Neutral Citation Number: [2021] EWCA Civ 1828

Case No: A4/2021/0213

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
Sir Nigel Teare (sitting as a Judge of the High Court)
[2020] EWHC 3318 (Comm)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 01/12/2021
Before:

LORD JUSTICE PETER JACKSON

LORD JUSTICE MALES
and
SIR PATRICK ELIAS
---------------------
Between:

HERCULITO MARITIME LIMITED Respondents/

AND OTHERS Claimants

- and -
GUNVOR INTERNATIONAL BV Appellants/
AND OTHERS Defendants

“POLAR”
---------------------
---------------------

Stephen Hofmeyr QC & Mark Jones (instructed by Tatham & Co) for the Appellants
Guy Blackwood QC & Oliver Caplin (instructed by Holman Fenwick Willan LLP) for the
Respondents

Hearing dates: 17th & 18th November 2021

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Approved Judgment

Covid-19 Protocol: This judgment was handed down remotely by circulation to the parties’
representatives by email, release to BAILII and publication on the Courts and Tribunals Judiciary
website. The date and time for hand-down is deemed to be Wednesday 1st December 2021 at 10.30
a.m.
 Judgment Approved by the court for handing down. “Polar”

Lord Justice Males:

1. This is a claim by the owner of the mv POLAR to recover cargo’s proportion of general
average expenditure, the expenditure in question consisting of a ransom payment to
pirates who had detained the vessel in the Gulf of Aden. The claim is defended by the
cargo owners on the ground that the shipowner’s only remedy in the event of having to
pay a ransom to pirates was to recover under the terms of insurance policies, the
premium for which had been paid by the voyage charterer. Whether that is a good
defence depends on the construction of the contract contained in or evidenced by the
bill of lading, which incorporated the terms of the charterparty.

2. An arbitration tribunal (Mr Timothy Young QC, Mr Dominic Kendrick QC and Mr

Simon Gault) held that the cargo owners were not liable to contribute in general
average. On an appeal to the Commercial Court under section 69 of the Arbitration Act
1996 Sir Nigel Teare reached the opposite conclusion but gave leave to appeal to this
court.

The charterparty

3. By a charterparty dated 20th September 2010 the shipowner chartered the vessel to
Clearlake Shipping Pte Ltd (“the charterer”) for a voyage from one or two safe port(s)
Tallin/St Petersburg range to one safe port Fujairah or, in charterer’s option, one or two
safe port(s) or STS transfers in the Singapore area with a cargo of maximum two grades
of fuel oil. No charterparty was drawn up, the terms of the contract being contained in
a fixture recap which incorporated with some amendments the BPVOY 4 standard form
together with some further additional claims. The fixture recap provided: “All above
via Suez with Suez costs to be for Owners’ account”.

4. Clause 30.2 of the BPVOY 4 form provided for all bills of lading issued under the
charter to be deemed to contain War Risks, Both-to-Blame Collision and New Jason
clauses.

5. Clause 39 of the BPVOY 4 form was a detailed and lengthy war risks clause. It defined
“War Risks” as including, among other things, “acts of piracy”. The clause was set out
by the judge as an appendix to his judgment, but it was common ground that he
summarised it fairly and accurately at [9] as follows:

(1) Pursuant to clause 39.2 the owner was entitled to cancel the charter if, at any time
before the vessel commenced loading, it was considered that performance of the
contract of carriage might expose the vessel to war risks.

(2) Pursuant to clause 39.3, the owner was not required to continue to load or to sign
bills of lading or to proceed or continue on a voyage where it appeared that the
vessel might be exposed to war risks. If it should so appear, the owner was entitled
to request the charterer to nominate a safe port for the discharge of the cargo. If
within 48 hours the charterer failed to nominate such a port, the owner was entitled
to discharge the cargo at any safe port of its choice in complete fulfilment of its
obligations under the charter. The extra expenses of such discharge were payable
by the charterer.
 Judgment Approved by the court for handing down. “Polar”

(3) Pursuant to clause 39.4, if, at any stage of the voyage, it appeared that the vessel
might be exposed to war risks on any part of the route and there was another longer
route to the discharge port, the owner was entitled to give notice to the charterer
that this route should be taken. The extra expenses of such route, if the extra distance
exceeded 100 miles, were payable by the charterer. An amendment to the standard
form stated that these extra expenses included extra time taken and additional
bunkers consumed.

(4) Pursuant to clause 39.5, the owner was at liberty to comply with the orders of
identified third parties, including governmental authorities and war risks
underwriters.

(5) Pursuant to clause 39.6, anything done or not done in compliance with the clause
was not to be a deviation.

6. There were several additional clauses, including a Gulf of Aden clause (expressed to
be “for this CP only”) and a further war risks clause. The Gulf of Aden clause provided
that half of any time awaiting an escort or protection team or other protective measures
would count against used laytime or (if applicable) as time on demurrage and that any
additional costs of such measures (including time and bunkers) would be shared equally
between the owner and the charterer. It continued:

“Any additional insurance premia (including, but not limited to,

those in respect of H&M, crew, P&I kidnap risks and ransoms),
crew bonuses (which to be in accordance with the international
standard) shall be for chrtrs account. Max USD 40,000 for
charterer’s account for any additional insurance premium except
for crew bonus which to be max USD 20,000 for charterers
account.”

7. The additional war risks clause provided that any additional premiums payable by the
owner in respect of war risks were for the charterer’s account. Such premiums were
payable by the charterer together with the freight against the owner’s invoice supported
by appropriate documents.

8. It was common ground that the effect of these clauses was that the charterer would pay
for the additional war risks and K&R cover up to a maximum of US $40,000. If the
cover cost more than that, the shipowner would pay the balance.

