19 Nov 2018

ShippingBulletin - November 2018

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In this issue:

 

Hague-Visby Rules – package limitation

Facts

  • Carriage of cargo of frozen tuna from Spain (a party to the Hague-Visby Rules) to Japan. Under the carrier's terms, the shippers were entitled to demand a bill of lading, but did not, and no bill of lading was ever issued.
  • The cargo was stuffed in three containers and consisted of frozen bluefin tuna loins without any wrapping, packaging or consolidation, and bags of frozen tuna parts.
  • To avoid delay, the parties agreed to the issue of three sea waybills rather than bills of lading.The cargo descriptions on the waybills were:

    "1 container said to contain 206 PCS frozen bluefin tuna loins" (note this container also contained the bags of frozen tuna parts.)

    "1 container said to contain 520 PCS frozen bluefin tuna loins"

    "1 container said to contain 500 PCS frozen bluefin tuna loins"

Issues:

  1. Did the Hague-Visby Rules apply by force of law, such that liability could be limited?  In particular, did the contract of carriage fall within the meaning of Art I(b) as being a contract of carriage "covered by a bill of lading"?
  2. Were the individual frozen tuna loins or the containers the relevant packages or units for the purposes of limitation under Article IV rule 5(c) of the Hague-Visby Rules?

In the High Court, Andrew Baker J held that (1) the Hague-Visby rules applied with the force of law and (2) each frozen tuna loin was a "unit" for the purpose of package limitation. The carrier appealed.

Held (Flaux and Gloster LJJ):

The Court of Appeal dismissed the appeal, and upheld the judgment on both points.

1 The Hague-Visby Rules applied with the force of law:
1.1  Where the contract of carriage at its inception provided, expressly or impliedly, for the issue of a bill of lading on demand, the contract of carriage was "covered by a bill of lading" within the meaning of Article 1(b).   
1.2  It was immaterial that the right to a bill of lading was not insisted upon and only sea waybills were issued by agreement between the parties.  There was no variation, waiver or estoppel of the contract of carriage and so the contract remained one which was covered by a bill of lading. 

2 Each loin was a separate "unit" for the purposes of limitation under Article IV rule 5(c).
2.1 The correct starting point was the language of the Hague-Visby provision.  The words "the number of packages or units enumerated" means no more than specifying the number of packages in words or numbers.  'Enumeration' does not require some further description as to how the packages or units are actually packed in the container.
2.2 The words "as packed" are simply descriptive, in the sense that they are stating no more than that the enumerated number of items have been packed in the container. 
2.3 If article IV rule 5(c) had required that the bill of lading must specify how the items have been packed into the container, it would have said so in clear words. 

 

(Kyokuyo v A P Moller-Maersk, The MAERSK TANGIER [2018] 2 Lloyd's Rep 59)

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Hague Rules time bar – misdelivery claim – breach of jurisdiction clause

Facts

  • A cargo of bunker fuel was shipped by Monjasa from Togo to Benin, on board the "ALHANI" under a bill of lading dated 12 November 2011.The bill of lading contained a clause paramount which incorporated the Hague Rules and incorporated an exclusive English law and jurisdiction clause from the applicable time charter.
  • Monjasa had sold the cargo to Unitaes in October 2011 but the contract contained a retention of title clause. Monjasa argued that it retained title to the cargo because payment under the relevant letter of credit was declined.
  • On 18 November 2011 the cargo was discharged by ship-to-ship transfer into another vessel off Lome. Owners claimed that they did this on the instructions of Unitaes as time charterers, and without production of the bills of lading. Owners accepted that there was an arguable case that the cargo should have been but was not delivered to Monjasa.
  • In April 2012, Monjasa commenced proceedings in Tunisia against the owners. Those proceedings were dismissed on 7 July 2015. However, there was evidence which indicated that an appeal was still pending in Tunisia.
  • On 15 February 2017 owners commenced proceedings in the English Courts for a declaration that they were not liable to Monjasa under the bill of lading. In the present action owners argued that the claims were time barred by reason of expiry of the one-year time limit.

