Summary

Charterers (and their insurers) concerned by the first instance decision in The "Ocean Victory" may rest a little easier following the successful appeal which saw Daiichi Chuo overturn a judgment of over US$130 million against them.

The facts

Ocean Victory, a capsize bulk carrier owned by Ocean Victory Maritime Inc. was demise chartered to Ocean Line Holdings Ltd for a period of 10 years on an amended Barecon 89 form. As required by the charterparty, both the registered owners and demise charterers (who paid the premiums) were named on the vessel's hull policy, which was written by Gard Marine & Energy.

The vessel was time chartered to China National Chartering Co Ltd (Sinochart), who subsequently fixed the vessel to Daiichi Chuo Kisen Kaisha on a time charter trip from South Africa to Japan. The vessel berthed in Kashima, Japan on 20 October 2006, where discharge commenced that same day. On the morning of 23 October a north-easterly wind of force 8 was recorded and a local weather forecast indicated the weather conditions would worsen. The weather deteriorated rapidly during the morning of 24 October, with winds of force 9 and a significant wave height of up to 6.5 metres at the seaward end of the breakwater. In addition, "long waves" with periods of greater than 30 seconds were causing the vessel to surge alongside the berth.

The Master decided to leave the berth and arranged departure for 1300hrs, which was later postponed by local pilots, due to conditions in the fairway. The swell grew larger, causing further surging alongside the berth and the parting of mooring lines. Pilots agreed to unberth the vessel and at about 1400hrs, a pilot boarded the vessel. At 1430hrs, the vessel departed the berth and proceeded to sea via the Kashima Fairway where she encountered gale-force winds and heavy seas. At a point when the vessel was north-west of the seaward end of the breakwater, she lost steerage and subsequently grounded. The crew were safely evacuated from the vessel before she broke apart.

The first instance judgement

Gard Marine & Energy, claiming, as assignee of the claims of the owners and demise charterers, sued Sinochart for the loss of the ship, salvage and wreck removal expenses and loss of earnings totalling over US$130 million. The basis of Gard's claim was breach of the safe port warranty. Sinochart, in turn, claimed against the trip time charterer, Daiichi Chuo.

Sinochart and Daiichi ("the charterers") denied the port was unsafe, noting that no vessel had ever before been trapped by a combination of wind and swell at the berth and adverse conditions in the fairway. The charterers also argued that under the scheme of the demise charter the owners had no claim against the demise charterers even if they breached the safe port warranty. Thus Gard (as assignee) had no claim against Sinochart – i.e. there was no liability which could be passed down the charter chain.

At first instance, Mr Justice Teare found in favour of Gard, holding that Kashima was an unsafe port and that the owners did have a substantive claim against the demise charterers, which could be passed on to Sinochart and then to Daiichi.

The appeal

On appeal, that decision was overturned. The Court of Appeal held that Mr Justice Teare had erred in considering the frequency of long waves (affecting the berth) and gale-force northerly winds (affecting the fairway) as separate phenomena. The question that should have been asked was whether the combination of these phenomena was a characteristic of the port or an abnormal occurrence. While accepting that each phenomenon separately was a characteristic of the port (and not abnormal), the historical evidence showed that no vessel had ever been dangerously trapped at the berth at the same time as the Kashima Channel was not navigable because of gale force winds. In the Court of Appeal's view, this led to only one conclusion: the events of 24 October 2006 were an abnormal occurrence and there was, therefore, no breach of the safe port warranty.

The Court of Appeal also found in charterers' favour on the issue of recoverability. The requirement in the demise charter for both the registered owners and demise charterers to be insured "in joint names as their interest may appear" meant that the parties intended there to be an insurance funded result in the event of loss or damage to the vessel by marine risks. Accordingly, even if the demise charterers had been in breach of the safe port obligation, they were under no liability to the owners. As a result, there was nothing which could be passed down the chain to Sinochart or Daiichi.

Comment

This case shows the importance, in an unsafe port claim, of correctly identifying the relevant characteristic of the port which is said to have caused the loss. It is often the case that more than one factor is in play, and the Court of Appeal has made it clear that it is the likelihood of the combined event occurring that must be considered. It is not enough, as the judge at first instance held, for the combination of factors to be a theoretical possibility.

The case is also a reminder that care must be taken in drafting demise charters (and other contracts such as pooling agreements) to ensure – if required – that a breach by the demise charterers does give rise to a claim. 

Given the sums involved, it would not be surprising if this case ends up in the Supreme Court.