FOURTEENTH INTERNATIONAL MARITIME LAW

ARBITRATION MOOT COMPETITION 2013

AARDVARK LTD Claimants

And

TWILIGHT CARRIERS INC Respondents

MEMORANDUM FOR THE RESPONDENTS

Felix Cheung

Winnie Chung

Matthew Hui

Barry Yip

TEAM 7 RESPONDENTS’ MEMORANDUM

I

TABLE OF CONTENTS

TABLE OF CONTENTS ...................................................................................................................................... I

LIST OF ABBREVIATIONS ............................................................................................................................. III

TABLE OF AUTHORITIES ............................................................................................................................. IV

QUESTIONS PRESENTED ........................................................................................................................... VIII

SUMMARY OF FACTS ........................................................................................................................................1

ARGUMENTS PRESENTED ..............................................................................................................................2

I. THE TRIBUNAL HAS NO JURISDICTION TO HEAR THE DISPUTE. .............................................2

A. The “LAW AND JURISDICTION” clause of the fixture re-cap and Clause 31 of the standard

charterparty should read together as a sole Arbitration Clause. ...........................................................2

B. The Arbitration Clause in the Charterparty should read verbatim into the Bills of Lading. ..................3

C. The Arbitration Clause shall be disregarded as it is insensible when incorporated in the Bills

of Lading. ................................................................................................................................................3

D. The Tribunal should exercise its discretion to admit the Respondents’ objection to its

substantive jurisdiction. ..........................................................................................................................4

II. THE CLAIMANTS ARE NOT THE RIGHT PARTY TO SUE UNDER THE CONTRACT

OF CARRIAGE. .............................................................................................................................................5

A. The Claimants have rejected the cargo. ..................................................................................................5

B. The Claimants are not the lawful holders of the Bills of Lading under the COGSA as they lack

good faith. ...............................................................................................................................................8

III. THE RESPONDENTS WERE ENTITLED TO DELIVER THE CARGO AT ROTTERDAM. ...........9

A. The Claimants agreed to the deviation. .................................................................................................10

B. In any case, the deviation was exempted by the Liberty Clauses contained in Clause 29 of the

standard Charter Party. ........................................................................................................................ 11

IV. THE RESPONDENTS ARE NOT LIABLE FOR DELIVERY WITHOUT BILLS OF

LADING UNDER THE CONTRACT OF CARRIAGE. .........................................................................12

A. The Claimants were not entitled to take delivery of the cargo as they rejected the cargo. ...................13

II

B. The Respondents were not bound to deliver against the Bills of Lading given the Seller’s better

title. .......................................................................................................................................................13

C. The Respondents did no wrong in discharging the cargo to the Seller upon a letter of

indemnity. ..............................................................................................................................................14

V. THE RESPONDENTS ARE NOT LIABLE FOR ANY DETERIORATION IN THE

QUALITY OF THE CARGO BY REASON OF THE VESSEL BEING HIJACKED BY

SOMALI PIRATES. .....................................................................................................................................14

A. The obligation under Article III Rule 2 of the Hague-Visby Rules is displaced or modified by

Article IV. ..............................................................................................................................................14

B. The Respondents are entitled to rely on the exceptions in Article IV Rule 2. ........................................15

VI. THE RESPONDENTS ARE NOT ACCOUNTABLE IN BAILMENT FOR THE ALLEGED

MISDELIVERY OF AND DAMAGES TO THE CARGO. .....................................................................17

A. The Claimants have no rights of suit in bailment. .................................................................................17

B. The action in bailment without attornment is against public policy. ....................................................18

VII. THE RESPONDENTS ARE NOT LIABLE FOR THE TORT OF CONVERSION. ............................19

A. The Seller and the Respondents had a better right to the cargo than the Claimants. ...........................19

B. The Respondents were acting on the bailor’s order without notice of any alleged defect in the

bailor’s title. ..........................................................................................................................................21

VIII. THE CORRECT CALCULATION OF DAMAGES. .............................................................................22

A. The correct calculation of damages is the market value of the cargo at Rotterdam. ............................22

B. Alternatively, the correct calculation of damages should be the market value of the cargo at

Rotterdam plus freight from Rotterdam to Liverpool. ...........................................................................24

C. The Respondents are not liable for the legal costs incurred in the Dutch Court Proceedings

because they are too remote. .................................................................................................................24

PRAYER FOR RELIEF .....................................................................................................................................26

III

LIST OF ABBREVIATIONS

Aardvark Ltd The Claimants/the Buyer

Arbitration Act 1996 1996 Act

Beatles Oil & Fats Ltd. The Seller/the Charterer

Best Management Practices for Protection against Somalia Based BMP4

Piracy Version 4

Bills of lading PG1, PG2 and PG3 The Bills of Lading

Carriage of Goods by Sea Act 1992 COGSA

Cost and Freight C & F

Cost, Insurance, Freight CIF

Palm Fatty Acid Distillate PFAD

Sale of Goods Act 1979 SOGA

The Hague Rules as amended by the Brussels Protocol 1968 The Hague-Visby Rules

Twilight Carriers Inc. The Respondents

Twilight Trader The Vessel

Vegoil Voy Tanker Voyage Charter Party together with fixture re-cap The Charterparty

IV

TABLE OF AUTHORITIES

BOOKS

Beale HG and the Others (eds), Chitty on Contracts: Volume I General Principles (13th

edn Sweet &

Maxwell, London 2008).

Bridge M and the Others (eds), Benjamin’s Sales of Goods (8th

edn Sweet & Maxwell, London 2010).

Bridge M, The International Sale of Goods Law and Practice (2nd

edn OUP, Oxford 2007).

Cooke J and Others, Voyage Charters (3rd

edn Informa, London 2007).

Eder B and the Others (eds), Scrutton on Charterparties and Bills of Lading (22nd

edn Sweet & Maxwell,

London 2011).

Treitel G and Reynolds FMB, Carver on Bills of Lading (3rd

edn Sweet and Maxwell, London 2011).

Girvin S, Carriage of Goods by Sea (2nd

edn OUP, Oxford 2011).

Jones M A and the Others (eds), Clerk and Lindsell on Torts (20th

edn Sweet & Maxwell, 2010).

McGregor H, McGregor on Damages (17th

edn Sweet & Maxwell, London 2003).

Michel K, War, Terror and Carriage by Sea (Informa Professional, London 2004).

Palmer NE, Palmer on Bailment (3rd

edn Sweet and Maxwell, London 2009).

CHAPTER IN BOOK

Dromgoole S and Baatz Y, ‘The Bills of Lading as a Document of Title’ in Palmer N, and McKendrick E

(eds), Interests in Goods (2nd

edn LLP, London 1998).

CASES

Aegean Sea Traders Corporation v Repsol Petroleo SA and Another (The “Aegean Sea”) [1998] 2

Lloyd’s Rep 39.

Albacora SRL v Westcott & Laurance Line Ltd [1966] 2 Lloyd’s Rep 53.

