Liens on sub-freights. Where do they need to be registered as a charge?

The Singapore High Court decision in Duncan, Cameron Lindsay v. Diablo Fortune Inc  [2017] SGHC 172 provides a cautionary tale for shipowners about the need to register a lien on sub freights as a charge, and where this should be done.

The shipowners let their vessel on bareboat charter to a company incorporated in Singapore, under which they were given a lien on all cargoes, sub-hires and sub-freights belonging or due to the charterers or any sub-charterers and any bill of lading freight for all claims under the charter. Following default in payment by the charterer, the owners notice of lien to a sub charterer which employed the vessel in a pooling arrangement. The bareboat charter was subject to English law and provided for London arbitration.

The charterer’s liquidator contended that the lien was void against them for want of registration under s.131(1) of the Singapore Companies Act. The shipowners contended that as the charter was subject to English law, it was the UK Companies Act 2006 that applied to the registration of charges and whose provisions applied only to companies incorporated in England, Wales, or Scotland, but not to a company incorporated abroad. The Singapore High Court held that as the company was incorporated in Singapore, the requirements of s 131 of the Singapore Companies Act applied regardless of the law governing the creation of the charge or the location of the property.

A distinction needed to be made between the law governing the initial validity and/or creation of the security interest and the law governing the priority of such interests and the distribution of assets in the insolvency of the company. The latter issues are resolved by the law of the state in which the insolvency proceedings are commenced. The invalidity of a charge as against a liquidator due to non-registration is one such issue.

The court then considered whether the lien was a charge within the meaning of s131 and followed the English authorities cited by the Liquidator to the effect that a lien on sub freights give rise to an equitable assignment by way of charge and may be void for want of registration against a liquidator and creditors of the company. The lien on sub freights possessed the characteristics of a floating charge and amounted to a charge on a book debt under s131.

Shipowners, therefore, need to be aware of the insolvency law of their time charterer’s place of incorporation and its law regarding registration of charges.

Demurrage time bar. No need for simultaneous presentation of claim and supporting documents.

In London Arbitration 22/17 charterers claimed that owners’ demurrage claim was barred by reason of the following clause in the charter: “Charterers shall be discharged and release [sic] from all liability in respect of any claims under this Charter unless such claim has been presented to Charterers in writing with supporting documents within 30 days from completion of discharge.”

Charterers argued that the clause required that there had to be simultaneous presentation with the 30 days of the written demurrage claim, together with the supporting documentation. The two notices of readiness had not been submitted with the written claim, although copies had been supplied before the cut-off period, and they had been supplied contemporaneously with the events to which they related.

The tribunal rejected charterer’s contention. The owners had provided enough documentation for charterers to evaluate the demurrage claim. The documentation had to be provided within the deadline but did not need to be provided simultaneously with the claim. Accordingly, owners’ demurrage claim was not time barred.

Court’s power  to order sale of liened cargo

In The Moscow Stars [2017] EWHC 2150 (Comm) a cargo of crude oil was loaded in October 2016 under a time charter with PDVSA, the Venezuelan state-owned oil and gas company. Shortly afterwards the owners gave notice of lien to charterers in respect of shortfalls of hire accruing since January 2016. The charter provided for London arbitration and December 2016 the claimant sought and obtained permission from the arbitral tribunal to apply to the court for an order for sale of the cargo.  The vessel with its cargo is currently drifting off Curacao, there being no other viable way of exercising the lien such as discharge into storage.

The first question before the court was whether the court had jurisdiction to order a sale under s.44 of the Arbitration Act 1996. Under s44(1) the court has “same power of making orders about the matters listed below as it has for purposes of and in relation to legal proceedings.”  The matters listed below are set out in s44(2) and heading (d) provides for “the sale of any goods the subject of the proceedings.” Males J held that the court did have power to order a sale and s.44(2)(d) applied where a contractual lien is being exercised over a defendant’s goods as security for a claim which is being advanced in arbitration. The time charterer here was the owner of the cargo. There was no need to consider the position had the cargo been owned by a third party that was not a party to the arbitration.

