In this issue:

• Insolvency – in rem claims – repatriation costs
• Time charter – hire – change of benchmark rate
• Sale contract – quality certificate binding? – contract interpretation
• Cargo insurance – duty of brokers – incorporation of terms
• Owner’s right to call for bill of lading freight – no default
• Collision – crossing rules – narrow channel rules
• Off hire – act/omission of charterer?

 

Insolvency – in rem claims – repatriation costs

Facts

• VASCO DE GAMA AND COLUMBUS were laid up at Tilbury during the pandemic. Aspida provided travel agency services to get crew to and from the vessels in the first half of 2020 and brought claims for €275,863 and €123,884 against the proceeds of sale of the two vessels.
• Other claimants against the fund objected to these claims on the basis that they did not satisfy section 21 of the Senior Courts Act 1981 because they were not brought when the person who was liable on the in personam claim (the demise charterers) was still charterer of the vessels. The bareboat charterparties were terminated by Carnival (the vessels’ owner) in October 2020. The claims were brought in December 2020.

Held:

1. Carnival were entitled to terminate the charters when they did. The order for sale of the vessels was made on 2 September. Carnival held off terminating the charterparties for five weeks after that date, which was ample time for claims to be brought against the vessel. They had not given an open ended assurance to keep the charterparties in effect.
2. The terminations by Carnival were valid under common law. Carnival were not required to give notice, because charterers had abandoned the vessel and this did not fall within the contractual requirements for notice. Carnival had repossessed the vessels as owners when they appointed ship managers to care for the vessels, so the termination took effect.
3. The result was that Aspida did not have valid claims against the vessel under section 21(4) and could not therefore bring their claims against the sale proceeds. 

Taxidiotiki-Touristiki-Nautiliaki Limited (trading as Aspida Travel) v Owners/Charterers of the COLUMBUS and VASCO DA GAMA [2021] EWHC 310 (Admlty)

 

Time charter – hire – change of benchmark rate

Facts

• MV ‘NEW HYDRA’ was a Cape size vessel of 179,258 tonnes. It was chartered on an amended NYPE for 3 years, extended to 5 years. The hire clause provided that “Hire payable every 15 days in advance including overtime. The gross daily hire to be calculated basis the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days plus 4% for size adjustment.”
• When the charterparty was agreed the Baltic rate was based on a benchmark ship of 172,000, hence the 4% for size adjustment. After the fixture started, the rate changed to a benchmark vessel of 180,000 tonnes (the 180 4TC). However, a rate for 172,000 tonne vessels was still published by reverse calculation from the 180,000 tonnes rate (the 172 4TC).
• When the option was exercised, the Addendum read "Charterers hereby declare the option for the second optional year with 3 months more or less in Charterers’ option on final period at 104% BCI 4TCS less 3.75% address commission.” After four years, owners alleged that the parties had been calculating the hire incorrectly. Charterers and the tribunal disagreed. Owners appealed.

HELD: Appeal allowed

1. There was no controversy as to how hire was to be calculated up until 31 July 2015. The 4% size adjustment dealt with the benchmark vessel of 172,000 tonnes, but did not deal with calculation of hire if the benchmark vessel changed.
2. From August 2015, the derived 172 4TC rate could not be used because it was not ‘the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days’ as per the hire clause. It was a daily rate derived from the 180 4TC figures at a constant dollar differential.
3. The relevant construction of the clause was that which a reasonable person, with all the relevant background knowledge, would have understood the language to mean. Owners proposed an implied term that was necessary to make the charterparty work; namely that the 180 4TC rate should be used with a reasonable (not 4%) percentage size adjustment, where the benchmark vessel changed. Although the language of the hire clause did not allow for an adjustment other than 4%, where the benchmark vessel changes the clause creates an outcome contrary to business common sense. Without the implied term, the hire provision could not be applied to the events from August 2015 onwards; it gave business efficacy or commercial/practical coherence to the charterparty.
4. Addendum number 5 was entered into after the charterparty and so did not indicate how to interpret the charterparty. The award was remitted to the tribunal to consider variation and estoppel defences (which it had not considered in light of its conclusion on interpretation).

