Supreme Court Rules Ransom Negotiation Expenses Recoverable In General Average

Author:Mr Duncan McDonald and Mary Dodwell
Profession:Stephenson Harwood

The Supreme Court has today vindicated the position taken by the shipowners in a claim arising out of the seizure of the MV Longchamp by Somali pirates, Mitsui & Co Ltd v Beteiligungsgesselschaft LPG Tankerflotte MBH & Co KG. The successful shipowners, represented by Stephenson Harwood partner Duncan McDonald and associate Mary Dodwell, claimed for general average contributions under Rule F of the York-Antwerp Rules 1974 in relation to the vessel's operating expenses incurred during the period of negotiation of a ransom with the pirates. Rule F allows the recovery of "substituted" expenses, being those incurred "in place" of another expense where that other expense would itself have been allowable in GA.

The pirates demanded a $6 million ransom. Following a period of negotiation, this was reduced to $1.85 million. The issue was whether expenses incurred during the 51 days of negotiations (namely crew wages and high risk bonus, maintenance, and bunkers consumed) were recoverable in GA. The shipowners argued that these expenses were incurred in place of the $4.15 million ransom which was saved as a result of the negotiations and accordingly were allowable.

The Judge at first instance had upheld the adjustment of the average adjusters (Stichling Hahn Hilbrich) and held that the negotiation period expenses were allowable under Rule F. Had the ransom been paid in full, it would have been recoverable in GA, so those expenses had been incurred in place of paying a higher ransom.

On appeal, the Court of Appeal agreed with the High Court that payment of the first sum demanded would have been a reasonable course of action. However, it held that Rule F was not engaged and the shipowners therefore could not recover the negotiation period expenses under the adjustment. It decided that Rule F required that there be an alternative course of action available to the shipowners which (if adopted) would have...

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