Anonima Petroli Italian SpA and Neste Oy v Marlucidez Armadora SA (The “Filiatra Legacy”) [1991] 2

Lloyd’s Rep 337.

Asiatic Petroleum Co Ltd v Lennard Carrying Co Ltd [1914] 1 KB 419.

Atari Corp (UK) Ltd v Eletrionics Boutique Stores (UK) Ltd [1998] QB 539.

Atlas Levante-Linie Aktiengesellschaft v Gesellschaft Fuer Getreidehandel AG, and Becher (The

“Phönizien”) [1966] 1 Lloyd’s Rep 150.

Blades v Higgs (1861) 11 HLC 621.

V

Borealis AB v Stargas Ltd and another (The “Berge Sisar”) [2001] UKHL 17; [2002] 2 AC 205.

Buckley v Gross (1863) 3 B & S 566.

Cobelfret Bulk Carriers NV v Swissmarine Services SA (“The Lowlands Orchid”) [2009] EWHC 2883

(Comm); [2010] 2 All ER (Comm) 128.

Compania Maritime San Basilio S.A v The Oceanus Mutual Underwriting Association (Bermuda) Ltd

(The “Eurysthenes”) [1976] 2 Lloyd’s Rep 171.

Compania Portorafti Commerciale S.A. v Ultramar Panama Inc (The “Captain Gregos”) (No 2) [1990]

2 Lloyd’s Rep 395.

East West Corp v DKBS 1912 AF A/S [2003] EWCA Civ 83; [2003] 1 CLC 797.

Fraser v EA Casper, Edgar & Co and William Pearson & Co (1920) 2 Ll L Rep 620.

Frenkel v MacAndrews & Co Ltd [1929] AC 545.

GH Renton & Co Ltd v Palmyra Trading Corp of panama (The “Caspiana”) [1957] AC 149.

Giles v Edwards (1797) 7 TR 181.

Girmoldby v Wells (1875) LR 10 CP 391.

Graanhandel T Vink BV v European Grain & Shipping Ltd [1989] 2 Lloyd’s Rep 531.

Hadley v Baxendale (1854) 9 Ex 341.

Hamilton and Co v Mackie and Sons (1889) 5 TLR 677.

Hardy & Co v Hillerns and Fowler [1923] 2 KB 491.

Hollins v Fowler (1875) LR 7 HL 757.

J L Lyons & Company Ltd v May & Baker Ltd [1923] 1 KB 685.

Johnson v Agnew [1980] AC 367.

Kawasaki Kisen Kabushiki Kaisya v Bantham Steamship Company Ltd (1939) 63 Ll L Rep 155.

KG Bominflot Bunkergesellschaft Fur Mineralole MGH & Co v Petroplus Marketing AG (The “Mercini

Lady”)(No.2) [2012] EWHC 3009 (Comm); [2013] 1 Lloyd’s Rep 360.

Koufos v C. Czarnikow Ltd (The “Herron II”) [1969] 1 AC 350.

Kwei Tek Chao v British Trader and Shipper Ltd [1954] 2 QB 459.

Laurelgates Ltd v Lombard North Central Ltd (1983) 133 NLJ 720.

Leduc v Ward (1888) 20 QBD 475.

Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd (“The Aliakmon”) [1986] AC 785.

Marcq v Christie Manson & Woods Ltd [2003] EWCA Civ 731; [2004] QB 286.

Mitsui & Co Ltd v Novorossiysk Shipping Co (“The Gudermes”) [1993] Lloyd’s Rep 311.

VI

Modern Building Wales Ltd v Limmer & Trinidad Co Ltd [1975] 1 WLR 1281.

Motis Export Ltd v Dampskibsselkabet AF 1912 Aktiesekkab [1999] 1 Lloyd’s Rep 837.

Pace Shipping Co Ltd of Malta v Churchgate Nigeria Ltd of Nigeria [2009] EWHC 1975 (Comm);[2009]

2 CLC 446.

Pagnan v Tradax Ocean [1987] 2 Lloyd’s Rep 342.

Rodocanachi v Milburn (1887) 18 QBD 61.

Rogers, Son & Co v Lambert & Co [1891] 1 QB 318.

Rosenthal & Sons Ltd v Esmail [1965] 1 WLR 1117.

Russel and Others v Niemann [1864] 17 CB (NS) 163.

Select Commodities Ltd v Valdo SA (“The Florida”) [2006] EWHC 1137 (Comm).

Skips A/S Nordheim v Syrian Petroleum Co (“The Varenna”) [1984] 1 QB 599.

Terna Bahrain v Ali Marzook [2012] EWHC 3283 (Comm).

The Future Express [1993] 2 Lloyd’s Rep 542.

The Jupiter (No 3) [1927] P 122.

The Petroleum Old and Gas Corporation of South Africa (Pty) v FR8 Singapore Pte Ltd (“The Eternity”)

[2008] EWHC 2480 (Comm); [2009] 1 Lloyd’s Rep 107.

Tradax Export SA v European Grain & Shipping Co [1983] 2 Lloyd’s Rep 100.

Vargas Pena Apezteguia Y Cia Saic v Peter Cremer GmbH [1987] 1 Lloyd’s Rep 394.

Whitecap Leisure Ltd v John H Rundle Ltd [2008] EWCA 429; [2008] 2 Lloyd’s Rep 216.

STANDARD RULES

Best Management Practices for Protection against Somalia Based Piracy Version 4 (BMP4).

STATUTES

Arbitration Act 1996.

Carriage of Goods by Sea Act 1971.

Carriage of Goods by Sea Act 1992.

Sale of Goods Act 1979.

Tort (Interference with Goods) Act 1977.

VII

JOURNAL ARTICLES

Baughen S, “Bailment’s continuing role in cargo claims” [1999], LMCLQ 393.

Todd P, “The bill of lading and delivery: the common law actions” (2006) 4 LMCLQ 539.

INTERNATIONAL CONVENTIONS

The Hague Rules as amended by the Brussels Protocol 1968 (The “Hague-Visby Rules”).

MISCELLANEOUS

Comite Maritime International, ‘The Travaux Preparatoires of the Hague Rules and of the Hague-Visby

Rules’

<http://www.comitemaritime.org/Uploads/Publications/Travaux%20Preparatoires%20of%20the%20Hag

ue%20Rules%20and%20of%20the%20Hague-Visby%20Rules.pdf>, accessed 17 April 2013.

The Law Commission and The Scottish Law Commission, Rights of Suit in Respect of Carriage of Goods

by Sea (LAW COM No.196; SCOT LAW COM No.130).

VIII

QUESTIONS PRESENTED

PRELIMINARY ISSUES

I. Whether this Arbitral Tribunal has jurisdiction to hear the dispute.

SUBSTANTIVE ISSUES - CONTRACT

II. Whether the Claimants are the right party to sue under the contract of carriage.

III. Whether or not the Respondents are liable for deviation under the contract of carriage.

IV. Whether or not the Respondents are liable for delivery without bills of lading under the

contract of carriage.

V. Whether or not the Respondents are liable for the alleged damage to the cargo concerned

caused by the hijacking of Somali pirates under the contract of carriage.