Regal Seas Maritime SA v Oldendorff Carriers GmbH & Co KG, The ‘NEW HYDRA’, [2021] EWHC 566 (Comm). 

 

Sale contract – quality certificate binding? – contract interpretation

Facts

• Tintrade agreed to sell a cargo of fuel oil to Septo. The Recap provided for “Determination of Quality and Quantity…As ascertained at loadport by mutually acceptable first class independent inspector…Such result to be binding on parties save fraud or manifest error.” It also provided that the BP 2007 General Terms and Conditions for FOB sales were to apply where not in conflict with other provisions.
• The BP Terms contained a clause dealing with measurement and sampling, which provided that certificates of quantity and quality “shall, except in cases of manifest error or fraud, be conclusive and binding on both parties for invoicing purposes”.
• The samples analysed before loading indicated that the cargo was on spec, however, on discharge the cargo was found to be off spec. Further samples were tested and indicated that the cargo was off spec after loading and blending on board.
• Septo brought a claim against the seller for damages. Tintrade relied on the binding nature of the certificate of quality. Septo said that the certificate was only binding for invoicing purposes.
• At first instance, Teare J found that the BP Terms qualified the Recap; there was no conflict between the terms and they could be read together to find that the certificate was only binding for invoicing purposes. Septo’s claim succeeded. Tintrade appealed.

HELD: Appeal allowed

1. Where there is inconsistency between specially agreed terms and printed standard terms of the contract, plus an inconsistency clause, the law is settled that the objective is to determine the intention of the parties from the language used in the commercial setting. To be inconsistent, a term must contradict or be in conflict with the other term, such that effect cannot fairly be given to both. It is not enough if one term qualifies or modifies the other.
2. On its own the Recap term meant that the quality certificate was to be binding on the parties for all purposes. So the buyer could not bring a claim for the product not being in accordance with the contract. The BP term that the certificate be binding for invoicing purposes was of little effect in a documentary sale such as this, where the seller must present documents (including a quality certificate) to the buyer’s bank to get payment under the letter of credit. The outcome would be the same even if the clause said that the certificate was not binding for invoicing purposes.
3. The BP Term was inconsistent with the Recap term and the two clauses could not be read together. The BP Term deprived the Recap term of all effect and so did not apply. A regime where the certificate of quality is binding is fundamentally different from one in which the certificate is not binding. The binding nature of the quality certificate was a central feature of the contractual scheme in the Recap because it defined the nature of the seller’s obligation in relation to the quality of the product and provided certainty. Although it would have been reasonable to choose a scheme where the certificate was not binding, it was a rather convoluted way of doing so. That was not a commercially reasonable interpretation of what the parties did here.

Septo Trading Inc v Tintrade Limited, [2021] EWCA Civ 718

 

Cargo insurance – duty of brokers – incorporation of terms

Facts

• ABN claimed an indemnity of £33.5 million under a cargo insurance policy. The policy was placed by Edge with 14 underwriters and RSA as lead underwriter.
• The claim arose out of repo transactions undertaken by ABN’s subsidiary, Icestar. When two clients defaulted, ABN claimed its losses under its 2016/17 cargo insurance policy. Underwriters denied liability on the basis that the loss had to be a consequence of physical loss and damage to cargo.
• The policy was for cargo in warehouses and in transit, on conventional marine all risks terms for physical loss and damage to the goods, including ICC A. The additional clauses included a Transaction Premium Clause (TPC). ABN and Edge contended that the TPC widened cover to include risks which were not dependent on physical loss and damage to the cargo, such as the default of ABN’s customers. This clause was originally presented in 2015 as a policy endorsement, then continued on renewal in 2016.
• The court had to consider what the TPC meant, specifically whether recovery was dependent on physical loss or damage to the cargo, and whether the TPC bound the underwriters, as well as defences to the policy wording based on rectification, estoppel and collateral contracts.

