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?
(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.  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
Sang Stone Hamoon Jonoub Co Ltd v Baoyue Shipping Co Ltd (“The Bao Yue”)  EWHC 2288 (Comm)
The dispute related to a cargo of iron ore carried from Iran to China by the Defendant Shipper. The bill of lading had been issued “to order”, with no consignee named. The Shipper was requested to discharge the cargo to the bill of lading holder’s agent, who would release it against presentation of the bill of lading.
Due to a dispute between the bill of lading holder and the buyer of the cargo, no bill of lading was presented at the discharge port. As a result, the Shipper ordered that the cargo be discharged into storage in China. The storage charges exceeded the value of the cargo, and the warehouse operator refused to release the cargo without payment of those charges.
The bill of lading holder accepted that the Shipper had been entitled to discharge the cargo into storage. However, it brought a claim in tort for the conversion of the cargo on the basis that:
- a lien for storage charges was created in favour of the warehouse operator without the bill of lading holder’s authority; and
- statements had been made by the warehouse operator and the bill of lading holder’s agent which amount to denying the bill of lading holder access to the cargo, regardless of whether it presented the bill of lading.
The Shipper denied conversion, and counterclaimed for the storage charges incurred. The bill of lading holder’s claim was dismissed, and the Shipper’s counterclaim was upheld.
In principle, goods may be converted where a lien is created without the authority of the owner of the goods. However, there was no such conversion in this case. The Shipper had been entitled to warehouse the cargo, and so it was not unreasonable for it to have agreed a term in the storage contract which conferred a lien on the warehouse operator for its charges. Indeed, the creation of a lien was a reasonable and foreseeable incident of the storage contract, because the bill of lading incorporated charterparty terms which expressly permitted the discharge and storage of the cargo.
As regards denial of access to the goods, this could constitute conversion if the conduct in question amounted to deliberate encroachment of the rights of the owner of the goods, so as to exclude him from the use and possession of them. The facts in this case fell far short of this requirement. The bill of lading holder had never been “deprived” of the use and possession of the cargo. It had always been available on presentation of the bill of lading and payment of the accrued charges, but the bill was never presented and the charges never paid.
In respect of the Shipper’s counterclaim, it had been argued that the Shipper had failed to mitigate its loss by selling the cargo. The court found that there had been no such failure on the part of the Shipper, because for the cargo to be sold and cleared through customs, the bill of lading would have been required and the Shipper did not have it.
This case provides some useful insight into the circumstances required to found a successful claim in conversion where a cargo cannot be discharged into the custody of its owner because that owner has not presented the relevant bill of lading. Parties should carefully check the contract terms in order to determine what they are entitled to do where the bill of lading is not presented, and should consider whether actions alleged to have deprived a part of use and possession of goods have in fact genuinely done so.
On 24 November 2013, the E3/EU+3 (or the P5+1, comprising the United States, Russia, China, the United Kingdom, France and Germany), together with Iran, agreed the Joint Plan of Action (“JPOA”), which relaxed some of the sanctions imposed against Iran by the EU and the United States.
The JPOA was intended to provide interim sanctions relief, which would take effect while the parties worked towards a more comprehensive and long-term resolution.
The focus of the JCPOA is to ensure that Iran’s nuclear programme is “exclusively peaceful”. The preface to the main JCPOA document states that it will “produce the comprehensive lifting of all UN Security Council sanctions as well as multilateral and national sanctions related to Iran’s nuclear programme, including steps on access in areas of trade, technology, finance and energy”.
In support of these aims, the JCPOA provides for specified voluntary steps to be taken by Iran and the E3/EU+3. It contemplates a staged, measured and long process.
- The EU and the United States have agreed to lift the majority of nuclear-related sanctions against Iran, provided Iran first implements certain agreed measures for its nuclear programme. If certain goals are reached, the UN arms embargo could be removed in five years, and the restrictions on ballistic missile technology could be lifted in eight years. The implementation of such measures must be verified by the International Atomic Energy Agency (IAEA).
- There is no immediate change to the sanctions position. All sanctions as relaxed by the JPOA on 20 January 2014 remain in place for the time being. A plan has been agreed, however, which may lead to an eventual lifting of certain sanctions. It is not possible at this stage to put a precise date on when any such lifting of sanctions will occur.
- The EU has adopted Decision (CFSP) 2015/1148, which extends the JPOA moratorium to 14 January 2016, to allow time for the necessary arrangements and preparations for implementing the JCPOA.
