Confusion over what is covered by in-transit loss charterparty clauses has been cleared up by a recent ruling, which definitively states that loss through piracy is not covered
The Court of Appeal has recently confirmed the meaning of the expression “in-transit loss” (“ITL”) in a voyage charterparty.
In the High Court, it was held that (1) a loss by piracy does not fall within the meaning of “in-transit loss” so that the owner would not be liable for loss so caused; and (2) if the Court was wrong and the type of loss did fall within the meaning of in-transit loss, then the owner could nonetheless rely on the exceptions contained within the Hague-Visby Rules that were incorporated in the charterparty. This decision was upheld by the Court of Appeal on both counts.
If the owner had been held liable, P&I cover would have been lost because of the standard provisions in Club rules, providing that Club cover is lost if an owner agrees to a liability regime in his contract of carriage that is more onerous than the one contained in the Hague-Visby Rules.
“In-transit loss clauses deal only with losses occurring during a normal voyage, incidental to the carriage of cargo”
For the facts of the case, on December 24, 2010, 15 armed pirates took control of the Valle di Cordoba while she was off Lagos, Nigeria, and stole some 5,300 tonnes of oil cargo loaded on board. The pirates transferred the stolen cargo to an unknown lightering vessel that then departed with the cargo. The charterer claimed against the owner for the value of the cargo “lost” on the basis that the charterparty contained the following in-transit loss clause:
“In addition to any other rights which Charterers may have, Owners will be responsible for the full amount of any in-transit loss if in-transit loss exceeds 0.5% and Charterers shall have the right to claim an amount equal to the FOB port of loading value of such lost cargo plus freight and insurance due with respect thereto. In-transit loss is defined as the difference between net vessel volumes after loading at the loading port and before unloading at the discharge port.”
The High Court decided that the stolen cargo was not in-transit loss, but even if it had been, the owner would have been able to rely on the exceptions within the (incorporated) Hague-Visby Rules to avoid liability for the cargo loss.
The Court of Appeal confirmed the High Court decision and dismissed the appeal. The Court was referred extensively to the case of the Olympic Brilliance  2 Lloyd’s Rep. 205, the only authority put before it in relation to ITL clauses.
As to the first issue, the Court distinguished the Olympic Brilliance on the basis that the ITL clause in that case dealt only with the charterer’s right to make deductions from freight as opposed to a claim for cargo loss, as in this instance. The Court was assisted by that judgment to conclude that the commercial reasons for ITL clauses are to help in determining notoriously difficult oil shortage claims. The parties therefore make an allowance (sometimes 0.3% but in this case 0.5%) to account for discrepancies in volumetric measures in circumstances where the loss is “of a kind encountered on a normal voyage“, when the loss is otherwise unexplained.
The Court rejected the charterer’s construction of the ITL clause because it would effectively make the owner an insurer of the cargo. If that were the intention of the parties, they would have had to agree a clear clause to that effect. The wording of the ITL clause was not clear enough to achieve that.
The majority of the Court concluded, therefore, that the wording of the ITL clause was clear in covering loss incidental to the carriage of the cargo and so excluded loss caused by piracy.
Turning to the second issue, the Court unanimously held that even if the ITL clause was meant to cover losses of the type claimed, the owner would still be able to benefit from the exceptions incorporated by the Hague-Visby Rules. The Court concluded that there was no incompatibility between the ITL clause and the clause incorporating the Hague-Visby Rules – neither clause made the other redundant. By way of an example, where there is a cargo loss during a normal voyage and the reason for that loss is unexplained, then the ITL clause would apply and it would be unlikely that an owner could excuse himself from liability by relying on the exceptions provided in the Hague-Visby Rules.
Lord Justice Briggs agreed with the majority that, whether or not the claim for loss from piracy in this case fell within the ITL clause, that claim was still excluded by the exceptions to the Hague-Visby Rules. However, he had difficulties as to the construction of the ITL clause. He expressed the view that, as a matter of language, the ITL clause imposed liability for loss of cargo in transit regardless of the cause of that loss, provided that it exceeded 0.5%.
This decision is important because it clarifies the scope of ITL clauses within the charterparty regime. The court confirmed that ITL clauses deal only with losses occurring during a normal voyage, incidental to the carriage of cargo.
Paul Herring is chairman and global head of shipping at Ince & Co in London and is a shipping lawyer specialising in the resolution of disputes, both in court and arbitration. He can be contacted on +44 (0) 20 7481 0010 or firstname.lastname@example.org. Marco Crusafio is a solicitor in the firm’s Monaco office covering shipping and international trade and commodities disputes. The case referred to in this article is Trafigura Beheer BV v. Navigazione Montanari SpA (Valle di Cordoba)  EWCA Civ 91.