In considering the operation of Rule F of the 1974 York Antwerp Rules (the YAR) the Court of Appeal held that operating expenses incurred during time spent negotiating a ransom with pirates were not allowable in General Average (GA) as ‘substituted expense.’ but were allowable under Rule A.
Mitsui & Co Ltd and Others v Beteiligungsgesellschaft LPG Tankerflotte mbH & Co KG and Another (The “Longchamp”)  EWCA Civ 708
The chemical carrier “Longchamp” was hijacked by pirates during her passage through the Gulf of Aden. Pirates made a ransom demand of US$6 million which was rejected by the vessel’s Owners. Thereafter negotiation took place between the pirates’ negotiator and professional negotiators hired by Owners. After a period of 51 days a ransom payment of US$1.85 million was agreed, and five days later it was delivered to the pirates. The pirates released the vessel the following day.
The vessel’s cargo was carried pursuant to a bill of lading which incorporated the YAR. During the vessel’s captivity Owners declared GA. There was no dispute that the ransom payment was a GA expense allowable as reasonably incurred under Rule A. The GA adjustment determined that, in addition, (i) Owners’ operating costs (wages, bonuses, maintenance and bunkers consumed) incurred during the vessel’s detention and, (ii) professional media response expenses incurred to facilitate negotiations, were allowable as substituted expenses under Rule F. Cargo interests contested the decisions on operating costs and media response expenses. The decision on operating costs was upheld at first instance where Stephen Hoffmeyr QC also held the media response expenses should be allowable under Rule A. Cargo interests appealed.
Court of Appeal Judgment
This is the first English authority to consider the operation of Rule F and the principle of substituted expenses.