CASE: Herculito Maritime Ltd and Others v Gunvor International BV and

Others (The “Polar”) [2020] EWHC 3318 (Comm)

Introduction: On October 2010 the M/V Polar (“Vessel”) was engaged on a

voyage from St Petersburg to Singapore carrying fuel oil. pursuant to a voyage
charter ("Charterparty") between the owners, Herculito Maritime Ltd
(“Herculito”), and Clearlake Shipping Ltd ("Clearlake").
The was vessel kidnapped by pirates in Gulf of Aden for a ransom amount.
After a period of ten months since the seizure of the ship, Owners paid a ransom
of USD 7.7million to secure the release of the ship, and was refunded this sum
by the war risks and K&R underwriters. The case was taken to court to see
whether shipowners can claim to recover ransom payment from bill of lading
holders, as general average contribution.

Case In Detail: In the year 2010 the M/V Polar (“Vessel”) was engaged on a
voyage from St Petersburg to Singapore carrying 69,493.28 metric tons of fuel
oil fuel pursuant to a voyage charter ("Charterparty") between the owners,
Herculito Maritime Ltd (“Herculito”), and Clearlake Shipping Ltd
("Clearlake"). Whilst transiting the Gulf of Aden, the vessel was seized by
Somali pirates and held for ransom. She was released following payment of a
ransom of US$7,700,000. The holders of all six bills issued in respect of the
cargo carried on board were Gunvor International BV (“Gunvor”).

Herculito had chartered the vessel to Clearlake on the terms of an amended

BPVOY4 form with additional clauses, which included a long War Risks
clause, together with an additional War Risks and an additional Gulf of Aden
clause. The latter required Clearlake to pay for additional War Risks and
Kidnap and Ransom ("K&R") insurance to transit the Gulf of Aden. The bills
provided that freight was payable as per the Charterparty Agreement. The bills
of lading contained general words of incorporation which purported to
incorporate "terms and conditions, liberties and exceptions" of the Charterparty.

After a period of ten months since the seizure of the ship, Owners paid a ransom
of USD 7.7million to secure the release of the ship, and was refunded this sum
by the war risks and K&R underwriters.
General average was declared by the owner of the vessel (Herculito) and cargo
underwriters provided a general average guarantee and Gunvor (cargo owner)
provided a general average bond. An adjustment was issued pursuant to which
US$4,829,393.22 was held to be the amount of Gunvor's contribution to general
average. Cargo owners provided the security but at the same time they argued
that they were not liable to contribute to GA because the bills of lading
incorporated the charterparty terms, and the charterparty terms conferred upon
them the benefit of the war risks and K&R insurances. Cargo owners referred
Owners’ claim to London arbitration.
The arbitration tribunal
Two questions were put to the arbitration tribunal for determination:
1. Were the terms of the voyage charterparty agreement, particularly the war
risks and Gulf of Aden clauses, incorporated into the bills of lading?
2. If so, did Owners, on the true construction of the bills of lading and/or by
implication, agree to look solely to their insurance cover under the war
risks and/or K&R insurances in the event of a loss covered by that
insurance cover?
The arbitrator, was in favor of Gunvor, held that the Charterparty terms were
incorporated in the bills of lading and, thus as per those terms, the owners’ only
remedy was to recover the ransom sum from the insurers under the terms of the
K&R insurance policy and the War Risks policy.
The vessel owner appealed to the Admiralty Court.
On appeal the court studied three distinct questions.
1. Had the provisions of the Charterparty relating to payment of additional
War Risk and/or K&R premium been incorporated into the bills?
The court declared that the words of incorporation in the bills of lading were
wide enough to incorporate the above Charterparty provisions. In principle,
charterparty terms that are directly connected to the loading, carriage and/or
discharge of the cargo will be incorporated, but there is no automatic
presumption of incorporation.

2. Were the owners barred from recovering a contribution from the

charterers in general average in respect of the ransom, and were they
restricted to recovering an indemnity under their insurance policies?
Following the judgment in the Ocean Victory, where there is an agreement that
owners obtain war risks insurance and charterers pay the premium, then the
general rule is that the parties agree to look to the insurers for indemnification in
respect of losses caused by such risks rather than to each other. If the charterers,
as cargo interests, were to be liable in GA, the “remarkable result” would
follow, namely, that charterers would have paid the premium as agreed and yet
would still be liable in respect of losses caused by the peril insured against.
Thus, on the true construction of the charterparty, owners were precluded from
seeking to recover the loss from the charterers by way of a contribution in GA.

3. Did the insurance provisions incorporated into the bills of lading have the
effect of precluding the owners from recovering a general average
contribution from the holders?
As set out above, the provisions which obliged the charterers to pay for the
additional war risk insurance premium, although incorporated into the bills,
did not have the effect of making the holders of the bills of lading liable for
such expenses or the additional insurance premium. Consequently, it could
not be said that there was an agreement in the bills that the owners would not
seek contribution in GA from the holders. Therefore, the bills did not
preclude cargo interests’ liability in GA or in respect of other losses covered
by the additional insurances.
The Admiralty Court ruled in the Vessel Owner’s favor thus reversing the
decision of the arbitration tribunal.

Conclusion/ANALYSIS
No previous case has considered the incorporation from a charterparty into bills
of lading of war risks clauses or their equivalent. Nor has a previous case
considered the effect of “insurance provisions”

Conclusion
This is a welcome ruling for ship owners. The Court of Appeal has clarified that
clear words will be needed in a bill of lading if cargo interests are to be
excluded from their liability to contribute to GA. More broadly, the Court
reaffirmed that it is necessary to read, and to interpret, a bill of lading as a
whole to determine whether a particular term of a charterparty has been
incorporated into the bill of lading.

This case is very interesting because the court considered whether the
agreement by charterers to pay the insurance premium for any types of losses
affects the liabilities of a bill of lading holder in respect of losses falling within
the relevant insurance policy.
This decision is very important as it also serves as a useful reminder that parties
should ensure that their contractual arrangements accurately reflect the way in
which the parties intend risk to be allocated for piracy and GA losses.