The second question was whether an order for sale fell within the powers of the court under CPR 25.1 which gives the court the power to make an order for “the sale of relevant property which is of a perishable nature or which for any other good reason it is desirable to sell quickly.”  The cargo was not perishable but there were good reasons why it was desirable for it to be sold quickly. The cargo had been on board the vessel for over nine months and, in the absence of an order, would likely remain there for many months to come.  This prejudiced the owner which was not receiving hire but was continuing to incur the operating costs of the vessel and was faced with approaching deadlines to drydock in January 2018 to comply with SOLAS and Class requirements.  Accordingly, Males J  ordered that the cargo be sold and directed the time charterers to sign any contract of sale as the seller.

 

 

Salvage Convention time limit and recovery of items from wreck

 

The time limit for salvage claims under article 23(1) of the 1989 Salvage Convention article 23(1) is two years commencing on the day on which the salvage operations are terminated. Where items are salved from a historic wreck, when does the two year limit start to run? This was the issue before Teare J. in  The Queen (on the application of David Knight) v Secretary of State for Transport [2017] EWHC 1722 (Admin).

Mr Knight undertook dives from various wrecks and claimed salvage from the Receiver of Wreck. The claim was denied on the ground that the two year limit had expired by the time salvage was claimed in respect of the items raised from the wrecks. Mr Knight argued that salvage operations of a wreck on the sea-bed cannot, as a matter of law, be considered to be finished or complete until everything is raised from the sea-bed or the salvor abandons his operations.

Teare J rejected this contention. The day on which salvage operations are terminated is the day on which the activities to assist a vessel or any other property in danger and which have given rise to a claim under the Convention have been terminated. This was a question of fact to be determined in every case. Here, the salvage operations in question had terminated after the salved items left the site. Although further diving operations on the wrecks continued in subsequent years this was not enough to show that they were part of the same operations as resulted in the recovery of the items for which salvage was claimed. Further preservation work on the items once ashore did not continue the salvage operations which ended once the items were rescued from danger on navigable or other waters.

The claim had also been rejected on the ground of fraud or dishonest conduct on the part of Mr Knight who had been convicted of offences in relation to the salved items under s. 237 of  the Merchant Shipping Act 1995. Teare J was of the view that the discretion under art. 18 to refuse a salvage award in whole or in part due to fraud or dishonest conduct was not limited to conduct committed by the salvor in the actual salvage operations.

Implied indemnity and the Inter-Club Agreement

 

When an owner settles cargo claims, is the Inter-Club Agreement (ICA) the exclusive means of seeking recovery from a charterer under a charter containing the ICA, or can recovery be made under the implied indemnity? This was the issue before the tribunal in London Arbitration 19/17. The head owners settled claims under the bills of lading in respect of condensation damage to a cargo of steel carried from various ports in China and Taiwan to Antwerp. The principal cause of sweat developing was the difference in the ambient temperature between the Chinese loading ports and the loading port in Taiwan. The head owners then recovered a contribution from the time charterers under the ICA which was incorporated into the charter, which was on NYPE form. The disponent owners then sought to recover the full amount of what they had paid the head owners from their sub-charterer. The sub charter was also on NYPE form incorporating the ICA. They claimed this by way of an implied indemnity, on the ground that the claims had arisen as a consequence of following charterers’ orders to load cargo into the same holds at different ports with varying temperatures, so resulting in the cargo sweat which damaged the cargo.

 

The tribunal rejected this claim on two grounds. First, the disponent owners had agreed to a voyage, which inevitably involved the possibility of loading cold cargo which then had to be carried through warmer waters to the destination and the risk of cargo sweat occurring was something the disponent owners had agreed to undertake. Second, for cargo claims the implied indemnity gave way to the express provision that cargo claims were to be apportioned between owners and charterers in accordance with the ICA. On the facts these cargo claims were subject to 50-50 apportionment under cl. 8(d).

 

 

The difficult we do immediately. The impossible, at least offshore, takes a little longer.

It can be disconcerting to find, towards the beginning of the report of a decision in the Supreme Court, something like this:

image

Don’t despair. The point at issue in the August 3 case of MT Hojgaard AS v EON Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59  was actually quite straightforward.

