QCR Autumn 2017: Can Owners recover Kidnap & Ransom insurance premiums from Charterers under BIMCO Piracy Clause?
Dry Log Bulk Carriers v Phaethon International Co SA (The “Bulk Indonesia”)  EWHC 3798
The claimant disponent owners of the vessel Bulk Indonesia chartered her to the defendant charterers on the NYPE form for a time charter trip via Black Sea East. Charterers were aware that the contract was a subcharter as the head owners were identified by name in the fixture recap. The charterparty terms included the BIMCO Piracy Clause for Time Charter Parties 2009 which provided:
“(d) Costs. . .
(iii) If the underwriters of the Owners’ insurances require additional premiums or additional insurance cover is necessary because the Vessel proceeds to or through an Area exposed to risk of Piracy, then such additional insurance costs shall be reimbursed by the Charterers to the Owners; . . .”
On two occasions the vessel was ordered to go through the Gulf of Aden. Disponent owners claimed that the vessel had thereby been exposed to the risk of piracy and therefore they were entitled to be reimbursed by Charterers under the Piracy Clause for additional insurance costs in the sum of US$30,000 for each transit. Disponent owners relied on two debit notes, each for US$30,000, which had been issued to them by Head owners for kidnap and ransom insurance. The debit notes had been issued to Disponent owners in accordance with an agreement made between themselves and Head owners whereby Disponent owners agreed to pay US$30,000 “as compensation of the K & R as [head owners] cannot disclose the detail” for being allowed to transit the Gulf of Aden. Disponent owners were unable to provide direct evidence as to what additional premium was charged for the kidnap and ransom insurance for the two transits because of a confidentiality agreement the Disponent Owners had entered into with the head owners.
Charterers were not aware of that agreement when they entered into the charterparty. Disponent owners argued that they were entitled to be reimbursed on the basis of the debit notes in the amount of US$60,000. The arbitrators however decided the dispute in favour of the charterers and the court upheld the arbitrators’ decision.
The High Court held that (1) the phrase “additional insurance costs” referred only to premiums payable for insurance cover actually purchased, whether under an existing insurance or under newly arranged insurance. The phrase could not reasonably be interpreted as referring to costs payable by Disponent owners to Head owners which did not correspond to costs incurred by Head owners to obtain insurance cover for piracy risks.
(2) In any event, there was no finding by the arbitrators that any additional insurance cover was necessary because the vessel proceeded through the Gulf of Aden. The arbitrators concluded that although the evidence suggested that additional premiums were probably being applied by underwriters, they could not assume that the vessel's underwriters in fact charged such a premium in the present case.
Although logical the decision does not reflect commercial reality. It is the Club’s understanding that the terms of the kidnap & ransom cover are confidential and therefore Owners will struggle to provide evidence of the sums due to underwriters for kidnap & ransom cover.
Owners will also struggle to prove that the kidnap & ransom cover was necessary given that the cover is voluntary, i.e. neither the Hull and Machinery Underwriters nor the P&I Clubs require Owners to purchase kidnap & ransom cover. It seems that to recover kidnap & ransom premiums paid from Charterers, Owners will have to make express provisions in the Charterparty to enable them to do so.
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