UK: Owners’ Liability For In-Transit Loss Does Not Extend To Loss Caused By Piracy

Last Updated: 10 March 2014
Article by Nick Austin and Tom Roberts

In the recent case of Trafigura Beheer BV v Navigazione Montanari Spa [2014], the Commercial Court considered whether a charterparty clause making Owners liable for in-transit loss covered loss where the cargo was stolen by pirates.

This case involved a claim by Charterers against Owners for "in-transit loss" of part of a cargo of premium motor oil. The voyage in question was from Abidjan to Lagos.


The Master tendered NOR at Lagos and was instructed by Charterers to proceed to a position South-West of the port. Whilst awaiting further orders, the vessel was attacked by 15 armed pirates who took control of the vessel and arranged for a ship-to-ship transfer of approximately 5,300MT of the cargo (Transferred Cargo). Having removed the Transferred Cargo, the pirates released the vessel.

The charterparty contained an in-transit loss clause (ITL Clause) which stated that Owners would be responsible for the full amount of any in-transit loss exceeding 0.5%. The charterparty defined in-transit loss as "the difference between net vessel volumes after loading at the loading port and before unloading at the discharge port."

The charterparty also contained an exceptions clause (Exceptions Clause) which stated that "Owners shall be entitled to the protection of [Articles III, IV, and VIII of the Hague-Visby rules] in respect of any claim made hereunder."

Article IV of the Hague-Visby rules provides that:

"Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from ... (c) Perils, dangers and accidents of the sea or other navigable waters ... (f) Act of public enemies ... (q) Any other cause arising without actual fault or privity of the carrier, or without fault or neglect of the agents or servants of the carrier."

Whereas the Exceptions Clause was a standard-form clause, the ITL Clause had been specifically negotiated between Owners and Charterers.

Charterers claimed damages of USD 5 million from Owners for the lost cargo. The Court was asked to determine two preliminary issues:

  • whether the pirates' removal of the Transferred Cargo constituted "in-transit loss" under the ITL Clause, and
  • if the answer to (a) was yes, whether the ITL Clause imposed a strict liability on Owners or whether the Exceptions Clause applied to exclude that liability

Charterers argued that because there was a clear and obvious difference between the net vessel volume after loading and the net vessel volume before unloading at the discharge port, there had been in-transit loss under the ITL Clause for which Owners should be responsible.

Owners responded that in-transit loss in an ITL Clause of this nature only covered loss occurring as a direct result of the transit, and for reasons internal to the transit, during the course of a routine, ordinary voyage.


The Court held that the ITL Clause did not provide an exhaustive definition of what constituted in-transit loss but merely defined how the amount of any in-transit loss was to be determined. The Court acknowledged that this created uncertainty. However, as the ITL Clause did not specify the types of loss covered by the phrase "in-transit loss", the Court would give the expression its natural business meaning, which was loss incidental to the carriage of oil products (for example short delivery caused by quantity calculation errors, remnants of cargo left on board or loss through evaporation) rather than any loss that arose because of the actions of pirates.

The Court acknowledged that it would be difficult in certain cases to ascertain whether particular losses fell within the expression "in-transit loss" but maintained that loss from the pirates' activities was plainly not covered by the expression.

As the Court found in favour of Owners on the first preliminary issue, the second issue did not arise. However, as an aside, the Court said that there was no real conflict between the ITL Clause and the Exceptions Clause. The Exceptions Clause provided that Owners were entitled to the protection of Article IV of the Hague-Visby rules "in respect of any claim made" under the charterparty and that, despite the clear wording of the specifically negotiated ITL Clause, there was no good reason to limit the natural meaning of "any claim" by excluding claims under the ITL Clause.


A literal reading of the ITL Clause, specifically negotiated between Owners and Charterers and not simply a standard clause like the Exceptions Clause, would appear to favour Charterers' position that cargo removed by pirates was "in-transit loss". However, the Court took a commercial and pragmatic approach to the definition of the phrase, holding that it should be given its ordinary, natural business meaning so as to extend only to losses incidental to the activity of the carriage of the cargo on a routine voyage. This would not sensibly include loss at the hands of pirates whose actions, it is submitted, have never been understood by the market as amounting to an "in-transit loss" within the meaning of clauses such as the ITL Clause.

The decision confirms the Court's determination to approach the interpretation of commercial clauses such as the ITL Clause consistently with how they are generally understood in the market, in this case the oil sector. That said, given the Court's recognition that the ITL Clause gave rise to potential uncertainty, what does and does not fall within the natural business meaning of "in-transit loss" in other circumstances may not always be so straightforward to determine.

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.

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