Shelltime 4 – who bears risk of arrest?

In ST Shipping & Transport Pte Ltd -v- Space Shipping Ltd (“CV STEALTH”), the Commercial Court (“the Court”) heard an application arising out of an Arbitrator’s Award in respect of a dispute under a charterparty on an amended SHELLTIME 4 form.

The Charterers had sub-chartered the vessel on an amended BPVOY form to a company which had intended to export a cargo of crude oil unlawfully from Venezuela. Unaware of this, the Charterers gave orders for the vessel to proceed to Venezuela to load the sub-Charterers’ cargo. Suspicions were aroused when the documents were presented at the loadport and the vessel was detained in September 2014 in Venezuela, where she remained at the time of judgment.

The Court considered the relationship between clauses 21, 27 and 28 of the SHELLTIME 4 standard form, which provide, amongst other things that:

Clause 21(a) On each and every occasion that there is loss of time [Not in standard form: for more than 6 (six) hours]… (v) due to the detention of the vessel by authorities at home or abroad attributable to legal action against… the vessel, the vessel’s owners or Owners (unless brought about by the act or neglect of Charterers)… the vessel shall be off-hire….

Clause 27(a) …Further, neither the vessel, her master or Owners, nor Charterers shall, unless otherwise in this charter expressly provided, be liable for any loss or damage or delay or failure in performance hereunder arising or resulting from… arrest or restraint of princes, rulers or people.

Clause 28 …No voyage shall be undertaken, nor any goods or cargoes loaded, that would expose the vessel to capture or seizure by rulers or governments.”

It was found as a matter of fact that the orders from the Charterers in this case were not merely to proceed to the load port to await orders, but rather to proceed to the terminal for the purposes of loading sub-Charterers’ cargo when presented at the vessel’s manifold. The Court found that there was the necessary causative link between these orders and the detention of the vessel.

In relation to Clause 28, it was said that the reference is to the undertaking of a voyage. If the increased risk materialises in the course of a voyage, the clause comes into effect irrespective of whether it arises subsequently to the original voyage orders, ie the position is analogous to that relating to safe ports.

In any event, in this case, there was no reason to suppose that the intended cargo was any more authorised when the orders were given than it was when the Charterers’ operator first began to question the documents he had received in respect of the cargo to be loaded, and/ or the vessel was arrested.

The Charterers were therefore in breach of clause 28 and liable for the hire until redelivery of the vessel, and Owners were also entitled to compensation for the continued detention of the vessel under the express indemnities in clause 13 (“for all consequences and liabilities that may arise from (i) the Master otherwise complying with Charterers’ or their agent’s orders …(ii) from any irregularities in papers supplied by Charterers or their agents”). Clause 27(a) provided no answer as the charter “otherwise… provided”, and the vessel was not off hire because the detention was brought about by the “act or neglect of Charterers”.

A salutary reminder of the risks which charterers need to consider.

The Court also considered a bespoke clause of the Charter which provided that “The parties hereby agree that either party may – (a) appeal to the High Court on any question of law arising out of an award”.

It was held that this was drafted with s 69 Arbitration Act 1979 in mind, and limited to questions of law whose determination may serve a useful purpose for the parties. It was emphasised that (i) the issue is whether the determination of the question of law will substantially affect the rights of the parties, not whether it may; and (ii) it is for a party asserting that he does not need the permission of the Court under s 69(2)(d), on the grounds that he has an agreement falling under s69(1)(a), to establish that fact.

Maritime greenhouse gas emissions – update on the outcome of MEPC 69

In Reed Smith’s recent March alert on this subject, we looked ahead to the 69th meeting in London of the Marine Environmental Protection Committee (MEPC) of the International Maritime Organisation (IMO) (MEPC 69).

MEPC 69 has now taken place (from 18–22 April 2016). This article discusses the outcome of that meeting on maritime greenhouse gas (“GHG”) issues and its implications.

In particular, the alert looks at the detail of the agreed text of the proposed global monitoring, reporting and verification (“MRV”) scheme which proposes the agreed amendments to MARPOL Annex VI with a view to their adoption at MEPC 70 (24 – 28 October 2016).

