As mentioned in our last posting, our lawyers have been monitoring developments over the course of this year. We are already in October and the Courts have issued some important decisions in the sectors that we operate in. There have also been some interesting reported arbitration decisions and we have provided details below of those decisions that have come to our attention. We have also been following the trade press on matters of interest to those in operating in our sectors. We are frequently asked about sanctions, piracy and regulatory issues so we try to keep an eye on developments in these sectors. The shipping markets are also of interest to our clients. These have come off the all-time lows that we saw at the start of the year and in our blog we propose to keep clients updated on developments.
This first posting on our blog is quite extensive as we try to cover all that has gone on this year. Future postings will probably be much shorter as our aim is to circulate our views on developments as and when they occur…
Beware of the time limit even where enforcing a cargo claim against proceeds of sale!
The tail end of 2014 saw an interesting decision from Mr Justice Teare in Bank of Tokyo Mitsubishi UFJ Ltd v Sanko Mineral [2014] EWHC 3927 which we understand was due to go to the Court of Appeal. It seems however that the case may have settled in which case we are left with Mr Justice Teare’s finding that, where cargo interests file a claim in rem against the proceeds of sale of a vessel (in this case against the proceeds of the sale of the “Sanko Mineral” which was sold by the English Court following an arrest and judicial sale procedure), the cargo claimants must also start legal proceedings in the correct forum to protect the time bar. In this case the cargo interests failed to do this. They argued that they were protected because they had filed their claim against the ship’s owner in Japanese insolvency proceedings (the owner had filed for protection in Japan and such proceedings were supported by the English Courts under the Cross Border Insolvency Regulations). Mr Justice Teare disagreed with the cargo claimants and, until such time as the issue comes up again before the Courts, the lesson to be learned is that, regardless of the standing of the defendant, the claimant must always protect himself by commencing proceedings in the correct name against the defendant in the correct forum. In this case the correct forum was English arbitration and the claimant failed to start arbitration proceedings within the time limit.
Decision in “The Astra” now doubtful
The stand out decision so far in 2015 is Mr Justice Popplewell’s decision issued on March 18 in Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd. EWHC 718.
Aside from various issues relating to Grand China’s attempts to avoid a claim under the guarantee that they had issued in China, this case will be remembered for the fact that the judge adopted a very different approach from Mr Justice Flaux in Kuwait Rocks Co v AMB Bulkcarriers Inc (“The Astra”) [2013] EWHC 865.
In Spar Shipping, Mr Justice Popplewell refused to follow the reasoning adopted in “The Astra” and crucially said that payment of hire is not a condition regardless of whether the underlying charter party contains a withdrawal clause. Although the comments made by Mr Justice Flaux in “The Astra” were obiter (i.e. not strictly binding), the inference is that the decision in “The Astra” was probably incorrect and the accepted view is that we are now back to the legal position prior to “The Astra”. It follows that in every case where there is non payment of hire one needs to look very carefully at the effect of that non payment to decide whether owners are in a position to terminate the charter and claim damages based on the charterers’ repudiatory breach.
English Court prevents attempts made by claimants to sue P&I insurer in Turkey
Another important case in early 2015 saw an attempt by Turkish cargo claimants to get around problems associated with the total loss of the vessel carrying their cargo by pursuing a claim against the P&I insurers of the ship in Turkey under a Turkish statute that purported to provide them with a direct right of action against the defendants’ insurers. The P&I Club in question (The Shipowners Mutual) successfully obtained an anti-suit injunction to prevent the claimants from proceeding in Turkey as this was a clear breach of the terms of the contractual arbitration clause in the P&I Clubs terms of insurance. It was of course very important for the Club to ensure that an direct claim against them would be determined in arbitration and under English law because of the long established “pay to be paid” principle which prevents direct claims against a P&I insurer. This case of course did not fall within the ambit of the ECJ’s decision in Allianz SpA v West Tankers (“The Front Comor”) Case C-185/07 as it dealt with proceedings commenced outside of the EU. It would not have been possible to get an anti-suit injunction from the English Court had the claimant started proceedings within an EU member state. The full case citation for those interested is Shipowners’ Mutual P&I Association (Luxembourg) v Containerships Denizcilik Nakliyat Ve Ticaret AS (“Yusuf Cepnioglu”) [2015] EWHC 258.
What is meant by a sound system for carriage of cargo?
