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12 Feb 2021

Marine and international trade bulletin - February 2021

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In this issue:

 

General Average – incorporation of terms – joint insurance funds

The MV POLAR was carrying a cargo of fuel oil from St Petersburg to Singapore, when it was seized by pirates whilst transiting the Gulf of Aden. The vessel was released after the owners, Herculito (and its hull and machinery/kidnap and ransom insurers), paid a ransom of US$7. 7 million.

Herculito declared general average. After the GA adjustment, approx. $4. 8 million was due from cargo owners to Herculito. Gunvor (cargo receivers/holder of the bills of lading) refused to pay the GA contribution for the ransom on the basis that shipowners had agreed to look solely to their insurance for recovery of war risk type payments. The dispute centred on whether certain charterparty clauses were incorporated into the bills of lading.

The Tribunal held that the relevant clauses were incorporated and gave rise to an exclusive insurance fund. Herculito could not claim GA from cargo owners. Herculito appealed.

HELD:

  1. The appeal succeeded.
  2. The High Court considered each relevant clause separately and concluded that only the part of the War Risks clause that gave Herculito a liberty to deviate was incorporated into the bills of lading. It was directly germane to the loading/carriage/discharge of the cargo because it impinged on whether the cargo would be carried to the intended destination.
  3. The provisions that required charterers to pay any extra premium for the war risks insurance or deviation liberties were not incorporated, because it would be inconsistent with the bill of lading provision that the holder pays freight as per charterparty. The scope of the liability was unclear and could potentially be significant. The clause does not, when read into the bill, clearly oblige the bill of lading holders to pay the expenses caused by the exercise of the shipowners’ liberties. That remains with the charterer.
  4. As a matter of construction, Herculito had agreed, as against the charterer, to look to insurers for indemnification, rather than the charterer. The charterer had paid for insurance cover and was entitled to take the benefit of that, where the claim was covered by the insurance which had been put in place.
  5. The position was different between shipowners and cargo interests. Cargo interests had no obligation to pay additional premium, so the key requirement for an agreement to an insurance fund was missing; cargo interests had not paid for the additional insurance and so could not have any expectation of taking the benefit of that. Herculito and its subrogated insurers were able to seek GA contributions from cargo interests.

(Herculito Maritime Limited and others v Gunvor international BV and others [2020] EWHC 3318 (Comm))

 

Salvage of silver bars – salvage costs – State Immunity Act 1978

In 2017, Argentum salvaged over 2000 silver bars (worth approx. $43 million today) from the SS TILAWA, which had been sunk by torpedoes in 1942. The Government of the Republic of South Africa (the RSA) claimed ownership of the silver bars, but claimed to be entitled to delivery up of the bars without paying the salvage award, as a result of state immunity.

State Immunity Act 1978, section 10(4)

A State is not immune as respects-…

(a) an action in rem against a cargo belonging to that State if both the cargo and the ship carrying it were, at the time when the cause of action arose, in use or intended for use for commercial purposes;”

HELD: 

  1. The cargo had to be “in use…for commercial purposes” at the time when the cause of action in salvage arose in 2017. However, the status of the vessel and cargo in 1942 was also relevant; at the time of salvage the vessel was a wreck and no longer in use for commercial purposes.
  2. The vessel was undoubtedly in use for commercial purposes in 1942. The cargo was carried on board pursuant to an ordinary FOB commercial contract for sale and a contract for carriage. Those who enter into such contracts can find themselves liable for salvage liabilities. There is no reason why a State who contracts for the carriage of its goods by sea should not be liable for salvage liabilities in the same way as a private entity. It is not a threat to the dignity of that State, nor any interference with its sovereign functions. In 1942, that cargo was also in use for commercial purposes.
  3. There was no reason to conclude that the character or status of the cargo in 1942 as a cargo in use for commercial purposes had changed by October 2017 when the cause of action for salvage costs arose. The RSA were not therefore immune from the claim in rem against the silver bars and the Court had to assess the amount of salvage due to the claimant.

