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Supreme Court explains meaning of ‘abnormal occurrence’ in the context of a safe port warranty and tackles co-insurance questions

12th May, 2017 / Legal & Law Firm, News

In an important judgment handed down on 10 May 2017, the Supreme Court has unanimously upheld the Court of Appeal’s decision of 22 January 2015 that there was no breach of the safe port undertaking in this case. In doing so, the Supreme Court agreed with the Court of Appeal that the phrase “abnormal occurrence” in the context of a safe port undertaking should be given its “ordinary meaning”. Their Lordships endorsed the Court of Appeal’s view that this meant an event that was something well removed from the normal, out of the ordinary course and unexpected: “it is something which the notional charterer or owner would not have in mind”.

The Supreme Court, by a majority of 3:2, also found that, had there been a breach of the safe port undertaking, the provisions for joint insurance in clause 12 of the Barecon 89 form precluded 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 an express safe port undertaking.

Finally, the Supreme Court unanimously dismissed the charterers’ cross-appeal challenging the 2004 decision of the Court of Appeal in The CMA Djakarta in relation to limitation of liability.  If there had been a breach of the safe port warranty, the time charterers would not have been entitled to limit their liability.

This decision is very significant for owners, charterers and their respective insurers. In moving away from the description of an “abnormal occurrence” as one which is unrelated to the prevailing characteristics and set-up of the port, and in confirming the Court of Appeal’s approach to that phrase, the decision arguably narrows the circumstances in which a port will be regarded as unsafe.

The background facts

At the time of the casualty, on 24 October 2006, Ocean Victory, a Capesize bulk carrier, was on demise charter on the Barecon 89 form, from the owners to a related company. The demise charterers had in turn time chartered the vessel and time charterers had sub-chartered her for a time charter trip.

The sub-charterers had given the vessel instructions to load a cargo of iron ore at Saldanha Bay in South Africa and to discharge at Kashima port, Japan. Kashima port is entered from the sea through the North facing Kashima Fairway (a specially constructed channel), which is the only route in and out of the port. The Kashima Fairway is bounded on one side by the South Breakwater and on the other by land.

After discharging operations had been partly completed but had stopped due to bad weather, the sub-time charterers’ representative at Kashima advised the Master of Ocean Victory on 24 October 2006 to leave port for safety reasons – advice that he expected the Master to follow. Similar advice to leave was given the same day to another Capesize vessel, the Ellida Ace, in an adjacent berth. Ocean Victory and Ellida Ace both unsuccessfully attempted to leave port that day, in a storm. Ocean Victory allided with the northern end of the South Breakwater and grounded. Ellida Ace grounded before reaching the end of the Kashima Fairway. Salvors were engaged to assist both vessels, but the Ocean Victory could not be refloated and eventually broke in two. Subsequently, the Ocean Victory’s  hull insurers, in their capacity as assignees of the rights of the owners and demise charterers in respect of the grounding and total loss of the vessel, sought to recover damages from the time charterers for breach of the charterers’ undertaking to trade only between safe ports. The time charterers sought to pass any liability down the chain to the sub-charterers…. READ FULL ARTICLE

Contributor: Ince & Co

Website: incelaw.com

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