On 4 December 2017 Hong Kong will apply the latest limits of liability under the 1996 Protocol to the 1976 LLMC, pursuant to amendments to Schedule 2 of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Cap. 434).
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.
MSC v Glencore International AG is a timely reminder of the fundamental obligation of the sea carrier to deliver only against production of an original bill of lading. Two out of a consignment of three containers were misappropriated at the discharge port, Antwerp. operated an electronic release system (“ERS”). Under this system carriers provided, against bills of lading, computer generated electronic numbers (“import pin codes”) which were given to the relevant receivers or their agents and the port terminal. This was instead of delivery orders or release notes which would be presented to the terminal to take possession of the goods. The holders of bills of lading had to present the pin codes to the terminal in order to take delivery of the goods. In practice the collecting driver would enter the pin codes manually in order to gain access to the terminal and enable him to collect the containers. The system was not mandatory and not all carriers using Antwerp adopted it. Glencore’s agents, Steinweg, had used the system without incident 69 times. However, on the 70th occasion, when Steinweg’s haulier went to collect the container, it found that two had already been collected. It was likely that someone had learnt of the codes and had used them to steal the containers.
The bill of lading provided “one original Bill of Lading, duly endorsed must be surrendered by the Merchant to the Carrier (together with outstanding freight) in exchange for the Goods or a Delivery Order”. Andrew Smith J found the sea carrier liable in bailment and breach of contract in respect of the misdelivery of the two containers, rejecting the argument that the bill of lading had been exchanged for a delivery order constituted by the electronic pin codes;  EWHC 1989 (Comm). The bill of lading’s reference to a ‘Delivery Order’ must have been taken to refer to a ship’s delivery order, and here there was no document containing the necessary undertaking by the carrier to a person identified in it to deliver the goods to which it related to that person
The Court of Appeal has now upheld the decision at first instance,  EWCA Civ 365. The sea carrier raised a new argument that delivery of the pin code amounted in law to delivery of the goods, with the carrier being obliged to deliver to the first person to enter the pin code into the machine. This was rejected as delivery meant actual delivery, not delivery as a means of access, and there was nothing to the contrary in the bill of lading. At best the code was some form of delivery order. The alternative delivery obligation in the bill of lading required a ship’s delivery order which would require an undertaking by MSC to deliver to Glencore or their agent. The Release Note contained no such undertaking and was simply an instruction to the terminal to deliver against the entry of pin codes which it provide to Steinweg. Glencore was not estopped from contending that delivery of the cargo upon presentation of a pin code was a breach of contract and/or duty on the part of MSC, on the basis of having given the appearance that it was content for the ERS to be used for the 69 previous shipments.
Sea Carriers using the ‘ers’ system should take note. You bear the risk of misdelivery due to hacking of pin codes.
In De Wolf Maritime Safety BV v Traffic-Tech International Inc (‘The Cap Jackson’) 2017 FC 23, the Federal Court in Canada has held that (1) undeclared on-deck carriage did not prevent the application of the Hague-Visby Rules to the bill of lading and (2) that the carrier was entitled to rely on the limitation provisions in art. IV(5) of the Hague-Visby Rules. The decision on both points is in accordance with English law on the Hague-Visby Rules and deck cargo.
The High Court has just tackled the thorny issue, raised in the Australian case of The El Greco  2 Lloyd’s Rep 537 of what is the applicable limitation of liability for loss or damage of goods carried in a container under a contract of carriage subject to the Hague-Visby Rules. Kyokuyo v AP Moller –Maersk  EWHC 654 (Comm) involved carriage of three containers from Spain to Japan. The contract of carriage initially provided for the issue of straight bills of lading, consigned to the claimants, but the carrier and shipper subsequently agreed to issue seawaybills which were handed over to the consignee. As the contract of carriage contemplated the issue of bills of lading and the contract of carriage was made in Spain the contract of carriage was subject to the mandatory application of the Hague-Visby Rules under Rule X(b), even though the shipping documents that were issued were seawaybills.
