Ship Law Log

Comment and analysis by Reed Smith lawyers on the latest developments in the shipping industry

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

Posted in Admiralty, Case Law, Insolvency

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applied for the caution obtained by Cargo Interests, and the payment out of the sale proceeds, to be struck out or withdrawn.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.

EU clarifies Russian sanctions

Posted in Sanctions

On 5 December 2014, the European Commission published Regulation 1290/2014 (the Amending Regulation). This further amends Regulation 833/2014, which imposed sanctions against Russia in view of its actions in Ukraine. Several of the amendments appear to be aimed at clarifying the scope and application of the sanctions. Although not explicitly stated, this may be a result of various issues of interpretation and application which arose after the publication of Regulation 833/2014.

For a summary of the key changes, please see the recent Reed Smith Client Alert by Sian Fellows, Brett Hillis, David Myers, Alexandra Allan, Alexandra Gordon and Andrzej Janiszewski.

Tribunal rules on speed and performance claims under two consecutive time charterparties

Posted in Arbitration, Speed and Performance, Time Charters

London Arbitration 18/14

The vessel in question was the subject of two charters on the NYPE 46 form, for one time charter trip under each, with the second charter being in direct continuation of the first.

Performance claims

Clause 128(1) of each charter provided:

“Owners not to be responsible if the vessel under the currency of this charter party stays at port or anchorage or any other place for more than 28 days and therefore vessel’s speed, due to bottom fouling which may have formed to the ship’s hull as a direct result of such prolonged stay, is reduced and/or consumption increased. In case of need for underwater cleaning same to be for Charterer’s account in terms of time and expenses.”

Under the first charter, Owners contended that as a result of the high temperature of the sea water at the loadport, where the vessel had stayed for 48 days, the hull, propeller and rudder were fouled. An underwater inspection at the discharge port confirmed this. Owners informed Charterers that the fouling was due to the vessel’s prolonged stay at the loadport, for which Charterers should be held responsible.

Subsequently, the second charter was concluded in substantially the same terms as the first. No underwater cleaning was carried out between redelivery under the first charter and simultaneous redelivery into the second charter.

Owners claimed a balance of hire under both charters, plus sums in lieu of hold cleaning on redelivery under each charter and stevedore damage incurred during discharge under the second charter. Charterers argued that they were entitled to make deductions under both charters for under-performance and overconsumption.

The Tribunal found that bottom fouling did occur during the prolonged stay at the loadport under the first charter, and that this affected the vessel’s speed and consumption. This was supported by the fact that the vessel performed in accordance with the charter warranties on her voyage to that loadport. Under clause 128(1), Owners had no responsibility for the vessel’s failure to make her speed and consumption warranties, and so Charterers’ underperformance claim in respect of the first voyage failed.

As regards the second charter, Owners argued that Charterers had taken the vessel in direct continuation of the first charter, and thereby did not allow the hull to be cleaned after the vessel’s prolonged stay at the first loadport. Owners submitted that Charterers were estopped by their actions from claiming under-performance in respect of the second voyage.

The Tribunal rejected this argument. Owners were aware of the likelihood of hull fouling when the second charter was concluded, and had already written to Charterers in protest. Despite this, they fixed the vessel on identical terms. Owners therefore took the risk that the vessel may not be able to make her speed and performance warranties due to the hull fouling which occurred under the first charter. There was nothing in Charterers’ conduct to found an estoppel. They agreed the fixture on terms acceptable to Owners and took delivery of the vessel. Owners had to stand by the warranties they had given, and pay damages for any proven breach.

Charterers’ claim for under-performance under the second charter therefore succeeded, although the Tribunal reduced the amount to be deducted to take into account commission. Only part of the deduction for overconsumption was allowed, as some of the deductions made by Charterers in respect of the second voyage in fact related to underperformance and overconsumption the first voyage. Those claims failed for the same reason as the claims under the first charter.

Comment

Parties must ensure that they fully understand the consequences of all contractual terms to which they agree, and the risks which they may be taken to have accepted by agreeing to particular terms. It is also important to ensure that all factual circumstances are taken into account when negotiating specific contractual terms. In this case, it would have been in Owners’ interests to consider the possibility that the vessel’s hull was fouled when negotiating the terms of the second charter and to amend the charter terms accordingly.