SUBSTANTIVE ISSUES – BAILMENT AND TORT OF CONVERSION

VI. Whether or not the Respondents are liable for the alleged misdelivery of and damage to the

cargo concerned in bailment.

VII. Whether or not the Respondents are liable for misdelivery of the cargo concerned in the tort

of conversion.

DAMAGES

VIII. Whether or not the Respondents have to pay damages and what the correct calculation of

damages should be.

1

SUMMARY OF FACTS

1. On 12 September 2008, Twilight Carriers Inc (“the Respondents”), the shipowner of Twilight Trader (“the

Vessel”), entered into a voyage charter party with Beatles Oil & Fats Ltd, the Seller of 4000 mt of Palm Fatty

Acid Distillate (“PFAD”) under a CIF contractual arrangement. The parties adopted the Vegoil Voy Tanker

Voyage Charter Party together with a fixture re-cap, which together formed a charterparty contract (“the

Charterparty”).

2. The cargo containing the PFAD was loaded on board. On 25 October 2008, the Respondents issued three

original bills of lading (“the Bills of Lading”) incorporating the Charter Party.

3. On 14 November 2008, the Vessel passed the entrance to the Gulf of Aden. It was boarded by Somali pirates

on the subsequent day. The crew was confined all twenty-four hours to the bridge. Neither the heating facility

nor the daily records of the storage temperatures of the cargo were properly maintained. There was no

evidence that the cargo was damaged during the period of captivity.

4. The Vessel was released on 13 February 2009.

5. On about 16 March 2009, the Seller requested the Respondents to discharge the cargo at Rotterdam. On 20

March 2009, the Claimants sent an email to the Respondents. The Claimants claimed to be the lawful holders

of the Bills of Lading, and alleged that delivery of the cargo to the Seller at Rotterdam was unauthorized.

6. Between 20 and 22 March 2009, the Respondents discharged the cargo to the Seller at the port of Rotterdam

against a letter of indemnity issued by the Seller.

7. On 23 March 2009, Aardvark Ltd (“the Claimants”) applied to the Dutch Court to arrest the Vessel. The Vessel

was arrested, and was subsequently released upon the security provided by the Respondents.

8. On 6 April 2010, the Claimants purported to refer their claims to arbitration.

2

ARGUMENTS PRESENTED

I. THE TRIBUNAL HAS NO JURISDICTION TO HEAR THE DISPUTE.

1. Pursuant to section 30 of the Arbitration Act 1996 (“the 1996 Act”), the Tribunal has the competence to rule

on its own substantive jurisdiction. The Respondents argue that the Tribunal has no jurisdiction to hear the

case, because there is no arbitration agreement between the Claimants and the Respondents.

2. In particular, (A) the “LAW AND JURISDICTION” clause of the fixture re-cap and Clause 31 of the standard

charterparty should read together as a sole arbitration clause (“Arbitration Clause”), (B) the Arbitration Clause

in the Charterparty should read verbatim into the Bills of Lading, and (C) the Arbitration Clause shall be

disregarded as it is insensible when incorporated in the Bills of Lading. Finally, (D) the Tribunal should

exercise its discretion to admit the Respondents’ objection to its substantive jurisdiction.

A. The “LAW AND JURISDICTION” clause of the fixture re-cap and Clause 31 of the standard

charterparty should read together as a sole Arbitration Clause.

3. Two clauses are relevant to the arbitration, namely the “LAW AND JURISDICTION” clause of the fixture

re-cap1 and Clause 31 of the standard Vegoil Voy Tanker Voyage Charter Party.

2 The former reads

“ENGLISH LAW TO APPLY. LONDON ARBITRATION”, while the latter states that the arbitration is to be

held in “New York” in accordance with the “United States Arbitration Act”. Thus, the two clauses are

inconsistent as to the seat of arbitration and the applicable law.3

4. Where there is inconsistency, the Tribunal should make effort to give effect to every clause.4 The clauses

should be read sensibly and commercially together,5 and the negotiated terms should prevail over the

1 Facts 3.

2 Facts 11.

3 See for examples Pagnan v Tradax Ocean [1987] 2 Lloyd’s Rep 342.

4 Pagnan (n 3) 349; Beale HG and the others (eds), Chitty on Contracts: Volume I General Principles (31

st edn Sweet & Maxwell,

London 2012) [12-078]. 5 The Petroleum Old and Gas Corporation of South Africa (Pty) v FR8 Singapore Pte Ltd (“The Eternity”) [2008] EWHC 2480 (Comm);

[2009] 1 Lloyd’s Rep 107, [20].

3

incorporated standard terms.6

5. Here, the two clauses should be read sensibly and commercially together as the Arbitration Clause, and the

“LAW AND JURISDICTION” clause prevails.7 Hence, Clause 31 of the standard Charter Party remains valid,

whereas the seat of arbitration is London and the applicable law is the English law.

B. The Arbitration Clause in the Charterparty should read verbatim into the Bills of Lading.

6. The international sale contract between the Seller and the Claimants was a CIF (cost, insurance, freight)

contract.8 Accordingly, the Seller was the Charterer and the Claimants were the Receiver of the cargo. The

contract of carriage governing the relationship between the Claimants buyer and the Respondents shipowner

was evidenced by the Bills of Lading.9 The Arbitration Clause in the Charterparty was incorporated into the

Bills of Lading10

by Clause 1 on the reverse side of the Bills of Lading.11

7. In Hamilton v Mackie,12

the Court of Appeal held that where there is an incorporation of the terms of a

charterparty into a bill of lading, such terms “must be read verbatim into the bill of lading as though they were

there printed in extenso”.13

Here, as there was such an incorporation, the combined “LAW AND

JURISDICTION” clause and Clause 31 should likewise be read verbatim into the bills of lading.

C. The Arbitration Clause shall be disregarded as it is insensible when incorporated in the Bills of

Lading.

8. According to The Phönizien,14

if a charterparty arbitration clause would be insensible when set out in extenso

6 Cobelfret Bulk Carriers NV v Swissmarine Services SA (“The Lowlands Orchid”) [2009] EWHC 2883 (Comm); [2010] 2 All ER

(Comm) 128, [20]; Modern Building Wales Ltd v Limmer & Trinidad Co Ltd [1975] 1 WLR 1281, 1289. 7 The Lowlands Orchid (n 6) [20].

8 Facts 1 (PFAD Contract 1234); Facts 2 (PFAD Contract 1235).

9 Leduc & Co v Ward (1888) LR 20 QBD 475, 479.

10 Facts 72; see in particular Defence Submissions [5].

11 Facts 15, 17, 19, 21.

12 Hamilton & Co v Mackie & Sons (1889) 5 TLR 677.

13 Hamilton (n 12).

14 Atlas Levante-Linie Aktiengesellschaft v Gesellschaft Fuer Getreidehandel AG, and Becher (“The Phönizien”) [1966] 1 Lloyd’s Rep

150.

