THE “OCEAN VICTORY”
[2017] UKSC 35
Easter Term
[2017] UKSC 35
On appeal from: [2015] EWCA Civ 16
| JUDGMENT |
Gard Marine and Energy Limited (Appellant) v China National Chartering Company Limited and another (Respondents) China National Chartering Company Limited (Appellant) v Gard Marine and Energy Limited and another (Respondents) Daiichi Chuo Kisen Kaisha (Appellant) v Gard Marine and Energy Limited and another (Respondents)
before
Lord Mance
Lord Clarke
Lord Sumption
Lord Hodge
Lord Toulson
JUDGMENT GIVEN ON
10 May 2017
Heard on 1, 2 and 3 November 2016
Appellant/Respondents Respondent/Appellant (China National (Gard Marine & Energy Chartering Co Ltd) Ltd) Michael Davey QC Mark Howard QC James M Turner QC
Simon Birt QC
(Instructed by Winter (Instructed by Ince & Co
Scott LLP) LLP)
Respondent (Daiichi Chuo
Kisen Kaisha)
Dominic Kendrick QC
David Goldstone QC
Gavin Geary
(Instructed by MFB
Solicitors)
LORD CLARKE: (with whom Lord Sumption agrees. Lord Mance, Lord
Hodge and Lord Toulson agree on the first and third issues only)
Introduction
1. This appeal arises out of the grounding of the OCEAN VICTORY (“the vessel”) in the port of Kashima in Japan on 24 October 2006. She was a Capesize
bulk carrier, built in China in 2005. By a demise charterparty dated 8 June 2005, the
vessel’s owners, Ocean Victory Maritime Inc (“OVM” or “the owners”), chartered the vessel to Ocean Line Holdings Ltd (“OLH”), which is or was a related company,
on the widely used Barecon 89 as amended. On 2 August 2006, OLH time chartered
the vessel to China National Chartering Co Ltd (“Sinochart”) and on 13 September 2006, Sinochart in turn sub-chartered her to Daiichi Chuo Kisen Kaisha (“Daiichi” or “the charterers”) for a time charter trip.
2. The demise charterparty and both time charterparties contained an undertaking (on materially identical terms) to trade the vessel between safe ports. On 12/13 September 2006, Daiichi (and thus Sinochart) gave the vessel instructions to load at Saldanha Bay in South Africa and to discharge at Kashima. Between 19 and 21 September she loaded 170,000 tonnes of iron ore. She arrived off Kashima on 20 October and discharge began that afternoon.
3. The port of Kashima is entered from the sea through the northern end of a specially constructed channel known as the Kashima Fairway, which runs almost due north south, and is the only route into and out of the port. The Kashima Fairway is bounded on one side (to the east) by the South Breakwater and on the other (to the west) by the land.
4. On 24 October the vessel sought to leave the port during a storm. However, she allided with the northern end of the South Breakwater and grounded. Shortly thereafter another Capesize vessel, the ELIDA ACE, also grounded in the Kashima Fairway while attempting to leave the port. Salvors were engaged but the OCEAN VICTORY eventually broke in two. Her wreck was subsequently removed in the course of a lengthy wreck removal operation.
5. Some two years later, on 15 October 2008, Gard Marine & Energy Ltd
(“Gard”), one of the vessel’s hull insurers at the time of her loss, took assignments
of the rights of OLH and OVM in respect of the grounding and total loss of the vessel. In its capacity as assignee of those rights, Gard subsequently brought a claim against Sinochart (which Sinochart passed on to Daiichi) for damages for breach of
the charterers’ undertaking to trade only between safe ports.
6. On 30 July 2013, Teare J (“the judge”) held that the casualty was caused by the unsafety of the port in breach of the safe port undertaking in the time charters. He awarded Gard substantial damages, namely the agreed value of the vessel (US$88.5m), damages in respect of liability for SCOPIC expenses (US$12m), damages for wreck removal expenses (US$34.5m) and damages for loss of hire (US$2.7m).
7. Permission to appeal to the Court of Appeal on certain specific issues was granted. On 22 January 2015, the Court of Appeal (Longmore, Gloster and Underhill LJJ) allowed the appeal and set aside the judgment of the judge on the grounds that the conditions which affected Kashima were an abnormal occurrence and that there was no breach of the safe port undertaking on the part of the charterers. The Court of Appeal also held that, in the light of the insurance provisions of the demise charterparty, OVM and OLH (and Gard as their assignee) were not entitled to claim in respect of losses covered by the hull insurers. On 20 May 2015 Gard were granted permission to appeal to this Court.
Issues in the appeal
8. The parties agreed the issues in this appeal as follows.
1. Was there a breach of the safe port undertaking? In particular the following specific questions were agreed: (1) was the port unsafe within the meaning of the safe port undertaking, so that the charterers were in breach;
or (2) was there an “abnormal occurrence” within the context of the safe port
undertaking, which was no breach of the undertaking?
2. If there was a breach of the safe port undertaking, do the provisions for joint insurance in clause 12 of the Barecon 89 form preclude rights of subrogation of hull insurers and the right of owners to recover in respect of losses covered by hull insurers against the demise charterer for breach of an express safe port undertaking.
3. If there was a breach of the safe port undertaking, is Daiichi entitled to limit its liability for Gard’s losses or any (and, if so, which) of them as
against Sinochart (and Sinochart in turn against Gard) pursuant to section 185
and Schedule 7 article 2(1) of the Merchant Shipping Act 1995?
It was agreed that in the event that the appeal succeeds (that is that the answer to
issue 1(1) is “yes”), issues of time-bar and causation should be remitted to the Court
of Appeal. In this judgment I will focus first on the safe port issue.
Safe port - the facts
9. The events which led to the grounding and subsequent loss of the vessel are
summarised in paras 127 and 128 of the judge’s judgment as follows:
“127. The danger facing OCEAN VICTORY was one which
was related to the prevailing characteristics of Kashima. The danger flowed from two characteristics of the port, the vulnerability of the Raw Materials Quay to long swell and the vulnerability of the Kashima Fairway to northerly gales caused by a local depression. It may well be a rare event for these two events to occur at the same time but nobody at the port could, I consider, be surprised if they did. There is no meteorological reason why they should not occur at the same time. Long waves were clearly a feature of the port (as they must be of any port facing the Pacific) and low pressure systems generating gale force winds cannot, in my judgment, be regarded as abnormal. I do not consider that the juxtaposition of long waves and a low pressure system generating gale force winds from the north amounts to an abnormal occurrence unrelated to the characteristics of Kashima. Long waves may give rise to a need for a vessel to leave the port. It may be a matter of chance whether at that time there is also a low pressure system generating gale force winds from the north but I am unable to accept that such winds are so rare that they cannot be said to be a feature of the port. It is not without significance that the Guide to Port Entry notes that during periods of northerly swell the entry channel is fully exposed and that vessels at low speed generally have difficulty in steering.
