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.

Undeclared deck cargo and carrier’s right to limit Hague-Visby Rules? Canadian court says ‘yes’.

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.

Anticipatory breach and sale of blended cargo.

 

A victory for IISTL Member, Simon Rainey QC, leading counsel for the seller in Mena Energy DMCC v Hascol Petroleum Ltd. [2017] EWHC 262 (Comm). Disputes arose out of two sales, one of fuel oil, the other of gasoil, to an importer in Pakistan. The first shipment was of fuel oil  with a maximum  viscosity of 125 centistokes. The shipment required blending on the voyage to reduce its viscosity. On arrival at Karachi import was not permitted following sampling of the vessel’s tanks which showed that the cargo had a viscosity of 192.92 centistokes. The parties then agreed by telephone that the vessel would return to Fujairah where the cargo would be reloaded following further blending and would then return to Karachi. The buyer claimed that no final settlement had been reached but that the parties had merely agreed that if the vessel returned to Karachi by 26 November the existing bills of lading would continue to be used for calculating the price, but if it did not return by then the parties would revert to their rights under the original contract. The vessel returned to Karachi on 30 November and the buyer claimed damages for delay. The court held that the telephone agreement constituted a final settlement of all claims and counterclaims up to that point and that the seller merely undertook to use its best endeavours to ensure the vessel’s return to Karachi by 26 November. Even if the buyers were correct, the evidence showed that the cargo was in fact on spec at the time of the initial arrival at Karachi. The spot samples were drawn before any recirculation of the cargo had taken place. Running samples were more accurate than spot samples and hatch samples more accurate than samples drawn through the vessel’s closed sampling system.

 

With the second shipment, the buyers were obliged to open a letter of credit by 3 December and had failed to so. The previous day the sellers, seeing that it was clear that the buyers would fail to open the credit on time, cancelled the charterparty they had concluded for shipment. The court held that the obligation to open the credit did not depend on the existence of a charterparty, and that after 3 December, the buyer’s anticipatory breach became an actual breach for which the sellers were entitled to claim damages. In any event, the opening of a credit was a condition precedent to the seller’s obligation to supply the goods and there could be no question of the seller being in breach for failing to deliver cargo in circumstances where no letter of credit had been opened.

Something fishy in the containers. Package limitation under the Hague Visby Rules

The High Court has just tackled the thorny issue, raised in the Australian case of The El Greco [2004] 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 [2017] 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.

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.

 

 

Arbitrating against a dead defendant. Section 18 to the rescue?

Silver Dry Bulk v Homer Hulbert Maritime [2017] EWHC 44 (Comm) involved an arbitration where the defendant had ceased to exist by the time arbitration was commenced. Silver Dry Bulk Company Ltd, a Maltese company and a 100% subsidiary of General National Maritime Transportation Company (“GNMTC”), the Libyan national maritime company had bought a vessel from Homer Hulbert Maritime, a Marshall Islands company, which was a 100% subsidiary within the Sinokor group of companies, a Korean ship owner and operator. Silver Dry claimed that part of the purchase price represented a secret commission to one of Colonel Gaddaffi’s sons who at the time had complete control over GNMTC.

Shortly after completion of the sale Homer Hulbert filed articles of dissolution. Under the law of the Marshall Islands a dissolved company is kept alive for three years for the puposes of prosecuting suits by or against them. After expiry of that time Silver Dry commenced arbitration against Homer Hulbert. The arbitration clause in the sale contract provided:  “On the receipt by one party of the nomination in writing of the other party’s arbitrator, that party shall appoint their arbitrator within fourteen days, failing which the decision of the single arbitrator appointed shall apply.” Receiving no response from the dead company, after 14 days Silver Dry constituted their arbitrator as sole arbitrator. They claimed  that Homer Hulbert continued  to survive sufficiently for the purpose of being the defendant to a claim in arbitration, an issue which it wanted to be decided by the sole arbitrator, applying the principle of kompetenz-kompetenz.  The ultimate intent behind the proceedings seems to have been to go against the Korean parent company

To avoid wasting time and expense of arbitrating if the arbitration were subsequently turn out to be a nullity, Silver Dry asked the court the court should make an order under section 18(3) of the Arbitration Act 1996 directing that the arbitral tribunal has been validly constituted.  The provision gives the Court power to (a) give directions as to the making of any necessary appointments;(b) direct that the tribunal shall be constituted by such appointments (or any one or more of them) as have been made; (c) to revoke any appointments already made;(d) to make any necessary appointments itself

