Transhipment of cargo by pirates during voyage, and ‘in-transit loss’

After part of their cargo of premium motor oil had been transhipped during the vessel’s capture by pirates off Cotonou and Lagos, charterers looked to recover their loss from shipowners under the charterparty’s ‘in-transit loss’ (ITL) clause.

The charterparty, as evidenced by a recap, was on the Beepeevoy 3 form and incorporated amended Trafigura Chartering Clauses.

Clause 4 of the Trafigura Chartering Clauses, as amended in the recap, was an ‘in-transit loss clause’ (the ITL 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."

Also of relevance to the dispute were Clauses 46 and 52 of the Beepeevoy 3 form, the first of which incorporated the Hague Visby Rules exceptions, and the second was a Clause Paramount.

The court was asked to consider:

  1. was the transhipped oil (the transferred cargo) an ITL or ‘lost cargo’ for the purposes of the charterparty’s ITL Clause; and
  2. if so, did the ITL clause impose strict liability on the shipowners for that transferred cargo such that shipowners could not rely on the Hague Visby Rules exceptions referred to at clause 46?

Before looking at the issues in detail, the judge considered the commercial context, in particular the allocation of risk between the shipowners and the charterers. He concluded that it would be unusual if the ITL clause made shipowners strictly liable for cargo loss. He noted the effect of a similar claim made under the Bill of Lading, rather than the charterparty, and for which the shipowners would benefit from the Hague Rules exceptions under the Clause Paramount. He highlighted a number of further anomalies if charterers’ case were preferred: for example, shipowners would be strictly liable for loss of cargo but not for damaged cargo. In this context, the judge turned to the two issues.

Issue one: nature of the loss

Charterers referred to the fact that there was a difference between the net vessel volume after loading and the net vessel volume before unloading at the discharge port - which they argued meant that the loss was an ITL under the terms of the ITL clause.

Shipowners’ defence included the argument that the ITL clause did not apply to cargo which had been discharged prior to the vessel’s arrival at the discharge port. The judge considered the wording of the ITL clause so as to give it its natural business sense: ‘That which businessmen, in the course of their ordinary dealings, would give to the document.’

He accepted that shortage claims in the oil trade were frequent and yet complex to measure, and that the normal practice was to include a contractual term with a cut off point above which shipowners could not simply argue that the differential was incidental to carriage.

His conclusion was that an ITL is a loss which is incidental to the carriage of oil products and certainly not a term which could be extended to include losses arising because of the action of pirates. The judge declined to define an ITL in other circumstances, considering that it was sufficiently clear for this dispute that it did not cover piracy activity.

Issue two: strict liability

For these purposes, the judge proceeded on the basis that he was wrong on the first issue i.e. the transferred cargo was covered by the ITL clause.

Nevertheless, noting again the commercial context, he still rejected charterers’ arguments. He was swayed notably by the reference at clause 46 (the Hague Visby Rules exceptions) to the words ‘in respect of any claim made’, and he found no good reason to limit ‘any claim’ so that it would exclude claims under the ITL clause. Accordingly, if shipowners were liable for an ITL, they would be entitled to rely on the Hague Visby Rules exceptions referred to at clause 46.