128. It may be that the storm which affected the port on 24 October 2006 was one of the most severe storms to have affected Kashima in terms of severity, speed of deterioration
and duration as suggested by Mr Lynagh’s analysis of its
characteristics. But the relevant characteristics are those which give rise to the danger, namely the occurrence of long waves and northerly gales. Neither long waves nor northerly gales can be described as rare. Even if the concurrent occurrence of those events is a rare event in the history of the port such an event
flows from characteristics or features of the port.”
The principles - abnormal occurrence
10. In the Court of Appeal Longmore LJ (giving the judgment of the court) noted in para 14 that it was common ground between the parties that, if the damage
sustained by the vessel at Kashima on 24 October 2006 was caused by an “abnormal
occurrence”, then the charterers would not have been in breach of the safe port
warranty. That common ground was based on the classic dictum of Sellers LJ in The
Eastern City [1958] 2 Lloyd’s Rep 127, 131 that:
“A port will not be safe unless, in the relevant period of time,
the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and
seamanship ...”
11. Longmore LJ added in para 15 that what was in dispute between the parties on the appeal in relation to this issue was (i) what, as a matter of law, was the correct test for an abnormal occurrence; (ii) in particular, was the judge correct to hold (in paras 110, 127-128, 132 and 134 of his judgment) that the combination of two weather conditions on the casualty date (namely the phenomenon of swell from
“long waves”, which might have forced the vessel to leave the berth, and a very
severe northerly gale which meant that the vessel could not safely exit the port) was not to be characterised as an abnormal occurrence, notwithstanding that the
coincidence of the two conditions was “rare”, because both conditions were physical
characteristics or attributes of the port; and (iii) on the facts as found by, or undisputed before, the judge, did the weather conditions on the casualty date amount to an abnormal occurrence? It is important to note that it was not submitted that the relevant test could or should be other than that described by Sellers LJ in The Eastern City. In any event that test has stood the test of time. The question is what is meant
by “an abnormal occurrence”.
12. The Court of Appeal summarised the charterers’ case in para 44 of their
judgment as follows:
“(i) There was no breach of the safe port undertaking. By the safe port undertaking, the charterers did not assume responsibility for loss from every foreseeable risk at the port to which the ship was ordered. They assumed responsibility only for risks which were sufficiently regular or sufficiently foreseeable to amount to an attribute or feature of the port.
(ii) The prospective nature of the undertaking was material to the test, because the right way to approach this test was to imagine a charterer with full knowledge of the port giving the
order on the relevant day. He had to ask himself: ‘will the port
be safe for the ship to reach, use and depart from?’ If he could say ‘yes’, then, barring some abnormal occurrence, there was
no breach. So a charterer did not assume the risk of loss from an unusual event which was not characteristic of the port at the time when the ship should be there. The obligation to give indemnity for loss from such unusual events lay properly and
legally with the owner’s hull insurers.
(iii) The phrase ‘abnormal occurrence’ was not a term of art.
An occurrence was just an event - something that happened on a particular time at a particular place in a particular way.
‘Abnormal’ was something well removed from the normal. It
was out of the ordinary course and unexpected. It was something which the notional charterer would not have in mind.
(iv) A rare event could not be ‘an attribute’ of a port. It was,
in the language of the cases, an ‘abnormal occurrence’ and so
outside the undertaking. The judge erred in law in holding that
a rare event was a feature of the port.(v) The judge erroneously held that it did not matter if the event was rare or unexpected, provided it arose from the combined occurrence of two or more characteristics or attributes of the port.
(vi) Words such as ‘characteristic’ or ‘attributes of the port’
were tools to help identify what arose in the ordinary course. They were not intended to bring events well out of the ordinary
course into the scope of the charterers’ undertaking.
(vii) The judge went wrong by breaking down the question into components instead of asking one unitary question, namely: would it be an unexpected event for Capesize vessels calling at Kashima to find it necessary to leave the berth due to danger from a long-wave swell at the very time when it was
dangerous to transit the Fairway? The judge’s approach was to
consider whether long waves and strong northerly winds from low pressure storms affecting navigation in the Kashima
Fairway were respectively ‘attributes’ of the port. Having
reached the conclusion that they were ‘attributes’, he wrongly
assumed that it did not matter how rare their combination was.
(viii) On the facts, the combination of the two weather events (namely long waves and strong northerly winds from low pressure storms) had never apparently happened in the previous 35 years preceding the instruction to proceed to Kashima. Accordingly the conditions on 24 October were an abnormal
occurrence for which the charterers were not liable.”
13. It was not in dispute that the question whether the port was unsafe must be tested as at the moment that the charterers instructed the owners to proceed to it. It was submitted on behalf of the charterers that the appropriate test was whether a reasonable shipowner trading the ship for his own account and knowing the relevant facts would decline to proceed to the nominated port. That is essentially the test set
out in the Court of Appeal’s summary of the charterers’ case in sub-para 44(ii)
above.
14. To my mind the key points in this appeal are to be found in sub-paras 44(i), (ii), (iii) and (iv). It is important to note that the test is not whether the events which caused the loss were reasonably foreseeable. Reasonable foreseeability is a well known test in some parts of the law of tort, notably negligence and remoteness of damage. The courts could well have adopted such a test but they have not done so. Instead they have asked whether the relevant event was an abnormal occurrence.
15. What then is meant by “abnormal occurrence”? The question is whether it
has the meaning proposed by the charterers and set out in para 44(iii) quoted above
or the meaning proposed by Gard in para 66 of its case as follows:
“The phrase ‘abnormal occurrence’ in the Court of Appeal’s
judgment took on its own momentum as a term of art or something to be construed as if in a statute. It is not. The phrase is not something that appears in the words of the charter. It is a qualification derived from the authorities intended to assist the court, and the parties, to work out whether the port was safe within the contractual clause. It is a description for an occurrence which does not result from the set-up or characteristics of the port; the set-up and characteristics of the port (tested at the time the order is given) being the concern of
the safe port undertaking. In other words, ‘an abnormal
occurrence’ is in contradistinction to an occurrence which
results from the set-up or characteristics of the port. The result
of the Court of Appeal’s approach is to widen the category of
‘abnormal occurrences’, so as to include occurrences which do
result from the set-up of the port, and in turn to narrow the
circumstances in which a port will be regarded as ‘unsafe’
(despite the obligation being a strict one).”
16. I would accept the charterers’ submission recorded in sub-para 44(iii) that an
‘abnormal occurrence’ has its ordinary meaning. It is not a term of art. As stated in
that sub-paragraph,
“[a]n occurrence was just an event - something that happened
on a particular time at a particular place in a particular way.
‘Abnormal’ was something well removed from the normal. It
was out of the ordinary course and unexpected. It was something which the notional charterer would not have in
mind.”
