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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Dry Log Bulk Carriers v Phaethon International Co SA [2016] EWHC 3798 (Comm) (25 November 2016) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2016/3798.html Cite as: [2016] EWHC 3798 (Comm)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		7 Rolls Buildings Fetter lane London EC4A 1NL
		25/11/2016

Mr Justice Leggatt:

1. This is an appeal under section 69 of the Arbitration Act 1996 from an award of two maritime arbitrators dated 9 May 2016. The appeal raises an issue concerning the correct interpretation of the BIMCO Piracy Clause 2009 which is a clause in common use in time charters.
2. In this case the claimant as disponent owner of the m/t "Bulk Indonesia" chartered the vessel through the defendant charterers for one time charter trip via Black Sea East with a minimum guaranteed duration of 65 days. The charter was made on the terms of the New York Produce Exchange form with amendments evidenced by a fixture recap dated 3 July 2013. The charterers were aware that the contract was a subcharter as the head owners were identified by name in the fixture recap. The charter party terms included the BIMCO Piracy Clause for Time Charter Parties 2009 which provides:

"(d) Costs

[...]

(iii) If the underwriters of the Owners' insurances require additional premiums or additional insurance cover is necessary because the Vessel proceeds to or through an Area exposed to risk of Piracy, then such additional insurance costs shall be reimbursed by the Charterers to the Owners;

(iv) All payments arising under Sub-clause (d) shall be settled within fifteen (15) days of receipt of Owners' supported invoices or on redelivery, whichever occurs first."

3. In addition, the fixture recap stated:

"G.O.A/SUEZ ALLOWED BUT MAXIMUM TWO TRANSIT DURING THE CURRENCY OF CP

Cost of transit Goa to read

AS A REFERENCE ONLY PROVISIONAL PIRACY COSTS (INCLUDING OR NOT AND NOT LIMITED TO) AS FOLLOWS

Extra insurance war risk Usd.15,000 abt K&R Usd.30,000.00 Loss of Hire Usd.5,000.00 Anti piracy material Usd.15,000.00 Armed Guards abt Usd.35,000.00 (depends embarkation/disembarkation/duration)

Crew bonus abt Usd 5,000

Total Abt. 105,000.00 usd. Without Guarantee"

4. The charter trip was performed, and on two occasions the vessel was ordered by charterers to and did pass through the Gulf of Aden. The disponent owners claimed that the vessel had thereby been exposed to the risk of piracy with the result that they were entitled to be reimbursed by charterers under the Piracy Clause for additional insurance costs in the sum of US$30,000 for each transit. In support of this claim the owners relied on two debit notes, each for $30,000, which had been issued to them by the head owners for kidnap and ransom insurance. These debit notes were issued to the owners in accordance with an agreement made between themselves and the head owners in December 2011, whereby the disponent owners agreed to pay US$30,000 "as compensation of the K & R as [head owners] cannot disclose the detail" for being allowed to transit the Gulf of Aden. There is no finding or suggestion that the charterers were aware of that agreement when they entered into charter party which is the subject of this case.
5. As found by the arbitrators, the disponent owners explained to the charterers that, for reasons of confidentiality, the head owners could not provide them with direct evidence of what additional premium was charged by or paid to the underwriters for kidnap and ransom insurance for the two transits. However, the disponent owners argued that they were entitled on the basis of the debit notes on which they relied to be reimbursed in the amount of US$60,000. The charterers denied that they were liable for any sum and in the arbitration they counterclaimed for an amount of US$12,000 which they had paid to the owners on account.
6. The arbitrators decided the dispute in favour of the charterers. They thought it quite clear that the Piracy Clause required the owners to show how much premium was charged by or paid to the underwriters for each transit. They noted that the debit notes on which the disponent owners relied were evidence only of payments made by them to the head owners and did not provide evidence of what sums were paid to the underwriters. Accordingly, they held that the claim for reimbursement failed for want of proof.
7. The disponent owners commenced this arbitration claim on 3 June 2016 and were given permission to appeal by Teare J on 8 August 2016 on the following question of law:

"If additional insurance cover is necessary because a vessel proceeds to or through an area exposed to risk of piracy, what documentation do sub-clauses d(iii) and d(iv) of the BIMCO Piracy Clause 2009 require a disponent owner to provide their charterer with to obtain reimbursement of the additional insurance costs the disponent owner has incurred?"

