Unsafe ports. The Ocean Victory in the Supreme Court.

The Ocean Victory involved a Capesize vessel which became a constructive total loss at the discharge port of Kashima. The quay at Kashima was vulnerable to long waves which can result in a vessel being required to leave the port. The only route in and out of Kashima is by a narrow channel, the Kashima Fairway, which is vulnerable to northerly gales. There was no meteorological reason why these two events should occur at the same time, but on this occasion the two events did coincide when the vessel had to leave port due to long waves, and subsequently became a constructive total loss. The vessel was demise chartered on Barecon 89 form and sub-time chartered. Both charters contained a safe port warranty.  One of the vessel’s hull insurers took assignments of the owners’ and demise charterer’s rights and claimed for breach of the safe port warranty.

The Supreme Court which gave judgment yesterday, [2017] UKSC 35,  held that there had been no breach of the safe port undertaking.  The test for breach of the safe port undertaking was whether the damage sustained by the vessel had been caused by an “abnormal occurrence”, and the date for judging the breach of the safe port warranty was the date of nomination of the port. The Supreme Court unanimously upheld the decision of the Court of Appeal. The combination of long waves and the exceptional nature of the storm at Kashima constituted an abnormal occurrence. Accordingly, there had been no breach of the safe port warranty under the demise charter and the sub-time charter.

The Supreme Court also dealt with two further questions that would have arisen if there had been a breach of the safe port undertaking under the two charters.  The first was whether the provisions for joint insurance in clause 12 of the Barecon 89 form precluded rights of subrogation of hull insurers and the right of owners to recover in respect of losses covered by hull insurers against the demise charterer for breach of an express safe port undertaking. The majority view was that clause 12 did preclude such a claim and provided a comprehensive scheme for an insurance funded result in the event of loss of the vessel by marine risks. This scheme was not altered by the safe port undertaking.  The second was whether liability under the two charters could be limited under art. 2(1)(a) of the LLMC 1976. The Supreme Court unanimously agreed with the Court of Appeal in The CMA Djakarta [2004] 1 Lloyd’s Rep 460 that Article 2(1)(a) of the 1976 LLMC  which allows owners or charterers to limit liability for loss or damage to property “occurring on board the ship” or “in direct connexion with the operation of the ship” did not include loss or damage to the ship itself.

A matter of construction. Conflicting arbitration and jurisdiction clauses in time charter.

 

In London Arbitration 12/17 the tribunal considered a conflict as to law and jurisdiction arose under two clauses in a time charter. Clause 31, headed ‘Law and Arbitration’ provided for mediation and, if the dispute could not be resolved within sixty days, by reference to a single arbitrator, with arbitration to be “[h]eld at London, UK and…conducted in accordance with relevant acts and rules there under excluding any laws, opinions, or regulations that would require application of the laws of any other jurisdiction.” The parties appointed their own arbitrators and a third was appointed by the President of the London Maritime Arbitrators Association (LMAA). Charterers then raised the point that the contract was not subject to arbitration but rather to Egyptian law and jurisdiction pursuant to cl. 21, headed, APPLICABLE LAW, which provided: “This Contract and the relationship of the parties hereunder shall be governed by and interpreted in accordance with the laws of Egypt and parties hereby agree to submit to the jurisdiction of the Egyptian Courts in Cairo.”

The tribunal had to decide, under its general power to make a finding on its own jurisdiction, which clause, as a matter of construction  more closely expressed the intentions of the parties. The tribunal found in favour of cl.31 which appeared under the more all-embracing heading: “Law and Arbitration”, whereas Clause 21 appeared under the heading “Applicable Law”, no reference being made in the heading to jurisdiction. Further the reference in clause 31 to   attempts at settlement as a prelude to arbitration did not sit with an intention for the Egyptian courts to have jurisdiction.

No set-off of charterers’ claims against debt for reimbursement of additional premium.

 

In London Arbitration 11/17 the vessel was time chartered on an amended NYPE 93 form under which the charterers gave orders for a voyage to a range of ports in Yemen. This led to the vessel incurring an additional premium of nearly $203,000 for transiting the Gulf of Aden and a call to Yemen. The additional premium was for charterer’s account under 82,  but charterers said that there had been a significant increase in APs for Yemen with effect from 25 May 2015, and complained that if the owners had not been guilty of culpable delay during the earlier stages of the voyage, the charterers would only have been required to pay the pre-increase rates. The tribunal held that the sums due by way of clause 82 of the charter were due by way of debt and there was no express or implied right to make an equitable set-off of such debt. Owners were entitled to reimbursement of the Aps in full and charterers would then have to counterclaim whatever part of the sum now awarded was recoverable by the charterers by reason of breach of owners’ alleged breach of charter.

Gencon strike clause. Notice not needed for what charterers already know.

 

London Arbitration 9/17 concerned the third paragraph of the general strike clause in Gencon 94 which provides.

If there is a strike or lock-out affecting the discharge of the cargo on or after vessel’s arrival at or off port of discharge and same has not been settled within 48 hours, Receivers shall have the option of keeping vessel waiting until such strike or lock-out is at an end against paying half demurrage after expiration of the time provided for discharging, or of ordering the vessel to a safe port where she can safely discharge without risk of being detained by strike or lock-out. Such orders to be given within 48 hours after Captain or Owners have given notice to Charterers of the strike or lock-out affecting the discharge.

