03 May 2016

ShippingBulletin - May 2016


In this issue:



Clause paramount – Hague or Hague-Visby Rules applicable?

Cargo shipped under a bill of lading for carriage from Belgium to the Yemen was damaged.  A dispute arose and it was subsequently agreed, in the letter of undertaking from the P&I club, that the claim would be subject to English law and jurisdiction.  

The relevant Congenbill (as amended) provided that:

"The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply.” 

However, the agreement to English law and jurisdiction meant that the Hague-Visby Rules applied with force of law (as a result of Carriage of Goods by Sea Act 1971 and the fact that the country of shipment, Belgium, was a contracting state).

The key issue was whether the Hague or Hague-Visby Rules package limits applied.

At first instance ([2014] 1 Lloyd's Rep 666), Males J held that the paramount clause constituted an agreement that the Hague Rules would apply. Belgium had enacted the Hague-Visby Rules, but "the Hague Rules … as enacted" could not be a reference to the Hague-Visby Rules. Males J reached this conclusion reluctantly, holding himself bound by previous caselaw.

However, the paramount clause did not operate as a choice of a higher package limit under Art IV(5)(g) of the Hague-Visby Rules. Accordingly, the Hague-Visby Rules package limitation applied.  The matter went to the Court of Appeal.

Held (Longmore, Tomlinson and McCombe LJJ):

  1. Any case where, as here, a bill of lading was issued in 2008 incorporating the Hague Rules as enacted in the country of shipment and the country of shipment has enacted the Hague-Visby Rules, should be regarded as a case which is subject to the Hague-Visby Rules rather than the (old) Hague Rules. The words "the Hague Rules … as enacted" referred to the Hague-Visby Rules. The comments in the earlier cases were not binding on the point.
  2. Accordingly, it was not necessary to consider whether there had been an agreement fixing a higher limitation than the Hague-Visby Rules (para 40).
  3. Nor did the date of conversion from gold value into national currency fall to be decided. However, Longmore LJ indicated (in agreement with Males J) that the relevant date was the date of delivery (or when the cargo should have been delivered).

(Yemgas FZCO and others v Superior Pescadores S.A. [2016] EWCA Civ 101)



COA – repudiatory breach

In 2008 Glory Wealth, as owners, and Flame, as charterers, entered into a contract of affreightment (COA) for shipments of bulk commodities. Flame breached the COA by failing to provide cargoes.  Glory Wealth claimed damages for this repudiatory breach.  Prior to Flame's breach, by 2011, Glory Wealth was insolvent and facing substantial claims, with the risk that its assets would be subject to Rule B attachment. It had therefore arranged that two separate companies (Evensource and First Goal), which were owned by two directors of Glory Wealth, would receive all inward freight under the COA, and pay all outgoing freight or charter hire. 

This raised two issues:

  1. Was the COA unenforceable for illegality? The arbitral tribunal ruled that the conduct of Glory Wealth in concealing assets from creditors and from the Court in Singapore (which approved a scheme of compromise with creditors) amounted to turpitude. However, the turpitude was not central to Glory Wealth's performance of the COA, and therefore the defence of illegality failed. The charterers did not appeal on this point.
  2. Having regard to the fact that neither the inward freight nor the outward freight would have passed through the hands of Glory Wealth, had Glory Wealth suffered any loss at all? The arbitral tribunal found that Evensource and First Goal were not the agents of Glory Wealth, and the net freight would never have been transferred to Glory Wealth. The tribunal therefore ruled that Glory Wealth had suffered no loss.

In an earlier appeal from a decision of the tribunal (Flame v Glory Wealth [2013] 2 Lloyd's Rep 653), it was held that the owners were required to prove (on the balance of probabilities) that, had there been no repudiation, they would have been able to perform when the time came for performance. (The background was that owners were in serious financial difficulties and had redelivered early a number of vessels on long term time charters.) However, it was found, as a fact, that the owners would have been able to perform the COA had charterers called upon them to do so. Accordingly, owners' claim for damages for repudiation succeeded.

At the current hearing, the issue was whether Glory Wealth had actually suffered loss by reason of the charterers' repudiation and non-payment of freight (issue 2 above).

Held (Teare J):

  1. Glory Wealth had a right to receive the freight due under the COA.  The tribunal found that the value of that freight was over US$3 million.  It also found that Evensource and First Goal were not agents of Glory Wealth and so were not holding the freight on Glory Wealth's behalf.  That freight was: "not worth any less because Glory Wealth had decided for its own reasons (even if they involve turpitude) that the freight would be paid to another company with the result that the freight would never have been transferred to it."
  2. The tribunal failed to take into account that the right to receive the freight included a right to give it away. Therefore, Flame's breach deprived Glory Wealth of the benefits of ownership of the right to the freight.  Accordingly, Glory Wealth had suffered a substantial loss.  To award Glory Wealth damages of US$3 million would not put it in a better position than it would have been in had Flame performed its obligations under the COA.

