07 May 2020

ShippingBulletin - May 2020

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In this issue:

 

Defective passage planning – unseaworthiness

Facts

  • On 17 May 2011 the CMA CGM LIBRA grounded whilst leaving a Chinese port.Owners claimed General Average from cargo interests, arguing that the cause of the loss was an uncharted shoal on which the vessel grounded.
  • Cargo interests refused to pay the claimed GA contribution. They argued that (a) the cause of the casualty was the vessel's unseaworthiness, in that the vessel had an inadequate passage plan; (b) that inadequacy was a cause of the casualty; and (c) due diligence was not exercised to make the vessel seaworthy. The casualty was thus caused by owners' actionable fault (breach of Hague Rules, Art III, r 1) and accordingly cargo interests were not required to contribute in GA under the York-Antwerp Rules.
  • The passage plan consisted of two items: a document entitled "Passage Plan" in which the plan was recorded and the vessel's working chart.It was prepared by the second officer, who had failed to note on the plan a warning required by a Notice to Mariners that depths shown on the chart outside the fairway were unreliable and waters were shallower than recorded on the chart. On that basis, Teare J. held that the passage plan was defective and so the vessel was unseaworthy at the commencement of the voyage.
  • Owners appealed to the Court of Appeal against the judge’s decision, arguing that passage planning could not render a vessel unseaworthy because it involved no more than the recording of a navigational decision. The owners argued that a ship could only be unseaworthy if there was a defect affecting an “attribute” of the ship and the passage plan and working chart were not attributes of the vessel. The owner was required to have on board everything necessary for the crew to carry out proper passage planning, such as a competent crew, up to date charts and proper systems and instructions, but the use of it by the crew was then navigation or seamanship.

Held (Court of Appeal: Haddon-Cave, Flaux and Males LLJ):

  1. The appeal was dismissed.

  2. It was clear on the authorities that errors in navigation or management can render a vessel unseaworthy if they occur prior to the commencement of the voyage. There is no relevant distinction between mechanical acts of the master and crew, and acts of the master and crew which required judgment and seamanship. Nor is there any relevant distinction between one-off acts of negligence which rendered a ship unseaworthy and continuing or systemic failings.

  3. The court doubted whether unseaworthiness required a defect affecting an “attribute” of the ship but did not find it necessary to decide the point as it was clear that the defective passage plan and chart were attributes of the ship in this case.

  4. The court rejected owners’ argument that even if the ship was unseaworthy, there was no relevant failure to exercise due diligence. Once owners assumed responsibility for the cargo as carriers, all the acts of the master and crew in preparing the vessel for the voyage are performed in the capacity of carrier, even if they are acts of navigation before and at the commencement of the voyage. Owners are responsible for all such acts as a consequence of the non-delegable duty under Article III rule 1 of the Hague Rules.

Alize 1954 v Allianz Elementar Versicherungs AG, The “CMA CGM LIBRA” [2020] EWCA Civ 293

 

Demurrage time bar – provision of supporting documentation

Facts

  • The Amalie Essberger was voyage chartered by claimant owners to defendant charterers to carry cyclohexane.
  • The vessel completed loading on 1 December 2017 at Rotterdam.
  • Discharge at Castellon commenced on 9 December 2017 but was delayed because of alleged contamination of the cargo, and only completed on 21 December 2017.
  • On 22 December 2017 owners submitted a demurrage claim by email.The claim was accompanied by the vessel’s terminal logs, NOR and the vessel’s discharge port pumping logs.
  • The claim was not accompanied by the vessel's pumping log at load port and the Master’s letter of protest dated 30th November 2017 (which noted that charterers' and shippers' surveyor had not supplied the Vessel with sealed samples of the cargo upon completion of loading) (together “the Disputed Documents”).However, both of these documents had already been provided by the owners to the charterers, on 1st December 2017.
  • Charterers applied for summary judgment on the ground that owners had no real prospect of succeeding because of the time bar defence.They also had a further defence to the demurrage claim that the delay was caused by contamination which was owners’ fault.

Relevant contract terms

“5) TIME BAR

Any claim for demurrage, deadfreight, or invoices shall be considered waived unless received by the Charterer or Charterer’s broker in writing with all supporting calculations and documents, within 90 days after completion of discharge of the last parcel of Charterer’s cargo(es). Demurrage, if any, must be submitted in a single claim at that time, and the claim must be supported by the following documents:

A. Vessel and/or terminal time logs;

B. Notices of Readiness;

C. Pumping Logs; and

D. Letters of Protest

23) DOCUMENTATION CLAUSE

For any load/discharge operation owner must provide charterer with a complete sets of cargo documents including:

  • NOR
  • SOF
  • Dead freight claim (If issued)
  • Any letter of protest issued/received in connection with cargo operations
  • Vessels cargo calculations after loading/prior discharge
  • Empty tank certificate
  • Vessel pumping Logs … and Letter of Protest against high back pressure/any shore limitations which must be duly signed by Master and responsible shore personnel.
  • Nitrogen log, if any nitrogen purging being carried out on cargo.
  • Temperature log, if any cargo heating.