Problems appeared in a wind-farm off the Cumbrian coast, which were traceable to weaknesses in the foundations. The owners, E-ON, sued the constructor, Hojgaard, for breach of contract. In particular they relied on a warranty that the structure had been built to last for 20 years. There was some doubt over the meaning of the warranty (did it mean the thing would last 20 years, as the parties thought, or that its design was such that it ought to do so, as Lord Neuberger opined?); but the point didn’t matter, since here the collapse took place only a very short time after the whole caboodle had been built in the first place.

The claim thus looked straightforward, but here a difficulty arose. Like all major construction projects, the constructor had to observe detailed specifications. In this case the specification was named J101 (a technical specification prepared by acknowledged experts DNV — don’t ask further), which not only embodied the fearsome formula above, but which turned out to have a major defect in it. And the problems were due to this defect. Hojgaard argued that E-ON could hardly complain where Hojgaard had merely followed instructions: E-ON riposted that that was all very well, but a warranty was a warranty, and this one had been broken.

The Supreme Court confirmed what construction lawyers had always assumed was the case (see decisions such as Cammell Laird v Manganese Bronze [1934] AC 402 and Steel Co of Canada v Willand Management [1966] SCR 746): namely, that the warranty continued to apply even though in a sense inconsistent with the specification and thus impossible to satisfy. And, in the view of us at Maricom, rightly so. If a sophisticated business chooses to promise that something will happen come hell or high water, the fact that it turns out to have promised the impossible should not let it off the hook: that’s what warranties are all about.

The case is not of earth-shattering significance. DNV smartly changed its specifications in late 2009, so the particular issue here won’t affect wind-farm contracts signed after that date. As for the future, lawyers for constructors would do well to advise them to change their wording, making it clear that in so far as customers order structures to a particular specification, any warranties are qualified so as to prevent those customers both eating their cake and having it. If lawyers don’t do this, their PI insurers can expect some embarrassed phone calls; if construction companies don’t follow any such advice then that’s their look-out. But the decision in the Hojgaard case could still have some ramifications in respect of some older structures; to that extent at least it’s worth filing away a note.

EU Member States urged to ratify/accede to 2010 HNS Convention by 6 May 2021.

 

COUNCIL DECISION (EU) 2017/769 of 25.4.2017 authorises Member States to ratify or accede to the 2010 Protocol of the HNS Convention with the exception of the aspects related to judicial cooperation in civil matters. The decision also provides that they “shall endeavour to take the necessary steps to deposit the instruments of ratification of, or accession to, the Protocol of 2010 within a reasonable time and, if possible, by 6 May 2021”.

 

A parallel COUNCIL DECISION (EU) 2017/770 contains a similar authorization in relation to those aspects related to judicial cooperation in civil matters, subject to depositing the standard declaration preserving the effect of the Brussels I (Recast) Regulation, the Lugano Convention, and the 2005 agreement between the EU and Denmark in respect of judgments covered by the 2010 HNS Protocol.

Recovery by underwriters: an unconfident sequel to the Atlantik Confidence debacle.

It might look rather churlish for an insurer in paying out on a claim to talk in the same breath about what happens if it should later decide that it wants its money back. Nevertheless it was failure to do this that landed a group of marine underwriters in expensive satellite litigation in Aspen Underwriting Ltd & Ors v Kairos Shipping Ltd & Ors [2017] EWHC 1904 (Comm).

The background to all this was last year’s decision in Kairos Shipping v Enka & Co LLC [2016] EWHC 2412 (Admlty) (noted here for the benefit of our readers), where following the loss of the 27,000 dwt bulker Atlantik Confidence in the Middle East, cargo underwriters successfully broke limitation on the basis that the sinking was a put-up job. The vessel’s hull underwriters, having previously paid out on the orders of her owners’ bank under an insurance assignment provision, now sued the bank to recover their money. The bank, based in the Netherlands, tried to put a spanner in the works by denying the jurisdiction of the English courts under Art.4 of Brussels I Recast, and very nearly succeeded.