17. We were referred to a number of cases which seem to me to support that
conclusion. Sellers LJ’s famous dictum quoted above was taken from the judgment
of Morris LJ in The Stork [1955] 2 QB 68, 105, which was a time charterparty case. See also Reardon Smith Line Ltd v Australian Wheat Board (The Houston City) [1956] AC 266, which was a voyage charterparty case to which essentially the same principles were applied. In Kodros Shipping Corpn v Empresa Cubana de Fletes (The Evia) (No 2) [1983] 1 AC 736, which was another time charterparty case, Lord Diplock said at p 749 that he regarded the nature of the contractual promise by the charterer in what he called the safe port clause as having been well settled for a quarter of a century at the very least. He referred specifically to the expression “abnormal occurrence” used by Sellers LJ in The Eastern City which he said
reflected the previous statement of Morris LJ in The Stork.
18. At p 749H, Lord Diplock referred to the distinction between damage sustained by a particular vessel in a particular port on a particular occasion caused
by an “abnormal occurrence” and damage resulting from “some normal
characteristic of the particular port at the particular time of year”. He added that
there were dangers that judges of first instance sometimes omitted important qualifications. He was referring (at p 750A-B) to what he called the heresy that, in the previous decade or so, had been embraced by judges in the commercial court culminating in that of Mustill J in Transoceanic Petroleum Carriers v Cook
Industries Inc (The Mary Lou) [1981] 2 Lloyd’s Rep 272, 277.
19. Lord Diplock agreed with the judgment of Lord Roskill which had been prepared with the assistance of Lord Brandon. The heresy to which Lord Diplock referred was that identified by Lord Roskill at p 757. It arose in the construction of what he described as these eight words in clause 2 of the relevant time charterparty:
“The vessel to be employed … between … safe ports …” Those were essentially the
same words as in the charterparties in the instant case. The heresy identified by Lord Diplock was the conclusion of Mustill J in The Mary Lou and, indeed, of Robert Goff J in The Evia (No 2) that there was an absolute continuing contractual promise that at no time during her chartered service would the ship find herself in any port which was or had been unsafe for her: see Lord Roskill at p 756G.
20. On p 757 Lord Roskill gave his reasons for rejecting that approach as a matter of construction of the charterparty. In particular, he said at p 757D that a charterer will exercise his contractual right to require the shipowner to carry out his contractual obligations by giving the shipowner orders to go to a particular port or place of loading or discharge. He added that it was clearly at the point of time when that order is given that the contractual promise to the charterer regarding the safety of that intended port or place must be fulfilled.
21. Lord Roskill then said this at p 757E:
“The charterer’s contractual promise must, I think, relate to the
characteristics of the port or place in question and in my view means that when the order is given that port or place is prospectively safe for the ship to get to, stay at, so far as necessary, and in due course, leave. But if those characteristics are such as to make that port or place prospectively safe in this way, I cannot think that if, in spite of them, some unexpected and abnormal event thereafter suddenly occurs which creates conditions of unsafety where conditions of safety had previously existed and as a result the ship is delayed, damaged or destroyed, that contractual promise extends to making the charterer liable for any resulting loss or damage, physical or financial. So to hold would make the charterer the insurer of such unexpected and abnormal risks which in my view should
properly fall upon the ship’s insurers under the policies of
insurance the effecting of which is the owner’s responsibility
under clause 3 unless, of course, the owner chooses to be his
own insurer in these respects.”
22. Having expressed those views as a matter of construction of the charterparty, Lord Roskill analysed the cases and concluded that they strongly supported the views he had expressed. The cases included Ogden v Graham (1861) 1 B & S 773 and GW Grace and Co Ltd v General Steam Navigation Co Ltd (The Sussex Oak) [1950] 2 KB 383 in addition to The Stork, The Houston City and The Eastern City. He noted in particular the dissenting judgment of Sir Owen Dixon CJ in the High Court of Australia in The Houston City which was accepted as correct by the Privy Council.
23. Lord Roskill paid particular attention at p 760 to the reference to “some
abnormal occurrence” by Morris LJ in The Stork, which, as he put it, was the
foundation of the similar view of Sellers LJ in The Eastern City as described above. Like Lord Diplock, Lord Roskill emphatically adopted that approach as correct. As I read the remainder of his judgment, in which he refers to a number of other cases, they are all to substantially the same effect.
24. In all these circumstances, I would accept these three submissions made on behalf of the charterers arising out of the cases referred to above and, in particular The Evia (No 2) in the House of Lords. First, 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. Second, the promise is a prediction about safety when the ship arrives in the future. These propositions are not in dispute. As I see it, such a promise necessarily assumes normality; given all of the characteristics, features, systems and states of affairs which are normal at the port at the particular time when the vessel should arrive, the question is whether the port is prospectively safe for this particular
ship. If the answer is “yes unless there is an abnormal occurrence”, the promise is
fulfilled. As Robert Goff J said at first instance in The Evia (No 2) [1981] 2 Lloyd’s Rep 613, 621, “the formulation of a test whether the port is unsafe must assume
normality, and must therefore exclude danger caused by some abnormal
occurrence.”
25. I would further accept the third submission made on behalf of the charterers that on the authorities to which I have referred, safe port disputes should be reasonably straightforward. Was the danger alleged 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?
26. I would also accept the submission that this approach, that is the approach in
The Eastern City as elaborated by Lord Roskill and Lord Diplock in The Evia (No 2), provides a coherent allocation of risk between the various interests as follows. The owners are responsible for loss caused by a danger which is avoidable by ordinary good navigation and seamanship by their master and crew. The charterers are responsible for loss caused by a danger which was or should have been predictable as normal for the particular ship at the particular time when the ship would be at the nominated port and was not avoidable by ordinary good seamanship. The owners (and ultimately their hull insurers) are responsible for loss caused by a
danger due to “an abnormal occurrence”. As Lord Roskill put it at p 757E quoted
above, charterers are not insurers of “unexpected and abnormal risks”. On the
contrary, the charterparty terms require owners to take out hull insurance (as they will invariably do) which is their protection against rare and unexpected events. On
the charterers’ case on the facts, the characteristics of the port were such that the
ship was prospectively safe, but they unexpectedly combined in a critical way such as to create an exceptional, and apparently unprecedented danger. This was within
the letter and spirit of Lord Roskill’s description of an unexpected and abnormal
risk.
27. It is to my mind important to note the emphasis in the cases upon the meaning of the expression “abnormal occurrence”. I would accept the charterers’ submission in para 44(iii) of the Court of Appeal’s judgment that “abnormal” is something well
removed from the normal. It is out of the ordinary course and unexpected. It is
something which the notional charterer or owner would not have in mind.28. In short, I would accept the charterers’ submission that the first question is
whether a reasonable shipowner in the position of the particular shipowner trading the ship for his own account and knowing the relevant facts would proceed to the
nominated port. If the answer is “yes unless there is an abnormal occurrence”, the
port is prospectively safe for the particular ship and the promise is fulfilled. In a case where the vessel suffers loss or damage, a second question arises, namely whether there was damage caused by an abnormal occurrence as defined above.