(Glory Wealth Shipping Pte Ltd v Flame S.A. [2016] EWHC 293 (Comm))



Appointment of arbitrator – counterclaim – limitation

PT Tera owned a number of floating cranes. The parties entered into four contracts for the charter of floating cranes to allow Glencore (charterers) to load coal on vessels at anchorages.  The charters provided for sums to be paid by owners or charterers depending on the cause of any delay. 

Disputes arose between the parties and owners commenced two arbitrations.  The notices provided:

  1. commenced "arbitration proceedings against you in respect of their claims under this Contract"
  2. commenced "arbitration proceedings against you in respect of claims under this Contract"

In each arbitration charterers responded appointing a second arbitrator "in relation to all disputes arising under the [contract]".

By the time charterers served defence and counterclaim submissions, the limitation period had expired. A majority of the Tribunal held that the counterclaims were time barred.  Charterers appealed.

Held (Knowles J):

Appeal allowed.

  1. It was a question of construction of the notices conferring jurisdiction on the Tribunal.
  2. The reference to 'claims' and 'all disputes' was in the context of a contract which could confer money obligations either way depending on the cause of the delay.  It is unlikely that the parties would contemplate that the two types of claims would be dealt with in separate arbitrations; netting off is more likely.  The person commencing arbitration is in effect asking for an account and asserting that the balance is in its favour.
  3. The notices of appointment of an arbitrator were therefore sufficient to stop time running in relation to both the claim and counterclaim.

(Glencore International AG v PT Tera Logistic Indonesia and another [2016] EWHC 82 (Comm))



Anticipatory repudiatory breach of charter – measure of damages

The "NEW FLAMENCO" was chartered to Globalia by owners on 13.2.2004 until 2 November 2009. Charterers redelivered the vessel early on 28 October 2007, and owners treated charterers as being in anticipatory repudiatory breach. Owners claimed damages for loss of profits during the two years up to 2 November 2009 (approximately €7.5 million).

In October 2007, shortly prior to redelivery, owners had entered into an MOA to sell the vessel for approximately US$24 million. Charterers argued that owners should account and give credit for the difference in the vessel's value between the sale price in October 2007 and her value in November 2009 (when the vessel would have been redelivered, had charterers not been in breach). The arbitrator found that the vessel would have been worth about US$7 million in November 2009.

The arbitrator found in charterers' favour: the sale of the vessel was caused by the charterers' breach and was in reasonable mitigation of damage.

On appeal, Popplewell J. held that the benefit from the early sale of the vessel was not a benefit which was legally caused by the breach.  The sale mitigated the loss to the extent that it reduced the continuing operating and layup costs, but the capital benefit was an independent decision of the owners, not caused by the breach. The difference in value occurred due to the fall in the market which would have occurred anyway.  The effect of the fall on owners was a result of their decision to sell, not charterers' breach.  It was a commercial risk.  The breach merely provided the context.   It would be unfair and unjust to allow the charterers to take the benefit of owners' decision to sell the vessel at what turned out to be an opportune moment in market conditions. Charterers appealed.

Held (Longmore, Christopher Clarke and Sales LJJ):