- Any lifting of sanctions will not be wholesale; rather, it will be a staged process. It should not be assumed that all business with Iran will be permitted once the JCPOA is implemented.
- If Iran does not comply with its obligations under the JCPOA, provision is made for sanctions to be re-imposed.
On 24 November 2013, the P5+1 countries (comprising the United States, Russia, China, the United Kingdom, France and Germany) together with Iran, agreed the Joint Plan of Action (JPOA), which relaxed some of the sanctions imposed against Iran by the EU and U.S. The JPOA was intended to provide interim sanctions relief, while the parties worked towards a more comprehensive and long-term solution.
On 14 July 2015, the Joint Comprehensive Plan of Action (JCPOA) was agreed.
The EU and U.S. have agreed to lift the majority of nuclear-related sanctions against Iran, provided Iran implements certain agreed measures in respect of its nuclear programme. If certain goals are reached, the UN arms embargo could be removed in five years, and the restrictions on ballistic missile technology could be lifted in eight years. The implementation of such measures by Iran must be verified by the International Atomic Energy Agency (IAEA).
All sanctions remain in place for the time being. However, a plan has been agreed which may lead to an eventual lifting of certain sanctions.
In the meantime, the EU has published Council Decision (CFSP) 2015/1148, which extends the limited sanctions relief put in place by the JPOA until 14 January 2016. This is to allow time for the necessary arrangements and preparations for the implementation of the JCPOA. Relevant contracts which fall within the JPOA relaxation must be executed within that date. For further details on the JPOA limited sanctions relief, see our previous alert of 23 January 2014.
We will be publishing more detailed comments on and analysis of the JCPOA shortly.
On 7 November 2014, OW Bunker A/S (“OW”), a global supplier and trader of marine fuel, filed for bankruptcy in Denmark. Further bankruptcies of OW subsidiaries and affiliates swiftly followed, including the bankruptcy of certain U.S. and Singapore-based OW entities.
Protective interpleader proceedings were brought in the U.S. and Singapore by vessel owners and charterers who found themselves the subject of competing claims by third-party physical suppliers of the fuel, OW entities and/or ING, the bank to which it is alleged that OW assigned its rights under certain fuel supply contracts in December 2013.
Interpleader proceedings are designed to protect a party facing multiple claims in respect of a single obligation, by asking the court to determine the entitlement of competing claimants and, in the interim, granting equitable relief by making a form of anti-suit injunction to restrain the competing claimants from proceeding elsewhere. OW, which had contracted to supply fuel to various vessel owners and charterers, often sub-contracted with third-party fuel suppliers who would physically deliver the bunkers to the vessel. In the wake of the bankruptcy, some suppliers sought to enforce maritime liens directly against vessels, regardless of whether the shipowners or charterers had already paid the amounts owed to the OW entities with whom they had contracted.
In two recent decisions, the Federal District Court in New York (New York Court) and the High Court of Singapore (“Singapore Court”) reached opposing conclusions on whether interpleader proceedings relating to: (i) contractual (or ‘in personam’) claims; and (ii) maritime lien (or ‘in rem’) claims that were asserted against the vessels that had received the fuel, could be brought in those courts.
The decision of Mr. Justice Flaux in (1) Societe de Distribution de Toutes Merchandises en Cote D’Ivoire trading as “SDTM-CI” (2) Kouma Assitan (3) Amlin Corporate Insurance N.V. (4) Axa Corporate Solutions Assurance and (1) Continental Lines N.V. (2) Genshipping Corporation  EWHC 1747, considers the effect of clause 5 of the Synacomex 90 form, upon which the vessel was chartered in this case.
Clause 5 of the standard form provides that “cargo shall be loaded, trimmed and/or stowed at the expenses and risk of Shippers/Charterers… cargo shall be discharged at the expenses and risk of Receivers/Charterers… stowage shall be under Master’s direction and responsibility…”. This clause was incorporated into the bills of lading.
In this case the Court heard a preliminary issue as to whether, on the proper construction of the contract of carriage contained in or evidenced by a bill of lading the carrier was liable for loss or damage to the cargo caused by improper loading, stowage or discharging of the cargo. In doing so it was required to consider the effect of clause 5.
The common law position is that the responsibility for loading, stowage and discharge, which is generally upon the carrier, can be transferred by clear terms to cargo interests. The decision provides a thorough review of the cases in relation to this position.
Ultimately, the analysis which the Court was required to carry out was whether clause 5 transferred responsibility for loading and stowage from the carrier to the charterers/cargo interests in clear terms.
