“OCEAN VICTORY” – Court of Appeal Decision

In Gard Marine & Energy Ltd v China National Chartering Co Ltd (Rev 1) [2015] EWCA Civ 16, the Appellant sub-charterers appealed the 2013 judgment of Teare J.

On or around 12 September 2006, the sub-charterers ordered the vessel, “Ocean Victory”, a Cape-size bulk carrier, to discharge a cargo of iron ore at Kashima, Japan. The vessel sought to leave the port during bad weather on the advice of sub-charterers’ representative at the port, a local experienced mariner. The immediate concern was that, in view of the weather conditions, there was a risk that she could not be restrained by her moorings and/or tugs. As she left the protection of the harbour, she encountered a severe northerly gale and considerable swell (as a result of long waves) in the Kashima Fairway; she was driven onto the breakwater, then ran aground and subsequently became a total loss.

For further details and analysis, please see the recent Reed Smith Client Alert by Marcus Dodds, William Howard, Daniel Jepson and Olga Newman.

Owners held not liable under charterparties signed by manager in breach of implied warranty of authority

Navig8 Inc v South Vigour Shipping Inc [2015] EWHC 32 (Comm)

The claimant had chartered four vessels, the charterparties for which had been signed by the vessels’ commercial manager. Each charterparty contained the phrase “the disponent owners signatory in contract”, followed by the manager’s name. During the negotiations, the manager had made it apparent that it was acting on behalf of Owners, and had said that Owners were being kept informed of the progress of negotiations.

When the vessels were withdrawn from service, Charterers brought a claim against the manager and the registered owners of the vessels, arguing that in fixing the charterparties the manager had been acting as the Owners’ agent, that Owners were bound by the charterparties, and that they were in breach by withdrawing the vessels. Charterers said that the phrase “disponent owners” in the charterparties was used in the sense of the manager having the power to fix charterparties on behalf of Owners. Owners denied that they were party to the charterparties and, if they were, that the manager had authority to act on their behalf.

The Court held first that the manager had signed the charterparties as disponent owner, in the sense of being the manager of the vessels. The phrase “disponent owner” could be used to refer to a party who was the agent of the registered owner, if he was a manager with very wide powers (although the court acknowledged that the use of the phrase in this context is both rare and unusual).

The Court also held that Owners had not expressly authorised the manager to conclude the charterparties. Charterers’ claim against Owners, therefore, was dismissed. The manager, however, was liable to Charterers for breach of an implied warranty of authority. The measure of damages was the sum which would otherwise have been payable by Owners, plus a balance of account.

Comment

Third parties, such as brokers and managers, often play key roles in negotiating charterparties. This case indicates the importance of ensuring that, when one party is acting on another’s behalf, both are absolutely clear as to the extent and limits of the former’s authority. An agent which breaches a warranty of authority can find itself liable for damages under a contract purportedly agreed on behalf of its principal. The principal, even if not liable for damages, may find itself incurring the time and cost of litigation which could have been avoided.

Tartsinis v Navona: A Successful Recification Claim

Tartsinis v Navona Management Co [2015] EWHC 57 Case note posted with thanks to 7 King’s Bench Walk. An apparently normal case – a dispute under a Share Transfer Agreement – resulted in a very unusual outcome in commercial litigation – a successful claim for rectification. Two individuals, Tartsinis and Nikolaou, agreed to sell their shares in a company that owned a fleet of 5 ships to the Defendant Navona – a company represented and controlled by a prominent Greek shipowner, Kriton Lentoudis.  Some time after the transaction had closed, they sued Navona alleging that, under the STA, it owed them $13 million. This was on the basis of an interpretation of the STA that looked plausible on paper, but which Navona said was not what the parties had agreed.  Navona counterclaimed on the basis that the STA should be rectified so as to reflect their true agreement.  There were intense factual disputes about the course of the negotiations leading up to the STA. At trial there were three challenges: (1) to break down the evidence of Mr Tartsinis and persuade the Judge that he was untruthful; (2) to persuade the Judge that the case satisfied the strict legal criteria for rectification; and above all (3) to overcome the inevitable cosmetic difficulties associated with a rectification case – in particular, that reliance on rectification is generally seen as a sign of desperation. Ultimately the Judge was satisfied on all these points. The Judgment also contains a notable review of the law on rectification.

