What constitutes a ‘claim’ under stakeholder proceedings? The CV Stealth (again).

 

 

The CV Stealth involved the lengthy detention of the vessel in Venezuela while waiting to load cargo, pursuant to time charterers’ orders. This resulted in claims for  hire during this period by head owners against the bareboat charterers and indemnity claims by the bareboat charterers against the time charterers.  The bareboat charter remains in force, although the vessel was redelivered under the time charter in 2015. The case has already come before the Commercial Court on two occasions (reported in this blog on May 24th 2016  and  November 16th 2017).  It has now come back for a third time, ST shipping and Transport Pte Ltd & Ors v. Space Shipping Ltd, Psara Energy Ltd [2018] EWHC 156 (Comm), with an issue as to what constitutes a ‘claim’ for the purposes of stakeholder proceedings under CPR Rule 86.1 which provides: “ This Part contains rules which apply where — a person is under a liability in respect of a debt or in respect of any money, goods or chattels; and competing claims are made or expected to be made against that person in respect of that debt or money or for those goods or chattels by two or more persons.”

The time charterers had become subject to an award under which they were to pay $6.4m to disponent owners. They then became notified by head owners of an assignment in their favour by disponent owners of $1,787,375 reflecting 181 days’ hire under the bareboat charter. Disponent owners subsequently made a claim for the full of the award of $6.4m  under a letter of undertaking that had been issued by Glencore, as guarantors for time charterers. The demand took no account of the assignment effected in favour of head owners, and Glencore and time charterers issued stakeholder proceedings in respect of US$6.4m held by time charterers’ solicitors. Disponent owners then accepted that the sum representing 181 days hire which had been the subject of the assignment could be paid out to head owners.

However, charterers did not accept that they had now received the “all clear” to pay the balance to disponent owners. First, a dispute remained between head owners and disponent owners as to the scope of the assignment although this was swiftly decided against head owners in the third arbitration. Secondly, the head owners then obtained from the US District Court of Connecticut a Rule B attachment order which attached or garnished “the debts of [the charterers] to [the disponent owners]”, in support of their claims against the  disponent owners totalling some US$19.6m. The head owners then gave notice of the order to the time charterers pursuant to which they said that the charterers were directed to “attach and freeze and all tangible or intangible property and/or assets held for the benefit of [the disponent owners]”.  Head owners claimed that this gave then a proprietary claim over time charterers’ debt to the disponent owners. The order was subsequently vacated on charterers’ application of the grounds that as the court could not exercise personal jurisdiction over charterers, property held by the charterers were outside the jurisdiction of the court. Head owners appealed against the decision. Charterers resisted the payment out of the sums in the stakeholder account because there was still the risk of a double payment, if head owners’ appeal in the Rule B proceedings were successful.

The matter came before the Commercial Court and Teare J had to decide whether there was a stakeholder claim within CPR Part 86. The disponent owners submitted that this stakeholder claim was not within CPR Part 86 because there were no “competing claims ”.  First, the disponent owners did not have a claim, but, rather, an arbitration award. The disponent owners relied on Stevenson & Son v Brownell [1912] 2 Ch 344 and the note in the White Book at 86.1.2 based upon that case to the effect that “claim” in interpleader or stakeholder actions did not extend to concluded claims where judgment has been obtained . Second, Part 86 requires or envisages proceedings in the English court, whereas here the Rule B proceedings had been commenced in Connecticut, not in in England. Teare J rejected both contentions and held that there was a ‘claim’ within CPR Part 86. The context of Part 86 did not require ‘claim’ to be limited to proceedings before an English court and a competing claim could be one that was made in another jurisdiction. The present case was distinguishable from Stevenson, a case involving two competing claims to royalties, one of which had ripened into a judgment. The present case did not concern rival claims by two persons claiming to be entitled to be paid hire under the time charterparty. Rather, head owners claimed a proprietary right by way of lien on the chose in action represented by the disponent owners’ right to payment of the award by the charterers. Furthermore, although the disponent owners were the beneficiaries of several arbitration awards they were not judgment creditors.

A further issue was whether Glencore were entitled to claim stakeholder relief as they had only been subject to one claim under the LOU, from the disponent owners. Teare J found that as the LOU was a contract of surety it was sensible that both the primary obligor and the surety were made party to the stakeholder claim.

Teare J then decided that the sum in the stakeholder account should be paid out to the disponent owners. There was no risk of time charterers being later ordered to pay the same sum to head owners if their Rule B appeal were to succeed. As party to the stakeholder claim, head owners were bound  by reason of the doctrine of res judicata by any order the court makes. The court’s order would estop them  from contending that they, rather than the disponent owners, were entitled to the debt owed by the charterers.

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.

 

 

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.

Keep right on to the end (of the charter). No constructive redelivery under bareboat charter.

The termination of a demise charter pursuant to the shipowner’s right of withdrawal is a more complex process than with an ordinary time charter. The charterer still has its crew on board the vessel and some time may elapse before the shipowner is able to retake physical possession of the vessel. In the interim charterers may have entered into commitments with bunker suppliers and with cargo owners, pursuant to bills of lading.

In The Chem Orchid Lloyd’s Law Reports , [2014] 1 Lloyd’s Rep. 520, the High Court of Singapore had to decide whether the bareboat charterer, the “relevant person” who would be liable in personam, was the demise charterer when the cause of action arose, so as to found jurisdiction under s.4(4) of the Singapore High Court (Admiralty Jurisdiction) Act, which is in identical terms to s.21(4) of the UK Senior Courts Act 1981. The Assistant Registrar struck out the writs in rem on the grounds that the charter had been terminated prior to the issue of the writs. Accordingly, the vessel could not be arrested in relation to claims arising in the interim between the notice of termination being given and physical redelivery of the vessel to the shipowners.

The decision has now been reversed by Steven Chong J, [2015] 2 Lloyd’s Rep. 666, who held that the charter had not been validly terminated, but even it had, there was no concept of constructive delivery applicable to the termination of bareboat charters which continue until physical redelivery. Therefore, at the time the in rem writs were issued by the bunker suppliers and the cargo claimants, the vessel was still in the possession of the charterers.

On 20 January 2016 the Singapore Court of Appeal held that it had no jurisdiction to hear an appeal from this decision. [2016] SCGA 04.