It was accepted that there is an internal tension within clause 5, i.e. between the stowage being under the Master’s direction and responsibility on the one hand, and the cargo being loaded, trimmed and/or stowed at the expenses and risk of shippers/charterers on the other. On balance, the Court took the view that it was the cargo interests’ construction (ie that the clause did not transfer responsibility for loading or discharge from the carrier to the charterers) which was more difficult to reconcile with the provision that stowage was to be under the Master’s direction and responsibility ( as it would render it unnecessary).
It was therefore held that the effect of the third sentence of clause 5, incorporated in the bills of lading, was to impose responsibility on the charterers/cargo interests for “bad loading and discharging of the cargo”.
The case provides useful clarification on the construction of this much-used clause, and also on the principle as to what amounts to “clear terms”.
Re Pan Ocean Co Ltd  EWHC 1500 (Ch)
The Applicants had entered into a pool agreement and time charter with Pan Ocean, both of which were governed by English law and provided for London arbitration. The agreements were terminated, and the Applicants sought damages. Pan Ocean went into rehabilitation in Korean, and the Applicants submitted claims which were rejected by the administrator. The Korean court confirmed that rejection. The Applicants lodged an objection to the court’s decision, and the proceedings were ongoing in Korea.
The English High Court made a recognition order in respect of the Korean rehabilitation proceedings pursuant to the Cross-Border Insolvency Regulations 2006 Sch.1 art.15. The order stayed the commencement of actions or proceedings against Pan Ocean.
The Applicants applied for the order to be varied so that they could pursue claims against Pan Ocean in London arbitration, on the understanding that they would not seek to enforce any arbitration award or subsequent court judgment against Pan Ocean’s assets without the administrator’s agreement or a further court order.
The application was granted.
In considering whether to vary the order, the Court noted that it had a free hand to do what was right and fair in the circumstances. A stay would usually be lifted when disputed claims needed to be resolved by legal proceedings, and it was right and fair in all the circumstances to implement that need. In this case, the court had to undertake a balancing exercise, weighing various factors including:
- the lack of evidence to suggest that an arbitration would adversely affect the result of the rehabilitation proceedings;
- the possibility that arbitration was not the most efficient and cost-effective way of proceeding; and
- the lack of provision of an alternative, in the event of insolvency, to arbitration in London.
The balancing exercise weighed heavily in favour of varying the stay.
In its conclusion, the Court noted that it may appear strange that the decision to vary the stay was made in England, rather than in the Korean courts where the parties were currently involved in proceedings in respect of the relevant claims. The reason that the decision had to be made by the English court was because it concerned the contractual right of the parties to apply for arbitration of a dispute. The application was required because of a stay established by the English courts, and so it was for the English courts to decide whether to vary it.
The ability to pursue claims against insolvent parties remains a very current issue. It is clear from this case that the English court will consider varying orders recognising foreign insolvency proceedings to allow claims to be pursued in London arbitration. It should be noted however that the order was varied on the understanding that there would be no subsequent enforcement against Pan Ocean’s assets. Where a Respondent is insolvent or in rehabilitation, it could be questioned whether it is cost-effective to obtain an arbitration award which may be unenforceable due to lack of assets. This, however, is a strategic decision to be made based on the circumstances of any given case.
ST Shipping & Transport Inc v Kriti Filoxenia Shipping Co SA  EWHC 997 (Comm)
The charter, on BPVOY3 form, provided that subject to the provisions of clause 24, the vessel would proceed to “1/2 safe port(s) Black Sea excl Bulgaria, Romania, Turkey”.
Clause 17 provided for a laycan period of 1 to 3 April 2003. Clause 24 provided inter alia as follows regarding revised orders:
“If after any loading or discharge port or place has been nominated Charterers desire to vary such port or place, Owners shall issue such revised instructions as are necessary at any time to give effect to Charterers’ revised orders …”
Charterers nominated Tuapse as the first loadport, then three days later gave a revised nomination of Batumi. The vessel’s estimated time of arrival at Batumi was after the cancelling date, and on that basis Charterers purported to cancel the charter. Owners accepted that cancellation as a repudiatory breach and claimed damages.
Owners’ claim succeeded. The Tribunal found that after a revised order had been given under clause 24, the cancellation provisions of clause 17 ceased to apply. Specifically, they did not apply to the revised loadport of Batumi. Even if the right to cancel had survived, Charterers could not cancel where the re-nominated loadport was one which the vessel, at the time of the re-nomination, could not have reached by the cancelling date (as was the case here).
