Abson Motors Ltd v Pacific International Lines PTE Ltd & 3 others [2014] eKLR

Key Facts

Transaction Type

Issues

• The court examined the enforceability of the plaintiff’s banker’s guarantees to pay the general average. It cited case law (e.g., Edward Owen Engineering Ltd v Barclays Bank International) to affirm that banks must honor guarantees per their terms, regardless of disputes between other parties. The plaintiff’s attempt to block payment via injunction was deemed an abuse of process.
• The plaintiff alleged the 1st Defendant breached the Bill of Lading by delivering cargo to Compact Freight Systems Ltd instead of Interpel Investments Ltd. The court concluded the contract only required delivery to Mombasa Port, which was fulfilled, and no such breach existed.
• The court considered whether the payment of ransom to Somali pirates was illegal under Kenyan law, including the repealed Ransom Act of 1782, the Merchant Shipping Act, and the Rome Convention. It found no illegality, emphasizing that ransom payments are not prohibited under Kenyan statutes or common law, and that such payments are permissible if made to ensure safety of lives and cargo. The court noted the English Ransom Act 1782 had been repealed in 1864 and did not apply to non-British vessels.
• The plaintiff challenged the inclusion of consulting fees, travel expenses, and legal costs in the general average. The court found the adjuster’s report justified these expenses as necessary for the vessel’s release and ruled they were validly included under the doctrine of general average.
• The court analyzed whether the general average adjustment by the 4th Defendant (including ransom and related costs) was enforceable. It ruled that the plaintiff, under the York-Antwerp Rules 1994, was legally bound to contribute to the general average as a necessary sacrifice for the common safety of ship, cargo, and crew. The court rejected the plaintiff’s claim that the adjustment was illegal or unreasonable.

Holdings

• The court found that the payment of ransom to pirates is not illegal in Kenya, as the Ransom Act of 1782 was repealed and there is no current legislation against ransom payments in such circumstances. The court emphasized that the safety of hostages (the crew) and cargo takes precedence, and ransom payments are permissible if necessary to ensure their safety.
• The court determined that the plaintiff was obligated to pay the declared general average, as the ransom payment was a necessary sacrifice to avert peril to the ship, cargo, and crew. The plaintiff's claim that general average adjustment was illegal or invalid was rejected, with the court noting the plaintiff benefited from the payment and cannot now dispute it.
• The court concluded the plaintiff's suit was frivolous and vexatious, as it sought to avoid paying the general average despite having secured the release of its cargo through the issued guarantees. The suit was struck out, and costs were awarded to the defendants at a higher scale.

Remedies

• The 1st and 3rd Defendants are awarded costs of the Notice of Motions dated 13th December 2010 and 15th August 2012 and also costs of this suit. Such costs shall be taxed at a higher scale as per paragraph 50A of The Advocates (Remuneration) Order.
• The Plaintiffs suit against all the Defendants is hereby struck out.

Legal Principles

• The court applied a purposive approach in determining the legality of ransom payments, emphasizing the necessity of ensuring crew and cargo safety during piracy incidents. It referenced the repealed English Ransom Act 1782 and concluded that ransom payments are not illegal in Kenya under current laws.
• The principle of pacta sunt servanda (agreements must be kept) was invoked to enforce the irrevocable bank guarantees issued by the plaintiff's banker. The court held that the bank was obligated to honor the guarantee regardless of disputes between the plaintiff and defendants.
• The court ruled that the plaintiff's suit was frivolous and vexatious, awarding costs to the defendants at a higher scale under paragraph 50A of The Advocates (Remuneration) Order. This reflects the application of costs principles to penalize abusive litigation practices.

Precedent Name

• EDWARD OWEN ENGINEERING LTD -Vs- BARCLAYS BANK INTERNATIONAL
• KENINDIA ASSURANCE COMPANY LTD -Vs- FIRST NATIONAL FINANCE BANK LTD
• MASEFIELD v Amlin
• DEEPAK CHAMANLAL KAMANI & ANOTHER -Vs- KENYA ANTI-CORRUPTION COMMISSION & 3 OTHERS
• BIGUZZI -Vs- RANK LEISURE PLC

Key Disputed Contract Clauses

• The plaintiff's February 17, 2010, letter to its banker (3rd Defendant) created an irrevocable guarantee to pay up to USD 102,111.92 on demand for general average. The court held the bank was legally obligated to honor the guarantee per contract law principles, rejecting the plaintiff's injunction to prevent payment.
• The plaintiff disputed the inclusion of prepaid freight in the general average calculation, arguing their Bill of Lading was marked 'freight collect'. The 4th Defendant's report clarified prepaid freight was incorporated into cargo value, making its contributory value nil. The court upheld this interpretation.
• The Bill of Lading's Clause 29 obligated the plaintiff to pay declared general average under York-Antwerp Rules 1994. The court found the plaintiff was legally bound to contribute to the general average, which included ransom and negotiation expenses, rejecting claims of illegality or invalidity.

Cited Statute

• Civil Procedure Act Cap 21
• Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation (1988)
• Naval Prize Acts Repeal Act 1864
• Merchant Shipping Act (Kenya)
• Judicature Act Cap 8

Judge Name

Passage Text

• 33. In my consideration of the material before me I make a finding that the payment of ransom is not illegal in Kenya.
• 52. ... The Plaintiffs suit against all the Defendants is hereby struck out.
• 39. The answer to the question I posed to myself, above, is in the affirmative. Plaintiff was obligated to pay the declared general average. In being so obligated, no crime was committed.

Damages / Relief Type

• Declaratory Relief requested to declare ransom payments, general average adjustments, and guarantees illegal under Kenyan and Singaporean law, as well as the Rome Convention.
• Injunction sought to restrain the 3rd Defendant (bank) from debiting the Plaintiff's account for the general average payment of USD 76,264.50.