Tales of the unexpected – Supreme Court upholds "OCEAN VICTORY"
The Supreme Court has upheld the Court of Appeal decision in the “OCEAN VICTORY”, confirming that the rare coincidence of two extreme weather phenomena could amount to an ‘abnormal occurrence’ rendering the port unsafe, even if each weather condition was a known characteristic of the port
In October 2006, the “OCEAN VICTORY” grounded whilst attempting to exit the port of Kashima, Japan. It was not disputed that the Vessel grounded because:
- The quay at Kashima was vulnerable to long waves, which meant that the Vessel had to leave the quay; and
- The only exit was via the Kashima Fairway, which is vulnerable to northerly gales
The hull insurers brought a claim on behalf of the owners of the Vessel (the “Owners”) for breach of the safe port warranty in the charterparty, which was passed down to the ultimate sub-charterers, Daiichi Chuo Kisen Kaisha (“Charterers”).
The classic definition of a safe port was given in The "EASTERN CITY" (emphasis added):
"A port will not be safe unless, in the relevant period of time, a particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship"
It was common ground that the date for judging the breach of the safe port warranty is the date that the port is nominated.
At first instance, Mr Justice Teare held that the Charterers had breached the safe port warranty. Neither of the two extreme weather conditions (long waves and strong northerly gales) was rare. Each ‘flowed’ from characteristics or features of the port. Their occurring together did not constitute an abnormal occurrence.
Charterers appealed the decision.
Court of Appeal
This decision was overturned by the Court of Appeal, as reported in our previous blog post.
The extreme weather conditions had to be viewed together as a single phenomenon. The historical evidence showed that no vessel had ever been dangerously trapped at the berth at the same time as the Kashima Fairway was not navigable because of gale force winds.
The Court of Appeal held that the extreme weather amounted on the facts to an abnormal occurrence and Charterers had therefore not breached the safe port warranty.
Owners appealed to the Supreme Court.
The Supreme Court agreed with the Court of Appeal’s approach. The Judge at First Instance should have evaluated the evidence relating to the past frequency of such an event occurring and the likelihood of it occurring again.
On the facts, the rare combination of extreme weather was an abnormal occurrence.
In coming to this decision, the Court confirmed that ‘abnormal occurrence’ was not a term of art, but was to be given its ordinary meaning.
Citing The “EVIA" (No.2) with approval, Lord Clarke pointed out that charterers are not insurers of “unexpected and abnormal risks”, for which Owners would be expected to have hull insurance.
The Supreme Court also declined to put weight on the fact that the Kashima Port authority had allegedly failed to put in place proper systems to manage the risk of long waves and northerly gales occurring at the same time. The Court held that this did not change the essential question of whether the combination of events amounted to an abnormal and unexpected occurrence.
This case closes the book on a long-running saga by confirming the overturning of a controversial High Court decision.
The Supreme Court has helpfully underscored that, for safe port warranties, the test of whether the events which caused the damage amounted to an abnormal occurrence is not the same as whether those events were reasonably or theoretically foreseeable.
An evaluation of the evidence must be undertaken to decide whether, as a matter of fact, the events amounted to an abnormal occurrence (in the normal meaning of the words).
If they did, there was no breach of the safe port warranty.
The Supreme Court also examined two other issues, although these issues only arose if there had been a breach of the safe port warranty. Those issues were:
- Whether Owners were entitled to claim against the demise charterers in respect of insured losses where the hull insurance covered both parties; and
- Whether Charterers were entitled to limit their liability under the 1976 Limitation Convention. This was seen as a test of the 2004 Court of Appeal decision on this point in The "CMA DJAKARTA".
Having already determined that there was no breach of the safe port warranty, it was not strictly necessary for the Supreme Court to decide these issues.
There is therefore an argument that these findings were obiter. That said, even obiter comments of the Supreme Court have strong persuasive value. On these issues:
- The Supreme Court held by a 3:2 majority that the joint insurance would have precluded any claim by Owners against the demise charterers, and therefore by the latter down the charter chain; and
- The Supreme Court held unanimously that, if there had been a breach of the safe-port warranty, Charterers would not have been entitled to limit their liability under the Convention.