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.

“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.

“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”.

Getting a freezing order can damage your wallet — official

The decision in Fiona Trust v Privalov [2016] EWHC 2163 (Comm) (noted in this blog here) has been upheld in the Court of Appeal: see SCF Tankers Ltd & Ors v Privalov [2017] EWCA Civ 1877. Readers will remember that Russian shipping conglomerate SCF (aka Sovcomflot, previously Fiona) sued another Russian businessman for serious money, alleging that he had bribed its officers to enter into all sorts of disadvantageous agreements, and in support of the action got a freezing order for something over half-a-billion dollars. Having recovered a measly $16 million, it was then hit by Males J with an order on its undertaking in damages amounting to something close to $50 million — a costly victory indeed. Little of substance to report about the CA decision: it essentially approved the findings below on causation and mitigation. Males J’s judgment, and our blog post, remain the go-to place for detailed discussion of the principles to be applied.

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 ([2017] EWHC 2808 (Comm). 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.