(Argentum Exploration Ltd v The silver and all persons claiming to be interested in and/or to have rights in respect of the silver [2020] EWHC 3434 (Admlty))

 

Bunker oil supply contract – in rem claim – contractual interest included?

Trans-Tec had an in rem claim against the proceeds of sale of the COLUMBUS and VASCO DE GAMA under a bunker oil supply contract. The claim included not only the cost of the bunker oil, but also contractual interest, a contractual administrative fee for late payment and a contractual indemnity for costs.

The additional items were challenged by two other in rem claimants as being in personam claims that would improperly deplete the funds.

HELD:

  1. The in rem claim could include the cost of the oil, together with the contractual interest, administrative fee for late payment and contractual indemnity for costs.
  2. Such claims fell within section 20(2)(m) of the Senior Courts Act 1981 – “any claim in respect of goods or materials supplied to a ship for her operation or maintenance”. They were integral parts of the contract and followed from the non-payment of the price. If they were not, an unpaid supplier would need to bring an in rem and in personam claim, which would be a wasteful multiplicity of proceedings.

(Trans-Tec International SRL and another v Owners and/or demise charterers of the COLUMBUS and VASCO DA GAMA [2020] EWHC 3443 (Admlty))

 

Admiralty – Port dues – CIGA 2020

The COLUMBUS and VASCO DE GAMA were part of the Carnival Group and when the Group went into administration, the vessels were laid up at the Port of Tilbury. In October 2020, the Court made orders that all charges properly owing to the Port were to be paid to the Port out of the proceeds of sale, in return for an undertaking from the Port that it would not exercise its statutory rights of detention and sale.

This Court was asked to determine what those Port dues were. The vessels were originally laid up at a rate of £3000 per week, per vessel. However, when the Group went into administration, the Port gave 12 hours’ notice to increase the cost to a rate that amounted to about £90,000 per week.

HELD:

  1. The Port was permitted to increase the charges as a result of certain statutory provisions, but needed to give reasonable notice. That notice would be 28 days, not 12 hours.
  2. It was not prevented from increasing the charges by the ‘ipso facto’ clauses of the Corporate Insolvency and Governance Act 2020 (section 233B Insolvency Act 1986 as amended). The vessels had effectively been abandoned by the Carnival Group and the owning companies of each vessel were not in administration or any other insolvency process.
  3. Although the increased rates were very high, there was nothing in the regulations which limited it to a ‘reasonable’ amount. And sufficient notice of these higher charges had been given.
  4. The Port was able to recover its charges from the end of the notice period to the date of sale. The Court did comment that the Port had a privileged position under statute and had advanced that privileged position at the expense of other creditors, but that the Admiralty Court had no residual jurisdiction to moderate such a claim.

(P&O Princess Cruises International Ltd v Demise charterers of the COLUMBUS and VASCO DE GAMA [2021] EWHC 113)

 

Arbitration clause – LOU - charterparty

A cargo of bagged rice carried on board “MAJESTY” from Myanmar to Guinea arrived allegedly short, damaged and wet with torn bags, and some had been lost overboard. Five bills of lading had been issued in respect of the cargo. Each bill of lading contained an LMAA arbitration clause, which provided for the small claims procedure to apply to low value claims. Each bill of lading value was below that threshold.

An LOU issued at discharge referred to the cargo of 25,000MT of rice and listed the bills of lading numbers. The LOU responded to an award of a properly constituted London Arbitration Tribunal.

A three person tribunal was appointed but owners challenged the tribunal’s jurisdiction on the basis that there was no provision for a three person tribunal. There were five separate bills of lading so separate arbitrations should have been commenced, each of which fell within the LMAA small claims procedure and required only a sole arbitrator.

