On April 2, 2014, the P5+1 (the United States, Germany, France, the UK, Russia, and China) and Iran reached an agreed-upon framework outlining the roadmap for a future agreement surrounding Iran’s nuclear program that would include suspension of U.S. and EU nuclear-related sanctions imposed on Iran. For further details, please see the recent Reed Smith Client Alert by Leigh Hansson and Paula Salamoun.
Since March 2014, Reed Smith has been closely monitoring developments relating to the situation in the Ukraine and reporting them as Client Alerts and blog updates. For a brief summary of the EU’s decision of 20 March 2015 to effectively leave in place the sanctions imposed last year against Russia, please see the recent Client Alert by Brett Hillis, Sian Fellows, David Myers, Alexandra Allan and Alexandra Gordon.
Further to the previous post commenting briefly on Spar Shipping AS v Grand China Logistics Holding (Group) Co., Ltd, for further details and commentary please see the recent Reed Smith Client Alert by Andrew Taylor and Alexandra Allan.
In Kuwait Rocks Co v AMB Bulkcarriers Inc (The Astra) (as reported in a previous post), the court determined that the obligation to make punctual payment of hire under the amended NYPE time charter in that case was a condition of the contract, so that failure to pay a single hire payment entitled the vessel owners both to withdraw the vessel and to claim damages for loss of profit for the remainder of the charter period.
On 18 March 2015, judgment was handed down in Spar Shipping AS v Grand China Logistics Holding (Group) Co., Ltd. The court disagreed with the analysis in The Astra, finding that payment of hire was not a condition of the contract.
Owners had withdrawn three vessels from Charterers’ service due to non-payment of hire. They claimed from the party which had guaranteed Charterers’ performance, inter alia, the unpaid hire which had fallen due and damages for loss of bargain for the unexpired charter periods. In light of the court’s finding that payment of hire was not a condition, Owners were only entitled to damages for loss of bargain if they could show that Charterers’ conduct was repudiatory and/or constituted a renunciation of the charters.
The judgment in this case effectively reverses the somewhat controversial position set out, albeit obiter, in The Astra, a position which had potentially strengthened owners’ position where charterers failed to make full and punctual hire payments. Reed Smith will be publishing a client alert which will consider this case, and the comparison with The Astra in more detail, a link to which will be posted in due course.
Swissmarine Services SA v Gupta Coal India Private Limited  EWHC 265 (Comm)
The Claimant and Defendant entered into a COA which contained an English law and jurisdiction clause. When the Defendant failed to comply with the terms due to difficulties in despatching and shipping the cargo, the Claimant brought a claim for breach of contract. The Defendant subsequently commenced proceedings in India, claiming damages for defamation and an anti-suit injunction to restrain the English proceedings. After almost two years, the Indian proceedings were dismissed due to lack of jurisdiction.
The Claimant alleged that it had suffered loss as a result of the Defendant’s breach of the English jurisdiction clause. It claimed as damages its costs incurred in the Indian proceedings, which the Court awarded. The Court found that the contract was clear as to law and jurisdiction, and the Defendant had been well aware of this, but had nevertheless commenced the Indian proceedings. The Claimant had demonstrated that the substantial costs incurred in India were properly incurred and had been incurred as a result of the Defendant’s breach. On that basis they were recoverable as damages.
The Claimant had also claimed for damages resulting from the Defendant’s failure to meet its shipment obligations. The Court awarded damages, and considered the correct method of assessment. There was clearly a contract between the two parties, the Defendant was in breach and the Claimant was entitled to damages. The Claimant had given the Defendant an extension of time to perform, which meant that the market price to be used in the assessment of damages was that at the time when the contract could last have been performed (i.e. when the extension granted by the Claimant expired). A further consideration in the assessment of damages was whether there was an available market at the time for the Claimant to find replacement shipments: if so, this could be set off against their loss. In this case, there was no such available market.
This case will be of assistance to parties who incur legal costs in foreign jurisdictions as a result of their counterparty’s breach of an English jurisdiction clause. Those costs will be recoverable as damages, provided that they are reasonably incurred, and that causation can be proved. However, a party which does not participate in English legal proceedings may be unlikely to pay any sums awarded, and so further costs may be incurred in enforcing the judgment.
Trafigura Beheer BV v Navigazione Montanari SpA  EWCA Civ 91
The subject vessel was chartered to carry a cargo of oil from Abidjan, Ivory Coast to Lagos, Nigeria. Clause 46 of the charter (on an amended BPVOY3 form) incorporated the Hague-Visby Rules, which contain exemptions in respect of loss or damage arising or resulting from inter alia “act of public enemies”, “perils of the sea”, and “any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier”. It was common ground that loss resulting from piracy would fall within one or more of these exemptions.
The charterparty also contained the following in-transit loss (ITL) clause:
“In addition to any other rights which Charterers may have, Owners will be responsible for the full amount of any in-transit loss if in-transit loss exceeds 0.5% and Charterers shall have the right to claim an amount equal to the FOB port of loading values of such lost cargo plus freight and insurance due with respect thereto. In-transit loss is defined as the difference between net vessel volumes after loading at the loading port and before unloading at the discharge port.”