“Ocean Victory”: Court of Appeal reverses first instance decision

Gard Marine & Energy Ltd v China National Chartering Co Ltd (The “Ocean Victory”) [2015] EWCA Civ 16.

In a previous post, we commented on the High Court’s decision in Gard Marine & Energy Ltd v China National Chartering Co Ltd (The “Ocean Victory”) [2013] EWHC 2199 (Comm), which dealt with an alleged breach of a safe port warranty.

The Court of Appeal has now reversed the High Court’s decision. A summary of the Court of Appeal’s decision is available on the 7 King’s Bench Walk website.

 

Court considers nature of the breach and consequent measure of damages in “early redelivery” case

By Sally-Ann Underhill and Alexandra Allan.

Maestro Bulk Ltd v Cosco Bulk Carrier Ltd (The “Great Creation”) [2014] EWHC 3978 (Comm)

The vessel was chartered on an amended NYPE form for a minimum of four months and a maximum of five months, plus 15 days in Charterers’ option. Hire was at a rate of US$18,500/day gross. Clause 60 of the charterparty dealt with the timing of redelivery notices, and provided:

“On redelivery charterers to tender 20/15/10/7 days approximate and 5/3/2/1 days definite notice.”

The earliest date for redelivery was 29 March 2010, and the latest date was 14 May 2010.

On 13 April 2010, Charterers determined that they would not be able to fix another voyage during the currency of the charter and that they would have to redeliver the vessel. On the same day, they served what purported to be a 20 day notice of redelivery. On 14 April they tendered 15/10/7 approximate notices of redelivery, and on 16 April tendered 3/2/1 definite notices. The vessel was redelivered on 19 April. Two days later, on 21 April, Owners fixed the vessel for a time charter trip at US$22,000/day (an effective rate of US$13,485/day taking into account a nine day ballast voyage).

The issue before the Court was: “where a time charterparty provides for charterers to give notice of redelivery, what is the correct approach to damages when redelivery takes place with insufficient notice(s)?”

This is a question which has long been the subject of debate – there being a recognition that, in such circumstances, the Owners lose the opportunity to fix the vessel at the best possible rate, this being the generally agreed purpose of the approximate and definite notices of delivery.

In a compelling judgment, Cooke J analysed the breach. He concluded that the breach was not failure to give the first approximate notice of redelivery 20 days before actual redelivery (at that time Charterers having no intention to redeliver the vessel in 20 days’ time and so such notice not being capable of being given honestly) but in not delivering the vessel 20 days after that first approximate notice of redelivery was given.

As soon as one analyses the breach in this way, the ‘breach / no breach’ approach to damages – being to put the innocent party in the position they would have been in if the contract had been properly performed – becomes clear. What the Owners had lost as a result of the breach was 20 days of hire from the first notice of redelivery (subject to any allowance made for the notice being ‘approximate’, a 2 day allowance being granted in this case), less any mitigation of such loss (in the form of hire earned under the next fixture).

This meant that Owners’ larger claim (which had found favour with the arbitrators), for their loss of opportunity to enter into a charter at a higher rate than the one they were actually able to negotiate as a result of the short notice of redelivery, was rejected.

The judgment also considers remoteness, and the difficulties with recovering damages for “follow on” voyages generally.

This is an interesting judgment, and one which focuses the mind very much on determining the actual breach in question, and therefore the damages that are to be awarded to put the innocent party in the position he would have been in if the contract had been properly performed.

“Brilliante Virtuoso” held to have been a Constructive Total Loss

Suez Fortune Investments Ltd v Talbot Underwriting Ltd [2015] EWHC 42 (Comm)

The High Court recently held that the “Brillante Virtuoso” was a constructive total loss following an attack by pirates in July 2011. Mr Justice Flaux made important key findings in the CTL claim, which totalled over US$80m. This case has been closely followed and widely discussed by the London insurance market.

For further details, please see the recent Reed Smith Client Alert by Dr. George Panagopoulos and Sophia Stewart.

1 January 2015: MARPOL and SOLAS amendments in force

Various amendments to MARPOL and SOLAS came into force on 1 January 2015.

