In this issue:
Cargo claim – delay – strike out
Facts
The claim arose out of carriage of a cargo of bananas which was alleged to have arrived in poor condition. Pleadings were exchanged and the next step was for the claimant (Alba) to apply for a Case Management Conference (CMC). It failed to do so.
Over 4 years later Alba changed its legal representation and applied to amend its statement of case.
The defendant, MSC, applied for the claim to be struck out, or alternatively for security for costs to be provided.
Held:
- The strike out application was refused. The delay was inordinate and inexcusable, but MSC had not demonstrated that they had been seriously prejudiced such that a fair trial would no longer be possible. (They had presumably collated all relevant documents and information at the time of pleading and that information would still be available to them. The case was not going to require significant witness evidence.)
- Security for costs should be provided. Alba would not be given relief from sanctions for failing to apply for a CMC and the sanction applied to them was to provide security for costs. Alba's default was a serious one which delayed the litigation significantly and increased costs. It would be grossly unfair if MSC were unable to enforce any costs order if they were successful.
Alba Exotic Fruit SH PK v MSC [2019] EWHC 1779 (Comm)
Bareboat charter – continuing class requirement not a condition
Facts
In 2012 Silverburn Shipping (IoM) Ltd, bareboat chartered its vessel, the tug “ARCTIC”, to ARK Shipping Company LLC, for a period of 15 years on an amended BARECON 89 form.
The vessel arrived at the Caspian port of Astrakhan for repairs and maintenance on 31 October 2017. Her class certificates expired on 6 November 2017, before she entered dry dock for repairs. By a notice of termination sent in December 2017, Silverburn purported to terminate the charterparty and demanded redelivery of the vessel, contending that ARK had failed to pay hire in full and had failed to keep the vessel in class.
Silverburn commenced arbitration in January 2018. The Tribunal dismissed the application for delivery up of the vessel and held that the December 2017 notice in relation to non-payment of hire was wrongful and invalid. It also held that charterers’ obligation to maintain the vessel and keep her in class were not “absolute” but required the exercise of due diligence. Silverburn appealed.
At first instance, Carr J reversed the Tribunal's decision, holding that the obligation to keep the vessel in class was a condition and accordingly charterers could terminate for any breach of it. Ark appealed.
The sole question of law before the Court of Appeal was whether the term contained in Clause 9A of the charterparty obliging the charterers to “… keep the vessel with unexpired classification of the class indicated in Box 10 and with other required certificates in force at all times” was a condition or an innominate term.
Held:
- Appeal allowed. The term was not a condition.
- As a matter of the words used and the context, the term was not a condition. The term was not expressed as a condition. Although this was not decisive, it was a significant consideration given that BARECON 89 is an industry standard form, drafted after consideration by an industry drafting committee.Further, the fact that the term related to the vessel’s classification status, although important, was not sufficient in itself to make it a condition.
- The balance struck by the Judge was wrong and her conclusion was unduly harsh to the charterers. Certainty was, without doubt, an important consideration, but not one entitled to undue weight in determining whether a term is a condition or innominate.
- The term was not a “time clause” similar to that in Bunge v Tradax. The fact that the term obliged the charterers to maintain class throughout the time charterparty (the “temporal element”) did not make it in any way analogous to a time clause. Nor was there any interdependence here between the provisions (which had been a key factor in Bunge v Tradax).
- Although the term went to the classification status of the vessel (the importance of which the Court did not seek to minimise), this was outweighed by a plethora of other factors. This included the fact that the term was located in the middle of Clause 9A, This location was surprising if it had been intended that the classification obligation was to be a condition.
- The term required the charterers to keep “…other required certificates in force at all times”. This wording could not be limited to certificates required by class because it would have added nothing to the charterers’ obligation to maintain class. The consideration of “other required certificates” was damaging to the owners’ case as they were driven to say either that only a part of the term was a condition (this was an unattractive and improbable construction), or that charterers’ obligation as to “other required certificates” forms part of the condition for which they contend (which seemed hopelessly open-ended as it would mean that the 15 year charterparty could be terminated by the owners if the charterers committed any breach in respect of far less significant certificates).