  1. It is notoriously difficult to lay down hard and fast principles of law in relation to mitigation of loss.  Certain key principles relating to mitigation (as per McGregor on Damages) were not in dispute:
    1.1 The claimant cannot recover for avoidable loss (i.e. where he has unreasonably failed to mitigate);
    1.2 The claimant can recover for loss incurred in reasonable attempts to avoid loss; and
    1.3 The claimant cannot recover for “avoided loss” (i.e. where a claimant does take mitigating steps and these are successful).  This was the most relevant principle in this case.
  2. The Judge had not directly answered the question of law that was formulated for the application, and which fell to be decided.  This was whether the charterers were entitled to take into account a benefit said to consist of “avoidance of a drop” in the vessel’s capital value because it was sold at a large profit soon after the charterer’s breach and not retained until after the charterparty would have come to an end, by which time its value would have dramatically fallen as a result of the global financial crisis.
  3. The Court of Appeal did so, and ruled in the charterer’s favour, deciding that if, by way of mitigation, a claimant adopts a measure which arises from the consequences of the breach and is in the ordinary course of business, any benefit flowing from such measure should normally be taken into account in assessing the claimant’s loss, unless the measure taken is “wholly independent” of the relationship between the parties (applying British Westinghouse Electric and Manufacturing Co Ltd v Underground Railways Co of London Ltd [1912] AC 673).
  4. The arbitrator’s finding of fact was that, in effect, the benefit did arise from the breach.  He had reviewed all the circumstances in order to form a “common sense overall judgment on the sufficiency of the nexus between breach and profit or loss” and had not made an error of law in doing so.
  5. The unusual facts of the present case show that as well as spot chartering, an owner may equally decide to mitigate by selling.  In such a case it was difficult to see (a) why the benefit of a sale should not be taken into account and (b) why the value of that benefit should not be calculated by reference to the difference in value of the vessel at the time of the sale and at the time when the charterparty would have expired.
  6. As for considerations of justice, fairness and public policy: although it may seem contrary to fairness for the defendant to benefit from the claimant's independent decision, of equal relevance is that a claimant should be put in the same position as if the contract had been performed.  The arbitrator had decided, when looking at the case as a whole, that it was fair and just to take account of the considerable profit owners had made from their mitigating actions. That profit arose from the consequences of the breach and should therefore be brought into account.

(Fulton Shipping Inc of Panama v Globalia Business Travel SAU (formerly Travelplan SAU) of Spain [2015] EWCA Civ 1299)



Repudiatory breach – common law - notice clauses

Vinergy and Richmond entered into an agreement in August 2008 under which Richmond would supply Vinergy with bitumen for 10 years. After 39 shipments, disputes arose and Richmond terminated the agreement in July 2012. It then commenced arbitration proceedings in August, claiming damages.  Vinergy denied liability and claimed damages for Richmond's unlawful termination of the agreement.

The tribunal held that there had been three repudiatory breaches by Vinergy, Richmond had lawfully terminated and awarded damages to Richmond. Vinergy appealed against the finding that Richmond's termination was lawful and claimed that the finding was wrong in law.

Clause 17 of the contract dealt with termination and provided that:

"17.1 Either party may terminate this Agreement immediately upon:

17.1.1 failure of the other party to observe any of the terms herein and to remedy the same where it is capable of being remedied within the period specified in the notice given by the aggrieved party to the party in default, calling for remedy, being a period not less than twenty (20) days;…"

Richmond did not give notice under clause 17 when it terminated the contract.  Vinergy argued that the termination was therefore unlawful. The main issue was whether, on the true construction of the agreement, the notice provision was intended to apply when the party sought to exercise its common law right to accept a repudiatory breach as terminating the agreement. (Richmond had pleaded termination under clause 17 as well as under the common law, with more emphasis on the latter.)

Held (Teare J.)

  1. There was no general test; it was a question of construction of the particular contract.  Clause 17.1.1 provided an express right to terminate which was dependent on the failure to observe terms and failure to remedy within the period notified.
  2. There was no express term in clause 17.1.1 about notice requirements where there was a repudiatory breach, therefore any term that common law remedies were subject to the contract terms would have to have been implied.  However, it was not possible to imply that the notice period calling for remedy must be followed whether termination occurred under clause 17 or pursuant to the common law because:
    2.1 Clause 17.1.1 did not mention the common law right to accept a repudiatory breach.  
    2.2 Clause 17 contained 6 rights to terminate in total and the notice provision only applied to the right in 17.1.1.
    2.3 The agreement to be inferred was that the notice provision applied to termination for failure to comply with terms of the contract and not to any of the other termination events, or common law termination. 
    2.4 Clause 18 dealt with the effects of termination and didn't say anything about notice being required for repudiatory breaches. 
  3. If, contrary to the above view, the clause requiring notice to remedy applied to breaches within its scope, did these breaches fall within that scope? The tribunal had held that the first two breaches were remediable but that the third was not, so the court was bound by this finding of fact.

(Vinergy International (PVT) Limited v Richmond Mercantile Limited FZC [2016] EWHC 525 (Comm))



LOGIC Contract – spread costs – consequential loss

Transocean owned a semi-submersible drilling rig "GSF Arctic III" and entered into a contract (dated 15.04.2011) with Providence to drill an appraisal well in the Barryroe field.  The contract was based on the LOGIC form.  Drilling operations were suspended on 18.12.2011 as a result of misalignment of the BOP.  Operations resumed on 02.02.2012.

Disputes arose as a result of the delays, in particular whether the delay had been caused by Transocean's breach of contract.   