HELD:

  1. The tribunal did have jurisdiction.
  2. As a matter of objective construction in the relevant context, the meaning of the LOU was that it was an agreement to consolidate all the claims in respect of the entire cargo before a London arbitration tribunal. The parties must be taken to have had in mind that a properly constituted tribunal was a reference back to clause 69 of the charterparty, which provided for a three person tribunal. This was supported by clause 2 of the LOU in which the Club agreed to accept service, on behalf of owners, of the notice of appointment of cargo owners’ arbitrator.
  3. The LOU referred to the “above claim”, in the singular, not exceeding $280,000. This and other references made it tolerably clear that the parties were referring to a combined claim in respect of the cargo. The considerable commercial sense in having one consolidated arbitration for the whole shipment was a sound reason why owners would give up the entitlement to use the small claims procedure.

(Lavender Shipmanagement Inc v Ibrahima Sory Affretement Trading SA and others [2020] EWHC 3462)

 

Bill of lading – statement of apparent good order and condition

The MV Tai Prize was time then voyage chartered to carry grains from Brazil to China. The bills of lading were prepared by the shippers and presented to the Master for signature. The bills incorporated the Hague Rules and stated that the cargo was shipped in apparent good order and condition. At the discharge port, heat and mould damage to the cargo was discovered.

Shipowners paid damages to cargo receivers and then settled their claim against the time charterer. The time charterer then brought a claim against the voyage charterer for an indemnity.

The arbitrator held in time charterer’s favour; the voyage charterer had impliedly warranted the accuracy of the statement as to condition in the bill of lading by inviting the Master to sign the bills of lading. The cargo was not shipped in apparent good order and condition because cargo discolouration would have been visible on reasonable examination by the voyage charterer, even though not reasonably visible to the Master or crew.

The High Court allowed the appeal by the voyage charterer. The time charterer appealed.

HELD: 

  1. The Court of Appeal dismissed the time charterer’s appeal.
  2. The statement in the bill of lading refers only to the external condition of the cargo, as would be apparent on a reasonable examination. What is a reasonable examination depends on the circumstances; the Master is required to do the best he can. It is a statement by the Master to the shipper of what is reasonably apparent to the Master/his servants, at the time of shipping. The Master does not have to sign a clean bill of lading just because one is tendered.
  3. These conclusions are supported by the Hague Rules which distinguish between information provided by the shipper (and therefore warranted as accurate) and information not provided by the shipper – Art III, Rule 3(c) “The apparent order and condition of the goods” (contrast with (a) and (b) “… furnished in writing by the shipper”).
  4. Tender of a draft bill of lading to the Master by the voyage charterer was not a representation or warranty as to the apparent condition of the cargo. Tender of the draft bill of lading is well understood to be a request for the Master to satisfy himself as to the apparent condition of the goods and sign the bill of lading accordingly. Although the shipper hopes the bill will be signed ‘clean’, the responsibility ultimately lies with the Master. It does not give rise to a right of indemnity.
  5. Based on the arbitrator’s finding of fact, the statement in the bill of lading was accurate.

(Noble Chartering Inc v Priminds Shipping Hong Kong Co Ltd, The “TAI PRIZE” [2021] EWCA Civ 87)

 

Arbitration – apparent bias – multiple appointments

The same arbitrator was appointed in several references relating to the Deepwater Horizon explosion, in some references by the same party. The subsequent appointments were not disclosed to Halliburton who was party to the earlier reference. Halliburton applied to have the arbitrator removed, alleging that circumstances existed which gave rise to justifiable doubts as to his impartiality (section 24(1)(a) Arbitration Act 1996).

The application was dismissed at first instance and in the Court of Appeal. It came before the Supreme Court who dismissed the appeal. The relevant issues were:

(1) When can an arbitrator accept appointments in multiple references concerning the same or overlapping subject matter with only one common party, without giving rise to an appearance of bias?

(2)  What disclosure should the arbitrator make, if any?