Held:

1. ABN’s claim succeeded in full (save in relation to Ark and Advent due to estoppel). Edge was liable for the recovery that ABN would have made from Ark and Advent, had the risk been broked properly to those underwriters. This included any costs liability to Ark and Advent and any irrecoverable costs incurred by ABN. Edge was also liable in principle for ABN’s irrecoverable costs in the proceedings against the other underwriters.
2. Meaning of the TPC; the wording of the clause was clear. It was a carefully drafted clause and therefore the words used were the most important aspect. The factual matrix (inclusion in a cargo insurance policy, rather than trade risk cover) underlined the need for there to be clear words before the cover extended beyond physical loss and damage.
3. The language of the TPC did not link coverage to physical loss or damage to the cargo. With hindsight the underwriters should not have agreed to the clause, but it was not for the Court to reject the natural meaning of a provision simply because it was an imprudent term for one party to have agreed.
4. Navigators, Ark and Advent were told by the broker that the policy was the same as the year before. However, Navigators would still have contracted on the same terms, so there was no inducement. Ark and Advent would not have been happy to write the risk, so the plea in estoppel was successful.
5. There was no evidence that ABN had been reckless in entering into the repo transactions and not requiring independent checks of the quality of the cargo. ABN had not failed to comply with normal banking practice and procedures in relation to the approach to collateral. Nor was there any failure to sue and labour by ABN that would break the chain of causation.
6. The claim against Ark and Advent failed because of an estoppel that arose from statements made by Edge at the time the policy was renewed. Edge was therefore liable to ABN. Edge owed a duty of reasonable care and skill to the assured to procure the insurance cover required; it had largely done this. However, it was in breach of the duty to procure cover that clearly and indisputably met the Bank’s requirements and so did not expose it to an unnecessary risk of litigation. Edge should have advised that the credit risk market was the more appropriate location for this risk. It should have also discussed the risk with underwriters to avoid the potential for future dispute.

ABN Amro Bank NV v (1) – (14) RSA and 13 other underwriters (15) Edge Brokers (London) Limited [2021] EWHC 442 (Comm)

 

Owner’s right to call for bill of lading freight – no default

Facts

• Alpha Marine chartered MV SMART to Minmetals on a time charter trip on an amended NYPE form. Minmetals voyage chartered the vessel to General Nice Resources (Hong Kong) Ltd.
• Clause 18 of the time charter provided that “the Owners shall have a lien upon all cargoes and sub-hires and all sub-freights for any amounts due under this Charter…” Under the voyage charter, freight was payable in full once the vessel set sail from the load port and was deemed earned even if the vessel or cargo was lost. Owner’s bills of lading were issued, which provided that freight was payable “as per charterparty” (this meant the voyage charter).
• On 19 August 2013, the vessel ran aground shortly after leaving port and broke its back. On 23 August 2013, the charterer issued a freight invoice to the subcharterer, which had to be paid by 3 October 2013.
• On 12 September 2013 the owner issued invoices to cargo interests for the freight due under the bills of lading, and gave notice revoking charterer’s authority to receive the freight. The owner also referred the dispute as to the cause of the grounding to arbitration.
• The monies were paid into escrow. The tribunal held that the charterer had been in breach of the safe port warranty, but the grounding was caused by the Master’s negligent handling of the vessel. The owner could only recover the cost of bunkers consumed during the voyage. The owner was also held liable to the charterer for intervening in its contractual relationship with the subcharterer; there was an implied term that the owner would not exercise its right unless hire or other sums were due under the charterparty. As the grounding was for owner’s account due to the Master’s negligence, no sums were due to the owner under the charterparty and it had not been entitled to receive the freight. The owner appealed the tribunal’s conclusion on implied obligation.