Popplewell J. held that the rig had not been in good working condition on delivery, contrary to the terms of the contract, which defect caused a loss of time of over 27 days.  A further delay was caused by the failure of a crew member to tighten a blanking plug properly. Transocean was in breach of contract and liable to pay damages, including 'spread costs' which Providence had suffered.  'Spread costs' were the costs of personnel, equipment and services contracted from third parties, which were wasted as a result of the delay (having been supplied and paid for, but not used). For example: well logging, well testing and cementing, mud engineers, geological services, and diving and ROV services. 

Clause 20 of the contract provided that each party was to bear its own consequential losses and included a definition of 'consequential losses' the relevant section of which was:

"loss of use (including, without limitation, loss of use or the cost of use of property, equipment, materials and services including without limitation, those provided by contractors or subcontractors of every tier or by third parties), loss of business and business interruption"

Popplewell J. held that the spread costs did not fall within the definition of consequential losses and so were recoverable by Providence from Transocean. Transocean appealed, submitting that the judge had erred in applying various principles of construction incorrectly and without having adequate regard to the words the parties had chosen to use.    

Held (Moore-Bick, McFarlane and Briggs LJJ):

The appeal was allowed.  

  1. Clause 20 was an exclusion clause, albeit an atypical one as the parties were of equal bargaining power and had freely entered into mutual undertakings to accept the risk of consequential loss flowing from each other's breach of contract.
  2. The starting point in construing clause 20 had to be the language of the clause itself.  The natural meaning of the key words was the loss of the ability to make use of some kind of property or equipment owned or under the control of the contractor or the company.  The words in brackets made clear that the scope was wider than that and included property and equipment provided by contractors, sub-contractors and third parties.  The phrase "without limitation" was used twice to emphasise the breadth of the clause.  No mention was made of mitigation.  The words in brackets were not limited to equipment obtained by the company to mitigate the breach by the contractor.  The natural meaning of the words used included wasted spread costs.
  3. The judge was wrong to invoke the contra proferentem principle.  It should only be used when the language is one-sided and genuinely ambiguous.  It had no part to play when the meaning of the words was clear, nor where, as here, the clause favoured both parties equally and they were of equal bargaining power.
  4. The judge was correct to construe the expression in the context of the sub-paragraph as a whole, but it was not appropriate to apply the eiusdem generis principle.  The purpose of the specific examples in brackets was clearly to explain and amplify the meaning of "loss of use".
  5. The principle in The TFL Prosperity ([1984] 1 WLR 48) (if a clause effectively denudes the contract of any meaningful obligations, it is a powerful indication that the parties did not intend the clause to have that meaning) was one of last resort where the words of a clause left doubt as to its meaning.  It did not justify overriding the parties' clearly expressed intentions.  If the parties had incorporated several provisions which effectively amounted to an agreement to exclude liability for any breaches, it was difficult to see why the court should not give effect to their agreement.  However, clause 20 did not purport to relieve one party from all liability for breach of any obligations, rather it excluded all liability for certain kinds of loss and damage.  Therefore it was not necessary to consider the issue of whether the court could disregard such a clause.
  6. Providence also argued that it was entitled to set off its claim for damages against its liability for hire, in priority to the undertaking to indemnify Transocean in respect of consequential losses.  Following the set off, there was no loss in respect of which it could indemnify Transocean.  This argument, though ingenious, was not accepted.  The set off clause (13.6) did not give rise to substantive rights; it was merely a mechanism for withholding sums until any disputes were settled.  Clause 20 did give rise to substantive rights and clause 13.6 would not have priority over those rights.

(Transocean Drilling UK Ltd v Providence Resources PLC [2016] EWCA Civ 372)



Anti-suit injunction – charterparty – bill of lading

Seven voyages were performed without issue.  On the eighth voyage from Bonny in Nigeria, the vessel grounded and the delay in refloating her and delivering the cargo meant that the cargo had to be sold at a substantial loss.  Mansel then terminated the charter, asserting a contractual right of termination based on the length of time for which the vessel was off hire.  The owner disputed that the termination was valid and treated the redelivery of the vessel as a repudiatory breach bringing the charter to an end.     

Vitol commenced proceedings in Nigeria based on a contract of carriage evidenced by the bills of lading.  The owner commenced proceedings against Mansel and Vitol in the English High Court and sought an injunction against Vitol to prevent the Nigerian proceedings.

