Herculito Maritime Ltd & Ors v Gunvor International BV & Ors

General words incorporating a charterparty into a bill of lading do not automatically transfer every charterparty obligation to the bill of lading holder. The court must construe the incorporated terms intelligently, identifying whether they are directly germane to shipment, carriage or delivery and whether contractual language can properly be substituted. An obligation to pay additional insurance premiums is not incorporated against bill of lading holders where the bills state that freight is the price of carriage and give no clear basis for apportioning the premium. An insurance-funded allocation may exclude a general average claim between contracting parties where the party seeking the benefit agreed to pay the premium. That reasoning does not extend to bill of lading holders who made no such agreement. The shipowner therefore retained its right to claim general average from cargo interests.

The shipowners appealed under section 69 of the Arbitration Act 1996 from an experienced tribunal’s award concerning a ransom paid to Somali pirates after the vessel POLAR was seized during a voyage from St Petersburg to Singapore. Cargo interests resisted a general average claim, relying on charterparty war risks, Gulf of Aden and insurance provisions incorporated into the bills of lading.

The appeal concerned two linked questions: which charterparty provisions were incorporated into the bills, and whether the contractual insurance arrangements created an exclusive fund that prevented recovery of general average from bill of lading holders.

1. Appeal allowed. The tribunal was correct that the charterparty’s incorporation words were wide enough to bring the relevant war risks, additional war risk and Gulf of Aden provisions into the bills of lading. The court had to consider each component separately.
2. The owners’ liberties not to continue the voyage or to deviate were directly germane to carriage and were incorporated without manipulation. By contrast, the charterers’ obligations to pay expenses caused by those liberties, and to pay additional insurance premiums, remained accounting arrangements between owners and charterers. Substituting “bill of lading holders” for “charterers” would be inconsistent with the bills’ express provision that freight was the price of carriage and with the absence of any mechanism for allocating the premium between holders. The same reasoning applied to the relevant Gulf of Aden cost-sharing provisions.
3. As between owners and charterers, the insurance provisions constituted an arrangement under which the parties were, prima facie, to look to insurers for indemnification rather than to each other. The principle applied to a general average claim as well as to a claim for breach of contract. The general average clause remained effective for events outside the insured piracy risks.
4. That conclusion did not govern the bill of lading holders. Unlike the charterers, they had not agreed to pay the insurance premium. The contractual basis for treating the insurance as an exclusive fund was therefore absent. Incorporating the owners’ agreement not to seek general average from the charterers would detach that agreement from the charterers’ premium obligation and would be a mechanical, rather than intelligent, construction of the incorporation clause.
5. The bills of lading did not exclude the owners’ right to claim a general average contribution from cargo interests for losses caused by the insured piracy peril. The tribunal’s contrary conclusion was an error of law.

High Court (Commercial Court) — On an appeal under section 69 of the Arbitration Act 1996, Sir Nigel Teare allowed the appeal and held that the bill of lading holders remained liable in principle for general average contributions.