HELD: Appeal allowed

1. An owner’s bill is the owner’s contract and the owner is therefore entitled to demand the bill of lading freight from the holder of the bill as consideration for the agreed carriage. However, bills of lading often provide that freight should be paid as per charterparty, which directs payment to the charterer, as agent of the owner. The owner can countermand that order by notice to the shipper before payment is made and the charterer does not have to have been in default before the owner can do this. The owner must account to the charterer for any amount that it receives above that due for hire of the ship.
2. The charterparty did not contain express wording limiting owner’s exercise of the right to a situation when the charterer was in default. Further, no term could be implied to that effect as it did not satisfy the business necessity or obviousness test.
3. Business necessity: There is an obligation on the owner to account to the charterer for any excess. In light of that, the time charter does not lack commercial or practical coherence without an implied term restricting the owner’s right to intervene. Such charterparties work satisfactorily without such a term.
4. Obviousness: Had they been asked, both parties would not have considered the term to obviously have been included. The owner would likely want no fetters on the right to collect freight if it agreed to owner's bills. The charterer was not deprived of the vessel’s earning capacity, so no implied term was needed to protect that.
5. It should be clear what the implied term was: The fact that a term may take different formulations is a classic sign that it is neither necessary nor obvious. The judge rejected all three proposed terms. The award was set aside to the extent that it awarded damages for breach of the implied term and the matter was remitted to the Tribunal.

Alpha Marine Corp v Minmetals Logistics Zhejiang Co. Ltd, MV ‘SMART’, [2021] EWHC 1157 (Comm)

 

Collision – crossing rules – narrow channel rules

Facts

• EVER SMART AND ALEXANDRA 1 collided at the entrance to the port of Jebel Ali. EVER SMART was exiting the port along a narrow channel. She should have been on the starboard side of the channel but was slightly to port of the centre as she approached the top of the channel. Her lookout does not appear to have seen the ALEXANDRA 1.
• ALEXANDRA 1 was at the entrance to the channel waiting to pick up a pilot and then enter the narrow channel. She was moving slowly in the pilot boarding area. Her Master overheard a VHF conversation with a tug in the area who was told to go round the stern of the ALEXANDRA 1. The Master thought the EVER SMART was being told to go around his stern and therefore assumed that she would turn to port at the top of the channel. At the point of collision, the ALEXANDRA 1’s bow was on about the centre line of the channel. The port bow of the EVER SMART struck the starboard bow of the ALEXANDRA 1.
• The lower courts considered that the Collision Regulations 1972 crossing rules did not apply and only the narrow channel rules applied. Liability was apportioned 80:20 EVER SMART to ALEXANDRA 1.

Issues before the Supreme Court

(1)  On the proper construction of the Collision Regulations, are the crossing rules applicable or should they be disapplied where an outbound vessel is navigating within a narrow channel and has a vessel on her port (or starboard) bow on a crossing course approaching the narrow channel with the intention of and in preparation for entering it?

(2)  On the proper construction of the Collision Regulations, in determining whether the crossing rules are applicable, is there a requirement for the putative give way vessel to be on a steady course before the crossing rules can be engaged?

