United Kingdom Supreme Court

Issues in the appeal

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

“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

“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 ...”

“(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.”

“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).”

“[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.”

“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.”

Contrast between the approaches of the judge and of the Court of Appeal

“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.”

“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.

“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.”

“… 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.

“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.”

“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?”

“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).”

“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.”

“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.”

Conclusion on the safe port issue

Joint insurance

“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.”

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.

Limitation of liability

Introduction

“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.

History of limitation

“ARTICLE 31

General rule of interpretation

1.         A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

2.         The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:

(a)       any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty;

(b)       any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. …

ARTICLE 32

Supplementary means of interpretation

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:

(a)       leaves the meaning ambiguous or obscure; or

(b)       leads to a result which is manifestly absurd or unreasonable.”

Context, object and purpose

Ordinary meaning

“To my mind the ordinary meaning of the word ‘charterer’ connotes a charterer acting in his capacity as such, not a charterer acting in some other capacity.”

“‘A fund constituted by one of the persons mentioned in paragraph 1(a), (b) or (c) or paragraph 2 of article 9 or his insurer shall be deemed constituted by all persons mentioned in paragraph 1(a), (b) or (c) or paragraph 2 respectively.’ Thus through the references to article 9(1)(a) all those persons designated as shipowners in article 1(2) of the Convention are brought together as a single unit for the constitution of the fund. Thomas J said this (p 49):

‘In my view the combined effect of these articles is important. As there is provision for a fund for those categorized as shipowners and that fund is to cover both charterers and owners, it is difficult to see how charterers can claim the benefit of limitation through that fund where a claim is brought against them by owners. Owners are entitled to the benefit of limitation for a claim by charterers as that claim is being brought by charterers not when performing a role in the operations of the ship or when undertaking the responsibility of a shipowner, but in a different capacity, usually through their interest in the cargo being carried.’

While I entirely agree with this passage from The Aegean Sea, the considerations advanced by the judge to my mind more effectively support a conclusion that the claims in respect of which an owner or a charterer can limit do not include claims for loss or damage to the ship relied on to calculate the limit rather than a conclusion that a charterer can only limit in respect of operations he does qua owner.”

“The property damaged cannot be the very same thing as the operation of which caused the damage.”

I agree with both Thomas J and David Steel J in this respect and conclude that the ordinary meaning of article 2(1)(a) does not extend the right to limit to a claim for damage to the vessel by reference to the tonnage of which limitation is to be calculated.

Confirmation of the ordinary meaning of article 2(1)(a)

“The following claims shall be secured by maritime liens on the vessel ... (iv) claims against the owner, based on tort and not capable of being based on contract, in respect of loss of or damage to property occurring, whether on land or on water, in direct connection with the operation of the vessel ...”

No-one suggested that “loss or damage to property” could include loss of or damage to the very vessel on which the maritime lien was secured. I would accept the submission made on behalf of Gard that, when similar wording was exported to the 1976 Convention, the expression “loss of or damage to property … in direct connection with the operation of the ship” was not intended to include loss of or damage to the very vessel on the basis of whose tonnage limitation was calculated.

Conclusion on limitation

CONCLUSIONS

LORD SUMPTION:

(1)       on the basis that he is himself liable to the head owner under the demise charter;

“12.     lnsurance and Repairs

(a)       During the Charter period the Vessel shall be kept insured by the Charterers at their expense against marine, war and Protection and indemnity risks in such form as the Owners shall in writing approve, which approval shall not be unreasonably withheld. Such marine, war and P & I insurances shall be arranged by the Charterers to protect the interests of both the Owners and the Charterers and mortgagees (if any), and the Charterers shall be at liberty to protect under such insurances the interests of any managers they may appoint. All insurance policies shall be in the joint names of the Owners and the Charterers as their interests may appear.

