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.

 

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.

Singapore arrest is for Singapore litigation.

 

In The Eurohope  [2017] SGHC 218 the Singapore High Court has held that it is an abuse of process to arrest a vessel in Singapore for the purpose of obtaining security for legal proceedings in another jurisdiction, in this case the High Court in England. This reflects the position in English law prior to s.26 of the Civil Jurisdiction and Judgments Act 1982 which empowered the court to order that property arrested be retained for the satisfaction of a judgment given in foreign court proceedings. Singapore has not enacted any equivalent legislation, and only provides for the arrest of ships to be used as security for pending international arbitrations (s. 7(1) the International Arbitration Act 1995).

Accordingly, the court ordered the in rem writ to be struck out, the warrant of arrest to be set aside, and the letter of undertaking issued by the owners’ P&I Club to be returned to the owners or their solicitors for immediate cancellation. The Court declined to award damages for wrongful arrest or wrongful continuance of arrest of the vessel. Taken as a whole the plaintiff’s behaviour was reasonable and did not amount to bad faith or malice.

Operating expenses incurred during ransom negotiations. Now allowable under Rule F of YAR 1974.

In The Longchamp reported in our blog of 9 August 2016, the Court of Appeal held that four items of vessel operating expenses incurred during ransom negotiations with pirates were not allowable in general average as substituted expenses under Rule F of the York Antwerp Rules 1974.

Rule F provides:

“Any extra expense incurred in place of another expense which would have been allowable as general average shall be deemed to be general average and so allowed without regard to the saving, if any, to other interests, but only up to the amount of the general average expense avoided.

The items claimed in respect of this period were: crew wages; the high risk bonus due to the crew for being at sea in a high risk area; crew maintenance; bunkers consumed. The expenses were incurred over a 51 day period of negotiation with the pirates which resulted in the release of the vessel on payment of a ransom of US1.85m, as opposed to the US$ 6m initially demanded. The Court of Appeal held that Rule F presupposes some real choice being made. Acceptance of the initial ransom demand is not a true alternative; nor is acceptance of any other ransom sum less than that initially demanded but greater than that eventually agreed.

The Supreme Court has now overturned the decision of the Court of Appeal and held, Lord Mance dissenting on the facts, that the four operating expenses were allowable under Rule F. The Supreme Court disagreed with the Court of Appeal’s decision that the operating expenses did not fall within Rule F because payment of a reduced ransom was not an ‘alternative course of action’ to paying the ransom initially demanded, but was merely a variant. This reasoning required a different means to be adopted to complete the adventure from that which might normally be expected. This was the prevailing view of the texts on General Average and among practitioners, but was not supported by the language of Rule F. In any event, incurring the operating expenses did represent an ‘alternative course of action’ to paying the ransom intially demanded.

Both lower courts had found that the reference in Rule F to “another expense which would have been allowable as general average” is to an expense whose quantum is such that it would have qualified as a claim under Rule A. Both lower courts had accepted that on the facts payment of the ransom in full would have been reasonable. The Supreme Court disagreed with this construction of Rule F. The reference in Rule F to ‘allowable in General Average’ did not mean that the expense (in this case payment of the full ransom demanded) had to be reasonably incurred. It had to be of a type that would constitute a General Average expense. If so, the substituted expense (in this case the payment of the lower ransom together with the operating costs during the period of negotiation) would be allowable, but only to the extent that it did not exceed the sum avoided and that it was established that it was reasonable to pay the ransom that was paid together with incurring the operating expenses and the negotiation expenses during the 51 days.

The Supreme Court also rejected cargo interest’s argument that the exclusion of indirect loss including demurrage from General Average under Rule C served to exclude the operating expenses from Rule F. Rule C did not apply to expenses recoverable under Rule F which by definition were expenses not themselves allowable in General Average but were alternatives to sums that were allowable.

 

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.

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.

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.

 

 

General average and cargo interests.

