English Courts have recently rendered two significant decisions on piracy.

The M/v “VALLE DI CORDOBA1case – The “in-­‐ transit loss” clause

In this case, the Court of Appeal has clarified the proper meaning of the expression “in-­‐transit loss” provided for in the relevant clause included in a voyage  charterparty.

The M/v “VALLE DI CORDOBA” was chartered by Trafigura Beheer BV for the carriage of a consignment of premium motor oil. The charterparty was on a Beepeevoy 3 form and incorporated an amended version of Trafigura Chartering Clauses.

The vessel was attacked by armed pirates while she was off Lagos (Nigeria). The pirates took control of the vessel, forced the crew to transfer a part of the cargo to a lightering ship and stole it.

The Charters claimed against the Owners for the value of  the stolen cargo on the basis  that  the charterparty provided the following “in-­‐transit loss” clause:

In addition to any other rights which Charterers may have, Owners will be responsible for the full amount of any in-­‐transit loss if in-­‐transit loss exceeds 0.5% and Charterers shall have the right to claim an amount equal to the FOB port of loading value of such lost cargo plus freight and insurance due with respect thereto. In-­‐transit loss is defined as the difference between net vessel volumes after loading at the loading port and before unloading at the discharge port."

The Charterers argued that there was a difference between the net vessel volume after loading at the loading port and the net vessel volume before unloading at the discharge port and that  therefore such  difference  should  be  considered  an   “in-­‐ transit  loss”  pursuant  to  the  clause  quoted  above.

Owners replied that the clause could not apply to such cargo, which was discharged prior to the vessel’s arrival at the port of discharge and that the clause covered only incidental losses occurred during the ordinary course of transit.

In addition, the Owners pointed out that the charterparty incorporated the Hague Visby Rules, which exclude the Owners’ liability in case of loss due to acts of piracy.

The Court of Appeal -­‐ upholding the High Court decision -­‐ stated that an “in-­‐transit loss” is an incidental loss occurred during the carriage of the cargo for reasons inherent to the transportation itself, and does not extend to losses caused by external factors such as acts of piracy2.

According to the Court, a different interpretation of the expression “in-­‐transit loss” and thus of the relevant clause, would have de facto made the Owners the insurers of the cargo.

Moreover, the Court deemed that even if the clause were construed in such a way as to cover, in theory, any kind of loss, the Owners would have been anyway able to invoke the provisions set out by the Hague Visby Rules to exclude their liability.

This decision gives the meaning of the expression “in-­‐transit loss” and it is quite important because if the Owners had been held liable for the loss, they would have lost their P&I cover.

Indeed, Club’s rules provide that the cover is lost if the Owners agreed in the contract of carriage to a liability system which is more  burdensome than the one provided for by the Hague Visby Rules.

The  M/v  “BRILLANTE  VIRTUOSO1 case    –  A constructive total loss resulting from a pirate attack

In  July  2011,  the  M/v  “BRILLANTE  VIRTUOSO” was at anchorage off Aden when pirates, who ordered the Master to sail to Somalia, took her.

However, the main engine stopped and could not be restarted,  so the pirates detonated an explosive device that destroyed the whole vessel’s engine room.

Upon the vessel’s release and the accomplishment of the necessary salvage operations, the Owners sought quotes for the repair works from a shipyard in Dubai and in China.

Having considered the costs of repair, the Owners deemed that the costs would exceed the insured value.

As a consequence, the Owners, deeming that a constructive  total  loss  had  occurred,  served  a notice of abandonment on the Insurers, which rejected said notice.

Subsequently, the Owners sold the vessel for scrap, without the Insurers objecting the sale.

Pursuant to the insurance policy taken out2, the Owners claimed from the Insurers an indemnity for constructive total loss and the repayment of salvage expenses incurred.

The Insurers argued that the Owners were in breach of warranty since they failed to apply the Best Management Practices to Deter Piracy and the vessel had delayed the transit through the Gulf of Aden (breaching the Talbot Gulf of Aden warranty, which prevented vessels to delay the transit through the Gulf ).

In addition, the Insurers asserted that (i) the Owners had lost the right to claim for a constructive total loss by selling the vessel for scrap and (ii) on completion of the salvage operations, the perils covered by the insurance policy ceased to operate and therefore the salvage expenses incurred after the redelivery of the vessel by salvors were not recoverable.

Therefore, the High Court  was asked to decide whether (i) the vessel  was a constructive total loss and, in the affirmative case, if the Owners had lost the right to claim for a constructive total loss by reason of the sale of the vessel; (ii) the Owners were entitled to the repayment of salvage expenses incurred.

The Court found that:

  • in order to claim for a constructive total loss, the Owners had to prove that the costs of repair exceeded the insured value. In the case at issue, the costs of repair in Dubai alone exceeded  the  insured  value.  However,  the Court, having taken into account all the relevant circumstances, stated that a prudent uninsured owner in the position of the claimant would have carried out the repairs in Dubai1. In light of the above, the Court held that the M/v  “BRILLANTE VIRTUOSO” was a constructive total loss;
  • given that the Insurers had been informed of the sale of the vessel and did not objected it, the Owners had not lost the right to claim an indemnification for constructive total loss. Indeed, the Court stated that the Owners, by selling the vessel, acted in the interests of both themselves and Insurers;
  • the Owners were entitled to an indemnity for salvage expenses because the vessel -­‐ after the salvage operations – was anyway exposed to the risks still covered by the insurance policy (for example, piracy or vandalism).

This decision relates to the first stage of the trial, which dealt with the issues connected with the nature of the claim. The second stage will concern the Owners’ alleged liability for breach of warranty.

This second stage will be even more interesting and we shall keep you posted on the developments of this case.