HELD: Appeal allowed

1. The debate on whether the crossing rules applied centred on when there was a risk of collision. Generally, a risk of collision exists when two vessels are approaching each other on steady bearing (although there can be other reasons). In the Collision Regulations, bearing means the compass bearing direction in which one vessel appears when viewed from another. One vessel takes a number of compass bearings of the other vessel and it is a steady bearing if the bearings do not appreciably change.
2. Question 2: The crossing rules lie at the heart of the scheme for avoiding collisions and so they should not lightly be treated as inapplicable. A perceived tension with another rule is unlikely to be a good reason for not applying the crossing rules. Further, the Rules are explicit about the effect of one rule upon another. If there is no rule that one rule should be ousted by another (as here), any ouster should be kept to the minimum necessary to avoid danger or uncertainty.
3. A vessel may be crossing another’s course on a steady bearing such that there is a risk of collision, even though one or both vessels is not on a steady course. A steady bearing can normally be ascertained easily (by observation and a compass); but it is not as easy to determine whether the other vessel is on a steady course without modern technical aids to navigation. The Rules must be capable of being implemented by all vessels, so should not require modern technical aids to navigation (a small craft may only have a hand held compass). There was no requirement for a steady course.
4. Question 1: The crossing rules are inapplicable where two vessels are following a narrow channel. At that point the narrow channel rules apply and each vessel will keep close to her own starboard side. The court concluded that where one vessel is approaching the narrow channel, the crossing rules apply until that vessel is shaping to enter the channel on the starboard side on her final approach. If the crossing rules were disapplied earlier, when the vessel is preparing to enter the channel, that phase would be left with no applicable rules until the vessel actually began her entry into the channel.
5. The Supreme Court found that the stand-on vessel’s obligation under the crossing rules to keep her course and speed was not necessarily an obligation strictly to maintain her precise heading, course or even her precise speed. Her manoeuvre may involve altering her heading or course, or slowing down, such as to enter a narrow channel. Likewise, with an outbound vessel in a narrow channel being obliged to give way to a vessel approaching the end of the channel from her starboard side, the narrow channel and crossing rules can apply without conflict. The outbound vessel may have to adjust speed to resolve close quarter/collision risk if necessary within the constraints of remaining in the channel and on the starboard side.
6. Here, the two vessels were on a steady bearing giving rise to a risk of collision for 23 minutes before the collision. In spite of their varying courses and speeds, the vessels were readily visible to each other and the steady bearings were observable. The crossing rules were therefore engaged: ALEXANDRA 1 was the give way vessel and EVER SMART was the stand on vessel. The application of the crossing rules does not necessarily mean that the apportionment of liability would be different. The matter was remitted to the Admiralty Court for this to be considered.

Evergreen Marine (UK) Limited v Nautical Challenge Ltd, The EVER SMART and ALEXANDRA 1 [2021] UKSC 6

 

Off hire – act/omission of charterer?

Facts

• The vessel MOOKDA NAREE carried a cargo of wheat from Russia to Guinea. At the bottom of the charter chain was Cerealis. The charterparties provided that the ship was off hire when detained or arrested by legal process “unless such …detention or arrest [was] occasioned by any act, omission or default of the Charterers and/or sub-Charterers and/or their servants or their Agents” (clause 47). The head charter provided that charterers were to accept responsibility for cargo claims in West African ports, including putting up security to prevent arrest (clause 86).
• The vessel was arrested in Guinea on 15 December 2018 by SMG to secure a claim against Cerealis relating to another shipment on another vessel. She remained under arrest until 12 January 2019.
• The tribunal held that the vessel was not off hire because her detention was occasioned by Cerealis failing to promptly deal with or secure SMG’s claim to secure release. Charterers appealed.

HELD:

1. The burden was on owners to persuade the court that the vessel remained on hire when arrested (in accordance with the approach of the Supreme Court in the Global Santosh). The clauses aimed to negative the rule that a vessel was off hire when arrested, in circumstances where the arrest was charterer’s responsibility.
2. The “act or omission or default of… sub-Charterers” under clause 47 was not confined to conduct in breach of a contractual obligation under the sub-charter in question. The tribunal found as a fact that Cerealis should have realised that it ought to deal with SMG’s claim and did not. That was sufficient to be characterised as a failure to act/omission (even though there was no express obligation to prevent arrest). There was no error of law in the tribunal’s conclusion and so the vessel was not off hire under clause 47 from 17 December.
3. SMG’s claim was not a cargo claim under clause 86 and so not allocated to be charterer’s full responsibility. The judge found that the tribunal had erred; the narrower construction avoided startling consequences and did not disturb the Inter Club Agreement allocation of responsibility. Therefore under the head charter, the vessel was off hire until clause 47 took effect on 17 December.

Navision Shipping A/S v Precious Pearls Ltd; Conti Lines Shipping NV v Navision Shipping A/S, MV ‘MOOKDA NAREE’, [2021] EWHC 558 (Comm)