Are Expenses Incurred During Negotiation Of A Pirate Ransom Recoverable In General Average?

In The Longchamp [2016] EWCA Civ 708, the Court of Appeal has ruled on an issue that had not previously been considered by the English courts, namely, whether expenses incurred by a shipowner during the period of negotiation of a pirate ransom should be recoverable in general average.

Facts

The laden chemical tanker LONGCHAMP was transiting the Gulf of Aden on passage to Vietnam. The ship was subject to a pirate attack on 29 January 2009 following which she was taken, under the command of the pirates, to Eyl, Somalia.

The owners immediately formed a crisis team and, within a day, the pirate negotiator had made an initial ransom demand of US$6,000,000. This was countered with an offer from the owners of US$373,000. The day following Owners' initial offer of payment of a ransom demand, Owners declared General Average. A payment of US$1,850,000 was finally made on 22 March after a 51 day negotiation period.

The owners claimed the operating costs (which included crew wages/bonuses, media crisis response services and bunkers) for the period of time the ship was seized as substituted expenses in general average under Rule F of the York-Antwerp Rules 1974 (as incorporated into the contract of carriage), which states:

"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."

The owners claimed that the operating costs should be allowed as a substituted expense under Rule F as they had been incurred for the sole reason of reducing the final ransom payment which, it was accepted, was itself allowable under Rule A.

The operating costs were allowed in general average by the adjuster, prompting cargo interests to commence proceedings seeking repayment of their contribution towards this item on the basis that they should not be allowable under Rule F.

In the High Court Mr Stephen Hofmeyr QC, sitting as a Deputy High Court Judge, delivered what was to many a surprising judgment, by holding that the 'detention expenses' for the period of time the owners were negotiating the ransom down should be allowed as an alternative expense under Rule F. His finding was that these expenses were reasonably incurred to save the parties to the adventure around US$4,150,000, that is, the negotiated reduction on the ransom amount. Cargo interests...