- It was clear that Clause 13B (dealing with P&I insurance) was not a condition of the charterparty. A breach by the charterers of Clause 13B did not entitle the owners, without more, to terminate the charterparty.Clause 13B was of similar significance to clause 9A and the effect of breach being less severe than clause 9A undermined Silverburn’s submission that clause 9A was a condition.
- Breach of the term may result in trivial, minor or very grave consequences, thus suggesting that the term is innominate rather than a condition.
- It was one thing to conclude that a statement as to the vessel’s class at the commencement of the charterparty was a condition or condition precedent. It would be quite another to hold that a 15 year warranty to maintain the vessel in class at all times is a condition. Typically, continuing time charter warranties as to the vessel’s physical condition do not constitute conditions. The advantages of certainty to be achieved by the categorisation of the term as a condition were clearly outweighed by the risk of trivial breaches having disproportionate consequences.
Ark v Silverburn [2019] EWCA Civ 1161
Voyage charters – cancellation – NOR not served on working day
Facts
- The vessel “ALPHA HARMONY” was voyage chartered and sub-voyage chartered. In each case the cancelling date was 10 May 2015 (a Sunday).
- NOR was tendered by email on Sunday, 10 May 2015 at 0704.
- Sub-charterers cancelled the sub-charter at 2047 on 10 May. Charterers cancelled the head charter at 0555 the next morning.
- In subsequent arbitrations the issue was whether the cancellations were lawful in circumstances where the NOR was tendered before the relevant time on the cancelling date but not during permitted hours.
- The tribunal held that neither cancellation was valid. In each case the cancelling party appealed.
Held (Teare J):
| 1 |
The appeal in respect of the head charter was dismissed: cancellation of the head charter was not valid.
| 1.1 |
The sub-charter provided that: NOR was to be delivered between 0800-1700 Monday to Friday and 0800-1100 on Saturdays (cl 14); and charterers were entitled to cancel if NOR was not delivered as per clause 14 by noon on 10 May, up until the time when the NOR was actually presented (cl 16).
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| 1.2 |
Clause 16 required that NOR be tendered in accordance with clause 14, which included the office hours during which it could be tendered. There was no inconsistency between clause 14 and the requirement in clause 16 that the option to cancel only arose at noon on 10 May, a Sunday. There was no justification for extending the time for NOR to noon on Sunday 10 May.
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| 1.3 |
It was not uncommercial if the effect of the clauses was that an NOR delivered at 1059 on Saturday would not give rise to the option to cancel, whereas one given at 1101 would.
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| 1.4 |
Although it appears uncommercial for charterers to have the right to cancel when an NOR had in fact been delivered before noon on 10 May, the custom by which NOR is provided during office hours is longstanding. It may well now be outdated given the use of email, but the parties to the charterparty nonetheless used this requirement and it should not be ignored simply because it is outdated.
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| 1.5 |
The provisions used provided certainty and it would create uncertainty if an NOR could be valid for one purpose (option to cancel) but invalid for another (running of laytime).
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| 2 |
The appeal in respect of the head charter was dismissed: cancellation of the head charter was not valid.
| 2.1 |
The head charter provided that: laytime was to commence at 0800 on the working day after NOR was tendered (cl 17). Cl 17 also stated: “See also clause 70.” It also provided that NOR was to be tendered within office hours, which were 0800-1700 Monday to Friday and 0800-1100 on Saturdays (cl 70) and that charterers had the option of cancelling the charter if NOR was not tendered as per clause 17 by 2359 on 10 May (cl 4).
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| 2.2 |
Significant amendments had been made to clauses 4 and 17. In clause 4, the time after which the option to cancel arose had been extended from midday to 2359, long after office hours have closed. In clause 17, the office hours requirement had been removed (although it remained in clause 70). The combined effect of the amendments to clauses 4 and 17 was that, for the purposes of the cancellation clause, the parties had removed the requirement that NOR be delivered during office hours.