4

in a bill of lading, the clause must be disregarded.15

The clause involved stated that “[a]ny dispute arising

under this Charter Party shall be referred to Arbitration in London.”16

Since it was insensible to refer to the

bill of lading as “this Charterparty”, the clause was disregarded.

9. Similar to The Phönizien, the Arbitration Clause here reads “Any dispute arising from the making,

performance or termination of this Charter Party …”.17

When this is incorporated into the Bills of Lading, it

likewise refers to the Bills of Lading as “this Charter Party”. Thus, it would be insensible and shall be

disregarded.

D. The Tribunal should exercise its discretion to admit the Respondents’ objection to its

substantive jurisdiction.

10. Although the Respondents did not object to the Tribunal’s substantive jurisdiction in their Defence

Submissions, the Tribunal has discretion to justify the delay and admit the objection pursuant to section 31(3)

of the 1996 Act.

11. There is no relevant judicial decision with regard to the factors that a tribunal should consider when exercising

its discretion under section 31(3). However, the Tribunal can draw reference to the factors considered by a

court when deciding whether to extend the time limit for an appeal.

12. In Terna Bahrain v Ali Marzook,18

a party sought to challenge an arbitration award. At issue was whether the

court should extend the time limit stipulated in section 70(3) of the 1996 Act. Popplewell J provided seven

factors.19

In particular, he considered the “strength of the application” and “whether in the broadest sense it

would be unfair to the applicant … to be denied the opportunity of having the application determined.”20

15

The Phönizien (n 14). 16

The Phönizien (n 14) 150. 17

Facts 11. 18

Terna Bahrain Holding Company Wll v Ali Marzook Ali Bin Kamil Al Shamsi, Mohamed Ali Marzouq Ali Bin Kamil Al Shamsi,

Marzouq Ali Marzouq Ali Bin Kamel Al Shamsi [2012] EWHC 3283 (Comm). 19

Terna Bahrain (n 18) [27]. 20

Terna Bahrain (n 18) [27].

5

13. Thus, the Respondents argue that the Tribunal shall exercise its discretion given the strength of the

Respondents’ claims and the disadvantage to them. In particular, the Respondents and the Claimants have

never negotiated or agreed to arbitrate. As the Arbitration Clause should be disregarded, it does not bind the

parties. Further, the Respondents’ intention is to resolve the dispute with the Seller and the Claimants through

litigation. It will be against the Respondents’ intent to force them into an arbitration proceeding.

II. THE CLAIMANTS ARE NOT THE RIGHT PARTY TO SUE UNDER THE CONTRACT OF

CARRIAGE.

14. The Respondents argue that the Claimants are not the right party to sue. In particular, (A) the Claimants have

rejected the cargo, and (B) the Claimants are not the lawful holders of the Bills of Lading under the Carriage

of Goods by Sea Act 1992 (“the COGSA”) as they lack good faith.

A. The Claimants have rejected the cargo.

15. On 6 March 2009, the Claimants purported to repudiate the sale contract due to the Seller’s failure to procure

an insurance policy in conformity with the sale contract.21

The contract was repudiated on about 15 March

2009. Subsequently, the Claimants rejected the cargo.

16. In particular, (i) the Claimants’ emails and conducts constituted an unequivocal rejection of the cargo, (ii) the

Claimants were disentitled to accept the cargo, (iii) the ownership of the cargo revested to the Seller and the

Claimants were not entitled to retain the Bills of Lading, and (iv) the Claimants are not the right party to bring

their claims as they retain only the rights of suit for damages under the sale contract.

(i) The Claimants’ emails and conducts constituted an unequivocal rejection of the cargo.

17. A buyer can reject goods by a clear notice that the goods are not accepted and are at the risk of the seller.22

In

21

Facts 24-25. 22

Grimoldby v Wells (1875) LR 10 CP 391; Graanhandel T Vink BV v European Grain & Shipping Ltd [1989] 2 Lloyd’s Rep 531.

6

Vargas Pena v Peter Cremer,23

Saville J stated that “a clear and unequivocal rejection is one where buyers

indicate that they want and will have nothing more to do with the goods.”24

The whole of the buyer’s

communications and conducts have to be considered.25

18. Here, the Claimants have unequivocally rejected the cargo through the whole of their email communications

and conducts. As illustrated below, they indicated their intention to revest the ownership of the cargo to the

Seller. They were reluctant to take delivery of the cargo, and were willing to return the Bills of Lading to the

Seller.

19. In the Claimants’ email to the Seller on 16 March 2009, they stated that where the cargo should be sent to “is

a decision for [the Seller] as cargo owners … to make.”26

They denied their ownership of the cargo, and it is

the Seller who is responsible for the cargo. In the email on 17 March 2009, the Claimants stated that they

might have to dispose of the cargo “on [the Seller’s] behalf”.27

They were unwilling to take delivery of the

cargo; even if they did, that would be merely on the Seller’s behalf.

20. Further, when the Seller requested the Bills of Lading from the Claimants for taking delivery of the cargo,28

the Claimants unhesitatingly asked for advice as to where the Bills should be sent.29

This again shows that the

Claimants rejected the cargo and intended the Seller to take delivery of and deal with the cargo.

(ii) The Claimants were disentitled to accept the cargo.

21. An unequivocal rejection of goods prevents any subsequent acceptance of the goods.30

Thus, any acts which

constitute an acceptance of goods as stipulated in sections 34 and 35 of the Sale of Goods Act 1979 (“the

23

Vargas Pena Apezteguia y Cia SAIC v Peter Cremer GmbH & Co [1987] 1 Lloyd’s Rep 394. 24

Vargas Pena (n 23) 398. 25

Graanhandel T Vink BV (n 22) 533. 26

Facts 27. 27

Facts 29. 28

Facts 30. 29

Facts 31. 30

Graanhandel T Vink BV (n 22) 533.

7

SOGA”) cannot subsequently preclude the rejection.31

22. Here, the Claimants, in their emails on 18 and 20 March 2009, expressed that they would retain the Bills of

Lading, take delivery of the cargo,32

and dispose of the cargo to mitigate loss.33

These acts were inconsistent

with the Seller’s ownership, and would prima facie amount to an acceptance of goods pursuant to section 35

of the SOGA. Yet, they did not amount to an acceptance of the cargo which was prevented by the prior

unequivocal rejection.

(iii) The ownership of the cargo revested to the Seller and the Claimants were not entitled to

retain the Bills of Lading.

23. When goods are rejected, the ownership immediately revests to the seller.34

The buyer is no longer entitled to

deal with them unless authorised by the seller.35

Here, as the Claimants rejected the cargo, and the ownership

of the cargo revested to the Seller. The Claimants are not entitled to deal with the cargo or the Bills of Lading.

24. According to J L Lyons & Company Ltd v May & Baker Ltd, a buyer cannot exercise any lien over the rejected

goods in respect of repayment of the price.36

Yet, in the Claimants’ email on 18 March 2009, they stated that

they would retain the Bills of Lading through their agent37

until “[the Seller has] provided the return of the

purchase price”.38

Their conduct amounted to holding the Bills of Lading, which represent the cargo, as liens

for the repayment of the purchase price. Adopting the same logic and rationale, they were not entitled to do so.