Issues

  1. Does the time bar created by Article III Rule 6 of the Hague Rules apply to claims for wrongful misdelivery, where the shipowner has delivered the cargo to a third party without production of the bill of lading?
  2. Can the requirement in Article III Rule 6 that "suit is brought within one year after delivery of the goods or the date when the goods should have been delivered" ever be satisfied if proceedings are commenced in the courts of one country, when the bill of lading incorporates a clause from a charterparty giving exclusive jurisdiction to the courts of another country?

Held (David Foxton QC, sitting as a Deputy Judge of the High Court):

Issue 1

  1. The Hague Rules time bar applies to misdelivery claims, at least where the misdelivery occurs during the Hague Rules period of responsibility.
  2. By reference purely to its language and purpose, Art III, rule 6 is clearly capable of applying to misdelivery claims. Taken together "in any event" and "all liability" were clearly wide enough to encompass liability for delivering the goods to someone not entitled to take delivery of the same.  Further, it has been held that Art III Rule 6 is intended to achieve finality and this would be seriously undermined if the Rule did not apply to misdelivery claims.
  3. The time bar was not limited to claims for breach of the Hague Rules obligations. A claimant cannot circumvent the time bar by suing the owner in negligence, conversion or bailment. In any event, misdelivery is clearly a breach of the Art III Rule 2 obligation to "properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried."

    Issue 2

  4. Where the claimant commences proceedings in a particular court in breach of an agreement to bring claims in another forum then (except in exceptional circumstances), they will not constitute proceedings before a competent court for the purposes of Art III Rule 6. It is irrelevant that the foreign court might allow the proceedings to continue in spite of the exclusive jurisdiction agreement.    
  5. Here, the Tunisian proceedings could not be relied on to beat the time bar because they were brought in breach of the exclusive jurisdiction clause. There were no exceptional circumstances. Therefore Monjasa's claims were time barred in the English Courts.
  6. However, the Court was not willing to declare that the proceedings in the Tunisian courts were time barred. There might be relevant issues of Tunisian law.

(Deep Sea Maritime Ltd v Monjasa A/S (The "ALHANI") [2018] EWHC 1495 (Comm))

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Hague Rules time bar – geographic deviation

Facts

  • In May-July 2011, a cargo of maize was carried on the MV "SUR" from India to Jordan, arriving at Aqaba on 16 August 2011. The vessel was refused permission to discharge due to impurities and foreign matter in the cargo.
  • The bills of lading included the Hague Rules one-year time bar and incorporated a London arbitration clause.
  • Dera were buyers of the cargo and (apparently) holders of the bills of lading. Dera issued proceedings against owners in Jordan in respect of cargo damage, seeking USD 8m. Four days later, owners commenced London arbitration against Dera in connection with all disputes under the bill of lading. Dera appointed its arbitrator. Owners' P&I Club provided an LOU (responsive to award of London tribunal) to Dera for up to USD 9m.
  • On 25 October 2011 the English Court ordered by consent that Dera was obliged to refer the cargo claim to London arbitration. The Jordanian proceedings were subsequently struck out.
  • From 16 August 2011 to 8 November 2011, the vessel was stuck in Aqaba with cargo on board while owners unsuccessfully tried to get permission from the authorities to re-export the cargo to a port where it could be discharged or to discharge it at Aqaba.
  • On 8 November 2011, the vessel sailed to Turkey, without the consent of the authorities or Dera. Owners then commenced proceedings in Turkey against Dera, claiming demurrage. In April 2012 the cargo was sold pursuant to an order of the Turkish Court with owners receiving the proceeds. In June 2013, owners sold the vessel for scrap.
  • In July 2014, owners' solicitors wrote to Dera's solicitors that the arbitration proceedings were ripe for strike out for want of prosecution. On 23 March 2015, owners served particulars of their claim, seeking a declaration of non-liability (3 years 6 months after commencement of their claim). On 1 June 2015, Dera served their particulars of cargo claim (3 years 8 months after commencement of the cargo claim).
  • On 13 June 2017, the Tribunal held that the Hague Rules time bar applied to a geographic deviation, and struck out Dera's claim under s 41(3) of the Arbitration Act 1996 for want of prosecution. Dera appealed.