To access and read the full alert alert, please click the link below:

https://www.reedsmith.com/Maritime-greenhouse-gas-emissions–update-on-the-outcome-of-MEPC-69-04-29-2016/

Direct claims against insurers and anti-suit injunctions

In Shipowners’ Mutual Protection & Indemnity Association (Luxembourg) -v- Containerships Denizcilik Nakliyat ve Ticaret AS (The “Yusuf Cepnioglu”) [2016] EWCA Civ. 386, the Court of Appeal considered the juridical nature of a foreign statute which gives a victim (in this case, a charterer) the right to sue a defendant’s insurer (in this case, an owners’ club) directly without first suing the insured, and in the circumstances of the case, whether it was appropriate to uphold an anti-suit injunction (“ASI”) which had been made by the court below.

Reliance was placed on the previous decisions dealing with similar foreign legislation, such as The “Hari Bhum” (No. 1) [2004] 1 Lloyd’s Rep. 206; and [2005] 1 Lloyd’s Rep. 67, which considered the provisions of the Finnish Insurance Contract Act 1994 and The “Prestige” (No. 2) [2014] 1 Lloyd’s Rep 309 and [2015] 2 Lloyd’s Rep. 33 concerning the Spanish Penal Code.

In this case, the Court was looking at Turkish law, which provided, amongst other things, that “Article 1478 – the victim may claim its loss up to the insured sum directly from the insurer provided that the claim is brought within the prescription period to the insurance contract”.

The Court determined that the question was whether the Charterers’ right to sue the Club directly was essentially a contractual right, governed by English law as the proper law of the contract, or an independent right, governed by Turkish law.

The Judge had made a number of findings of fact, the majority of which showed that the victim’s rights under Turkish law were to a large extent circumscribed by the contractual provisions between the Club and its Member. The Court found that the right that Charterers were exercising should be classified as a contractual right and it followed that the Charterers were bound to accept that their claim was governed by English law and must be arbitrated in London. It was emphasised that the question is not how the victim obtains a right to recover against an insurer, but what right is obtained.

Having determined that this was the exercise of a contractual right, the correct approach to the granting of an ASI, following The “Angelic Grace” [1995] 1 Lloyd’s Rep. 87, was to grant the ASI restraining the Turkish proceedings unless there were good reasons why an injunction should not be granted. There was no need for the Club to show vexatious or oppressive conduct, as would have been the case if it was a non-contractual right. As Lord Justice Moore-Bick said: “If legislation confers on an injured party the right to recover directly against the wrongdoer’s liability insurer by giving him in substance the right to enforce the contract, he must accept what the legislation gives him including the obligation to pursue any claim in arbitration.”

Shipbuilding Contracts – Limitation Periods and Sale of Goods Act

In Neon Shipping Inc. v. Foreign Economic 7 Technical Corporation Co. of China and another [2016] EWHC 399 (Comm) the Commercial Court dealt with an appeal from London arbitrators in a dispute arising out of a shipbuilding contract (“SBC”).

The time bar issue

The SBC provided in Article XI that:

Article XI Guarantee

1.             Guarantee

 

Seller guarantees that Vessel, and all parts thereof that [are] manufactured or supplied by Seller, its sub-contractors and/or vendors under this Contract, will be seaworthy and contractual in all respects, and will be free from all defects which are due to defective design, construction, calculation, material or workmanship (collectively “Guarantee Defects”), upon delivery and for a period of twelve (12) months from the Date and Time of Delivery (“Guarantee Period”).

2.             Notice of Defects

 

Buyer shall notify Seller by telex or facsimile promptly after discovery of any Guarantee Defects for which claim is made. ….. Except as otherwise provided below, Seller shall not be under any obligation for a Guarantee Defect unless notice of such Defect was sent to Seller not later than thirty (30) calendar days after the end of the Guarantee Period. ….