25. The Respondents argue that the Claimants should instead re-endorse the Bills of Lading to the Seller.

According to section 36 of the SOGA, a buyer is not bound to return rejected goods to the seller. However, he

31

Tradax Export SA v European Grain & Shipping Co [1983] 2 Lloyd’s Rep 100, 108. 32

Facts 33. 33

Facts 35. 34

Hardy and Company v Hillerns and Fowler [1923] 2 KB 490, 496; Kwei Tek Chao & others v British Trader and Shipper Ltd [1954] 2

QB 459, 487; Rosenthal & Sons Ltd v Esmail [1965] 1 WLR 1117, 1131; Tradax Export SA (n 31) 107. 35

Laurelgate Ltd v Lombard North Central Ltd (1983) 133 NLJ 720. 36

[1923] 1 KB 685, 688. 37

Procedural Order No 2, [6]. 38

Facts 33.

8

may be liable for conversion if he prevents the seller from accessing the goods.39

Therefore, if a CIF buyer

rejects the goods, he has to place the documents at the disposal of the seller for them to deal with the goods.40

26. Here, since the Bills of Lading were endorsed to the Claimants,41

the Seller is prevented from dealing with

the cargo. Therefore, the Claimants should re-endorse the Bills of Lading to the Seller.

(iv) The Claimants are not the right party to bring their claims as they retain only the rights of

suit for damages under the sale contract.

27. Where goods are rejected, the risk reverts to the seller.42

Thus, if there is any misdelivery or damages to the

goods, it is the seller who should deal with them.43

The only interest that the buyer has, if he has rejected the

goods rightfully, is damages44

or repayment of the purchase price45

under the sale contract.

28. Here, as the Claimants rejected the cargo, the risk reverted to the Seller. Should there be any damages or

misdelivery of the cargo, any claims against the Respondents should have been made by the Seller, who

suffers loss, instead of the Claimants. The only interest the Claimants may have is the rights of suit against the

Seller for repayment under the sale contract. They are not the right party to sue the Respondents under the

contract of carriage, and thus are not the right party to make their claims in this particular dispute.

B. The Claimants are not the lawful holders of the Bills of Lading under the COGSA as they lack

good faith.

29. It is undisputed that the COGSA applies to the current dispute as bills of lading are involved.46

According to

section 2(1), the lawful holder of a bill of lading has all rights of suit under the contract of carriage. A “lawful

holder” is defined in section 5(2) as a person who becomes a holder in good faith. Thomas J in The Aegean

39

Tradax Export SA (n 31) 108; Atari Corp (UK) Ltd v Eletrionics Boutique Stores (UK) Ltd [1998] QB 539. 40

Bridge M, The International Sale of Goods Law and Practice (2nd

edn OUP, Oxford 2007) [10.25]. 41

Facts 67, see in particular paragraph 11 of the Claim Submissions. 42

Bridge M and the others (eds), Benjamin’s Sales of Goods (8th

edn Sweet & Maxwell, London 2010) [12-067]. 43

Laurelgates Ltd (n 35). 44

Johnson v Agnew [1980] AC 367. 45

Giles v Edwards (1797) 7 TR 181; Whitecap Leisure Ltd v John H Rundle Ltd [2008] EWCA Civ 429, [2008] 2 Lloyd’s Rep 216, [69]. 46

Carriage of Goods by Sea Act 1992, s 1(1).

9

Sea stated that “good faith” means “honest conduct”.47

The burden of proof that the Claimants are the lawful

holders of the Bills of Lading vests in the Claimants.48

30. The Respondents argue that a person needs to have good faith not only when he becomes the holder, but also

when he subsequently deals with the bills of lading. This is illustrated in the joint report of the Law

Commission and the Scottish Law Commission leading to the enactment of COGSA, which states that a

lawful holder means a holder “who is in possession of the bill in good faith”.49

31. As mentioned, the Claimants could not deal with the cargo or exercise any lien over the goods in respect of

repayment of the price.50

Pursuant to the second paragraph of Clause 31 of the FOSFA 81, the English law

governs the sale contract. The Claimants, as a business entity in this particular trade, should have known and

be familiar with their rights and liabilities under the English law. By retaining the Bills of Lading as a security

for the refund and to demand delivery of the cargo belonging to the Seller, the Claimants acted in bad faith.

They were no longer the lawful holders and thus have no rights of suit.

III. THE RESPONDENTS WERE ENTITLED TO DELIVER THE CARGO AT ROTTERDAM.

32. The Respondents do not dispute that they have the duty to convey the cargo to the nominated destination51

and not to deviate from the normal route for a voyage.52

They also agree that bringing the Vessel to

Rotterdam instead of Liverpool, as required by the contract of carriage, constituted a deviation. Yet, the

Respondents were entitled to discharge the cargo at Rotterdam because (A) the Claimants agreed to the

deviation, and (B) in any case, the deviation was exempted by the Liberty Clauses contained in Clause 29 of

the standard Charter Party.

47

Aegean Sea Traders Corporation v Repsol Petroleo SA and Another (“The Aegean Sea”) [1998] 2 Lloyd’s Rep 39, 60. 48

See for examples Pace Shipping Co Ltd of Malta v Churchgate Nigeria Ltd of Nigeria [2009] EWHC 1975 (Comm); [2009] 2 CLC

446 [17]. 49

The Law Commission and The Scottish Law Commission, Rights of Suit in respect of Carriage of Goods by Sea (LAW COM No196;

SCOT LAW COM No130), [2.22] (emphasis added). 50

J L Lyon (n 36) 688. 51

Girvin S, Carriage of Goods by Sea (2nd

edn OUP, Oxford 2011) [31.34]. 52

Girvin (n 51) [25.01]; Treitel G and Reynolds FMB, Carver on Bills of Lading (3rd

edn Sweet and Maxwell, London 2011) [9-036];

Eder B and the Others (eds), Scrutton on Charterparties and Bills of Lading (22nd

edn Sweet & Maxwell, London 2011) [12-010].

10

A. The Claimants agreed to the deviation.

33. Although the nomination of a discharge port is generally irrevocable, the “status of irrevocability does not …

exclude the operation of the normal rules of law, such as … the ability of the parties to agree upon a

change.”53

Thus, where the charterer, receiver and the shipowner agree, the nomination of the discharge port

can be changed. The shipowner would be justified to deviate to the new discharge port.

34. Here, the Claimants agreed to the deviation. In fact, they were the party who proposed a deviation. An email

was sent by the Claimants to the Seller as early as 25 February 2009, in which they proposed to sell and

convey the cargo to a potential buyer in South Italy for a greater return.54

In their email on 16 March 2009,55

they reiterated that they “did not consider that the cargo should be sent to Liverpool where it would have no

value”. It was the Claimants’ intention not to discharge the cargo at Liverpool.