Contrast between the approaches of the judge and of the Court of Appeal
29. This contrast can be seen in the judgment of the Court of Appeal. Having summarised the essential facts at para 48, in para 49 the Court of Appeal described
the core of the judge’s reasoning at paras 127-129 of his judgment thus:
“On analysis his approach appears to have been that, in
deciding whether the casualty resulted from an abnormal
occurrence:-(i) he did not need to consider the evidence relating
to how ‘rare’ the critical combination of the two
component dangers was, although, without analysing the evidence in any detail, he was prepared to hold that
‘it may well be a rare event for these two events to occur
at the same time’;
(ii) he did not need to consider whether the critical
combination was rare, because ‘[e]ven if the concurrent
occurrence of those events is a rare event in the history
of the port,’ what mattered was that:
(a) separately the two component features of the critical combination were characteristics or
attributes of the port;b) looked at separately, neither of the two component features could be said to occur
‘rarely’; long waves and northerly gale winds
were at least foreseeable in Kashima;
(c) there was no meteorological reason why the two component features should not occur at the same time; despite the fact that the storm which affected Kashima on 24 October 2006 may have been exceptional in terms of its rapid development, its duration and its severity, there was a clear risk of gale force winds from the northerly quadrant in the Kashima Fairway at the same time as long waves were affecting the Raw Materials Quay;
(d) therefore, it was necessarily foreseeable that at some stage the critical combination would occur
and nobody could be surprised if it did; and
(e) the critical combination was accordingly an event which ‘flow[ed] from the characteristics or
features of the port’;
(iii) accordingly, in those circumstances the critical
combination could not be said to be an ‘abnormal
occurrence’; in the language of Mustill J (as he then was)
in The Mary Lou …, the critical combination was not something which ‘could be said, if the whole history of the port were regarded, to have been out of the ordinary’; again, adopting Mustill J’s words, long waves and
northerly gale winds were ‘events of the type and
magnitude in question [which were] sufficiently regular or at least foreseeable to say that their occurrence is an
attribute or characteristic of the port’, so as not to amount
to an abnormal occurrence; the critical combination flowed from those characteristics and therefore could not
be an abnormal occurrence.”
30. In paras 50ff the Court of Appeal embarked upon a critique of the judge’s
approach. In para 50 they set out their conclusion that the judge’s approach was
flawed. They then referred in detail to the speeches of Lord Diplock and Lord Roskill in The Evia (No 2). In the speech of Lord Roskill they highlighted in bold the passage at p 757E which I quoted at para 21 above. It is to my mind important that that passage includes the proposition that where the characteristics of a port make the port prospectively safe, Lord Roskill did not think that
“if … some unexpected and abnormal event thereafter
suddenly occurs which creates conditions of unsafety where conditions of safety had previously existed and as a result the ship is delayed, damaged or destroyed, that contractual promise extends to making the charterer liable for any resulting loss or
damage, physical or financial.”
He added that so to hold would make the charterer the insurer of such “unexpected
and abnormal risks” which should properly fall on the ship’s insurers.
31. Immediately after quoting an extensive passage from the speech of Lord Roskill in The Evia (No 2), most of which is quoted above, in para 52 the Court of Appeal said that its import was clear. They said that charterers do not assume responsibility for unexpected and abnormal events which occur suddenly and which create conditions of unsafety after they have given the order to proceed to the
relevant port. They are the responsibility of the ship’s hull insurers (if owners have
insured) or of owners themselves. The Court of Appeal further noted in para 52 that the concept of safety is necessarily not an absolute one. They did so by reference to
the decision of the Court of Appeal in The Saga Cob [1992] 2 Lloyd’s Rep 545, 551,
where, in the context of political risks, Parker LJ, giving the judgment of the court,
said this:
“In the latter [the safe port warranty case] one is considering
whether the port should be regarded as unsafe by owners, charterers, or masters of vessels. It is accepted that this does not mean that it is unsafe unless shown to be absolutely safe. It will not, in circumstances such as the present, be regarded as
unsafe unless the ‘political’ risk is sufficient for a reasonable
shipowner or master to decline to send or sail his vessel there.”
32. In the instant case the Court of Appeal, in my opinion correctly, held (at para 53) that a similarly realistic approach should be adopted to the determination of what it called the essentially factual question whether the event giving rise to the
particular casualty is to be characterised as an “abnormal occurrence” or as resulting
from some “normal” characteristic of the particular port at the particular time of
year. The Court of Appeal, emphasised the word “normal” in the term “normal
characteristic”, noting that it was used by Lord Diplock when he observed in The
Evia (No 2) at p 749 that:
“… it is not surprising that disputes should arise as to whether
damage sustained by a particular vessel in a particular port on
a particular occasion was caused by an ‘abnormal occurrence’
rather than resulting from some normal characteristic of the
particular port at the particular time of year.”
Importantly in the instant case, the Court of Appeal further observed (also at para 53) that, in what they described as an illuminating passage, in The Saga Cob the Court of Appeal at pp 550-551 emphasised that the fact that an event (in that case a
guerrilla attack) was theoretically foreseeable did not make it a “normal
characteristic” of the port. They noted that on the facts in The Saga Cob the event
relied upon could not be regarded as other than “an abnormal and unexpected event”.
This approach underlines the fact that foreseeability is not the test of the normality of an event. The cases show that an abnormal occurrence or event is something that is unexpected when the vessel arrives at and remains in the port: see eg The Evia (No 2) per Lord Roskill quoted at paras 21 and 30 above.
33. In para 54 the Court of Appeal placed reliance upon the approach of Mustill J in The Mary Lou at p 278. They noted that in his description of what constitutes an abnormal occurrence, Mustill J implicitly recognised the need to approach the identification of an abnormal occurrence realistically and having regard to whether the event had occurred sufficiently frequently so as to become a characteristic of the port. At the end of the same paragraph, having recognised the difficulty of finding an appropriate turn of phrase, Mustill J said this:
“It may be said that the loss is not recoverable unless events of
the type and magnitude are sufficiently regular or at least foreseeable to say that the risk of their occurrence is an
‘attribute’ or ‘characteristic’ of the port. Or it may be said that
‘abnormal’ or ‘casual events’ do not found a claim.”
34. The Court of Appeal identified a number of respects in which they concluded that the judge went wrong. They summarised them in para 55 of their judgment:
“First of all he failed to formulate the critical - and unitary -
question which he had to answer: namely, whether the simultaneous coincidence of the two critical features, viz (a) such severe swell from long waves that it was dangerous for a vessel to remain at her berth at the Raw Materials Quay (because of the risk of damage or mooring break out) and (b) conditions in the Kashima Fairway being so severe because of gale force winds from the northerly/north easterly quadrant), as to make navigation of the Fairway dangerous or impossible for Capesize vessels, was an abnormal occurrence or a normal characteristic of the port of Kashima? Or put even more simply, was it an abnormal occurrence or a normal characteristic of the port that a vessel might be in danger at her berth at the Raw Materials Quay but unable at the same time safely to leave because of navigation dangers in the Kashima Fairway arising from the combination of long waves and gale force northerly
winds which, in fact, occurred?”