Owners validly exercised right to withdraw for non-payment of hire and awarded discounted damages for repudiatory breach

Posted in Arbitration, Hire, Time Charters

London Arbitration 19/14

Two newbuildings were let by Owners to Charterers on an amended NYPE form for a period of about 35 months up to 37 months. Hire was to be paid semi-monthly in advance. Clause 55 of the charter allowed Owners to withdraw for non-payment of hire after the expiry of three clear days following service of an anti-technicality notice.

The first vessel was delivered on 22 February and the second on 19 April. By the beginning of February the following year, substantial hire payments were outstanding for both vessels. Anti-technicality notices were sent in respect of both vessels on 2 and 3 February respectively, requiring charterers to pay by 12:00 on 8 February. Payment was not received by that time, and on the same day Owners withdrew both vessels, with effect from 16:30. Owners presented Charterers with claims on both vessels for hire and damages for wrongful repudiation.

The Tribunal held that Owners had validly exercised their rights to withdraw. The notices given on 2 and 3 February complied with the requirement of “three clear days written notice” in clause 55.

The Tribunal also found Charterers in repudiatory breach of the charters. In evaluating the damages, the Tribunal referred to the “classic approach” of comparing the charter rate of hire with the market rate for a “matching fixture”. This was a fixture which covered the remaining period of the repudiated charter on substantially similar terms. It was a question of fact whether there was an “available market” for such a fixture, and if so, what the rate of hire would have been.

Having identified an available market and a rate of hire, the Tribunal made various deductions:

(a)    a deduction of 1.5% to cater for contingencies that might affect the vessel’s earning capacity between the date of the award and the respective earliest dates of redelivery, including the possibility of the vessels dry-docking as permitted by the charter terms; and

(b)   a discount rate applied to the period between the date of the award and the charter termination dates, to recognise that those were losses that Owners had not yet sustained (following Zodiac Maritime Agencies Ltd v Fortescue Metals Group Ltd [2011] 2 Lloyd’s Rep 360).

Owners were also partially successful in claims for stevedore damage. One claim was upheld, as it was fully supported with a notice of damage and relevant invoices. The second claim related to damage to hull paint coating and comprised estimated repair costs only, with no details given. Some of the damages were to be regarded as “fair wear and tear”, whilst for the others Owners were likely to have used the crew to repaint the areas worst affected and to have left the other damages to be re-painted at the next dry-docking, at no extra cost to Owners. For this item of claim, Owners were awarded a sum in respect of crew overtime and materials only.

Comment

This case reinforces Owners’ right to withdraw for non-payment of hire under the NYPE charter, where the anti-technicality provisions are complied with. It also provides some insight into the factors which will be taken into account when calculating the quantum of damages for repudiatory breach.

 

“The Longchamp” – a reasonable ransom

Posted in General Average, York Antwerp Rules

This post was written by Richard Gunn and Konstantinos Bachxevanis.

On 24th Oct 2014 in The Longchamp the High Court held that expenses incurred by the Owners of a Vessel hijacked in negotiating the reduction of the ransom demanded by pirates are allowable in GA as a “substitute expense” under Rule F of YAR. The Court stated in this respect that “…. the rule of contribution which has been invoked in the Adjustment under consideration has its foundation in the plainest equity and that the circumstances of this case were such that natural justice requires that all should contribute to the substituted expenses incurred by the [Owners]. The reduction in the amount of the ransom was only achieved by a process of negotiation which necessarily involved the ship-owner incurring expenditure”.

Further, as to whether under Rule A of YAR a ransom payment can be held to be excessively high and, therefore, unreasonable, the Court held that there cannot be a distinction between “reasonable” and “unreasonable” ransom as the “idea of a “reasonable ransom” is radically misconceived and an oxymoron.” There cannot be “some sort of “market” in ransom payments”. Rather the question was whether it was reasonable to pay a ransom at all.

Court of Appeal Upholds Incorporation of English Jurisdiction Clause from Charterparty into Bill of Lading

Posted in Case Law, Jurisdiction

Posted on behalf of Alexandra Allan and Christian Ayerst.

Caresse Navigation Ltd v Zurich Assurances Maroc & Ors [2014] EWCA Civ 1366

A cargo of coal was carried by the Respondent Owners from Rotterdam to Nador (Morocco). Whilst underway, emergency cooling measures were taken to prevent the cargo combusting which allegedly caused damage to the cargo.

Owners commenced proceedings in the English High Court, seeking a declaration of non-liability. Cargo Insurers (the Appellants in the present proceedings) commenced proceedings in the Commercial Court in Casablanca, Morocco against (i) the Master, in his capacity of representative of the Owners and (ii) the port operating company.

