TT Talk: Legal Eagle - Places of Refuge and Risk Management: Insights from CMA CGM VERLAINE

In today’s global maritime industry, ports play a critical role as safe havens or "places of refuge" for ships facing emergencies such as engines failures, collisions, fires, or severe weather. Incidents at sea can have significant safety, environmental, and economic consequences, exacerbated by the increasing size of ships. When a ship is in distress, prompt access to a place of refuge can be essential to protect lives, prevent pollution, and minimise damage to cargo and infrastructure.

However, coastal states and ports may be reluctant to accept ships in distress due to concerns about operational disruption, liability, environmental risks, and the potential costs of emergency response and clean-up, as well as economic impact. States, port authorities and/or operators may hesitate or refuse entry, which can exacerbate the crisis at sea and increase risks for all stakeholders, and factors may include the question of adequate incentives and legal protections.

The CMA CGM Verlaine case concerns a dispute between the operators of the port in Turkey (the port) and the owners, managers, and P&I Club of the container ship CMA CGM Verlaine. The port sought to recover sums due for services rendered in discharging damaged containers from the ship after it was involved in a collision. The core issues revolved around the contractual basis for the charges, the scope of indemnities provided, and the reasonableness of the amounts claimed.  

The facts

On 4 April 2010, the CMA CGM Verlaine collided with another ship in Izmit Bay, Turkey, causing severe damage and flooding in holds 4 and 5. The ship, initially scheduled to discharge at a different port, was redirected to the port due to its condition and the originally planned port’s strict terms.

At a meeting on 7 April, the port agreed to discharge the containers, but no specific agreement was reached on charges, neither confirming nor excluding any uplift or additional costs beyond standard tariffs. The owners and ship interests issued a Letter of Undertaking (LOU), and the ship’s P&I Club provided a Letter of Indemnity (LOI).

Under the LOU, in consideration of allowing the ship to berth and discharge some of its containers, the port would be paid:

"...all inward and outward charges including but not limited to tuggage, pilotage, port dues, berth dues, stevedoring, cranage and all other charges levied in accordance with the terms and conditions of...” the port.

Under the LOI, the Club undertook to indemnify the port as follows:

"...in respect of any and all consequences, liability, loss or damage that you may incur and which may arise, including but not limited to, damage to the port or its personnel and facilities, oil pollution, wreck removal and loss and damage to any cargo, its containers and from handling the damaged cargo and its containers including any delays, penalties or fines caused by or raised by the customs authorities and all reasonably and properly incurred legal costs and expenses."

The port later invoiced over US$3 million for services such as discharge, storage, labour, and repairs. Owners paid US$2 million on account but disputed the balance, claiming the charges were excessive or outside the agreements. The English Commercial Court was asked to consider the construction of the LOI and LOU and determine which sums were recoverable and what amounts should be allowed.

Judgment

Scope of LOU: The LOU referred to the port’s General Terms and Conditions which allowed the port to determine charges based on the actual operations required, especially in exceptional circumstances such when performing cargo operation on damaged ships. The judge considered that it would be wholly commercially unrealistic for the parties to have contemplated that a standard basic tariff applicable to undamaged ships and containers would be applicable to the discharge of damaged ships and containers. The judge found it reasonable for the parties to adopt a “wait and see” approach to charging for the job in circumstances where the severity of the damage to the ship or her containers becomes clearer.

Reasonableness of Charges: The court rejected the port’s argument that its charges could only be challenged on grounds of unreasonableness. Instead, the charges had to be reasonable, but detailed vouching of every expenditure was not required given the emergency and complexity of the situation. 

Assessment of Invoices: The court reviewed each invoice and supporting evidence, allowing most of the sums claimed (with some deductions for overstatements or insufficient evidence). The court found the uplifted rates and additional charges reasonable in the context of the extraordinary operation required.

On the evidence the court found that the port was entitled to make charges against the owners and ship interests in the sum of US$3,059,955, which meant that after deduction of US$2,000,000 paid on account, there was a balance of US$1,059,955 due from the owners and ship interests to the port for which the port was entitled to judgment. 

Conclusion

This case underscores the importance of clear and precise drafting in documents that impose obligations and liabilities, such as letters of undertaking and indemnities. In this matter, the P&I Club benefited from the protective wording of the LOI. By contrast, the owners and ship interests were left vulnerable to substantial liabilities under the LOU, notwithstanding the court’s implication of a term requiring reasonableness in the charges levied by the port.

This case underscores the importance of clear and precise drafting in documents that impose obligations and liabilities, such as letters of undertaking and indemnities.

Setting fixed charges in advance of such circumstances is rarely practical for ports, given the complexities involved in handling damaged ships. The costs of discharging damaged containers or cargo are usually negotiated after the event, particularly when neither the port nor the ship owners or charterers can ascertain the full extent of the damage beforehand. Where ports attempt to agree on charges in advance under such uncertain conditions, it can be anticipated that they apply a significant uplift as a precaution to retain flexibility to negotiate charges once the actual scope of work becomes clear.

While no binding international convention requires ports to accept ships in distress, doing so can expose them to significant risks that might not have been contemplated during initial negotiations, such as pollution, ship capsizing at berth, or obstruction of port operations. These risks must be carefully assessed when determining the obligations and liabilities associated with handling a damaged ship. Addressing the issue of granting a place of refuge should involve close collaboration between ports, shipowners, charterers, and salvors to ensure coordinated risk management and effective response. Above all, the safety of seafarers and the protection of the environment should remain paramount in the considerations of all parties. 

While no binding international convention requires ports to accept ships in distress, doing so can expose them to significant risks that might not have been contemplated during initial negotiations, such as pollution, ship capsizing at berth, or obstruction of port operations.

YILPORT KONTEYNER TERMINALI VE LIMAN ISLETMELERI AS v BUXCLIFF KG AND OTHERS (THE “CMA CGM VERLAINE”). [2013] 1 Lloyd's Rep 378