The bills of lading

9. A cargo of 69,493.28 mt of fuel oil was loaded at St Petersburg between 29th September
and 2nd October 2010. Six bills of lading were issued. The shipper in each case was
Warley International Ltd, part of the Rosneft group, and the consignee was “to the order
of BNP Paribas (Suisse) SA”. The arbitrators found that the lawful holder of all six bills
of lading throughout the voyage was Gunvor International BV, the receiver of the cargo
in Singapore. As the arbitrators pointed out, however, that need not have been so, given
that the six bills of lading were separately negotiable. It appears also that Clearlake and
Gunvor were connected companies although, again, that need not have been so and
cannot affect the construction of the bills of lading.
 Judgment Approved by the court for handing down. “Polar”

10. The port/place of discharge was stated as “Singapore for orders”. Five of the bills were
on the INTANKBILL 78 form. The sixth bill had the face of that form, but the reverse
of the Congenbill form. Bills of lading 1 to 5 contained these words of incorporation
on their face:

“… pursuant and subject to all terms and conditions as per

TANKER VOYAGE CHARTER PARTY indicated hereunder,
including provisions overleaf.”

11. Bill of lading 6 provided, on its reverse side:

“All terms and conditions, liberties and exceptions of the Charter

Party, dated as overleaf, including the Law and Arbitration
Clause are herein incorporated.”

12. It was not suggested that there was any material distinction for the purpose of this
appeal between these two formulations.

13. In fact none of the bills of lading identified which charterparty was intended to be
incorporated, but it was common ground that the material charterparty was that between
the shipowner and Clearlake referred to above.

14. Each of the bills contained express general average clauses providing for general
average to be settled in accordance with the York-Antwerp Rules 1974 (or 1994 in the
case of bill of lading 6).

15. Bills of lading 1 to 5, but not bill of lading 6, had a vertical marginal note on the reverse
reading:

“For the purpose of the Bill of Lading, ‘SHIPPER’ means the

person consigning the cargo for the carriage on Charterer’s
behalf. ‘CHARTERER’ means the person entering the Charter
Party contract with the Carrier. Carrier is equivalent to terms like
Shipowner …, whichever is used in the Charter Party in this Bill
of Lading to define a person undertaking the carriage.”

16. Each of the bills contained on its face a statement that “By taking delivery of the cargo
the Consignee shall make himself liable for unpaid freight, deadfreight, demurrage and
other charges”.

The insurances

17. The arbitrators found that the cargo was insured by cargo underwriters on what they
described as “familiar terms”. They did not explain what they meant by this, but said
that these terms were irrelevant for their purposes. However, it was common ground
that the cargo was insured on the Institute Cargo Clauses (A) terms. These cover all
risks of loss or damage to the cargo, with certain exclusions, one of which is war risks.
However, the exclusion of war risks is itself subject to an exception for “piracy”.
Accordingly, although in general war risks are excluded from the cover, loss or damage
caused by piracy and its consequences was covered. It was common ground also that
this is a standard term of marine cargo insurance.
 Judgment Approved by the court for handing down. “Polar”

18. The shipowner had annual hull & machinery and war risks insurance but, as with all
such insurance, there were certain excluded or Additional Premium areas, one of which
was the Gulf of Aden. By an endorsement to their war risks cover dated 26th October
2010 the shipowner purchased insurance cover for the vessel’s proposed transit through
this otherwise excluded area. In addition, it took out kidnap and ransom (“K&R”)
insurance for a single voyage through the Gulf of Aden. This provided cover against
the payment of ransom as a result of piracy up to a limit of US $5 million. It was not in
dispute that the effect of this additional cover was that any ransom up to the limit of US
$5 million would be reimbursed by the K&R underwriters. How the war risks insurance
would respond to any ransom in excess of that amount was not the subject of any
argument before us.

19. As it happened, the combined premiums for this K&R and additional war risks cover
fell just short of the figure of US $40,000 contained in the Gulf of Aden clause in the
charterparty. The premiums were paid by the shipowner but reimbursed by the charterer
in accordance with the charterparty terms. (The shipowner also took out loss of hire
insurance which took the total premium above US $40,000, but this was for its own
account).

The voyage

20. While transiting the Gulf of Aden on 30th October 2010, the vessel was seized by
Somali pirates. She was held captive for ten months before being released on 26th
August 2011. In order to obtain this release, a ransom payment of US $7.7 million was
paid, funded by the K&R and war risks underwriters.

21. Some of the cargo was abstracted during the period of seizure, but most of it remained
intact and was carried to its destination. After diverting for repairs, supplies and re-
crewing, the vessel continued the voyage and finally delivered the cargo at Singapore.

General average

22. The shipowner declared general average and, in order to obtain delivery of the cargo,
the cargo underwriters provided a general average guarantee dated 16th September
2011, while Gunvor as the cargo owner provided a general average bond dated 28th
September 2011. The guarantee and the bond provided for arbitration in London. In due
course a general average adjustment was issued, concluding that approximately US $4.8
million (in very broad terms, approximately 60% of the ransom payment) was due to
the shipowner from the cargo interests. This reflected the respective values of the vessel
and the cargo.

23. The shipowner and its various underwriters, and the mortgage bank, claimed this sum
from Gunvor under the average bond and from the cargo underwriters under the average
guarantee. Two arbitrations were commenced, one under the bond and the other under
the guarantee, but the same arbitrators were appointed in each and they have been dealt
with together.

The preliminary issues

24. The arbitrators ordered that two preliminary issues should be determined. These were,
in essence:
 Judgment Approved by the court for handing down. “Polar”

(1) Were the terms of the voyage charter, including in particular the war risks and Gulf
of Aden clauses, incorporated into the bills of lading?

(2) If so, did the shipowner, on the true construction of the bills of lading and/or by
implication, agree to look solely to its insurance cover under the war risks and/or
K&R insurance in the event of a loss covered by that insurance?

The award

25. The arbitrators held that the answer to both questions was yes. In outline, an outline
which may not do full justice to a careful and thorough award, their reasoning
proceeded as follows:

(1) The war risks and Gulf of Aden clauses fell within the widely expressed
incorporating language (“all terms and conditions, liberties and exceptions”) of the
bills of lading.

