06 Jun 2017

ShippingBulletin - June 2017

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In this issue:

Package limitation - containerised cargo - Hague-Visby Rules

The claim arose out of damage to a cargo of large unpackaged pieces of tuna stuffed in three refrigerated containers, carried onboard the Maersk Tangier. The tuna was damaged during transit.

The court was asked to consider the following preliminary issues:

  • Were the Hague-Visby Rules compulsorily applicable?
     
  • What is a ‘unit’ for the purposes of the Hague Rules and the Hague-Visby Rules?

  • What is required for the number of packages or units to be sufficiently enumerated for the purposes of Article IV.5(c) (“Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading as packed in such article of transport shall be deemed the number of packages or units for the purpose of this paragraph as far as these packages or units are concerned.”)?

  • Does each package have its own limit, or are the limits aggregated?

Held (Andrew Baker J):

  1. The contracts of carriage initially contemplated the issue of bills of lading, but waybills were issued instead, to prevent further delays at the discharge port. Notwithstanding that a waybill was not a bill of lading for the purposes of the Hague-Visby Rules, the Rules were compulsorily applicable. The relevant question was not whether a bill of lading was actually issued, but whether the issue of a bill was contemplated under the terms of the contract. Where a waybill was issued in place of a bill of lading, the contract was ‘covered by a bill of lading’ for the purposes of the Rules.

  2. The individual tuna pieces were 'units'. The relevant question was whether the individual physical items had been packaged together. If they had, the individual items were not units, but instead formed part of a single package. If not, each physical item was a ‘unit’. Here they had not been packaged together. A container did not constitute a 'package'.

  3. The decision of the Federal Court of Australia in El Greco v. Mediterranean Shipping should not be followed. Article IV.5(c) merely requires that the number of packages or units inside the container is accurately stated in the bill of lading. Here, the waybills stated that the containers contained a certain number of pieces of tuna. Each piece of tuna was in fact a ‘unit’. The waybills therefore accurately enumerated the number of units in the containers.

  4. Each package / unit has its own limit, with no aggregation.

(Kyokuyo Co Ltd v AP Moller-Maersk AS, The Maersk Tangier [2017] EWHC 654 (Comm))

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Vessel used for floating storage – whether demurrage payable

Owners and charterers entered into a tanker voyage charterparty on an amended BPVOY 4. The charterparty contained conventional provisions for laytime and demurrage at load and discharge ports ("the loadport/disport regime"). The charterparty also contained provisions (in Additional Clause 11) entitling charterers to instruct the vessel to stop and wait for orders ("the stop and wait for orders regime"). This regime provided for demurrage to be paid on a scale which was above the demurrage rate payable under the loadport/disport regime.

NOR was given at the discharge port, but charterers did not give discharge orders for 64 days. (Charterers subsequently accepted that the delay was for their own commercial purposes.) Charterers paid demurrage in accordance with the loadport/disport regime.

Owners claimed that demurrage was payable at the higher rate laid down in the stop and wait for orders regime. They argued that charterers were not entitled to use the vessel as floating storage.

Held (Sir Jeremy Cooke):

Owners' claim failed.

The trigger for entry into the loadport/disport regime was the tender of NOR. The trigger for entry into the stop and wait for orders regime was the giving of instructions under Additional Clause 11. No such instructions as required by Additional Clause 11 had been given. A passive failure to give instructions did not fall within under Additional Clause 11. In the absence of any relevant instructions under Additional Clause 11, the clause did not apply.

The fact that there might be little practical difference between the two situations could not counteract the need for instructions under Additional Clause 11.

Owners argued that a term should be implied to the effect that the higher demurrage scale should apply after 5 days waiting for orders / discharge instructions at sea or in port. The Judge rejected owners' argument for implication of a term because (a) it was not necessary to imply the term, and (b) the implication of the term would be inconsistent with the express terms of the CP, as properly construed.

(Gard v Clearlake Shipping [2017] EWHC 1091 (Comm))

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Safe port - abnormal occurrence

The bulk carrier Ocean Victory had been chartered by owners on an amended Barecon 89 to demise charterers, who had in turn sub-chartered the vessel on time charter. There was a safe port warranty contained within each charterparty.

Sub-charterers ordered the vessel to discharge at Kashima, Japan. Before discharge was completed, swell caused by "long waves" endangered the vessel's mooring. When the master decided to leave the port, the vessel was subject to winds of up to Beaufort Scale 9 while exiting the port along the Kashima Fairway. The vessel had limited room to manoeuvre in the Fairway, foundered on the breakwater and eventually broke up and became a total loss.