Cargo claims are a fact of life for ship owners. In this case Volcano Ltd and others v Compania Sud Americana de Vaporise SA [2015] EWHC 516, the cargo in question was coffee beans carried in containers where the carrier undertook responsibility for stuffing the containers. The carrier adopted what it considered to be a sound system by lining the containers with Kraft papers to prevent condensation forming during carriage. The cargo claimants argued that the carrier must not have used the lining paper properly or there must have been some inadequacy in the way in which the containers were lined because the beans arrived in a damaged condition due to condensation. The cargo claimants succeeded on their claim but the interesting observation made by the Court was that in order to ascertain whether a particular system was “sound” the carrier must establish that there exists a “rational, adequate and reliable basis” in the form of studies and research to show that this particular system will prevent the damage from occurring. There was no such proof in this case and general industry practice of using Kraft paper lining was not sufficient to show that a sound system had been adopted. Even if the carrier could have demonstrated that he used a sound system (which it was held was not possible in this case) the carrier would still have had to demonstrate that it exercised due diligence in implementing that system i.e. in lining the containers properly. Prior to this case there was limited guidance on what was meant by a “sound” system for the carriage of cargo.
English Courts uphold buyers right to rely on refund guarantees regardless of the underlying shipbuilding contracts
Spliethoff’s Bevrachtingskantoor BV v Bank of China [2015] EWHC 999 was an interesting decision from the Commercial Court in relation to a long running battle between the claimant buyers of various ships and the defendant Chinese bank who had issued refund guarantees in relation to those ships. The shipbuilding contracts had been cancelled and buyers were claiming a refund of the instalments that they had paid. In an attempt to avoid payment under the guarantees the sellers (who would be obliged to reimburse the bank if the bank was forced to make payment) 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 was persuaded to issue an order prohibiting the Chinese bank from making payment under the guarantees. The buyer challenged that decision in China to no avail and the Chinese courts subsequently found in favour of the sellers.
The claimant buyers’ proceeded with a claim in the English High Court against the defendant bank. It was argued that the refund guarantees were performance bonds and there was an independent primary obligation to pay “on demand” regardless of any issues of alleged fraud under the shipbuilding contract (which were in any event denied). The English High Court agreed and said that any issues arising under the shipbuilding contract were irrelevant. They upheld the previous decision in Wuhan Guoyu Logistics Group Co Ltd v Emporiki Bank of Greece SA [2012] EWCA Civ 1629 which stated 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.
The English Court also gave some guidance on jurisdiction in view of the buyers involvement in the Chinese proceedings. Once a party has submitted to the jurisdiction of the foreign Court then the English court generally has no jurisdiction as to whether that judgement should be recognised and this appears to be the case even if the English Court issued an injunction to prevent the foreign proceedings from continuing. In this case however, the issue was the validity of the guarantees and there was no suggestion of any fraud under the guarantees which were upheld as being valid “on demand” performance bonds.
Charterers lose cancellation rights where they issue revised orders nominating another load port
In ST Shipping & Transport Inc v Kriti Filoxenia Shipping SA [2015] EWHC 997, the Charterers nominated Tuapse as the load port but then, three days later, they changed their minds and nominated Batumi. The charter party provided in clause 17 for a laycan period of “1 to 3 April” and clause 24 of the charter was important because it provided that “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”
The claim was initially dealt with in arbitration and it was decided that after a revised order had been issued under clause 24 the cancellation provisions of clause 17 ceased to apply. As such the cancellation provisions could not apply to Batumi as this was a re-nomination. It was said that, even if the right of cancellation could survive the re-nomination of Batumi as the load port, the Charterers could not cancel if, at the time of the re-nomination, the vessel could not have reached that load port by the cancelling date (as was the case here).
On appeal the Commercial Court looked at the provisions of clause 17 and 24 and applied a common sense interpretation. The outcome suggested by Charterers was commercially undesirable as it cannot be the case that an Owner can be expected to proceed to a nominated load port and then find himself re-directed whilst en route such that he would not be able to get to the revised load port within the agreed lay can. It was said that if this was what the parties had intended then they could easily have provided for this in the charter. The fact that they did not provide for such an unusual scenario was telling.
Can a claimant get around the Cross Border Insolvency Regulations 2006?
The Cross Border Insolvency Regulations (“CBIR”) are a thorn in the side of claimants who have claims against a party in financial difficulties. If that party applies for protection in their home jurisdiction then the CBIR will generally recognise those foreign insolvency proceedings and the English Courts will stay any proceedings before them and/or order a party to discontinue arbitration proceedings pending the outcome of the foreign insolvency proceedings. The idea is to give the party in financial difficulties time to breathe and come up with a proposal for its creditors free of the burden of having to deal with litigation in other jurisdictions.