The agreement under which the underwriters settled the payout contained an English jurisdiction clause. However it had been signed by the underwriters and the owners, and not by the bank, which had merely given consent for any monies to be paid out to a third party rather than themselves (they were actually paid to the brokers).  Teare J was not prepared to infer that the owners had signed for the bank as principals, or that the bank by agreeing to payment to a third party (the brokers) had demanded payment so as to bring themselves within the doctrine of benefit and burden. The underwriters only won, by the skin of their teeth (and the skill of IISTL stalwart Peter Macdonald-Eggers QC), because of a just plausible alternative argument that some kind of tort of misrepresentation had been committed by or on behalf of  the bank which had had its effects in England, thus enabling the underwriters to invoke Art.7(2) of Brussels I.

Moral (it would seem): all policies should contain a term, rigorously enforced, stating that no monies will be paid out save against a signed receipt specifically submitting to the exclusive jurisdiction of the English courts in respect of any subsequent dispute respecting the payment.

Hopeful law professors will of course look forward to a decision on the substantive point of recovery (which raises interesting issues of tort law, not to mention restitution should the entire litigation take place here with the agreement of the bank). But one suspects they will do so in vain. It seems likely that this case, like so many others, will end up in the great mass of claims “settled on undisclosed terms.”

OW Bunkers (again). Interpleader and maritime liens in Canada.

 

The collapse of the OW Bunker group in late 2014 has led to a series of interpleader claims in different jurisdictions in which competing claims to the deposited funds have been made by the physical bunker suppliers and ING Bank, the assignee of OW. An interpleader claim has recently been heard by the Federal Court of Appeal in Canada in ING Bank NV and Others v Canpotex Shipping Services Ltd and Others 2017  FCA 47. It concerns the effect of funds deposited by the time charterer and the  potential liability of the vessel under a maritime lien.

In 2014 OW UK supplied bunkers in Vancouver to two vessels on charter to Canpotex. Following the collapse of the OW group, competing claims for payment for the bunkers supplied were made by the physical supplier, Petrobulk, and ING Bank as the assignee of OW UK’s receivables. Canpotex interpleaded and obtained an order that the of OW UK’s invoice be paid into the US trust account of its solicitors, which payment would be treated as a payment into court. The interpleader covered only Canpotex’s liability.

Canpotex subsequently added the shipowners as plaintiffs to its statement of claim and sought a judgment as to whether Petrobulk or ING was entitled to all or part of the trust fund and a declaration  that following payment out any and all liability of both Canpotex and the shipowners was extinguished. In July 2015 Russell J heard the claims against the trust funds, (2015 FC 1108). There was a dispute about which terms governed OW UK’s supply of the bunkers to the vessel: the OW Group standard terms; or Schedule 3 of the OW Fixed Price Agreement. Both terms provided for the variation of the contract where the physical supply of the fuel was undertaken by a third party, but were worded differently.

Russell J found that there had been an oral agreement to apply the latter terms and the consequence was that Canpotex became jointly and severally liable under the contracts made between OW UK and Petrobulk.  Upon payment of that purchase price to Petrobulk, Canpotex would come be under no obligation, contractual or otherwise, to pay any amount representing the purchase price for the marine bunkers to OW UK or the Receivers. He then ordered Petrobulk be paid out of the trust fund and that ING be paid the mark up due to OW UK and that Canpotex’s and the shipowners’ liability in regard to the bunker delivery should be extinguished, as well as any and all liens.

The Federal Court of Appeal has overruled the decision. Interpleader proceedings had to be conflicting claims over the same subject matter which were mutually exclusive. The contractual claims against Canpotex advanced by OW UK and by Petrobulk were such claims, but Petrobulk’s assertion of a maritime lien was not a conflicting claim, and was a claim against the shipowners, and not against Canpotex.  If OW UK was contractually entitled to payment of the trust funds, that would extinguish Canpotex’s contractual liability, but Petrobulk’s maritime lien claim would remain alive. The Judge had been wrong to extinguish the shipowner’s liability for that claim and had also wrongly admitted oral evidence as to the terms of the spot bunker purchases. The terms applicable were those found in the OW Group standard terms and the case was returned to the judge for reconsideration.

If the judge finds that OW UK is contractually entitled to payment of the trust funds, this raises the prospect of ING recovering in full under the OW UK invoices from the trust fund established by Canpotex, and of Petrobulk doing likewise through its maritime lien against the vessel, if the vessel can be arrested in Canada.