(2) Clause 30.2 of the charterparty demonstrated an intention that war risks clauses
should be incorporated into the bills of lading, although that did not answer the
question of which war risks clauses should be so incorporated; however, what really
mattered was the Gulf of Aden clause.

(3) Leaving aside (in the light of The Miramar [1984] AC 676) those aspects of the
Gulf of Aden clause concerned with demurrage, the Gulf of Aden and additional
war risks clauses were “germane to the carriage” of the cargo (an expression derived
from the speech of Lord Atkinson in T.W. Thomas & Co Ltd v Portsea Steamship
Co Ltd [1912] AC 1, 6 and hallowed by long usage). They affected the route to be
taken which was of central importance to the adventure and the legal relations
between carrier and cargo. If these clauses were not incorporated into the bills, there
would be a disconnect between the charterparty and the bill of lading contracts: the
shipowner might exercise liberties contained in the charterparty which would be
wrongful under the bills of lading.

(4) Accordingly these clauses were incorporated into the bills, irrespective of whether
the effect of doing so was to impose an obligation on the bill of lading holders to
pay the insurance premiums.

(5) Turning to the effect of the incorporation of these terms, the arbitrators began by
considering their effect as between the shipowner and the charterer. With some
hesitation, they concluded that the parties had made specific allocation of the well-
known risk of piracy in the Gulf of Aden, by establishing a fund for the payment of
ransom in the form of insurance for which the charterer was to pay, and (applying
the reasoning of Lord Roskill and Lord Brandon in The Evia (No. 2) [1983] AC
736) that it would be a “remarkable” and wrong result if the charterer had to pay
the premium but was then liable to the insurers (exercising rights of subrogation),
effectively reimbursing the insurers for the loss against which they had insured. In
this regard, it made no difference that the claim in The Evia (No. 2) had been a claim
for breach of contract (a breach of the safe port warranty) while the present case
was a claim for general average.
 Judgment Approved by the court for handing down. “Polar”

(6) Accordingly, under the charterparty, the shipowner had agreed not to claim
contribution from the charterer for losses resulting from the operation of piracy risks
in the Gulf of Aden. That was in effect a “code” whereby the shipowner would look
exclusively to the insurance cover for which the charterer had paid.

(7) The next question was whether that “code” was incorporated into the bills of lading.
The arbitrators’ view here was that it did not matter whether the effect of
incorporating the war risks and Gulf of Aden clauses into the bills of lading was to
impose an obligation on the cargo owners to pay the relevant premiums. What
mattered was that “the charter code” involved an agreement by the shipowner not
to seek contribution for piracy losses. It was not a case of incorporating a positive
obligation on cargo, but an agreement by the shipowner excusing cargo from
liability. That agreement was incorporated into the bills of lading.

(8) However, although they did not think it was necessary, if necessary the arbitrators
would have been prepared to “manipulate” the word “charterer” to mean “lawful
holders of the bills of lading” so as to impose an obligation on the bill of lading
holders to pay the premium, although they recognised that in reality the occasions
when the shipowner would actually look to the bill of lading holders for such
payment would be “vanishingly small”.

26. The arbitrators found as a fact that at the material time the risk of piracy in the Gulf of
Aden and the growth of K&R insurance were well known. The risk of seizure by pirates
in order to obtain a ransom payment was a distinct risk, different from ordinary
navigational risks such as grounding or other seafaring casualty. When concluding the
charterparty, the parties had focused specifically on that risk and how, in principle, it
was to be paid for, namely by the relevant insurers.

Permission to appeal

27. The shipowner obtained permission to appeal under section 69 of the Arbitration Act
1996 on two questions of law. These were:

(1) Are agreements between a shipowner and a charterer in a charterparty which

delineate the responsibility for the payment of additional war risk or K&R premia
between the shipowner and the charterer germane to the carriage of the vessel’s
cargo in the context of the bill of lading?

(2) Does an agreement between a shipowner and bill of lading holder concerning the
allocation of responsibility for the payment of war risks, machinery and K&R
insurance premia give rise to an exclusive insurance fund precluding the shipowner
from recovering in GA a contribution from cargo interests in respect of any losses
suffered as a result of perils falling within the insurances?

28. It seems to me, with respect, that these are rather general questions to which the answer
is likely to be “it all depends”. The real question, as Mr Justice Andrew Baker observed
when granting permission to appeal, is whether, properly construed, the bills of lading
excluded liability on the part of the bill of lading holders in respect of cargo’s
contribution in general average in the event the vessel encountered a peril insured under
any of the insurances referred to in clause 39, the Additional War Risks clause or the
additional Gulf of Aden clause of the voyage charter.
 Judgment Approved by the court for handing down. “Polar”

The judgment

29. The judge noted that disputes about the incorporation of charterparty terms into bills of
lading have a long history, although the present case is unusual in that it is the bill of
lading holders who contend that the terms in question were incorporated and the
shipowner who resists this. However, whether the relevant terms were incorporated
depends upon an objective process of construction of the bills. Having summarised the
arbitrators’ approach to this process, which was not suggested to be in error, the judge
(in an equally careful and thorough judgment) proceeded as follows:

(1) It was not disputed that the words of incorporation in the bills of lading are wide
enough to incorporate the war risks and Gulf of Aden clauses.

(2) It was necessary to deal with the component parts of the clauses separately.
Although they comprised a “package”, the cargo owners accepted that some
elements of the package (e.g. relating to laytime and demurrage) were not
incorporated.

(3) The liberties given to the shipowner not to continue with the voyage or to deviate
from the usual route were germane to the loading, carriage and discharge of the
cargo and were therefore incorporated into the bills of lading. However, the
charterer’s obligation to bear the expenses caused by the exercise of such liberties
was not incorporated. That was because to impose such an obligation on the bill of
lading holders would be inconsistent with their agreement to pay freight “as per
Charter Party” for the performance of the contract of carriage by the shipowner:
they had agreed to pay freight, but not to pay additional expenses, which did not
fall within the reference to “other charges” on the face of the bills.

