The far reaching scale of port safety warranties and potential liabilities for charterers that may ensue from breaches of those warranties have been highlighted recently in the decision of the Commercial Court in the United Kingdom in Gard Marine & Energy Ltd v China National Chartering Co Ltd.1 A sub-time charterer was left with an eye-watering $137.7 million liability following the total loss of capesize bulk carrier the 'Ocean Victory'.
On 24 October 2006, while attempting to leave the Japanese port of Kashima during a severe gale, the 'Ocean Victory' encountered strong winds and heavy seas in the fairway and ran aground and broke apart. The vessel had attempted to leave Kashima on the advice of the Charterers' port representative based on a concern that she could not be restrained by moorings and tugs.
The vessel owners claimed damages for the loss from the Charterers on the basis that Kashima was an unsafe port, and that there was no system in place to ensure that vessels did not leave in conditions which posed a threat to safe navigation.
Charterers argued that Kashima was not unsafe and, even if it was, the incident was actually caused by the master's negligence in navigation, or in leaving the port when he did. Charterers further argued that Kashima could not be held unsafe simply because the systems in place did not guard against every conceivable hazard. Charterers submitted that the emphasis should be on whether a reasonable level of safety was in place.
The Court found in favour of owners and held that Kashima was an unsafe port. The Court followed the standard formulation of port safety found in the case of The Eastern City:2 "a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to such danger which cannot be avoided by good navigation and seamanship..." The Court rejected the submission that safety should be assessed by reference to a standard of 'reasonableness' as this would introduce an inappropriate level of uncertainty.
The Court also found that although the combination of adverse conditions present at Kashima on the day of the incident was rare, it was not an abnormal occurrence. While something that is 'rare' may be typically described as 'abnormal', the concept of 'abnormal' has a narrower construction in safe port cases – an abnormal occurrence is not simply something which has a low probability of occurring. An abnormal occurrence is one which is unrelated to the prevailing characteristics of the port.
The Charterers have since been given permission to appeal the judgment on the narrow issues of abnormal occurrence and causation. While we await the outcome of this appeal, the Ocean Victory case remains a timely reminder to all charterers to further consider their exposure to safe berth or port warranties and review the adequacy of their insurance arrangements.
Many standard charter forms – including the NYPE, BIMCO Towhire and Asbatankvoy forms – contain express warranties on behalf of the charterer as to port and/or berth safety. Other forms, such as the BIMCO Gencon form, do not contain an express warranty however such a warranty is often implied, particularly in circumstances where loading and discharging ports are unnamed.
The Ocean Victory's $137.7 million damages award is hardly small change, but the high profile groundings of the Rena and the Costa Concordia highlight that the costs can be even higher: wreck removal costs alone so far reportedly amount to $425 million for the Rena and in excess of $1 billion for the Costa Concordia.
Footnotes
1[2013] EWCH 2199 (Comm).
2[1958] 2 Lloyd's Rep. 127
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.
