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04 December 2013
On July 30 2013(1) the Commercial Court handed down its judgment in Ocean Victory. The case concerned a safe port warranty and total loss, but it also addressed whether the insurer – as the assignee of the co-assured demise charterer – was entitled to claim indemnity from time charterers for the demise charterer's liability towards the co-assured head owners in respect of their breach of the safe port warranty.
Gard was the hull and machinery insurer of the Ocean Victory, which was trading under a chain of charters: from the head owner to the demise charterer, further to the time charterer and further down to the sub-time charterer. The demise charterparty was based on Barecon 89, while the time charters were based on the New York Produce Exchange. A safe port warranty was pervasive through both the demise and the time charters.
In October 2006 the time charterer ordered the vessel to unload at Kashima port, Japan. Due to deteriorating weather, the time charterer's agent instructed the vessel to leave port as the mooring lines could potentially fail. On its departure, the vessel grounded, broke apart, was abandoned by the crew and was later rendered a total loss.
In a claim by the demise charterer against the time charterer for loss of the vessel, after an elaborate analysis of the facts and the applicable case law, the court found that the loss was caused because the port was unsafe, putting the time charterer in breach of its safe port warranty. The court turned next to examine whether Gard, having covered the total loss, could bring an action for damages against the time charterer for breach of the safe port warranty.
Gard, in its claim, was acting as assignee of the rights of both the head owner and the demise charterer, which were co-assureds on the hull and machinery policy. Under the demise charter, the Barecon 89 optional Clause 13 was deleted (so there was no express waiver of subrogation rights). Instead, Barecon 89 Clause 12 applied, which provided that the demise charterer was a co-assured and was responsible for the vessel's insurances.
The defendant time charterer argued that since both the head owner and the demise charterer were co-assureds, and Clause 12 of the demise charterparty had a complete code for the treatment of insured losses, the parties could not have intended that the demise charterer would also continue to owe a duty under the safe port warranty to the head owner. Following from that, the demise charterer was not liable for the loss as against the head owner and therefore had no loss to claim indemnity against the time charterer capable of being assigned to Gard.
The court found that Clause 12 of the demise charter was not so clear as to exclude the express safe port warranty, as it did not codify all rights and liabilities in respect of the safe port warranty, but simply stated which of the parties should obtain the insurance and how insurance claims were to be handled. It further reasoned that the fact that there would have been a waiver of subrogation if Clause 13 had been chosen did not make the lack of such waiver (if Clause 12) applied uncommercial, even though in that instance the demise charterer would have been paying the premium which it would not be paying under Clause 13. The difference between the two clauses lay in their distinct apportioning of the risk of having to pay the claim if the insurer defaulted: Clause 13 placed that risk on the head owner, while Clause 12 placed it on the demise charterer.
The court went on to confirm that in the absence of an express waiver of the right to subrogation as in the deleted Clause 13, the fact that the head owner and the demise charterer were co-assureds did not prevent the demise charterer from being liable for breach of the safe port warranty where it was clear from the demise charter that one co-assured could be liable to the other, following Tyco Fire and Integrated Solutions v Rolls-Royce Motor Cars.(2) Accordingly, Gard was entitled to claim indemnity for that liability – as assignee of the demise charterer – from the time charterer, in respect of its breach of the safe port warranty in the time charter.
This interesting case is one to watch, as the Commercial Court has granted leave for appeal of the decision.
For further information on this topic please contact Robert Joiner at Wikborg Rein's Singapore office by telephone (+65 6438 4498), fax (+65 6438 4496) or email (firstname.lastname@example.org). Alternatively, contact Yannis Litinas at Wikborg Rein's Oslo office by telephone (+47 22 82 75 00), fax (+47 22 82 75 01) or email (email@example.com). The Wikborg Rein website can be accessed at www.wr.no.
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