In Pan Ocean Co Ltd [2015] EWHC 1500, the English Companies Court made a recognition order under the CBIR effectively staying the commencement of actions or proceedings against Pan Ocean as they had applied for Court protection in Korea. In this particular case the applicants who were bound by the recognition order had a large claim against Pan Ocean in relation to damages for breach of a pool agreement. The applicants filed their claim in Korea rather than in London arbitration (the agreed forum for determination of disputes under the pool agreement) but the claim was rejected by the Korean administrator. At first the applicants appealed that decision to the Korean court but they also rejected the applicants claim.
In view of the above the applicants applied to the English Court to vary the recognition order made under the CBIR so that the applicants could pursue their claims in London arbitration rather than in Korea on the understanding that the applicants would not seek to enforce their claims in Korea without the administrators agreement or a further Court order. It was said that the decision to reject the claim in Korea on the merits was wrong and unfair and that the applicants were entitled to have the merits of their claim determined in arbitration under English law.
The English Companies Court granted the application as they felt that it was right and fair in the circumstances. It was said that a stay could be lifted when disputed claims needed to be resolved by legal proceedings. There was a balancing exercise as between fairness and how an arbitration in London might affect the rehabilitation proceedings in Korea. On balance it was felt that it was fair to lift the stay especially as the applicant was not seeking to enforce any Award in Korea. All they were seeking to do was ensure a fair resolution of the merits of their claim by arbitration under English law which was what the parties had originally intended. The arbitration process would be a fairer way to achieve this than would be the case if the matter were determined by the Korean courts.
What is meant by “at the expense and risk of Charterers”?
Mr Justice Flaux was in action again this time to sort out what was meant by “at the expense and risk of Charterers” in a clause dealing with responsibility for loading and discharge of bagged rice. The full case citation is Society de Distribution de Toutes Merchandises en Cote D’Ivoire trading as “SDTM-CI” and others v Continental Lines NV and another (“The Sea Miror”) [2015] EWHC 1747.
The clause in question was clause 5 of the Synacomex 90 form which provided 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…”
The above clause was incorporated into the bills of lading governing the carriage of the rice and a dispute arose as to who was responsible for wet and mouldy bags, torn bags and short delivery of the cargo on outturn. It was alleged that the damage was caused by either improper loading, stowage or delivery hence the need for clarity as to who was responsible for each of these functions.
The common law position is that responsibility for the above is generally on the carrier but it can be transferred to cargo interests by clear terms. Was clause 5 sufficiently clear to transfer responsibility in this case?
Mr Justice Flaux looked in considerable detail at the words used in clause 5 and in particular the words “at the expense and risk of Shippers/ Charterers” in the context of loading, trimming and stowing and “at the expense and risk of Receivers/ Charterers” in the context of discharging. He reconciled that with the words “stowage shall be under Master’s direction and responsibility” and came to the view that the words “at the expense and risk of” did indeed transfer responsibility to cargo interests for loading and discharging albeit that responsibility for stowage reverted back to the carrier because of the words “stowage shall be under Master’s direction and responsibility”. He decided that the clause made sense and was sufficiently “clear” to transfer responsibility for loading and discharge to the cargo interests. Parallels were also drawn with clause 8 of the NYPE form where the word “risk” has been held to mean “risk and responsibility” unless the words “and responsibility” are used to transfer that risk back to the owners. As such in the context of clause 5 of the Synacomex form, Mr Justice Flaux held that “risk” clearly meant “risk and responsibility”.
When is a law and jurisdiction clause exclusive and what remedies can the English Courts grant to uphold such agreements?
The Court of Appeal upheld a previous Commercial Court decision on the effect of a law and jurisdiction clause in a bill of lading. In Hin Pro International Logistics v Compania Sud Americana De Vaporise SA [2015] EWCA Civ 401, a Chinese freight forwarder (Hin Pro) took the view that the jurisdiction clause incorporated into each of the seventy bills of lading governing the carriage of its goods was not exclusive and it had the right to sue the carrier (CSAV) in various Chinese courts. CSAV was not happy about this and so they obtained an anti-suit injunction and also a worldwide freezing order over Hin Pro’s assets in relation to a claim that they intended to bring for breach of the jurisdiction clause.
The Commercial Court upheld the anti-suit injunction and awarded damages against Hin Pro for breach of the jurisdiction agreement. Hin Pro appealed and, interestingly the Court granted them permission to appeal even though they were in breach of the anti-suit injunction (and thus in contempt of Court in England) by continuing with proceedings against CSAV in China.