If the Charterers fail to arrange and keep any of the insurances provided for under the provisions of sub-clause (a) above in the manner described therein, the Owners shall notify the Charterers whereupon the Charterers shall rectify the position within seven running days, failing which Owners shall have the right to withdraw the Vessel from the service of the Charterers without prejudice to any claim the Owners may otherwise have against the Charterers.

The Charterers shall, subject to the approval of the Owners and the Underwriters, effect all insured repairs and shall undertake settlement of all costs in connection with such repairs as well as insured charges, expenses and liabilities (reimbursement to be secured by the Charterers from the Underwriters) to the extent of coverage under the insurances herein provided for.

The Charterers also to remain responsible for and to effect repairs and settlement of costs and expenses incurred thereby in respect of all other repairs not covered by the insurances and/or not exceeding any possible franchise(s) or deductibles provided for in the insurances.

…

(b)       If the conditions of the above insurances permit additional insurance to be placed by the parties, such cover shall be limited to the amount for each party set out in Box 28 and Box 29, respectively. The Owners or the Charterers as the case may be shall immediately furnish the other party with particulars of any additional insurance effected, including copies of any cover notes or policies and the written consent of the insurers of any such required insurance in any case where the consent of such insurers is necessary.

(c)       Should the Vessel become an actual, constructive, compromised or agreed total loss under the insurances required under sub-clause (a) of clause 12, all insurance payments for such loss shall be paid to the Mortgagee, if any, in the manner described in the Deed(s) of Covenant, who shall distribute the moneys between themselves, the Owners and the Charterers according to their respective interests. The Charterers undertake to notify the Owners and the Mortgagee, if any, of any occurrences in consequence of which the Vessel is likely to become a Total Loss as defined in this clause.

(d)       If the Vessel becomes an actual, constructive, compromised or agreed total loss under the insurances arranged by the Charterers in accordance with subclause (a) of this Clause, this Charter shall terminate as of the date of such loss.

(e)       …

(f)        For the purpose of insurance coverage against marine and war risks under the provisions of sub-clause (a) of this clause, the value of the vessel is the sum indicated in Box 27.”

The alternative insurance clause, clause 13, was intended for short-term demise charters and envisaged that the demise charterer would become entitled under existing insurance arrangements made by the head owner. It accordingly provided for the vessel to be kept insured against marine and war risks by the owner at their expense under a policy in joint names, and against P & I risks by the charterers at their expense. For present purposes, however, the most significant difference between the two clauses consists in the addition in clause 13(a) of an express provision dealing with the relationship between the liability of insurers and that of demise charterers. It provided:

“The Owners and/or insurers shall not have any right of recovery or subrogation against the Charterers on account of loss of or any damage to the vessel or her machinery or appurtenances covered by such insurance, or on account of payments made to discharge claims against or liabilities of the Vessel or the Owners covered by such insurance.”

“29.     Trading Exclusions

Vessel to be employed in lawful trades for the carriage of lawful merchandises only between good and safe berths, ports or areas where vessel can safely lie always afloat, always accessible within IWL except NAABSA in River Plate where it is customary for similar size or similar dimension vessels to safely lie aground, specially excluding Abkhazia, Albania, Angola, Bosnia-Herzegovina, CLS Pacific ports, Democratic Republic of Congo (formerly Zaire), Eritrea, Israel, North Korea, Lebanon, Liberia, Libya, Sierra Leone, Somalia, Sri Lanka, Federal Republic of Yugoslavia, Zimbabwe, in Arabian Gulf and adjacent waters including the Gulf of Oman North of 24 deg North, any United Nation embargo countries/ports.

Charterers have right to send vessel to the war/warlike zone or other zones for which additional insurance are levied by vessel’s war risk insurers. In such event, Charterers are fully responsible to pay for all additional war risk premium upon demand by vessel’s underwriters and/or P+I club with all risks/consequences to be for Charterers’ account.

Charterers shall have right to break IWL in which case Charterers are fully responsible to pay for all additional premium upon demand by vessel’s underwriters and/or P+I Club for breaching IWL with all risks/consequences to be for Charterers’ account.

