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Loss of Hire under the Nordic Plan: The "Hamburg"-judgement and the 2019 "Anti-Hamburg"-amendments

News | 23.08.19

Shipping and Offshore
Frithjof Herlofsen of Simonsen Vogt Wiig successfully represented an Italian shipowner in a loss of hire cover dispute against Gard. The rushed response of the Nordic Plan Revision Committee to include "Anti-Hamburg" wording in the revised 2019 Commentary to the Nordic Plan raise several concerns.

Loss of Hire under the Nordic Plan: The "Hamburg"-judgement and the  2019 "Anti-Hamburg"-amendments

1. Overview
The Norwegian Supreme Court refused to grant the Norwegian marine insurer Gard leave to appeal in a loss of hire cover ("LOH cover") dispute against the owners of the MV "Hamburg" on the Nordic Marine Insurance Plan ("Nordic Plan") 2013.  The decision from the Supreme Court means that the Court of Appeal's decision in favor of the owners of the MV "Hamburg" is final. The successful owners were represented by Simonsen Vogt Wiig's shipping litigation partner, Frithjof Herlofsen.

In response to the issues arising out of the "Hamburg dispute, the Nordic Plan Revision Committee drafted a revised wording in the 2019 Commentary to the Nordic Plan. As far as loss of hire is concerned, we believe that the 2019 version is unclear and it causes more problems than it solves. We would therefore recommend shipowners to consider taking out LOH cover on the Nordic Plan 2013 terms, instead of on terms under the revised 2019 version.

2. The Court of Appeal's decision in the MV "Hamburg"-case
The owners of the MV "Hamburg" had taken out LOH cover insurance with Gard and two following underwriters on the terms of the 2013 version of the Nordic Plan. The LOH cover policy was based on an agreed daily amount of EUR 50 000, cf. the Nordic Plan Clause 16-6.

The MV "Hamburg" grounded in 2015, and went off-hire for a period of about 90 days due to repairs. The daily hire rate under the time charter was approx. EUR 33 500, whilst the agreed daily amount under the LOH cover was set to EUR 50 000.  A few weeks into the repair period, the owners of the MV "Hamburg" hired another vessel to replace the damaged vessel.

This triggered a dispute with Gard and the following underwriters. In short, Gard argued that the agreed daily amount at EUR 50 000 no longer applied from the time when the substitute vessel replaced the damaged vessel, as the assured from this point in time no longer suffered a "loss" in the meaning of the Nordic Plan. From this point on, Gard argued, the owners suffered only "extra costs incurred in order to save time" as per Nordic Plan clause 16-11  as opposed to "loss" pursuant to Nordic Plan clause 16-1. The owners maintained that they were entitled to full cover calculated on the basis of the agreed daily amount for the whole period the insured vessel was deprived of income due to the incident.  The owners argued that chartering a substitute vessel would not prejudice the LOH cover under the Nordic Plan 2013.

Gard succeeded with their line of argument before the District Court in Arendal. However, the Court of Appeal ruled in favor of the owners, holding the insurers liable to pay full indemnity calculated based on the agreed daily amount - regardless of whether or not the insured vessel had been substituted under the charter.

The Court of Appeal made it clear that the Nordic Plan 2013 allows for full compensation for the covered period as long as the insured vessel is off hire due to a covered incident. The Court of Appeal reached the conclusion that there was no basis for setting aside the agreed amount during the repair period. Further, the Court of Appeal rejected Gard's argument that the costs of hiring a "substitute vessel" should be construed as "costs incurred to save time" and that the owners were entitled to such costs only. In doing so, the Court of Appeal made it clear that Gard's construction found no support in the wording of the Nordic Plan, its Commentary or any reported cases.

3. Inclusion of "Anti-Hamburg" wording in the revised 2019 Commentary to the Nordic Plan
In parallel with the "Hamburg"-proceedings, the Nordic Plan and its Commentary, were to be revised for the 2019 version. Chapter 16, the LOH cover chapter, was scheduled only for a few editorial changes and some additions to the LOH cover clause 16.-1 (not relevant to the points in the "Hamburg"-case). However, the revision of the Nordic Plan, inspired by the ongoing proceedings in the "Hamburg", hasted to include a revision of the Commentary to the clauses 16-1 and 16-11.

The revision of the Commentary to Clause s 16-1 and 16-11 were made on the initiative of the insurers. The new, more insurer-friendly wording reads:

" There has been some uncertainty related to situations where an assured is able to engage a substitute vessel during repairs of a damaged vessel, in order to maintain earnings under the damaged vessel’s trade/charterparty. A characteristic aspect of such a situation is however that the assured receives hire and is thus not “deprived of income”, which is a requirement for cover in Cl. 16-1. On the other hand, the extra costs incurred in connection with employing the substitute vessel are recoverable subject to the terms of Cl. 16-11. "

Unsurprisingly, the Court of Appeal made it clear that the revised 2019 wording of the Commentary did not bear any relevance to the "Hamburg"-case, as this claim was subject to the 2013 version of the Nordic Plan.

However, the Court of Appeal indicated that with the recent revised wording of the Commentary to the LOH cover provisions under the 2019 version, Chapter 16 might have changed on this point, even though the wording of the Nordic Plan remained unchanged.

4. Our comments and recommendations
The Commentary to the Nordic Plan is considered as a weighty authority when interpreting the Nordic Plan.

The Commentary itself states that it must be regarded as an integral component of the standard contract which the Nordic Plan constitutes.

We consider it clear that the new wording in the Commentary to Clause 16-11 increases the risk that insurers in the future will decline to pay compensation based on the agreed daily amount if the assured is considered to have hired a "substitute vessel".

Neither the Nordic Plan nor the Commentary offer any explanation as to what constitutes a "substitute vessel". Further, the 2019 revision does not offer any explanation as to what costs incurred with hiring a "substitute vessel" would be recoverable. Finally, neither the Nordic Plan nor the Commentary offer any guidance as to when – and in what circumstances – an assured would be under an obligation to hire a substitute vessel, failing which the LOH cover may be prejudiced.

The Nordic Plan 2013 version of Chapter 16 offers a much better cover to owners, compared to the revised 2019 version. We would therefore recommend shipowners to seek to agree that the 2013 version shall apply when obtaining loss of hire cover based on the Nordic Plan. The Court of Appeal judgment in the "Hamburg" makes it clear that an owner is entitled to full compensation calculated based on the agreed daily amount even in the event that a  so-called "substitute vessel" has been hired, while the position (at the best) is more uncertain if the 2019 version apply. LOH Cover taken out on the 2019 version may clearly open the door for many interesting disputes as to what constitutes a "substitute vessel".