In the Court of Appeal it was held that the jurisdiction clause was exclusive even though it did not contain the word “exclusive”. The full wording of the clause is set out below:
“This Bill of Lading and any claim or dispute arising hereunder shall be subject to English law and the jurisdiction of the English High Court of Justice in London. If, notwithstanding the foregoing, any proceedings are commenced in another jurisdiction, such proceedings shall be referred to ordinary courts of law. In the case of Chile, arbitrators shall not be competent to deal with any such disputes and proceedings shall be referred to the Chilean ordinary courts”.
The Court of Appeal held that the words “shall be subject to…” were imperative and directory and that the parties were agreeing to submit all disputes to the English Courts rather than merely submitting themselves to its jurisdiction if that jurisdiction was invoked.
Much was made of the effect of the second sentence but it was held that the words “If, notwithstanding the foregoing” made it clear that the first sentence required litigation in England as a matter of contract. The reason for the rider was that in certain circumstances e.g. where the Hamburg Rules might apply, these might supervene over an exclusive law and jurisdiction clause such that the Courts of another jurisdiction would have the right to deal with any dispute. That was not the case here however where there was a flagrant breach of the contractually agreed jurisdiction clause.
This case is a reminder of what can be done in circumstances where a carrier is plainly sued in the wrong jurisdiction. All too often the carrier accepts the consequence of being sued in a jurisdiction where the cards are stacked against him, for example by a Chinese claimant in China under Chinese law. The carrier does not always have to accept this outcome. Even in circumstances where security is obtained, it may be possible to obtain an anti-suit injunction and seek return of the security.
Test for extending time bar in Admiralty claims is reaffirmed by the Admiralty Court
A recent mistake made by one side has led to the Admiralty Court reaffirming the circumstances in which time can be extended under its inherent discretion where a party has failed to issue a claim within the prescribed time two year time limit.
The particular case concerned a collision between the “SB Seaguard” and the “Odyssee” on 17 April 2011. The facts are set out in the reported decision CDE SA v Sure Wind Marine Ltd [2015] EWHC 720.
The very brief facts are that those representing “Odyssee” were in negotiations with those representing “SB Seaguard” about possible settlement. The claims agent representing “Odyssee” was not a lawyer nor was he aware of the two year time bar for commencing proceedings. It follows that the time limit expired on 17 April 2013 and those representing the defendant “SB Seaguard” indicated on 21 October 2013 that they intended to take a time bar defence. That led to considerable shock and dismay. It was said that those representing “SB Seaguard” had lulled the “Odyssee” interests into a sense of false security and that they had discouraged them from instructing English solicitors who would of course have immediately informed them about the forthcoming time limit.
Proceedings were eventually commenced on 22 January 2014 some three months after “SB Seaguard” interests had said that they intended to adopt a time bar defence to any claim advanced against them. The Admiralty Court was asked to exercise its discretion to allow the claim to be advanced out of time.
There was some debate over the relevant test to apply when deciding to extend time. The Admiralty Court held that the two stage test still applied notwithstanding the more recent introduction of the Civil Procedure Rules which only applied after a Claim Form had been issued. The two stages were (1) claimant has to satisfy the Court that there was a good reason why the claim had not been commenced within the time limit, and, if there was a good reason, (2) that it would be proper for the Court to exercise its discretion.
Unfortunately for “Odyssee” interests, they failed to pass even the first stage. It was said that they could and should have taken legal advice at an earlier stage. Furthermore, although probably irrelevant in these particular circumstances, the delay between 21 October 2013 and 22 January 2014 was excessive and it was observed that where an application is made to the Court to exercise its discretion to extent time then the party seeking that indulgence must proceed with a degree of urgency which was not the case here.
The moral of the story is that if you are likely to be the receiving party in a collision (in view of the likely apportionment of liability) then you should always take legal advice at an early stage. If you are likely to be the paying party then you can of course sit and wait and you are under no obligation to remind the other side of the impending time bar. In this case, by trying to save on legal costs, Odyssee interests ended up with nothing when they should have made a recovery from the other vessel.
Beyond the “Front Comor” – ECJ declines to deal with its decision in the light of the “recast” Brussels Convention
The English legal community is disappointed by the ECJ’s approach in a recent matter that came before it. In Gazprom [2015] EUEC J C-536/13, the ECJ had an opportunity to consider its decision in Allianz v West Tankers (“The Front Comor”) in the light of the “recast” Brussels Convention (1215/2012) which came into effect on 10 January 2015. Instead the ECJ fudged the issue by dealing with the previous Convention (44/2001). They ECJ went so far as to say that 44/2001 does not prevent an EU member state from recognising and enforcing an anti-suit injunction granted by arbitrators because arbitration falls outside the scope of 44/2001. The same of course cannot be said for anti-suit injunctions granted by member state Courts and they remain prohibited as a result of ECJ’s previous decision in Allianz v West Tankers (“The Front Comor”).