Held (Leggatt J):

  1. The application for the injunction was refused.  There was no evidence that Mansel entered into the charter as agent for the undisclosed principal, Vitol.  In the absence of such evidence, the presumption was that Mansel was the principal in respect of the charter.  Therefore, Vitol was not bound by clause 46 of the charter to submit disputes only to the jurisdiction of the English High Court.
  2. The claim for rectification of the bill of lading to incorporate the jurisdiction clause from the charter was not made out.  The evidence did not indicate a sufficient common intention that the jurisdiction clause be incorporated into the bills of lading.  It indicated only a preference that the charter be referred to on the front of the bills, but that such a reference was not essential.
  3. There was no evidence of a freestanding agreement between the owner and Vitol to refer disputes arising out of the arrangements to carry LNG cargoes from Bonny to South Korea to the jurisdiction of the English High Court.
  4. Therefore, the English High Court had no jurisdiction over Vitol's cargo claim and the owner had no basis to dispute being sued in Nigeria on that claim.
  5. Even if the judge had decided that the English court had jurisdiction, he would have refused an injunction as a result of the significant delay between owners becoming aware of the Nigerian proceedings and applying for an anti-suit injunction.  Further, during that period the owner took steps in the Nigerian proceedings and allowed the Nigerian court to become seised of the proceedings to such an extent that it was inappropriate for the English court to intervene.

(Magellan Spirit ApS v Vitol SA, The "Magellan Spirit" [2016] EWHC 454 Comm))



Change of port – additional costs – liability

Charterers chartered the "Romuva" on 25 July 2014 on the Synacomex 2000 form to carry wheat in bulk from the US Gulf to Monrovia, Liberia, then to Doula, Cameroon.  Following an outbreak of Ebola in Liberia, the Master advised charterers that Cameroon was closing its borders to vessels from Liberia and proposed that either all cargo be discharged at Doula or the order of visiting the ports should be changed.  After some correspondence, charterers instructed owners to proceed to Douala first.     

Owners complied with the instructions and incurred additional steaming costs which charterers refused to pay.  The matter went to arbitration and the sole arbitrator found in favour of owners.  Charterers applied to set aside the award on the basis that there had been a serious irregularity in that the arbitrator had decided the matter on the basis of a point which was never argued before him.

Held (Flaux J):

  1. It was clear from the reply submissions that owners were relying upon the principle that where one party wishes to vary the contract and the other party agrees to do so and costs arise, then absent some express agreement as to how those costs are to be allocated, there is an implied contract or an implied indemnity that the party which incurs the costs will be entitled to a reasonable remuneration.
  2. It was also clear from the award that the arbitrator recognised that there had been no express agreement.  So in the circumstances, where charterers had been instructed to do something outside the contract, there was an implied agreement that owners would be compensated for the extra costs incurred (The Saronikos).
  3. It was clear that although the arbitrator could have expressed himself more clearly, against the background of the submissions being made, there was no question of the arbitrator having decided the case on the basis of a point which had not been argued before him.
  4. Even if charterers were right that the arbitrator had overstated the position by saying that there was an agreement on additional remuneration, that was a finding of fact which was not susceptible to challenge.

(Ameropa SA v Lithuanian Shipping [2015] EWHC 3847 (Comm))



LNGVOY goes live

BIMCO and the International Group of Liquefied Natural Gas Importers (GIIGNL) jointly issued the first definitive voyage charter party – LNGVOY - designed for the expanding LNG spot market. During the development process, BIMCO and GIIGNL consulted with the industry globally to gather a clear picture of how an LNG voyage charter party should work in practice. Careful account was taken of the interests of both owners and charterers to create a balanced and clearly worded agreement.

Stephenson Harwood partners, Ingolf Kaiser and Stuart Beadnall have received special thanks from BIMCO and GIIGNL as members of BIMCO's documentary committee for the publication of a ground-breaking voyage charter party for LNG trade. Ingolf and Stuart assisted on the terms for the new LNG charter form, published on 6 April 2016. This new contract adds additional flexibility to the spot market and gives parties alternative means to manage their risks and control costs. In BIMCO's press release Chairman of the LNGVOY drafting group, Rodney Hyne-Jones, formerly of Exmar, said:

“LNGVOY is equitable to both owners and charterers and provides a solid contractual platform for the transportation of LNG in an ever-growing spot market. It enables all parties to handle the costs involved in a more precise way.” 

Stephenson Harwood is the only law firm representative on the committee that also includes representatives from Exmar, Total, GDF, MOL, Vitol, Affinity, Nordisk and Thomas Miller P&I Club.



Congenbill 2016

BIMCO have released a new version of Congenbill.  The amended 2016 bill incorporates the International Group of P&I Clubs/BIMCO Himalaya Clause for Bills of Lading and other contracts 2014, and an updated signature box.





Michael Bundock

Michael Bundock
Professional support lawyer

T:  +44 20 7809 2637 M:  Email Michael | Vcard Office:  London

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