During the course of the voyage, pirates took control of the vessel and removed part of the cargo. Charterers alleged that Owners were liable for the loss pursuant to the ITL clause.
At first instance, it was held that the cargo loss did not fall within the ITL clause and that even if it did, the incorporation of the Hague-Visby Rules excluded Owners’ liability. Charterers’ appeal against this judgment was dismissed by the Court of Appeal.
The words “in transit loss” were held to connote loss incidental to the carriage of the cargo, not loss caused by an event such as a piracy incident. There was a clear commercial rationale behind ITL clauses, in that it is very difficult to determine oil shortage claims, and it is sensible for the parties to agree that any unexplained difference will be recoverable where it exceeds a certain percentage. That ITL clauses only apply to short-delivery losses as encountered on a normal voyage was supported by the wording of the clause in this case which defined in-transit loss as the difference between volumes after loading and before unloading.
Clause 46 and the Hague Visby exceptions were held to apply whether or not the loss fell within the ITL clause. Charterers cited The Olympic Brilliance as authority that an owner could not rely on the Hague Visby Rules to claim back freight which had been correctly deducted in respect of unexplained losses which fell within an ITL clause, and that it followed that the Rules could similarly not be relied on to meet a claim which fell within such a clause. The Court disagreed. The Olympic Brilliance was authority for the point that an owner could not rely on the Hague Visby Rules to claim back freight correctly deducted in accordance with an ITL clause. However, it did not necessarily follow that the Rules could not be relied upon in respect of alleged liabilities for loss as distinct from an entitlement to freight.
This case exemplifies the importance to contractual interpretation of the commercial rationale behind a clause. Although cargo removed by pirates during a voyage could be said, on a purely factual interpretation, to be “in transit loss” because it occurred during transit of the cargo, that was not the intention of the ITL clause. It also exemplifies the court’s reluctance to disapply the Hague Visby Rules exemptions by analogy. The courts are likely to be reluctant to extend the situations in which charterers can recover from owners.
Kassiopi Maritime Co Ltd v Fal Shipping Co Ltd  EWHC 318 (Comm)
Owners and Charterers had entered into a voyage charter on the BPVOY4 form. The charter contained the following provisions:
- Clause 19.7.1: demurrage claims to be accompanied by the vessel’s pumping log signed by a senior officer of the vessel and a terminal representative.
- Clause 19.7.2: demurrage claims to be accompanied by copies of all notices of protest issued or received in connection with the cargo operations.
- Clause 19.7.3: demurrage claims also to be accompanied “copies of all other documentation maintained by those on board the Vessel or by the Terminal in connection with the cargo operations”.
- Clause 20: demurrage claims to be time-barred unless presented in writing, together with “all supporting documentation substantiating each and every constituent part of the claim”, within 90 days of completion of discharge.
Owners claimed demurrage as a result of delays at both the load and discharge ports. In arbitration, their claim was found to be time-barred because Owners had not provided Charterers with the port log, time sheets, and a manuscript note concerning free pratique at the discharge port within the 90 day time limit.
Owners appealed, submitting that the Tribunal’s interpretation of clause 19.7.3 as regards the supporting documentation required was too onerous. Owners’ appeal was dismissed. The Court found that the Tribunal had been correct to find that Owners had failed to comply with clause 20, and so their claim was wholly time-barred.
Clause 19.7.3 could not have been intended to impose a far reaching and potentially unworkable obligation on Owners. It did not require them to provide copies of all documents which they would have to disclose in an arbitration reference. The clause had to be construed in context, which was a focus on why loading and/or discharging had taken longer than the time provided for in the charter. In that context, clause 19.7.3 was intended to be a “sweep up” provision covering documents similar to those covered in clauses 19.7.1 and 19.7.2 but not specifically mentioned.
The documents to be presented in support of a demurrage claim were those which, objectively, the charterers would have appreciated substantiated the claim and which would put them in possession of the factual material required to satisfy themselves that the claim was well-founded (National Shipping Co of Saudi Arabia v BP Oil Supply Co). In this case, clause 20 required Owners to provide not only “supporting documentation” but all such documentation. Where Owners had port logs and timesheets, they were relevant to the claim and so were supporting documents which should have been made available to Charterers. Clause 20 was not, therefore, limited to the provision of “essential” documentation only.
This case is the latest to highlight the importance of complying precisely with the charter terms when submitting a demurrage claim. Non-compliance can have serious consequences, as owners may find themselves time-barred from recovering substantial amounts. It should never simply be assumed that the documents sent are sufficient and it is essential to carefully check the relevant clauses before submitting a claim. That this is an issue which repeatedly comes before tribunals and the courts shows that where a party can take a non-compliance point in attempt to have a claim dismissed as time-barred, they will invariably do so.
Posted on behalf of Christian Ayerst.
Mitsui OSK Lines Ltd v Salgaocar Mining Industries Private Ltd (2015) (Unreported)
After extensive negotiations, London brokers fixed a 10-year charterparty on behalf of their principals, the Charterers. The Charterers were named as a nominee with their performance guaranteed by the Defendant.