In view of the above, the English legal community is left wondering whether the “recast” Brussels Convention (1215/2012) now in operation applies to anti-suit injunctions and whether “The Front Comor” is still good law when applied to 1215/2012 rather than the old 44/2001 regulation.
Many legal commentators doubt the decision in “The Front Comor” and they endorse the views expressed by Advocate General Wathelet (“AG Wathelet”). He gave an opinion in Gazprom on 4 December 2014 which was considered by the ECJ when they handed down their decision on 13 May 2015. AG Wathelet’s view was that, under the recast regulation 1215/2012, the granting of an anti-suit injunction by a member state would not be inconsistent with the regulation. He also went on to say that the ruling in “The Front Comor” was inconsistent with earlier ECJ decisions and his view was that Courts in EU member states should be permitted to issue injunctions to ensure the effectiveness of arbitration agreements without being prevented from so doing by the Brussels regulation.
Unfortunately, AG Wathelet’s views were not binding nor were they relevant to Gazprom nor were they addressed by the ECJ. As such, we remain in a position where we have a new regulation 1215/2012 but we don’t know if this allows a party to apply to an EU member state to obtain an anti-suit injunction to uphold an arbitration agreement. We know, post Gazprom, that an arbitrator can grant an anti-suit injunction but that doesn’t really help a party who wants to prevent a claimant from proceeding elsewhere in breach of an exclusive arbitration agreement. Court issued anti-suit injunctions are much more effective than ones issued by arbitrators. Courts can impose sanctions for non compliance such as holding a party in contempt of court, sanctions that are simply not available to arbitrators.
To conclude, the “Front Comor” debate continues and we will have to wait for a suitable case to come up before this issue can be clarified. It could be years before another opportunity like that in Gazprom comes before the ECJ.
The OW saga continues
The bankruptcy of Danish bunker supplier OW Bunker A/S and its many subsidiary and affiliated companies continues to be felt around the world. There are hundreds of pending arbitration claims and several test cases proceeding in various jurisdictions.
The most recent case in the High Court is the controversial decision of Mr Justice Males in PST Energy 7 Shipping LLC & Another –v- OW Bunker Malta Ltd & ING Bank N.V. (“The Res Cogitans”) [2015]. This case was handed down on 14 July 2015 and was considered so important that permission to appeal was granted by Mr Justice Males on an expedited basis. The case is now going to the Court of Appeal.
Why is this case so important? The OW collapse has had a domino effect on thousands of transactions concerning the supply of bunkers to vessels all over the world. OW themselves assigned sums due to them from various creditors to their bankers ING Bank N.V. and the latter are now vigorously pursuing payment of those outstanding sums.
The owners of the Res Cogitans entered into a contract with an OW subsidiary (OW Bunker Malta) for the supply of bunkers. As is typical in the trade, that contract involved a number of supply contracts each with retention of title clauses in favour of suppliers down the contractual chain. Each contract provided that payment would be due a fixed number of days after delivery but that bunkers could nevertheless be consumed in the meantime.
The owners of the Res Cogitans argued that they were not liable to OW Bunker Malta and their assignees ING Bank N.V. The basis of their argument was that the Sale of Goods Act 1979 (“SOGA”) applies to any such claim and under section 49 of SOGA, OW Bunker Malta and their assignees, ING Bank N.V., are prevented from claiming the price of the goods because property in the goods never passed to the buyer and/or the price of the goods was not payable on a certain day irrespective of the fact that the bunkers were in fact delivered and part consumed pending payment.
The legal argument advanced by the owners was dismissed by Mr Justice Males who upheld the findings made by the arbitrators. He agreed that the bunker supply contract could not be a contract to which the SOGA applied. The reason for that was that the bunker supplier did not undertake to transfer title in the goods in return for payment. The retention of title clauses and the agreement that bunkers could be used during the credit period meant that there was no agreement that title to the goods would pass. Instead the judge held that ING had “a straightforward claim in debt which was not subject to any requirement as to the passing of property in the bunkers to the owners at the time of payment”.
The Court of Appeal has heard the case and we are all awaiting the outcome with bated breath.
Elsewhere there have also been recent decisions from Courts in the United States and Singapore. In both jurisdictions “interpleader” proceedings have been initiated by various parties including vessel owners and charterers who found themselves the subject of competing claims from third party physical suppliers and OW entities/ ING. Those proceedings were commenced as a protective measure and the courts were asked to determine the entitlement of competing claimants and, in the interim, grant equitable relief by granting a form of anti-suit injunction to restrain the competing claimants from proceeding elsewhere. It was felt that many third party claimants might proceed elsewhere against owners and charterers in many cases asserting the existence of a maritime lien on the vessel in certain jurisdictions. The equitable relief requested was designed to stop this from happening and allow the owners’ ships to continue trading pending a determination from the courts.
