BARECON 2017 out now.

 

In December 2017 BIMCO published the new version of its bareboat charter form, BARECON. The main changes to its predecessor, BARECON 2001 are:

 

  • The shipowner now owes an absolute obligation to deliver the vessel in a seaworthy condition, as opposed to being obliged to exercise due diligence to make the vessel seaworthy on delivery. If the charterer has inspected the vessel before delivery, the owner must deliver the vessel to the charterer in the same condition, fair wear and tear excepted. (Cl 3(a)).

 

  • An option to extend the charter period at a pre-agreed rate is now included (cl.2).

 

 

  • Charterer and owner are given the right to place representatives on board before delivery and redelivery (cl.6) and have the option to arrange for an underwater inspection of hull, rudder and propeller in the condition survey on delivery and redelivery (cl.7).

 

  • Charterers remain liable for undertaking any structural changes mandated by compulsory legislation but two options are provided for allocating their costs. The default position is that all costs are for charterer’s account. The second option is to provide a pre-determined formula for the apportionment of the costs.(Cl 13(b).

 

  • The words ‘in respect of which time shall be of the essence’ have been removed from the provision relating to payment of hire and this now provides a prescribed grace period of three banking days (cl.15).

 

 

  • The insurance provisions in cl. 17 have been amended so as to take account of the decision in The Ocean Victory, so as to provide that payment of insurance to cover the owners loss does not prevent the owners or their insurers from claiming against the charterer, nor the owner or the charterer, or their insurers, from claiming against third parties. Cl.19(a) provides that the bareboat charterers are to become liable to damages if the vessel becomes a total loss. Clause 17 provides two for taking out insurance. First, charterers to insure for Hull and Machinery, war, and P&I risks. Second, owners to insure for Hull and Machinery and war risks, charterers to insure against P&I risks.

 

  • The charter now contains anti-corruption (cl.28) and sanctions clauses (cl.29) based on the existing BIMCO clauses, amended for a bareboat charter context.

 

 

  • The owner’s right to withdraw is now described as a right to terminate, and the war risk clause has been deleted from the termination provisions (cl.31).

 

  • The optional provisions in relation to newbuildings in Part III now include a right on the part of charterers to request a change order to the vessel’s specifications in accordance with the terms of the building contract, with charterers bearing any additional costs, and the termination provisions are amended so that the owner has the right to terminate the charter in the event it becomes entitled to cancel the building contract.

 

 

Demurrage claim against seller. Don’t blame your buyer if you don’t pay freight due under your charter.

 

London Arbitration 2/18 give us an interesting issue on causation arising out of two related contracts, a cfr sale contract, and the charterparty made by the seller. The cfr sale contract required buyers to pay charterparty freight to sellers as soon as possible after signing bills of lading; which they failed to do. The shipowners refused to release the ‘freight prepaid’ bill of lading until freight had been paid. The consequent delay resulted in the seller incurring a liability for demurrage at the discharge port under their charterparty. The tribunal held that the sellers were not entitled to an indemnity from the buyers in respect of their demurrage liability. Despite the provisions of the sale contract, the primary obligation to pay to the owners the charterparty freight remained with the sellers, as charterers of the vessel.  The sellers decided not to pay themselves the freight due to the owners and this broke any chain of causation there might have been between the buyers’ breach and the demurrage incurred by sellers under the charter. Alternatively, the sellers had failed to mitigate the damages to which the buyers’ breach exposed them and thereby incurred a liability for demurrage that could have been otherwise avoided.

Mandatory CO2 monitoring and reporting in the EU for big ships starts now.

 

On 1 January 2018 ships over 5000 grt, subject to a few exceptions, became subject to the monitoring and reporting obligations imposed by EU Regulation on monitoring, reporting and verification of carbon dioxide emissions from maritime transport (Regulation (EU) No. 757/2015 as amended) (the MRV Regulation).

The MRV Regulation requires reporting of three items: actual cargo carried onboard; fuel consumed and; CO2 emitted. These obligations apply to all relevant ships, irrespective of their flag, which make voyages that start or finish in an EU Member State port, which, for the purposes of this Regulation includes Iceland and Norway. The obligations include emissions arising from ships at berth or moving within a port. The obligations are imposed on “companies” meaning “a shipowner or any other organisation or person, such as the manager or the bareboat charterer, which has assumed responsibility for the operation of the ship from the shipowner”.

From 2019, by 30 April of each year, companies will have to submit to the Commission and to the authorities of the flag States concerned, an emissions report concerning the CO2 emissions and other relevant information for the entire reporting period for each ship under their responsibility, which has been verified as satisfactory by an independent verifier.

From 2019 by 30 June of the year following the end of a reporting period, ships arriving at, within or departing from a port under the jurisdiction of a Member State, and which have carried out voyages during that reporting period, will have to carry on board a valid document of compliance.

