Extension of common law rule against set off from freight to air freight

The London Circuit Commercial Court has held that the well established common law rule in shipping law that “a claim in respect of cargo cannot be asserted by way of a deduction from freight” extends to air freight.

In this landmark case, the contract was for the carriage of chia seeds between a well known specialist in the transportation of goods by road, rail, air and sea, and a seller of raw materials. The Defendant asserted that it was a condition of the contract that the goods would be delivered within seven days.  They were considerably delayed. The dispute arose because the Claimant sought recovery of its air freight (i) which the Defendant  denied was due, or alternatively (ii) from which the Defendant wished to make deductions on the basis that the only freight payable was the sea freight equivalent, ie that payable if the goods had been transported by sea.

Also in issue was whether the British International Freight Association (“BIFA”) standard trading conditions were incorporated into the contract. If they were, clause 21A provides: “The punctual receipt in full of sums falling due from the Customer to the Company is critical to the operation of the Company’s business and its performance of its obligations to the Customer. Accordingly the Customer shall pay to the company in cash, or as otherwise agreed, all sums when due, immediately and without reduction or deferment on account of any claim, counterclaim or set-off…”

This led to a consideration of whether the common law rule, which originates in shipping law, extends to air freight. Considerable weight was given to the Claimant’s expert’s evidence, to the effect that the rule is the basis upon which the market for freight currently contracts. Although it was acknowledged that the basis for the original rule, namely cash flow, would not alone justify the extension of the rule to air freight, given the shorter time periods involved, the Court was influenced by the fact that the rule has already been extended to international and domestic road haulage. It found that there isno logical or sensible distinction between the three means of transport for the purpose of the common law rule”.  As the expert pointed out, there could be considerable uncertainty otherwise in relation to multi-modal freight contracts. It was also held that the rule as applied in relation to air freight extends to claims for delay.

This means that in such cases, air freight will need to be paid in full, and any cargo related claim, including one for delay, will need to be made by way of separate claim.


Are you ready for changes to EU data protection regulation?

The General Data Protection Regulation (the Regulation or GDPR) comes into effect on 25 May 2018. The Regulation is arguably the most seismic change in European Union (EU) data protection law in over 20 years and will present major challenges for businesses operating within the shipping sector.

With just six months to go before the Regulation is in effect, advance preparation is key. In our briefing, we highlight six key areas that shipping companies, their insurers, and service providers should be aware of, along with recommended practical steps to aid compliance. You can read it here


Appointment of Arbitrator

Hot on the heels of the Sino v Dana decision (reported in our blog on 16 November), the Commercial Court considered the question of notice of appointment of an arbitrator once again in Glencore Agriculture BV (formerly Glencore Grain BV) v Conqueror Holdings Limited [2017] EWHC 2893. 

This is another case where the Respondent (Glencore as Charterer) took no part in the arbitration and was unaware of the proceedings until it received the Award. Continue Reading

CV Stealth – Arrest of vessel under Shelltime 4 – causation

By way of follow up to our blog on this matter dated 3 May 2016, the Commercial Court heard a further arbitration appeal earlier this month arising out of the detention of the vessel at Puerto la Cruz on 19 September 2014.

The vessel was chartered on an amended Shelltime 4 form, and the vessel remained at Puerto la Cruz at the time judgment was given.

This appeal related to two issues:

  1. Whether the Charterers’ employment order could still be said to be the cause of the continued arrest of the vessel; and
  2. Whether drydocking costs which Owners saved as a result of the vessel being under arrest should be deducted from their claim for damages.

Continue Reading

Service of Arbitration Notice

Sino Channel Asia Ltd v Dana Shipping & Trading Pte Singapore Ltd & Anr [2017] EWCA Civ 1703


The case looks at the question of when notices of arbitration passed to a counterparty’s agent can be considered effective service on the counterparty in circumstances where that the agent is not authorised to receive the notice. It was held by the Court of Appeal that in this case, the agent possessed both implied actual and ostensible authority to receive the notice; however, this “rare case” was decided very much on its facts.

Dana (as Owner) had a claim against Sino (as Charterer) under a Contract of Affreightment (“COA”) dated 9 April 2013. Sino’s role in the negotiation was restricted to its director signing his name – it was fronting for a Chinese company, BX, which was to handle the day to day operation of the COA.

All but one of the communications following signature of the COA were between Dana and a Mr Cai of BX, though Dana believed they were in contact with employees of Sino and were completely unaware of BX’s involvement. Indeed, Sino’s broker informed Dana’s broker that Mr Cai was Sino’s representative or employee. Continue Reading

Getting the arbitrator right

This week the Commercial Court handed down judgment in Tonicstar Limited v (1) Allianz Insurance PLC; (2) Sirius International Insurance Corporation ( PUBL) (London Branch) [2017] EWHC 2753, a matter where the question was whether a barrister was a person “with not less than 10 years’ experience of insurance or reinsurance” for the purposes of a standard form arbitration clause in a reinsurance contract.

