10 Jun 2019

ShippingBulletin - June 2019

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In this issue:

 

Inadequate passage plan – vessel unseaworthy

Facts:

  • On 17 May 2011 a laden container vessel, the CMA CGM LIBRA grounded whilst leaving a Chinese port.Owners claimed USD 13m in General Average from cargo interests.
  • Cargo interests representing USD 800,000 refused to pay the claimed GA contribution. They argued that (a) the cause of the casualty was the vessel's unseaworthiness, in that the vessel had an inadequate passage plan; (b) that inadequacy was a cause of the casualty; and (c) due diligence was not exercised to make the vessel seaworthy. The casualty was thus caused by owners' actionable fault (breach of Hague Rules, Art III, r 1) and accordingly cargo interests were not required to contribute in GA under the York-Antwerp Rules.
  • In these proceedings owners claimed the unpaid GA from cargo. Owners argued that the cause of the loss was an uncharted shoal on which the vessel grounded.
  • At the date of the grounding in 2011, the practice of passage planning was well established. (The IMO Guidelines for Voyage Planning were issued in 1999.) A ship could satisfy the chart requirements of SOLAS by carrying either paper charts or Electronic Navigational Charts ("ENCs"). The CMA CGM LIBRA carried paper charts. (Since 2016, ships have been required to use ENCs.)
  • The passage plan was prepared by the second officer. It consisted of two items: a document entitled "Passage Plan" in which the plan was recorded and the vessel's working chart.

Held (Teare J):

  1. Owners' claim for the unpaid GA failed. The vessel was unseaworthy and the unseaworthiness was a cause of the grounding.

  2. There could only be actionable fault within the York-Antwerp Rules if the grounding was caused by a failure to take due diligence to make the vessel seaworthy.

  3. The burden of proof was on cargo interests to establish that (a) the vessel was unseaworthy; and (b) the unseaworthiness was causative of the grounding. If those matters are established, the burden is then on owners to establish that due diligence was exercised to make the vessel seaworthy. Teare J stated that this is the conventional view, and he rejected a submission that it had been changed by the Supreme Court decision in Volcafe v CSAV.

  4. There were numerous depths which were less than those charted outside the fairway. Warnings about these had been set out in Notices to Mariners. It would be prudent to note a warning of such uncharted shallows in the passage plan but it would also be necessary (and prudent) to mark the warning on the chart.

  5. Neither the passage plan nor the chart contained the necessary warning. It was therefore defective or inadequate and imprudently so. A source of danger was not clearly marked as it ought to have been.

  6. The passage plan is an aspect of seaworthiness, not of navigation. A prudent owner would not have sailed with a passage plan which was defective in the way in which this one was. A proper passage plan is, like an up-to-date and properly corrected chart, a document which is required at the beginning of the voyage. If a vessel carries a chart which the second officer has failed to correct to ensure that it is up-to-date or carries a passage plan which is defective because it lacks a required warning of “no go” areas then those are two aspects of the vessel’s documentation which rendered the vessel unseaworthy at the beginning of the voyage.

  7. The production of a defective passage plan is not an error in navigation.

  8. If breach of the seaworthiness obligation in Art III rule 1 is a cause of a casualty, the fact that error in navigation is also a cause will not protect the carrier from liability.

  9. It was more likely than not that the defective passage plan was causative of the master's decision to leave the fairway. There was no break in the chain of causation from that decision to the grounding. The fact that the shoal on which the vessel grounded was not marked on the paper chart may have been a cause of the grounding. It did not follow that the defective passage plan was not also a real and effective cause of the grounding.

  10. The obligation on owners to exercise due diligence to provide a seaworthy vessel is non-delegable. Owners must show that those servants or agents relied on by owners to make the vessel seaworthy have exercised due diligence. The master and second officer could, by the exercise of due diligence, have prepared an adequate passage plan, and had not done so. Accordingly, owners had failed to exercise due diligence to provide a seaworthy vessel.