The UK will enforce these obligations through the Merchant Shipping (Monitoring, Reporting and Verification of Carbon Dioxide Emissions) and the Port State Control (Amendment) Regulations 2017 which entered into force on 1 October 2017. The Regulations impose criminal sanctions on companies which fail to comply with their obligations under the MRV Regulation. The Merchant Shipping (Port State Control Regulations) 2011 has been amended to make it a requirement for an inspection carried out on or after 30 June 2019 to check that the ship is carrying a document of compliance.

The IMO’s MRV scheme comes into effect on 1 January 2019.

Barratry and the Hague-Visby Rules

Glencore Energy UK Ltd v Freeport Holdings Ltd [2017] EWHC 3348 (Comm) raised the question of  whether barratry affected owners’ entitlement to rely on two of the exceptions in art. IV (2) of the Hague-Visby Rules. A fire started inside the engine control room of the “Lady M” while the vessel was on a laden voyage from Russia to the USA.  The fire resulted in owners engaging salvors to tow the vessel to Las Palmas where owners declared general average. Cargo interests denied liability to contribute on the basis that there had been the fire had constituted a breach of the contract of carriage, which was subject to the Hague-Visby Rules. I

t was agreed that the fire was started deliberately by a member of the crew with the intent to cause damage and for the purposes of the preliminary issues the assumed facts were that:  the perpetrator was the Chief Engineer; he acted alone; at the time of starting the fire deliberately and with intent to cause damage he was: “a. under extreme emotional stress and/or anxiety due to the illness of his mother; b. alternatively, suffering from an unknown and undiagnosed personality disorder and/or mental illness;c. alternatively, neither a nor b above.”

Three preliminary issues came before Popplewell J.

(1)        Did the conduct of the chief engineer constitute barratry?

(2)        Is Article IV Rule 2(b) capable of exempting the Owners from liability if the fire was deliberately or barratrously caused?

(3)        Are the Owners exempt from liability under the “any other cause” exception in Article IV Rule 2(q)?

 

Popplewell J defined barratry as (i) a deliberate act or omission by the master, crew or other servant of the owners (ii) which is a wrongful act or omission (iii) to the prejudice of the interests of the owner of the ship or goods (whether or not such prejudice is intended) (iv) without the privity of the owner. A “wrongful act or omission” would be: one that is generally recognised as a crime, including the mental element necessary to make the conduct criminal; or (b) a serious breach of duty owed by the person in question to the shipowner, committed by him knowing it to be a breach of duty or reckless whether that be so. It would be necessary for the crew member to have had the necessary knowledge or intent that what he is doing is either a crime or a serious breach of duty owed towards his owners, or at least recklessness in that regard. On the assumed facts the chief engineer may or may not have constituted barratry, depending upon further facts as to his state of mind. However, the issue of barratry was not determinative of the second and third preliminary issues.

Popplewell J went on to find that the owners were able to rely on the fire exception in art. IV (2)(b) applied, whether or not the fire was caused by  barratry. However, they would not be able to rely on the “any other cause” exception in art. IV (2)(q) as the chief engineer was acting within the course of his employment on the agreed facts. His access to the control room arose directly from the field of activities entrusted to him by the owners and his setting fire to the control room, with intent to cause damage, was a misuse of his position in the field of activities for which he was employed.

 

Carry on suing in England – at least if you’re suing a non-European

In matters of tort foreign defendants domiciled in the EEA are reasonably well-protected from the exorbitant jurisdiction of the English courts. Both Brussels I Recast and Lugano II limit jurisdction to cases where where the act leading to liability, or the harm done by it, happened in England: furthermore, Euro-law makes it clear that the reference to harm here is fairly restrictive, referring only to direct harm and not to the financial effects of it, such as the straitening of an English widow’s circumstances following a wrongful death abroad.

By contrast, there is no such luck for defendants domiciled outside the EEA. For some time conflicts lawyers have remarked that English claimants, especially personal injury claimants, find it remarkably easy to establish jurisdiction against them. This is because CPR, PD6B 3.1(9), allows service out not only where damage results from an act “committed … within the jurisdiction” but also in all cases of damage “sustained …within the jurisdiction.”, and in a series of cases such as Booth v Phillips [2004] 1 WLR 3292 and Cooley v Ramsey [2008] ILPr 27 this has been held to cover almost any loss, even consequential, suffered in the jurisdiction. And in Four Seasons Holdings Inc v Brownlie [2017] UKSC 80 the Supreme Court by a majority (Lords Wilson and Clarke and Lady Hale vs Lords Sumption and Hughes) has now weakly upheld this distinction.

