On 29 January 2009 Somali pirates forcibly took possession of the chemical tanker MV Longchamp in the Gulf of Aden. At the time, the vessel was fully laden with the claimants’ cargo of vinyl chloride monomer in bulk. The pirates demanded a ransom of USD 6 million. On 22 March 2009 a ransom payment of USD 1.85 million was agreed by the first defendant, owners of the Longchamp. It was paid five days later. During the period of the negotiations, the owners incurred items of expenditure.

The main issue in this action was whether some of the expenditure incurred by the owners during the period of the negotiation was allowable in general average. The cargo interest claimants said it was not.

Before the Court of Appeal, the following items of expenditure were in dispute:

1. USD 20,639.30 for professional media response services;
2. USD 75,724.80 for crew wages paid to the crew during the period of negotiation;
3. USD 70,058.70 for ‘high risk area bonus’ payments to the crew during the period the vessel was detained within the Gulf of Aden;
4. USD 3,315 for crew maintenance during the period of negotiation;
5. USD 11,115,45 for bunkers consumed during negotiations.

At the time of the hijacking, the cargo was being carried under a contract of carriage which expressly incorporated the York-Antwerp Rules 1974.

In the original general average (GA) adjustment, the adjusters concluded that:

• The ransom payment of USD 1.85 million was allowed in general average (it is common ground that this was correct);
• The substituted expenses (items 2-5 above) were allowable pursuant to Rule F of the York-Antwerp Rules 1974.

The original adjusters considered that, as the owners and managers had successfully negotiated down the initial ransom amount so that an amount of USD 4.15 million was saved in the common interest of all property owners concerned, and this sum would otherwise have been recoverable in General Average pursuant to Rule A of the York-Antwerp Rules 1974, the expenses incurred during the period of negotiation over the ransom amount could be allowed in general average as substituted expenses under Rule F.

The cargo interests contended that the substituted expenses should not have been allowed, and sought an order stating they had over paid/contributed. In the High Court, the cargo interests’ claim failed. All the contentious expenses incurred by the vessel owners would be allowed in general average, as the owners had met the requirements of Rule F, including that the substitute expenses were reasonably incurred. For the judge's reasoning, see Mitsui & Co Ltd v Beteiligungsgesellschaft LPG Tankerflotte mbH & Co KG [2014] EWHC 3445 (Comm) (CMI 132). Incidentally, the High Court held that the substitute expenses were reasonably incurred having had regard to the requirements of Rule A. In the York-Antwerp Rules 1994, a Rule Paramount was added after the Rule of Interpretation and before the lettered Rules. It provides expressly that: ‘In no case shall there by any allowance for sacrifice or expenditure unless reasonably made or incurred.’

The cargo interests appealed to the Court of Appeal. There were four issues on appeal:

1. Whether the judge ought not to have concluded that the expenses were incurred in adopting a course of action undertaken as an alternative to – or in substitution for – one where the expense would have been allowable as General Average. The appellants contend that in fact there was only one course open after the hijacking of the vessel (negotiation with the pirates to seek to achieve a release of the vessel and cargo) and the substituted expenses were incurred taking that course.
2. Whether the judge erred in concluding that payment by the respondents of the initial ransom demand without attempting to negotiate would have meant that the hypothetical ransom payment of USD 6 million would have been 'reasonably incurred' within the meaning of Rule A in the Rules and whether he ought to have concluded that the payment of the originally demanded sum was not a course a reasonable shipowner would have taken and therefore was not reasonably incurred. 
3. Whether the judge erred in law in concluding that the consumption of bunkers was an 'expense' for the purposes of Rule F.
4. Whether the judge was wrong to conclude that the media response costs were recoverable under Rule A since, as there were a number of purposes for which those costs had been incurred, the respondents had not proved that all of the costs had been incurred for the 'common safety'. If the judge was wrong, the respondents contend the expenses are nevertheless recoverable under Rule F.

Held: Appeal on issue 1 allowed, appeals on issues 2-4 dismissed.

For Rule F to be invoked, there had to be two distinct courses of action open to the relevant party, and payment of the ransom on demand was not to be regarded as an alternative course of action. There was only one road open to the shipowners, namely negotiation, and that road led to wherever the negotiation ended. Items 2-5 above would not be allowed in general average as substituted expenses under Rule F. They were ordinary operating costs incurred by reason of delay. Accordingly the appeal on issue 1 would be allowed. 

While it might be that the general practice was to try and negotiate the ransom down, that did not mean that it would be unreasonable to pay the ransom straight away so as to avert the very real danger to vessel, cargo and crew as quickly and effectively as possible. Nor could a course of action which procured such real and tangible benefits be regarded as an artificial invention. Accordingly, it could not be shown that the judge was wrong to find that payment of the initial ransom demand would have been reasonable. The appeal on issue 2 would be dismissed.

As a matter of language there was no difficulty in treating the consumption of bunkers as an expense for the purposes of Rule F. Further, the general practice was to include bunker consumption as an expense. Accordingly, the judge did not err on that issue. The appeal on issue 3 would be dismissed.

As to the media responses costs, the Judge had found that the owners’ purpose in incurring those costs was to secure the release of the vessel and cargo as cheaply and efficiently as possible. He held that that did not need to be the sole purpose of so doing in order to be allowable under Rule A. Even if the cargo interests were right to contend that there were two other purposes, that would make no difference. The Judge’s conclusion was correct. Provided that preserving the property from peril was an effective cause of the incurring of the expenditure, that was sufficient. There was no principled reason for requiring it to be either the sole or only effective purpose or cause or the predominant and most effective purpose or cause. Accordingly, the appeal on issue 4 would be dismissed.