Alize 1954 and CMA CGM SA v Allianz Elementar Versicherungs AG [2019] EWHC 481 (Admlty)

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Ship arrest – cross-undertaking in damages

Facts:

  • NatWest lent Stallion US$15.7 million, secured by a mortgage on the 'MV ALKYON'.
  • NatWest declared an event of default, accelerated the loan and arrested the vessel.
  • Stallion applied for an order releasing the vessel from arrest unless NatWest provided a cross-undertaking in damages in the form usually given in the context of freezing orders. Stallion denied that there was an event of default and asserted that the company was losing significant amounts whilst the vessel, its only asset, was under arrest. (It was unable to put up a P&I Club LOU, because P&I cover does not extend to a disputed claim under a loan agreement.)
  • Stallion accepted that English Admiralty law does not require a claimant who wishes to arrest a vessel to provide a cross-undertaking in damages in order to obtain a warrant for the arrest of a vessel. Stallion's application was therefore that the Judge should exercise his discretion under CPR r 61.8(4)(b) to order the release of the vessel from arrest in the event that NatWest failed to provide a cross-undertaking in damages.
  • At first instance the application was refused.

Held (Court of Appeal – Sir Terence Etherton MR, Gross and Flaux LJJ):

  1. The appeal was dismissed. There was no case for the Court to intervene on a discretionary matter when, on completely standard facts, the Judge had followed the usual practice.

  2. The Court's power to release a vessel from arrest is discretionary. It did not require legislation or intervention of the Rules Committee to permit a departure by a Judge from the usual practice of not ordering release of a vessel from arrest absent provision of sufficient security by shipowners.

  3. The Court recognised concerns in this area such as the harsh impact of the rule on shipowners who will not (absent bad faith or gross negligence) be compensated for an unfounded arrest. Further, why should the position be different from that of a party seeking a freezing order? A maritime arrest may be more harsh than a freezing order – the latter has exceptions for business expenses, the former does not, and the ship may be worth considerably more than the claim?

  4. However, owners' case would undermine longstanding domestic law both as to maritime arrest being available as of right and of damages being unavailable for wrongful arrest except in the case of bad faith or gross negligence.
  • If owners succeeded, the requirement of a cross-undertaking in damages would likely become routine and that would deter arrest even in apparently meritorious cases.
  • The analogy between maritime arrests and interlocutory injunctions is not compelling.A ship arrest does not freeze the entirety of a business as a freezing order might do.
  • Systems are in place premised on the settled state of affairs – P&I Clubs and hull underwriters routinely give undertakings to secure release from arrest. (The Court, however, noted that P&I LOUs are not available in respect of a loan agreement dispute.) The case against an overnight change to the settled law and practice was overwhelming.

Stallion Eight Shipping Co SA v NatWest Markets Plc [2019] 1 Lloyd's Rep 406

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Time charter – piracy – off-hire

Facts:

  • The ELENI P was time chartered by claimant owners, Eleni Shipping, to Deiulemar Shipping, who sub-chartered to defendant Transgrain on back to back terms. (The present claim was made by Eleni Shipping direct against Transgrain, presumably by agreement.)
  • Transgrain sub-chartered to Vista Shipping for a time charter trip via the Black Sea to the Far East. Vista gave voyage orders to load iron ore in the Ukraine for discharge in China. The vessel was routed via Suez Canal and Gulf of Aden.
  • The vessel completed transit of canal and sailed through Gulf of Aden, but was seized by pirates in the Arabian Sea on 12 May 2010. The vessel was released on 11 December 2010 and redelivered under the charter on 18 January 2011.
  • Owners claimed hire for the period while the vessel was being held, the total hire claimed exceeding USD4.5m.
  • The Arbitral Tribunal dismissed owners' claim for hire. They held that charterers were entitled to rely on the off-hire provisions in both clauses 49 and 101 of the CP.
  • Owners appealed.

Held (Popplewell J):

1

The appeal succeeded on clause 49, but was dismissed on clause 101. Accordingly, owners' claim for unpaid hire failed.

2

Clause 49 stated: "Should the vessel be captures [sic] or seized or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended …"

3 Owners argued that the words "captured", "seized", "detained" and "arrested" were all qualified by the words, "by any authority or by any legal process". Charterers argued that "by any authority or by any legal process" did not qualify "captured", which was freestanding. The Tribunal agreed.

4

The Judge agreed with owners and allowed their appeal (on this point only): 

4.1

The phrase "during the currency of this charterparty" undoubtedly governed all four words. This suggested that the same applied to "by any authority or by any legal process".

4.2

In addition, charterers' construction would lead to surprising and uncommercial results. "Detention" means anything which prevents the movement of the vessel. So if the vessel were detained by bad weather or congestion (areas where the risk is traditionally on charterers), the vessel would be off-hire. That too suggested that "detention" was qualified.

4.3

Charterers argued (in the alternative) that "detention" and "arrest" was qualified but "capture" and "seizure" were not. The Tribunal found that "captured" is not a word which can fairly be qualified by "any other authority or by any legal process". The Judge disagreed. If there was any doubt, owners' construction should succeed.


