In the recent decision in the OCEAN VICTORY1, the Court of Appeal held that the port of Kashima in Japan was not unsafe, and that consequently the demise charterers could not recover damages for breach of the safe port warranty from their time charterers. Whilst not strictly necessary, the Court went on to discuss an important issue of principle raised, namely the “recoverability issue”.
The demise charterers had brought a claim in the amount of US$137.7 million against the time charterers in respect of the demise charterers’ alleged liability to head owners arising out of the casualty. Clause 12 of the demise charter (on the BARECON 89 form) required the demise charterers to effect and pay for marine, war and P&I insurance in the parties’ joint names.
The Court examined previous authorities and found that even where there is no provision for joint insurance, but the insurance is paid for by one party for both parties’ benefit, the insurance will be held to cover that party’s liabilities, and there will be no rights of subrogation. It follows that where, as in the instant case, the parties have agreed to take joint insurance, this is even more likely to evidence an agreement to exclude rights of recovery by one party against the other in respect of insured losses.
The fact that the demise charterers had paid for insurance for their own and the owners’ joint benefit showed that the parties intended insured losses to be compensated by that insurance. Accordingly, even if the demise charterers had breached the safe port undertaking, the owners had no rights of recourse against the demise charterers in respect of insured losses, and consequently the owners’ insurers had no rights of subrogation against the demise charterers. This in turn meant that the demise charterers, having no liability to the owners, had suffered no loss which they could pass on to the time charterers down the charterparty chain.