The vessel had been subject to a rare combination of events: (a) swell generated from the "long waves" (a phenomenon affecting ports around the Pacific rim) and (b) very severe northerly gale force winds. This placed the vessel in a difficult situation: the swell made it potentially unsafe for the vessel to remain at berth, while the gale force winds made the Kashima Fairway (the only way in or out of the port) unsafe to navigate safely.

Kashima is a modern port. It is one of the largest in Japan and has a good safety record. While it is sometimes exposed to swell from "long waves" and while severe northerly winds could affect the navigability of the Fairway, this was the only time such an incident (involving both elements) had occurred in the port's 35 year history.

Owners and demise charterers were co-assureds under the vessel's hull and machinery policy and claimed accordingly. Hull underwriters paid the claim under the policy and became assignees of owners' and demise charterers' rights. On that basis, they advanced claims against sub-charterers for breach of the safe port warranty contained in the time charter. Underwriters' claim totalled USD137.8m.

At first instance, it was held that the port was unsafe. On appeal to the Court of Appeal that judgment was reversed. Underwriters appealed to the Supreme Court.

Held (Supreme Court):

  1. The appeal was dismissed. There was no breach of the safe port warranty: Kashima was a safe port. The relevant event was the combination of the long waves and high winds, not the individual constituents. The test was not foreseeability but whether the event was an abnormal occurrence. The relevant event was an abnormal occurrence: no vessel had ever suffered such an event in the port's history and there was evidence that the storm had developed rapidly and was particularly severe.

  2. If there had been a breach of the safe port warranty, sub-charterers could not limit their liability to insurers. Article 2(1)(a) of the 1976 Convention permitting limitation for liability "occurring on board or in direct connexion with the operation of the ship" did not include loss of or damage to the ship itself. The vessel cannot be both the perpetrator and the victim of the damage.

  3. If there had been a breach of the safe port warranty, insurers could not bring a claim, pursuant to their subrogated rights, down the charter line against sub-charterers for breach of the safe port undertaking. Clause 12 of Barecon 89 provided a comprehensive code for dealing with loss or damage to the vessel which provided that there should be an insurance funded outcome. There was therefore no liability of the bareboat charterer to the owner to which insurers could be subrogated.

(Gard Marine and Energy v China National Chartering, The "OCEAN VICTORY" [2017] UKSC 35)

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Bills of lading - symbolic delivery - pin codes to obtain delivery

Glencore shipped three containers of cobalt briquettes to Antwerp. MSC was the carrier. After discharge of the cargo at Antwerp, 2 of the 3 containers went missing. Glencore claimed damages against MSC for non-delivery of the cargo. Andrew Smith J found in favour of Glencore. MSC appealed.

The issues centred around the fact that when Glencore presented the bill of lading to MSC, instead of a delivery order or the goods, they were given pin codes which would enable them to obtain delivery of the goods from the MSC terminal within Antwerp port. Glencore had made 69 similar shipments prior to this one and each time the pin codes had been used by their agents, Steinweg.

The bill of lading was a "To Order" bill which provided that: "one original Bill of Lading, duly endorsed must be surrendered by the Merchant to the Carrier … in exchange for the Goods or a Delivery Order". Steinweg presented the bill to MSC and received a Release note containing the pin codes. When the hauliers went to collect the containers, it was discovered that two had already been delivered to 'unauthorised persons'.

The issues were:

  1. Was delivery of the pin codes symbolic delivery which amounted in law to delivery of the goods?

  2. Did MSC's provision of the pin codes constitute provision of a delivery order within the meaning of the bill of lading?

  3. Did MSC's provision of the pin codes constitute provision of a ship's delivery order pursuant to s. 1(4) COGSA 1992?

  4. Were Glencore estopped because of the 69 previous shipments?

Held (Court of Appeal):

  1. Delivery of the pin codes was not symbolic delivery which amounted in law to delivery of the goods. The contract contemplated either actual delivery against presentation of the bill, or a delivery order. Delivery of a code could not itself constitute delivery. Delivery usually means actual delivery, not delivery of a means of access, and nothing was spelt out to the contrary in the contract.

  2. MSC's provision of the pin codes did not constitute provision of a delivery order within the meaning of the bill of lading: the expression 'delivery order' can have many meanings but under an English law contract it should have the same meaning as a ship's delivery order as defined under COGSA 1992. A delivery order is provided by owners, in exchange for the bill of lading, as an alternative to actual delivery and in substitution for the bill. It should contain an undertaking by the carrier to deliver the goods to the person identified in the bill. A shipper would not agree a term to surrender the bill of lading without receiving the goods or the benefit of a substitute undertaking in his favour. The Release note did no more than instruct the terminal to deliver against the entry of the pin codes which it provided. It did not contain the relevant undertaking.