5

Clause 101 stated: "Charterers are allowed to transit Gulf of Aden any time, all extra war risk premium and/or kidnap and ransom as quoted by vessel’s Underwriters, if any, will be reimbursed by Charterers. Also any additional crew war bonus, if applicable will be reimbursed by Charterers to Owners against relevant bona-fide vouchers. In case vessel should be threatened/kidnapped by reason of piracy, payment of hire shall be suspended."

Owners argued that the vessel was off-hire only if the kidnap or threat of kidnap occurred during transit of the Gulf of Aden (which was a finite geographical area, capable of identification). Charterers argued that the vessel was off-hire if the threat/kidnap took place within the Gulf of Aden, however defined, “or as an immediate consequence of her transiting or being about to transit the Gulf”.
The Tribunal agreed with charterers' argument and found as facts that the expression "Gulf of Aden" had no clear meaning in the context of a CP of this kind, and that the parties would have known that transiting the Gulf of Aden exposes ships to the risk of piracy, not only in what might have been understood as the Gulf but in the Arabian Sea. 
8 The Judge held that the third sentence of clause 101 was silent about the ambit of the off-hire provision. Therefore some wording must be read in. The charterers' construction was to be preferred for three reasons: 
8.1

The Tribunal's finding of fact that the Gulf was not capable of being given a meaning by way of geographical definition was itself fatal to owners' construction.

 8.2

The purpose of clause 101 was to enable the charterers to trade the vessel through the Suez Canal. The purpose of the third sentence was to allocate the risk from detention by pirates as a consequence of the transit which owners were obliged to undertake. The Tribunal's findings of fact showed that the parties regarded that risk as existing beyond what might be understood as the Gulf itself. The natural construction of the allocation of risk in the third sentence against that background was that the vessel should be off hire if the piracy detains her as an immediate consequence of the transit, rather than by reference to a particular geographical area.

8.3 The allocation of risk for payment of war risk and kidnap and ransom premium, and for crew war bonus was not defined by reference to a single geographical area. There was no evidence that such a premium or bonus was in all cases tied to a single definable geographical area. These parts of the clause therefore referred to payments which arise by reason of transit of the Gulf of Aden, and not by reference to a single strictly defined geographical limit which is capable of definition. 

Eleni Shipping v Transgrain Shipping [2019] EWHC 910 (Comm)

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Deck cargo – exclusion clauses

Facts:

  • Elin Maritime was owner of the MV "ELIN". It took on board a cargo of furniture in 201 packages. During the voyage the vessel encountered heavy seas and some of the cargo was lost overboard and/or damaged.
  • Part of the cargo lost/damaged was alleged by owners to have been carried on deck, with cargo interests' consent. Cargo interests did not admit that, but it was assumed for present purposes.
  • Cargo interests brought a claim in contract, tort and bailment. Owners argued that liability for the carriage of the deck cargo was expressly excluded by the terms of the bill of lading.
  • The relevant clause provided that "The Carrier shall in no case be responsible for loss or damage to the cargo, howsoever arising prior to loading into or after discharge from the Vessel nor in respect of deck cargo" and the bill of lading stated that the packages were "loaded on deck at shipper's and/or consignee's and/or receiver's risk; the carrier and/or Owners and/or Vessel being not responsible for loss or damage howsoever arising".

Held (Stephen Hofmeyr QC sitting as a Judge of the High Court):

  1. As a matter of plain language and good commercial sense, the clauses were effective to exclude carrier's liability for any loss of or damage to the deck cargo, including any loss or damage caused by the unseaworthiness of the vessel or by the carrier's negligence. This conclusion was supported by the authorities.

  2. The judge commented that it was difficult to imagine words of exemption which are wider than "howsoever caused" and over the last 100 years, they have become the classic phrase to exclude liability for negligence and unseaworthiness.

  3. Owners were therefore not liable for any loss or damage to any cargo carried on deck.

April SPA and others v Elin Maritime Limited [2019] EWHC 1001 (Comm)

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Rig repair contract - jurisdiction – third parties

Facts:

  • Kaefer brought claims to recoup sums owing under a rig repair contract, which contained an English law and jurisdiction clause. 
  • There were 4 defendants. Two of these, AT1 and Ezion, were not named parties to the contract but were alleged to be undisclosed principals to the contract and therefore bound by the jurisdiction clause. 
  • At first instance, the judge held that the English Court did not have jurisdiction over AT1 and Ezion.The claimant had not established that the claim against them fell within one of the types of claim over which the English Court will take jurisdiction (the "jurisdictional gateway").In particular, the claimant had tried to argue that AT1 and Ezion fell within the relevant gateway to the English Court's jurisdiction by virtue of being bound by the English jurisdiction agreement in the rig repair contract.
  • The claimant appealed on the basis that the judge applied the wrong test.

