Unsafe ports. The Ocean Victory in the Supreme Court.

The Ocean Victory involved a Capesize vessel which became a constructive total loss at the discharge port of Kashima. The quay at Kashima was vulnerable to long waves which can result in a vessel being required to leave the port. The only route in and out of Kashima is by a narrow channel, the Kashima Fairway, which is vulnerable to northerly gales. There was no meteorological reason why these two events should occur at the same time, but on this occasion the two events did coincide when the vessel had to leave port due to long waves, and subsequently became a constructive total loss. The vessel was demise chartered on Barecon 89 form and sub-time chartered. Both charters contained a safe port warranty.  One of the vessel’s hull insurers took assignments of the owners’ and demise charterer’s rights and claimed for breach of the safe port warranty.

The Supreme Court which gave judgment yesterday, [2017] UKSC 35,  held that there had been no breach of the safe port undertaking.  The test for breach of the safe port undertaking was whether the damage sustained by the vessel had been caused by an “abnormal occurrence”, and the date for judging the breach of the safe port warranty was the date of nomination of the port. The Supreme Court unanimously upheld the decision of the Court of Appeal. The combination of long waves and the exceptional nature of the storm at Kashima constituted an abnormal occurrence. Accordingly, there had been no breach of the safe port warranty under the demise charter and the sub-time charter.

The Supreme Court also dealt with two further questions that would have arisen if there had been a breach of the safe port undertaking under the two charters.  The first was whether 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 charterer for breach of an express safe port undertaking. The majority view was that clause 12 did preclude such a claim and provided a comprehensive scheme for an insurance funded result in the event of loss of the vessel by marine risks. This scheme was not altered by the safe port undertaking.  The second was whether liability under the two charters could be limited under art. 2(1)(a) of the LLMC 1976. The Supreme Court unanimously agreed with the Court of Appeal in The CMA Djakarta [2004] 1 Lloyd’s Rep 460 that Article 2(1)(a) of the 1976 LLMC  which allows owners or charterers to limit liability for loss or damage to property “occurring on board the ship” or “in direct connexion with the operation of the ship” did not include loss or damage to the ship itself.

Keep right on to the end (of the charter). No constructive redelivery under bareboat charter.

The termination of a demise charter pursuant to the shipowner’s right of withdrawal is a more complex process than with an ordinary time charter. The charterer still has its crew on board the vessel and some time may elapse before the shipowner is able to retake physical possession of the vessel. In the interim charterers may have entered into commitments with bunker suppliers and with cargo owners, pursuant to bills of lading.

In The Chem Orchid Lloyd’s Law Reports , [2014] 1 Lloyd’s Rep. 520, the High Court of Singapore had to decide whether the bareboat charterer, the “relevant person” who would be liable in personam, was the demise charterer when the cause of action arose, so as to found jurisdiction under s.4(4) of the Singapore High Court (Admiralty Jurisdiction) Act, which is in identical terms to s.21(4) of the UK Senior Courts Act 1981. The Assistant Registrar struck out the writs in rem on the grounds that the charter had been terminated prior to the issue of the writs. Accordingly, the vessel could not be arrested in relation to claims arising in the interim between the notice of termination being given and physical redelivery of the vessel to the shipowners.

The decision has now been reversed by Steven Chong J, [2015] 2 Lloyd’s Rep. 666, who held that the charter had not been validly terminated, but even it had, there was no concept of constructive delivery applicable to the termination of bareboat charters which continue until physical redelivery. Therefore, at the time the in rem writs were issued by the bunker suppliers and the cargo claimants, the vessel was still in the possession of the charterers.

On 20 January 2016 the Singapore Court of Appeal held that it had no jurisdiction to hear an appeal from this decision. [2016] SCGA 04.