Held (Carr J):

The appeal was allowed in part:

  1. The statutory limitation period of 6 years is irrelevant to a strike out application where the parties have agreed a shorter period. A claim which is particularised within the 6-year period may nevertheless be struck out for inordinate delay.
  2. The applicable limitation period is an important yardstick. The length of the agreed limitation period provides the context in which it will be assessed whether the overall delay is inordinate or not.
  3. The Hague Rules time bar does not apply to geographic deviation if the other party elects to terminate the contract. (Carr J. would have held that the time bar applied to a geographic deviation had she not been bound by the House of Lords decision in Hain Steamship v Tate & Lyle [1936] 41 Com Cas 350.)
  4. Time elapsed within the limitation period before the commencement of proceedings cannot of itself constitute inordinate delay. But in assessing whether the overall delay is inordinate, the period between the time when the cause of action arose and the expiry of the contractual time limit is to be taken into account.
  5. For the purposes of s 41(3), the burden of proof is on the applying party to prove on the balance of probabilities that the delay is inordinate and inexcusable. It will normally be the responding party that identifies a credible excuse for the delay.

(Dera Commercial Estate v Derya Inc (The MV SUR) [2018] EWHC 1673 (Comm))

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All risks cargo insurance – coverage - fraudulent documents

Facts

  • The defendants were insurers under an open policy for the claimant in relation to a range of commodities.
  • The assured bought 7000mt copper ingots but when the containers were opened to inspect a leak, it was discovered that they did not contain copper ingots, only slag of nominal commercial value.  No copper was ever shipped. The bills of lading, packing lists and quality certificates were therefore fraudulent.
  • The assured was unaware of the fraud and claimed under the policy on the basis that the policy was all risks cover of the broadest kind.  The insurers denied cover on the basis that none of its clauses provided cover for losses resulting from the acceptance of fraudulent documents for a non-existent cargo. 

Held (Sir Ross Cranston):

  1. The purpose of all risks marine cargo insurance is to cover loss of or damage to property. This was the starting point for interpretation of the policy.  On the facts, no copper was ever shipped, so there was no cargo to be physically lost or damaged.  The assured's losses were economic losses due to the acceptance of fraudulent documents in the expectation that they covered physical goods.
  2. All risks cargo insurance is generally construed as covering only losses flowing from physical loss or damage to goods. There would therefore need to be clear words indicating a broader intention. The specific policy here did have some significant extensions of cover beyond standard all risks cover, but the policy as a whole did not displace the presumption that it covered physical loss and damage.
  3. In the Container Clause "shortage of contents" had its ordinary meaning and requires a difference between the quantity of the goods shipped and that delivered. It cannot cover a situation where there were no goods in the first place. Neither does the reference to goods "alleged to have been laden in the container" indicate that paper losses or loss of fictitious goods were included.
  4. The Fraudulent Documents Clause expressly referred to the physical loss of goods. There cannot be a physical loss when nothing existed in the first place. Physical loss of or damage to goods are plain words to be given their natural meaning, which did not include economic loss from the acceptance of fraudulent documents.

(Engelhart CTP (US) LLC v Lloyd's Syndicate 1221 [2018] 2 Lloyd's Rep 24)

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Force majeure – hire of rig

Facts

  • Tullow was owner of two petroleum licences, granted by the Government of Ghana, for fields off the coast of Ghana: West Cape Three Points (which included the Jubilee field), and Deepwater Tano (which included the TEN oilfields). The fields lay near the border of Ghana and Cote d'Ivoire.
  • Tullow had a plan (known as the "Greater Jubilee Plan") to obtain approval of the Government of Ghana for the development of part of the West Cape Three Points concession.
  • Tullow hired the WEST LEO, an ultra deep water semi-submersible rig, from Seadrill on a 5 year contract.
  • Ghana and the Cote d'Ivoire were engaged in arbitration to resolve a dispute about where the offshore boundary between them lay. The Tribunal made a provisional measures order pursuant to which "Ghana shall take all necessary steps to ensure that no new drilling either by Ghana or under its control takes place in the disputed area". This meant that no new wells could be spudded (i.e. drilling a hole in the sea bed), but already spudded wells could be completed (i.e. the work required to enable oil to be pumped from the well). The Government notified Tullow.
  • As a consequence, well EN10 in the TEN concession (which was due to be drilled by another rig and then completed by WEST LEO) could not be drilled.
  • Several spudded wells remained to be completed in TEN, and WEST LEO was due to be used for these. When these were completed in September 2016, the WEST LEO would be moved onto another field, assuming the Greater Jubilee Plan was approved. However, in February 2016 the Ghanaian Government declined to approve the Greater Jubilee Plan.
  • Tullow said that there was no further work for the WEST LEO. They stopped paying hire and terminated the contract. They relied on a force majeure clause in the contract and on the Ghanaian Government's moratorium.
  • The force majeure clause applied in the event of "drilling moratorium imposed by the government". It also provided that both parties should use reasonable endeavours to remedy or avoid a force majeure situation.
  • Seadrill claimed the sums due under the contract (September 2016 to June 2018) of US$277.4 million.

