UK: Are Expenses Incurred During Negotiation Of A Pirate Ransom Recoverable In General Average?

In The Longchamp [2016] EWCA Civ 708, the Court of Appeal has ruled on an issue that had not previously been considered by the English courts, namely, whether expenses incurred by a shipowner during the period of negotiation of a pirate ransom should be recoverable in general average.

Facts

The laden chemical tanker LONGCHAMP was transiting the Gulf of Aden on passage to Vietnam. The ship was subject to a pirate attack on 29 January 2009 following which she was taken, under the command of the pirates, to Eyl, Somalia.

The owners immediately formed a crisis team and, within a day, the pirate negotiator had made an initial ransom demand of US$6,000,000. This was countered with an offer from the owners of US$373,000. The day following Owners' initial offer of payment of a ransom demand, Owners declared General Average. A payment of US$1,850,000 was finally made on 22 March after a 51 day negotiation period.

The owners claimed the operating costs (which included crew wages/bonuses, media crisis response services and bunkers) for the period of time the ship was seized as substituted expenses in general average under Rule F of the York-Antwerp Rules 1974 (as incorporated into the contract of carriage), which states:

"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 owners claimed that the operating costs should be allowed as a substituted expense under Rule F as they had been incurred for the sole reason of reducing the final ransom payment which, it was accepted, was itself allowable under Rule A.

The operating costs were allowed in general average by the adjuster, prompting cargo interests to commence proceedings seeking repayment of their contribution towards this item on the basis that they should not be allowable under Rule F.

In the High Court Mr Stephen Hofmeyr QC, sitting as a Deputy High Court Judge, delivered what was to many a surprising judgment, by holding that the 'detention expenses' for the period of time the owners were negotiating the ransom down should be allowed as an alternative expense under Rule F. His finding was that these expenses were reasonably incurred to save the parties to the adventure around US$4,150,000, that is, the negotiated reduction on the ransom amount. Cargo interests were granted leave to appeal to the Court of Appeal.

Court of Appeal

The Court of Appeal was asked to consider four issues in the appeal:

Issue 1 - Was the first instance decision to allow the expenses incurred as substituted expenses wrong?

The cargo appellants argued that the outcome of the seizure of the vessel was subject to the decisions of the pirates and that whether the ship was released and for what sums was ultimately a matter for the pirates and was outside the control of the owners. The Court of Appeal took the view that this argument was supported by the evidence given that:

  • The owners never considered that they faced a choice: a crisis team had been set up almost immediately and certainly before any ransom demand had been issued;
  • From the outset, the owners were looking to minimise the size of any ransom payment and they never considered payment of the ransom on demand;
  • The owners had no real choice in what course of action to take and that payment at the outset or later were all actions following the same path; and
  • Whether or not the ransom had been paid on demand there would still have been a period of delay and negotiation (even if just to agree the details of payment and release) that would have resulted in expenses being incurred; indeed, the pirates might even have decided to increase their demand upon any immediate acquiescence by the owners.

Considered on this basis, the Court of Appeal took the view that the negotiation period to reduce the ransom was not a true alternative within the meaning of Rule F. As Hamblen LJ put it:

"Delay will often cause loss to both ship and cargo but generally that loss lies where it falls. Whilst such owners' expenses may on occasion be recoverable under Rule F, that Rule presupposes some real choice being made, which [here] it was not."

The Court of Appeal upheld the cargo interests' appeal on Issue 1 on that basis.

Issue 2 - Was the High Court wrong to conclude that payment of the original US$6m ransom demand without negotiation would have been reasonably incurred?

Hamblen LJ agreed with Mr Stephen Hofmeyr QC in the High Court where he stated, "....on the true construction of Rule F of the York-Antwerp Rules 1974, the hypothetical alternative course of action must meet the requirement that it was "reasonably ... incurred" if the substitute expense is to be allowed in general average." It was therefore, necessary to determine whether in the circumstances the payment of the initial demand would have been reasonable.

The Court of Appeal held that whilst it might be accepted practice to undertake a period of negotiation in which to seek to reduce the ransom demand, adoption of that approach would not render a payment of the immediate ransom demand unreasonable where that payment was made to avert a very real danger to the ship, cargo and crew as quickly as possible. The cargo interests' appeal on this point was therefore dismissed.

Issue 3 - Were the bunkers an expense for the purpose of Rule F?

The appellants contended that as bunkers were consumed it could not be an expense as it is generally treated as a sacrifice, therefore it is a loss and Rule F does not extend to cover losses. The Court of Appeal found that there was no difficulty as a matter of language in treating the consumption of bunkers as an expense though whether expenses would cover bunkers in any particular case would depend on the context of the claim.

Issue 4 - Were the media response costs allowable under Rule A given that there were a number of reasons as to why those costs were incurred?

It was argued by the appellants that as media costs had been incurred for reasons in addition to the common safety of the adventure and preserving property from peril, they should be disallowed. This was rejected at first instance and again at appeal. Hamblen LJ stated that the importation of the concept of predominant purpose, "...imports undesirable and unnecessary complications". There are circumstances where it may be difficult to distinguish between two legitimate purposes to find the predominant one. It was sufficient that one purpose was to preserve the property from peril for Rule A to apply.

Comment

When assessing losses that potentially fall within Rule F it is necessary to consider whether the alternative that is being presented is a true alternative rather than a slight variation of the actions actually taken. Whilst the judgment is heavily fact specific it does give useful insight as to how the courts view the construction of the York Antwerp Rules.

The irony is that had the owners paid the ransom demand in full as soon as it was made, the Court would not have found that unreasonable and it would have been allowed in GA, whilst saving the owners the delay expenses, the justification being that we are talking about ransom demands and human lives at risk. However, as the Court of Appeal found, "...acceptance of the initial demand is not a true alternative." It simply would not have happened for all the reasons that experience in similar Somali pirate cases has shown.

Are Expenses Incurred During Negotiation Of A Pirate Ransom Recoverable In General Average?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions