In this issue:

• Limitation of liability – whether party could limit as “operator”
• Interpretation of contract – inconsistent clauses
• Demurrage – additional damages?
• Off-spec oil cargo – certificate of quality binding?
• Charterparty – implied terms for discharge
• Shipbuilding contract – delay – prevention principle
• Charterparty – subject supplier’s approval

 

Limitation of liability – whether party could limit as “operator”

Facts

• Splitt, Stema A/S and Stema UK were part of the same group, and accustomed to working together. Splitt was the registered owner of the dumb barge STEMA BARGE II.There was an agreement (akin to a voyage charter) between Splitt and Stema A/S for the use of the STEMA BARGE II.
• The barge was to be used to transport a cargo of rocks. The barge arrived off Dover under tow on 7 November 2016.Employees of Stema UK prepared the barge for lying safely at anchor, anchored her, and operated the barge’s machinery to ensure safe ballasting whilst the cargo was being offloaded. The only personnel on board were employees of Stema UK.
• On 20 November 2016 the STEMA BARGE II dragged her anchor. RTE, owners of an undersea cable, claimed that the anchor had damaged the cable. RTE accepted that Splitt (as registered owner) and Stema A/S (as charterer or operator) were entitled to limit their liability, but disputed that Stema UK could limit its liability.

Held (Teare J.):

1. The Limitation Convention 1976 provides that a “shipowner” may limit their liability in accordance with the Convention. “Shipowner” is defined to mean “owner, charterer, manager or operator” (Art I(2)). The ordinary and natural meanings of manager and operator of a vessel were:
   
   

   Manager: typically a person entrusted by the owner with the duty of devising and maintaining a safety management system to ensure the safe operation of the vessel and the prevention of pollution, crewing the vessel with appropriately qualified and trained personnel, maintaining the vessel, finding employment for her and preparing her for trading.  For the purposes of the Convention, the “manager” of the ship is the person entrusted by the owner with sufficient of the tasks involved in ensuring that a vessel is safely operated, properly manned, properly maintained and profitably employed to justify describing that person as the manager of the ship.

   Operator: includes not only the manager but also the entity which, with the permission of the owner, directs its employees to board the ship and operate her in the ordinary course of the ship’s business. It does not include those individuals on board the vessel physically operating the vessel’s machinery.  There can be more than one operator of a ship for the purposes of the Convention.

2. Stema UK was entitled to limit its liability as “operator” of the dumb barge STEMA BARGE II.It was not the operator before the barge arrived off Dover; Stema A/S was operator and retained a role as operator after the barge’s arrival off Dover.

3. Stema UK had a role as operator for two weeks from when the barge arrived off Dover on 7 November to when it was towed away.The only personnel on board the vessel were from Stema UK.

Splitt Chartering APS and others v Saga Shipholding Norway AS and others, The “STEMA BARGE II” [2020] EWHC 1294 (Admlty)

 

Interpretation of contract – inconsistent clauses

Facts

• Altera chartered the FPSO “VOYAGEUR SPIRIT” to Premier under a sub-bareboat charterparty.
• The parties also entered into a Service Agreement under which Altera agreed to operate the vessel and an Overarching Agreement which had 11 Appendices which were said to “have effect for the purposes of the charterparty”.These included Appendix B – Compensation (which set out the daily base hire rate) and Appendix M – Availability and Hire Adjustments (which set out how to calculate any adjustments where there was a reduction or increase in the availability of the FPSO).The charterparty contained an order of precedence between the various agreements in the event of conflict.
• There was a conflict between a narrative explanation of how to calculate the adjustments and the worked examples in Appendix M. As a result the parties disagreed about what sum was owing.