These documents should be forwarded to charterers within 7 banking days after completion of loading or discharge. Faxed copies will be accepted provided readable …”

Held (Deputy Judge Peter Macdonald Eggers QC):

  1. Charterers’ application for summary judgment was dismissed.

  2. When construing demurrage time bars, the commercial intention is relevant, namely to ensure claims are made within a short period of final discharge so that claims can be investigated while still fresh.A demurrage time bar should therefore be construed with the object of clarity and certainty, so that owners know what is required and charterers know what documents can legitimately be expected.Any ambiguity must be construed restrictively against charterers and in favour of owners.

  3. Issue 1, whether the “supporting documents” must include the Disputed Documents did not arise. This was because “all … supporting documents” did not mean all relevant documents. Such a meaning would impose an unnecessary burden on owners and would be uncertain and unclear.However, clause 5 specifies which documents are deemed to be supporting documents and the four listed categories of documents must be provided in support of the demurrage claim, even if they are strictly irrelevant.The Disputed Documents were included in the specified documents, so it did not matter whether they fell within “all supporting documents”.

  4. The judge held that the supporting documents can include documents already in the charterers’ possession and that all of the supporting documents did not have to be presented to charterers at the same time as the demurrage claim.There was no express requirement that the documents must be provided at the same time as the demurrage claim.The clause did not require simultaneous submission of the claim and all the documents; it merely required that they all needed to be submitted within the 90 days period.“Single claim” means that only one claim may be submitted, not separate claims for load and disport demurrage.

  5. If the supporting documentation was provided before the completion of discharge, that does not mean that any claim will be time-barred. Clause 23 envisages some supporting documents being provided within 7 days after loading, which might well be before completion of discharge.

  6. Charterers must be in a position to know that the supporting documentation relates to the claim and it must be objectively apparent that the documentation is that which supports the claim.The Disputed Documents were expressly required under clause 5 and clause 23.It should have been obvious to charterers that the Disputed Documents were already in their possession and that they were specified deemed supporting documents under cl 5.Owners were not obliged to draw to charterers’ attention that the Disputed Documents already in their possession were documents required under cl 5.

Tankreederei GmbH & Co KG v Marubeni Corp, The “AMALIE ESSBERGER” [2019] EWHC 3402 (Comm)

 

Demurrage time bar – supporting documentation – bills of lading not provided

Facts

  • Owners of MTM HONG KONG voyage chartered it to charterers.
  • The charterparty provided that if discharge was done simultaneously with other parcels, then demurrage was to be pro-rated.
  • Demurrage claims were to be submitted in writing with “all supporting documents” within 90 days of discharge.
  • At the discharge port the charterers’ parcel of cargo was discharged simultaneously with a third party’s parcel.
  • Within the 90-day limit, owners submitted by email a formal claim for demurrage, attaching a number of documents.
  • The documents included a statement of facts but not copies of either charterers’ bill of lading or the third party’s bill of lading.
  • Charterers argued the claim was time-barred as the claim had not attached “all supporting documents” (in that the bills of lading were not provided) and the 90-day period for submitting them had elapsed.
  • In arbitration, owners’ claim succeeded in full. The tribunal stated: “The statement of facts which records the bill of lading figure is in reality all that Charterers need to check that the apportionment … has been correctly calculated.”
  • Charterers appealed.

Held (Robin Knowles J)

  • Charterers’ appeal was allowed.
  • Owners argued their claim was sufficiently documented by the statement of facts and in any event the third party bill of lading was not an available document.
  • The Judge noted that the charterparty made it clear that pro-rating for demurrage purposes had to be calculated by reference to bill of lading quantities.
  • In addition, the charterparty required “all” supporting documentation, not just “supporting documentation”.
  • In those circumstances it was not possible to treat the bills of lading as outside the requirements of “all supporting documentation”.
  • If there were sensitive elements in the bills of lading, those could be redacted.
  • If a bill was not available, a proper explanation would need to be provided alongside what was available.