Issues

  1. Whether Tullow could rely on the force majeure clause.
  2. Whether Tullow had used reasonable endeavours to remedy or avoid the force majeure.

Held (Teare J):

  1. Tullow could not rely on the force majeure clause and was therefore liable to Seadrill for the outstanding sums.
  2. Tullow had failed to fulfil a term of the contract, namely the requirement to provide Seadrill with a drilling programme. There was an applicable force majeure event, namely the drilling moratorium imposed by the government. The question was therefore whether the drilling moratorium caused the failure to provide a drilling programme.
  3. The cause of Tullow's inability to fulfil its obligations was both the moratorium and the Government's failure to approve the Greater Jubilee Plan. Both were effective causes. However, the moratorium was a force majeure cause, whilst the Government's failure to grant approval was not. The moratorium prevented Tullow using WEST LEO to complete well EN10 in the TEN concession, but the effective cause of Tullow's inability to provide the drilling programme was the Government's failure to approve the Greater Jubilee Plan.
  4. In light of the conclusion on the first issue, the second issue did not arise. However, the court commented, obiter, that in exercising its reasonable endeavours, Tullow was entitled to consider its own interests and in particular whether there was a business case for drilling at another well. But it was also bound to consider Seadrill's interests. There were other wells requiring workovers which the WEST LEO could have been used for. However, Tullow only considered the fact that it did not want to spend the money on those wells at that time and did not consider Seadrill's interests in being instructed to do the work. Therefore Tullow failed to exercise its reasonable endeavours and this was a further reason why Tullow was unable to rely on the force majeure clause.

(Seadrill Ghana Operations Limited V Tullow Ghana Limited [2018] EWHC 1640 (Comm))

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Ship arrest – no obligation to provide cross-undertaking in damages

Facts

  • NatWest lent Stallion US$15.7 million that was secured by a First Preferred Mortgage on the 'MV ALKYON' dated 2 February 2015. In 2018 NatWest notified Stallion that the vessel's market value was below that of the required ratio and requested additional security.
  • Stallion failed to provide the additional security. NatWest declared an event of default and the loan was accelerated. On the same day NatWest issued an in rem claim form and arrested the vessel.
  • Stallion denied that there was an event of default. It asserted that the company was losing significant amounts whilst the vessel, its only asset, was under arrest and 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 therefore 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.

Held (Teare J):

1 The application failed.
2 The Court has a discretion to release a vessel from arrest. However, one of the principles in this area is that a claimant in rem may obtain the issue of an arrest warrant as of right, as long as he complies with the rules (there is no discretion). To release a vessel unless a cross-undertaking in damages is provided would cut across the principle of arrest warrant as of right.
3 The analogy with a freezing injunction is inapplicable. The two proceedings are very different: an arrest warrant is obtained as of right, whilst a freezing injunction requires a court order. Further, an arrest is usually effected with notice, whereas a freezing injunction is not.
4 If there were unusual or exceptional circumstances, a departure from the usual practice might be justified but there were no such circumstances here and Stallion had the burden to prove such circumstances. There was the potential for injustice given the size of NatWest's claim but the requested change was so far reaching, it should be a matter for Parliament or the Rules Committee to consider.
5 To make an order that the vessel be released in the event that Natwest fails to provide a cross-undertaking in damages would:
5.1 Run counter to the principle that a claimant in rem may arrest of right; 
5.2 Be inconsistent with the court's long-standing practice that such a cross-undertaking is not required; and
5.3 Be contrary to previous decisions that the court must respect.