(4) Turning to the Gulf of Aden clause, the judge recorded that it was common ground
that the provisions relating to time used awaiting an escort or protection team or the
implementation of protective measures were not incorporated into the bills of
lading. Nor were the provisions for sharing of additional costs, time or bunkers
incurred following a fixed route, entering a convoy, deviating to pick up or drop off
a protection team or implementing protective measures or deviating from the usual
route.

(5) So far as the liability for additional premium was concerned, the judge’s view was
that it was important to decide whether, when reading these clauses into the bills of
lading, it was appropriate to substitute “bills of lading holders” for “charterer” so
as to impose an obligation on the bill of lading holders to pay this premium. He held
that it was not appropriate to do so. While the obligation to pay for additional war
risk and for K&R insurance was directly germane to the carriage and delivery of
the cargo, there were a number of reasons why it was not appropriate to read the
bills of lading as imposing an obligation on the bill of lading holders to pay the
premium. One reason was that to do so would be inconsistent with the provisions
in the bills for payment of freight. Another was the uncertainty as to how
responsibility for the premium would be allocated between different bill of lading
holders or (if each holder was jointly and severally liable for the full amount) what
rights a holder who had paid in full would have to recover a proportion of the
premium from other bill of lading holders.
 Judgment Approved by the court for handing down. “Polar”

(6) Accordingly the judge concluded that the part of the Gulf of Aden clause which
referred to payment of additional premium, although incorporated into the bills of
lading, did not impose any liability on the bill of lading holders.

(7) On that basis, he turned to the question whether the bills of lading gave rise to an
exclusive insurance fund precluding the shipowner from recovering a general
average contribution from cargo interests in respect of losses suffered as a result of
perils falling within the insurances. He dealt with this question in two stages.

(8) The first stage was to consider the position as between shipowner and charterer
under the charterparty. Here he held, in agreement with the arbitrators, that the
parties had agreed that the shipowner would look to the insurers for indemnification
in respect of such losses and not to the charterer. Accordingly the shipowner was
precluded by that agreement from seeking to recover the loss by way of a
contribution in general average from the charterer.

(9) That being the position under the charterparty, the next question was to consider
whether those parts of the charterparty which were incorporated into the bills of
lading (which did not include the obligation to pay premium) had the effect of
precluding the shipowner from recovering a contribution from the bill of lading
holders. The judge held that they did not. In contrast with the position in The Evia
(No. 2) and The Ocean Victory [2017] UKSC 35, [2017] 1 WLR 1793, both
charterparty cases, the defendants seeking to take the benefit of the insurance as
precluding a claim against them (here the bill of lading holders) had not agreed to
pay the premium. Therefore the “remarkable result” described by Lord Roskill in
The Evia (No. 2) whereby the party paying the premium would be liable to the
insurers exercising subrogation rights did not arise here. That being so, there was
no proper basis for concluding that, in the event of general average arising from
payment of a ransom to pirates, the shipowner had agreed not to look to the cargo
owners for a contribution. All that the shipowner had agreed was that it would not
seek a contribution from the charterer.

Submissions on appeal

30. For the cargo owner Mr Stephen Hofmeyr QC made two principal submissions:

(1) First, that regardless of whether the bill of lading holders were under any obligation
to pay the premium, the shipowner’s agreement in the charterparty to look
exclusively to its insurance in the event of detention by pirates was incorporated in
the bills of lading for the benefit of the cargo owners. This was the obvious
commercial purpose of this agreement. It was the cargo owners who had the greatest
interest in the successful carriage of the cargo and the greatest exposure to liability
in general average for ransom payments, a risk which was well known and for which
the charterparty code was intended to provide. However, the judge’s analysis meant
that the bill of lading holders took the burden of the charterparty regime (e.g. the
various liberties given to the owner to deviate from the proposed voyage through
the Suez Canal or to deliver the cargo at an alternative port) but without the benefit
of the insurance cover.

(2) Second, that (if it mattered) the terms of the bills of lading should be “manipulated”
so as to impose on the holders an obligation to pay for the additional premium up
 Judgment Approved by the court for handing down. “Polar”

to a maximum of US $40,000. The bill of lading holders would then be in the same
position as the charterers to resist any contribution in general average on the ground
that, being liable to pay the premium, they should not then be liable to the insurers
(exercising rights of subrogation) for the loss against which the insurers had insured.
Such a liability was not inconsistent with the terms of the bills of lading and gave
rise to no difficulty: each bill of lading holder was jointly and severally liable for
the full amount of the premium up to US $40,000.

31. For the shipowner Mr Guy Blackwood QC submitted as follows:

(1) Without manipulation of the reference to the charterer to include the bill of lading
holder, the obligation to pay premium was an obligation of the charterer and not the
bill of lading holders and amounted to nothing more than an agreement by the
shipowner not to seek a contribution in general average from the charterer. The
position of the bill of lading holders was therefore not comparable to that of the
charterers in The Evia (No. 2) and The Ocean Victory. Moreover, it was unlikely
that the shipowner would have intended to give up its right to a contribution in
general average from the cargo interests, particularly in circumstances where it
would have been understood that, in accordance with market practice, the cargo
interests would have their own insurance against such liability. Clear words would
be required for such a conclusion. Moreover, The Evia (No. 2) and The Ocean
Victory were distinguishable because they were cases of breach of contract as
distinct from general average.

(2) Manipulation of the bill of lading to impose an obligation to pay the premium on
the bill of lading holders should be rejected as commercially unreal. There might
be multiple bill of lading holders, but there was no way to determine how liability
for the premium should be allocated between them. If each bill of lading holder was
jointly and severally liable for the full amount, there would be legal and practical
difficulties in obtaining reimbursement inter se. In any event, five of the bills of
lading contained an express provision defining “Charterer” as “the person entering
a Charter Party”.

32. Although these were the shipowner’s principal submissions in resisting the appeal, it
also contended, by a Respondent’s Notice, that the judge was wrong to have concluded
(1) that the part of the Gulf of Aden clause dealing with additional premium liability
was incorporated into the bill of lading and (2) that the effect of the charterparty was to
prevent the shipowner from seeking a contribution in general average from the charterer
in the event of a ransom payment.

