The Supreme Court handed down its judgment today in the “OCEAN VICTORY”. This appeal considered three important issues, namely: safe port undertakings, the implications of insurance provisions and how they affect the rights of parties to claim against one another and issues relating to the limitation of liability.

The Supreme Court concluded unanimously that Kashima is not an unsafe port, by a majority, that there could be no insurance recovery by Gard, and unanimously, that charterers could not limit their liability against owners in respect of the loss of the vessel.

The “OCEAN VICTORY” was owned by Ocean Victory Maritime Co. and demise chartered to an associated company, Ocean Line Holdings Ltd. Pursuant to clause 12 of the demise charter, the demise charterers then insured her for the respective rights and interests of themselves and the owners under an agreed value policy for US$70 million. In August 2006, the demise charterers time chartered the vessel to China National Chartering Co Ltd, the intermediate charterer, who sub-time chartered the vessel to Daiichi Chuo Kisen Kaisha, the charterers. Each charter party contained a safe port warranty whereby it was undertaken to trade the vessel between safe ports.

In September 2006, the charterers ordered the vessel to discharge at Kashima, Japan. She began discharging her cargo upon arrival but it became unsafe to remain at the berth due to adverse weather conditions and, specifically, long waves. The vessel decided to leave the port, but was unable to safely navigate the fairway due to a severe northerly gale and was grounded, becoming a total loss.

Gard Marine & Energy Ltd (Gard), one of the vessel’s hull insurers, took assignments of the rights of the owners and the demise charterer in respect of the grounding and total loss. It brought a claim against Sinochart (who passed it on to Daiichi) for damages for breach of the charterers’ undertaking to trade only between safe ports.

At first instance, Mr Justice Teare held that there had been a breach of the safe port warranty. The combination of the two weather conditions (the swell from the long waves and a severe northerly gale) were not to be characterised as an abnormal occurrence, because both conditions individually were physical characteristics of the port. Teare J also held that the joint names insurance did not confer immunity upon the demise charterers for loss caused by breach of the safe port warranty. The demise charterers had therefore suffered a loss which could be recovered from the intermediate charterers and by them from the charterers.

The Court of Appeal reversed both of these decisions to conclude that there was no breach of the safe port warranty and that, due to the joint insurance provisions, the owners were not entitled to claim against the demise charterparty in respect of insured losses. Gard appealed to the Supreme Court on both of these issues and, in addition, the Supreme Court considered whether Daiichi would be entitled to limit its liability for loss of the ship pursuant to the 1976 Convention on Limitation of Liability for Maritime Claims (the Convention).

The Supreme Court unanimously dismissed Gard’s appeal that there was no breach of the safe port undertaking and reaffirmed the traditional understanding of what made a port unsafe. With regard to the second issue, the Supreme Court agreed with the Court of Appeal by a 3:2 majority that the joint insurance would have precluded any claim by owners against the demise charterer, or therefore by the latter down the line by virtue of clause 12 of the bareboat charterparty. Lord Clarke and Lord Sumption took the opposite view.

Finally, on the issue of limitation of liability under the Convention, although the regime expressly brought charterers within the group of parties entitled to limit their liability for maritime casualties against third parties, the Supreme Court ruled that charterers could not limit their liability against owners.

Commentary

The unanimous decision of the Supreme Court on the unsafe ports issue states three criteria in clear terms:

  1. The date for judging breach of the safe port promise is the date of nomination of the port. A safe port promise is not a continuing warranty.
  2. The promise is a prediction about safety when the ship arrives in the future.
  3. Safe port disputes should be reasonably straightforward. Was the danger an abnormal occurrence, that is, something rare and unexpected, or was it something which was normal for the particular port for the particular ship’s visit at the particular time of the year?

This is a benefit for owners and charterers.

On the question of whether the claim is precluded under the terms of the bareboat charter regime, the majority decision means that the party causing the loss (in this case the sub-charterer had the port been found unsafe) escapes liability. Whether that will apply on other contract wording remains to be seen. Counsel for Gard (who had not appeared previously) considered that there were other ways in which the case on this issue could be argued if he were not restricted to what had been argued in the Court of Appeal.

The unanimous decision that charterers do not have the right to limit liability is also helpful clarification.