Court of Appeal decision on Rule F of the York-Antwerp Rules

Wed, 13 July, 2016

The Court of Appeal handed down its judgment today in Mitsui & Co Ltd v Beteiligungsgesellschaft LPG (The Longchamp) [2016] EWCA Civ 708. Simon Croall QC and Paul Toms represented the successful cargo interests in challenging the decision of Stephen Hofmeyr QC (sitting as a Deputy High Court Judge) that certain expenses incurred during the period of negotiation with Somalian pirates were allowable in general average under Rule F of the York-Antwerp Rules 1974.

The case is the first time the English Courts have had to determine the scope and meaning of Rule F since it was introduced in 1924.

The Longchamp was seized by Somalian pirates in January 2009. The shipowners negotiated with the pirates for a period of 51 days during which the ransom demanded was reduced from an initial demand of US$6 million to US$1.85 million, which was paid by the shipowners.

The shipowners argued that their crew-related expenses and the cost of bunkers consumed in that period were allowable in Rule F because those expenses had been incurred “in place of another expense which would have been allowable as general average” within the meaning of Rule F.   The saved expense was said to be the initial ransom which had it have been paid on demand would have been allowable under Rule A.

This argument was accepted by the Judge but rejected unanimously by the Court of Appeal.  Lord Justice Hamblen, giving the main judgment of the Court, held that Rule F was not engaged since in a ransom situation there was no available course of action other than that in fact taken by the shipowners, namely to negotiate and agree a ransom and pay it to effect release of ship, crew and cargo.   

He said "…payment on demand is simply a different way of going about the same course of action and not a true alternative course of action.  Whether or not the ransom is paid on demand there will still be a negotiation, there will still be delay, there will still be the incurring of vessel and crew running costs during the period of delay… Is a short negotiation with pirates for payment of ransom leading to the release of the vessel a different course of action to a long negotiation with pirates to the same ends?  In my judgment it is not; both fundamentally involve doing the same thing". 

The decision notably gives further insight into how Rule F should be applied in practice.

It also establishes that where the preservation from peril of the property involved  in the adventure is an effective cause of the incurring of expenditure (or the making of a sacrifice), that expenditure (or sacrifice) is allowable under Rule A even if there were other causes or purposes for which the expenditure was incurred or the sacrifice made.  In other words, the preservation from peril of the property need not be the predominant or exclusive purpose for that expenditure (or sacrifice) to be allowed under Rule A.

A copy of the judgment can be found by clicking here.