It was argued that the clause required experience in the business of insurance or reinsurance itself, and not experience of insurance or reinsurance law

The Judge considered himself bound by the decision of Mr Justice Morison in Company X v Company Y, an unreported decision of July 2000, having found that it was not obviously wrong.  He indicated however, that unless he had been so bound, he may well have decided that the ordinary and natural construction of the phrase did not limit the fields in which experience of insurance or reinsurance could be acquired.  

The case shows how important it is to consider carefully any particular skill sets required of an appointed arbitrator. In the context of general shipping disputes, this is often in the context of the arbitrators being required to be “commercial men”, a concept which has been held to exclude those whose experience is solely as practising members of the legal profession. But, in a case where a solicitor had practiced ‘for many years’ as a full-time maritime arbitrator, and was a director of companies concerned with the carriage of goods by sea, he was regarded as a “commercial man”.


The Approach Voyage

The Pacific Voyager [2017] EWHC 2579 is a Commercial Court decision about which a number of articles have been written over the last week. It considers the often neglected approach voyage;  identifying the moment when the duty to proceed with utmost despatch to the loadport arises under a voyage charter; and whether that obligation is an absolute one or one to exercise due diligence. Continue Reading

Recoverability of Operating Expenses under Rule F of the York-Antwerp Rules 1974

On 25 October 2017, the English Supreme Court handed down judgment in Mitsui & Co Ltd and Others v Beteiligungsgesellschaft LPG Tankerflotte MBH & Co KG and Another (The “Longchamp”). The case provided the Supreme Court a rare opportunity to consider and interpret the York Antwerp Rules 1974 (in particular Rule F), which are more commonly applied in accordance with the practices of General Average adjusters – practices which, as the court was quick to point out, do not constitute law.

The Longchamp was commandeered by pirates off Somalia in 2009, who demanded a US$6 million ransom. After a 51 day negotiation, the vessel was released against a payment of US$1.85 million. The owners of the vessel sought to recover both the US$1.85 million ransom payment (under Rule A) and certain vessel operating expenses incurred during the period of negotiation (some US$160,000), under Rule F. The Advisory Committee of the Association of Average Adjusters, in line with the views of leading commentaries on the subject, was of the opinion that these latter expenses were irrecoverable under Rule F.

The Supreme Court disagreed that the operating expenses were irrecoverable under GA, a decision with potentially broader implications than that of piracy negotiations. Where an owner negotiates with a third party to reduce expenses allowable in general average, it now appears likely that operating expenses incurred during that period will be included in the adjustment under Rule F, provided the expenses do not exceed the amount of the general average expense avoided.  This may equally hold true where an owner negotiates repair costs with a yard or salvage expenditure with salvors.

The decision is likely to be welcomed by owners, allowing them to approach post casualty negotiations from a position of greater strength. Conversely, however, the decision may also give rise to uncertainty surrounding previously accepted orthodoxy, and heightened scrutiny of adjustments made under the York Antwerp 1974 Rules.

U.S. to terminate vast majority of economic sanctions on Sudan

Following a 16-month diplomatic effort, on October 6, 2017, the U.S. government announced that it will terminate the vast majority of economic sanctions against Sudan. The revocation will be effective on October 12, 2017. Sanctions against South Sudan will remain in place as will sanctions in response to the situation in Darfur.

The EU position regarding Sudan and South Sudan remains the same as it has been since 2014 and 2015 respectively.

As a result, it remains necessary to keep in mind the differences between the U.S. and EU regimes when assessing the propriety of transactions involving both Sudan and South Sudan.

You can read more about the changes in our client alert here.


Be Prepared: Advice for the Shipping Industry on the cyber threat

“Take the time to prepare and focus on prevention” was the message from the panellists in our webinar on cyber attacks in the shipping industry last week. Mark Johnson, Counsel in our shipping group, led a discussion with John Boles, Director of Navigant, Griff James, Director of DAMROD and Philip Thomas, Counsel in our IP, Tech & Data team.

John Boles emphasised the importance of “identifying your crown jewels” to ensure that resources are allocated to protecting your most essential assets. Once you have identified the ‘crown jewels’ it is equally important to identify the flow of data to and from these systems, according to Griff James, as it is these access points in and out of the system that are the weak points which could enable someone with malicious intent to enter the system.

The maritime industry is well versed in running drills and providing training:  the addition of cyber training should be a key focus of shipping companies and their insurers going forward. “Embed cyber awareness into your company”, advises Philip Thomas:  you need to ensure not only that the right policies are in place, but also that there is sufficient ‘buy-in’ for them at all levels of the company and a proper governance framework to ensure they are followed.

It is clear that, as the industry continues to embrace technology and with the data protection landscape about to become a lot more punitive, cyber security will remain a vital aspect of any risk management plan.

For more tips you can listen to the webinar here.