35. The Court of Appeal added in para 56 that, instead of asking the unitary question directed at establishing the correct characterisation of the critical combination (abnormal occurrence or normal characteristic of the port), the judge merely addressed the respective constituent elements of the combination (swell from long waves making it dangerous for a vessel to remain at the Raw Materials Quay and gale force winds from the northerly/north-easterly quadrant making navigation of the Fairway dangerous or impossible for Capesize vessels) separately. He looked at each component and decided that, viewed on its own, neither could be said to be rare and both were attributes or characteristics of the port. The Court of Appeal concluded that that was the wrong approach; what mattered was not the nature of the individual component dangers that gave rise to the events on 24 October, but the nature of the event (namely the critical combination of the two) which gave rise, on
the judge’s findings, to the vessel effectively being trapped in port.
36. The Court of Appeal further held in para 57 that the judge was also wrong to hold that, even if the critical combination was rare, nonetheless it was a characteristic of the port, for two reasons. The first (as stated in his para 127) was because, although it might well be rare for these two events to occur at the same time, nobody at the port could be surprised if they did, and there was no meteorological reason why they should not occur at the same time. The second (as stated in his para 128) was because, even if the concurrent occurrence of those events was a rare event in the history of the port, such an event flowed from the characteristics or features of the port.
37. The Court of Appeal concluded that both reasons were fallacious. In my opinion they were correct so to hold. As to the first, the Court of Appeal noted in para 58 that the conclusion that nobody at the port could be surprised that both the above events occurred at the same time appears to have been based on the idea that, provided an event is theoretically foreseeable as possibly occurring at the relevant
port, because of the port’s location, then that is enough to qualify the event as a
“characteristic of the port”.
38. The Court of Appeal correctly said at para 58 that the judge appears to have derived that test from dicta in the judgment of Mustill J in The Mary Lou at p 278, where (in the passage quoted at para 33 above) he referred to long waves and
northerly gale winds as being “at least foreseeable”. However the Court of Appeal,
in my opinion correctly, held that satisfaction of the test of mere “foreseeability” was per se clearly not sufficient to turn what the judge himself described as “a rare event in the history of the port” into a normal characteristic or attribute of the port.
They held that the error made by the judge was to pick up on the words “at least foreseeable” in his citation from Mustill J’s judgment, and to use minimum
foreseeability, without more, as some sort of litmus test for establishing whether an event was a characteristic of a port, without having any regard to significant factors such as the actual evidence relating to the past history of the port, the frequency (if any) of the event, the degree of foreseeability of the critical combination and the very severe nature of the storm on the casualty date. The Court of Appeal further held that in doing so the judge departed from the orthodox and practical approach of Mustill J in his judgment in The Mary Lou at p 278 and of Lords Diplock and Roskill in The Evia (No 2), to the question of whether an event was abnormal. Such an approach necessarily includes an examination of the past history of the port and of whether, in that evidential context, the event was unexpected. I agree. The Court
of Appeal also noted in para 58 that he took the phrase “at least foreseeable” as used
by Mustill J out of context. I agree with the Court of Appeal that it is clear that, when the passage is read in context, Mustill J was certainly not suggesting that mere, theoretical, foreseeability on its own was sufficient. He was not setting up some sort of alternate test which excluded considerations of questions such as the frequency of past occurrences of the particular event, or the degree of likelihood that the event was to occur in the future.
39. Moreover, the Court of Appeal noted at para 59 that, as the Court of Appeal emphasised in The Saga Cob in the passage cited at para 32 above, one has to look at the reality of the particular situation in the context of all the evidence, to ascertain whether the particular event was sufficiently likely to occur to have become an attribute of the port. Otherwise the consequences of a mere foreseeability test lead to wholly unreal and impractical results. The Court of Appeal focused on these
examples in the instant case: does the mere fact that it is “foreseeable” from the
location of San Francisco that earthquakes may occur in its vicinity, or from the location of Syracuse, beneath Mount Etna, that there may be volcanic explosions in its vicinity, predicate that any damage caused to vessels in those ports from such
events, were they to occur in the future, would flow from the “normal characteristics
or attributes” of those ports, and therefore necessarily involve a breach of any safe
port warranty? The answer given by the Court of Appeal was obviously not; whether, in such circumstances, there would be a breach of the safe port warranty, or the event would be a characterised as an abnormal occurrence, would necessarily depend on an evidential evaluation of the particular event giving rise to the damage and the relevant history of the port.
40. The Court of Appeal was particularly struck (at para 60) by the fact, as they put it, that the judge provides no evidential basis for his apparent factual conclusion
that “nobody at the port could, I consider, be surprised” if the crucial combination
occurred, or for the conclusion reached earlier in para 110 of the judgment that
“there must have been … a clear risk of gale force winds from the northerly quadrant
in the Kashima Fairway at the same time as long waves were affecting the Raw
Materials Quay”.
41. The final conclusion of the Court of Appeal’s on the first reason advanced by
the judge and referred to by the Court of Appeal in para 57 was set out in para 61 of
their judgment (which must be read in the context of para 60) as follows:
“61. In the light of the evidence to the effect that no vessel in the port’s history had been dangerously trapped at the Raw
Materials Quay, with a risk of damage or mooring break out, at the same time as the Kashima Channel was not navigable because of gale force winds, it is difficult to see how he reached this conclusion. This may be because he did not adequately focus evidentially on the particular situation which he had to consider, namely one where a vessel was effectively trapped, because the swell from long waves affecting vessels berthed at the Raw Materials Quay was so severe that it was dangerous for a vessel to remain there (as opposed to merely a situation where long waves caused swell and a vessel decided to leave the Raw Materials Quay) and the Kashima Channel not being navigable because of gale force winds. It may also be because he did not give adequate weight to the evidence of Mr Lynagh (which he gives no cogent reason for rejecting) that the storm which occurred on 24 October was exceptional in terms of its rapid development, its duration and its severity (see para 48(ix)
above).”
42. As to the second reason advanced by the judge, the Court of Appeal responded in this way in para 62:
“62. The second reason given by the judge (‘Even if the concurrent occurrence of those events is a rare event in the history of the port such an event flows from characteristics or
features of the port’) is, in our view, equally flawed. As we
have already stated in paras 55 and 56 above, what the judge
had to decide was whether ‘the concurrent occurrence of those
events’ (ie the critical combination) was itself a normal
characteristic of the port or an abnormal occurrence. That was the relevant event which the judge had to characterise. It simply did not follow, logically or otherwise, from the fact that that
event arose from (or, as the judge said, ‘flow[ed] from’) the
combination of two individual dangers, which he had held were normal characteristics or attributes of the port, that the
‘concurrent occurrence of those events’ was also a normal
characteristic or attribute of the port.”
43. By way of postscript, I note that on behalf of the owners significant stress was placed upon the failure of the Kashima port authority to carry out a risk assessment and put in place a proper safety system to deal with the risk of the two types of weather conditions referred to by the judge occurring at the same time. However, while it may be relevant in some cases, the question remains whether the event (or in this case the combination of natural events) which led to this casualty was an abnormal and unexpected occurrence or not. For the reasons I have given I conclude that the Court of Appeal were entitled to reach the decision which they did.
