Gard Marine and Energy Limited v China National Chartering Company Limited and another

A safe-port undertaking is assessed prospectively when the port is nominated. It is not a continuing warranty. The port is safe if a reasonable shipowner, knowing the relevant facts, would use it unless an abnormal occurrence intervened.

An abnormal occurrence bears its ordinary meaning. It is a rare and unexpected event, well removed from the normal. A combination of conditions must be evaluated as one event, using evidence about the port’s history, frequency, likelihood and the event’s severity. Mere theoretical foreseeability is insufficient.

By a majority, the court considered that Barecon 89 clause 12 made joint insurance the sole means of recovering insured hull loss between owner and demise charterer. Unanimously, but obiter, it held that a charterer cannot limit liability for loss of the very vessel whose tonnage determines the limitation fund.

The OCEAN VICTORY grounded and became a total loss after encountering long waves and a severe northerly gale while leaving Kashima. Gard, a hull insurer and assignee of the owner’s and demise charterer’s rights, claimed through the chartering chain for breach of materially identical safe-port undertakings.

Teare J held that Kashima was unsafe and awarded damages. The Court of Appeal, [2015] EWCA Civ 16, allowed the charterers’ appeal. It held that the exceptional combination of conditions was an abnormal occurrence, so there was no breach. It also held that the joint-insurance provisions of Barecon 89 clause 12 precluded recovery between the owner and demise charterer for insured hull loss.

The Supreme Court considered whether the port was unsafe, whether the joint-insurance scheme precluded recovery if there had been a breach, and whether the time charterers could limit any resulting liability under the maritime limitation regime.

1. Disposition. The appeal was dismissed unanimously on the safe-port issue. The simultaneous long-wave conditions and exceptionally severe northerly gale were an abnormal occurrence. Kashima was therefore not unsafe within the undertaking, and the charterers were not in breach.
2. Safe-port undertaking. Applying The Eastern City [1958] 2 Lloyd’s Rep 127 and The Evia (No 2) [1983] 1 AC 736, the undertaking was prospective and fell to be assessed when the port was nominated. It was not a continuing warranty. The inquiry assumes normal conditions at the port and asks whether a reasonable shipowner, knowing the relevant facts and trading the particular vessel for its own account, would proceed there. Ordinary good navigation and seamanship must also be taken into account.
3. Abnormal occurrence. The expression has its ordinary meaning: an event well removed from the normal, out of the ordinary course and unexpected. The causative event must be examined as a whole. Where several conditions combine, it is wrong to classify each component separately and infer that their combination is also normal. The court should evaluate the port’s history, the frequency and likelihood of the combination, and the event’s severity, duration and development. Mere theoretical foreseeability does not make a rare event a characteristic of the port. Here no vessel had previously been dangerously trapped by the relevant combination, and the storm was exceptional.
4. Joint insurance—majority obiter. Lord Toulson and Lord Mance, with whom Lord Hodge agreed, held that Barecon 89 clause 12 established a comprehensive insurance-funded scheme for hull loss. Its commercial purpose included avoiding claims between co-insured owner and demise charterer. The added safe-port clause did not displace that scheme. Accordingly, had there been a breach, the demise charterer would have had no liability to the owner for the insured hull loss which could be passed down the chartering chain. Lord Clarke and Lord Sumption disagreed. They considered that clause 12 did not exclude liability; insurance payment instead satisfied it, leaving a claim against a third-party time charterer. The court left open possible claims based on possessory title or transferred loss.
5. Limitation—unanimous obiter. Under section 185 of the Merchant Shipping Act 1995 and the Convention scheduled to it, “charterer” did not require a gloss limiting the term to conduct undertaken as owner. Nevertheless, article 2(1)(a) did not cover loss of the very vessel whose tonnage would calculate the fund. The operating ship could not simultaneously be the damaged property contemplated by that provision. The charterers therefore could not have limited liability for the vessel’s loss by reference to that vessel’s tonnage.

The parties were invited to make submissions on declarations and costs within 21 days.

1. United Kingdom Supreme Court: In [2017] UKSC 35, unanimously dismissed Gard’s appeal on the safe-port issue and affirmed that the conditions were an abnormal occurrence. It also addressed the joint-insurance and limitation issues obiter.
2. Court of Appeal: In [2015] EWCA Civ 16, allowed the charterers’ appeal and set aside Teare J’s judgment. It held that the conditions were an abnormal occurrence, that there was no breach of the safe-port undertaking, and that the joint-insurance provisions precluded recovery for insured hull loss.
3. High Court: Teare J held that the casualty resulted from the port’s unsafety and awarded damages comprising the vessel’s agreed value, SCOPIC expenses, wreck-removal expenses and loss of hire.