HELD:

  1. Appointment of an arbitrator in multiple related arbitrations will sometimes, but not always, give rise to an appearance of bias. Whether such multiple appointments give rise to an appearance of bias in a particular case will depend on the circumstances. Those circumstances include whether such multiple appointments are customary in the relevant field of arbitration.
  2. In principle, an arbitrator is legally obliged to disclose to all participating parties their involvement in such multiple related arbitrations, provided the arbitrator obtains the consent of those parties to do so. Such consent may be express but may also be implied in accordance with the custom of the relevant field of arbitration.
  3. In Bermuda Form arbitrations, such as this one, multiple references in related proceedings did need to be disclosed. The arbitrator had not disclosed the relevant facts but for various reasons, a fair-minded and informed observer would not have concluded that there was a real possibility that the tribunal was biased. These reasons included the way the arbitrator dealt with enquiries as to his failure to disclose and the fact that the later references were resolved by preliminary issue so there was no overlap with evidence in the earlier reference.

(Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48)

 

Speed and consumption – misrepresentation - termination

The VLCC “C CHALLENGER” was under a long term charterparty. During negotiations, owners had put forward a speed and consumption warranty together with data from three previous voyages. The vessel consumed more than the warranted amount of bunkers.

Charterers alleged that they had been induced to enter into the charterparty by fraudulent misrepresentations by owners as to the vessel’s fuel consumption; and that the charterparty could be rescinded or charterers could validly terminate the charterparty due to owners’ breaches.

Owners sought damages for charterers’ repudiatory breach of the charterparty.

HELD:

  1. That the mere offer of a speed and consumption warranty, and in particular a continuing warranty, will not, of itself, be held as an implied representation of the vessel’s current or recent performance. Such a warranty is usually forward looking and is mainly concerned with allocation as between owner and charterer of responsibility for the costs of bunkers.
  2. Owners had made a representation that the data set out was reasonably consistent with the average performance of the vessel in recent voyages. They had not made a representation that the vessel was expected to achieve the same performance in future, but there was a representation that owners were not aware of any reason why the data would not be broadly representative of the vessel’s performance at that date.
  3. The representations made were untrue and although there was no fraud, owners did not have reasonable grounds for believing that the representations were true.
  4. The misrepresentations were material but had the representations not been made, but a speed and consumption warranty offered (without providing the backup data), the contract would have been concluded on the same terms.
  5. After they discovered the overconsumption and were aware of their rights to rescind, charterers demonstrated an unequivocal choice to keep the contract alive by ordering it on another voyage. This was in spite of a number of reservations of rights made in communications. Owners’ various breaches (in relation to condition of the vessel, duty to maintain, consumption warranty and failure to cooperate) did not mean that owners had repudiated the charterparty. Charterers had therefore renounced the charterparty because they were not entitled to rescind or terminate, and owners were entitled to damages for early termination.

(SK Shipping Europe PLC v Capital VLCC 3 Corp and Capital Maritime and Trading Corp, The C CHALLENGER [2020] EWHC 3448 (Comm))

 

Arbitration – governing law of arbitration agreement

Following fire damage to a power plant, the insurer of the power plant brought subrogated proceedings in Russia against a subcontractor who had allegedly carried out negligent work and caused the fire. The construction contract did not have a governing choice of law clause, although it provided for disputes to be referred to English arbitration under the ICC Rules, with a London seat.

There was a jurisdiction dispute as to whether the proceedings should continue in the Russian courts or English arbitration, and therefore what law governed the arbitration agreement. In particular, whether “disputes” as referred to in the arbitration clause included tortious liability. English law said that it did and this would mean that the tortious claim would need to be heard in arbitration. Russian law was narrower and said that “disputes” did not include tortious liability. If that was correct, the claim could continue in the Russian courts, not in arbitration.

The debate centred around the influence of the law of the main contract (Russian law) or the law of the seat (English law).

HELD:

  1. The Supreme Court held by a majority of 3 – 2, that where a contract does not (either expressly or impliedly) stipulate a choice of law to govern an arbitration agreement, the arbitration agreement is to be governed by the law with which it is most closely connected.
  2. If the parties choose a seat of arbitration, the law with which the arbitration agreement is most closely connected will generally be the law of the seat, even where the law applicable to the parties' substantive contractual obligations is different.

(Enka Insaat Ve Sanayi As v OOO Insurance Company Chubb [2020] UKSC 38)

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Joanne Champkins
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