Held (Richard Salter QC):

1. It was clear that the suite of contractual documents was the product of extensive negotiation, during which changes were made but not always followed through with rigorous consistency.The Court must therefore be wary of focussing too much on individual words, but look at the terms in their commercial context and in the context of the document as a whole.
2. Where the contract included a narrative explanation of how to calculate hire, followed by two worked examples which included an additional step which was not in the explanation, that additional step could not simply be ignored because that would rewrite the contract as the parties made it.Narrative explanations and formulae may not make clear their consequences when applied to various factual situations.The whole point of worked examples is to demonstrate with clarity the consequences of the formulae.The worked examples best reflected the parties’ intentions.

Altera Voyageur Production Limited v Premier Oil E&P UK Ltd [2020] EWHC 1891 (Comm)

 

Demurrage – additional damages?

Facts

• K Line carried a cargo of 70,133 mt of soybeans onboard the “ETERNAL BLISS” from Tubarao, Brazil to China, on an amended Norgrain form.
• The vessel was detained at the discharge port for 31 days due to port congestion and lack of storage.  The charterer was therefore in breach of its obligation to discharge the cargo within the laytime.The cargo deteriorated in that time, because of the delay, not as a result of any lack of care by K Line. 
• K Line had to provide an LOU to prevent the vessel being arrested by cargo receivers and subsequently settled cargo receivers’ claims in the sum of US$1.1 million.  It commenced arbitration against charterers, seeking damages or an indemnity in respect of those costs incurred. 
• The Court was asked to decide, as a preliminary issue, whether K Line was entitled to damages over and above the demurrage when the charterer had failed to discharge the ship within the laytime allowed.  Where there was no breach of the contract other than failure to discharge within the laytime, was the owner entitled to damages or was demurrage the exclusive remedy?
• For the purposes of the preliminary issue it was assumed that the loss and damage suffered by K Line were: (i) not caused by any separate breach of charter other than the failure to discharge within the laytime; (2) not caused by any event which broke the chain of causation; and (3) reasonably incurred.

Held (Andrew Baker J.):

1. K Line could, in principle, recover damages.  It was a question of interpretation of the demurrage clause.  Demurrage clauses are, by nature, liquidated damages clauses, but in each case it is a question of what damages it liquidates. Demurrage on its own is liquidated damages for the loss of use of the ship beyond the laytime, that use not being paid for by the freight. 
2. The issue comes down to whether (1) the claim was for something other than the detention of the vessel; and (2) whether there was a separate breach.The leading textbooks differed in their view as to whether it was necessary to show a separate breach before damages could be recovered in addition to demurrage.
3. K Line’s claim was for damage to the cargo and was therefore quite distinct in nature from and was additional to the detention of the ship. It was not necessary to identify a separate breach in these circumstances to enable K Line to claim damages for its losses.
4. In reaching this conclusion the judge decided that The Bonde [1991] 1 Lloyd’s Rep 136 was wrongly decided and that it was right for him not to follow that decision.  The matter was then remitted to the Tribunal for final decision. 

K Line PTE Ltd v Priminds Shipping (HK) Co Ltd, The “ETERNAL BLISS” [2020] EWHC 2373 (Comm)

 

Off-spec oil cargo – certificate of quality binding?

Facts

• A cargo of fuel oil was carried onboard the “NOUNOU” from Ventspils, Latvia to Gibraltar.Shortly after discharge the cargo was found to be off-spec and the buyer, Septo, claimed damages. The seller, Tintrade, denied that the cargo was off-spec.
• The sale and purchase contract was evidenced by a recap which provided that:

  “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 incorporated the BP 2007 General Terms and Conditions for fob sales, where they were not in conflict with the other clauses of the recap.  The BP Terms 1.2 provided that the certificate of quantity and quality was to be “conclusive and binding…for invoicing purposes”.