(NatWest Markets PLC v Stallion Eight Shipping Co SA and all other persons interested in the ship MV "ALKYON" [2018] EWHC 2033 (Admlty))

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Letter of credit – bill of lading arbitration clause

Facts

  • A cargo of 7,000 mt soya bean meal was shipped on MV SEA MASTER.The named shippers on the bills of lading were Oleaginosa. Oleaginosa had sold the cargo FOB to Glencore, who had sold FOB to Agribusiness (who had voyage chartered the vessel from the owners).
  • The original bills of lading were presented by Glencore to Arab Bank (Switzerland) ("the Bank"). The Bank accepted them under the LC opened on behalf of its customer, Agribusiness. The Bank paid against them and became lawful holder of the bills of lading. (There was a pledge agreement between Agribusiness and the Bank.)
  • The sale of the cargo by Agribusiness fell through. On two occasions new sales were agreed by Agribusiness, but each of those sales fell through.To perform these sales, the bills of lading were twice switched, with the original bills of lading being cancelled and returned to the Master.The first switch bill of lading was also cancelled and returned to owners' agents.
  • By agreement between owners and Agribusiness the second switch bill (which was issued to order of the Bank) was signed by the Master, as owners' agent, at the Bank's counters. It expressly incorporated the charterparty arbitration clause.It was endorsed in blank by the Bank and presented for payment, which was made. The cargo was delivered against presentation of the second switch bills.
  • The Bank commenced arbitration against owners in respect of claims under bills of lading relating to a different cargo (corn) on board the same vessel. Owners counterclaimed for demurrage or detention under the second switch bills.The Bank challenged the jurisdiction of the Tribunal to determine the counterclaim for demurrage. The Tribunal held that it did not have jurisdiction over the owner's counterclaim for demurrage because the Bank was not bound by the arbitration clause contained in the bill of lading contracts. Owners appealed.

Held (Popplewell J):

  1. The Bank was party to the arbitration agreement. A bank which had at one time held a bill of lading as security under a letter of credit arrangement was subject to the arbitration clause in the bill of lading, by reason of the fact that it had acquired rights of suit under COGSA 1992, s 2.
  2. This was in spite of the facts that (a) the Bank had not exercised those rights of suit; (b) the Bank was not the lawful holder of the bill of lading when the arbitration was commenced against it; and (c) the Bank had not committed any act by which it would incur liabilities under COGSA 1992, s 3.
  3. However, the Court declined to consider whether the Bank was an original party to the bill of lading, and so subject to liabilities under it. That was a matter for the arbitral tribunal (and one on which it had ruled against owners).
  4. It is understood that there is to be an appeal.

(Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd [2018] EWHC 1902 (Comm))

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Letter of indemnity – time bar

Facts

  • The SONGA WINDS was time chartered by head owners to Navig8 and voyage chartered by Navig8 as disponent owners to Glencore.
  • Clause 38 of the Navig8–Glencore voyage charterparty provided that if bills of lading were not available at disport, owners would deliver cargo against charterers' LOI. Clause 38 also provided that "the period of validity of any letter of indemnity will be 3 months from the date of issue" and that, in the absence of extension requests, the indemnity would expire at the end of the initial three month period or any further extension period.
  • Bills of lading were not available at disport. Aavanti (buyers from Glencore) provided an LOI to Glencore for delivery without bills of lading. Glencore in turn provided an LOI to Navig8. Navig8 were deemed to have provided an LOI to head owners.Clause 5 of the Navig8–Glencore LOI provided that all liability under the LOI would cease once the original bills of lading had been delivered to Navig8.
  • In a claim by Navig8 under the Glencore LOI, Glencore argued that the LOI was valid only for 3 months from the date of issue and had expired without any claim being made within that period.
  • The first instance judge (Andrew Baker J) held that as a matter of construction, the effect of clause 38 was not that there should be a time limit on the validity of the LOI by reference to a period for claims to be made. Rather, the effect of the clause was that any LOI for delivery without bills of lading would cover such deliveries effected within the three months following issue of the LOI.On the facts, this did not assist Glencore, because the relevant deliveries were made within the three-month period.
  • Glencore appealed.