Owners were granted an anti-suit injunction by the English High Court in support of the English proceedings and restraining the Respondents from pursuing the proceedings in Morocco. This was appealed by the Respondents.

Under the governing charterparty – on the AmWelsh 1979 form – it was stated: “This Charter Party shall be governed by English law, and any dispute arising out of or in connection with this charter shall be submitted to the exclusive jurisdiction of the High Court of Justice of England and Wales”.

The Congen 1994 bills of lading stated “…All terms, conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration clause are herewith incorporated”.

The question for the Court was whether the wording contained in the bills of lading incorporated the English law and exclusive jurisdiction provision of the Charterparty.

First Instance

The judge granted the anti-suit injunction, finding inter alia:

(i) the question as to whether “arbitration” could be read as referring to “jurisdiction” was one of construction rather than incorporation. The key question was what the parties should reasonably be understood to have meant by the words “law and arbitration clause”;

(ii) in this case, “arbitration” in the words printed on the bill of lading should be read as “jurisdiction” because this was the only interpretation which the parties could have intended when transposing this wording into the bills of lading; and

(iii) such a finding does not conflict with the need for clarity and certainty when incorporating terms into bills of lading, because the wording incorporated was usual in the trade and reflected the intentions of the parties.

Court of Appeal

The Court of Appeal concurred with the decision reached by the High Court, dismissing the appeal and upholding the anti-suit injunction.

Comment

There has traditionally been a reluctance by the English Court to incorporate charterparty terms into bills of lading on the basis that the bills may come into the hands of parties unaware of such charterparty terms. However, where the intention of both parties is clear – as in this case by the use of industry-standard wording – the Court will be prepared to show flexibility to accommodate this.

Special Update: Overview of the US and EU Sanctions on Russia

Posted in Sanctions

Over the past six months, the United States and the European Union have coordinated efforts through sanctions and trade controls to respond to Russian activity in Crimea and Ukraine. There has been a long series of incremental changes to the sanctions and trade controls by the respective government authorities.

For a summary of the state of US and EU sanctions on Russia as of 24 September 2014, please see the recent Reed Smith Client Alert by Leigh Hansson, Michael Lowell, Sian Fellows, David Myers, Alexandra Allan, Alexandra Gordon, Hena Schommer, Laith Najjar, Michael Grant, Paula Salamoun and Tom Evans.

Tribunal rules on incorporation of arbitration agreement into a charterparty and Owners’ entitlement to demurrage

Posted in Arbitration, Case Law, Contractual Issues, Laytime and Demurrage, Time Charters

London Arbitration 14/14

The vessel in question was chartered by way of a fixture recap. Owners brought a claim for demurrage against Charterers. Charterers argued that the charter did not contain a valid arbitration agreement/clause, and that although they had agreed to pay freight, they had not agreed to be liable for demurrage.

Incorporation of arbitration agreement

The fixture recap stated, inter alia: “Attached chrts’s rider clauses with owner’s amendments to apply”. Charterers argued that the parties had not agreed an arbitration clause, although the rider clauses provided for English law and arbitration in London. Charterers did not dispute that they were a party to the charter, or the accuracy of the fixture recap. As such, the Tribunal was satisfied that the charterparty contained a valid arbitration agreement.

Charterers had also argued that for there to be a valid arbitration agreement, the charterparty had to be signed by both parties. This was incorrect. Under English law, contracts and arbitration agreements do not need to be signed (s.5 Arbitration Act 1996, which states that an agreement in writing falls within the Act “whether or not it is signed by the parties”). Further, s.6(2) of the Act states that where there is a “reference in an agreement to a written form of arbitration clause or to a document containing an arbitration clause”, then such “constitutes an arbitration agreement if the reference is such as to make that clause part of the agreement”.

Here, the fixture recap referred to the rider clauses, which provided for English law and London arbitration. The Tribunal was satisfied that the parties had agreed to refer disputes to arbitration in London in accordance with English law.

Charterers’ liability for demurrage

The fixture recap stated, inter alia: “Demurrage: USD 13,500 pdpr”. The rider clauses, incorporated into the recap as per the wording above, also made clear provision for demurrage. As such, Charterers’ argument that they were not liable for demurrage failed.

