In Dry Bulk Handy Holding Inc v Fayette International Holdings Ltd (The “Bulk Chile”)  EWCA Civ 184, the court considered whether a shipowner is entitled to demand payment to himself of freight under his bill of lading when that contract stipulates for payment to another party, provided the shipowner makes his demand before the freight has been paid to that other party.
BIMCO has published a precedent clause designed to address some concerns about sanctions. Most major sanctions regimes, including those of the US and EU, include lists of designated parties with whom it is effectively prohibited to do business. Under the EU regime, for example, all assets of designated parties must be frozen and it is prohibited to make funds or economic resources available to those parties, whether directly or indirectly.
The involvement of a designated party at any stage of a trade may mean that any other party involved is violating one or more applicable sanctions regimes. This can cause major issues in the performance of charterparties. For example, it may entitle Owners to refuse Charterers’ orders, render a trade illegal in breach of the charter terms, or prevent the provision of security following an arrest.
This new clause requires owners and charterers to warrant that they are not designated entities. Where applicable, charterers’ warranty extends to sub-charterers, shippers, receivers and cargo interests. The clause aims to provide flexibility where a party or vessel becomes a designated entity after the charterparty has been agreed.
Owners and charterers undertake to indemnify the other for any breach of warranty. BIMCO has noted that this may not be enforceable where one of the contracting parties is or becomes designated, as they would not be able to receive or make payments. The provision could, however, have effect where, for example, a breach is attributable to cargo interests or another third party.
It is strongly recommended that new charterparties include clauses dealing with sanctions. The BIMCO clause is useful either to use as drafted or amended to suit specific circumstances. Parties must, of course, ensure that any sanctions clauses work in their particular circumstances and are compatible with all other charterparty clauses.
The full text of the clause is available on the BIMCO website.
The Council of the European Union has published Regulation 401/2013 which repealed Regulation 194/2008. The 2013 Regulation came into force on 3 May 2013, and lifts all asset freezing measures and financial sanctions in place against Myanmar/Burma.
All national legislation containing penalties for breaches of the asset freezing measures and financial sanctions are revoked.
This means that trade with parties in Myanmar/Burma will no longer violate EU law, provided that trade does fall within the relatively limited sanctions which remain in force.
The full text of the new Regulation is available on the UK HM Treasury website.
Prohibitions remain in place in respect of the sale, supply, transfer or export of equipment which might be used in internal repression to any party in, or for use in, Myanmar/Burma. It is prohibited to provide technical assistance, financing or financial assistance in respect of such goods.
Prohibitions also remain in place in respect of the provision of arms and related materials to any party in, or for use in, Myanmar/Burma. The provision of financing and financial assistance in respect of military activities is also prohibited.
Tribunal considers whether Owners additional insurance against piracy risks was “necessary”
Owners’ additional insurance against piracy found not “necessary” and additional premiums unrecoverable
London Arbitration 4/13
The Tribunal considered whether it was “necessary” for Owners to take out additional insurance against piracy risks. The Tribunal adopted an objective approach towards the meaning of the word, and held that the additional insurance costs were not “necessary”. Accordingly, Owners could not recover this additional cost from Charterers.
Owners took out additional insurance cover against piracy risks (including loss of hire and kidnap and ransom), as the vessel was ordered by Charterers to sail through the Gulf of Aden, where there was known to be a high risk of piracy both at the date of the orders and the date of the charter.
Owners sought to claim from Charterers the additional insurance cost by relying on Clause 56 of the Charterparty and the BIMCO Piracy Clause for Time Charter Parties 2009 (“BIMCO Piracy Clause”). Although, Clause 56 provided for basic war risk to be for Owners’ account, the clause stated that any additional premium for trade to areas which is payable to Owners’ war risk underwriters to be for Charterers account.