44. The ultimate conclusion of the Court of Appeal was set out in paras 63 and
64 as follows:
“63. In deciding whether the critical combination was itself a normal characteristic of the port or an abnormal occurrence, what the judge should have done was to evaluate the evidence relating to the past frequency of such an event occurring and the likelihood of it occurring again. He should have also, in our view, have taken into account what appears to have been the unchallenged evidence of Mr Lynagh referred to above relating to the exceptional nature of the storm that affected Kashima on 24 October 2006 in terms of its rapid development, its duration and its severity. Had he done so, then, on the basis of his own
finding that ‘the concurrent occurrence of those events was
rare’, and on the basis of the evidence which we have
summarised above, there would, in our view, have been only one conclusion which he could have reached - namely that the event which occurred on 24 October 2006 was indeed an abnormal occurrence.
64. For the above reasons we conclude that the conditions which affected Kashima on 24 October 2006 were an abnormal occurrence, that there was no breach by the charterers of the safe port obligation, and accordingly that the appeal should be
allowed on this ground.”
45. I agree with the Court of Appeal.
Conclusion on the safe port issue
46. In my opinion, the Court of Appeal reached the correct conclusions for the reasons they gave. I initially questioned whether the Court of Appeal should have interfered with the decision of the judge at first instance. However, in the light of the submissions made on both sides, I have concluded that this was one of those rare cases in which the correct conclusion is that the casualty was caused by an abnormal occurrence as that expression is explained in the cases. I accept the reasoning of the Court of Appeal and prefer their approach to that of the judge.
47. I would accordingly dismiss the appeal on the safe port issue. I would answer the questions raised on that issue by the parties and set out in para 8.1(1) and (2) as follows. The port was not unsafe within the meaning of the safe port undertaking so that the charterers were not in breach of it. The conditions at the port amounted to an abnormal occurrence as that expression is understood in the cases.
Joint insurance
48. Issue 2 summarised in para 8 above assumes (contrary to my view) that there was a breach of the safe port undertaking and asks whether the provisions for insurance in clause 12 of the Barecon 89 form preclude rights of subrogation of hull insurers and the right of owners to recover in respect of losses covered by hull insurers against the demise charterers for breach of the express safe port undertaking. The judge held that the owners and hull insurers were entitled to recover notwithstanding clause 12, whereas the Court of Appeal held that they were not. Lord Sumption agrees with the judge whereas Lord Toulson agrees with the Court of Appeal. I agree with the judge and Lord Sumption, essentially for the reasons they give. Lord Sumption has set out clauses 12 and 13, which I will not repeat.
49. I have been particularly struck by these considerations. I agree with the judge (at para 185) that the demise charterparty must be given the meaning which, having regard to the background known to both parties, it would reasonably be understood to bear and that, in circumstances where, in clause 29, the demise charterparty contains a clear safe port warranty, one would expect any exemption of the demise charterers from liability in damages for breach of the safe port warranty to be clearly expressed.
50. In para 190 the judge observed that the charterers relied upon the The Evia (No 2), in which the question arose whether (as Lord Roskill put it at p 766) the war risks clause cast upon the owners and their insurers all war risks and thus freed the charterers from liability for them pursuant to the safe port clause. It was held that the charterers were freed from any liability that they might otherwise have. Lord Roskill identified the relevant question as being whether the war risks clause was a
complete code exhaustive of the owners’ rights, which depended upon the
construction of the time charterparty as a whole.
51. As the judge noted at para 191, the charterers adopted that reasoning here and said that it was applicable to the demise charterparty and, indeed, that it was a stronger case because, not only did the demise charterers pay for the cost of hull insurance, but they were also named as joint assureds and, generally speaking, an insurer cannot exercise rights of subrogation to pursue a claim in the name of one co-assured against another.
52. The judge rejected that submission in these terms:
“192. Cases decided after The Evia (No 2) have emphasised
that the decision in that case depended upon there being a clause which, on its true construction, provided an exhaustive code of the rights and liabilities of the parties; see The
Concordia Fjord [1984] 1 Lloyd’s Reports 385 and The
Chemical Venture [1993] 1 Lloyd’s Reports 508.193. In The Concordia Fjord the arbitrator, Mr MacCrindle
QC, said that he was ‘not aware of any principle exempting the
Charterers from liability for their breaches of contract merely on the ground that they have directly or indirectly provided the funds whereby the Owners insured themselves against such
damages.’ Bingham J agreed; see pp 387-388. Thus the mere
fact that the charterer pays for the hull insurance is not enough to exempt him from liability for breach of his obligations under the charterparty. There has to be an intention to create an
exhaustive code which determines the parties’ rights and
liabilities by reference to a claim on the insurance policy.
194. If clause 12 of the demise charterparty were such a code it would apply, not just to a particular issue such as war risks as was the case in The Evia (No 2), but to all hull, war and P&I risks. The charterparty contains a clear and express safe port warranty. If clause 12 were to be construed as an exhaustive code that clause would be rendered nugatory with regard to insured risks. It would in effect exempt the demise charterer from liability for breach of the safe port warranty in exchange for paying for the hull insurance. For that to be the intention of the parties there would have to be clear words. Counsel for Gard emphasised the rule of construction that clear words are necessary before the court will hold that a contract has taken away rights or remedies which one of the parties would otherwise have had; see Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689. This rule of construction is usually expressed with regard to rights which a party would have at common law but it must also apply to valuable rights given by other parts of a contract. Counsel submitted that there are no such words in clause 12 of the demise charterparty. The sentences of clause 12(a) and 12(c) on which particular reliance is placed by Daiichi do not expressly remove the right to damages for breach of the safe port warranty. They merely give the demise charterer certain rights with regard to proceeds of the insurance policy for which
they have paid.”
53. I entirely agree with the judge. It follows from the fact that clause 12 contains no such express exclusion that any such exemption can only arise by necessary implication. In short, there is nothing in clause 12 which provides that the demise charterers have no liability for breach of clause 29 and I see no basis for such a necessary implication, essentially for the reasons given by the judge and by Lord Sumption. In particular, it seems to me to be striking that, as the judge observed in para 195, clause 13, which contained an alternative insurance and repairs clause which not only provided that hull insurance would be paid for by the registered owner but also expressly stated that the registered owners and/or insurers would not have any rights of recovery or subrogation against the demise charterers in respect of insured losses, was deleted from the printed form. Thus the demise charterers chose not to be bound by clause 13.
54. After a detailed analysis (between paras 196 and the first part of para 198), the judge said that he did not consider that clause 12 codified the rights and liabilities of the parties with regard to insured risks. He noted that it provides for the provision of insurance and who is to pay for it, for the demise charterers to be responsible for insured repairs and to reimburse themselves from the proceeds of the insurance policy, for the demise charterers to be responsible for other repairs and for the claims on a total loss to be paid to the mortgagee for distribution to the registered owners and demise charterers in accordance with their respective interests. I agree with the judge that this does not in the required sense codify the rights and liabilities of the parties with regard to breach of the safe port warranty where the casualty caused by the breach has given rise to a claim on the insurance.
