safe port

There was no challenge to the "EASTERN CITY" summary, which has stood since 1958, that a port:

" ... will not be safe unless … the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship ..." (Italics added).

The Supreme Court held that the port was safe as there had indeed been an "abnormal occurrence". The unusual blend of storm and swell was not a normal characteristic of the port. It was "something well removed from the normal. It was out of the ordinary course and unexpected".

Limitation

Seeking a review of what was widely thought to be settled law, the charterers challenged the Court of Appeal’s 2004 ruling in the "CMA DJAKARTA". This was that under the 1976 Convention charterers cannot establish a limitation fund according to the tonnage of the vessel they are alleged to have damaged, and the Supreme Court unanimously upheld that.

Joint insurance

Under standard clause 12 of Barecon 89, the charterers had arranged the required insurance, in their own and also owners’ names. They argued that proper construction of the charterparty meant that, for matters jointly insured like this, they had no further liability. For all such matters the owners could look only to the insurance. They had no further claim for the loss of the vessel, and this meant that no such (subrogated) claim could be made down the charterparty chain.

By a 3:2 majority the Supreme Court agreed. Looking at the charterparty as a whole, the insurance provisions were an "exhaustive code" on liability for the insured matters, so for those the owners had no other claim against the demise charterers.

If the port had been held unsafe, that would have put an end to any recovery claim for the loss of the vessel.

The Supreme Court decided this even though:

1. All the cases relied on by the charterers involved claims just between two joint insureds. On that basis, Lord Sumption urged that (if the port was unsafe) it would still have been possible for either of them here to pursue someone else, and so ultimately the sub-time charterers whose nomination would have caused the loss;
2.  Clause 12 does not waive subrogation, but the deleted alternative, clause 13, does. So the owners had argued that the insurance was not their only remedy, as the parties had retained subrogation rights by removing a clause that did the opposite; and most significantly
3. The parties had certainly considered safe port liability, as they had deleted the standard clause 5 and inserted their own wording by additional clause 29.

Discussion

Rather than making new law, this case highlights the nature of an abnormal occurrence, and emphasises the fact-specific nature of the doctrine of safe port. Perhaps with a shade of irony, the Supreme Court approved the charterers’ submission that "safe port disputes should be reasonably straightforward."

Unremarkably, it is now firmly established that charterers cannot limit under the 1976 Convention using the tonnage of the same vessel that they are said to have damaged.

However, the significance of the ruling on the effect of clause 12 of Barecon 89 may go far beyond that standard form. Though confined to the particular charterparty terms, wherever joint insurance appears this decision should provide an alert to parties to consider their clausing carefully, and craft wording that preserves recovery rights where such is intended.

If you would like to discuss any point or topic in this article please contact a member of the M Taher & Co team.