Pirate hijack triggered commercial dispute

Posted: 13th June 2013

shipA commercial vessel’s ill-fated maiden voyage – including its hijack by Somali pirates, the payment of a substantial ransom and a major engine breakdown – triggered a dispute between shipowners and cargo consignees which raised novel and important issues of law relating to general average.

The vessel was loaded with a cargo of steel coils when it was hijacked in the Gulf of Aden and held by pirates for 42 days before the ransom was paid. Its main engine later broke down requiring it to be towed into port. Arbitrators subsequently ruled that the ransom and the cost of the tow were allowable general average disbursements. Those disbursements totalled more than $3.5 million of which the consignees were liable for approximately 29%.

The shipowners sought security from the consignees in the form of a bond and insurer’s guarantee, or a cash deposit, but only received an insurer’s guarantee in respect of a small part of the cargo. In those circumstances, the shipowners exercised their lien over the cargo which was diverted away from its intended port of discharge and deposited in a warehouse where it had remained during the course of the dispute.

Issues arose as to whether the shipowners had waived their lien on receipt of partial security from the consignees and whether the former were entitled to recover from the latter the $20,000-a-month costs of warehousing and insuring the cargo. Arbitrators found for the shipowners’ on both issues; however the Commercial Court subsequently varied that decision, finding in the shipowners’ favour only on the first of those issues.

In dismissing the consignees’ appeal, and allowing the shipowners’ cross-appeal, the Court of Appeal noted that the latter had clearly been unwilling to give up its lien in the absence of full security being provided by the former in respect of the entire cargo. The shipowners’ stance was in line with long-standing practice and was in every respect reasonable. The consignees’ arguments that the shipowners were not entitled to recover the reasonable costs of exercising their lien conflicted with authority and were ‘profoundly mistaken’.