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

1 The Court of Appeal dismissed Glencore's appeal, but the reasoning differed from that at first instance.
2 The clause 38 time provision was not transposed from the charterparty into the LOI for the following reasons:
2.1 Clause 5 of the LOI was a self-contained provision which confined Glencore's liability and contained no reference to any extraneous term.
2.2 The voyage CP and the LOI were distinct agreements with separate and discrete rights and obligations, and with disputes under the former subject to arbitration and under the latter subject to High Court litigation.
2.3 Glencore had a contractual right to insist that the LOI must incorporate the relevant time limit, but had entered into the LOI on the IG form with no reservations or reference to the voyage charterparty provisions.
2.4 The LOIs issued were back to back, with no time limits in them.
 
3 As a matter of construction, clause 38 provided a time of limit of 3 months from the date of the LOI for making claims. A clearly defined time limit enables the giver of the indemnity to calculate its contingent liabilities. 
4 Where an LOI was issued under a charterparty which provided that LOIs would be subject to a three-month time bar but no such time bar was expressly incorporated into the LOI, the time bar did not apply to claims under the LOI.
5 Had it applied, the effect would have been that claims brought more than three months after the LOI was issued would have been time barred (and not that the LOI applied only to deliveries made within three months of its issue). 

(Navig8 v Glencore (The SONGA WINDS) [2018] 2 Lloyd's Rep 374)

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Athens Convention time bar - effect of domestic law

Facts

  • Mr Lex Warner chartered a vessel from Scapa Flow Charters ("SFC") for one week from 11 August 2012.He died in an accident on board on 14 August 2012. He would have disembarked no later than 18 August 2012.
  • On 14 May 2015 his widow commenced claims in the Scottish Court of Session against SFC both in her own name and as guardian of her son, who had been born in November 2011.14 May 2015 was more than 2 years (but less than 3 years) after the date when Warner should have disembarked.
  • SFC relied on the Athens Convention time bar (which is usually 2 years from the date when the passenger would have disembarked).

Issue

  • Whether the exception to the 2 year time limit in art 16(3) of the Athens Convention applied:

    "the law of the court seized of the case shall govern the grounds of suspension and interruption of limitation periods, but in no case shall an action under this Convention be brought after the expiration of three years from the date of disembarkation of the passenger or from the date when disembarkation should have taken place …"

  • At first instance the time bar defence was upheld.On appeal, the Inner House dismissed Mrs Warner's appeal in relation to her claim as an individual, but allowed her appeal in relation to her claim as guardian of her son. SFC appealed against the ruling that her claim as guardian of her son was not time barred.

Held (Lady Hale PSC, Lord Reed DPSC, Sumption, Hodge and Briggs SCJJ):

  1. The Supreme Court rejected SCF's appeal.
  2. The words “the grounds of suspension … of limitation periods” are sufficiently wide to cover domestic rules which postpone the start of a limitation period as well as those which stop the clock after the limitation period has begun.
  3. The Supreme Court disapproved of the dicta of Hirst LJ in Higham v Stena [1996] 1 WLR 1107 and considered that it was not appropriate to look at the domestic law of certain countries to interpret an international convention.Under art 16(3) the Court looks to the law of the place where proceedings are brought for its domestic grounds for suspension of limitation periods.
  4. The Scots law limitation period disregarded any period when the pursuer (claimant) is under a disability because he is under 16 years.Accordingly, Mrs Warner's claim as her son's guardian was not time barred by the Athens Convention. However, any domestic suspension of time could not defer the expiry beyond the long stop period of 3 years from disembarkation laid down in art 16(3) of the Athens Convention. So the claim would have been barred had it been brought after that 3 year period.

(Warner v Scapa Flow Charters [2018] UKSC 52)

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Insurance – drug smuggling – war risk?

