On 29 January 2009 Somali pirates forcibly took possession of the chemical tanker MV Longchamp in the Gulf of Aden. At the time, the vessel was fully laden with the claimants’ cargo of vinyl chloride monomer in bulk. The pirates demanded a ransom of USD 6 million. On 22 March 2009 a ransom payment of USD 1.85 million was agreed by the first defendant, owners of the Longchamp. It was paid five days later. During the period of the negotiations, the owners incurred items of expenditure.

The sole issue in this action was whether some of the expenditure incurred by the owners during the period of the negotiation (totalling USD 181,604.25) was allowable in general average. The cargo interest claimants said it was not.

The contentious expenditure was broken down as follows:

1. USD 20,639.30 for professional media response services;
2. USD 75,724.80 for crew wages paid to the crew during the period of negotiation;
3. USD 70,058.70 for ‘high risk area bonus’ payments to the crew during the period the vessel was detained within the Gulf of Aden;
4. USD 3,315 for crew maintenance during the period of negotiation;
5. USD 11,115,45 for bunkers consumed during negotiations;
6. USD 751 for telephone charges in connection with the hijacking and negotiation over the ransom amount.

The High Court judgment began by tracing the history of general average, explaining how, subject to any contract, any loss sustained by one of the interests in the maritime adventure must generally be borne by that interest itself, being ‘particular average’ (the loss lies where it has fallen). Exceptionally, however, where the exigencies of marine enterprise require that to avert a danger which threatens the whole adventure, some particular interest or interests must be intentionally sacrificed for the benefit of the remainder, and that loss is said to be a general average loss. The judge expressed the view that the preponderance of judicial opinion favours the view that general average is a general rule of maritime law, independent of the contract of carriage. However, where there is a contract between the relevant parties which makes provision relating to general average, the rights and liabilities of the parties may nevertheless be limited or varied by the terms of that contract. It is not in doubt that the general average rule is founded upon equitable principles and natural justice. The judge went on to summarise the history of the York-Antwerp Rules, as well as the history of r F, concluding that both English practice and the York-Antwerp Rules on the subject of substituted expenses proceeded from the outset on the basis that substituted expenses are the expenses incurred in respect of a course of action undertaken as an alternative to, or in substitution for, the expense of an action that would be allowable as general average. The principle of substituted expenses contemplated that the hypothetical alternative expenditure, if it had been incurred, would have been recoverable in general average.

At the time of the hijacking, the cargo was being carried under a contract of carriage which expressly incorporated the York-Antwerp Rules 1974.

In the original general average (GA) adjustment, the adjusters concluded that:

• The ransom payment of USD 1.85 million was allowed in general average (it is common ground that this was correct);
• The substituted expenses in an amount of USD 181,604.25 were allowable pursuant to r F of the York-Antwerp Rules 1974.

The original adjusters considered that, as the owners and managers had successfully negotiated down the initial ransom amount so that an amount of USD 4.15 million was saved in the common interest of all property owners concerned, which would otherwise have been recoverable in General Average pursuant to r A of the York-Antwerp Rules 1974, the expenses incurred during the period of negotiation over the ransom amount could be allowed in general average as substituted expenses under r F.

The cargo interests contended that the substituted expenses should not have been allowed, and they sought an order stating they had over paid/contributed.

Rule F of the York-Antwerp Rules 1974 provides: ‘Any extra expense incurred in place of another expense which would have been allowable as general average shall be deemed to be general average and so allowed without regard to the saving, if any, to other interests but only up to the amount of the general average expense avoided.’ In the 1994 version of the York-Antwerp Rules, the word ‘additional’ was substituted for the word ‘extra’.

Held: The cargo interests’ claim failed. All the contentious expenses incurred by the vessel owners would be allowed in general average. 

The judge held that, while there is no English authority in which r F has been applied, it is generally accepted that r F imposes the following requirements:

1. The rule is concerned only with ‘expenses’;
2. It is only those expenses which can be described as ‘extra’ which qualify;
3. There must have been an alternative course of action which, if it had been adopted, would have involved expenditure which could properly be charged to general average; and
4. The extra expenses must have been incurred in place of the alternative course of action.