Owners also relied on the following provision of the BIMCO Piracy clause, asserting that the additional insurance cover they took out was “necessary”:-
“…(iii) if the underwriters of the Owners’ insurances require additional premiums or additional insurance cover is necessary because the Vessel proceeds to or through an Area exposed to risk of Piracy, then such additional insurance costs shall be reimbursed by the Charterers to the Owners;…”
Owners relied on a dictionary definition of “necessary” as “indispensable” or “requisite”. They argued that “requisite” meant that it was “required by circumstances”, and the additional insurance in this case was required in circumstances where the vessel was ordered by Charterers to go through an area with a high risk of piracy.
There was also a mortgage over the vessel. Under the terms of the mortgage, Owners were obliged to insure the vessel against “usual marine risks”. Owners relied on their insurance brokers’ statement that insurance cover for trading in high risk piracy areas falls within “usual marine risks”.
The Tribunal held that, although it might have been “reasonable” from the Owners’ and mortgagees’ perspective to take out additional insurance, this did not make it “necessary”.
The ordinary meaning of “necessary” imported an element of obligation or inevitability, i.e. it was not sufficient for it to be reasonable to take out the additional insurance.
As to Owners’ argument that it was necessary because the mortgage required Owners to insure the vessel against “usual marine risks”, the Tribunal did not accept that the phrase was limited to the specific circumstances that arise, e.g. increased piracy risk in the Gulf of Aden. The phrase referred to everyday risks to which vessels were exposed.
This decision is an example of the objective approach taken by Tribunals in construing contractual provisions. Although the insurance brokers had different views on what “usual marine risks” meant, the Tribunal adopted an objective interpretation to the phrase and held it did not include the risk of trading in high risk areas.
This case is important for ship owners whose vessels may be ordered to high risk piracy areas. At the outset, owners should consider their specific circumstances and whether it would strictly be deemed “necessary” for them to take out additional piracy risk insurance, as this may affect the recoverability from charterers of any additional insurance premium.
London Arbitration 7/13
The Tribunal was required to decide whether the parties to the arbitration had in fact concluded a fixture. At the time they were both interested in doing so, and negotiations took place through an experienced broker who acted as an intermediary. Charterers argued that the broker had actual authority to conclude fixtures on behalf of Owners, or at least that she had implied actual or ostensible authority to do so.
This submission was rejected. The broker’s authority was to pass on messages from one party to the other, as was usual in the case of an intermediate broker. That would include passing on offers, but there was nothing to suggest that the broker had any authority to accept offers on behalf of either party in the absence of being given express authority to do so. That, again, was entirely normal. There was no usual authority vesting in a broker to commit principals to a contract.
The Tribunal also considered the content of the material emails. Charterers’ position was that they had sent an email to Owners with various “subjects”, all of which they were entitled to lift. When they subsequently did so, they argued that the fixture was concluded. However, those “subjects” had never been agreed to or accept by Owners as being “subjects” on the basis of which negotiations should proceed.
Indeed, these points were not “subjects” at all, but conditions unilaterally imposed by Charterers which amounted to an offer or counter-offer which was never accepted by Owners. When Charterers purported to lift those “subjects”, they were in fact making another offer to Owners, which again was never accepted.
This case reinforces the usual position of a broker, who will generally not have authority to conclude a fixture unless that authority is expressly given to them.
Parties should be careful in fixture correspondence to ensure that their intentions are expressed clearly. If a particular proposal is unacceptable, rather than simply not responding, the party which made the proposal should be told so that neither party mistakenly believes that a contract has been concluded. Lack of clarity in negotiations can lead to costly litigation which, in many circumstances, can be easily avoided.
London Arbitration 5/13
Disputes arose under a time charter. Owners commenced arbitration proceedings, contending that the Respondents, a company incorporated in St Vincent and the Grenadines, were the charterers. The Respondents denied this, alleging that another entity with the same name, incorporated in Hong Kong, had in fact chartered the vessel.