35. Subsequently, the Claimants agreed to the Seller’s decision to discharge the cargo at Rotterdam. On 17 March

2009, the Seller informed the Claimants that the cargo would be taken to Rotterdam, and requested the

Claimants to send them the Bills of Lading.56

The Claimants unhesitatingly asked about where the Bills

should be sent to.57

Although they later decided to hold the Bills of lading as liens, still they decided to send

the Bills to their agent at Rotterdam58

instead of retaining them at Liverpool.

36. It was the Claimants’ position from the outset to deviate the Vessel. Unexplainably, they suddenly changed

their mind on 20 March 2009. In their e-mail, they falsely alleged that the Seller refused to alter the

destination in the Bills of Lading, and thus the Claimants were obliged to take the cargo in Liverpool.59

The

changing of mind was unreasonably late as the cargo was already at Rotterdam. The Respondents were

justified to deviate to and to discharge the cargo at Rotterdam.

53

Julian Cooke and the Others, Voyage Charters (3rd

edn Informa, London 2007) [5.24]. 54

Facts 24. 55

Facts 27. 56

Facts 30. 57

Facts 31. 58

Facts 33. 59

Facts 35.

11

B. In any case, the deviation was exempted by the Liberty Clauses contained in Clause 29 of the

standard Charter Party.

37. In any event, Clause 29 of the standard Charter Party contains the “Liberty Clauses”,60

which entitles the

Respondents to deviate. In particular, (i) Clause 29 was effectively incorporated into the Bills of Lading, (ii)

Clause 29(a) provides the shipowner with a wide liberty to deal with the cargo, (iii) the Respondents

subjectively believed that the circumstances would likely give rise to risks stipulated in the Liberty Clauses,

and (iv) the Respondents could discharge the cargo at Rotterdam as requested by the Seller.

(i) Clause 29 was effectively incorporated into the Bills of Lading.

38. To incorporate the liberty clause in a charterparty into a bill of lading, there must be effective words of

incorporation.61

Here, Clause 1 on the reverse side of the Bills of Lading states that “All terms and conditions,

liberties and exceptions of the Charter Party … are herewith incorporated.”62

Thus, doubtlessly, Clause 29 of

the Charterparty is effectively incorporated into the Bills of Lading.

(ii) Clause 29(a) provides the shipowner with a wide liberty to deal with the cargo.

39. According to Frenkel v MacAndrews,63

liberty clauses must be interpreted consistently with the contemplated

voyage. Still, liberty clauses can provide a wide liberty in light of any triggering events such as emergencies.64

40. Similarly, Clause 29(a) should be widely interpreted. In The Florida,65

the same liberty clauses were used,

and were held to offer the owners “a wide liberty as to how to deal with the cargo”.66

Its application was

triggered by “something which “in the judgment of the Owner …’ is likely to give rise to a range of risks”.67

It

is sufficient that the shipowner has the subjective belief that the risks stipulated in the Clause is likely to arise.

60

Facts 11. 61

Skips A/S Nordheim v Syrian Petroleum Co and Petrofina SA (“The Varenna”) [1984] 1 QB 599, 615. 62

Facts 15, 17, 19, 21. 63

Frenkel v MacAndrews & Co Ltd [1929] AC 545. 64

GH Renton & Co Ltd v Palmyra Trading Corp of Panama (“The Caspiana”) [1957] AC 149. 65

Select Commodities Ltd v Valdo SA (“The Florida”) [2006] EWHC 1137 (Comm). 66

The Florida (n 65) [11]. 67

The Florida (n 65) [11].

12

These risks include the risk of “delay or disadvantage to … any part of her cargo”.

(iii) The Respondents subjectively believed that the circumstances would likely give rise to

risks of delay or disadvantage to the cargo.

41. The Vessel was hijacked by Somali pirates for almost three months, during which the cargo was not taken care

of and was not heated as required.68

The Respondents knew that the cargo was subject to a substantial delay

and a high chance of being damaged. They believed that a damaged PFAD cargo suffering a serious delay was

likely to lose its market at Liverpool. Therefore, the continuation of the voyage to Liverpool was likely to

cause disadvantage to the cargo. In fact, in March and April 2009, there was no market for non-GMQ PFAD.69

The belief was further affirmed when the Respondents received the Seller’s request to discharge the cargo at

an alternative port.70

Thus, the application of the Liberty Clauses was triggered.

(iv) The Respondents could discharge the cargo at Rotterdam as requested by the Seller.

42. Where Clause 29(a) is triggered, one of the ways to deal with the cargo is to “have the Vessel call and

discharge the cargo at another … port declared or requested by the Charterer.”71

Here, since the Clause was

triggered, the Respondents had the liberty to discharge the cargo at the port of Rotterdam, which was

requested by the Seller as the Charterer.

IV. THE RESPONDENTS ARE NOT LIABLE FOR DELIVERY WITHOUT BILLS OF LADING

UNDER THE CONTRACT OF CARRIAGE.

43. The Respondents are not liable for discharging the cargo to the Seller upon the provision of a letter of

indemnity. In particular, (A) the Claimants were not entitled to take delivery of the cargo as they rejected the

cargo, (B) the Respondents were not bound to deliver against the Bills of Lading given the Seller’s better title,

68

Facts 50. 69

Facts 58. 70

Facts 28. 71

Facts 11.

13

and (C) the Respondents did no wrong in discharging the cargo to the Seller upon a letter of indemnity.

A. The Claimants were not entitled to take delivery of the cargo as they rejected the cargo.

44. In Fraser v Casper,72

the respondent carrier discharged the goods to a third party against a letter of indemnity.

At issue was whether the ownership of the goods belonged to the claimant or the third party.73

The court held

that the claimant was the owner of the goods and were entitled to the delivery. Thus, their claim succeeded.

45. Here, since the Claimants rejected the cargo, the ownership revested to the Seller. At the time of the discharge,

the Seller, instead of the Claimants, was in fact the owner of the cargo. The Claimants were thereby not

entitled to take delivery of the cargo and their claim should fail.

B. The Respondents were not bound to deliver against the Bills of Lading given the Seller’s better

title.

46. As a general principle, a carrier is in breach of the contract of carriage if he delivers the goods without

presentation of the original bill of lading.74

Yet, there are exceptions to the principle.75

In Motis Export Ltd,76

Rix J stated that “a shipowner is … bound to deliver the goods against production of an original bill of lading,

provided that he has no notice of any other claim or better title”.77

Therefore, if a shipowner has notice of a

better claim or title, he is entitled not to deliver against the bills of lading.

47. Here, the Respondents had notice of two competing claims for the cargo, namely the Seller’s claim on 16

March 2009 and the Claimants’ claim on 20 March 2009. Further, the Seller had a better title than the

Claimants because the Seller was the owner of the cargo. Given the notice of “other claim or better title”, the

Respondents were not bound to deliver against the presentation of the Bills of Lading.

