Herculito Maritime Ltd and others v Gunvor International BV and others

A contractual requirement that one party pay insurance premiums does not, without more, create an insurance code making insurance the sole avenue of recovery. That result must be a necessary consequence of the contract construed as a whole. The threshold is high, especially where the alleged code would surrender a valuable right to general average contribution.

General words incorporating charterparty terms into a bill of lading incorporate terms directly relating to shipment, carriage, delivery or freight. Incorporated terms are then construed within the bill of lading contract. They need not be manipulated where they operate sensibly in their original wording, particularly where manipulation would impose uncertain liabilities on holders.

Somali pirates seized a vessel during an agreed voyage through the Gulf of Aden. The shipowner paid a ransom and sought a general average contribution from cargo interests. The cargo interests argued that charterparty provisions requiring the charterer to pay additional insurance premiums created an exclusive insurance fund and that this arrangement passed into the bills of lading.

Arbitrators upheld that defence. The Commercial Court reversed the result on issues concerning the bills of lading: [2020] EWHC 3318 (Comm). The Court of Appeal dismissed the cargo interests’ appeal: [2021] EWCA Civ 1828.

The Supreme Court considered whether the charter created an insurance code, which charter terms were incorporated into the bills, whether any code applied between shipowner and bill holders, and whether references to the charterer should be replaced with references to bill holders.

1. The appeal was dismissed unanimously. Lord Hamblen, with whom Lord Hodge, Lord Leggatt, Lady Rose and Lord Richards agreed, held that the shipowner could claim a general average contribution from the cargo interests.

2. Whether contractual insurance arrangements exclude recourse between contracting parties is a question of construction. An exclusive insurance code must be a necessary consequence of the contractual scheme. The threshold resembles that for a necessarily implied term. There is no prima facie rule that requiring one party to pay insurance premiums makes insurance the exclusive remedy.

3. The charter did not create such a code. It contained no joint-names insurance. Payment of additional premiums did not itself release the charterer from contractual or general average liabilities. The charterer obtained a real benefit from that payment: the vessel would undertake the agreed Gulf of Aden transit despite the known piracy risk. The charter differed materially from the complete code in The Evia (No 2), which depended on its particular terms.

4. The agreed route and special Gulf of Aden regime qualified the shipowner’s clause 39 war-risk liberties. The shipowner could not refuse the transit because of the same piracy risk known and accepted when contracting. Clause 39 might apply if a different war risk arose or the piracy risk changed sufficiently to become qualitatively different.

5. All material parts of the Gulf of Aden and War Risk clauses were incorporated into the bills of lading. General incorporation covers charter terms directly relating to shipment, carriage, delivery or freight. The insurance-premium provisions formed an important part of the contractual allocation governing the route and qualified the clause 39 liberties. The relevant regime therefore had to be incorporated as a whole.

6. Even assuming that the charter contained an insurance code, it would not govern the bills of lading. Incorporated clauses are construed within each bill contract. In their unaltered wording, only the charterer had to pay the premiums. The bill holders neither paid the price for nor became parties to the alleged bilateral insurance arrangement.

7. No manipulation of the incorporated clauses was justified. References to the charterer made sense as a record of the agreed voyage terms. Replacing them with references to bill holders would create unclear and potentially unlimited liabilities, including uncertainty about allocation among holders. The shipowner therefore remained entitled to the general average contribution.

1. United Kingdom Supreme Court: Dismissed the cargo interests’ appeal and affirmed the result reached below: [2024] UKSC 2 .
2. Court of Appeal: Dismissed the appeal from the Commercial Court, holding that the cargo interests had to contribute in general average: [2021] EWCA Civ 1828 , [2022] 1 Lloyd’s Rep 375.
3. Commercial Court: Allowed the shipowner’s appeal from the award on the bill-of-lading issues and held the cargo interests liable to contribute: [2020] EWHC 3318 (Comm) , [2021] 1 Lloyd’s Rep 150.
4. Arbitration: The tribunal’s preliminary award dated 8 January 2020 held that the charter created an insurance code, incorporated it into the bills and relieved cargo interests of general average liability.