Service of arbitration proceedings in cyberspace — don’t make idle assumptions.

In Glencore Agriculture BV v Conqueror Holdings Ltd [2017] EWHC 2893 (Comm), decided today, Conqueror had a smallish demurrage claim in respect of a 30,000 dwt bulker, the Amity, which charterers Glencore had ordered to wait idle for a time before taking on a cargo of corn at Ilychevsk in Ukraine. Glencore’s point of contact with Conqueror in arranging the nuts and bolts of loading and dealing with the delay had been one FO, a fairly junior Glencore man: not surprisingly all messages had been sent by email to and from FO’s Glencore email address.

There was an arbitration clause in the (Synacomex) charter. To get the arbitration ball rolling for its demurrage claim, Conqueror sent notice of its appointment of an arbitrator to FO’s email address (but nowhere else). Nothing happened, despite a number of reminders sent to the same address: in the event Conqueror’s arbitrator determined the claim in Conqueror’s favour as sole arbitrator.

Glencore applied for a declaration that the award did not bind it, under s 72 of the Arbitration Act 1996 (and also ss 67-68 of the same Act). Had there been proper service? Popplewell J said No. The issue in an arbitration case fell to be decided on ordinary principles of agency. FO, being a fairly junior dogsbody in the Glencore corporate machine, had neither express nor implied authority to receive formal service of claims: nor had there been any holding out of him as having it, merely because he had made the arrangements for the loading.

Entirely correct, in the view of this blog. And one doesn’t have to be very sympathetic to Conqueror. They could always have used old-fashioned snailmail sent to Glencore’s head office: see s 76(4(b) of the Act. It seems, with respect, that someone at Conqueror just indolently assumed that it would do to email a contact in the company he happened to have dealt with before. That won’t, and shouldn’t, do. One more simple point for solicitors acting for arbitration parties to add to their checklist.

Causation and Contingencies. The CV Stealth, again.

In The CV Stealth [2016] EWHC 880 (Comm) an attempt by the sub-charterer to load a cargo of oil from Venezuela without the necessary export permission led to the detention of the vessel. Popplewell J upheld the arbitrator’s finding that the bareboat charterers could recover the resulting expenses from time charterers by way of an indemnity under cl. 13 of Shelltime 4 form. The time charterer’s employment order to load the cargo was the effective cause, or at least an effective cause of the detention of the vessel up to and including 21 July 2015.

The judicial detention of the vessel in Venezuela continued and on 25 May 2017 the Arbitrator issued a Fourth Partial Final Award awarding owners detention expenses and hire paid to the owners for the period after 21 July 2015, but subject to a provisional deduction of $1.4 m for saved drydocking expenses. The deduction was made because “as matters stand there must be a substantial possibility that the vessel will never, in her lifetime, be redelivered to the head owners and thus that the drydocking costs will never have to be borne by the owners here.”

The charterers appealed against the award on the grounds that in considering the issue of causation the arbitrator had merely asked himself whether anything had changed since his initial Partial Award. Charterers argued he should have asked whether the employment order continued to be an effective cause of the detention of the Vessel, or whether the sole effective cause of that detention eventually became the intractable and perverse refusal of the Venezuelan courts to order the release of the vessel as required by Venezuelan law.

Popplewell J held that the arbitrator had not misapplied the test for causation. The arbitrator had already found that the employment order had causative potency up to 21 July 2015. The fact that the approach of the Venezuelan courts had not changed from then, could legitimately be taken as evidence that the chain of causation had not been broken; a finding confirmed by the arbitrator’s finding that the subsequent judicial behaviour was insufficient to “obliterate the original cause of the detention”, which reflected the language of the test in Borealis v Geogas [2011] 1 Lloyd’s Rep 482, [44], on when an effective cause will be replaced by another intervening cause.

The owners also appealed against the provisional deduction of saved drydocking expenses, arguing that deductions could only be made if there were a finding that there was a benefit and that the benefit was legally caused by the breach. Popplewell J dismissed the disponent owner’s appeal. The arbitrator had adopted a “wait and see” approach of considering loss by reference to events as they unfolded which was a permissible approach to the date of assessment of loss where its extent may depend upon future contingencies.

Owners obligation to start the approach voyage under a voyage charter.

 The Pacific Voyager [2017] EWHC 2579 (Comm) concerns the shipowner’s obligations under a voyage charter in commencing the approach voyage to the port of loading. In the present case, the vessel struck a submerged object in the Suez Canal while engaged in the final leg of her previous charter. All her cargo was discharged there and the vessel had to be drydocked for repairs before performing any further laden voyages. The cancelling date was 2359 on 4 February 2015 and owners notified charterers that the vessel was shortly due to drydock where repairs would take “months”. Charterers cancelled on 6 February 2015 and claimed substantial damages.

In Monroe Brothers Limited v Ryan [1935] 2 KB 28 the Court of Appeal held  that where the charter contains an expected readiness to load date (‘ertl’) the owner is under an absolute obligation to start the approach voyage by a date when it is reasonably certain that the vessel will arrive at the loading port on or around the expected readiness to load date. The exceptions in the charter will apply once the approach voyage starts but do not apply to the period before hand. The same applies where the charter provides an an estimated time of arrival (‘eta’) at the load port (The Myrtos [1984] 2 Lloyd’s Rep. 449).

The present case raised the novel issue of how the Monroe obligation operated in a charter which did not contain an ‘ertl’ or an ‘eta’ provision. Instead the charter contained a series of ETAs in respect of the anticipated timetable for completion of the voyage then being undertaken under the previous charter. Charterers argued that the cancelling date provided the date by reference to which there was an absolute obligation on the Owners to commence the approach voyage. Owners argued that the only relevant obligation on the Owners was an implied term that they would exercise due diligence to get the Vessel to the loading port by the cancelling date.

Popplewell J found that there was an absolute duty on the Owners to commence the approach voyage, at a particular point of time. That time is to be a reasonable time, to be identified in the light of the other charterparty terms. In this charter the relevant terms were to be found in the provisions regarding ETAs for the completion of the previous charter, which were equivalent to an ETA of arrival at the load port. The ETAs concluded with the vessel arriving at Antifer on 25 January 2015 for final discharge of her previous cargo. Owners were under an absolute obligation to commence the approach voyage at the end of a reasonable discharging period, were the vessel to arrive at Antifer on 25 January 2015. Had there been no ETAs for the vessel’s previous employment, there would have been an absolute obligation to commence the approach voyage by a date when it was reasonably certain that the Vessel would arrive at the loading port by the cancelling date.

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.

 

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.

 

 

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).