Tricon Energy v MTM Trading LLC [2020] EWHC 700 (Comm)

 

Bill of lading – “Apparent good order and condition”

Facts

  • The MV Tai Prize was time chartered by the owner to the defendant time charterer and voyage chartered by the time charterer to the claimant voyage charterer.
  • The voyage charter was for carriage of heavy grains, soya and sorghum in bulk from Brazil to China.
  • Owner’s bills of lading were issued on CONGENBILL 1994, describing cargo as “clean on board” and “in apparent good order and condition”.The bills of lading incorporated the Hague Rules.
  • At the discharge port, damage to cargo was discovered.
  • Cargo receivers brought a claim against the owner in China and were awarded damages.
  • The owner commenced London arbitration against the time charterer, claiming a 50% contribution. The time charterer settled the claim and paid $500,000 to the owner.
  • In the present reference, the time charterer claimed this sum plus various costs from the voyage charterer by way of indemnity and succeeded before the arbitrator on the basis that the shipper was voyage charterer’s agent. The voyage charterer had impliedly warranted in the bill of lading that the cargo was shipped in apparent good order and condition and/or impliedly agreed to indemnify the time charterer against the consequences of any inaccuracy.The cargo was not shipped in apparent good order and condition because cargo discolouration would have been visible on reasonable examination by shipper, even though not reasonably visible to Master or crew.
  • Voyage charterer appealed to the High Court.

Held (Judge Pelling QC):

  1. Voyage Charterer’s appeal was allowed.A warranty is deemed to have been supplied by the shipper to the carrier in respect of the cargo information to be furnished in writing by the shipper under Hague Rules, Art III, Rule 3. There is no such warranty in respect of the apparent order and condition of the goods.In the present case the words “clean on board” had been typed in the “shipper’s description” box. It was arguable that that constituted an express representation by the shipper that the goods were in apparent good order and condition. However, neither party had argued the point before the arbitrator or sought to uphold the award on that basis.

  2. The Judge held that by presenting the draft bill of lading for signature, the shippers and/or the voyage charterer were not representing or warranting that the goods were “in apparent good order and condition”.The shipper was doing no more than inviting the Master to make a representation of fact in accordance with his own assessment of the apparent condition of the cargo.

  3. The Judge held that the bill of lading was not inaccurate as a matter of law. It contained no more than a representation of fact by the Master as to the apparent condition.That representation was not inaccurate because the Master did not and could not reasonably have discovered the relevant defects because they were not reasonably visible to him.

  4. The charterparty incorporated the Hague Rules, which impose an indemnity obligation on charterers in respect of information furnished by the charterer, but no indemnity in respect of statements concerning apparent order and condition of cargo. There was no room for an implied guarantee or warranty. It would be wrong to imply a provision that makes the claimant liable to indemnify the defendant when the drafters of the Rules could have done so, but did not.

Priminds Shipping v Noble Chartering [2020] EWHC 127 (Comm)

 

Shipbuilding contract – final payment guarantee – liability of guarantor

Facts

  • Shanghai was the builder of a drillship for Opus
  • Reignwood provided a guarantee of Opus’s final payment.
  • Opus did not take delivery of the vessel on the basis that it was not deliverable. 
  • Shanghai claimed the final instalment from Opus and then made a demand of Reignwood under the guarantee on 23 May 2017. 
  • An arbitration was commenced on 13 June 2019.

Preliminary issues

Whether on the true construction of the guarantee:

1.(i) it was a demand guarantee such that Reignwood’s liability arose on the demand, whether or not the buyer was liable to pay the final instalment; OR

  (ii) it was a “see to it” guarantee such that the liability arose on the demand only if the buyer was liable to pay the final instalment.

2. Reignwood could refuse payment under clause 4 pending the outcome of the arbitration (i) only if the arbitration was commenced before the demand was made; OR (ii) irrespective of when the arbitration was commenced.

Relevant contract terms

Clause 1: “…[the Guarantor] hereby IRREVOCABLY, ABSOLUTELY and UNCONDITIONALLY guarantees in accordance with the terms hereof, as the primary obligor and not merely as the surety, the due and punctual payment…of the Final Instalment

Clause 4: “In the event that the Buyer fails to punctually pay the Final Instalment guaranteed hereunder…and any such default continues for a period of fifteen (15) days, then, upon receipt by the Guarantor of the Builder’s first written demand, the Guarantor shall immediately pay to the Builder …all unpaid Final Instalment.. without requesting the Builder to take any further action, procedure or step against the Buyer or with respect to any other security which you may hold.