72

Fraser v EA Casper, Edgar & Co and William Pearson & Co (1920) 2 Ll L Rep 620. 73

Fraser (n 72) 622. 74

Dromgoole S and Baatz Y, ‘The Billls of Lading as a Document of Title’, in Palmer N and McKendrick E(eds), Interests in Goods (2nd

edn LLP, 1998) 547, 575. 75

Ibid. 76

Motis Export Ltd v Dampskibsselkabet AF 1912 Aktiesekkab [1999] 1 Lloyd’s Rep 837. 77

Motis Export Ltd (n 76) 840.

14

C. The Respondents did no wrong in discharging the cargo to the Seller upon a letter of indemnity.

48. The Respondents do not dispute that, as a general rule, a delivery without a bill of lading against a letter of

indemnity is a delivery at the shipowner’s own peril.78

However, the current situation was solely created by

the Claimants’ failure to re-endorse the Bills of lading, to which they had agreed.79

Their unexpected

changing of mind80

caused the Seller’s inability to present the Bills of Lading.

49. Thus, the Respondents were forced to deliver the cargo at their peril against a letter of indemnity. Yet, they did

no wrong as the Seller was perfectly entitled to the cargo and the Bills of Lading. The Respondents also

performed their duties correctly by discharging the cargo into storage at Rotterdam pending resolution of

issues between the Seller and the Claimants.81

V. THE RESPONDENTS ARE NOT LIABLE FOR ANY DETERIORATION IN THE QUALITY OF

THE CARGO BY REASON OF THE VESSEL BEING HIJACKED BY SOMALI PIRATES.

50. The Respondents are not liable for any loss by reason of the Vessel being hijacked by Somali pirates due to

the exceptions available in the Hague-Visby Rules, which were incorporated in the Charterparty and the Bills

of Lading.82

In particular, (A) the obligation under Article III Rule 2 of the Hague-Visby Rules is displaced or

modified by Article IV, and (B) the Respondents are entitled to rely on the exceptions in Article IV Rule 2.

A. The obligation under Article III Rule 2 of the Hague-Visby Rules is displaced or modified by

Article IV.

51. According to Article III Rule 2 of the Hague-Visby Rules, shipowners’ duty of care of cargo is subject to the

exceptions under Article IV.83

In Albacora SRL v Westcott & Laurance Line Ltd, Lord Pearson stated that the

78

Girvin (n 51) [10.05]. 79

Facts 31. 80

Facts 35. 81

Facts 34. 82

Facts 4, 15. 83

Treitel and Reynolds (n 52) [9-145].

15

“prima facie obligation under Article III r.2 … may be displaced or modified by … provision of Article IV”.84

Therefore, the Claimants’ submission under Article III Rule 2 is subject to the exceptions in Article IV.

52. Where there is loss or damage of the goods, shipowners can discharge their liability by proving one of the

exceptions in Article IV of the Hague-Visby Rules. Under the Rules, there is no express or implied

requirement to disprove negligence before invoking the exceptions.85

53. Thus, the exceptions are undoubtedly available to the Respondents.

B. The Respondents are entitled to rely on the exceptions in Article IV Rule 2.

54. The Respondents argue that (i) the Respondents are entitled to rely on the exceptions of “Act of war” in

Article IV Rule 2(e) and “Act of public enemies” in Article IV Rule 2(f). Alternatively, (ii) the Respondents

are entitled to rely on the exception in Article IV Rule 2(q) since the loss was caused without the “actual fault

or privity” of the Respondents or “fault or neglect” of their servants.

(i) The Respondents are entitled to rely on the exceptions of “Act of war” in Article IV Rule

2(e) and “Act of public enemies” in Article IV Rule 2(f).

55. Shipowners can invoke the exceptions in the Article IV Rule 2(e) and 2(f) to discharge their liability. The

word “act of war” includes a “state of hostilities between states where diplomatic relations may not have been

served”.86

Regarding the meaning of “public enemies”, it is not only limited to the meaning of the Queen’s

enemies, but also includes pirates and armed mutineers who attempt to take over the ship.87

56. In the travaux préparatoires of the Hague Rules,88

Lord Phillimore and Sir Norman Hill opined that “acts of

public enemies” may encompass pirates.89

This position is not altered by the Visby Protocol and therefore

84

[1966] 2 Lloyd’s Rep 53, 63 (per Lord Pearson). 85

Albacora SRL (n 84) 64. 86

Kawasaki Kisen Kabushiki Kaisya v Bantham Steamship Company Ltd (1939) 63 Ll L Rep 155, 163. 87

K Michel, War, Terror and Carriage by Sea (Informa Professional, London 2004) [20.36]. 88

International Convention for the Unification of Certain Rules of Law relating to Bills of Lading, Brussels, 25 August 1924. 89

Comite Maritime International, “The Travaux Preparatoires of the Hague Rules and of the Hague-Visby Rules”

<http://www.comitemaritime.org/Uploads/Publications/Travaux%20Preparatoires%20of%20the%20Hague%20Rules%20and%20of%

16

applies to the Hague-Visby Rules. Academic opinions support the same view.90

57. Further, other academic opinions support that the exceptions of “Act of war” and “Act of public enemies”

together cover the hijacking by pirates.91

These two exceptions should be interpreted broadly and should not

be restricted to the enemies of the shipowners’ sovereign.92

58. As a result, the Respondents are entitled to rely on the two exceptions to exempt their liabilities.

(ii) The Respondents are entitled to rely on the exception in Article IV Rule 2(q) since the loss

was caused without the “actual fault or privity” of the Respondents or “fault or neglect” of

their servants.

59. Shipowners can invoke the exception under Article IV Rule 2(q) if the loss arose from neither their “actual

fault or privity” nor the “fault or neglect” of their servants. The phrase “actual fault” of the shipowners means

something blameworthy in the shipowners themselves.93

The term “privity” includes “turning a blind eye” to

any suspicion or refraining from inquiry.94

60. Here, the Respondents were without any “actual fault or privity” during the hijacking by the pirates. The

Master and the entire crew of twenty-three men were confined to the bridge all days throughout the period of

captivity.95

They had no choice and could take no action at the relevant time. Thus, the Respondents are

entitled to rely upon the exception under Article IV Rule 2(q).

20the%20Hague-Visby%20Rules.pdf> accessed 17 April 2013, 408. 90

Treitel and Reynolds (n 52) [9-224]; Cooke and the Others (n 53) [85.303]. 91

B Eder (n 52) [11-037]. 92

Russel and Others v Niemann [1864] 17 CB (NS) 163. 93

Asiatic Petroleum Co Ltd v Lennard Carrying Co Ltd [1914] 1 KB 419, 432 (per Buckley LJ). 94

Compania Maritime San Basilio SA v The Oceanus Mutual Underwriting Association (Bermuda) Ltd (The “Eurysthenes”) [1976] 2

Lloyd’s Rep 171, 179 (per Lord Denning). 95

Facts 42.

17

VI. THE RESPONDENTS ARE NOT ACCOUNTABLE IN BAILMENT FOR THE ALLEGED

MISDELIVERY OF AND DAMAGES TO THE CARGO.

61. The Respondents are not liable under bailment. In particular, (A) the Claimants have no rights of suit in

bailment, and (B) the action in bailment without attornment is against public policy.

