Court considers the documents required to be supplied in support of a demurrage claim under BPVOY4

Kassiopi Maritime Co Ltd v Fal Shipping Co Ltd [2015] 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.

What is your broker up to? Broker found to have authority to enter into a fixture and guarantee

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.

Owners’ demurrage claim succeeds where Charterers fail to bring themselves within a force majeure clause

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.

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High Court rules on inconsistency in charterparty arbitration clauses and applicable curial law

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 [2015] 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.

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“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.

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