Facts

  • On 13 August 2007 the "B ATLANTIC" completed loading a cargo of coal in Lake Maracaibo, Venezuela. An underwater inspection by divers discovered three bags of cocaine strapped to the vessel’s hull, 10 metres below the waterline. This concealment constituted a criminal offence under Venezuelan law.
  • When exactly the drugs were attached to the vessel is unknown. During an inspection on 12 August 2007, divers noticed that an underwater grille on the hull was loose and that various objects not belonging to the vessel (a grappling hook, a saw, a rope and other tools) were inside the space behind the grille.
  • The Master was told to have the grille rewelded because of the risk of drug smuggling. He declined to do so because the vessel was due to sail that night. But the vessel did not sail then because additional cargo was loaded (there had been a miscalculation and shortloading). A second inspection was carried out the next day when the drugs were found. The vessel was detained and the crew was arrested.
  • The Master and Second Officer were charged with complicity with drug smuggling. On 31 October 2007 a Venezuelan judge sent them for trial and ordered the continued preventive detention of the vessel pursuant to Venezuelan law. The vessel remained in detention until, in August 2010, following a jury trial, the two officers were convicted and sentenced to 9 years’ imprisonment. The court ordered the final confiscation of the vessel, which the owner had abandoned to the court in September 2009.
  • The owner presented a claim for the loss of the vessel to its war risk insurers.Insurers declined cover, in reliance on the standard war risk exclusion for detentions arising by reason of infringement of customs regulations.
  • At first instance, Flaux J. found in favour of the owner, but the Court of Appeal reversed that decision.The owner appealed.

HELD (Mance, Sumption, Hughes, Hodge and Briggs SCJJ):

1 Appeal dismissed.The Supreme Court came to the same conclusion as the Court of Appeal, namely that the smuggling of drugs or contraband is not a war risk, albeit by different reasoning.It concluded that: 
1.1 the planting of the drugs was not a ‘malicious act’ within the meaning of insuring clause 1.5;
1.2 the customs regulation exclusion at 4.1.5 applied. 
2 Although the smuggling was a wrongful act done intentionally without just cause or excuse, it was not ‘malicious’ within the meaning of insuring clause 1.5. In the context of war risks insurance policies, ‘malice’ has to involve spite, ill-will or the like which is directed towards property or persons. Drug smugglers do not intend for a vessel to be detained or for any other property or persons to be lost or damaged. To the contrary, they intend that the drugs avoid detection, that the vessel, property and persons remain unharmed and therefore that the intended recipients get what they have paid for. 
Exclusion clause 4.1.5 applied to insuring clause 1.5.It would be surprising if clause 4.1.5 applied differently to clause 1.5 than to other insuring clauses such as 1.2 (seizure, arrest, detainment etc.) or 1.6 (confiscation etc.), and put the assured in a better position if it invoked clause 1.5.Owners must, by relying on clause 3 to establish a constructive total loss, have accepted that the vessel has been lost as a result of seizure, arrest, restraint or detainment (i.e. the subject matter of clause 4.1.5).
4 No limitation on the application of exclusion clause 4.1.5 could be implied because it did not satisfy the relevant criteria:it was not necessary for business efficacy or was not so obvious as to go without saying.
5 Generally insurance law aims to find a single proximate cause, but in some cases there are two concurrent causes. Where an insured loss arises from the combination of two causes, one insured, the other excluded, the exclusion prevents recovery. Here, the two causes were the malicious act and the seizure and detainment (which arose from the excluded peril of customs' infringements). The malicious act would not have caused the loss without the seizure and detainment.Therefore the loss was not covered. 

Navigators Insurance Company Ltd and others v Atlasnavios – Navegacao Lda, The “B ATLANTIC" [2018] UKSC 26

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Inter Club Agreement - declaration of indemnity