Owners’ entitlement to demurrage

The vessel tendered NOR at 18:20 on 9 January, and hoses were connected at 19:40. Charterers loaded a cargo of straight phenol, instead of hydrated phenol as provided in the fixture recap. The cargo had to be hydrated once fully loaded. This was carried out under the supervision of Charterers’ and Shippers’ surveyors, who disembarked at 18:00 on 10 January.

The fixture recap allowed Charterers to hydrate the cargo at their risk and expense. Further, Charterers had sent Owners an email stating that “all shifting costs and shifting time to anchorage will be for our account, as hydration is being done at anchorage. Time will count in charterers account till the time ullaging sampling of the hydrated phenol is completed by surveyor. We request you to complete hydration process asap”.

On the basis of these two points, the Tribunal held that laytime ran from when the hoses were connected (19:40 on 9 January) to when the surveyors disembarked (18:00 on 10 January). Taking into account the time used at both the loading and discharge ports, this entitled Owners to demurrage. Owners were also entitled to recover additional expenses incurred.

Comment

This case highlights one of the fundamental points in the contractual interpretation of charterparties: if a charterparty is concluded primarily by a fixture recap, any rider clauses or other clauses referred to in the recap will be incorporated into the charterparty.

Court of Appeal upholds finding of breach of typhoon warranty in reinsurance policy

Posted in Case Law, Insurance

Amlin Corporate Member Ltd v Oriental Assurance Corp (The Princess of the Stars) [2014] EWCA Civ 1135

The Appellant Insurer had insured the owner of certain vessels. The policy contained a typhoon warranty, which contained two limbs:

(1) that “the vessel shall not sail or put out of Sheltered Port when there is a typhoon or storm warning at that port…”; and

(2) that “the vessel shall not sail or put out of Sheltered Port … when her destination or intended route may be within the possible path of the typhoon or storm announced at the port of sailing, port of destination or any intervening point”.

A breach of this clause rendered the policy void.

The Appellant reinsured the policy with the Respondent Reinsurers. There was no material difference in the wording of the typhoon warranty clause.

The Vessel set sail from Manila, in the Philippines, when a number of storm and typhoon warnings had been issued by the relevant Philippine agency. The vessel sailed into the eye of the tropical depression which was the subject of those warnings. She was subsequently abandoned and capsized, with severe loss of life and all cargo.

First Instance

The Reinsurers pre-empted a claim by the Insurers to be indemnified in respect of any liability under their original policy with the owners. The Reinsurers obtained a declaration that the insured had breached both limbs of the typhoon warranty, and the Insurers appealed.

Appeal

The first instance decision was upheld. The Court considered both limbs of the warranty.

The words used by the parties in limb 1 of the warranty were clear. There was no ambiguity as to the type or level of warning. The warranty had to be construed in such a way as to prevent the vessel from sailing when there was any possibility of an encounter with a typhoon or storm. Limb 1 had clearly been breached when the vessel set sail from Manila while a storm warning was in place.

In respect of limb 2, the relevant intention was the Master’s intention as to the route to be taken at the time of departure. The intended route had been the usual route, which would take the vessel into the possible path of the typhoon, with a back up plan to change to an alternative route if the weather deteriorated. This amounted to a breach of limb 2.

Comment

In construing the typhoon warranty, the Court considered the parties’ intentions and the plain meaning of the words used, which did not provide any basis for the application of conditions or provisos. When construing such a clause, no assumptions should be made which seek to limit or extend the application of the clause beyond its plain meaning.

Ebola fears impact on vessels travelling from West Africa

Posted in Bills of Lading, Contractual Issues, Time Charters, Voyage Charters

Ebola continues to spread in West Africa with the latest reports indicating that over 2,630 people have died since the outbreak began.

Yesterday, Malta turned away a vessel travelling from Guinea to Ukraine over fears that a crew member may have been infected with Ebola. Fears were also raised in New Orleans in connection with a vessel whose crew fell ill after calling at the port of Matadi in the Democratic Republic of Congo. The symptoms were later diagnosed as malaria.

This morning marked the beginning of a three day curfew in Sierra Leone which will see ports shut down until 22 September, indicating that the outbreak has reached a critical point in the country.

A recent Reed Smith Client Alert by Nick Shaw, Sally-Ann Underhill and Jessica Sullivan examines the effect of Ebola on shipping contracts. Reed Smith are able to advise on the legal implications of the Ebola outbreak, including the drafting of Ebola clauses. If you have any questions, please contact Nick Shaw, Sally-Ann Underhill, or your usual Reed Smith contact.