An issue of construction

33. The principles applicable to the incorporation of charterparty terms into a bill of lading
contract have been developed in a series of cases, many of which have been concerned
with arbitration clauses. The approach developed in these cases is described in Scrutton
on Charterparties, 24th Edition (2020) at paras 6-016 to 6-018 (omitting footnote
citations of well-known cases such as Thomas v Portsea [1912] AC 1, The Annefield
[1971] P 168, The Miramar [1984] AC 676 and The Channel Ranger [2014] EWCA
Civ 1366, [2015] QB 366):
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“It appears that in order to ascertain which, if any, terms of the

charter are incorporated into the bills, an enquiry in three stages
must be carried out:

(1) The incorporating clause in the bill of lading must be

construed in order to see whether it is wide enough to bring about
a prima facie incorporation of the relevant term. General words
of incorporation will be effective to incorporate only those terms
of the charterparty which relates to the shipment, carriage or
discharge of the cargo or the payment of freight. Which of those
terms are incorporated into the bill depends on the width of the
incorporating provision. Where specific words of incorporation
are used, they are effective to bring about a prima facie
incorporation even if the term in question does not relate to
shipment, carriage or discharge, and even if some degree of
manipulation is required. Further, on the modern approach,
specific words of incorporation in the bill of lading may be
sufficient to incorporate a term in the charterparty which it was
clearly intended to incorporate, even if the term does not literally
fall within the incorporating words, if it is clear that something
has gone wrong with the language. Where the intention is
doubtful, the court will not hold that the term is incorporated. If
the incorporating clause in the bill of lading is not wide enough
of its own to bring about a prima facie incorporation of the
relevant term, then (semble) it will not be permissible to have
regard to the terms of the charterparty in order to effect an
incorporation which would otherwise fail.

(2) If it is found that the incorporating clause is wide enough to

effect a prima facie incorporation, the term which is sought to be
incorporated must be examined to see whether it makes sense in
the context of the bill of lading; if it does not, it must be rejected.
This process should be performed intelligently and not
mechanically1, and must not be allowed to produce a result
which flouts common sense. Where the term relates to shipment,
carriage or delivery, some degree of manipulation is permissible
to make its words fit the bill of lading, but not where the term
relates to other matters. Where the intention to incorporate a
specific clause is particularly clear, a greater degree of
manipulation will be permitted.

(3) Where there is an incorporation which is prima facie

effective, the term in question must be examined to see whether
it is consistent with the express terms of the bill. If it is not, it
will be rejected, although terms of the charterparty which are not
incorporated for this reason may nevertheless negate the

1
Although judges say such things from time to time, it is hard to think of any process where judges are required
to act mechanically rather than intelligently.
 Judgment Approved by the court for handing down. “Polar”

implication of terms which might otherwise be implied into the

bill of lading.”

34. It is important to keep firmly in mind that any question about the incorporation of
charterparty terms into a bill of lading is a question of construction of the bill of lading
contract. Thus the aim of the exercise on which the court is engaged is to ascertain the
objective meaning of the terms which the parties to the bill of lading contract have used
to express their agreement, taking account where appropriate of the commercial
background as it would have been understood by both parties (cf. cases such as Wood
v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173). The process of
construing a bill of lading is in principle no different from that of any other contract,
although it needs to take account of the particular features of such contracts. As the
Supreme Court has explained, construction of contracts is a single “iterative” process.
That means, in this context, that while it is convenient to approach the issue by reference
to the sequence of steps described in Scrutton, these should not be too rigidly applied.
Moreover, it is important at each subsequent stage to be prepared to revisit a conclusion
reached at an earlier stage, and to stand back at the end of the process to test the
conclusion reached against the terms of the contract and business common sense. In
this regard Scrutton’s reference to “prima facie incorporation” is helpful as indicating
that, at each preliminary stage, the conclusion reached can be no more than provisional.

35. Particular features of a bill of lading contract which are relevant to issues of
incorporation include the following. First, although the contract is concluded between
the carrier (typically the shipowner) and the shipper, contractual rights and obligations
are intended to be transferred in accordance with the Carriage of Goods Act 1992 as
the bill is negotiated (often down a chain of contracts) to the ultimate receiver who
presents it at the discharge port and takes delivery of the cargo. Second, whereas the
charterparty is a single indivisible contract between the shipowner and the charterer
covering the whole adventure from (at latest) the vessel’s arrival at the (first) load port
until completion of discharge at the (final) discharge port, there may be numerous bills
of lading issued, each of which only comes into existence as cargo is loaded on board
and relates to the particular cargo covered by the bill. Bills of lading on a single voyage
may be for different cargoes and may be negotiated to a variety of receivers, who may
be located in different discharge ports or even different countries. When the bill of
lading contract is concluded, the identity of the receivers and the proposed discharge
port(s) may not be known and, even if they are, plans may have changed by the time
the vessel arrives at its destination. Although in the present case all six bills of lading
were negotiated to a single receiver at a single discharge port, this need not necessarily
have been so, as the arbitrators pointed out, and cannot be assumed. Third, although in
one sense English law allows considerable slackness on the part of those who complete
bills of lading, so that a charterparty may be incorporated even though it is not properly
identified in the bill, it must be remembered that the cargo interests may have no
knowledge of the charterparty terms and no ready means of finding out what they are
when they have to decide whether to accept negotiation of the documents under their
purchase contracts. That may make it easier to conclude, as in The Miramar, that the
parties to the bill of lading contract did not intend to incorporate an onerous or unusual
clause even if that clause is directly relevant to the carriage of the cargo.

36. I should add that Mr Hofmeyr emphasised (more than once) that the arbitrators in this
case were “an experienced tribunal”. I accept, of course, that that is so, but the same
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can be said of the judge. However, this is not a case which turns on issues of market
practice or understanding on which the views of commercial arbitrators might be
entitled to particular weight. The question is one of construction of the bill of lading
contracts in which the background, although important, is clear and uncontroversial.