The goods in the three containers were frozen tuna, some of which were carried in packages, some in individual units. The individual tuna pieces constituted ‘units’ for the purposes of package limitation and constituted the ‘packages or units’ of the cargo as packed. By operation of Article IV rule 5(c) of the Hague- Visby Rules they were the ‘packages or units’ for the purposes of Article IV rule 5(a). It sufficed that the language of enumeration was consistent with the truth (something that had not been the case in The El Greco). The limitation figure was presumed to be a single one for each container, unless the claimant could prove that there had been enumeration of the packages or units as packed within the container. The waybills had referred to the number of individual tuna pieces, on a ‘said to contain’ basis, but had not referred to the packages of tuna. The limit for the damaged goods in each container was a separate limit of 666.67 SDRs for each enumerated unit, the individual tuna pieces, and a single package limit of the larger of 666.67 SDRs or 2 SDRs per kilo of the gross weight of the damaged packaged tuna.
The decision of the Commercial Court (Sir Jeremy Cooke sitting as a Judge of the High Court) in The Aqasia  EWHC 2514 (Comm);  2 Lloyd’s Rep. 510 (noted swiftly in this blog; a picture of the vessel in question appears here) has clarified an issue that has been at the heart of cargo claim negotiations for decades, namely whether a carrier of a bulk cargo is entitled to limit his liability under the Hague Rules. Article IV Rule 5 of the Hague Rules provides that: “Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding £100 per package or unit”.
Whilst there had hitherto been no English authority directly on point the Commercial Court adopted the approach that has been followed by courts in Commonwealth countries and by textbook commentators and held that the words “package or unit” could not be applied to bulk cargo as they were intended to refer solely to physical packages or other units such as cars. It should be appreciated in this connection that the Hague Rules were adopted in the 1920s at a time when bulk ships were not common. Consequently, it appears that a carrier of a bulk cargo may have no right to package limitation under the Hague Rules.
By the time that the Hague-Visby Rules were adopted at the end of the 1960s, bulk shipments had become common and it was recognised that the Hague Rules wording was no longer fit for purpose. Consequently, Article IV Rule 5 (a) of the Hague-Visby Rules provided that a bulk carrier could limit his liability to “666.67 units of account per package or unit or 2 units of account per kilo of gross weight of the goods lost or damaged, whichever is the higher”. The highlighted words were intended to provide a bulk carrier with limitation rights (i.e. based on weight) that were not available under the Hague Rules.
It should also be appreciated that the version of the Hague Rules that the USA adopted in its Carriage of Goods Act 1936 is also worded differently and provides that a carrier may limit his liability to”$500 per package…or in the case of goods not shipped in packages, per customary freight unit…” The phrase “customary freight unit” has been construed to refer to the unit of measurement that is customarily used to calculate the freight for that particular type of carriage (e.g. so much per ton or US Barrel etc) and not to a physical unit.
Therefore, it is important for a bulk carrier (particularly in high value claims) to determine which version of the Rules is applicable in any particular case. This is also important when the Rules are adopted by means of a Paramount Clause since there are many different types of Paramount Clauses some of which refer to the Hague Rules, some to US COGSA 1936 and some to the Hague-Visby Rules. A reference to the “Vague Rules” could be expensive!
In London Arbitration 30/16 the tribunal held that where a claim was made against owners, in circumstances in which they incurred no liability to the claimants under the bill of lading, the costs of defending the claim were recoverable under clause 3 of the 1996 Inter-Club Agreement. This had been incorporated into the time charter on NYPE 1993 form.
The claim had been brought in a foreign court against the registered owners, the master, and the charterers and judgment had been given against the time charterers. In doing so the tribunal departed from a previous arbitration award in London Arbitration 10/15 where it was held that such costs could not be recovered when there was in fact no liability to cargo owners. Alternatively, the tribunal found that the owners would be able to recover under an implied indemnity as the cause of the cargo damage was the charterer’s order to wait outside the discharge port for 35 days.