  3. MSC's provision of the pin codes did not constitute provision of a ship's delivery order pursuant to s. 1(4) COGSA 1992. The Release note could not be treated as providing any undertaking to deliver at all. There was no authority or custom to establish that the Release note with pin codes could count as a delivery order to deliver to the first presenter of the codes. Further, Glencore was unaware when the contract was made that the electronic pin codes system was in use; it cannot therefore be taken to have agreed that delivery could be made to the first presenter of the code.

  4. Glencore were not estopped from contending that delivery of the cargo upon presentation of the pin codes was a breach of contract because the system had been used for 69 previous shipments. It had limited knowledge of the use of the system and gave no clear representations along those lines. Further, the claim by Glencore was not simply that delivery was made against pin codes, but that delivery was not made at all.

(MSC Mediterranean Shipping Company SA v Glencore International AG [2017] EWCA Civ 365)

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Collision - the crossing rule

Two vessels (a VLCC, ALEXANDRA 1 and a laden container ship EVER SMART) collided just outside the port of Jebel Ali in the UAE. EVER SMART had disembarked her pilot on leaving a narrow channel on the way out of the port and ALEXANDRA 1 was waiting to embark the same pilot and enter the narrow channel.

Held (Teare J):

  1. The crossing rule did not apply to two vessels navigating a narrow channel to avoid confusion where the narrow channel rule was to be applied at the same time. ALEXANDRA 1 was not therefore obliged to keep out of the way of the EVER SMART. Instead, ALEXANDRA 1 was obliged to keep as far over to the starboard side of the channel as was safe and practicable and pass port-to-port with the EVER SMART.

  2. ALEXANDRA 1 did not have restricted manoeuvrability because she had not begun embarking the pilot. Further, her course was not sufficiently defined for the crossing rule to apply, and this should have been apparent to the EVER SMART if they had kept a good look out.

  3. Both vessels were at fault: ALEXANDRA 1's master had failed to check instructions with the port authority and had failed to alter course to decrease the risk of collision. The EVER SMART had breached the narrow channel rule, failed to keep a good lookout, proceeded at an unsafe speed and failed to take evasive action. It was therefore at greater fault. Liability was therefore split 80% EVER SMART and 20% ALEXANDRA 1.

(Nautical Challenge Ltd v Evergreen Marine (UK) Ltd [2017] EWHC 453 (Admlty))

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Contract interpretation – business common sense

A contract was entered into for the sale and purchase of the entire issued share capital of a company, Sureterm Direct, which carried on business as a specialist insurance broker. Mr Wood was one of the sellers and managing director of the company, which was sold to Capita. Mr Wood made claims against Capita arising out of the termination of his employment.

Capita counterclaimed under an indemnity provision in the SPA. Sureterm was found guilty by the FSA of mis-selling insurance and ordered to pay compensation to policy holders. Capita claimed that it had suffered losses, including the costs of the compensation scheme. It claimed those losses back under an indemnity in clause 7.11 of the SPA and there was a dispute as to whether the sums claimed fell within the clause.

Held (Supreme Court):

  1. Appeal dismissed. The losses did not fall within the indemnity clause.

  2. In reaching its decision, the court confirmed a number of points about the interpretation of contracts, the first being that Arnold v Britton [2015] AC 1619 did not alter the approach set out in Rainy Sky v Kookmin Bank [2011] 1 WLR 2900.

  3. The court must ascertain the objective meaning of the language which the parties have chosen to express their agreement. This involves considering the contract as a whole, and giving varying weight to elements of the wider context depending on the nature, formality and quality of drafting of the contract.

  4. Interpretation is a unitary exercise: where there are rival meanings, the court can reach a view as to which construction is more consistent with business common sense. In striking a balance between the language and the implications of the competing constructions, the court must consider the quality of the drafting of the clause. It must also be aware of the possibility that:

    a. One side may have agreed something that, with hindsight, did not serve its interests.
    b. The provision may be a negotiated compromise.
    c. The negotiators could not agree more precise terms.

  5. Textualism and contextualism are not conflicting approaches. They are tools to help the judge ascertain the objective meaning of the language used. The specific circumstances will determine whether one tool is more useful than the other.

(Wood v Capita Insurance Services Ltd [2017] UKSC 24)

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Liability insurance – co-insured - charterers

There was an outbreak of norovirus on cruise ship "MARCO POLO", 2 days after she had departed from Tilbury. The cruise was curtailed and passengers were significantly affected.

Owners had time chartered the ship for 5 years to Marco Polo Chartering Ltd ("Marco Polo"). Marco Polo had sub-time-chartered it to Transocean Tours Touristik GmbH, who had entered into a General Sales Agency Agreement with Cruise and Maritime Services International Limited ("Cruise").