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| 2.3 |
Clause 70 dealt with laytime and the reference in clause 17 to clause 70 was clearly intended by the parties to achieve the result that the office hours requirement applied in relation to laytime, but not in relation to cancellation. There would be no other objective reason for the amendments made to the various clauses.
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| 3 |
The reason for the different results in the two appeals was that the charterparties were not back-to-back. |
Bilgent Shipping v ADM International Sarl, ADM International Sarl v Oldendorff Carriers GmbH & Co KG [2019] EWHC 2522 (Comm)
Scuttling – CTL – wilful misconduct
Facts
- The BRILLANTE VIRTUOSO was en route from the Ukraine to China with a cargo of fuel oil. She was in Yemeni waters in the Gulf of Aden, drifting, waiting to take on board an unarmed security team of three to assist the vessel as she proceeded through the Gulf of Aden.
- A small boat approached the vessel carrying seven men whose faces were covered and who were armed. The men said that they were security and the Master permitted them on board.
- The crew were assembled in the day room and the Master and chief engineer were instructed to proceed to Somalia. Gun shots were heard, the main engine stopped and then an improvised explosive device was detonated, which started a fire that spread throughout the engine room. This fire burned for several days and the vessel was ultimately so badly damaged that she was scrapped.
- The armed men left the vessel, the chief officer radioed for help from a nearby US naval vessel and the crew abandoned ship.
- Owners and the mortgagee bank made a claim on the war risks policy for US$77 million (vessel value of US$55 million and US$22 million for disbursements and increased value), on the basis that the vessel was a CTL.
- Flaux J found that the vessel was a CTL. Underwriters alleged that the fire had been deliberately started with the consent of owners. Owners’ claim was struck out after the beneficial owner of the owning company (Mr Iliopoulos) failed to comply with a Court order for disclosure and lied to the Court.
- The claim was continued, in part by the Bank and, in part by the underwriters of the Bank’s mortgagee interest insurance policy, by way of subrogated claim.
- The main issue was whether the vessel was scuttled. A further issue was whether the wilful misconduct of the owners prevented the Bank from recovering under the policy.
Held:
- There was no plausible evidence of the events which befell the vessel which was consistent with an innocent explanation. The armed men who boarded the vessel did so with the intention of starting a fire on board the vessel using an improvised explosive incendiary device. They had no intention of hijacking the vessel for ransom and only pretended to be pirates.
- The Master and chief engineer assisted the armed men with their task, such as by allowing the vessel to drift and providing accelerant for the fire.Mr Vergos of Poseidon Salvage also assisted by failing to take necessary measures to prevent the spread of fire.
- All these events were orchestrated by Mr Iliopoulos. His motive was the financial gain from a fraudulent insurance claim which would solve the serious financial difficulties which he was in at the time.
- Owners’ claim, had it not already been struck out, would therefore have failed by reason of the loss having been caused by its wilful misconduct (within the meaning of section 55(2)(a) Marine Insurance Act 1906) and not an insured peril.
- The Bank as co-assured had to show that the loss was caused by an insured peril.There was no loss by piracy because the armed men were not acting for personal gain.Nor was the threat of violence to the crew sufficient because it was simply a means of defrauding the underwriters.
- Further, there was not a loss by ‘persons acting maliciously’; the armed men intended to damage the vessel but because they had been asked to, not out of ill will, spite or the like. Nor was it vandalism (it was not wanton or senseless damage to property, but rather, specific damage to assist Mr Iliopoulos in defrauding the Underwriters) or sabotage (the damage was not aimed at frustrating owners’ ability to trade the vessel).
- Finally, it was not capture, seizure, arrest, restraint or detainment. Owners were in control of the vessel the entire time through the agency of the Master and had not been deprived of possession of the vessel. The Bank’s claim was dismissed on the basis that there was no loss by an insured peril.