The third requirement has given rise to a lively debate as to what, if any, reasonableness requirement applies to the hypothetical alternative course of action envisaged by r F. That the expense must be reasonably incurred is a requirement imposed by r A of the York-Antwerp Rules.

The Judge held that, on the true construction of r F of the York-Antwerp Rules 1974, the hypothetical alternative course of action must meet the requirement that it was ‘reasonably … incurred’ if the substitute expense is to be allowed in general average. That said, the requirement that the expense, if it had been incurred, would have been ‘reasonably … incurred’ must be interpreted and applied with a sufficient degree of latitude to give r F practical effect. The Judge found that the contentious expenditure was incurred in substitution for the saving in ransom, ie the difference between the ransom initially demanded and the ransom ultimately paid, and this was sufficient to engage r F.

The Judge described the notion of a 'reasonable ransom' as 'radically misconceived and the term an oxymoron'. The essential question is not whether a ransom in a particular amount is or is not ‘reasonable’. The essential question is whether in particular circumstances the payment of a ransom was ‘reasonably … incurred’. Once it is appreciated that this is the appropriate question, it become obvious that, save in exceptional circumstances (eg where the amount demanded clearly exceeds the value of the property involved in the maritime adventure), it would not be reasonable to say of a shipowner under an obligation to proceed with the utmost dispatch who is faced with a demand for a ransom made by pirates that the payment of the ransom was not ‘reasonably … incurred’. Returning to the facts of this particular case, the judge concluded that it is not possible reasonably to conclude that a ransom payment of USD 6 million would not have been 'reasonably … incurred' within the meaning of r F of the York-Antwerp Rules 1974. Pirates were not reasonable people. The cargo claimants’ suggestion that it was inevitable that the amount of the ransom would be reduced by a process of negotiation would be rejected.

As to the second requirement and the debate as to the meaning of the word ‘extra’ used in r F, the Judge held that the word should be given its ordinary and natural meaning, namely ‘additional’ which is the word which has been used in substitution of the word ‘extra’ in the York-Antwerp Rules 1994, and the word used in the French text ‘supplementaire’. Properly construed, the phrase ‘extra expense’ is intended to indicate no more than that the substituted course which has been undertaken has resulted in additional financial outlay which would not ordinarily have been incurred. That is precisely what happened in this case.

In relation to the first requirement regarding ‘expenses’, the Court held that the word ‘expenses’ in the opening words of r F should be interpreted as including the consumption of bunkers. Contentious expenses 2-5 above were accordingly allowed in general average.

In relation to the claim in respect of media response services (expense 1 above), and the application of r A which provides that in order to qualify as a general average act, a sacrifice or expenditure must be made for incurred ‘for the common safety for the purpose of preserving from peril the property involved in a common adventure’, this requires that the act must be specifically designed to secure the particular safety of the particular adventure (it is generally not enough that the act should be done, for example, in order to secure the general safety of all shipping in a given area). However, so long as the act is done specifically for the purpose of preserving from peril the property involved in the common adventure, that purpose need not be the sole or exclusive purpose. It follows that the defendants had done sufficient to prove that the media response costs claimed were recoverable under r A.

Finally, the cargo claimants' submission that the telephone charges (expense 6 above) did not qualify as ‘extraordinary … expenditure’ within the meaning of r A would also be rejected. The expenditure was incurred to procure a service which was extraordinary in nature, namely, the negotiation of a ransom demanded by pirates. The expenditure was above and beyond the kind of expense of navigation which the shipowner was obliged to incur under the contract of carriage.

For the reasons set out above, the Judge held that the professional media response services and the telephone charges incurred by the second defendant were recoverable under r A of the York-Antwerp Rules 1974, and the substituted expenses in an amount of USD 160,213.95 incurred by the second defendant were recoverable under r F of the York-Antwerp Rules 1974. The cargo claimants’ claim accordingly failed.