Facts

  • A cargo of direct reduced iron (DRI) in bulk was shipped on a time charter: single trip from Tunisia to West Coast India.
  • Loading had been underway for 12 hours when a fire was observed on conveyor belt.A Supercargo inspected the vessel and said that loading could resume.However, the fire continued during the carriage and the cargo was damaged.
  • No arbitration was actually commenced by the cargo interests, Essar Steel, but owners commenced arbitration for a declaration that Essar, the charterer, was obliged to indemnify owners against any liability that it might be found to have to the cargo interests.
  • The charterparty was on the NYPE form 1946 and the Inter Club Agreement was applicable to apportion liability between the parties.
  • The Tribunal held that liability was to be split 50:50 between owners and charterers. Clause 49 of the charterparty provided that “The Stevedores although appointed and paid by the Charterers/Shippers/Receivers and their Agents, to remain under the direction of the Master who will be responsible for proper stowage and seaworthiness and safety of the vessel…”.  This transferred responsibility for loading etc. back to owners and clause 8(b) of the ICA therefore provided that liability was to be split 50:50.
  • Owners appealed on the basis that clause 49 only effected a partial transfer of responsibility back to owners, and therefore did not satisfy the requirements of the ICA for a similar amendment to clause 8 to adding the words "and responsibility".

Held (HHJ Waksman QC):

  1. The issue was with what “similar” meant here.There is no undue difficulty: it is intended to connote a provision of the same kind or to the same effect as adding the words “and responsibility”.A provision which was the “same as”, would just be a repetition.Therefore the amendment must transfer all responsibilities back, not just some.
  2. The ICA meant cargo handling generally, not just one aspect of the cargo handling operation.Clause 49 dealt with stowage only, not all cargo handling operations.So it was not effective to engage the proviso to ICA clause 8(b) so as to make liability 50:50.Therefore liability was 100% charterers.
  3. The judge emphasised that the approach should be a straightforward interpretation of the language used, given that the ICA is a purely mechanistic and causation based scheme.

(Agile Holdings Corporation v Essar Shipping Ltd [2018] EWHC 1055)

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Voyage charter - obligation to commence approach voyage

Facts

  • On 5 January 2015, owners and charterers entered into voyage charter of The Pacific Voyager on the Shellvoy 5 form, for carriage from Rotterdam to the Far East ("the Rotterdam CP").
  • Rotterdam CP did not give any ETA at load port, nor any date of expected readiness to load.
  • Rotterdam CP contained a laycan which gave the cancelling date as 4 February 2015.
  • On the date when the Rotterdam CP was entered into, the vessel was carrying cargo under a previous CP under which she was to part discharge, transit the Suez Canal, then load part cargo for discharge at Antifer, Le Havre ("the Antifer CP").
  • The Rotterdam CP included under the heading "Position/Readiness" the following details of the anticipated timetable for completion of the Antifer CP voyage:

    "POSITION: ETA SUKHNA 9 JAN, 2015 (PART DISCHARGE)

    ETA SUEZ CANAL 10 JAN, 2015 (TRANSIT)

    ETA SIDI KERIR 12 JAN, 2015 (RE-LOADING)

    ETA ANTIFER 25 JAN, 2015 (DISCHARGING)

    ALL ABOVE BSS IAGW / WP"

  • On 12 January 2015, the vessel suffered a casualty in the Suez Canal, and had to be drydocked for repairs which would take months.
  • On 6 February 2015, charterers terminated the charterparty under the cancelling clause.
  • Charterers sued for damages. Popplewell J. held that owners were in breach of the absolute obligation, under the Rotterdam CP, to commence the approach voyage to Rotterdam at the end of a reasonable discharging period if the vessel were to arrive for final discharge at Antifer on 25 January 2015.

Held (Longmore, King LJJ and Sir Rupert Jackson):

  1. The appeal was dismissed.
  2. The obligation of utmost despatch is an important obligation and to be given any effect at all, must include a reasonable time for sailing. The terms of the charterparty will indicate what a reasonable time would be.
  3. The only relevant clause in the charterparty that would indicate the reasonable time at which the obligation of utmost despatch was to attach, was the anticipated timetable for completion of the previous voyage under the Antifer CP. 
  4. The reasonable time was the time at which it was reasonable to suppose the Vessel would leave Antifer for Rotterdam once a reasonable time for discharging had elapsed.  That date was 28 January 2015 and owners did not exercise the utmost despatch on or about that date.  Owners were therefore in breach and charterers were entitled to damages.   

CSSA Chartering & Shipping Services SA v Mitsui OSK Lines Ltd, The "PACIFIC VOYAGER" [2018] EWCA Civ 2413

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