In the event that there exists dispute between the Buyer and the Builder as to whether:

(i) The Buyer is liable to pay to the Builder the Final Instalment…

And such dispute is submitted …for arbitration …the Guarantor shall be entitled to withhold and defer payment until the arbitration award is published. The Guarantor shall not be obligated to make any payment to the Builder unless the arbitration award orders the Buyer to pay the Final Instalment”

Held (Knowles J):

1 The guarantee was a “see to it” guarantee so liability under the guarantee only arose if the buyer was liable to pay the first instalment. In reaching this conclusion he followed the approach to construction recognised in Lukoil v Ocean Tankers ([2018] 1 Lloyd’s Rep 654), Wuhan v Emporiki ([2014] 1 Lloyd’s Rep 266) and “Paget’s presumption”. 
2

Where Paget’s presumption applies, the guarantee is almost always construed as a demand guarantee, if the guarantee:

2.1 relates to an underlying transaction between parties in different jurisdictions;
2.2 is issued by a bank;
2.3 contains an undertaking to pay ‘on demand’; and
2.4 does not contain clauses excluding or limiting the defences available to a guarantor.
3 In the present case, the guarantee had not been issued by a bank. In that situation, there needed to be other cogent indications that the instrument was intended to operate as a demand guarantee. The indications here were not sufficiently strong to conclude that the guarantee was a demand guarantee.
4 There was no basis in the language of clause 4 for an interpretation that the parties intended that the dispute had to have been referred to arbitration before the demand was made, in order for the guarantor to withhold payment. The guarantor was therefore entitled to refuse to pay under the guarantee until the dispute as to whether the final instalment was payable had been resolved.

Shanghai Shipyard Co Ltd v Reignwood International Investment (Group) Company Ltd and (Pt 20 Defendant) Opus Tiger PTE Ltd [2020] EWHC 803 (Comm)

 

Guarantee – validity of call

Facts

  • Yuanda was a subcontractor on a major construction project in which Multiplex held the main contract. The performance of Yuanda’s obligations under its contract with Multiplex was guaranteed to a maximum amount of £4,411,490.70 by a guarantee issued by the Second Respondent, Australia and New Zealand Banking Group Limited (the “Bank”). The guarantee was substantially in the form of the ABI Model Form of Guarantee Bond.
  • Following delays to the subcontracted works (the cause of which was in dispute between the parties and being adjudicated pursuant to the terms of the subcontract) Multiplex sought to call on the guarantee for the maximum sum on 17 January 2020.
  • Following this call, Yuanda obtained an injunction preventing Multiplex from pursuing the demand it had made on the Bank and preventing the Bank from paying out on that demand until the return date or further order.
  • Yuanda applied to continue the injunction at the return date hearing on 19 February 2020.
Issues

(i)       Was the guarantee an on-demand or a performance bond?

(ii)        If the guarantee was a performance bond, what were the requirements that needed to be satisfied before Multiplex could validly call on the guarantee?

Held (Fraser J):

  1. In making the call on the guarantee, Multiplex had treated it as an on-demand bond; a type of bond that creates an unconditional obligation on the institution providing the guarantee to pay out on the bond when a call is made. On-demand bonds create a primary liability between the institution giving the bond and the beneficiary of the bond.However, the guarantee was not an on-demand bond but a performance bond. Performance bonds, or “conditional” bonds, are instruments of secondary liability and payment out on such guarantees depends upon liability arising out of the contract underlying the guarantee, namely the subcontract.

  2. A performance bond (the guarantee) should not put the beneficiary (Multiplex) in a better position than it would be under the terms of the underlying contract (the subcontract).Yuanda had therefore been entitled to an injunction against Multiplex, preventing it from calling on the guarantee.

  3. The language of the guarantee made it plain that the guarantee was a performance bond and that payment out was conditional on liability arising as a result of Yuanda breaching the subcontract. Further, damage sustained by such breach had to be “established and ascertained pursuant to and in accordance with the provisions of or by reference to the [Subcontract]” before a right to payment could be made out under the guarantee.

  4. When calling on the guarantee, Multiplex relied on the liability for damages arising out of delays in completion of the subcontracted works.That liability had not been “established and ascertained” under the terms of the subcontract, as required by the guarantee. Although Multiplex had made a claim in respect of this liability, this had not been accepted or agreed by Yuanda and it was presently the subject of an adjudication, pursuant to the terms of the subcontract.

  5. Once the adjudication was concluded any liability would be “established and ascertained” under the terms of the subcontract (further court proceedings were not required).In this event, Multiplex would then be able to make a valid call on the guarantee.

