Introduction: A Case of Piracy, Insurance, and Liability

This case revolved around the pirate hijacking of a fuel tanker, the payment of ransom, and the legal dispute over who should bear the financial burden—the cargo owners or the shipowners.

At the heart of the case was the issue of “general average”, a legal principle in maritime law requiring all parties with an interest in a voyage to share extraordinary losses incurred for the common safety of the ship and cargo. The case also raised key questions about contractual interpretation, the incorporation of charterparty terms into bills of lading, and the impact of war risk clauses.

This blog explores the background of the dispute, the UK Supreme Court’s ruling, and its implications for international shipping law.

---

Background: A Pirate Hijacking and the Legal Dispute

On October 30, 2010, the vessel MT POLAR, carrying a cargo of fuel oil, from St. Petersburg to Singapore, was hijacked by Somali pirates in the Gulf of Aden, a known high-risk area for piracy. The ship was held hostage for ten months, and the shipowners eventually paid a ransom of $7.7 million to secure its release on August 26, 2011.

After the ship resumed its journey and delivered the cargo, the shipowners declared general average, arguing that cargo interests (Gunvor International and others) should contribute to the ransom payment under general average principles. The cargo interests refused, contending that:

1. The voyage charter and bills of lading required the shipowners to claim ransom costs under their insurance policies, not from the cargo owners.
2. The war risk clauses in the charterparty precluded the shipowners from recovering ransom payments from cargo interests.

The dispute led to arbitration, followed by multiple appeals, ultimately reaching the UK Supreme Court.

---

Judgment: The UK Supreme Court’s Ruling

The UK Supreme Court ruled in favor of the shipowners, holding that:

• Cargo interests were liable to contribute to the ransom payment under general average.
• The war risk clauses in the charterparty did not prevent the shipowners from seeking recovery under general average.
• The bills of lading did not incorporate a contractual restriction on general average contributions.

The key issues considered by the court included:

1. Did the War Risk Clauses Prevent Recovery from Cargo Interests?

Cargo interests argued that the shipowner was obligated to claim ransom costs under insurance, not from cargo owners. The charterparty contained war risk clauses requiring the charterers to pay additional war risk insurance premiums, including for kidnap and ransom (K&R) insurance.

However, the Supreme Court rejected this argument, finding that:

• The war risk clauses only required charterers to pay for additional insurance; they did not eliminate the shipowners’ right to claim under general average.
• There was no explicit agreement that the shipowner’s only remedy was through insurance.

2. Were the War Risk Clauses Incorporated into the Bills of Lading?

The Supreme Court examined whether the terms of the charterparty (including war risk clauses) were incorporated into the bills of lading.

The court found that:

• The bills of lading incorporated only provisions related to the shipment, carriage, and delivery of goods.
• The war risk clauses were not incorporated into the bills of lading, meaning that the cargo interests could not rely on them to avoid liability.

3. Was There an “Insurance Code” Preventing a General Average Claim?

Cargo interests contended that there was an “insurance code” or “insurance fund”, meaning that all losses should be recovered from insurers instead of under general average.

The Supreme Court disagreed, ruling that:

• The insurance requirement was separate from general average.
• There was no contractual language explicitly stating that general average claims were excluded.

---

Legal Principles & Standards Applied

The Supreme Court’s decision relied on key principles of maritime law and contract interpretation:

1. General Average

• General average requires all parties to a voyage to share extraordinary costs incurred for the common safety of ship and cargo.
• Ransom payments to pirates are recognized as general average expenses under the York-Antwerp Rules.

2. Incorporation of Charterparty Terms into Bills of Lading

• Only terms directly related to shipment, carriage, and delivery are automatically incorporated.
• War risk clauses did not fall within this category, meaning cargo interests could not rely on them to avoid liability.

3. The Role of Insurance in Maritime Contracts

• Parties may agree to limit liability through an “insurance code”, but this must be expressly stated in the contract.
• Simply requiring additional insurance does not automatically exclude other legal remedies (such as general average claims).

---

Conclusion: A Landmark Ruling for Maritime and Shipping Law

The Herculito Maritime v. Gunvor International ruling is a significant precedent in maritime risk allocation and general average law. It clarifies that:

• Cargo interests remain liable under general average for ransom payments, even if war risk clauses require additional insurance, unless explicitly mentioned in the contract.
• War risk clauses in a charterparty are not automatically incorporated into bills of lading.
• Insurance clauses must explicitly exclude other remedies to be considered an “insurance code.”

This case reinforces the importance of clear contractual drafting in maritime agreements. It also highlights the legal and financial risks associated with piracy in high-risk regions, ensuring that shipowners can rely on general average contributions when extraordinary losses occur.

Case: Herculito Maritime Ltd v Gunvor International BV [2024] UKSC 2 Herculito Maritime Ltd and others (Respondents) v Gunvor International BV and others (Appellants)