Held (Teare J.):

1. The task for the Court was to approach the documents with an objective spirit to see if there was any inconsistency.The parties had chosen to include both clauses and it is commonplace that an apparently wide provision may be subject to limitation, modification or qualification by other provisions.Such terms are not inconsistent: to be inconsistent, a term must contradict another such that effect cannot be given to both clauses.
2. Clause 1.2 was not inconsistent with the recap.It was a qualifying clause.The recap sets out that the certificate should be binding and clause 1.2 provides the purpose for which it shall be binding.
3. Therefore the certificate was only binding for invoicing purposes and did not prevent any later claim for breach of contract, if the cargo was found to have been off-spec.

Septo Trading Inc v Tintrade Limited [2020] EWHC 1795 (Comm)

 

Charterparty – implied terms for discharge

Facts

• Sea Master Shipping voyage chartered the “SEA MASTER” to Agribusiness United DMCC on the Norgrain 89 form.The vessel carried various parcels of corn, soya hull pellets and soya bean meal from Argentina to Morocco.Some of the cargo was also discharged in Tripoli, Lebanon.
• The arrangements for delivering some cargo at Tripoli involved the issue of new bills of lading, which incorporated the terms of the voyage charter, and which were switched with the previous set.The first defendant, Arab Bank, who financed the cargo, brought a claim against Sea Master Shipping for misdelivery of the cargo. The second defendant was the receiver of the cargo.Sea Master Shipping brought claims against both defendants for demurrage or damages in lieu of demurrage.The charterer was insolvent.
• The Tribunal decided as a preliminary issue that neither the bank, nor the receivers were liable for discharge port demurrage under the contract of carriage; charterers were exclusively responsible for paying demurrage.It also decided that there was no implied term of the contract of carriage that (1) the bank/receivers would take all necessary steps to enable the cargo to be discharged within a reasonable time and/or (2) that the bank/receivers would discharge the cargo within a reasonable time.Sea Master Shipping appealed against that second conclusion.

Held (Judge Pelling QC):

1. The appeal was dismissed.The obligation to discharge cargo lies with shipowners, although it can be transferred by agreement to charterers.Clear words would be required to transfer the obligation and a provision that “cargo is to be discharged free of expense to the Vessel” was not sufficient.That provision transfers only the cost of the discharging operation to charterers.
2. This conclusion was reinforced by the provision that “In all cases, stevedores shall be deemed to be the servants of the Owners and shall work under the supervision of the Master”, although they are to be “appointed and paid for by the Charterers/Receivers”.The Tribunal held that demurrage was to be paid by charterers, not the bank/receivers.Owners took the risk of charterers’ insolvency. There can therefore be no term implied into the charterparty that the bank/receivers would discharge the cargo within a reasonable time.
3. There was also no need to imply such a wide and general term that the bank/receivers would take all necessary steps to enable the cargo to be discharged and delivered within a reasonable time.The contract of carriage did not lack commercial or practical coherence without this term.Of the potential consequences alleged by owners of not having such a term, they could be dealt with by implying a narrow term (such as to supply a berth), they were already dealt with by express term (provision of stevedores), or the general law already provided a solution.

Seamaster Shipping Inc v Arab Bank (Switzerland) Ltd and Yousef Freiha & Sons SAL [2020] EWHC 2030 (Comm)

 

Shipbuilding contract – delay – prevention principle

• Jiangsu contracted to build two vessels (Hulls 21B and 22B) for Precious Shipping on an amended SAJ form.The two vessels were part of a series of 14 vessels which were to be constructed by Jiangsu.Precious rejected four of the other vessels and refused to take delivery.This meant that those vessels remained in Jiangsu’s yard and prevented construction of Hulls 21B and 22B.
• 151 days after the Delivery Date for Hulls 21B and 22B Precious stated that it was terminating the contracts owing to the delay.Jiangsu treated this as a repudiatory breach and accepted this breach, bringing the contracts to an end.
• Jiangsu argued that Precious had wrongfully prevented the completion of the vessels and therefore time was at large, or that it was entitled to extensions of time due to various acts by Precious.Precious argued that the contract provided a complete code for claims for extension of time, Jiangsu had not exercised the contractual machinery to extend time and therefore there was no room for the prevention principle to apply.The Tribunal found in favour of Precious. Jiangsu appealed.