The Zagora (Oldendorff GmbH & Co KG v. Sea Powerful II Special Maritime Enterprises)  EWHC 3212.
Where bills of lading are not available at the discharge port, it is common practice for the cargo to be discharged to the receiver against a letter of indemnity which will be conditional on delivery of the cargo to the receiver specified therein. The Zagora involved an allegation that delivery had not been made to the nominated receiver and the LOI was therefore unenforceable.
A series of indemnities down the chartering chain were given in respect of delivery in China in December 2013. When the bank brought a claim for misdelivery the owners called on their indemnity from the charterers who made a similar claim on the indemnity from the receivers. The indemnities required delivery to Xiamen, the first buyer in a chain of sales, or “to such party as you believe to be or to represent Xiamen… or to be acting on behalf of Xiamen.” Delivery was made to the agent of Xiamen’s sub-purchaser, Sea Road, and it was argued that the indemnities were not enforceable as there had been no delivery to Xiamen.
Teare J held that the indemnities were enforceable and that the sub-purchaser’s agent was also Xiamen’s agent, and, if that were not the case, then the owners believed that they had been acting as such. The master’s recollection was that the representative of Sea-Road who boarded the vessel stated that he was there to handle discharge on behalf of Xiamen. The inevitable inference to be drawn from Xiamen naming itself as the person to whom the cargo should be delivered in the absence of an original bill of lading was that Xiamen intended that the nominated agent Sea-Road would take delivery of the cargo on its behalf. Conversely, the shipowners had no interest in discharging the cargo into the possession of Sea-Road as their own agent, as this would not provide the protection of the LOI because the owners would not have delivered the cargo to Xiamen, but would have retained possession of the cargo through Sea-Road.
In the Yangste Xing Hua  EWHC 3132 (Comm) Teare J has construed the reference to ‘act or neglect of’ charterers or shipowners in cl.8 (d) of the 1996 Inter-Club Agreement as encompassing any act whether or not culpable. The relevant provision reads:
(d) All other cargo claims whatsoever (including claims for delay to cargo):
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.”
Cargo damage arose due to overheating while the vessel waited off the discharge port in Iran for four months. The trip charterers had ordered the vessel to wait there as they had not been paid for the cargo. The resulting cargo damage fell under cl.8(d) of the ICA and was 100% for charterer’s account as it had arisen from their ‘act’.
Teare J today faced a neat point of interpretation of the ICA. In Transgrain Shipping (Singapore) PTE Ltd v Yangtze Navigation (Hong Kong) Co Ltd  EWHC 3132 (Comm) Transgrain sold soya bean meal to Iranian buyers. To transport it they chartered 45000 grt bulker MV Yangtze Xing Hua on a NYPE time charter trip. The ICA was expressly incorporated. The vessel arrived: the buyers were decidedly leisurely about paying for the cargo or collecting it. Transgrain in response ordered the vessel to wait for four months, it being cheaper to pay hire and/or demurrage (which could then be billed to the buyer) than to warehouse the cargo ashore.
At the end of the period the cargo overheated. The owners settled a cargo claim by the consignees for about € 2.6 million, and then turned on Transgrain. In arbitration proceedings neither Transgrain nor the owners were found to have been at fault; the overheating had been caused, unsurprisingly, by sitting for about 18 weeks off the Iranian coast. As a result Transgrain argued that this was a case of “all other cargo claims” and argued for a 50-50 split under s.8(d) of the ICA. Owners countered that under the proviso to s.8(d) claims caused by the “act or neglect” of one or other party were for that party’s account: Transgrain argued that “act”, yoked as it was to “neglect”, implied “negligent act” and that, there being no fault in anyone, the proviso fell away.
Teare J sided with owners: “act”, he said, meant “act”, no more and no less. Probably rightly, in our view. If you insist on using a vessel in a particular way – for example as a floating warehouse – and a third-party claim results, there is much to be said for the idea that this is something you do at your own risk. Mind you, this result now leaves plenty of work for lawyers in future cases in arguing about how far a given claim is caused by a given (faultless) act: but we can leave that for another day.