The effect of the charterparty

37. A logical first step is to consider whether, in the charterparty, the shipowner agreed not
to seek a general average contribution from the charterer in the event of a ransom
payment to pirates seizing the vessel in the Gulf of Aden.2 Unless that question is
answered affirmatively, the issue of incorporation into the bill of lading does not arise:
there is nothing of relevance to be incorporated. The arbitrators and the judge did
answer the question affirmatively, but the shipowner challenges this conclusion by its
Respondent’s Notice.

38. It should be noted that the issue here is solely concerned with allocation of the risk of
detention of the vessel by pirates while passing through the Gulf of Aden. It is not
suggested that the shipowner agreed not to seek general average contributions as a result
of any other kind of general average event. Further, although the war risks clauses in
the charterparty were modified by the shipowner’s agreement to proceed through the
Suez Canal on the basis that insurance would be paid for by the charterer up to a
maximum of US $40,000, those clauses continued to apply in the event of other war
risks arising.

39. In The Evia (No. 2) the House of Lords held that a clause in a time charterparty
providing for the charterer to pay for insurance against war risks had the effect of
releasing the charterer from liability (in that case, for potential breach of a safe port
warranty) for loss and damage covered by that insurance. Any other conclusion would
be the “remarkable result” to which Lord Roskill referred whereby “the charterers
would have paid the premiums not only for no benefit for themselves but without
shedding any of the liabilities which [the safe port warranty] would, apart from clause
21, impose on them”. Similarly in The Ocean Victory, another safe port case, a clause
in a bareboat charterparty provided for joint insurance of the vessel in the name of both
owner and charterer. A majority of the Supreme Court (Lord Mance and Lord Toulson,
with whom Lord Hodge agreed on this issue) held that there could be no claim in respect
of losses covered by the insurance.

40. The judge considered that the majority in The Ocean Victory had approved the approach
of Lord Justice Longmore in this court:

“77. This approach reflects that articulated by Longmore LJ in

the Court of Appeal in The Ocean Victory, with whose judgment
the majority in the Supreme Court agreed. Longmore LJ said, at
[2015] 1 Lloyd's Rep 381 at paragraph 74:

‘Similar problems can also arise, in the absence of joint

insurance, if one party to a commercial relationship is

2
The case has been argued at all levels on the basis that, but for the war risks and Gulf of Aden clauses, the
charterer would or at least might have had an obligation to contribute in general average. Whether that is correct
has not been explored before us: cf. Scrutton (24th Edition (2020), para 12-081.
 Judgment Approved by the court for handing down. “Polar”

required to pay premiums for an insurance against loss or

damage to the property insured. If a loss occurs as a result of
a breach of contract or negligent conduct on the part of the
party who pays the premium, can the insurer use the name of
the "innocent" party to sue the "guilty" party once the insurer
has paid for the loss? Since insurance is usually intended to
cover an insured for any breach of contract or duty on his part,
it is generally thought that the answer to this question must be
"No"; otherwise the party paying the premium has not secured
the insurance cover he was entitled to expect.’

78. After considering The Evia No.2 and Mark Rowland Ltd v
Berni Inns Ltd. [1986] QB 211 Longmore LJ said, at the end of
paragraph 77:

‘Thus even in a case where there was no provision for joint

insurance but the insurance was paid for by the "guilty" party,
the insurance was held to cover the liability of that party and
no rights of subrogation existed. Clear words to exclude that
possibility were not required, once it was evident that the
insurance was intended to be for the joint benefit of the
parties."

79. Longmore LJ considered at paragraph 83 that:

‘… the prima facie position where a contract requires a party

to that contract to insure should be that the parties have agreed
to look to the insurers for indemnification rather than to each
other’.”

41. In my view it is questionable whether the majority of the Supreme Court went so far as
to approve these passages from Lord Justice Longmore’s judgment. Lord Toulson said
that he agreed with the Court of Appeal, but did not expressly refer to these passages.
Lord Mance said that he agreed with Lord Toulson, as well as adding some observations
of his own. Lord Toulson made clear at [139] that the question was one of construction,
the question in each case being whether the parties should be taken to have intended to
create an insurance fund which would be the sole avenue for making good the relevant
loss or damage, or whether the existence of the fund co-existed with an independent
right of action for breach of a term of the contract which had caused that loss. He added
that, like all questions of construction, the answer depends on the provisions of the
particular contract. He did not start from a prima facie position that in these
circumstances the parties will have looked to the insurers for indemnification. The
existence of two dissenting judgments, by Lord Sumption and Lord Clarke,
demonstrates that this question may be difficult to answer. For the majority it was an
important feature of The Ocean Victory that both parties were to be named as insureds.
Accordingly, what Lord Mance described as the “well established” principle “that,
where it is agreed that insurance shall inure to the benefit of both parties to a venture,
the parties cannot claim against each other in respect of an insured loss” applied (see
Co-operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] UKHL 17,
[2002] 1 WLR 1419).
 Judgment Approved by the court for handing down. “Polar”

42. That feature was not present in The Evia No. 2, where the charterer had an obligation
to pay for the insurance, but was not to be a named insured. As demonstrated by Mr
Oliver Caplin, who argued this point on behalf of the shipowner, the conclusion that
clause 21 of the charterparty in The Evia No. 2 constituted a complete code was not
based solely on the charterer’s obligation to pay for the insurance. Other features of the
clause were also important, including that the vessel was to remain on hire
(notwithstanding the off-hire clause elsewhere in the charter) during any time lost
owing to the master, officers or crew refusing to proceed to a war zone or to be exposed
to war risks.

43. In the present case there was no provision for the charterer (let alone the bill of lading
holders) to be named as joint insured with the shipowner. Moreover, the charterer’s
obligation was to make a contribution to the cost of additional war risks and K&R
insurance up to a maximum of US $40,000 which might or might not be sufficient to
cover the full cost. It is, therefore, a weaker case than either The Evia (No. 2) or The
Ocean Victory for concluding that the shipowner agreed not to seek a general average
contribution from the charterer.