Three years into performance, Charterers terminated, alleging that the vessel was unsuitable for the carriage of iron ore. Owners commenced arbitration in London against both Charterers and the Defendant as guarantor, claiming damages (equivalent to the daily rate of hire from the date of repudiation).
The Court was asked to decide inter alia: (i) whether the Defendant had agreed to guarantee Charterers’ performance of the charterparty; (ii) whether the guarantee satisfied the Statute of Frauds Act 1677, namely the requirement that it be in writing and signed by the guarantor; and (iii) whether the Defendant was in breach of the guarantee.
On all three issues the Court found in Owners’ favour.
First, the brokers were well-established and London based, and the course of correspondence leading to the fixture satisfied the Court that they had actual authority to enter into both the charterparty and guarantee on behalf of their principals (Charterers). The correspondence between the brokers and Owners – at all times evidencing authority – gave rise to a binding guarantee.
Secondly, a guarantee can be contained in writing over several documents and not just confined to one. In this case, the correspondence taken as a whole evidenced an agreement in writing. Although no copy of the guarantee as signed by the Defendant was ever produced, other evidence could be relied on in its absence. The Court found that on the balance of probabilities the guarantee had been signed by the brokers acting with authority.
Thirdly, Charterers had wrongfully repudiated the charterparty and their defences were without merit. Accordingly, Owners were entitled to damage from the date of repudiation until the end of the hire period, with credit given for the off-hire periods contained in the charterparty. The Defendant guarantor was only liable to the extent that Charterers were liable under the charterparty.
This case demonstrates the importance of knowing the extent and limits of brokers’ authority, where too much (or too little) authority can expose a party to costly and far-reaching contractual obligations and claims. It is perhaps a further lesson in the value of performing adequate due diligence on contractual counterparties – a guarantee is only as good as the company / entity giving it. In this case, the fact that the neither Charterers nor the Defendant entered an appearance in the English proceedings means that the road ahead for enforcement in India is likely to be a long one for the successful Owners.
London Arbitration 3/15
A vessel was chartered for one voyage from “1-2 load berth chop always afloat Santander” to a port in the UK. Charterers ordered the vessel to load bulk bauxite at a berth adjacent to one where cars were waiting to be loaded. Although all reasonable preventative measures were taken, the loading of bauxite caused dust. When the wind direction changed, the dust was blown over the cars at the adjacent berth. To prevent the dust from getting on and inside the cars, the port authority ordered the loading of the bauxite cargo to be suspended.
Owners claimed demurrage for the resulting delay. Charterers argued that they were entitled to rely on the force majeure clause in the charterparty. The Tribunal held that Charterers had failed to bring themselves within the force majeure clause, and so Owners’ demurrage claim succeeded.
Charterers were responsible for the choice of berths at the loadport. A change in the wind direction such that it would blow dust over the adjacent berth was possible. Charterers could reasonably have foreseen this, and also that if the change in wind direction occurred, it would affect the performance expected of them. Further, it was not unexpected that the port authorities would give priority to a high-value and sensitive cargo such as cars. The bulk bauxite could have been loaded at an alternative berth, although moving the vessel and cargo would have incurred additional cost.
Reed Smith (Lianjun Li and Min Li of the Hong Kong office, Nick Shaw and Halani Lloyd of the London office) recently represented the successful Charterers in Shagang South-Asia (Hong Kong) Trading Co. Ltd v Daewoo Logistics  EWHC 194 (Comm).
The Respondent Owners chartered their vessel to the Claimant Charterers by a fixture note, clause 23 of which stated, “ARBITRATION: ARBITRATION TO BE HELD IN HONGKONG. ENGLISH LAW TO BE APPLIED”. Clause 24 stated “OTHER TERMS/CONDITIONS AND CHARTER PARTY DETAILS BASE ON GENCON 1994 CHARTER PARTY”. No boxes of Part I of the Gencon 1994 form were completed, including Box 25, which was otherwise to be filled in according to the following instructions: “Law and Arbitration (state 19(a), 19(b) or 19(c) of Cl. 19… (if not filled in 19(a) shall apply (Cl 19)).” Clause 19(a) provided for English law and London arbitration in accordance with the English Arbitration Act, before a Tribunal of three arbitrators if a sole arbitrator was not agreed. It also provided for the appointment of a party’s appointed arbitrator as sole arbitrator if the other party failed to appoint its arbitrator within 14 days.
Owners commenced arbitration in a dispute relating to shortlanded cargo, and purported to appoint their arbitrator as sole arbitrator pursuant to Gencon clause 19(a). Charterers queried the appointment and jurisdiction of the arbitrator, arguing that the seat of the arbitration was Hong Kong, and that the law governing the arbitration (i.e., the curial law) was Hong Kong law, not English law. The sole arbitrator ruled on his jurisdiction, concluding that the arbitration was subject to the Arbitration Act 1996 and that Gencon clause 19(a) was applicable. In the circumstances, he had been properly appointed.