Hercultio Maritime Limited & Ors. v Gunvor International BV & Ors.

Whether charterparty terms are incorporated into a bill of lading is a question of objective construction. The usual staged analysis is iterative: provisional conclusions must be revisited and tested against the contract and business common sense. Wide words may incorporate war-risk terms directly relevant to the route and carriage, but do not automatically incorporate every charterparty provision. A requirement that the charterer pay insurance premiums need not be rewritten to bind bill-of-lading holders where the documents provide no workable allocation or reimbursement mechanism. Insurance paid by the charterer does not, without clear words, create an exclusive fund barring general-average recovery from cargo interests. The result is especially clear where cargo interests have their own insurance covering the contribution.

The owner of the vessel POLAR sought cargo interests’ contribution in general average after a ransom was paid to Somali pirates who had detained the vessel in the Gulf of Aden. The bills of lading incorporated the relevant charterparty terms, including war-risk and Gulf of Aden provisions.

An arbitral tribunal held that the cargo interests were not liable to contribute. On an appeal under section 69 of the Arbitration Act 1996, Sir Nigel Teare reached the opposite conclusion in [2020] EWHC 3318 (Comm). The central issues before the Court of Appeal were which charterparty terms were incorporated and whether they excluded the shipowner’s right to recover a general-average contribution from the bill-of-lading holders.

The appeal was dismissed unanimously. Males LJ gave the leading judgment, with which Elias LJ and Jackson LJ agreed.

1. The incorporation of charterparty terms into bills of lading is an objective question of construction of the bill-of-lading contract. The staged approach described in Scrutton on Charterparties is convenient but provisional. The court must revisit earlier conclusions and stand back to test the result against the contract and business common sense. That approach was consistent with Wood v Capita Insurance Services Ltd [2017] UKSC 24.
2. The wide incorporating words were sufficient, at least prima facie, to include the war-risk and Gulf of Aden provisions. Those provisions were directly relevant to the agreed route through Suez and the Gulf of Aden. However, provisions concerned with matters before loading, laytime, demurrage and charterparty expense-sharing had no place in the bill-of-lading contract.
3. The requirement that the charterer pay additional war-risk and kidnap-and-ransom premiums was incorporated, but it was not appropriate to manipulate the reference to the charterer so as to impose that liability on bill-of-lading holders. The documents gave no workable basis for allocating liability between several holders or for regulating reimbursement between them.
4. The incorporated provisions nevertheless served a useful purpose. They recorded the basis on which the shipowner agreed to use the Suez and Gulf of Aden route, namely that insurance against piracy risks would be available and funded by the charterer.
5. The ultimate question was whether the bills excluded cargo’s liability for general average. The Court treated The Evia (No. 2) [1983] AC 736 and The Ocean Victory [2017] UKSC 35 as fact- and contract-specific authorities, not as establishing an automatic rule that insurance paid for by one party creates an exclusive fund. The charterer was not a named co-insured and had only a limited premium obligation. The cargo interests had their own insurance covering general-average liability.
6. Applying the presumption identified in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, clear express words were needed to show that the shipowner had abandoned its legal remedy against cargo interests. No such words appeared. The shipowner was therefore entitled to recover the cargo’s general-average contribution. The appeal was dismissed, costs were ordered in the sum of £95,000, and permission to appeal to the Supreme Court was refused.

1. Court of Appeal (Civil Division): In [2021] EWCA Civ 1828, the appeal was dismissed. The appellants were ordered to pay £95,000 in costs, and permission to appeal to the Supreme Court was refused.
2. Commercial Court: Sir Nigel Teare, in [2020] EWHC 3318 (Comm), allowed the shipowner’s appeal under the Arbitration Act 1996 on the preliminary issues and concluded that the cargo interests were liable to contribute in general average.
3. Arbitration tribunal: The tribunal held that the relevant charterparty terms were incorporated but that the cargo interests were not liable to contribute in general average.