44. It is, however, unnecessary to decide this question. I can proceed on the basis that the
charterparty does include an agreement by the shipowner not to seek a general average
contribution from the charterer in the event of a ransom payment to pirates seizing the
vessel in the Gulf of Aden. If such an agreement exists, that is because, although not
expressed, it is implicit in what the parties have agreed. As Lord Mance put it in The
Ocean Victory at [114] where there was co-insurance, the principle that the parties
cannot claim against each other in respect of an insured loss rests “on the natural
interpretation of or implication from the contractual arrangements giving rise to such
co-insurance”. That is equally so when the same conclusion is reached even without the
parties being named as co-insured.

Prima facie incorporation

45. On the assumption that the charterparty does include an agreement by the shipowner
not to seek a general average contribution from the charterer in the circumstances which
occurred, the question is whether that agreement was incorporated into the bills of
lading in such a way that the shipowner agreed also not to seek a contribution from the
bill of lading holders. I approach that question in stages.

46. First, I agree with the arbitrators and the judge that the incorporating words in the bills
of lading (“all terms and conditions, liberties and exceptions”) are extremely wide.
They are sufficiently wide to encompass the war risks and Gulf of Aden clauses in the
charterparty. It is doubtful, however, whether they are sufficiently wide to encompass
what is merely implicit in the charterparty’s express terms considered as a whole.
Accordingly, if we are to find in the bills of lading an agreement by the shipowner not
to seek a general average contribution from the cargo owners, that must be because the
express terms of the charterparty which are incorporated into the bills demonstrate that
the same (or an equivalent) agreement was intended to apply also under the bills of
lading.

47. It is plain, however, that not all of the charterparty terms dealing with war risks were
intended to be incorporated into the bills. Those parts of clause 39 of the BPVOY4 form
and the additional war risk clause which govern the position before completion of
 Judgment Approved by the court for handing down. “Polar”

loading have no place in a bill of lading contract. Further, the cargo owner did not
suggest that the parts of the Gulf of Aden clause which deal with time counting for
laytime and demurrage and with the sharing of expenses between the shipowner and
the charterer were incorporated. Accordingly, to the extent that the charterparty
constitutes a complete code dealing with the risk of piracy during transit through the
Gulf of Aden, any code incorporated into the bills of lading is different, at least in some
respects, from the charterparty code.

48. Nevertheless I agree with the arbitrators and the judge that the provision for the
charterer to pay for the additional war risks and K&R insurance was directly relevant
to the carriage and discharge of the cargo. The route which the vessel was to take, that
is to say through the Suez Canal and therefore through the Gulf of Aden rather than
round the Cape of Good Hope, was plainly of direct relevance. The shipowner’s
agreement to proceed by that route, and not to exercise the liberty to deviate around the
Cape which clause 39 of the BPVOY4 form would otherwise have allowed, was
conditional on and inextricably linked with the availability of insurance and the
charterer’s agreement to pay the premium. Prima facie, therefore, that part of the
additional war risks and Gulf of Aden clauses was incorporated into the bill of lading
contracts.

Manipulation

49. It is convenient, and I think logical, to consider next whether, when prima facie
incorporated into the bill of lading contracts, the requirement on the charterer to pay
the premium should be “manipulated” so as to impose that obligation on the bill of
lading holders. I am not persuaded that to do so would be inconsistent with the
provisions of the bills of lading concerning freight, but I agree with the judge that it is
not appropriate to engage in such manipulation. As the judge explained, there is nothing
in the bills (or the charterparty) to say how liability for the premium would be
apportioned between different bill of lading holders. But an individual bill of lading
holder would want to know for how much of the premium it was liable. It is by no
means obvious either that each bill of lading holder should be jointly and severally
liable for the full amount or that each bill of lading holder should be liable for a
proportionate amount of the premium, whether calculated by reference to value or
volume (which, where more than one grade of cargo was allowed, would not necessarily
be the same thing). The fact that neither the bills nor the charterparty addresses this
question tends to suggest that the bill of lading holders were not intended to be liable
for the premium.

50. Moreover, if (as the cargo owners contend) each bill of lading holder was to be jointly
and severally liable for the full amount, a holder called upon to pay would want to know
what rights of reimbursement it had against other bill of lading holders. However, the
exercise of such rights would give rise to considerable practical difficulties where bill
of lading holders could be located at different ports or even in different countries and
might not even know each others’ identities. That such matters are not addressed in the
bills (or the charterparty) is a further indication that the bill of lading holders were not
intended to be liable for the premium.

51. It is no answer for the cargo owners to say that the amount of the premium was modest
in the overall scheme of things, that the shipowner would only look to bill of lading
holders for payment of the premium in rare cases, or that such difficulties could be
 Judgment Approved by the court for handing down. “Polar”

worked through if and when they arose. If anything, the fact that “the occasions when
the Owners would actually look to the bill of lading holders would be vanishingly
small” (as the arbitrators put it) tends against any suggestion that the parties intended
to impose such a liability on them. There is little point in manipulating the language of
the charterparty in order to impose a liability on bill of lading holders which will only
be invoked in a vanishingly small number of cases.

52. I conclude, therefore, that manipulation is not appropriate. Like the judge, I do so
without needing to consider the effect, if any, of the vertical marginal note contained in
bills 1 to 5 but not bill 6.

Useful purpose

53. I have so far reached the provisional conclusion that the charterparty terms requiring
the charterer to pay for the additional war risks and K&R insurance were prima facie
incorporated into the bills of lading, but that they should not be manipulated so as to
impose a liability on bill of lading holders to pay the premium. Since those clauses
therefore impose no liability on the bill of lading holders, it must be asked what they
are doing in the bills of lading and whether their incorporation serves any useful
purpose. If not, the issue of incorporation would need to be revisited as there may be
no point in incorporating a term which has no effect.