MARPOL Annex VI: The limit for fuel sulphur oil levels has fallen to 0.10% m/m (from 1.00%) in Emission Control Areas established to limit SOx and particulate matter emissions. The emission control areas concerned are: the Baltic Sea area; the North Sea are; the North American area; and the United States Caribbean Sea area.

The Code for recognised organisations (RO Code) became mandatory under SOLAS, MARPOL and the Protocol of 1988 relating to the International Convention on Load Lines, 1966. Flag States may delegate certain responsibilities for surveying and certification of ships to “recognised organisations” (often classification societies). The RO Code provides Flag States with standard mechanisms for the oversight, assessment and authorisation of recognised organisations and clarifies the responsibilities of such organisations.

An amended SOLAS regulation III/19 was adopted in May 2013 in the wake of the Costa Concordia incident. Certain of the amendments came into force on 1 January:

  • Musters of newly embarked passengers are now required prior to or immediately upon departure has come into force. Previously, the requirement was for the muster of passengers to take place within 24 hours of embarkation.
  • Enclosed-space entry and rescue drills are now mandated. This will require crew members with enclosed-space entry or rescue responsibilities to participate in an enclosed-space entry and rescue drill at least once every two months.

Tribunal considers laytime and demurrage issues concerning part cargoes

London Arbitration 20/14

Facts

A vessel was chartered on an amended Gencon 94 form, for a part cargo of petcoke. A completion cargo of wheat was also arranged. The petcoke cargo was loaded first, however its receivers had not negotiated a provision that it be discharged first. The wheat cargo was carried on a “last in, first out” basis. Both cargoes were to be discharged at Djibouti.

The charter was a berth charter, but allowed NOR to be tendered on arrival if the intended berth was occupied. When the vessel arrived at Djibouti, both the petcoke and wheat berths were occupied. NOR was tendered for the petcoke cargo on arrival. Although the tribunal was not told that NOR had been tendered for the wheat cargo at the same time, correspondence stated that the “vsl tendered general nor for both cgoes”.

Two days after arrival, the vessel shifted to the petcoke berth, however the Master refused to allow discharge. The vessel then shifted back to anchorage, correspondence stating that “owners decided to discharge wheat cargo first”. The vessel waited at anchorage for the wheat berth to become free. After the wheat cargo was discharged, a second NOR for the petcoke cargo was tendered. The vessel then remained in the wheat berth for several days, with the initial intention being that she would shift directly to the petcoke berth. When that proved not to be possible, the vessel shifted back to the anchorage. Discharge of the petcoke cargo was eventually completed 81 days after the vessel had arrived at Djibouti.

Owners’ demurrage claim and Tribunal’s findings

Owners brought a claim for demurrage. The Tribunal considered two issues:

  1. Was laytime in respect of the petcoke cargo triggered by the first NOR but then suspended (as Charterers contended), or was it triggered by the second NOR after the wheat cargo had been discharged (as Owners contended)?
  2. If the former, did laytime resume following completion of discharge of the wheat cargo (as Owners contended), or when the vessel returned to the petcoke berth (as Charterers contended)?

The Tribunal held that the commencement of laytime was triggered by the first notice. Here they referred to the statement in The Tres Flores [1973] 2 Lloyd’s Rep 247 that “a ship in order to be ready and thus be entitled to give valid notice of readiness must be ready to obey the charterer’s order whenever they are given”. The “readiness” referred to was the physical and legal readiness of the vessel. There was no dispute here about the vessel’s physical readiness. As to legal readiness, when the first NOR was tendered, all her papers were in order, there was no infection, and no permits or consents were not in place or required, so there was no legal impediment to commencement of discharge. The fact that Owners would have been in breach of charter relating to the wheat cargo did not mean that the vessel was not legally ready in respect of the petcoke cargo.

Laytime was suspended during shifting (as per the charter terms), and did not resume when the vessel first berthed at the petcoke berth because the Master refused to commence discharge. This amounted to “fault” on the part of Owners, delay caused by which does not count as laytime or demurrage.