Marco Polo held a charterers' liability insurance policy with Navigators. Cruise was a co-insured. Following the norovirus outbreak, Cruise had made ex gratia payments to the passengers and provided discounts on future voyages. This was to preserve the commercial relationship with the tour operators and for reputational reasons.

Cruise claimed under the policy for indemnity against liabilities of passengers for personal injury and ruined holidays. The basis of any claim against Cruise by the passengers would be as a "contracting carrier" under the Athens Convention.

Held (Knowles J):

  1. Cruise was not a contracting carrier. Cruise did not have a direct contractual relationship with the passengers; they arranged the booking between the passenger and the tour operator, who had the contractual relationship with the passenger.

  2. The policy was described as Charterers Liability and specified "to cover charterers' liability" and indemnify "the Assured ….in respect of losses, costs and expenses incurred as Charterers". On no proper analysis did the liability relied on by Cruise fall within losses, costs and expenses incurred as Charterers:

    2.1 Cruise did not charter the vessel.
    2.2 Cruise was appointed as general sales agent.
    2.3 It did not hire out the vessel or any part of it and the vessel was not under its orders.
    2.4 Although Cruise paid a set minimum amount per passenger per night, this was not "effectively hire". There was no parallel to be drawn with a slot charter or a time trip charter.
    2.5 The fact that Cruise made compensation payments does not mean that it had a legal liability to the passengers or that the losses were covered under the policy.

  3. Cruise was added to the policy for no extra premium and with little thought. In practice, it did not add anything material, in these circumstances, because the liabilities were not charterers' liabilities. The fact that they were named as a co-insured did not automatically entitle them to coverage. Similar sums paid out by the charterers would have been covered.

(Cruise and Maritime Services International Limited v Navigators Underwriting Agency Limited, The "MARCO POLO" [2017] EWHC 843 (Comm))

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Pre-action disclosure – whether policy disclosable by defendant's insurer

The claimant, Peel Port owned a warehouse which was damaged by fire. The fire was allegedly caused by flame cutting work carried out by European Active Projects Ltd ("EAPL"). EAPL was insured by Dornoch Ltd.

The parties engaged in correspondence but no proceedings had been issued. Dornoch denied cover for EAPL on the basis of breach of a "hot working" endorsement. The terms of the endorsement were set out in correspondence but the policy had not been disclosed. Peel Port brought an application against Dornoch for disclosure of the full policy.

Peel Port asserted that their claim would be in excess of £1million and EAPL had put forward no defence, so were highly likely to be found liable. If judgment was enforced against EAPL, they would not be able to pay the sums due and would be wound up. At that point, Peel Port would be entitled to pursue Dornoch under the Third Party (Rights against Insurers) Act 2010 and the policy would clearly be disclosable in that event.

Peel Port argued that they wanted to satisfy themselves that the endorsement was effective. If it was, they would not pursue EAPL or insurers, thereby avoiding litigation and wasted costs.

Dornoch argued that such an order would be counter to the Third Party (Rights against Insurers) Act 2010. The Act sets out a detailed regime to enable the third party to obtain specific information about the insurance position of the insolvent person before the liability of that insolvent person had been established. If CPR 31.16 permitted that disclosure, this regime would be unnecessary.

Held (Jefford J):

  1. Notionally, the test in CPR 31.16 for pre-action disclosure was satisfied (both parties were likely to be party to subsequent proceedings and the document would be disclosable). There was, however, a discretionary element: the court should consider all the facts in detail, not merely in principle, to decide on the desirability of making such an order.

  2. An application could not yet be made under the 2010 Act because EAPL was not insolvent. Peel Port were therefore requesting that the Court take account of the future rights under the 2010 Act and exercise its discretion to make the order now. However, the statutory and procedural landscape pointed strongly against such disclosure under CPR 31.16 and the circumstances were not sufficiently unusual to override established practice.

  3. The court declined to order disclosure.

(Peel Port Shareholder Finance Company Ltd v Dornoch Limited [2017] EWHC 876 (TCC))

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LMAA Terms 2017

The LMAA have introduced revised versions of all their terms:

  • LMAA Terms 2017
  • LMAA Intermediate Claims Procedure 2017
  • LMAA Small Claims Procedure 2017

The changes to the main terms include:

  • An express obligation on the parties and Tribunal "actively" to consider ways of making the arbitral process as cost effective and efficient as possible.

  • When dealing with costs, a Tribunal will be entitled to take into account a party's unreasonable or inefficient conduct (including failure to comply with the Checklist), the costs estimates provided with the LMAA Questionnaires and Calderbank offers (i.e. offers made "without prejudice as to costs"). It is made clear that the CPR Part 36 procedure does NOT apply in LMAA arbitrations.

  • If the parties agree that an order or direction is deemed to be an order or direction of the Tribunal, they must notify the Tribunal).







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