International law enthusiasts will know that this case arose out of a car accident in Egypt in which the late Prof Ian Brownlie was tragically killed and his widow was injured. The actual decision was in the event a foregone conclusion: by the time the case reached the Supreme Court it was clear that the defendants, the franchising company behind the Brownlies’ Egyptian tourist hotel which had organised the fatal car ride, had never contracted with the Brownlies and was not liable in tort for the acts of the hotel itself. Nevertheless, the majority in the Supreme Court, doubting the decision of the Court of Appeal on this point, made it clear that, while not finally deciding the issue, they were not prepared to condemn the older authorities. It seems likely that future cases will follow their lead.

One further point. Lord Sumption and Lady Hale made the point that the decision whether a contract was made in England, another of the “gateways” in non-EEA cases (see CPR, PD6B 3.1(6)), was in the light of cases like Entores v Miles Far East Corpn [1955] 2 QB 327, pretty arbitrary and could do with a look from the Rules Committee. They were right. Let’s hope something gets done.

“Act” does not import culpability under cl.8(d) of ICA 1996. The Yangtze Xing Hua  

 

The Court of Appeal in The Yangtze Xing Hua  [2017] EWCA Civ 2107 has upheld the decision of Teare J that “act” in the phrase “act or neglect” in cl. 8 (d) of the 1996 Inter-Club Agreement means any act, whether culpable or not. The charterers, who had not been paid for the cargo, had ordered the vessel to remain off the Iranian discharge port for four months, during which time the cargo overheated, leading to a claim being brought against the owners, which they settled. Owners were entitled to recover the full amount of the settlement from charterers under the proviso to cl. 8(d): “unless there is clear and irrefutable evidence that the claim arose out of the act or neglect of the one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim.”

The Court of Appeal has confirmed that the natural meaning of the word “act” was something which is done and did not connote culpability. “Neglect” did connote culpability but in the context of the ICA, which contained various provisions which applied regardless of culpability, this did not colour the meaning of “act”. Under cl.8 the critical question was that of causation, whether the claim “in fact” arose out of the act, operation or state of affairs described.

Unseaworthiness and general average.  The Cape Bonny.

 

The Cape Bonny [2017] EWHC 3036 (Comm) gives us another general average judgment, following hot on the heels of the Supreme Court’s decision in The Longchamp. This time it was the effect of an actionable fault of the shipowner that was in issue.

An oil tanker suffered an engine breakdown on a voyage to China at a time when the vessel was endeavouring to avoid a tropical storm. The vessel required towage assistance and engaged a tow. She was not permitted to enter a port of refuge in Japan or to discharge at the Chinese discharge port and was taken to South Korea to transfer her cargo to another vessel by STS. At the time the vessel set sail, she had been unseaworthy in two respects. First, some of her filters were not seaworthy. Secondly, there was abnormal wear on one of the bearings. Cargo interests refused to pay their general average contribution on the basis that there had been actionable fault on the part of the shipowners, namely their failure  to exercise due diligence to make the vessel seaworthy as required by art III(1) of the Hague-Visby Rules which were incorporated into the contract of carriage.

Teare J found that owners had failed to exercise due diligence in respect of both of the instances of unseaworthiness, but that the first instance had not been causative of the breakdown.  A proper inspection of the filter candles prior to sailing would not necessarily have revealed that some had damaged mesh, as not all the candles were damaged. However, the deflection readings prior to sailing would have alerted a prudent engineer or superintendent to taking bearing clearance measurements. This failure to take due diligence was causative in that such measurements would have indicated abnormal wear requiring a repair before the voyage could safely be undertaken.

Accordingly, the general average expenditure incurred by the owners was due to their actionable fault and cargo interests were not liable to make a general average contribution. Teare J then went on to consider, obiter, whether the tow expenses would have been recoverable as being “reasonably made” as required by Rule A.  Although the vessel was immobilised at sea and not in danger of drifting aground, there was a tropical storm in the area and it was reasonable to engage a tug which could get to the vessel as soon as possible. Teare J approved the statement in Lowndes and Rudolf at para. A-42 to the effect that immobilisation caused by a main engine breakdown is a sufficient peril or danger in the law of general average “even if the accident occurs in fine weather. The cost of towage and/or salvage into a port of refuge will then unquestionably be treated as general average.” The actions of the owners in discharging the cargo by STS operations were also reasonable given that owners had failed in their attempts to get the vessel into a Japanese port of refuge and to get the receivers to accept delivery in the Chinese port of discharge.

 

“Subject to review” in conclusion of charterparty.

In Toptip Holding Pte Ltd v Mercuria Energy Trading Pte Ltd [2017] SGCA 64, the Court of Appeal of Singapore considered the effect of a ‘subject to review’ clause in an exchange of emails concerning the conclusion of a charterparty.  Mercuria had made an offer “otherwise subject to review of charterers pro forma charterparty with logical amendment” to which Toptip had replied “we confirm acceptance of your offer”. This showed that the parties intended to be immediately bound, even where there would be later discussion of standard terms.  A copy of a charter used by the parties several months earlier was then sent to the broker.