The next question was: when did this period of fault end? The delay and the cause of the delay (i.e. the fault) had to be contemporaneous. When the fault ceased, either laytime or time on demurrage resumed. For laytime or demurrage to run, the vessel had to be continuously available for cargo operations (see The Stolt Spur [2002] 1 Lloyd’s Rep 786). In the absence of some other clause excluding time, therefore, the loss of time was confined to the period when the vessel was not so available. The Tribunal was satisfied that the vessel was at the immediate disposal of the charterers after discharging the wheat cargo, even if she did remain at the wheat berth.

On that basis, Owners were entitled to demurrage from the time when discharge of the wheat cargo was completed.

Comment

This case considered some of the core laytime and demurrage issues, including when laytime commences and in what circumstances and for how long laytime and/or time on demurrage are suspended. Difficulty was caused in this case because the vessel carried two cargoes under separate contractual arrangements. The Tribunal’s findings make clear that, in such cases, each contract will be considered individually and on its own terms.

 

 

Sanctions Update: the U.S. and the EU impose further measures against Russia

In late December 2014, both the U.S. and EU extended the sanctions regimes in place against Russia, imposed as a result of its actions in Ukraine.

For details of these latest measures, please see the recent Reed Smith Client Alert by Leigh Hansson, Michael Lowell, Sian Fellows, David Myers, Hena Schommer, Alexandra Allan, Alexandra Gordon and Tom Evans.

Right to enforce an “in rem” claim is not lost where the claim is issued after the court has ordered the sale of the vessel

Bank of Tokyo-Mitsuibishi UFJ Ltd v Sanko Mineral (The MV Sanko Mineral) [2014]EWHC 3927 (Admlty)

Cargo Interests began proceedings in the U.S. against the Defendant former owner of the M/V SANKO MINERAL for breach of a contract of carriage. The bill of lading under which the claim was brought incorporated the terms of a charterparty which contained a time bar of 12 months from discharge of cargo.

The Defendant entered reorganisation proceedings in Tokyo, which were recognised by the English court under the Cross-Border Insolvency Regulations 2006. Cargo Interests submitted a claim in the reorganisation proceedings.

An in rem action was issued in the English Admiralty Court by the Claimant bank in respect of a mortgage on the vessel. The Court ordered the sale of the vessel, and that any party with a claim in rem should apply to the court to commence the claim within 60 days. The vessel was sold, and the proceeds paid into court. Within the 60 day period, Cargo Interests applied for permission to commence an in rem claim, and obtained a caution over the sale proceeds.

The Defendant’s trustee applied for the caution obtained by Cargo Interests, and the payment out of the sale proceeds, to be struck out or withdrawn. They argued that Cargo Interests’ claim was time barred, because arbitration had not been commenced within 12 months of discharge. Further, they argued that because Cargo Interests had not issued an in rem claim before the vessel was sold, they could no longer enforce that claim. The basis for this argument was s.21(4) of the Senior Courts Act 1981, which states that when an in rem action is brought, the person liable in personam must be the beneficial owner of the vessel.

Judgment

The Court held that Cargo Interests had not lost their right to enforce their in rem claim, even though the claim was issued after the sale of the vessel had been ordered. The claim could be enforced against the sale proceeds, provided the person liable in personam was the beneficial owner of those proceeds. It is an established principle of Admiralty law that when a vessel is sold by the Admiralty Court, rights in rem are transferred to the sale proceeds.

However, the Court also held that Cargo Interests’ claim for breach of the contract of carriage was time-barred. Their claim could not be “resurrected” by compliance with an order to submit a claim in rem, if by that time it was already barred as a matter of contract. Nevertheless, because the reorganisation was ongoing in Tokyo, it had been recognised as foreign main proceedings, and Cargo Interests maintained that they could make good their contractual  claim in those proceedings, the Court was only willing to order payment out of the sale proceeds on terms that the trustee keep them in a separate account and hold them to the order of the Tokyo court.

Comment

Insolvency of vessel owners remains a matter of great concern to the shipping industry. Vessels, and the proceeds of any sales, will be key targets for creditors. This case is a useful reiteration of the longstanding principle that rights in rem against a vessel are transferred to the proceeds of sale when that vessel is sold. It also makes clear that taking steps to enforce such a claim is not sufficient to stop time running in respect of a contractual claim. Separate action must be taken in accordance with the relevant contractual provisions (for example, commencing arbitration) in order to prevent a claim becoming time-barred.

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