Introduction

Maritime piracy has re-emerged as a resurgent threat to journeying vessels, and the seas have seen Somali pirates taking ships and crew hostage with worrying frequency. With valuable cargo and contracts often at stake, its renewed prevalence can have great implications on commercial maritime law. In two recent cases, the English High Court had the opportunity to consider a question on this point: Are maritime contracts equipped to deal with piracy?

In Masefield AG v Amlin Corporate Member Ltd (“The Bunga Melati Dua”) [2010] EWHC 280 (Comm), the Court had to consider whether the owner of cargo aboard a vessel seized by pirates could claim insurance for lost cargo despite the fact that the ship and its cargo were eventually released. It was held that no loss – constructive or otherwise – had occurred as recovery was still possible at the time of claim.

In Cosco Bulk Carrier Co Ltd v Team-Up Owning Co Ltd (“The Saldanha”) [2010] EWHC 1340 (Comm), the issue in dispute was whether detention by pirates entitled the charterer of the ship to put the vessel off-hire. Here, it was found that the contractual terms were not wide enough to cover piracy.

With the threat of piracy looming large, parties entering into maritime agreements may wish to keep in mind the intended contractual effects of seizure by pirates, and have them clearly stated in the agreement in order to avoid uncertainty.  

The Bunga Melati Dua

Brief Facts  

  1. The Claimant owned two parcels of cargo aboard a vessel that was seized by Somali pirates. The Defendant was the insurer of the cargo.
  2. Soon after seizure, the shipowners began negotiating with the pirates for the return of the vessel for a ransom. About a month after seizure, while negotiations were still ongoing, the Claimant served a notice of abandonment on the Defendant.
  3. Around ten days after the notice of abandonment, the shipowners paid the ransom, and the vessel, crew and cargo were soon released.
  4. The Claimant maintained that it was entitled to claim against the Defendant even though the cargo was returned because it had indeed been ‘lost’ at the time of the notice of abandonment.  

Issues

In order to claim under the insurance policy, the Claimant had to show that the seizure of the cargo by the pirates constituted either:

  1. Actual total loss – as under s57(1) of the Marine Insurance Act – because the Claimant had been “irretrievably deprived” of the cargo; or
  2. Constructive total loss – as under s60(1) of the Marine Insurance Act – because the vessel and cargo had been reasonable abandoned on account of its actual total loss appearing to be unavoidable.  

Holdings Of The High Court

It was held that the Claimant failed to make out its claim for total loss, whether actual or constructive.

Actual total loss

Actual total loss occurs when a claimant is irretrievably deprived of the insured property. The Court held that such deprivation does not occur if it is legally and physically possible to recover the property, even if it can only be achieved by disproportionate effort and expense.

The Court rejected the Claimant’s argument that capture by pirates in itself constitutes actual total loss, stating instead that seizure by pirates merely transfers possession and not title. Since proprietary interests are not affected, the Court must then look into whether recovery of possession is legally or physically impossible.

Here, recovery of the cargo was not impossible, and was instead relatively likely.

  1. Contemporaneous correspondence and public information showed that all interested persons were fully aware that the cargo was likely to be recovered.
  2. Other vessels seized by pirates had been promptly released following negotiations.
  3. The vessel and cargo here were safely recovered only 11 days after payment of the payment of a ransom amounting to a tiny proportion of the value of the ship and cargo.

Constructive total loss requires the subject matter of the insurance policy to be abandoned because actual total loss appears unavoidable. It was held that these criteria were not met in the present scenario.

  1. The vessel and cargo were not abandoned in the relevant sense. What is required is the abandonment of any hope of recovery, which had clearly not occurred as the shipowners had every intention of recovering the property.  
  2. As discussed earlier, there was no reasonable basis for regarding actual total loss as unavoidable.

Therefore, neither actual nor constructive total loss had occurred. The Claimant was thus unable to claim for the alleged loss of its cargo.  

The Saldanha

Brief Facts  

  1. The Charterers hired the Vessel upon a charterparty, which provided in Clause 15:

“That in the event of the loss of time from default and/or deficiency of men… detention by average accidents to ship or cargo… or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost”

  1. In the course of the charter, the Vessel was seized by Somali pirates for a period of slightly over two months, after which it was released.  
  2. The Charterers refused to pay hire for the period during which the Vessel was seized. Issue The Court had to determine whether the piracy entitled the Charterers to put the Vessel off-hire in reliance of Clause 15.  

Holding Of The High Court

It was found that the Charterers had failed to bring themselves within any of the causes contained in Clause 15. Therefore, they were obliged to pay hire to the owners of the Vessel even for the period during which the pirates had control over the Vessel.

The causes within Clause 15 are:

  • Detention by average accidents to ship or cargo
  • Default and/or deficiency of men
  •  Any other cause  

The Court held that seizure by pirates does not constitute detention by average accidents.

  1. Average accidents refer to accidents which cause damage; the Vessel here was returned unharmed.  
  2. An accident requires lack of intent by all protagonists, while piracy is a deliberate and violent attack.  
  3. “Average” cannot simply be equated with all perils ordinarily covered by marine insurance.  

The Court also rejected the submission that the failure of the crew to take recognized anti-piracy precautions amounted to “default of men”.

  1. Although “default” is capable of including negligent or inadvertent performance of duties by the crew, it should not be stretched that far in the circumstances.  
  2. The history and wording of the clause point towards the narrower construction of “default of men”.  
  3. The wider interpretation would shift the risks of any delays caused by negligence to the owners of the vessel, leading to a startling alteration in the bargain typically struck in time charterparties.  

Finally, the term “any other cause” was found not to cover acts of piracy.

  1. The words “any other cause”, as opposed to “any other cause whatsoever”, do not cover entirely extraneous causes.
  2. Seizure by pirates is a “classic example” of an entirely extraneous cause, and thus falls outside the scope of the sweep up wording.  

Concluding Words

While pirates may make for good movies, they sometimes do not make for good law. These cases demonstrate that the maritime contracts currently in force, drafted before the resurgence of piracy, are perhaps ill-suited to handle issues of piracy.

The Bunga Melati Dua is an example of a marine insurance contract that did not clearly define when losses due to piracy could be claimed, while The Saldanha showcases a charterparty which did not foresee the vessel’s potential delay by obstruction by piracy. Contracting parties may thus wish to consider the specific contingency of capture by pirates in order to avoid any uncertainty in their agreements.