The Claimants arrested two vessels owned by the Respondents, sister ships to the subject vessel, in order to obtain security for their claim in arbitration. The second arrest, in Singapore, was set aside as wrongful on the basis that the Respondents were not the party who would be liable in personam and were not, at the time the cause of action accrued, charterers of the vessel which was the subject of the London proceedings.
The Respondents then argued that the London Tribunal did not have jurisdiction to hear the claim, arguing that the Singapore court’s decision had created an estoppel which prevented the Claimants from arguing that the Respondents were in fact the charterers.
The approach to be followed on the issue of estoppel was that set down in The Sennar (No.2)  1 Lloyd’s Rep 521. Three requirements had to be satisfied:
- The judgment in the earlier action must be (a) of a court of competent jurisdiction, (b) final and conclusive and (c) on the merits.
- The parties in the earlier action, and those in the later action in which the estoppel is raised as a bar, must be the same.
- The issue in the later action must be the same issue as that decided by the judgment in the earlier action.
On the basis of the facts, the Tribunal found that each of these requirements was satisfied. The Singapore court’s decision did give rise to an issue of estoppel to the effect that the Respondents were not charterers under the fixture which was the subject of the arbitration, and so the Tribunal had no jurisdiction to hear the claim.
This decision highlights the importance of identifying contractual counterparts, and ensuring that claims are brought against the correct party. The Claimants in this case will have incurred significant legal costs, only to find that they were unable to pursue their claim against the Respondents. The time spent in pursuing the incorrect party may mean that time bars run out as against the correct party, leaving a party with a claim but no prospect of recovery.
Kuwait Rocks Co v AMN Bulkcarriers Inc (The Astra)  EWHC 865 (Comm)
On 18 April 2013, Flaux J handed down his judgment in Kuwait Rocks Co v AMN Bulkcarriers Inc (The Astra). The judgment provides long-awaited clarification that clause 5 of the NYPE form (the obligation to pay hire) is a condition of the contract, the breach of which entitles Owners to recover both unpaid hire as at the date of withdrawal and damages for future loss of earnings.
Reed Smith acted for the successful Owners.
An important decision for the ship sale and purchase market has confirmed that buyers entering into a standard form Memorandum of Agreement (MOA) (on Norwegian Sale Form (NSF) 1993 terms and similar, e.g., the 2012 terms) do so in the knowledge that they may be liable for the amount of the (unpaid) deposit, if the MOA is then terminated as a result of the buyers’ breach. Revision to the standard form MOA will be necessary in order to avoid such possible result.
On 21 March 2013, Mr Justice Teare handed down judgment in Griffon Shipping LLC v Firodi Shipping Ltd  EWHC 593, on the claimant Sellers’ successful appeal (under section 69 of the Arbitration Act 1996) of an arbitration award dated 9 July 2012. Reed Smith acted for the Sellers.
London Arbitration 2/13
The vessel was the subject of a head and sub charter, both of which provided at clause 83 as follows:
“All taxes and/or dues on cargo/freight and/or Charter hire to be for Charterers’ account, except tax and duties levied against the Owners in the country of domicile or ship’s flag.”
Charterers ordered the vessel to the US, as a result of which Head Owners became liable to pay tax on sums received by them.
Disponent Owners claimed for an indemnity against Charterers in the event that they were found liable to pay tax to Head Owners under this claims. They submitted that they were entitled to an indemnity either under this clause, or under clause 8 of the standard NYPE form which provided for the Master to be under the order and directions of the charterer as regards employment. The latter point was made on the basis that Disponent Owners were themselves obliged to indemnify Head Owners against the consequences of the Master complying with their orders.
Disponent Owners’ claim for an indemnity failed.
Due to the nature of the tax, both Head Owners and Disponent Owners were potentially liable to pay tax on relevant hire received. The Tribunal inferred that Disponent Owners had obtained an exemption from liability to pay such tax, otherwise they would have been claiming in respect of their own liability as well as any contingent liability as against Head Owners. As such, there was no tax paid by Disponent Owners which they could claim from Charterers under clause 83.