Suez Fortune Investments Ltd. and another v Talbot Underwriting Ltd and others [2019] 2 Lloyd’s Rep 485
COA – exceptions clause
Facts
The parties entered into a long term contract of affreightment to provide shipments of iron ore pellets from Brazil to Malaysia on tonnage to be provided by the shipowner. Seven shipments should have taken place between July 2015 and June 2016.
Charterers failed to provide a cargo for the first two shipments and accepted liability to pay damages (substantial for the first shipment but nominal for the second, as shipowners had suffered no loss).
Shipments three to seven were not provided because a dam burst, flooding the area and preventing mining at the mine (Ponta Ubu) from which all the iron ore pellets had been provided. Shipments were possible from Tubarao where Vale was the supplier but the first instance judge (Teare J) found that Vale would not have agreed to supply the pellets to the charterer. It was therefore impossible for charterers to perform the COA.
Teare J also found at first instance that even if the dam burst had not occurred, it was more likely than not that the charterer would not have been able and willing to supply cargo for shipment under the COA, so would have defaulted anyway.
Clause 32 of the COA provided that:
"EXCEPTIONS
Neither the Vessel, her Master or Owners, not the Charterers, Shippers or Receivers shall be Responsible for loss or damage to, or failure to supply, load, discharge or deliver the cargo resulting From: … accidents at the mine … or any other causes beyond the Owners', Charterers', Shippers' or Receivers' Control; always provided that any such events directly affect the performance of either party under This Charter Party. If any time is lost due to such events or causes such time shall not count as Laytime or demurrage …"
It was common ground that the dam burst qualified as an accident at the mine and that it was beyond charterers' control.
Teare J held that charterers could not rely on the exceptions clause because they could not show that, but for the dam burst, they would have supplied the cargo.
However, only nominal damages were awarded to the shipowners because, following the compensatory principle, the shipowners could not be put in a better position than if charterers had performed, and as it would have been impossible to perform the contract, they were only entitled to nominal damages.
Both parties appealed.
Held:
- The appeal on construction of the clause was dismissed. The correct construction of the clause was that a reasonable and realistic businessman would understand it to mean that if the charterers would not have performed their obligations in any event, even without the dam burst, the failure to perform cannot fairly be said to have "resulted from" the dam burst and the dam burst cannot fairly be said to have "directly affected" the performance of the charterers' obligations. The charterers could not therefore rely on the exclusion clause.
- The appeal on damages was allowed. The judge had erred in his application of the compensatory principle. The innocent party had to be put in the position as if the contract had been performed. Charterers' obligation under the COA was not to be ready and willing to provide a cargo. Charterers' obligation under the COA was an absolute obligation to supply cargoes. They had not done this and whether they were unable or it was impossible for them to comply was irrelevant. Charterers were therefore liable to pay damages of $19,869,573 to shipowners.
Classic Maritime Inc v Limbungan Makmur SDN BHD and another [2019] EWCA Civ 1102
CTL – salvage costs - SCOPIC
Facts:
The MV "RENOS" suffered an engine room fire that caused extensive damage. There was a lengthy debate about the cost of repairs and so a significant delay in owners giving a Notice of Abandonment to insurers and claiming a constructive total loss (CTL).
Insurers contended that the vessel was not a CTL and that owners had lost the right to abandon the vessel and claim CTL, owing to their delay. They also disputed the amount of sue and labour expenses to which owners were entitled.
At first instance and in the Court of Appeal, it was decided that owners had not lost their right to give NOA and claim a CTL. That issue was not appealed to the Supreme Court.
There was also a dispute as to the costs which could be included in the 'costs of repairs' for the purposes of the CTL calculation, and whether this included (i) expenditure incurred before service of the NOA (this included all of the salvage costs and a large part of the cost of the standby tug), and (ii) the SCOPIC charges paid to salvors. (The effect of not including these costs in the calculation was that the vessel might not be a CTL.)
