Shipping and Maritime: Costs Following Hijacking of Vessels

Shipping and Maritime: Costs Following Hijacking of Vessels

The expert maritime and shipping Bahamas lawyers at ParrisWhittaker have years of experience advising and representing shipping clients and cargo interests, including following incidents of piracy.

A vessel was hijacked in the Gulf of Aden by Somali pirates.   Unfortunately for cargo owners and insurers, the High Court in the UK has ruled that additional classes of expense - including wages paid to crew, and bunkers consumed during the period of the hijack - could be recovered by ship owners from cargo interests.

What’s the background to this case?

In January 2009, Somali pirates hijacked the chemical carrier MV LONGCHAMP which was fully laden with the first or second claimants’ cargo of vinyl chloride monomer in bulk. The pirates demanded a ransom of US$6 million and in March 2009, a ransom payment of US$1.85 million was agreed by the first defendant (the vessel’s owner) and paid five days later.

During the negotiation period, the ship owner incurred US$181,604.25 worth of items of expenditure.  At issue was whether this expenditure was allowable in ‘general average’ (under the York-Antwerp Rules 1974) as was claimed by the defendants.

Giving judgment, Mr Hofmeyr QC found that in the circumstances of the case it was natural justice that “that all should contribute to the substituted expenses incurred”.  He ruled that: “The reduction in the amount of the ransom was only achieved by a process of negotiation which necessarily involved the ship-owner incurring expenditure.”  Such expenditure was “incurred in substitution for the saving of the ransom i.e. the initial demand and amount paid” and therefore allowed.

Can ransoms ever be ‘reasonable’?

Mr Hofmeyr also rejected the claimant’s argument that the ransom actually paid was ‘reasonable’ but concluded categorically that there cannot be a distinction between "reasonable" and "unreasonable" ransom:

“I have the most profound difficulty with the concept of a “reasonable” ransom. At least in one sense, no ransom payment could ever be described as “reasonable”. Pirates are criminals engaged in extortion and their demands are unlawful and deplorable. How can a payment extorted by pirates be described as “reasonable”? In my view, it cannot. The idea of a “reasonable ransom” is radically misconceived and the term an oxymoron.”

In addition, he found that the consumption of bunkers was properly allowed in the adjustment as an additional ‘expense’.

What are the implications?

Unless overturned on appeal, ship owners and insurers can now make significant further recoveries from cargo interests.  This means cargo interests may now face a higher bill following a vessel hijacking.

How can we help?

For expert, strategic legal advice on shipping and maritime law, including shipping disputes, contact the Bahamas lawyers at ParrisWhittaker now.

(1)The LONGCHAMP [2014] EWHC 3445 (Comm)