Clause 83 only imposed liability for taxes borne by the “owner”, not liability for an indemnity which that owner might owe to someone higher up the chain. In the present claim for an indemnity, clause 83 only covered tax on hire payable under the sub-charter. As there was no such tax, there was no claim under clause 83.
The question in respect of the clause 8 implied indemnity claim was whether, as between Disponent Owners and Charterers, the former assumed the risk of being liable for any freight tax which Head Owners might have to pay. The general position in the shipping industry suggested that a tax of this kind was to be regarded as an ordinary expense of trading. It was not exceptional, and Charterers’ orders to trade to the US were simply the occasion for it to be incurred, rather than causing the liability in a legal sense.
London Arbitration 3/13
The vessel was chartered on the NYPE 1996 form, which incorporated the Inter Club Agreement (ICA). Following discharge of a cargo of bagged wheat flour, cargo interests alleged that the cargo was damaged and in part shortlanded, and claimed against Charterers for US$187,000.60. US$134,222.54, i.e. 72%, of the claim related to short delivery. Charterers settled the claim for US$90,000, i.e. 48% of the total claim.
Charterers claimed a 50% ICA contribution from Owners in the sum of US$32,240.05, in relation to what they said was the shortage element of the settlement. This sum was half of 48% of the proportion that US$134,222.54 bore to the total claim. Owners argued that in determining the sum to be apportioned 50/50, different weight should be given to different heads of claim. For example, it should be assumed that cargo interests would accept little to no compromise on claims for torn and empty bags.
Owners made two other key arguments:
1. The claim was not made under a “contract of carriage … which was authorised under the charterparty” as required by the ICA, because the bills had not been issued in conformity with mates’ receipts. As such, the ICA did not apply.
The mates’ receipts were endorsed: “SHIP’S RK: QUALITY UNKNOWN, SAID TO BE, SAID TO WEIGH; QUANTITY AS PER SHORE TALLY”. The bills contained the printed words “weight, measure, numbers, quality, contents and their condition … are to be considered unknown.” Owners said that the bills were not authorised, because they did not incorporate the express endorsement on the mates’ receipt.
2. There was no claim, because the only explanation for the shortage alleged was that the cargo in question had never been shipped. The ICA could not apply, because there could be no “cargo claim” for loss of cargo which was not shipped.
Charterers’ claim succeeded.
Cargo interests and Charterers had agreed a lump sum settlement, which did not take account of the respective merits of the different heads of claim. It was impossible to infer that anyone gave more weight to any particular aspect of the claim. Charterers’ approach to apportionment was therefore accepted. If they were entitled to succeed, it was for the full amount of their claim.
Owners’ argument that the bills were not authorised was not a commercial approach, considering the words used in the mates’ receipts and bills of lading. The ICA was a commercial agreement designed to cut across fine legal arguments. The practical effect of the words in both documents was the same. The phrase “quantity as per shore tally” added nothing to the mates’ receipts, and its absence from the bills did not make them unauthorised. The bills were, therefore, authorised within the meaning of the ICA.
The courts have generally found that in order for there to be a cargo claim, cargo must have been shipped. The tribunal expressed surprise at this, saying that if it had been interpreting the ICA without the aid of judicial authority, it would not have regarded it as a requirement that cargo actually had been shipped. However, the tribunal did not have to reach a final decision on the issue as it found that there were other explanations for the shortage claim. It was correct to accept the mates’ receipts as sufficient evidence of loading to shift any burden of proof to the contrary to owners. It was certainly not right to infer that the cargo had not been shipped.
This decision is an example of the broad-brush approach which tribunals will take to the ICA. They prefer to focus on the commercial aim of the Agreement, i.e. to enable parties to apportion cargo claims between them without having to go into the finer legal details and incur the associated costs.
The decision also shows that the question of whether cargo must have been shipped in order for a cargo claim to arise is still open to debate.