Any ice affected port(s) and/or place(s).

No direct sailing between PRC and Taiwan or vice versa.”

It is not disputed that if Kashima was an unsafe port there was a breach of clause 29.

(1)       In the Barecon 89 form as printed, the demise charterer’s sole obligation in relation to the physical condition of the ship was the maintenance and repairing obligation in clause 9. Breach of that obligation would not give rise to an insured loss. The only trading warranty was in clause 5. This did not give rise to an insured loss either, because it did no more than prohibit the trading of the vessel to places where she would not be insured. Under the unamended Barecon 89 form, therefore, it is difficult to envisage circumstances in which an insured loss could arise from a breach of contract by the demise charterers. The present issue simply could not arise. The parties are therefore unlikely to have intended to address it. The present issue arises only because the printed form has been modified by adding in clause 29 a contractual obligation not to trade the vessel to unsafe ports where she may suffer an insured loss. In adding clause 29 to the printed form, the parties must have intended that in relation to loss or damage arising from the unsafeness of ports, the liability of the charterers and the insurers would coexist. If, as the Court of Appeal thought, the liability of the charterers did not extend to damages, the parties must be taken to have included an elaborate trading warranty which is almost entirely redundant. Its only effect, on this view of the matter, was to entitle the head owners to protest if they happened to learn in advance of the demise charterer’s intention to visit an unsafe port. If the demise charterers persisted (as they were in a position to do since they were in operational control of the ship and employed the master and crew), and the ship was damaged or lost, there would be no consequences in damages. This is not a realistic intention to impute to commercial parties in the absence of express words to that effect.

(2)       The only words of clause 12 which are said to have this effect are the words of clause 12(c) which deal with the distribution of the insurance proceeds upon a total loss. They seem to me to be irrelevant to the present issue. They deal with the mechanics of payment of the insurance proceeds and not the substantive rights of the parties. The proceeds are to be paid in the first instance to the mortgagee bank, and thereafter to the head owner and demise charterer according to their respective interests. This provision does not exclude a right to damages for breach of contract. Its purpose appears to be (i) to protect the position of the mortgagee, and (ii) to distinguish the position where there is a partial loss (see the fourth paragraph of clause 12(a)) when the insurance proceeds will go to the demise charterer by way of indemnity against the cost of repairs.

(3)       It is right to add that in relation to war risks clause 29 expressly provides that “all risks / consequences” of breach are to be for charterers’ account, notwithstanding the obligation under clause 12 to maintain war risks insurance.

(4)       If clause 12(c) contains the decisive language, as the time charterers have suggested, then it becomes necessary to distinguish between insurance payments under the hull policy in respect of the loss of the ship and insurance payments under the P & I insurance representing other elements of the claim such as SCOPIC and wreck-raising expenses. The latter will be recoverable as damages in the ordinary way, as well as under the express indemnities at clauses 17 and 18 of the demise charter. Logically, it also requires a distinction to be made between the insured value of the ship (in this case, $70m) and its market value (in this case $88.5m), the difference being recoverable as damages, as the time charterers accepted before Teare J. It is very difficult to see why, if the principle underlying clause 12 was that the parties were to look exclusively to the insurance proceeds for compensation for a breach of clause 29, they should have intended this arbitrary distinction between different elements of the loss.

(5)       Finally, there are the terms of clause 13(a), which expressly exclude any right to recover damages in respect of insured loss of or damage to the ship. If that option is chosen, the result for which the time charterers contend is achieved by the express words of the contract. I recognise that clause 13 is designed for a very different kind of chartered service. It is nonetheless a striking fact that when the draftsman of this contract wished to deal with the overlap between the liability of the insurers and that of the demise charterers, he did so in express terms, using language which finds no equivalent in clause 12.

(6)       Lord Clarke has made some further observations at paras 49 to 57 of his judgment, with which I agree.