 

The Court of Appeal held that a contract had been concluded and that Mercuria were entitled to damages following a subsequent repudiation by Toptip. The “subject to review” clause was to be distinguished from “subject to contract” or “subject to details”. It was either a condition precedent or a condition subsequent (as in The Pacific Champ [2013] 2 Lloyd’s Rep 320.). Here it was the latter and the  words “with logical amendments” indicated only amendments consequential to what had already been agreed”.

Valuers’ negligence: no claim for more than lender loses

Not often do you find a Supreme Court decision in only 15 paragraphs that is clear, sensible and palpably right. Today we got just that in the valuers’ negligence decision of Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd [2017] UKSC 77. Although a land case, this is of equal, and large, significance to ship and other finance.

In 2011 Tiuta lent £2.475 million for a bijou Home Counties development against a valuation by De Villiers of £2.3 million undeveloped / £4.5 million complete, of which no complaint was made. After some months the developers ran into difficulties. In 2012 Tiuta made a new loan of £3.088 million against the same development, of which £2.799 million went to discharge the old loan plus accrued interest, and the balance of £289,000 was new money. This latter advance was made against a new valuation by De Villiers in the sum of £3.5 million undeveloped / £4.9 million complete. Shortly after all this, the developers went bust and Tiuta lost big money.

Tiuta sued De Villiers for their loss, alleging negligence in the second valuation. De Villiers riposted that they could not possibly be answerable for more than £289,000, since even if they had not been negligent Tiuta would still have been exposed to the original, largely irrecoverable, balance of £2.799 million. To everyone’s surprise, a majority in the Court of Appeal disagreed. The 2011 loan had been paid off and was now out of the reckoning: the 2012 loan in the figure of £3.088 million counted as an entirely new advance made against the suspect valuation, and on principle any loss on it was recoverable. McCombe LJ, the dissentient, was left gasping and stretching his eyes (remember Hilaire Belloc’s Matilda?) at the idea that new money injection of a mere £289,000 could give Tiuta, free gratis and for nothing, a claim of up to £3 million that had not been there before.

The Supreme Court swiftly restored orthodoxy. Whether the lenders provided new money of £289,000 and left the existing loan of £2.799 million untouched, or provided a new loan of £3 million-plus which was partly used to pay off the original loan, the result was the same: the only net increase in exposure was £289,000 and that was all that was recoverable. Nor could Tiuta get home by saying that the repayment of the original loan was somehow a collateral benefit to Tiuta: as Lord Sumption observed with merciless logic, it was in fact neither collateral nor a benefit.

Advantage PI insurers, to be sure. On the other hand, this still leaves some questions unanswered. If the first lender had been someone other than Tiuta, the result would presumably have been different. Does this mean that if a lender wants to avoid the result in Tiuta, all it has to do is to make sure that when it lends several times to the same project, each loan is made by a separate subsidiary special purpose vehicle (quite easy to arrange)? One suspects lawyers are already busy dealing with questions like this and advising accordingly.

Varying the order of priorities between in rem claimants in Singapore.

In The Posidon [2017] SGHC 138 Singapore High Court has recently held that the order of priorities set out in the High Court (Admiralty Jurisdiction) Act (Cap 123, 2001 Rev Ed) (“HCAJA”) could be varied in exceptional circumstances where: (i) there was knowledge that the mortgagor was insolvent; (ii), the mortgagee had been been fully aware, in advance, of the nature and extent of the expenditure incurred by the competing claimant; (iii) any such expenditure had brought about some benefit to the mortgagee.

 
The dispute arose as to the order of priorities against proceeds paid into court following the judicial sale of two vessels. The bank claimed as second mortgagee and the bunker supplies claimed as necessariesmen. The bunker suppliers argued that the court should depart from the usual order of priorities in Singapore and give them priority over the bank. Belinda Ang Saw Ean J held that the facts of the case did not justify varying the order of priorities set out in the HCAJA, stating [87] “Injustice warranting an alteration to the order of priorities is only present when the mortgagee stands by and allows such bunker arrangements to take place despite knowing that the mortgagors were insolvent and that the mortgagee would somehow be benefitting from the supplies at the expense of the bunker supplier.”

 
The borrowers here had been operating at a loss and accumulating trade debts for some time prior to the bank’s decision to terminate the loan facility agreement and enforce the mortgages. That did not mean that the borrower was insolvent and at the time of the termination of the loan facility arrangement the bank had not considered the borrower to be at risk of becoming insolvent. There was also no evidence that the bank was fully aware in advance of the owners’ bunkering arrangements. Nor did the supply of bunkers to the vessels bring about any benefit to the bank. The bank’s security interest was not protected because the bunkers gave the vessels motive power.