8. Counsel for the charterers, Mr Stiggelbout, has taken a preliminary point that the question for determination as it has been phrased is premised on additional insurance cover being necessary because the vessel in question proceeds to or through an area exposed to risk of piracy. He makes the point that the arbitrators made no finding that this condition was satisfied in the present case. Therefore, he submits, the appeal must fail however the question of law for which the owners seek the court's determination is decided. I will come back to that point but I do not propose to deal with it as a threshold question or let it deter me from deciding the question of law which is the subject of this appeal.
9. The basis on which permission to appeal was given in this case is that the judge who gave permission considered the issue to be one of general public importance. That reflects the test contained in section 69(3)(c) of the Arbitration Act whereby permission to appeal may be given only if the court is satisfied that, on the basis of the findings of fact in the award, either the decision of the tribunal on the question is obviously wrong or the question is one of general public importance and the decision of the tribunal is at least open to serious doubt.
10. The criterion of general public importance needs to be applied having regard to the vital function which appeals from arbitration awards play in the development of commercial law. As the Lord Chief Justice pointed out in the Bailii lecture which he gave on 9 March 2016, there is a danger that the very popularity and success of arbitration as a form of dispute resolution in certain areas of commerce such as shipping will reduce the ability of the courts to develop and keep up to date the law which arbitrators must apply. To prevent that from happening and to enable the courts to give the public judgments on which the development of English commercial law depends, there needs to be a sufficient flow of cases to the courts. That will be achieved if appropriate recognition is given to the general public importance of facilitating development of the law in areas of commerce where arbitration is the norm and of having questions which are of widespread relevance in those areas decided by the courts.
11. With that in mind, I think it right to decide the question posed in this case even if it should turn out that the owners are unable to obtain the relief they seek notwithstanding an answer or even if the question is answered in their favour.
12. Although the question is formulated as a question about the documentation that the disponent owner is required to provide in order to obtain reimbursement, that question is parasitic on what the disponent owner is entitled to claim reimbursement for and accordingly needs documentation to support. The underlying question is whether on a correct interpretation of the Piracy Clause the "additional insurance costs" for which charterers may be required to reimburse the owners refer to costs payable by the head owner to underwriters for insurance cover; or whether (as the disponent owners maintain on this appeal) the phrase when the Piracy Clause is included in a subcharter should be understood to refer to costs which the disponent owners have become contractually obliged to pay to the head owner in respect of additional insurance cover which is necessary because the vessel proceeds to or through an area exposed to risk of piracy.
13. In support of the latter interpretation, Mr Henderson made three principal points. First, he emphasised that the Piracy Clause needs to be construed in its relevant context and that in this case the relevant context is its incorporation in a subcharter; moreover, the fact that it was a subcharter was known by the charters since, as I have already pointed out, the identity was mentioned in the fixture recap. Second, Mr Henderson submitted that the natural meaning of the phrase "additional insurance costs" encompasses costs which go beyond merely premiums paid to underwriters and includes costs associated with or related to insurance such as, he submitted, the costs which were incurred by the disponent owners to the head owners in the present case. Third, Mr Henderson sought to draw additional support for the disponent owners' interpretation by comparing the wording of the Piracy Clause with the corresponding wording of the War Risks Clause for Time Charters 2004, which was also included in the present charter party. The latter War Risks Clause includes the following provisions:

"(d) (i) The Owners may effect war risks insurance in respect of the Hull and Machinery of the Vessel and their other interests (including, but not limited to, loss of earnings and detention, the crew and their protection and Indemnity Risks), and the premiums and/or calls therefore shall be for their account.

(ii) If the Underwriters of such insurance should require payment of premiums and/or calls because, pursuant to the Charterers' orders, the Vessel is within, or is due to enter and remain within, or pass through any area or areas which are specified by such Underwriters as being subject to additional premiums because of War Risks, then the actual premiums and/or calls paid shall be reimbursed by the Charterers to the Owners at the same time as the next payment of hire is due, or upon redelivery, whichever occurs first."

