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Supreme Court quashes Gard appeal in landmark Ocean Victory case

'Abnormal occurrence' has plain English meaning in safe port warranties, Justices rule

THE Supreme Court has quashed Gard’s appeal in the Ocean Victory case, in a significant decision that will clarify the meaning of ‘abnormal occurrence’ in the context of the safe port warranties contained in many charterparties.

A panel of five top judges on Wednesday morning effectively determined that the words carried their everyday English connotation as an event that is highly unlikely, but is not ruled out as a long shot.

The outcome marks a potentially costly legal defeat for the Norwegian P&I club, which brought the original action in the wake of a casualty at the Japanese port of Kashima in October 2006.

Ocean Victory, a capesize bulk carrier built in 2005 and on sub-charter to Daiichi Chuo, was laden with iron ore ex-Saldana Bay in South Africa. But discharge had to be halted due to strong winds and heavy rain.

As Kashima is susceptible to long waves, it was decided to leave for open water, but the Kashima Fairway is a narrow channel subject to northerly gales, and Ocean Victory was driven back onto a breakwater wall, subsequently grounding and breaking apart. The crew was rescued.

The owner and the time charterer, China National Chartering, claimed that use of Kashima breached the safe port warranty, which obliges a charterer to ensure that a ship can use a port without being exposed to avoidable danger, save in the event of an abnormal occurrence. They received $70m from hull insurers.

As subrogated underwriter, Gard in 2010 launched a case in the Commercial Court against CNC — better known by the name Sinochart — for damages arising from the loss. In turn, Sinochart initiated proceedings against Daiichi Chuo.

In the High Court, Teare J held that there had indeed been a breach of the safe port undertaking. In his view, the combination of long waves and northerly gales could not be deemed an abnormal occurrence, even though their coincidence is rare, because both are physical characteristics of Kashima.

But the Court of Appeal allowed Daiichi’s appeal, and also held that, due to the joint insurance provisions, the owners were not entitled to claim against the demise charterparty in respect of insured losses, reversing another of Teare J’s findings. Gard appealed on both these questions.

At the Supreme Court, Lords Mance, Clarke, Sumption, Hodge and Toulson unanimously dismissed the Gard appeal.

The date for deciding whether there is any breach of the safe port promise is the date of nomination of the port, they held. The promise is essentially a prediction about the safety of the port when the ship arrives there in the future.

‘Abnormal occurrence’ should therefore carry its ordinary meaning, namely something rare and unexpected. The fact that the combination of long waves and northerly gales at Kashima are theoretically foreseeable does not make it a normal characteristic of the port.

No vessel in the port’s history had previously sustained damage at the quay due to long waves at the same time the Kashima Fairway was unnavigable because of gale force winds. It was also clear that the storm on the day of the casualty was of exceptionally rapid development, duration and severity.

“On the basis of this evidence, the conditions in question were an abnormal occurrence and there was therefore no breach by Daiichi of the safe port undertaking,” the Supreme Court said in a statement.

Gard had also contended that had there been a breach of the warranty, it should be able to recover the insured value of the vessel from the timecharterers, as the demise charterer’s assignee.

This is on the basis that the demise charterer is liable to the owners for breach of its safe port undertaking, and is therefore entitled to recover the same sum from the timecharterer.

Lord Toulson, Lord Mance and Lord Hodge concluded that the provisions of the demise charter, which stipulated joint insurance and a distribution of insurance proceeds, precluded such a claim. Lord Clarke and Lord Sumption dissented on this particular issue.

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