Charterers appealed on two issues: (i) whether the clause 17 right to cancel survived a re-nomination of the first loadport under clause 24; and (ii) if so, whether they were in any event not entitled to cancel where at the time of re-nomination, the vessel’s ETA for the re-nominated port was after the cancelling date.
Findings on appeal
Charterers’ appeal was dismissed.
On the first issue, whilst Charterers had a strong argument based on the commercial value of the cancelling clause, Owners’ position was stronger. Owners cited the commercial undesirability of losing the certainty of an irrevocable nomination while remaining exposed to cancellation rights. The parties could, if they had wished, have drafted an express clause which allowed the cancellation rights to survive, but they had not.
The Court also found an inconsistency in Charterers’ case. They accepted that an initial loadport nomination could not be given so late that it would cause the vessel to miss the cancelling date, however they contended that a re-nomination under clause 24 was not fettered in this way. This undermined Charterers’ contention that clause 24 was intended to equate a re-nominated first loadport with an originally nominated first loadport, and to confer on them in respect of the former all of the entitlements conferred on them under the charter in respect of the latter.
As regards the second issue, the Court considered whether, once the original nomination was made, the vessel was obliged to proceed both to that original port and as if any other port within the charter range might be substituted. It determined that this approach would be both uncommercial and unsatisfactory. When the original nomination was made, that port became the contractual loadport and Owners were entitled to proceed on that basis unless and until a re-nomination was made. The parties had a duty of cooperation, which meant that where the vessel proceeded in accordance with the charter, Charterers could not cancel if they made a substitute nomination for a port which the vessel would not be able to reach until after the cancelling date.
This case exemplifies the importance of carefully considering the charter terms before taking drastic steps such as cancellation. It is essential to consider the charter as a whole, and whether the default position under one clause is affected by the operation of another in certain circumstances.
The reciprocal, commercial relationship between the parties appears to have been key to the Court’s decision in this case, with a focus on both the fact that the parties could have agreed an express clause to cover this factual scenario if they had wished to, and on the duty of the parties to cooperate under the charter terms which were agreed.
The Claimant Buyers brought proceedings against the Defendant Bank under refund guarantees issued by the Bank in support of two shipbuilding contracts between the Buyers and Sellers. Pursuant to the contracts, the Claimant had paid instalments on terms that they would be refunded if the contracts were cancelled. When the ships were not delivered on time, the Claimant commenced arbitration against the Sellers claiming repayment of the instalments. It obtained awards in its favour. In the instant proceedings, it claimed payment from the Bank under the guarantees.
The Sellers had meanwhile commenced proceedings in China against the ships’ engine manufacturers and the Buyers, claiming that they had fraudulently agreed to the installation of second-hand engines in the ships. The Chinese court issued orders prohibiting the Bank from making payment under the guarantees. The Buyer unsuccessfully challenged the jurisdiction of the Chinese court, and the Bank was unable to have the orders set aside. The Chinese court ultimately found in favour of the Sellers in the fraud proceedings.
The issue for the English court to decide was whether the Bank could use the Chinese judgments as a defence to the Buyer’s claims under the guarantees. The court ordered the Bank to honour the guarantees.
The guarantees were performance bonds which created an independent, primary obligation to pay. They contained an undertaking to pay “on demand”, and made it clear that disputes between the Buyers and Sellers were irrelevant to the Bank’s obligation to pay.
The obligations to which the Chinese proceedings related were not part of the obligation guaranteed. The guarantees covered the single obligation on the Sellers to refund the advance instalment payments (plus interest) in the event of cancellation of the contracts. Any breach of other terms of the shipbuilding contracts could not as a matter of equity lead to discharge of the guarantees, which related to entirely separate obligations.
The judgment provides a useful summary of the nature and terms of the guarantees and their relationship to the shipbuilding contracts, including a consideration of “on demand” guarantees and the differences between performance bonds and sureties. It exemplifies the court’s preference to hold parties to the terms of their agreement, including their agreement as to jurisdiction. It followed the approach taken in the recent case of Wuhan Guoyu Logistics Group Co Ltd v Emporiki Bank of Greece SA  EWCA Civ 1629 in making it clear that disputes between the parties to a shipbuilding contract are separate from and irrelevant to a bank’s obligation to pay under a refund guarantee. It also includes a useful analysis of when a party is to be treated as having submitted to the jurisdiction of a foreign court.