Mitsui & Co Ltd and others v Beteiligungsgesellschaft LPG Tankerflotte MBH & Co KG and another

Under Rule F of the York-Antwerp Rules 1974, expenditure which successfully mitigates an expense of a kind allowable in general average is deemed to be general average, subject to the amount saved. The avoided expense need not have been reasonable in its full amount, and the mitigating measure need not be a different type of course from that ordinarily expected.

The inquiry whether one expense was incurred in place of another is objective. An additional expense is “extra” if it would not otherwise have been incurred. Rule C’s exclusion of losses caused by delay does not exclude expenditure recoverable under Rule F, while the specific allowances in Rule XI do not impliedly restrict the lettered Rules.

Pirates seized the chemical carrier MV Longchamp while it was carrying cargo from Norway to Vietnam. They initially demanded a ransom of US$6m. After 51 days of negotiation, the owners secured the vessel’s release for US$1.85m. The ransom and the specialist negotiators’ costs were accepted as general average, but the cargo interests disputed approximately US$160,000 in crew wages, maintenance and bunkers incurred during the negotiations.

The deputy judge held that those operating expenses were recoverable under Rule F of the contractually incorporated York-Antwerp Rules 1974: [2015] 1 Lloyd’s Rep 76. The Court of Appeal held that negotiation was not a true alternative course of action and decided for the cargo interests: [2016] EWCA Civ 708; [2016] Bus LR 1285.

The central issue was whether the operating expenses were extra expenses incurred in place of an expense which would have been allowable in general average.

1. Appeal allowed by a majority. Lord Neuberger, with whom Lord Clarke, Lord Sumption and Lord Hodge agreed, held that the US$160,000 negotiation-period expenses fell within Rule F. The deputy judge’s decision was restored. Lord Mance dissented.

2. Rule F refers to an avoided expense which is of a nature allowable in general average. It does not require the whole quantum of the avoided expense to satisfy Rule A’s requirement of reasonableness. “Allowable” points naturally towards the types of loss or expense addressed by Rule C, while Rule F’s closing words separately cap recovery at the amount of general average expense avoided. The ransom was an allowable type of expense. The costs incurred to reduce it were therefore recoverable, subject to the cap.

3. Rule F contains no restrictive requirement that the claimant adopt a fundamentally different or unusual course of action. In any event, incurring vessel-operating expenses while negotiating was an alternative to paying the additional US$4.15m demanded as ransom. Internationally agreed rules incorporated into contracts should be interpreted according to their natural language and without implied qualifications unless necessary for workability, intelligibility or the avoidance of absurdity. Practitioner understandings and adjusting practices could inform the context but could not determine this legal question.

4. The relationship between the expenses was assessed objectively. The owners did not have to prove that they consciously chose between immediate payment and negotiation. “Extra expense” meant expenditure which would not otherwise have been incurred. The trial judge was entitled to find that the 51-day delay, and hence the claimed expenses, would probably not have occurred had the initial demand been accepted.

   Rule C would have excluded the operating expenses if claimed merely as losses consequent upon delay. It did not exclude them when they represented expenditure which successfully mitigated a larger general average expense under Rule F. Nor did Rule XI’s specific allowance of crew and vessel expenses in port-of-refuge cases impliedly exclude their recovery under a lettered Rule in other circumstances.

5. Lord Mance considered that Rule F required the avoided hypothetical expenditure to have been reasonably allowable under Rules A and C. He concluded that immediate payment of the US$6m demand would have been unreasonable and that the owners had not advanced an alternative factual basis for partial recovery. He would therefore have dismissed the appeal.

1. United Kingdom Supreme Court: By a majority, allowed the owners’ appeal and restored the deputy judge’s decision: [2017] UKSC 68.
2. Court of Appeal: Decided for the cargo interests because negotiation did not constitute a true alternative course of action for Rule F purposes: [2016] EWCA Civ 708; [2016] Bus LR 1285.
3. Commercial Court: The deputy judge held that the negotiation-period expenses were allowable under Rule F: [2015] 1 Lloyd’s Rep 76.