Pacific Basin IHX Ltd v Bulkhandling Handymax AS

Under CONWARTIME 1993, an owner may refuse an order where there is a real likelihood, meaning a real danger, that the vessel will be exposed to acts of piracy. The test concerns the likelihood of exposure, not merely the seriousness or prominence of the threatened harm. The owner’s judgment must be made in good faith and must be objectively reasonable. The clause does not require a separate implied term compelling every possible enquiry, although a complete failure to enquire may indicate that no genuine judgment was made. Where the charterer’s route instruction is unlawful but the destination remains lawful, proceeding by a commercially reasonable alternative route may fulfil the owner’s duty to prosecute the voyage with due despatch and may not constitute deviation.

Pacific Basin chartered the vessel Triton Lark from Bulkhandling under a time charter incorporating CONWARTIME 1993. Pacific ordered carriage of potash from Hamburg to China via Suez and the Gulf of Aden. Bulkhandling, following the head owners’ refusal to use that route because of piracy, ordered the vessel to proceed via the Cape of Good Hope.

In arbitration, Bulkhandling recovered the additional cost of the Cape route. Pacific appealed on questions of law under section 69 of the Arbitration Act 1996. The issues were the meaning of the piracy-risk threshold, the reasonableness and investigation of the owners’ judgment, and whether proceeding via the Cape was a deviation.

1. Appeal and error of law. The arbitrators applied the wrong legal test in construing CONWARTIME 1993. The award therefore required reconsideration, although the court deferred making an order for remission pending further submissions.
2. Meaning of the risk threshold. Reading sub-clauses (1)(b) and (2) together, the Master or Owners must reasonably judge, first, that the vessel, cargo or crew may be or are likely to be exposed to acts of piracy and, secondly, that those acts may be dangerous or likely to become dangerous. “May be, or are likely to be” expresses one degree of probability. It means “likely to be”, assessed as a real likelihood or real danger. A bare possibility is insufficient, and more likely than not is unnecessary.
3. The assessment under sub-clause (2) concerns the probability of exposure to piracy. The seriousness or importance of the threatened harm is relevant to the definition of War Risks under sub-clause (1)(b), but does not replace the probability assessment required by sub-clause (2). The arbitrators instead treated “serious risk” as an important risk demanding consideration, and thereby applied an erroneous test.
4. Owners’ judgment. The judgment must be made in good faith and must be objectively reasonable. The clause did not require an additional implied term that every possible enquiry be made. An owner who makes no enquiries may be found not to have made a genuine judgment. Failure to make every enquiry is not itself decisive if the judgment was objectively reasonable.
5. Route and deviation. The arbitrators’ conclusion that proceeding via the Cape was not a deviation disclosed no error of law. Pacific’s order as to destination remained lawful, while its route instruction was not. Proceeding to China via the Cape fulfilled the duty to prosecute the voyage with due despatch and was conduct within sub-clause (8).
6. The court could not determine the factual probability of attack on a section 69 appeal. The question whether there was a real likelihood, in the sense of a real danger, that this vessel would be exposed to piracy was therefore left for the arbitrators, having regard to the evidence and available risk-mitigation measures.

• High Court (Commercial Court): Appeal from an award dated 14 December 2010 by three LMAA arbitrators, brought with leave under section 69 of the Arbitration Act 1996. The court identified an error of law and deferred the order for remission.