Yuanda (UK) Co Ltd v Multiplex Construction Europe Ltd (formerly known as Brookfield Multiplex Construction Europe Ltd) and another [2020] EWHC 468 (TCC)

 

Scuttling – insurance loss payee - jurisdiction

Facts:

  • In October 2016 it was found (as part of a limitation action) that the owner had scuttled his ship and the claimants were able to break limit because the loss was caused by the owner's personal act or omission with intent to cause such loss. 
  • The insurers had already paid out in full on the insurance claim but following the October judgment, sought to claim back the money paid from the vessel's mortgagee Bank, to whom the insurance proceeds had been paid. 
  • The issue was whether the English Court had jurisdiction.The Bank was domiciled in the Netherlands. The Underwriters brought proceedings in England and served proceedings on the Bank in the Netherlands. The Bank objected on the basis that under the Brussels Recast Regulation the English court had no jurisdiction and that they should be sued in the courts of the Netherlands.
  • Underwriters argued that the English court had jurisdiction because the Bank was bound by the exclusive jurisdiction clause in the settlement agreement and/or in the policy; or the claims brought against the Bank were in tort, delict or quasi-delict and the harmful event occurred in England (under article 7(2) of the Recast Regulation).
  • Teare J. held that Underwriters were successful only in part:To the extent that the Underwriters' claim was based on misrepresentation, there was a harmful event that occurred in England; the signing of the settlement agreement, payment of the US$22 million, where the misrepresentations were made and/or where the underwriters were induced. The English court therefore did have jurisdiction over the claim for damages for misrepresentation. 
  • Both parties appealed to the Court of Appeal, who held that Teare J. had applied the appropriate test of “good arguable case”. However, the English Court did not have jurisdiction except in relation to Underwriters' claim for damages for misrepresentation.
  • Both parties appealed to the Supreme Court, which had to consider whether the Bank was bound by the jurisdiction clause in the policy; and whether Underwriters’ claims fell under articles 7(2) or 14 of the Recast Regulation.

Held (Supreme Court: Hale, Reed, Kerr, Hodge, Lloyd-Jones, Kitchin and Sales SCJJ)

1 The decisions of the lower courts were upheld, with the exception of the conclusion on jurisdiction for the misrepresentation claim, which was overturned.
2 The Bank was not bound by the jurisdiction clause in the policy.It was not a party to the policy and it did not commence proceedings to enforce its claim under the policy.Owners/Managers reached an agreement with Underwriters.The Bank then produced a letter of authority which allowed Underwriters to discharge their obligations and provided a mechanism for the Bank to receive its entitlement.At the time of payment, there was no dispute about the entitlement and no need for legal proceedings.There was therefore no inconsistency between the Bank’s actions and the jurisdiction clause.
3 “Matters relating to insurance” (section 3, Recast Regulation) should not be interpreted narrowly.The Regulation is concerned with more than just the parties to the insurance contract, including beneficiaries of the insurance and the injured party with liability insurance.Although the CJEU has often held that articles which derogate from the general rule of jurisdiction (namely that they should be sued in domicile) should be interpreted strictly, article 14 actually reinforces the general rule of jurisdiction (for insurance matters, can only be sued in domicile).
4

The Bank was entitled under article 14 to be sued in its domicile:

4.1 Article 14 protects the policyholder, insured and beneficiary of an insurance policy because they are generally the weaker party in a commercial negotiation and are, as a matter of course, presented with a standard term contract.
4.2 Although recital 18 explains the policy, it is the words of the relevant articles which have legal effect.The recitals are simply an aid to interpretation. 
4.3 Derogations from the jurisdictional rules in matters of insurance must be interpreted strictly.
4.4 The CJEU does not favour a case by case analysis of the relative strength and weakness of contracting parties as that would militate against legal certainty.Instead it has treated everyone within the categories of policyholder, insured or beneficiary as protected unless the Regulation explicitly provides otherwise.
4.5 Recital 18 would be considered in the context of whether the protections should be extended to other analogous persons, not to narrow the category of protected persons.
4.6 The underlying policy is that of upholding the general rule in article 4 that defendants should be sued in their domicile and allowing extensions only where such an extension is consistent with the policy of protecting the weaker party.
5 The Bank, as loss payee and therefore beneficiary of the policy, was clearly within the category of parties who are entitled to the benefit of article 14 to be sued in its domicile, whatever its economic power in relation to the Underwriters.It is not necessary to refer a question to the CJEU. 
6 Given the above conclusions, Underwriters could not therefore assert jurisdiction under article 7(2) in respect of its misrepresentation claim (Issue 3) and the issue relating to the restitution claim did not arise (Issue 4).
7  The courts of England and Wales had no jurisdiction in respect of Underwriters’ claims against the Bank.

Aspen Underwriting Limited and others v Credit Europe Bank NV, The "ATLANTIK CONFIDENCE" [2020] UKSC 11

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