54. Mr Hofmeyr submitted that the purpose of incorporating the charterparty clauses into
the bills of lading was to ensure that the shipowner’s rights and obligations vis-à vis the
bill of lading holders were not materially different to their rights and obligations vis-à
vis the charterer. It would therefore be nonsensical to incorporate the charterparty code
into the bills of lading on the ground that it is germane to the carriage of the cargo, but
nevertheless to treat it merely as a record of an agreement between the shipowner and
the charterer. I do not agree. In my judgment the incorporation of these terms does serve
a useful purpose. It makes clear, even if only as a record of the terms agreed between
the shipowner and the charterer, the basis on which the shipowner has agreed in the bill
of lading contract that the voyage will be via Suez and the Gulf of Aden. That basis is
that the shipowner will have insurance against the risk of piracy, albeit paid for by the
charterer and not the bill of lading holders. Without the incorporation of these terms the
important issue of the vessel’s route under the bill of lading contract would at best be
highly uncertain.

Do the bills of lading exclude the cargo owners’ liability?

55. I have now identified the terms of the bills of lading which have to be construed and
can come to the ultimate question in this appeal, which is whether the bills excluded
liability on the part of the bill of lading holders to pay cargo’s contribution in general
average in the event the vessel encountered a peril insured under any of the insurances.

56. Mr Hofmeyr advanced a powerful argument that they did have this effect. In particular,
he submitted that it was the cargo owners rather than the charterer which would be
directly concerned with any general average contribution in the event of a ransom
payment and that the shipowner would inevitably look to the cargo owners, as happened
in this case, by insisting on an average bond from the cargo owners and an average
guarantee from their insurers, as a condition for delivering the cargo at the discharge
port. Accordingly the premium paid by the charterer under the war risks and Gulf of
 Judgment Approved by the court for handing down. “Polar”

Aden clauses could properly be regarded as paid for the benefit of the bill of lading
holders. There is no reason, he submitted, why one party should not agree to pay
premium for the benefit of another on the basis that its counterparty will not seek a
contribution from the party for whose benefit the premium is paid in the event of an
insured loss. This would give effect to the obvious commercial purpose of the
requirement on the charterer to pay the premium, which was the quid pro quo for the
various liberties given to the shipowner in these clauses.

57. Despite the force of this argument, in the end I do not accept it. The risk of piracy and
the potential need to pay a ransom were not only foreseeable but were foreseen by the
parties to the bill of lading contract and dealt with expressly by them. They knew that,
if the shipowner was to allow its vessel to transit the Gulf of Aden, insurance against
this specific risk would need to be taken out. They knew or can be taken to have known
that payment of such a ransom would give rise to general average. It would have been
straightforward in the circumstances, if that is what they intended, to say in terms that
cargo was not to contribute in general average in the event of such a payment. But they
did not do so, instead leaving an implicit understanding to this effect to be inferred (on
the cargo owners’ case) by reference to complex arguments concerning the
incorporation of charterparty terms into a bill of lading contract. That seems an
unnecessarily convoluted way to express a simple concept, which at least calls into
question whether this is what the parties intended.

58. In the circumstances it seems to me that the “presumption” referred to in Gilbert-Ash

(Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, 717 applies, that is
to say that “in construing such a contract one starts with the presumption that neither
party intends to abandon any remedies for its breach arising by operation of law, and
clear express words must be used in order to rebut this presumption”. That may state
the position too strongly, but in the present case there are no clear express words to
rebut the presumption that the shipowner did not intend to abandon its right to a
contribution from the cargo owners in general average and any “implicit understanding”
(to borrow Lord Mance’s term in The Ocean Victory) is not so clear that we can be
confident that it is what the parties intended, not least where the charterer was not
necessarily paying the whole of the additional premium which would be necessary to
obtain the cover required.

59. Nor do I accept that there is any commercial imperative for the cargo owners’
construction. Mr Hofmeyr began his submissions by pointing out that the shipowner,
although the nominal claimant, has no financial interest in the claim, which is brought
for the benefit of its insurers exercising rights of subrogation, and that the shipowner
had not even paid for this insurance, the premium for which was paid by the charterer.
He added (although of course this is inherent in any subrogated claim) that the insurers
had received premium to cover precisely the event which had occurred, namely the
payment of a ransom to pirates. He submitted that this demonstrated the remarkable
and uncommercial nature of the shipowner’s claim. However, this is a case in which
both parties were insured. The arbitrators did not think that the cargo owners’ insurance
was relevant but, with respect, I disagree. The cargo owners likewise have no financial
interest in this claim, as their liability to contribute in general average, including in the
event of piracy, was expressly insured under their own insurance, which was in standard
terms. The points made by Mr Hofmeyr therefore apply with equal force to the cargo
owners.
 Judgment Approved by the court for handing down. “Polar”

60. In reality this is a case where both parties were insured against the risk of piracy and
where allowing the shipowner to claim will mean that each set of insurers will bear its
proper share of the risk which it has agreed to cover. In contrast, the effect of construing
the bills of lading to exclude a claim by the shipowner will mean that the loss is borne
entirely by the shipowner’s insurers and that the cargo owners’ insurers escape liability
for a risk which they agreed to cover.

61. Standing back, therefore, in my judgment the judge’s conclusion accords with both
legal principle and commercial sense.

Disposal

62. I would dismiss the appeal.

Sir Patrick Elias:

63. I agree.

Lord Justice Peter Jackson:

64. I also agree.

________________________

ORDER
________________________

UPON the Appellants’ appeal from the Judgment Order or Sir Nigel Teare dated
coming before this Court

AND UPON hearing Leading Counsel for the Appellant and Leading and Junior
Counsel for the Respondent

IT IS HEREBY ORDERED that:

1. The Appellants’ appeal is dismissed.

2. The Appellants are to pay the Respondents’ costs of the appeal to this Court in the
agree sum of £95,000.00 by 4 p.m. on 15 th December 2021.
Judgment Approved by the court for handing down. “Polar”

3. Permission to appeal to the Supreme Court is refused.

Dated: 1st December 2021