Held (Butcher J.):

1. The appeal was dismissed.The contract provided for extensions of time arising from the buyer’s allegedly wrongful acts. Art VIII.1 dealt with causes of delay in delivery; it listed various specific clauses, with a sweep up at the end of “other causes beyond the control of the seller or its sub-contractors”.This covered the causes claimed by Jiangsu (wrongful cancellation of other hulls and resulting occupation of berths which delayed the construction of hulls 21B and 22B).It was not a force majeure clause, as was argued by Jiangsu, because it was not described as such and only referred to matters beyond the seller’s control, not the parties’ control.As a result there was no room for the application of the prevention principle in this context (the contract dealt with the situation which had arisen).
2. Art VIII.2 contained notice provisions which Jiangsu was required to comply with if it wanted to claim an extension of the delivery date.This applied not only to causes of delay which fell within Art VIII.1, but also causes which did not (if the Court was wrong in its interpretation of Art VIII.1).The parties had clearly attempted to provide for notification of matters relevant to a claim for an extension of time.
3. Art V of the contract made provisions in relation to modifications of the design.If there was no agreement as to the additional time and cost, the seller can proceed without making the modification.There is no need for a notification requirement where the cost/time is not agreed but the seller makes the modifications in any event, because the contract does not contemplate that as necessary.
4. Where the buyer was in default in failing to make payments, the contract provided that the seller had an option to extend time for delivery under Art XI.4(a).Although notice under Art VIII.2 was not required, the seller must still communicate that it was exercising that option so all the parties knew where they stood.If they did not make this communication, the delivery date would remain the same.

Jiangsu Guoxin Corporation Ltd v Precious Shipping Public Co Ltd [2020] EWHC 1030 (Comm)

 

Charterparty – subject supplier’s approval

Facts:

• Nautica owned the vessel “LEONIDAS” and entered into negotiations to voyage charter the vessel to Trafigura to carry crude oil from the Caribbean to the Far East.
• There was a dispute as to whether a contract was concluded.Nautica said the contract was subject to a condition that it would cease to be binding if the Suppliers’ Approval subject was not satisfied.It was an implied term that Trafigura would take reasonable steps to obtain that approval, it had not and therefore Nautica was entitled to damages.
• Trafigura argued that no contract was concluded because the Suppliers’ Approval subject was not satisfied and the parties had not reached agreement on all essential terms.In relation to the implied term, Trafigura argued that either (1) there was no such term, or (2) if there was one, Trafigura had complied with it, or (3) if Trafigura had not complied, the evidence shows that it could not have been complied with in time.

Held (Foxton J.):

1. The case turned principally on the documents and the legal effect of what the parties had agreed.A “subjects” clause was more likely to be classified as a pre-condition (one which prevented the contract from coming into existence until the condition was satisfied) if the fulfilment of the subject involved the exercise of a personal or commercial judgment by one of the intended contractual parties (rather than the act of a third party).The alternative here was that the clause was a performance condition, which created an obligation to perform the “subject” and where that subject was not performed, the other contractual party was not obliged to perform their obligations.
2. The requirement during charterparty negotiations that the vessel had to be approved by the supplier of the cargo was a pre-condition of the contract coming into existence.This was the case both as a matter of construction of the clause and following long-standing authority which provided that similar clauses were pre-conditions rather than performance conditions.Further, the remit of the clause was quite wide and potentially included approval of the port terminal at which the cargo would be loaded, as well as the approval of the seller of the cargo. It encompassed all those approvals which a charterer would wish to obtain in relation to the cargo before committing itself to a charter.This created an additional strong argument for it being a pre-condition.
3. Therefore no binding contract had been concluded and Trafigura was not liable to pay Nautica damages.

Nautica Marine Limited v Trafigura Trading LLC [2020] EWHC 1986 (Comm)