Mitsui & Co Ltd & Ors v Beteiligungsgesellschaft LPG & Ors

Under the York-Antwerp Rules 1974, Rule F requires a genuine choice between alternative courses of action. Ordinary operating costs incurred during ransom negotiations are not substituted expenses where accepting the initial demand and negotiating a lower ransom are merely different ways of pursuing the same course. The hypothetical alternative expense must still have been reasonably incurred, although that requirement is applied with latitude. Bunker consumption may constitute an expense. Under Rule A, expenditure need not have preservation of property from peril as its sole or predominant purpose. It is enough that preservation from peril was an effective cause of the expenditure.

The appellants, principally cargo interests, challenged a High Court decision concerning general average following the hijacking of the vessel Longchamp by Somali pirates. The ransom was reduced from US$6 million to US$1.85 million after 51 days of negotiation.

The High Court held that crew wages, bonuses, maintenance and bunkers incurred during the negotiation period were allowable under Rule F, and that media response costs were allowable under Rule A. The appeal concerned whether the negotiation-period expenses were substituted expenses, whether payment of the initial ransom demand would have been reasonable, whether bunker consumption was an expense, and whether the media costs were incurred for the common safety.

Disposition. The Court of Appeal allowed the appeal as to the crew wages, high-risk-area bonus, crew maintenance and bunkers, and dismissed it as to the media response costs. Hamblen LJ gave the leading judgment. Sir Timothy Lloyd and Kitchin LJ agreed.

1. Rule F. The court adopted the four requirements identified by the judge: the claim must concern an expense; the expense must be extra; an alternative course must have involved expenditure properly allowable in general average; and the extra expense must have been incurred in place of that alternative expenditure. The words in place of require a genuine choice between alternative courses. Accepting the pirates’ initial ransom demand and negotiating a reduced ransom were not different courses in this case. Both involved negotiating for release by ransom, and both involved delay and vessel-running costs. There was therefore no true alternative expense against which the claimed costs could be substituted. The appeal succeeded on Issue 1.
2. Hypothetical reasonableness. Assuming that immediate payment was an alternative course, the hypothetical ransom would still have had to be reasonably incurred under Rule A. That requirement could not be ignored, although it had to be applied with sufficient latitude to give Rule F practical effect. The court declined to transfer to Rule F the assumptions used in The Bijela under Rule XIV, because the wording and context of the rules differed. Having regard to the risks of delay and the evidence concerning Somali piracy, including Masefield AG v Amlin Corporate Member Ltd [2010] EWHC 280 (Comm), payment of the initial demand could reasonably have been made. Issue 2 was dismissed. This reasoning was alternative because Rule F was not engaged.
3. Bunkers. Consumption of bunkers could constitute an expense. The classification depended on context, and the expense of paying for bunkers consumed remained an expense even though bunker consumption might elsewhere be treated as a general-average sacrifice. Issue 3 was dismissed.
4. Common safety. Rule A did not require preservation of the property from peril to be the sole or predominant purpose of expenditure. It was sufficient that preservation from peril was an effective cause. The media response costs were therefore recoverable under Rule A, and Issue 4 was dismissed.

• High Court of Justice, Queen’s Bench Division, Commercial Court (Mr Stephen Hofmeyr QC, sitting as a Deputy High Court Judge; 2013 Folio 1270): held that crew wages, the high-risk-area bonus, crew maintenance and bunkers were allowable under Rule F, and that media response costs were allowable under Rule A.
• Court of Appeal (Civil Division): allowed the appeal as to the first four categories of expenditure and dismissed it as to the media response costs: [2016] EWCA Civ 708.