The High Court and Court of Appeal held that costs incurred prior to the date of the NOA were still "costs of repairs", irrespective of when they were incurred and so should be counted for the purposes of the CTL calculation. Further, owners had to pay all of the salvage remuneration to recover the vessel and it was irrelevant that it comprised of two elements (notional salvage award and SCOPIC costs). The total costs therefore should be taken into account in the CTL calculation.
Both issues of costs to be included were appealed to the Supreme Court.
Held:
- The appeal was dismissed in relation to costs incurred before the NOA. The cost of repairing the damage for the purposes of the CTL calculation included all the reasonable costs of salving and safeguarding the vessel, from the time of the casualty onwards.
- As a general rule, loss under a H&M policy occurs at the time of the casualty and not when the measure of indemnity is ascertained. The obligation of the insurer is to hold the assured harmless from loss so as soon as loss/damage occurs, the insurer is in breach of that obligation and liable to pay unliquidated damages.
- CTL is a legal device for determining the measure of indemnity. The Marine Insurance Act 1906 sets out when there is a CTL; section 60(2)(ii) "where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired" The damage referred to here was in principle the entire damage arising from the casualty from the moment that it happened.
- That principle was not affected by the legal requirement for an NOA. An NOA is not required in all circumstances (if insurer waives, or if there is no benefit for the insurer). The NOA is for the insurer to assess his potential liability. There must be a CTL before there can be an election whether to treat it as a partial or total loss.
- The appeal was allowed in relation to SCOPIC costs. SCOPIC charges were not part of the cost of repairing the damage. Their purpose is to reduce shipowner's liability for environmental damage, not to enable the ship to be repaired. SCOPIC charges are not included in general average, they are not a hull and machinery liability, rather shipowner's (and therefore a P&I liability). They are not a cost which must be incurred to enable the vessel to be repaired, such as the cost of towage to a repair yard. It makes no difference that all prudent owners would have contracted with salvors on these terms.
- The matter was remitted to the first instance judge for determination of the matter in light of the Supreme Court's decision.
The Swedish Club and others v Connect Shipping Inc [2019] 1 Lloyd’s Rep Plus 59
Vessel sold for demolition only – breach of MOA
Facts
The Defendant sold the vessel “CSK GLORY” to the claimant on an amended Saleform 1993. The vessel was delivered to the claimant on 14 May 2019.
Clause 19 of the MOA provided that “The vessel is sold for the purpose of demolition only and the Buyers hereby guarantee that they will not trade the Vessel further nor sell the vessel to a third party for any purpose other than demolition and will, on completion, furnish the Sellers a certificate stating that the vessel has been totally demolished.”
The buyer wanted to use the vessel for carrying cargo because scrap rates had dropped but the freight market for Capesize bulkers had risen. The buyer asked the seller to relax the restriction in clause 19, but the seller refused. The buyer nonetheless used the vessel for two trading fixtures and fixed a third on the day before trial started.
The seller arrested the vessel in India but the vessel was released when security was provided.
The buyer commenced proceedings in the English court for an anti-suit injunction in respect of the Indian proceedings, alleging that the seller was in breach of the jurisdiction clause in the MOA. It also requested a declaration that the seller was entitled to no more than nominal damages for the buyer’s breach of clause 19.
Held (David Edwards QC):
- A final injunction was granted preventing further trading of the vessel. The seller was entitled to such an injunction unless the buyer satisfied the court that it would be unconscionable or oppressive to grant such an injunction, or that damages would be appropriate in lieu of an injunction. The buyer did not satisfy the court on either of these matters.
- Clause 19 was clear. The breaches were deliberate. There was nothing which justified a conclusion that the financial or other consequences for the buyer if an injunction was granted would be so extraordinary as to be oppressive or unconscionable. The buyer had made a bad bargain but any losses it might have made were not good reason for relieving it from the terms of the bargain it had voluntarily made. There was also the option of laying the vessel up, and the buyer had given no explanation as to why it had not done that.