Held (Court of Appeal – Davis, Asplin and Green LJJ):

  • The appropriate test for jurisdiction and how it should be applied is as follows. The test has three limbs.

    Limb 1: The claimant must establish a plausible evidential basis for the application of a relevant jurisdictional gateway.  In other words, the claimant must have the better of the argument. The burden of proof remains on the claimant and the test is context specific and flexible.

    Limb 2: If there is an issue of fact about the gateway, or some other reason for doubting whether it applies, the Court must take a view on the material available, if it can reliably do so. The Court must use judicial common sense and pragmatism to overcome evidential difficulties.

    Limb 3: Given that the proceedings are at an interlocutory stage, a reliable assessment of the relative merits of the arguments may not be possible.  In that case, the claimant may still establish that there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it. 
  • Although the judge had erred in parts of his thinking, he ultimately applied a test which was consistent with that in the Supreme Court judgments. The appeal was dismissed.

Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV and others [2019] EWCA Civ 10. Stephenson Harwood acted for the successful respondents

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Cargo claim – fire – barratry

Facts

  • Glencore owned a cargo of fuel oil which was on board the “LADY M” when she caught fire.Salvors were engaged and the vessel was towed to port, where general average was declared.
  • Glencore brought a claim against owners for the costs it had incurred to salvors and in defending the salvage arbitration.
  • Glencore alleged that owners were in breach of the obligations in the Hague-Visby Rules (Art III Rules 1 and 2) to properly and carefully carry the cargo and make the ship seaworthy.It also contended that the fire was deliberately started by a member of the crew.
  • Owners sought to rely on the exclusions in Art IV Rule 2(b) (fire, unless caused by actual fault of privity of the carrier) and (q) (any other cause without the actual fault or privity of the carrier).
  • It was common ground that the fire was started deliberately by the chief engineer.
  • The first instance judge decided two preliminary issues:

    1.  Whether the chief engineer’s conduct was barratry:  Held that further facts were needed to establish whether the chief engineer’s state of mind was the relevant intention for barratry.

    2.  Held that even if the fire was caused barratrously, the Rule 2(b) defence would still exempt owners from liability.
  • Glencore appealed on the basis (1) that the chief engineer’s conduct constituted barratry and an analysis of his state of mind was not required, and (2) that the Rule 2(b) defence was not available where the fire was caused by barratry of the master or crew.

Held (Sir Geoffrey Vos C, Simon and Coulson LJJ):

  1. The Court of Appeal considered the second issue first and dismissed the appeal: On the agreed and assumed facts, Article IV rule 2(b) exempts owners from liability for the fire, if it was caused deliberately or barratrously, as long as there was no causative breach under Article III.1 or actual fault or privity of the owners.

  2. The correct approach to construction under the Hague-Visby Rules was to apply a reasonable presumption that if a word had a universally accepted meaning, it was used with that meaning.There was no evidence of any such meaning for the word “fire”. The Volcafe v CSAV decision in 2018 did not change that approach.

  3. “Fire” had an ordinary and natural meaning.There was no justification for referring to the travaux preparatoires of the Hague-Visby Rules as there was no feasible alternative interpretations of the word, nor did the travaux point to any ‘clear legislative intent’.There was also no policy or other reason for implying words into Rule 2(b) to qualify the exclusion of liability so that it did not apply where there had been fault or neglect of the crew.

  4. The appeal on the first issue was allowed.If the fire was set by a deliberate act of the chief engineer, owners could rely on the Rule 2(b) defence, provided it was caused without their actual fault or privity.It was therefore unnecessary to decide whether the chief engineer’s conduct constituted barratry.

  5. The judge had allowed argument in relation to insanity of the chief engineer, which had not been pleaded and had been a significant departure from the agreed and assumed facts.

  6. The case illustrated the importance of closely defining the ambit of preliminary issues before their trial and not adding further hypotheses during the trial.

Glencore Energy UK Ltd and another v Freeport Holdings Ltd, The “LADY M” [2019] EWCA Civ 388

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