Teare J refused to make such an order.  When there is an issue whether a tribunal would have jurisdiction, it has been held that the court has power to make the orders listed in section 18(3) if the claimant can satisfy the test of showing a good arguable case. However, these powers can only be exercised if there has been “a failure of the procedure for the appointment of the arbitral tribunal”. That will not be the case if the procedure has operated in the way that it was supposed to, albeit without the cooperation of one of the parties. Here the appointment procedure had worked as contemplated by the parties’ agreement, with the claimant’s nominee automatically becoming sole arbitrator after 14 days, for which no assistance from the court was required.

Silver Dry also applied under section 44 for the issue of Letters of Request directed to the Korean courts for the production of emails between specified individuals or email accounts, connected with the negotiation of the sale, for a limited period. Teare J refused to make such an order. The issue of a Letter of Request would require him  to make a representation to the foreign court that (1) there was, or at the very least there probably was, an arbitration in existence for the purpose of which production of the documents is requested and (2) the documents were required for the purpose of the arbitration. He was not able to do so as the issue of the continued existence of Home Hulbert remained to be decided.  The position might be different if the sole arbitrator had expressed a view that production of the documents was necessary in order for there to be a fair resolution of the issues in the arbitration, but this was not the case.

 

Exclusive jurisdiction: where is the obligation not to sue to be performed?

A nice point of potential importance in conflict of laws: see AMT Futures Ltd v Marzillier & Ors [2017] UKSC 13 today. If someone in Germany has a contract with you providing for exclusive jurisdiction in England and they nevertheless sue in Germany, do the English courts have jurisdiction under Brussels I to hear your claim for damages? Against the other contracting party, clearly Yes. But what if you want to sue a third party for bankrolling the action and thereby inducing the breach of the obligation? Is the harm suffered by you suffered here within Art.5.3 (Art.7.2 Recast)? No. The relevant obligation is to be construed as an obligation to refrain from suing in Germany, not an obligation to sue in England if you sue at all.

Another interesting point raised in the case was whether entertaining an action for breach of the obligation not to sue in Germany was itself contrary to the full faith and credit ethos lying behind the Brussels regime (as denied in West Tankers v Allianz [2012] EWHC 854 (Comm)). The SC refused to grasp this hot potato: perhaps wisely, since it may well not matter after Brexit.

Asymmetric jurisdiction clauses and the Brussels Recast Judgments Regulation 2012

 

 

Asymmetric jurisdiction agreements are a long established and practical feature of international financial documentation. Under a typical asymmetric jurisdiction clause X (say a bank) and Y (say a borrower) agree that Y may sue X in the courts of jurisdiction A only but that X may bring proceedings against Y elsewhere. In Commerzbank Akt v Pauline Shipping and Liquimar Tankers [2017] EWHC 161 (Comm) the bank made various loans for ship purchase which were subject to guarantees on similar terms, including the provision of a clause for the benefit of the bank, conferring jurisdiction on the English courts. The borrowers defaulted and the bank exercised its rights to sell one of the vessels, the Adriadni. The guarantors brought proceedings against the bank in Greece, the first seeking orders that the guarantee of the loan was discharged and it was not liable to the bank, the second seeking damages from the bank in tort and under the Greek Civil Code for loss of the use of the Adriadni consequent on the arrest. The bank then brought proceedings in the English Court which the guarantors sought to stay under either art 29 or art 30 of the Recast Judgments Regulation.

 

Cranston J s held that the asymettric jurisdiction clause in the sale and guarantee contracts did confer exclusive jurisdiction on the English courts pursuant to art 31(2) of the Regulation.  Article 25 did not invalidate such clauses. Article 25 required the parties to have designated the courts of a Member State to enable the law applicable to the substantive validity of a jurisdiction clause to be identified and to provide certainty as to the forum in which a putative defendant can expect to be sued.  Article 25 did not require that a valid jurisdiction agreement had to exclude any courts, in particular non EU Courts. Accordingly, the Court refused to stay proceedings under Art. 29.

 

The Court also rejected an application to stay the English proceedings under Art. 30 concerning related proceedings. The agreement to an exclusive jurisdiction clause in favour of the English court was a powerful factor against a stay. In addition, the degree of relatedness between the English and Greek actions was very small and the English court was placed to determine the issue of interpreting and applying the jurisdiction clause.