- Damages would not have been an adequate remedy. Damages would have been difficult to quantify and potentially limited. The seller had a legitimate commercial interest in insisting that the buyer adhere to clause 19, namely, reducing oversupply of Capesize tonnage.
- The buyer was allowed to conclude the loaded voyage which was underway at the time of the trial, but not to commence the third fixture.
- The seller was entitled to only nominal damages for breach of clause 19. The removal of one vessel from the pool of over 1000 Capesize vessel is unlikely to have had a measurable, provable financial impact. The only possible damages would be negotiating damages (previously known as Wrotham Park damages) which are assessed on the basis of a hypothetical release fee for the obligation imposed by clause 19. However, the obligation within clause 19 was not one of the categories for which negotiating damages were available.
- Declaratory relief was awarded that the seller was only entitled to nominal damages for the breaches of clause 19, but the judge refused to make the same declaration in respect of any future breaches.
Priyanka Shipping Limited v Glory Bulk Carriers PTE Limited [2019] EWHC 2804 (Comm)
Can MAIB report be referred to in arbitration proceedings?
Facts:
A British-registered vessel, the “OCEAN PREFECT”, ran aground.
The MAIB produced a Report on the casualty after investigating the circumstances of the grounding to see what lessons could be learnt with regard to improving the safety of shipping.
In a subsequent unsafe port claim in arbitration, both experts referred to the MAIB Report in their reports. Owners wished to refer to the MAIB Report at the hearing but charterers and the MAIB objected.
One week before the hearing, owners applied to the Court. They argued that (a) permission to refer to the report was a matter for the arbitral tribunal, but (b) if the Court’s permission was required, it should be given in the interests of justice.
Held (Teare J):
- Arbitration proceedings are “judicial proceedings” within the Merchant Shipping (Accident Reporting and Investigation) Regulations 2012, reg 14(14).
- An MAIB Report is inadmissible in arbitration unless a court determines otherwise (reg 14(14)).
- The 2012 Regulations are based on the IMO Code on Safety Investigations and EU Directive 2009/18/EC.
- Both experts had referred to the Report without obtaining the Court’s permission.
- As a matter of discretion, permission to refer to the MAIB Report was refused. The interests of justice in the arbitration did not outweigh the likely prejudice to future accident investigations and the UK’s relations with state or international organisations.
- The MAIB should have been made a party to the application.
- The application under reg 14(14) should have been made long before the hearing, not a week before.
Ocean Prefect Shipping Limited v Dampskibsselskabet Norden AS [2019] EWHC 3368 (Comm)
Withdrawal from hire – non payment of earlier instalment
Facts:
Under a time charter, hire of US$130,652 was payable every 15 days in advance.
On 11 July 2017, charterers paid only US$122,637 (an underpayment of US$8,015.40) wrongly believing fuel had been overconsumed. Owners protested, but took no steps.
On 26 July 2017, charterers paid the full instalment amount of US$130,652, but not the outstanding US$8,015.40. Owners protested, but took no steps.
On 11 August 2017, charterers paid the full instalment amount of US$130,652, but not the outstanding US$8,015.40. Owners served an anti-technicality notice (“ATN”) calling for payment of the US$8,015.40 and subsequently withdrew the vessel.
The arbitral tribunal found that owners were not entitled to withdraw and the withdrawal was a repudiatory breach by owners.
Owners appealed.
Held:
- Owners’ appeal was dismissed.
- The relevant provision of the charterparty was the BIMCO Non-Payment of Hire Clause.
- As a matter of construction of the clause, the right to serve an ATN (and to withdraw the vessel if not complied with) arose when there had been non-payment of hire that falls due for the first time on the relevant due date (ie excluding any amount that first fell due on an earlier date and remained unpaid).
- Owners were therefore liable in damages for repudiatory breach.
Quiana Navigation v Pacific Gulf Shipping (Singapore) Pte (The "Caravos Liberty”) [2019] EWHC 3171 (Comm)