55. It is true that, as the judge put it in para 199, what clause 12 has, which neither the clause in The Evia (No 2) nor the clause in The Concordia Fjord (as expressly noted by Mr MacCrindle QC) had, is a provision that the owners and demise charterers were to be co-assureds, thereby, on the face of it, bringing into play the principle that, generally, an insurer cannot exercise rights of subrogation to pursue a claim in the name of one co-assured against another.
56. After referring (in para 200) to the decision and reasoning of Rix LJ in Tyco
Fire and Integrated Solutions (UK) Ltd v Rolls-Royce Motor Cars Ltd [2008] 2 All
ER (Comm) 584, the judge concluded in para 201 as follows:
“In the present case there was an express safe port warranty by
the demise charterers, there was no code of rights and obligations in clause 12 with regard to insured losses caused by a breach of the safe port warranty and there was no express ouster of the right of subrogation in clause 12. Those features of the demise charterparty suggest to me that, construing the charter as a whole, it was intended that the demise charterer would be liable to the owner for breach of the safe port warranty, notwithstanding that they were joint assured and could take the benefit of the insurance in the manner set out in
clause 12.”
I agree.
57. For these reasons and those given by Lord Sumption, I would have answered the question or issue 2 summarised in para 8 above, namely whether the provisions for insurance in clause 12 of the Barecon 89 form preclude rights of subrogation of hull insurers and the right of owners to recover in respect of losses covered by hull insurers against the demise charterers for breach of the express safe port undertaking, in the negative. I am not persuaded by the judgments of Lord Mance and Lord Toulson (with whom Lord Hodge agrees) to reach a different conclusion.
Limitation of liability
Introduction
58. Question or issue 3 summarised in para 8 above assumes (contrary to my view) that there was a breach of the safe port undertaking and asks whether Daiichi
is entitled to limit its liability for Gard’s losses or any (and, if so, which) of them as
against Sinochart (and Sinochart in turn against Gard) pursuant to section 185 and Schedule 7 article 2(1) of the Merchant Shipping Act 1995, which gave the force of
law to the Convention on Limitation of Liability for Maritime Claims 1976 (“the
1976 Convention”).
59. Like the joint insurance issue, this issue does not arise in the light of our decision on the safe port issue. However it raises a point of some potential importance and was fully argued before us. Neither of the courts below considered it because it was accepted that they were both bound by the decision of the Court of
Appeal in The CMA Djakarta [2004] 1 Lloyd’s Rep 460. In that case Longmore LJ
gave the only substantive judgment, with which Waller and Neuberger LJJ agreed.
60. As formulated on behalf of Daiichi, who were time charterers, the question
at issue is whether Daiichi (hereinafter “the charterers”) can limit their liability for
the loss of the vessel and consequential losses arising out of the loss of the vessel. The answer to that question depends largely upon whether The CMA Djakarta was correctly decided in the Court of Appeal. The limitation issue is a short but important one. It concerns the correct interpretation of the 1976 Convention.
61. The Convention provides, so far as relevant, as follows:
“Article 1. Persons entitled to limit liability
1. Shipowners and salvors, as hereinafter defined, may
limit their liability in accordance with the rules of this
Convention for claims set out in article 2.
2. The term ‘shipowner’ shall mean the owner, charterer,
manager or operator of a seagoing ship.
3. …
4. If any claims set out in article 2 are made against any person for whose act, neglect or default the shipowner or salvor is responsible, such person shall be entitled to avail himself of the limitation of liability provided for in this Convention.
5. In this Convention the liability of a shipowner shall include liability in an action brought against the vessel herself.
Article 2. Claims subject to limitation
1. Subject to articles 3 and 4 the following claims,
whatever the basis of liability may be, shall be subject to
limitation of liability:
(a) claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation) occurring on board or in direct connexion with the operation of the ship or with salvage operations, and consequential loss resulting therefrom;
(b) … (c) claims in respect of other loss resulting from infringement of rights other than contractual rights, occurring in direct connexion with the operation of the
ship or salvage operations;
(d) claims in respect of the raising, removal, destruction or the rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ship;
(e) claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship;
(f) claims of a person other than the person liable in respect of measures taken in order to avert or minimize loss for which the person liable may limit his liability in accordance with this Convention, and further loss caused by such measures.
2. Claims set out in paragraph 1 shall be subject to limitation of liability even if brought by way of recourse or for indemnity under a contract or otherwise. However, claims set out under paragraph 1(d), (e) and (f) shall not be subject to limitation of liability to the extent that they relate to remuneration under a contract with the person liable.
Article 3. Claims excepted from limitation
The rules of this Convention shall not apply to: (a) claims for
salvage or contribution in general average …”
Both parties rely principally upon article 2.1(a) quoted above. However, as appears below, reliance is also placed upon articles 6 and 9-11.
62. Although I have included the references to salvors in the above quotation, it is common ground that those references are irrelevant to the issues in this appeal. They were included in the Convention in order to depart from the decision of the House of Lords in The Tojo Maru [1972] AC 242.
63. The critical question for present purposes is whether The CMA Djakarta was correctly decided in the Court of Appeal. Gard say that it was. They rely upon the fact that it has not been criticised in any case since it was decided. They thus rely upon the reasoning of the Court of Appeal in The CMA Djakarta. They also rely upon some at least of the reasoning of David Steel J at first instance in that case, reported at [2003] 2 Lloyd’s Rep 50 and of Thomas J in The Aegean Sea [1998] 2
Lloyd’s Rep 39. By contrast, the charterers say that both cases were wrongly
decided. I have reached the clear conclusion that the Court of Appeal were correct,
essentially for the reasons they gave.
History of limitation
64. The 1976 Convention had of course been preceded by earlier Conventions, which David Steel J referred to as part of his historical analysis of the right to limit
clause 12. It cannot have been the parties’ intention that the charterer’s exposure to
liability should be greater under clause 13, where cover against marine and war risks
was to be maintained at the owner’s expense than under clause 12, where it was tobe maintained at the charterer’s expense. Longmore LJ put the point pithily when he described the exclusion of rights of recovery or subrogation in clause 13 as “a
confirmation rather than a negation of such exclusion in the more usually adopted
clause 12 for the longer term charters when it is the charterers who pay the premium”
(para 88).
136. The critical question then arises as to the effect, in relation to the operation of clause 12, of the substitution of clause 5 by clause 29, which provides that the vessel is to be employed in lawful trades for the carriage of lawful merchandises
“only between good and safe berths, ports or areas where the [vessel] can safely lie
always afloat”, etc.