The Federal District Court in New York (“New York Court”) recently allowed the “interpleader” proceedings but the Singapore Court felt that such proceedings should not be allowed to continue.
The New York Court felt that contractual claims and in rem claims against vessels were “alternative procedural devices to obtain the same relief” and that these claims were “inextricably interrelated” such that third party suppliers should not be allowed to pursue claims against shipowners who might end up paying twice or even three times for the same fuel. The US judge went on to find that she had broad statutory authority to restrain the parties from instituting any proceedings that might affect the subject matter of the interpleader application in order to protect the vessel owners and charterers from parallel proceedings.
By contrast the interpleader proceedings in the Singapore Court were dismissed on the basis that contractual and in rem claims were not sufficiently similar in nature. It was said therefore that the various proceedings (contactual claims for payment brought by ING, in rem claims asserted by the third-party fuel suppliers and maritime lien claims) were each of a different nature, did not concern the same debt and, as such, could not be the subject of an interpleader application.
The OW saga is not helped by conflicting decisions in different jurisdictions. A bankruptcy of this nature involving subsidiaries and affiliates in multiple jurisdictions and in relation to ships that trade internationally illustrates the complexity that comes from differences in the governing laws of different jurisdictions hearing similar proceedings. The OW saga is expected to continue for many months and we will try to keep our clients and supporters up to date as and when we hear of new developments.
Can a cargo receiver sue the shipper under the bill of lading for conversion where the shipper has warehoused the cargo at destination pending presentation of an original bill of lading?
This case Sang Stone Jonoub Co Ltd v Baoyue Shipping Co Ltd (“The Bao Yue”) [2015] EWHC 2288 was unusual in the sense that it dealt with a claim advanced against a shipper by a receiver for alleged conversion of cargo that was warehoused due to the receiver’s inability to produce a valid bill of lading.
The cargo, iron ore, was shipped from Iran to China but on arrival no original bill could be produced because there was a dispute between the end buyer and the bill of lading holder. Consequently the shipper elected to warehouse the cargo in China and, there being no developments for a considerable period, storage charges escalated to the point where they eventually exceeded the value of the cargo. The receiver brought a claim for conversion against the shipper arguing that the shipper should not have created a lien over the cargo in favour of the warehouse.
The claim for conversion failed. It was held that the shipper was entitled to warehouse the cargo and it was not unreasonable to create a lien in favour of the warehouse for the ongoing storage charges. At no point had the shipper deprived the receiver of his use and possession of the cargo. It was available to him at any point on delivery up of the original bill of lading and payment of the outstanding storage charges. The shipper succeeded on their claim for storage charges and it was held that the shipper was not under a duty to sell the goods to defray such charges in circumstances where this was impossible due to the absence of the original bill of lading. This result was a good one for the shipper in part however due to rights conferred on him by the bill of lading.
Tainjin explosions expected to trigger legal proceedings.
The recent massive explosions at Tianjin are expected to generate substantial legal claims that could continue for years. Some of those claims may find their way into the English Courts or they may be subject to English arbitration.
The situation is likely to remain unclear for some time yet whilst the investigation into the cause of the explosions is ongoing. However, those potentially facing claims are those who may be adjudged to be responsible or complicit in the events that led to the fire and explosions. It seems that this could include the port authority (HK listed Tianjin Port Development), Rui Hai Logistics, the owners and manufacturers of the cargoes that caught fire/ exploded (assuming this can be determined) and their respective liability and product liability insurers.
The damage itself is of course huge. There are reports of extensive losses of cargo and containers most of which will be insured with local and international insurance companies. There is also extensive damage to infrastructure and terminal equipment and there will be substantial business interruption claims. The total claims could run to hundreds of millions of dollars.
We have already seen enquiries from P&I Clubs facing questions from their members as to whether there is any basis for claims against them. In most cases, P&I Clubs are advising members to resist claims as there ought to be no basis for claims to be pursued against cargo that was legitimately delivered under bills of lading that are now spent. However, there remains uncertainty as to how Chinese courts might deal with speculative cargo recovery claims against carriers.
