General Average – Dealing With The Costs Of A Hijacking

Mitsui & Co Ltd & others v. Beteiligungsgesellschaft LPG Tankerflotte MBH & Co KG (Longchamp) [2014] EWHC 3445

The recent judgment in the Longchamp has overturned accepted industry thinking in how bunkers and crew wages are dealt with in a hijacking. Not only has it wrong-footed lawyers, but it flies in the face of the written and considered views of the Advisory Committee of the Association of Average Adjustors and opens up interesting questions on other heads of claim not considered in the judgment.

The Judge was asked to consider whether a number of items (familiar to anyone who has dealt with a Somali hijacking case) were recoverable in General Average ("GA"). These included: media response services, crew wages, bunkers and telephone charges. The hijacking took place in January 2009, lasted just under two months and resulted in a ransom of US$1,850,000. The total amount of expenses in issue was a modest US$181,604, reflecting the short duration of the hijacking. Of these, the most controversial were the bunkers and crew wages.

After capture, the vessel's Master was directed to sail the vessel to the Somali coast, to what the Advisory Committee referred to as a "pirates' lair" which in their view, was not a port of refuge in the sense understood under the York Antwerp Rules ("YAR"). Their rationale was that the lives of the crew were at the complete mercy of the pirates and the dangers threatening the vessel were at their maximum. Any vessel anchored off Somalia in the control of pirates remains in the grip of an insured peril.

The background facts

The negotiations began with the pirates demanding US$6,000,000 and the Owners countering with their own opening of US$373,000. If it was chess, and you had the names of the negotiators involved, these scripted openings would now have names. The pirates' arbitrary opening was matched by a figure set by the Owners at an amount giving rise to the impression of accounts being emptied. The "target settlement figure" was said to be US$1,500,000, which put it at what must have been the lower end of the pirates' own expectation of an acceptable settlement range. That is, the range of figures where both sides can be happy with the result which is often referred to as the "market rate" - a concept roundly condemned by the Judge. The figures are important in the context of the dispute and argument that arose between the parties on "substituted" expenses.

Substituted expenses

Under Rule F of the YAR, a...