Notwithstanding a valiant attempt to rely upon, inter alia, the comma (underlined in the above) in the first paragraph of Article XI to differentiate between claims relating to the contractual requirement that the vessel be (i) “seaworthy and contractual in all respects”, and those relating to whether the vessel was (ii) “free from all defects which are due to defective design, construction, calculation, material or workmanship”, it was held that the twelve (12) month time bar provision in Article XI applied to any and all claims whatsoever.

The Sale of Goods Act 1979 ( “SOGA”) issue

The Judgment includes consideration of whether section 14(3) of the Sale of Goods Act 1979 (“SOGA”) is inapplicable to a shipbuilding project in which the vessel is built for use in standardised trades, or whether section 14(3) applies in any case where goods have been ordered for their normal purpose. This involved considering whether, for the purposes of section 55(2) SOGA, a clause containing a general description of the goods to be sold can be regarded as inconsistent with the implied terms provided in section 14.

Section 14(3) provides:

 

Where the Seller sells goods in the course of a business and the Buyer, expressly or by implication, makes known:

(a)           to the seller; or

(b)          where the purchase price or part of it is payable by instalments and the goods were previously sold by a credit-broker to the Seller, to that credit-broker,

 

any particular purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller or credit-broker.

Section 55(2) provides:

 

 An express term does not negative a term implied by this Act unless inconsistent with it.

The parties had agreed that the SOGA applied to the SBC. However, at the arbitration, reliance had been placed upon the commentary in a standard shipbuilding text book in which it is said that “Section 14(3) will not, however, normally assist the purchaser of a new building in a quality dispute.” The Court said that that did not correctly state the law, which is that there is no need, for the purpose of section 14(3), for there to be a particular purpose identified, as evidenced by the words used, namely “whether or not there is a purpose for which the goods are commonly supplied”. “Normal use” is sufficient, being normal use in accordance with the contractual specification.

It was therefore held (albeit obiter) that section 14(3) applies in any case where goods have been ordered for their normal purpose: there is no obstacle in principle to implying a term as to fitness for specific purpose into a ship sale contract, even when sold for the purpose of well-known standardised trades; although in this particular case there was no basis for implying such a term into the SBC. In any individual case, it will be necessary to consider whether, for the purposes of section 55(2) SOGA, a clause containing a general description of the goods to be sold can be regarded as inconsistent with the implied terms provided in section 14.

Don’t trip up – a warning for owners

The recently decided case of SBT STAR BULK & TANKERS (GERMANY) GMBH & CO KG V COSMOTRADE SA (THE “WEHR TRAVE”) [2016] EWHC 583 (Comm) in the Queen’s Bench Division of the Commercial Court and before The Hon Sir Bernard Eder will, perhaps, come as a surprise.

This was an appeal pursuant to section 69 of the Arbitration Act 1996 following an arbitration.

The question to be decided related to the interaction between the nature of a trip time charterparty for “one trip”, and the language of the contract governing the range of load and discharge ports. The question before the arbitrators, and then before the court, was whether the charterparty permitted the Charterers to load another cargo having discharged all its originally loaded cargoes. Once the vessel was free of cargo, could the Charterers load again? Furthermore, was the intended load port within the range of permissible ports?

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Mitigation and the assessment of damages on early redelivery – “The New Flamenco”

Mitigation and the assessment of damages on early redelivery – “The New Flamenco”[1]

Assessing the level of damages recoverable following the early redelivery of a vessel under a time charter can be a complex area of law to navigate, especially when there is no available market at the date of the termination of the charter. This Blog looks at the impact on owners and charterers of the decision in The New Flamenco[2].

The facts

On 13 February 2004, The New Flamenco was time chartered by the Claimant Owners to the Defendant Charterers. In August 2005, the charterparty was extended to 28 October 2007 by mutual agreement.  On 8 June 2007, the parties reached an oral agreement to extend the charter for another two years, to 2 November 2009.

The Charterers alleged that no such extension had been agreed and indicated an intention to redeliver the vessel at the end of October 2007, refusing to sign an addendum documenting the further extension. The Owners declared the Charterers to be in anticipatory repudiatory breach and accepted this breach as terminating the charterparty on 17 August 2007.

