On 24 December 2010, armed pirates seized 5,921 mt of 33,460 mt of oil (transferred cargo) from Valle di Cordoba (the vessel) of Benin en route from Abidjan to Lagos. Navigazione Montanari SpA (defendant owner) chartered the vessel to Trafigura Beheer BV (claimant charterer) pursuant to a fixture note providing for the application of BPVOY3 form and Trafigura Chartering Clauses (as of 1 August 2005) as amended (Trafigura terms). The defendant charterer sought to recover the fob port of loading value of any proven difference between the net vessel volumes after loading at the loading port and before unloading at the discharge port, plus freight and insurance.

The BPVOY3 form, against the side note ‘Exceptions’, contained a clause (cl 46) stating that certain articles of the Hague-Visby Rules (including art 4) should apply to the charter and deemed the charter as a contract for the carriage of goods by sea to which the said articles applied.

Arts 4.2.c, 4.2.f and 4.2.q of the Hague-Visby Rules provide that neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from perils, dangers and accidents of the sea or other navigable waters (4.2.c); act of public enemies (4.2.f); any other cause arising without the actual fault or privity of the carrier (…) (4.2.q) respectively. If cl 46 applied, these rules would protect the owner claimant.

The Trafigura terms contained a clause (cl 4) headed ‘In-transit loss clause’ (ITL clause) which replaced the in-transit loss excess limitation from 0.3% to 0.5% and replaced the words ‘deduct from freight’ to ‘claim’ from the original. The amended clause reads:

In addition to any other rights which Charterers may have, Owners will be responsible for the full amount of any in-transit loss if in-transit loss exceeds 0.5% and Charterers shall have the right to claim an amount equal to the FOB port of loading value of such lost cargo plus freight and insurance due with respect thereto. In-transit loss is defined as the difference between net vessel volumes after loading at the loading port and before unloading at the discharge port.

The trial judge in Trafigura Beheer BV and Navigazione Montanari SpA [2014] EWHC 129 (Comm) (CMI46) held that the transferred cargo did not fall within ‘in-transit loss’ or ‘cargo loss’ within the meaning of the clause. The ITL clause referred to loss ‘incidental to the carriage of’ oil products rather than action by pirates. However, if the loss of the transferred cargo fell within ‘in transit loss’ or ‘cargo loss’ contrary to his view, then the liability on the respondent owner under the ITL clause was subject to the exceptions in cl 46.

The main issue in the appeal was whether loss by piracy fell within the ITL clause in the voyage charterparty. The arguments centered on the true meaning of the ITL clause; the interaction between the specially agreed ITL clause and the printed BPVOY3 form; and the reliance (by the appellant charterer) on the authority of Lakeport Navigation Company Panama SA v Anonima Petroli Italiana SpA (‘The Olympic Brilliance’) [1982] 2 Lloyd’s Rep 205, a case concerning an in-transit loss clause.

Held: The appeal was dismissed.

The court upheld the decision of the lower court that ‘in-transit loss’ in such ITL clause connotes ‘loss incidental to the carriage of the cargo’. The ITL clause was not clear enough to achieve the effect of making the respondent owner an insurer of the cargo, if that was indeed the intention. In-transit loss clauses existed to assist in determining oil shortage claims by having parties to agree at the outset that only a difference of more than x per cent should be recoverable by the appellant charterer from the respondent owner. Longmore LJ went on to rephrase ‘loss incidental to the carriage of the cargo’ as ‘loss of a kind encountered on a normal voyage’ to be consistent with the wording in The Olympic Brilliance, but in substance it is the same.  

Additionally, the court was unconvinced that cl 46 should be disapplied. While to some extent it could be said that the parties had directed their minds at the time of the recap agreement to the specially agreed ITL clause, it did not follow that they agreed further to disapply cl 46. Clause 46 and the ITL clause were not incompatible and neither clause makes the other otiose. Hence, the Hague-Visby Rules applied to exempt the respondent owner from liability.

As for The Olympic Brilliance argument, the appellant charterer could not rely on it. The clause in The Olympic Brilliance used the wordings ‘right to deduct from freight’ instead of ‘claim’ as in the present case. The shipowner in The Olympic Brilliance was held to be liable for permanent deduction (ie liable for loss up to the amount of freight) and not loss. The applicable convention in The Olympic Brilliance was the Hague Rules. The Hague Rules dealt with the carrier’s liabilities and not in any way with his entitlement to freight. Hence, there was no conflict between the in-transit clause and Hague Rules in that case. Finally, The Olympic Brilliance is authority for the proposition that the shipowner cannot rely on the Hague-Visby Rules to claim back freight which has been rightly deducted in accordance with an in-transit loss clause but not authority that the Hague-Visby Rules cannot be relied on for a claim that was made by the charterer.