In terms of the port itself, in the wake of the explosion there was considerable disruption to the oil, gas and LNG terminals. That led to congestion and delay which in turn is now manifesting itself in some claims under charter party contracts. Liner operators have also had to divert some vessels (Tianjin is one of the main container ports in China) and that has led to questions regarding deviation, storage, transhipment and even abandonment of some containers that can’t be delivered in Tianjin itself. We are already seeing questions relating to demurrage and frustration of certain charters.
So far we have not seen any issues of safety of the port itself but as the investigation proceeds there could be questions arising as regards contamination of the port and safety at the terminals affected. We saw similar issues arising in the wake of the Fukushima explosion which led to some ship operators asking if they could avoid calling at certain Japanese ports due to safety considerations over radiation.
Finally, we expect to see many disputes arising out of sale contracts governing cargoes that were damaged and in relation to long term supply contracts because many industrial facilities have been damaged by the explosion. Tianjin is a major manufacturing and shipment hub for businesses in the region and many cargoes are exported. Some of these factories and businesses will have been badly damaged and goods due to be shipped on FOB or FCA terms from Chinese suppliers may be disrupted which could lead to claims. We could see “force majeure” being raised with international buyers as well as claims for frustration of long term contracts.
As well as disrupting exports, imports will also be disrupted and this could have a knock on effect on companies based overseas who may find that their PRC counterpart is unable to accept further cargoes. This is particularly relevant for raw material importers who need iron ore and coal cargoes to fuel China’s economic expansion.
We expect to see further developments as the investigation continues and our team is closely monitoring developments in the trade press. As and when we hear more we will report to our clients and followers. We are also in touch with our preferred PRC lawyers who themselves have their ears to the ground about prospective legal issues. We have many close alliances with PRC lawyers and we often work with them on claims that involve an English law element.
Sanctions – Beginning of the end of sanctions against Iran?
The outcome of the recent negotiations involving China, Russia, USA, Germany, France, UK and Iran reached on 14 July 2015 and confirmed on 20 July 2015 by UN Security Council Resolution 2231 has led to the prospect of sanctions being lifted against Iran. This will be a welcome relief for Iranian shipping companies and exporters and also for those prevented from dealing with them who are now lining up to negotiate new contracts.
Over the years our team has monitored the ever changing sanctions environment and we have answered hundreds of specific questions on the scope of sanctions. The most popular questions at the moment are – (1) what is the current status in relation to US and EU sanctions against Iran?and – (2) when will these sanctions start to be lifted and what will be the effect?
The answer to the first question is that all sanctions remain in place save that certain limited activities are now permitted by UNSCR 2231 and EU Regulation 2015/1327 which gives effect to UNSCR 2231. EU Regulation 2015/1328 has extended the suspension of restrictive measures in relation to the transport of crude oil, petroleum products and petrochemical products (and insurance of the same) from 30 June 2015 to 14 January 2016. In other words, nothing has really changed save that the suspension that was due to end on 30 June 2015 has been pushed back.
The answer to the second question is frankly that we don’t know when the sanctions will be lifted. The recent deal is the beginning of the process. It will take many months for Iran to implement the various measures that they have agreed to put in place to restructure their nuclear programme and for this to be verified by international observers. Verification of the completion of the process is referred to as “Implementation Day” and it is on that day that the EU and the US have agreed to put measures in place to terminate the current restrictions. We will of course update our clients and followers on developments.
As for the effect of the lifting of sanctions, we expect the EU to eventually repeal the provisions of Regulation 267/2012 effectively removing the restrictive measures that have hampered the international trade, shipping and energy industries and the insurance of those activities. It follows that at some point we will see Iran return to the international community. EU companies and international companies with subsidiaries in the EU will once be able to trade with Iran, finance Iranian activities and import Iranian oil, gas and petrochemical products. Exports to Iran will also resume and the Iranian shipping companies (IRISL and NIOC) will be able to resume their trading activities. The banking community will once again be able to deal with Iranian entities and Iranian entities will be able to obtain insurance and reinsurance in the European markets.
We also expect the US to remove most of the sanctions they have imposed and many US law firms are monitoring the current status. Interestingly, certain US prohibitions will remain notwithstanding the recent deal and, even in relation to those sanctions that are lifted there is a “snap back” mechanism in place if Iran fails to honour its obligations under the deal.
In view of the above, there will be no immediate recommencement of trade with Iran. Even after “Implementation Day”, there will still be significant US restrictions in place as well as other practical difficulties. However, many businesses are already exploring opportunities with Iranian counterparts and so the stream of questions on what is and is not possible continues.
If you are interested in trading with Iran please feel free to contact one of our team so we can advise you of the restrictions and risks and how best to deal with these.