137. On the hypothesis that Kashima was not prospectively a safe port for the OCEAN VICTORY when Daiichi gave instructions for her to discharge there, Daiichi was thereby in breach of the safe port undertaking in the time sub-charter between itself and Sinochart, which in turn was in breach of the equivalent undertaking in the time charter between itself and the demise charterer, OLH, which in turn was in breach of clause 29 of the demise charter between itself and the owners, OVM. The consequence of that breach was that the vessel was lost, but the demise charterer and the owners were co-insured (as required by clause 12) and the insurers paid its insured value. One of the insurers, Gard, claims to be entitled to recover that sum from the time charterers as assignee of the rights of the demise charterer. The claim therefore depends on the demise charterer being liable to the owners for that sum by way of damages for breach of clause 29, and thus entitled to recover the same sum from the time charterer as loss suffered by the demise charterer.
138. Gard’s case is that the breach of clause 29 caused the loss of the vessel;
therefore the demise charterer was liable to the owners for the vessel’s value, and
the fact that the owners were paid that amount by the insurers is res inter alios acta
as between the demise charterer and the time charterer.139. The critical question is whether the contractual scheme between the owners and the demise charterer precluded any claim by the former against the latter for the insured loss of the vessel. This is a matter of construction. It has become a common practice in various industries for the parties to provide for specified loss or damage
to be covered by insurance for their mutual benefit, whether caused by one party’s
fault or not, thus avoiding potential litigation between them. The question in each case is whether the parties are to be taken to have intended to create an insurance fund which would be the sole avenue for making good the relevant loss or damage, or whether the existence of the fund co-exists with an independent right of action for breach of a term of the contract which has caused that loss. Like all questions of construction, it depends on the provisions of the particular contract: see, for example, Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] 1 WLR 1419.
140. In that case a building owner entered into a standard form of building contract for the construction of office premises. Under its terms the contractor was required to take out and maintain a policy in the names of the owner, the contractor and specialist electrical subcontractors, Hall, for all risks insurance covering loss or damage to the works from specified perils including fire. Hall entered into a collateral contract with the owner warranting that it had exercised and would exercise all reasonable care and skill in the design and execution of the sub-contract works. A fire occurred causing extensive damage. The owners sued their architects and mechanical and engineering consultants, who brought third party proceedings against Hall. This raised the question whether Hall was liable to the owners in respect of the fire damage, alleged by the third party claimants to have been caused
by Hall’s negligence and breach of warranty. The House of Lords, upholding a
decision by the first instance judge and the Court of Appeal, held that it cannot have
been the parties’ intention that parties who were jointly insured under a contractors’
all risks policy could make claims against one another in respect of damage covered by the insurance, or that the insurers could make a subrogated claim in the name of the owners against Hall, and that the court would if necessary hold that there was an implied term to such effect (which I infer in relation to Hall must logically have taken effect as an implied term of the collateral contract between itself and the owners). In so holding the House of Lords approved and applied the reasoning of Mr Recorder Jackson QC, as he then was, in Hopewell Project Management Ltd v
Ewbank Preece Ltd [1998] 1 Lloyd’s Rep 448, 458, where he described it as nonsensical if those parties who were jointly insured under a contractors’ all risks
policy would make claims against one another in respect of damage to the contract works. The implied term presupposes, of course, that the party relying on it has not by his own conduct prevented recovery of the loss under the policy - a point made by Jackson J (as he had by then become) in Board of Trustees of the Tate Gallery v Duffy Construction Ltd [2007] BLR 216.
141. In the present case the Court of Appeal followed the same reasoning in
holding that the proper construction of clause 12 was that there was to be “an
insurance funded result in the event of loss or damage to the vessel by marine risks”
and that, if the demise charterers had been in breach of the safe port clause, they would have been under no liability to the owners for the amount of the insured loss because they had made provision for looking to the insurance proceeds for compensation. It did not consider that the introduction of clause 29 was intended to alter the way in which clause 12 was to operate.
142. I agree with the Court of Appeal. The demise charter allowed for a sub-
demise with the owners’ consent, which was not to be unreasonably withheld. The
risk existed that the vessel might be directed to an unsafe port, not necessarily by
negligence on anyone’s part, so causing peril to the vessel, but the risk of
consequential damage to the vessel was catered for by the insurance required to be maintained by the demise charterer in the joint names of itself and the owners. The commercial purpose of maintaining joint insurance in such circumstances is not only to provide a fund to make good the loss but to avoid litigation between them, or the bringing of a subrogation claim in the name of one against the other. I do not accept that by substituting clause 29 for clause 5 the parties intended to subvert that purpose. If anything, the present case is stronger in this regard than Co-operative
Retail Services Ltd v Taylor Young Partnership Ltd, because in that case Hall’s
obligation to use skill and care was in a separate contract from the contract between the owner and the contractor which contained the provisions about insurance
whereas in the present case clauses 12 and 29 are part of a single contract. Gard’s
submission that clause 29 becomes pointless if clause 12 has the effect held by the Court of Appeal is fallacious. It sets limits on the use of the vessel, breach of which may give rise to loss, but clause 12 deals with the consequences of loss or damage to the vessel, regardless of whether it resulted from negligence or other fault of the demise charterer (or a sub-charterer).
143. Mr Mark Howard QC argued that this interpretation misapprehends the purpose of clause 12, which in a case of loss caused by a breach of contract by the
charterer does no more than to ensure that the owner’s right to recover damages is
backed by an available fund. This in substance was the argument advanced unsuccessfully against Hall in Co-operative Retail Services Ltd v Taylor Young Partnership Ltd. Lord Hope (paras 39 and 40) distinguished between a provision for insurance which curtails the means of recovering loss whether or not it was caused
by a contracting co-insured’s default, and a provision which backs the other party’s
other obligations with an insuring obligation but leaves the other obligations
enforceable against the other party by other means. He agreed with the judge’s
conclusion that the contractual insurance arrangements meant that if a fire occurred, the owners were to look to the joint insurance policy to provide the fund for the cost
of restoring and repairing the fire damage rather than, in the judge’s words, indulge
in litigation with each other.
144. In the present case, if one were to ask whether it would have accorded with
the parties’ intentions that on the morning after the loss the owners would have been
entitled to demand immediate payment from the demise charterers, rather than make a claim on the insurers and wait for it to be settled, my answer would be that they intended no such thing. The insurance arrangements under clause 12 provided not only a fund but the avoidance of commercially unnecessary and undesirable disputes between the co-insured.
145. It does not follow that the demise charterers (or their insurers in their shoes) necessarily had no available remedy against the time charterers. The court was told that at one stage the insurers intimated a claim analogous to the claim which a bailee may bring under The Winkfield [1902] P 42. However, the matter was not pursued, and it would be inappropriate to express a positive view about the likelihood of success of such a claim (or any alternative), about which the court has heard no argument.
146. For those reasons I would have upheld the decision of the Court of Appeal on the recoverability issue, if the demise charterers had been in breach of the safe
port clause. I have had the benefit of reading Lord Mance’s additional reasons, with
which I agree. Like him, I do not think it is necessary to reach a final conclusion about the position in the case of an insolvent insurer, which it is not reasonable to suppose was in the minds of the BIMCO drafters of Barecon 89 and ought not to affect its core interpretation.
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