 

In Offshore Marine Services Alliance Pty Ltd v Leighton Contractors Pty Ltd and Another [2017] FCA 333 the Federal Court of Australia was called on to  decide whether parties interested in the cargo, other than the cargo owners at the date of the GA incident, were liable to contribute in general average. A tug and barge carrying construction materials grounded on its voyage from Henderson to Barrow Island and the disponent owner of the barge and tug incurred expenses and costs in securing the common safety of the barge and the cargo, including costs of some Aus $4m associated with stabilising the damaged hull of the barge, re-floating it and towing it back to Henderson with the cargo intact and undamaged.

The disponent owners claimed GA contributions from Leighton and Thiess who had supplied the cargo pursuant to contracts with Chevron. At the time of the incident ownership in the cargo had passed to Chevron, but the disponent owners claimed that Leighton and Thiess had a relevant interest in the goods because under their contracts they remained “on risk” in respect of the goods, and/or were “responsible for the care, custody, control, safekeeping and preservation of” the goods prior to their acceptance by Chevron.

McKerracher J held that a liability to contribute in GA attached only to the owner of the cargo that benefitted from the general average act, or someone contractually liable to contribute would be liable to contribute.

Admiralty jurisdiction over torts in the UK’s EEZ.

 

Virgin Media Ltd v Joseph Whelan T/A M and J Fish [2017] EWHC 1380 Admlty is an interesting decision on whether the Admiralty Court has jurisdiction in personam over a tort claim arising in the exclusive economic zone of the United Kingdom.  The claimant alleged that its fibre optic telecommunications cable, which ran across the Irish Sea between Dublin and Lytham St Annes, was damaged by a trawler at a location within the exclusive economic zone of the UK, but outside its territorial waters. The issue before the Admiralty Court was whether the courts of England and Wales had jurisdiction under the 2012 Recast Judgments Regulation. Under art.4 of the Regulation the defendant should be sued in the place of its domicile, the Republic of Ireland, subject to any of the additional grounds of jurisdiction provided for in the Regulation. Here the relevant one was contained in art 7(2) which provides that “A person domiciled in a Member State may be sued in another Member State in matters relating to tort, delict or quasi-delict in the courts for the place where the harmful event occurred or may occur”.

The Admiralty Registrar held that the Admiralty Court had no greater rights over a collision with a fixed structure than it would in respect of any collision between ships which would be none unless the action is brought in rem or falls within one of the exceptions in s.22 of the Senior Courts Act 1981. Any extension of jurisdiction would have to be established by reference to an international convention or treaty. The relevant treaty would be the UN Convention on the Law of the Sea (UNCLOS).

Article 60(2) of UNCLOS provides that the coastal state has exclusive jurisdiction over artificial islands, installations and structures within its EEZ, and this formed the basis for Burton J’s decision in Conocophillips (UK) Ltd v Partnereederei MS Jork [2010] EWHC 1214 (Comm) that the Commercial Court had jurisdiction over a negligence claim against a shipowner in connection with a collision between a vessel and an unmanned oil platform 40 miles off the coast of Norfolk. Where there is a collision between a vessel and a platform which is an effective prolongation of the territory of the United Kingdom, the Court would have jurisdiction. The concept of ‘place’ in the predecessor provision to art 7(2) in the 2001 Judgments Regulation was limited to matters addressed in UNCLOS art. 60.

In contrast, art.58(1) provided that all States, and not just the Coastal State had the freedom to lay submarine cables and pipelines within their EEZ, but did not provide for the coastal state to have jurisdiction. Article 56 of UNCLOS gives an English court jurisdiction over matters with respect to fishing, but did not provide that the coastal state may assume jurisdiction with regard to civil disputes arising out of fishing. Accordingly, the Admiralty Court was not a court for the place where the harmful event occurred under art 7(2) and the Court declared it had no jurisdiction over the claim. The appropriate jurisdiction was in the Courts of the Republic of Ireland under art. 4 of the Recast Regulation.