LORD MANCE:

“The Owners and/or insurers shall not have any right of … subrogation against the Charterers on account of loss of or any damage to the Vessel or her machinery or appurtenances covered by such insurance, or on account of payments made to discharge claims against or liabilities of the Vessel or the Owners covered by such insurance.”

“The main difference between Clause 12 and Clause 13 is that in Clause 13 the responsibility for arranging and keeping the marine and war risks insurances has been shifted back to the Owners.”

LORD HODGE:

LORD TOULSON:

“(a)     During the Charter period the Vessel shall be kept insured by the Charterers at their expense against marine, war and Protection and Indemnity risks in such form as the Owners shall in writing approve, which approval shall not be unreasonably withheld. Such marine, war and P and I insurances shall be arranged by the Charterers to protect the interests of both the Owners and the Charterers and mortgagees (if any), and the Charterers shall be at liberty to protect under such insurances the interests of any managers they may appoint. All insurance policies shall be in the joint names of the Owners and the Charterers as their interests may appear.

If the Charterers fail to arrange and keep any of the insurances provided for under the provisions of sub-clause (a) above in the manner described therein, the Owners shall notify the Charterers whereupon the Charterers shall rectify the position within seven running days, failing which Owners shall have the right to withdraw the Vessel from the service of the Charterers without prejudice to any claim the Owners may otherwise have against the Charterers.

The Charterers shall, subject to the approval of the Owners and the Underwriters, effect all insured repairs and shall undertake settlement of all costs in connection with such repairs as well as insured charges, expenses and liabilities (reimbursement to be secured by the Charterers from the Underwriters) to the extent of coverage under the insurances herein provided for.

The Charterers also to remain responsible for and to effect repairs and settlement of costs and expenses incurred thereby in respect of all other repairs not covered by the insurances and/or not exceeding any possible franchise(s) or deductibles provided for in the insurances.

All time used for repairs under the provisions of sub-clause (a) of this Clause and for repairs of latent defects according to Clause 2 above including any deviation shall count as time on hire and shall form part of the Charter period.

(b)       If the conditions of the above insurances permit additional insurance to be placed by the parties, such cover shall be limited to the amount for each party set out in Box 28 and Box 29 respectively. The Owners or the Charterers as the case may be shall immediately furnish the other party with particulars of any additional insurance effected, including copies of any cover notes or policies and the written consent of the Insurers of any such required insurance in any case where the consent of such insurers is necessary.

(c)       Should the vessel become an actual, constructive, compromised or agreed total loss under the insurances required under sub-clause (a) of clause 12, all insurance payments for such loss shall be paid to the Mortgagee, if any, in the manner described in the Deed(s) of Covenant, who shall distribute the moneys between themselves, the Owners and the Charterers according to their respective interests. The Charterers undertake to notify the Owners and the Mortgagee, if any, of any occurrences in consequence of which the Vessel is likely to become a Total Loss as defined in this Clause.

(d)       If the Vessel becomes an actual, constructive, compromised or agreed total loss under the insurances arranged by the Charterers in accordance with sub-clause (a) of this Clause, this Charter shall terminate as of the date of such loss.

(e)       The Owners shall upon the request of the Charterers, promptly execute such documents as may be required to enable the Charterers to abandon the Vessel to insurers and claim a constructive total loss.

(f)        For the purposes of insurance coverage against marine and war risks under the provisions of sub-clause (a) of this Clause, the value of the Vessel is the sum indicated in Box 27.”

“During the Charter period the Vessel shall be kept insured by the Owners at their expense against marine and war risks under the form of policy or policies attached hereto. The Owners and/or insurers shall not have any right of recovery or subrogation against the Charterers on account of loss of or any damage to the Vessel or her machinery or appurtenances covered by such insurance, or on account of payments made to discharge claims against or liabilities of the Vessel or the Owners covered by such insurance. All insurance policies shall be in the joint names of the Owners and the Charterers as their interests may appear.”