 

 

Compensation for the unlawful arrest and detention of the Arctic Sunrise and its crew

Arbitral Tribunal orders the Russian Federation to pay a little under 5,4 million euros to the Netherlands

On 18 July 2017, almost two years after that an Arbitral Tribunal (Tribunal) found that the Russian Federation must compensate the Netherlands following the wrongful arrest of the Arctic Sunrise and its crew, the Tribunal handed down its Award on the issue of compensation.

Background

Before looking at this recent decision in more in depth, the history of the dispute will be laid out. Starting on 18 September 2013, when Greenpeace activists tried to enter the Russian offshore oil platform (the Prirazlomnaya) in order to protest against attempts to begin exploiting oil and gas resources in the Arctic. One day later, the Russian Federation boarded and arrested the Arctic Sunrise and detained its crew. Subsequently, the vessel was brought to the port of Murmansk and the crew was charged with having committed a range of administrative and criminal offences, including acts of terrorism and hooliganism.

The Netherlands initiates Proceedings before an Arbitral Tribunal 

Some two weeks later, on 4 October 2013, The Netherlands, being the flag State of the Arctic Sunrise, started proceedings before an Arbitral Tribunal that was established pursuant to Annex VII of the 1982 Law of the Sea Convention. The Russian Federation refused to participate in the Arbitral proceedings that were initiated by the Netherlands. The position of the Russian Federation was, that this type of dispute was beyond the jurisdiction of an international court or tribunal, due to a declaration it had made at the time of becoming a party to the 1982 Law of the Sea Convention. However, the proceedings went ahead, despite the non-participation of the Russian Federation.

The Netherlands requests Interim Measures from the ITLOS

On 21 October 2013, the Netherlands requested interim measures from the International Tribunal for the Law of the Sea (ITLOS). According to the Netherlands, the Russian Federation had to immediately release the Arctic Sunrise and its crew, after the posting of a bond, upon which they would be free to leave Russian territory as well as any maritime areas under its jurisdiction. ITLOS gave an Order on interim measures on 22 November 2013. Initially, the Russian Federation did not comply with the Order of the ITLOS – eventually, however, the vessel and crew were released in late November 2013. The Russian release of vessel and crew was based on its national laws, the Order of the ITLOS played no decisive role in this, according to the Russian Federation  – as it happened, the effect of the national laws and regulations on which the Russian Federation relied, coincided with what was set out by the ITLOS in its Order containing interim measures.

Arbitral Award on the Merits

One of the main substantive issues on which the Arbitral Tribunal was asked to rule during the merits phase, was the (un)lawfulness of the response of the Russian Federation to the presence of the Arctic Sunrise and its crew. The gist of the argument of the Netherlands was that, as the flag State, it had sole jurisdiction over the ship and the crew on-board during the entirety of this incident (Article 58 of the 1982 Law of the Sea Convention). On 14 August 2015, the Tribunal released its Award on the merits. The Arbitral Tribunal found that the Netherlands had exclusive jurisdiction over the Arctic Sunrise whilst it was operating in the exclusive economic zone of the Russian Federation. This means that the Russian Federation could have only lawfully initiated steps against the vessel that was flagged to the Netherlands and its crew with the latter’s consent. After coming to this conclusion, the Tribunal went on to state that the Netherlands had to be compensated.

Arbitral Award on Compensation

In its recent Award on compensation, the Tribunal set the total amount of compensation owed by the Russian Federation to the Netherlands at a little under 5,4 million euros. This sum was arrived at by adding up the damage that was done to the Arctic Sunrise (EUR 1,695,126.18); compensation related to the unlawful arrest, prosecution and detention of its crew (EUR 600,000); a variety of other damages incurred by the Netherlands, including the failure to release the vessel and crew in a timely manner (EUR 2,461,935.43); costs made by the Netherlands in issuing a bank guarantee (EUR 13,500); and lastly, the Netherlands had to be reimbursed for paying the full amount of deposits required by the Tribunal (EUR 625,000) – meaning that the Russian Federation had to pay the half it owed of the costs that were needed for the proceedings to be initiated. Although the Russian Federation is required under international law to abide by the ruling on compensation, whether it will actually do so remains to be seen.