The other hot topic on the sanctions front is in relation to Russia which is of course also a major exporter. As matters stand however, the impact of sanctions on Russia is much more limited than in relation to Iran. The main issue with Russian sanctions is the perceived risks of doing business with Russian entities. The imposition of sanctions has also led to a substantial restriction in the flow of international finance to support Russian business activities with in turn has led to substantial devaluation of the rouble and considerable problems for the Russian economy. Those interested in doing business with Russian entities should contact us for advice as we are working closely in this area with leading Russian firm Egorov Puginsky Afanasiev & Partners.
Owners: how much can you recover if a Charterer walks away from the Charter?
Until recently, if you asked a lawyer to answer this question, they would have trotted out the principle established by case law dating back to Smith v M’Guire (1858), namely that an owner can claim the difference between the vessel’s actual and hypothetical earnings up to the date when the original charter would have ended. We even had a term for this – we called it the “compensatory principle”.
A recent case however has established that in some circumstances an owner can recover more!
The case is known as the “MTM Hong Kong” and judgment was released in September [2015] EWHC 2505. The underlying dispute was determined by arbitration and was upheld on appeal by the Court.
In the High Court, Mr Justice Males said that the compensatory principle dating back to Smith v M’Guire was good law but there were circumstances where a Court or Tribunal could award additional damages.
In this case, the vessel owners argued that, had the original voyage been performed, the vessel would have been in a geographically favourable position and owners would have been able to fit in two follow on fixtures in the time that it took to perform the fixture that they in fact secured after the charterers’ repudiation. This took their total losses to well over US$1M as opposed to them being about US$500K on the compensatory basis.
Mr Justice Males held that the Tribunal’s intention was to compensate the owners for the fact that, as a result of the breach, the vessel was not geographically well placed to benefit from other fixtures which was an additional loss over and above the usual measure of loss. It was held that no error of law was made by the Tribunal in awarding damages for this additional loss. The judge said however that this sort of additional loss would not always be recoverable. Each case will turn on the particular circumstances. There were particular factors in this case which led to additional damages, namely (1) the owners acted reasonably in directing the vessel to an area where they thought they could easily fix her for business; (2) in fact it turned out business was not readily available in that area nor as lucrative; (3) there was no suggestion that the losses sustained were too remote; and (4) it was possible to predict the vessel’s immediate future employment if the contract had been performed and that employment would have taken the vessel back to the place where she was at about the same time as completion of the actual substitute fixture.
The lesson from this case is that one should never proceed on the basis of general principles. Where a charterer walks away from a contract and the vessel owner is exposed it is always worth taking legal and expert advice on the potential losses that could be recovered in the market. Courts and Tribunals will always strive to properly compensate the innocent vessel owner to the extent possible under the law.
Bumps and scrapes
So far 2015 has been a quiet year for insurers of ships. We are seeing a similar trend to that in 2014 save that 2014 saw a number of large losses in the Northern Hemisphere as we moved into the winter season, for example the “Norman Atlantic” fire in the Adriatic and the “Hoegh Osaka” grounding on Bramble Bank in the Solent. It remains to be seen how 2015 will end for insurers. Those interested in year on year trends in maritime casualties up to and including 2014 should have a look at the Allianz report (www.agcs.allianz.com/assets/PDFs/Reports/Shipping-Review-2015.pdf). Interestingly, we note that Lloyds Open Form salvage agreements were at record lows in 2014 and that trend appears to have continued in 2015. This will no doubt have an impact on the international salvage companies and we expect to see consolidation in this sector in the years ahead.
It is notable that yet again piracy has declined and it seems that the international shipping industry has by and large learned to deal with Somali pirates through effective anti-piracy measures, best practice, armed guards etc. The recent trend in piracy is towards theft of cargoes off West Africa and/or smash and grab raids on ships. So far the insurance industry has successfully accommodated this risk but these incidents do sometimes give rise to delays and disputes under the underlying contracts.
Our team are plugged into various sources so we are usually amongst the first to learn of casualties sometimes even before shipowners and their insurers. We offer a very different approach to other law firms in relation to handling the legal aspects of a casualty. Our focus is on collaboration with insurers and their claims handlers, media, experts and industry professionals and above all on keeping costs down whilst at the same time ensuring that everything necessary is done to protect our clients’ interests.
The above is based on our review of reported cases, decisions and trends in the sectors in which we operate. It is not intended to be definitive legal advice. If you have specific questions then one of our team would be pleased to answer them.
Bob Deering Partner (bob.deering@bdmlawllp.com)
David McInnes Partner (david.mcinnes@bdmlawllp.com)
Gabrielle de Blaquiere Associate (gabrielle.deblaquiere@bdmlawllp.com)
