Demurrage and damages for repudiation of charter.

 

In London Arbitration 26/17  the Tribunal considered how future demurrage should be taken into account when calculating owners’ damages claim following charterers’ repudiation of a voyage charter. Owners claimed: (1) demurrage accrued at the loading port at the date on which owners accepted charterers’ repudiation and; (2) damages from that date based on the difference between the gross profit they would have earned on the cancelled charter and the gross profit they earned for the period of the substitute voyage.

In calculating the second claim, owners argued that the profit on the notional voyage under the cancelled charter should take account of demurrage that would have accrued at the time loading would have commenced, as the vessel was already on demurrage at the time the charter was terminated. The Tribunal disallowed this element. Owners were confusing the notional voyage with the actual part-performance of the charter prior to the repudiation. The charterers were to be credited with the full loading laytime under the calculations for the gross profits under the nominal voyage.

It should be noted that a contrary approach was taken by Teare J in The Bow Cedar [2004] EWHC 2929 (Comm) where he held that a further sum in respect of future demurrage that would have been earned had the charter been performed could be included in owners’ damages claim.

Interest on the claim for loss of profits ran from the date on which owners accepted charterers’ repudiation. Interest on the accrued demurrage claim was subject to the terms of the repudiated charter which had provided for demurrage to be settled “[w]ithin a period of 45 days after completion of discharging in China and submission of claim supported by all relevant documents”. The Tribunal decided that interest should start to run 45 days after the termination of the charter.

 

Force Majeure laytime and demurrage exception. Delay within reasonable control of charterers?

 

In London Arbitration 23-17,  the vessel was prevented from berthing because of an incident involving a previous vessel, vessel X, at the berth whereby there had been a rupture of the loading hose which had caused an oil spill. Vessel X was detained by the authorities in the berth at the time of the subject vessel’s arrival and remained there for a further eight days, during which the subject vessel was unable to proceed to the loading berth.

Charterers contended that the delay fell within cl.21 of BPVOY3. This provided for half laytime/demurrage in the event of “Any delay(s) arising from adverse weather or sea state conditions, fire, explosion, breakdown or failure of equipment, plant or machinery in or about ports or places of loading and/or discharge, Act of God, act of war, labour disputes, strike, riot, civil commotion, or arrest or restraint of princes, rulers or peoples shall, provided always that the cause of the delay(s) was not within the reasonable control of Charterers or Owners or their respective servants or agents…”

The Tribunal found that the rupture of a loading hose did not constitute a “breakdown or failure of equipment, plant or machinery in or about ports or places of loading and/or discharge” as the hose could have been replaced before the arrival of the subject vessel. The Tribunal accepted owners’ contentions that: (1) an oil spill was not a listed exception in clause 21; (2) the suspension of loading as the result an oil spill was not a listed exception in clause 21; (3) the inability of the shippers to provide cargo for Vessel X or any other vessel was not a listed exception in clause 21.  As regards ‘arrest’ the arrest could be an arrest of a third-party ship, provided it was one whose arrest delayed the chartered ship but there was no requirement that any arrest must be action by a state, not ordinary court proceedings and involve forcible interference.

However, the half demurrage provision did not apply because the cause of the delay had been within the reasonable control of the charterers or their servants or agents, in that it arose out of the loading of Vessel X. Whether the rupture of the loading hose was caused by the terminal or Vessel X, it fell within the reasonable control of the charterers or their servants or agents.

 

 

Moral: don’t arbitrate in Russia if you can help it

Decided eight weeks ago but just up on Bailii, the arbitration decision in Maximov v Open Joint Stock Company “Novolipetsky Metallurgichesky Kombinat” [2017] EWHC 1911 (Comm) is worth a brief note. Having sold a company to a buyer and faced a dispute as to the price, Nikolai Maximov got an arbitral award from a Russian tribunal for some 8 billion roubles (then about $250 million). A Russian court then proceeded at the buyer’s request to annul the award on very doubtful grounds, including those not raised by the parties. Two appeals failed. The seller sued in England under the New York Convention and at common law to enforce the award: to the buyer’s plea that the award had been set aside, the seller asked the court not to enforce that judgment on the basis that it must have been biased. Despite very grave suspicions about the propriety, let alone the correctness, of the Russian judgment, and despite evidence that the Russian judicial system left a great deal to be desired, especially when (as here) the Russian government had a strong interest in reducing or eliminating the award, the judge, Sir Michael Burton, was clear that this was not enough. Perverse and very suspicious it might be, but even here his Lordship was unable to draw the inference that the only explanation was bias.

Two further points for future reference. At [16] the judge expressed the view that a judgment given on one point out of evident bias would probably not be upheld even if there was another ground for the judgment that was not successfully challenged on that ground. And at [64] he strongly doubted a subsidiary argument by the defendant that once a court with jurisdiction had annulled an award that was an end of the matter however biased the court, since there would simply be nothing to enforce. And rightly so, we suggest: apart from anything else, the moral hazard that such a rule would engender is fairly obvious.

As we said at the beginning, arbitrate in Russia very much at your own risk.

 

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.