14. Mr Henderson emphasised the references in these provisions to "actual premiums and/or calls paid" and submitted that that had the intention been to limit claims for reimbursement of costs in the Piracy Clause to premiums actually paid to underwriters in similar wording, then it could be expected that similar wording would have been used rather than the broader expression "additional insurance costs".
15. Attractively as the arguments were presented by Mr Henderson, I am unable to accept that the interpretation contended for by the disponent owners is a reasonable let alone the correct interpretation of the clause. Although I would not go so far as to say that the phrase "additional insurance costs" considered on its own is incapable of bearing the wider meaning for which Mr Henderson argued, it more naturally refers to costs paid to purchase insurance and would not naturally be used to describe costs payable to a head owner which the head owner and disponent owners have agreed to treat as referable to insurance whether or not the sums in question reflect any costs actually incurred by the head owner to purchase insurance. Any doubt about the meaning, however, is in my view removed when the phrase is considered, as it must be, not in isolation but in the context of the clause as a whole.
16. The first part of the relevant provision identifies two situations in which owners are entitled to claim reimbursement from charterers. The first is where the underwriters of the owners' insurances require additional premiums. That applies where there is an existing insurance in place which provides cover for piracy risks on payment of an additional premium. It is clear that in such a situation the words "such additional insurance costs" must refer to the additional premiums payable to the underwriters. The second situation to which the clause applies is one where the vessel's existing insurances do not provide cover for piracy risks and additional insurance cover for such risks is necessary because the vessel proceeds to or through an area exposed to risk of piracy.
17. In my view, the only reasonable interpretation of the clause is that in this situation, just as in the first situation, the additional insurance costs for which the owners are entitled to claim reimbursement are the costs of purchasing the additional insurance cover. Such costs will necessarily be the sums charged by and payable to the underwriters who provide the insurance. It follows that the phrase "additional insurance costs" must indeed refer only to premiums payable for insurance cover actually purchased, whether under an existing insurance or under newly arranged insurance. The phrase cannot reasonably be interpreted as referring to costs payable by disponent owners to head owners which do not correspond to costs incurred by the head owners to obtain insurance cover for piracy risks. I do not consider that comparison with the War Risks Clause detracts from that conclusion or assists the disponent owners' arguments that a clause could have been better or differently worded are seldom persuasive, but in any event the difference can be explained by the fact that the War Risks Clause is only dealing with a situation where war risks insurance has already been effected. It does not have the second limb which the Piracy Clause has which provides for reimbursement where additional insurance cover is necessary.
18. A further point made by Mr Stiggelbout is that, if the disponent owners' interpretation of the phrase "additional insurance costs" were correct, it would allow them to make any agreement they like with the head owners about what sum is to be treated as an insurance cost whether or not that sum bears any relation to the market cost of insurance cover. That, he submitted, demonstrates that the disponent owners' interpretation is an unreasonable and uncommercial interpretation of the clause. Mr Henderson responded that that consequence is avoided by requiring there to be a reasonable relationship between the costs for which reimbursement is claimed and the actual cost of purchasing insurance cover. That response seems to me, however, to raise as many difficulties as it answers. There was, furthermore, no investigation or consideration by the arbitrators in the present case of the reasonableness or otherwise of the sums charged by the head owners for which the disponent owners claimed reimbursement from the charterers.
19. Mr Henderson accepted that the words in the fixture recap, quoted earlier, which referred to K & R (i.e. kidnap and ransom insurance) and gave a figure of US$30,000, cannot be construed as giving rise to any binding obligation to pay that sum. He was clearly right to accept that since the relevant provision in the fixture recap refers to provisional piracy costs also uses the word "about", contains the phrase "as a reference only" and ends with the words "without guarantee". In view of all those qualifications, it is plain that the words in question do not give rise to any binding obligation and cannot, in my view, alter the meaning to be given to the relevant words of the Piracy Clause.
20. I come back finally to the point made by Mr Stiggelbout that there is no finding by the arbitrators in this case that any additional insurance cover was necessary because the vessel proceeded through the Gulf of Aden. He pointed out that in paragraph 19 of the award the arbitrators expressly concluded that, although the evidence suggested that additional premiums were probably being applied by underwriters generally at the time, they could not assume that the vessel's underwriters in fact charged such a premium in the present case.
21. It seems to me that this is a further reason why this appeal must fail. Both reasons in fact arise from the same underlying cause. The fact that the disponent owners were only able to demonstrate what sum they had been obliged to pay to the head owners and were not able to prove what sum (if any) had been paid by the head owners to underwriters in respect of insurance had the consequence both that the disponent owners were unable to prove both (i) that they had paid additional insurance costs within what I have held is the correct interpretation of that phrase within the Piracy Clause, and also (ii) either (a) that the underwriters of the owners' insurances had required additional premiums or (b) that additional insurance cover had been necessary.
22. It follows that this appeal must be dismissed. An answer to the question raised for the court can be discussed and agreed with counsel for inclusion in the order which I shall make.