The vessel was redelivered by the Charterers on 28 October 2007. The Owners, having been unable to find an alternative employment for the vessel from October 2007, entered into a Memorandum of Agreement for the sale of the vessel for the sum of US$23,765,000 shortly before redelivery.

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Congenbill ‘Paramount Clause’ – Hague or Hague / Visby Rules?

In Yemgas FZCO & Ors v Superior Pescadores SA [2016] EWCA Civ 101, the Court of Appeal considered whether the standard ‘Paramount Clause’ wording in the Congenbill incorporates the Hague Rules 1924 (the “HR”) or the Hague/Visby Rules (the “HVR”).

The ‘Paramount Clause’ set out on the reverse side of the bills of ladings in the present case provided that “The Hague Rules contained in the International Convention for Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment shall apply to this contract…

The wording, with one immaterial change, was therefore identical to the wording included in the Congenbill.

Machinery and equipment, intended for use in the construction of a liquid natural gas facility in Yemen, was loaded on board the vessel “SUPERIOR PESCADORES” in Belgium. Owners issued six bills of lading in the Conline form for carriage from Antwerp, Belgium to Balhaf, Yemen.

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Appointing an arbitrator to protect time for counterclaims

Mr Justice Knowles CBE’s judgment in Glencore International AG v (1) PT Tera Logistic Indonesia (2) PT Arpeni Pra [2016] EWHC 82 (Comm) considered whether the wording of a notice of appointment of an arbitrator was sufficient to stop the running of time under section 14(4) Arbitration Act 1996 (“the Act”) in respect of the respondent’s counterclaim.

Section 14(4) of the Act provides that “Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter.”

In this instance there were four contracts providing that demurrage was payable by either the Charterers (“FC Detention”) or by the Owners (“MV Demurrage”), depending on the cause of the delay.

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Electronic Bills of Lading

With the inclusion of an electronic bills of lading clause in the latest iteration of the NYPE form, as well as the International Group of P&I Clubs’ approval of 3 electronic trading systems, we discuss some of the possible advantages and disadvantages of  such systems to international trade. Are the benefits that such systems are purported to bring too great to be ignored?

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Court of Appeal finds that ship owner “got what it agreed to pay for”

(1) PST Energy 7 Shipping LLC and (2) Product Shipping & Trading S.A. v. (1) O.W. Bunker Malta Ltd and (2) ING Bank N.V. [2015] EWCA Civ 1058.

In a decision which has wide reaching implications for ship owners, the Court of Appeal yesterday upheld the decision of the Commercial Court that a bunker supply contract incorporating a retention of title (“ROT”) clause together with a right to consume the bunkers before payment is not a contract to which the Sale of Goods Act 1979 (“SOGA”) applies.

It is an implied condition of SOGA contracts that the seller has the right to sell the goods. If the seller is unable to transfer property to the buyer at the agreed time, it will usually amount to breach of a condition and a total failure of consideration, and the buyer will be relieved of its obligation to pay.

In this case, on the premise that the bunker supply contract was a contract to which the SOGA applied, the ship owner sought to argue that it was not obliged to pay the O.W. entity with whom it had contracted for the supply of bunkers because the O.W. entity was unable to transfer title in those goods (because it had not paid its supplier and so did not have good title to transfer).

Whilst the parties had characterised the agreement as a sale contract, the Court found that this did not reflect the substance of the obligations. The contract contained a 60 day credit period and an express right for the bunkers to be consumed before payment. The Court found that the strong likelihood that the bunkers would cease to exist by the time payment fell due meant that the owners were not contracting for the transfer of property in the whole of the bunkers, instead they were contracting for the delivery of bunkers “which they had an immediate right to use but for which they would not have to pay until the period of credit expired”.  

The Court of Appeal therefore characterised the contract as one under which goods were to be delivered to the ship owner as a bailee with an immediate licence to consume, coupled with an agreement to sell any quantity remaining at the date of payment.

As a whole, this decision has important implications for ship owners who, when contracting for bunkers on terms which are prevalent in the industry, have lost the protection of the SOGA.

This may not be the final word if permission to appeal to the Supreme Court is granted

 

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