Law Report: Cost Of Negotiating Ransom For Ship Taken By Pirates

Supreme Court Published: November 7, 2017 Mitsui & Co Ltd and Others v Beteiligungsgesellschaft LPG Tankerflotte MBH & Co KG and Another Before Lord Neuberger of Abbotsbury, Lord Mance, Lord Clarke of Stone-cum-Ebony, Lord Sumption and Lord Hodge [2017] UKSC 68 Judgment: October 25, 2017 As a matter of ordinary language, rule F of the York-Antwerp Rules 1974, which allowed an “extra expense incurred in place of another expense” as “general average” to be shared between the parties, applied to ship operating expenses incurred during a period of negotiation over the amount of a ransom demanded by pirates, since it entitled a claimant to claim in respect of an expense successfully incurred for the purpose of mitigating a loss. The Supreme Court so stated when allowing the appeal by the defendant shipowners, Beteiligungsgesellschaft LPG Tankerflotte MBH & Co KG and LPG Carriers Ltd, from the decision of the Court of Appeal (Lord Justice Kitchin, Lord Justice Hamblen and Sir Timothy Lloyd) ([2016] 2 Lloyd’s Rep 375), which had allowed the appeal in part from the decision of Stephen Hofmeyr, QC, sitting as a deputy judge of the Queen’s Bench Division, whereby he dismissed the claim by the claimant cargo interests and their insurers, Mitsui & Co Ltd, Thai Plastic and Chemicals Public Co Ltd, Stephen Redmond and RSA Insurance Group plc, challenging the decision by a claims adjudicator that the negotiation period expenses were recoverable as general average and seeking the repayment of their contribution. The vessel was carrying a cargo of chemicals through the Gulf of Aden under a bill of lading, which stated that general average, if any, was to be settled under the York-Antwerp Rules. The general average referred to the system of maritime law under which all losses that arose in consequence of sacrifices made or expenses incurred in the preservation of the ship or cargo were proportionately shared by all whose property was at risk. Pirates boarded the ship, forcing it to alter course for Somalia and demanded a ransom of US$6 million. The shipowners’ crisis management team negotiated with the pirates and paid a ransom of $1·85 million, after 51 days of negotiation. The ship was accordingly released and continued with her voyage. The shipowners and cargo interests agreed that the ransom payment itself was an allowable in general average under rule A of the York-Antwerp Rules, but disagreed as to whether the daily vesseloperating expenses incurred during negotiation, about $160,000, should be allowed in general average under rule F. A claims adjudicator decided that the negotiation period costs were recoverable and the cargo interests paid their proportionate contribution. Mr Stephen Kenny, QC, and Mr Richard Sarll for the defendant shipowners; Mr Simon Croall, QC, and Mr Paul Toms for the claimant cargo interests. Lord Neuberger, with whom Lord Clarke, Lord Sumption and Lord Hodge agreed, said that the courts below had been incorrect in assuming that the shipowners had to establish that it would have been reasonable to accept the pirates’ initial ransom demand, to justify the contention that the negotiation period expenses were allowable under rule F of the York-Antwerp Rules 1974. The effect of that assumption would lead to very odd results, namely that if a shipowner incurred an expense to avoid paying a reasonable sum, he could in principle recover under rule F; but if it was to avoid paying an unreasonable, larger sum, he would not be able to recover. Fortunately, an examination of the wording of the rules showed that such a situation did not arise. The reference in rule F to “another expense which would have been allowable as general average” was not to an expense whose quantum was such that it would have qualified as a claim under rule A, but rather was to an expense of a nature that would have been allowable. The cargo interests’ argument that the negotiation period expenses did not fall within rule F because the payment of a reduced ransom was not an “alternative course of action” to the payment of the ransom originally demanded, but was merely a variant, was misconceived. Even if it was accepted that the “extra expense” had to involve an alternative course of action, the shipowners’ claim satisfied that requirement. The shipowners’ claim was for the actual ransom paid ($1·85 million), which was within rule A, and the negotiation period expenses ($160,000), which represented the “extra expense incurred in place of” the amount by which the ransom was reduced (about $4.15 million). In that way, the incurring of the $160,000 was alternative to paying the $4.15 million; the former involved incurring vessel-operating expenses, whereas the latter involved paying a ransom. However, given that the York-Antwerp Rules represented an international agreement, it was inappropriate to read into them any words or qualification. To imply some qualification such as the requirement that, to be recoverable, the expenses had to have been incurred so as to achieve an alternative course of action was very dangerous. Accordingly, as a matter of ordinary language, rule F applied to the negotiation period expenses. Lord Sumption delivered a concurring judgment. Lord Mance, dissenting, would have dismissed the appeal on the ground, inter alia, that the shipowners had failed to establish that they had any claim on the only factual basis on which the case had been put. Solicitors: Stephenson Harwood LLP; Salvus Law Ltd, Manchester. Culled: thetimes.co.uk]]>