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High Seas Piracy Triggered Contract Dispute

ShipPirates who hijacked a freighter off the coast of Africa, stealing its valuable cargo of premium motor oil, could not have imagined that their actions would lead to a novel commercial dispute between charterers and ship owners in a London court.

Fifteen armed men attacked and took over the ship late at night off the coast of Benin in December 2010. The pirates showed some sophistication as more than 5,000 metric tonnes of oil were pumped onto a lighter that was brought alongside. The hijacked vessel was released the following day.

The charterers of the vessel sued its owners, claiming that the latter were strictly liable to pay compensation in respect of the stolen cargo on the basis that the pirates’ activities had caused an ‘in-transit loss’ within the meaning of the relevant charterparty.

However, in dismissing that argument, the Court noted that, as a matter of general trade usage, in-transit losses ordinarily referred to such matters as inevitable differences between the volume of a liquid as measured on loading and unloading or to leakage of cargo into ballast tanks or the void spaces between a vessel’s double hull. “Loss from the pirates’ activities clearly is not covered,” the Court found.

Even if the theft of the cargo could be viewed as an in-transit loss, the Court rejected the charterers’ plea that the ship owners were strictly liable. Having resolved determinative preliminary issues in the case, the Court declared that the owners were not liable under the charterparty and entered judgment in their favour.