 

A strike occurred after the vessel’s arrival at the discharge port of Chittagong and came to an end before laytime expired. No notice was given by the owners but both the charterers and the receivers were aware of the strike and did nothing. The tribunal held that laytime continued to run during the period of the strike.

 

 

Start of laytime. Know your port limits.

The Arundel Castle [2017] EWHC 116 (Comm) involved a question of the effectiveness of a NOR given at a waiting place some 1250 metres outside the limits of the loading port of Krishnapatnam. The charter was on GENCON 94 form, cl 6 of which provides “If the loading/ discharging berth is not available on the Vessel’s arrival at or off the port of loading/discharging, the Vessel shall be entitled to give notice of readiness within ordinary office hours on arrival there…” In the fixture recap, which the arbitrators held prevailed, the wording was as follows: in the fixture recap the wording is “on vessels arrival at load/disch ports within port limits”. The arbitrators identified “port limits” by reference to the relevant Admiralty chart and it was common ground that the vessel anchored outside the “port limits” shown on that chart.

Knowles J upheld the arbitrators’ finding, by reference to Lord Reid’s test in House of Lords in The Joanna Oldendorff [1973] 2 Lloyd’s Rep 285, 291:

“… I think it ought to be made clear that the essential factor is that before a ship can be treated as an arrived ship she must be within the port and at the immediate and effective disposition of the charterer and that her geographical position is of secondary importance. But for practical purposes it is so much easier to establish that, if the ship is at a usual waiting place within the port, it can generally be presumed that she is there fully at the charterers’ disposal.”

The position was not altered by the wider definition of ‘port’ in the 2013 Laytime Definitions for Charterparties and the 2014 Baltic Code, as follows:

“PORT shall mean any area where vessels load or discharge cargo and shall include, but not be limited to, berths, wharves, anchorages, buoys and offshore facilities as well as places outside the legal, fiscal or administrative area where vessels are ordered to wait for their turn no matter the distance from that area.”

This definition could only be taken to  provide a definition of “port limits” where the parties deliberately choose it as their definition, which was not the case here.

 

Demurrage claim under HEAVYCON 2007

London Arbitration 7/17 involved a demurrage claim under a Heavycon 2007 charter, the first reported decision on this form. The charter involved carriage of two jack-up rigs from Malaysia to India. Indian customs regulations required the vessel to call at an intermediate port to be converted from a “foreign” to “coastal” run. After the rigs had been discharged at the discharge port, the vessel would then have to go back to Port X so that she could be reconverted from “coastal” to “foreign”.  Owners made two demurrage claims. The first was for demurrage accruing at the discharge port which charterers sought to resist, in part, on the basis that it was caused by “reasons beyond the control of the [charterers] such as adverse weather conditions and … deficiency of the Master … officers and crew”.  However, cl13 provided

(b) Demurrage shall be payable for all time used in excess of the free time. Demurrage shall also be payable for any delay whatsoever not caused by the Owner, including waiting on weather…

(c) Free Time shall not count and if the Vessel is on demurrage, demurrage shall not accrue for time lost by reason of deficiency of the Master, officers or crew or strike or lockout of the Master, officers or crew or by reason of breakdown of the Vessel or its equipment.

Demurrage would run from the expiry of free time to the completion of discharge unless charterers could bring themselves within a relevant exception, which they could not.

Owners second demurrage claim was in respect of time from completion of discharge to sailing from the second Indian port at which the vessel was reconverted from “coastal” to “foreign”. The tribunal found that demurrage came to an end on completion of discharge but the majority found that there would be a quantum meruit claim for performance of extra-contractual services. On the return journey, the vessel did not have to take any detour since the intermediate Indian port was directly in the line of the return route and there would be no quantum meruit for the voyage, but there would be for the time spent at that port.

Academics, the IISTL and others

One ooff-hire-coverf our objects at the IISTL in Swansea University is to bridge the gap between professors and practitioners. To our way of thinking, intellectual rigour is entirely consistent with practical utility. A nice example of this recently from Steamship Mutual, in the shape of an excellent guide to off-hire by John Weale, well-known either side of the tracks, both as Fednav executive at the sharp end of risk management and as a highly informative writer on charterparty law. Introduced by Sir Bernard Rix, whose imprimatur does not come easily, this comes highly recommended for anyone dealing with this, probably the most common source of charter disputes.

Weale, J. “Off-Hire: A Study” (Steamship Mutual; 2017)

Request a copy.

2017

 

best happy new year 2017 wallpapers

 

Happy New Year to all our followers on the first working day of 2017. We will continue to look closely at what matters in maritime and commercial law. Once the minor matter of Brexit is out of the way, there are at least three rather important Supreme Court decisions in the pipeline — on safe ports, combined dangers, and (vitally) the effect of joint names insurance on liability (The Ocean Victory [2015] EWCA Civ 16); on “per claim” limits in insurance (AIG v Woodman [2016] EWCA Civ 367); and on the right to recover more by way of commercial damages than the losses that appear on any balance sheet (the combined appeals in The New Flamenco [2015] EWCA 1299 and Swynson v Lowick Rose [2015] EWCA Civ 629). And much more. As ever, watch this space.

Costs of defending cargo claim. Recovery under Inter-Club Agreement.

 

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.

Delivery without bills of lading. Enforceability of LOI.  

 

The Zagora (Oldendorff GmbH & Co KG v. Sea Powerful II Special Maritime Enterprises)  [2016] 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.