Pirates, ransom, and general average. There really is no alternative.

 

The Longchamp involved the allowance in General Average under Rule F of the York Antwerp Rules 1974 of expenses incurred by the shipowners while they were negotiating a ransom with Somali pirates over a period of some six weeks following the vessel’s seizure in the Gulf of Aden. Four items were claimed in respect of this period: crew wages, the high risk bonus due to the crew for being at sea in a high risk area, crew maintenance, bunkers consumed. Stephen Hofmeyr QC found that all items were allowable in general average. His finding has now been overruled by the Court of Appeal : [2016] EWCA Civ 708.

Rule F provides:

“Any extra expense incurred in place of another expense which would have been allowable as general average shall be deemed to be general average and so allowed without regard to the saving, if any, to other interests, but only up to the amount of the general average expense avoided.

The crux of the matter is whether these expenses were incurred “in place of another expense which would have been allowable as general average”. In this case, the shipowners claimed these expenses were incurred in place of an immediate payment of the demanded ransom at a higher figure than the ransom eventually negotiated. The Court of Appeal accepted cargo’s contention that in fact there was only one course open after the hijacking of the vessel (negotiation with the pirates to seek to achieve a release of the vessel and cargo) and the substituted expenses were incurred taking that course. There were only two available options to the owners once the vessel had been seized by pirates – abandon the vessel and cargo or engage with the pirates, negotiate and agree a ransom and pay it to effect release of ship, crew and cargo.  Rule F presupposes some real choice being made. Acceptance of the initial ransom demand is not a true alternative; nor is acceptance of any other ransom sum less than that initially demanded but greater than that eventually agreed.  Accordingly, the four expenses claimed by owners were not allowable in under Rule F.

The owners also claimed in respect of the costs of professional media response under Rule A in that they were incurred “for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure”.  At first instance, cargo interests argued that the costs must have been incurred for that sole purpose. The Judge rejected that argument and held that the costs were allowed.  On appeal they submitted that the costs must have been incurred for that predominant purpose. The Court of Appeal rejected this argument. It was enough that preserving the property from peril was an effective cause.

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