A. The Claimants have no rights of suit in bailment.

62. The Claimants have no rights of suit in bailment because (i) there was no bailment relationship between the

Claimants and the Respondents, and (ii) the Claimants could only sue in bailment when there was an

attornment.

(i) There was no bailment relationship between the Claimants and the Respondents.

63. In a C & F contract, a seller is as a bailor whereas the shipowner is a bailee. The terms of the bill of lading are

binding on the seller and the shipowner.96

This equally applies to a CIF contract.97

64. Here, a bailment relationship was established when the Seller as a bailor handed over the cargo to the

Respondents as a bailee for shipment. No bailment relationship was established between the Claimants and

the Respondents.

(ii) The Claimants could only sue in bailment when there was an attornment.

65. In a bailment, a third party can replace the original bailor as a new bailor by way of an attornment.98

In The

Gudermes,99

Staughton LJ stated that attornment may is effected when “a bailee consists in an

acknowledgment that someone other than the original bailor now has title to the goods and is entitled of

delivery of them”.100

Attornment can be effected by writing or orally.101

It must be communicated to the

96

Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd (“The Aliakmon”) [1986] AC 785, 818. 97

Bergerco USA v Vegoil Ltd [1984] 1 Lloyd’s Rep 440, 443; Girvin (n 51). 98

Palmer NE, Palmer on Bailment (3rd

edn Sweet and Maxwell, London 2009) [25-001]. 99

Mitsui & Co Ltd v Novorossiysk Shipping Co (“The Gudermes”) [1993] Lloyd’s Rep 311. 100

Mitsui & Co Ltd (n 99) 324 (per Staughton LJ). 101

Palmer NE (n 98) [20-011].

18

consignee, but the shipper’s consent is not required.102

66. Here, the Respondents had not made any acknowledgment and no attornment was effected. Hence, the

Claimants were not a bailor, and have no right in bailment in relation to the cargo.

B. The action in bailment without attornment is against public policy.

67. Should the Claimants claim that actual attornment can be dispensed with, the Respondents argue that (i) the

requirement of an attornment cannot be curtailed. Further, (ii) an attornment is not transferrable, and (iii) the

Claimants are not entitled to sue in bailment by receiving the Bills of Lading.

(i) The requirement of an attornment cannot be curtailed.

68. In The Future Express, Lloyd LJ ruled that the transfer of a bill of lading does not dispense with the

requirement of an attornment for the purpose of establishing the rights of suit in bailment.103

This is

consistent with The Gudermes.104

Academic opinions also support that an attornment is essential to an action

in bailment, because it can prevent the bailee from disputing the title of the new bailor.105

69. Therefore, an attornment is a preliminary requirement for the Claimants to sue in bailment. In the absence of

an attornment, the Claimants have wrongly based their alternative claim in bailment.

(ii) An attornment is not transferrable.

70. The transfer of a bill of lading is incapable of transferring an attornment. Despite the obiter of Lord Hobhouse

in The Berge Sisar to the effect that an attornment is transferrable by a consignee to a third party,106

the view

has not gained any academic support,107

and it does not alter the established position of the law.

71. For example, Carver on Bills of Lading argues that the concept of “transferable attornment” is “no more than

102

Palmer NE (n 98). 103

The Future Express [1993] 2 Lloyd’s Rep 542, 550 (per Lloyd LJ). 104

The Gudermes (n 100). 105

Baughen S, “Bailment’s continuing role in cargo claims” [1999] LMCLQ 393, 396-397. 106

Borealis AB v Stargas Ltd and another (The Berge Sisar) [2001] UKHL 17; [2002] 2 AC 205 [18] (Lord Hobhouse). 107

Palmer NE (n 98) [20-015].

19

a legal fiction.”108

An attornment is a legal act rather than a legal device, and is incapable of being

transferred.109

Thus, there is no ground for the Claimants to argue that there was a transfer of an attornment.

(iii) The Claimants are not entitled to sue in bailment by receiving the Bills of Lading.

72. In The Captain Gregos (No.2),110

the Court did not agree that the endorsement and delivery of a bill of lading

to the buyer would create a bailment relationship between the shipowner and the buyer. In East West Corp,111

Mance LJ also ruled that the physical possession of a bill of lading does not create a rights of suit in bailment.

73. Here, the Bills of Lading were transferred by the Seller to the Claimants112

who subsequently possessed the

Bills.113

However, a bailment relationship did not arise because of the endorsement, delivery or possession of

the Bills of Lading. No rights of suit in bailment was conferred on the Claimants.

VII. THE RESPONDENTS ARE NOT LIABLE FOR THE TORT OF CONVERSION.

74. The Respondents are not liable for the tort of conversion by delivering the cargo to the Seller. In particular, as

the Claimants rejected the cargo, (A) the Seller and the Respondents had a better right to the cargo than the

Claimants. Alternatively, should the Tribunal finds that the Claimants did not reject the cargo, (B) the

Respondents were acting on the bailor’s order without notice of any alleged defect in the bailor’s title.

A. The Seller and the Respondents had a better right to the cargo than the Claimants.

75. Where a plaintiff has the immediate right to possession of goods, a defendant is “able to escape [liability] if

he can show a better right in himself or in some person under whose authority has acting”.114

76. Here, albeit the Claimants have the Bills of Lading and the constructive possession of the cargo, the

108

Treitel G and Reynolds FMB (n 52) [7-037]. 109

Treitel G and Reynolds FMB (n 52) [6-013]. 110

Compania Portorafti Commerciale S.A. v Ultramar Panama Inc (“The Captain Gregos”) (No.2) [1990] 2 Lloyd’s Rep. 395. 111

East West Corp v DKBS 1912 AF A/S [2003] EWCA Civ 8; [2003] 1 CLC 797, 864 (per Lord Mance). 112

Facts 67, see in particular paragraph 11 of the Defence Submissions. 113

Facts 29, 33, 35. 114

Blades v Higgs (1861) 11 HLC 621; Buckley v Gross (1863) 3 B & S 566; Rogers, Son & Co v Lambert & Co [1891] 1 QB 318; The

Jupiter (No 3) [1927] P 122; Jones MA (et al), Clerk and Lindsell on Tort (20th

edn Sweet & Maxwell, London 2010) [17-81].

20

Respondents are not liable for conversion because (i) the Respondents acted under the authority of the Seller

who had a better right to the cargo than the Claimants. Further and/or alternatively, (ii) the Respondents had a

better right to the cargo than the Claimants.

(i) The Respondents acted under the authority of the Seller who had a better right to the cargo

than the Claimants.

77. Section 8(1) of the Tort (Interference with Goods) Act 1977 was implemented to modify the common law

position towards conversion.115

As such, “the proposition that as against a wrongdoer, possession is

tantamount to title only remains true where no named third party is known to have a better right.”116

Where a

third party is involved, ownership can be taken into account to consider which party has a better right to the

goods.117

Here, a named third party was involved, namely the Seller.

78. Due to the Claimants’ rejection of the cargo, the ownership revested to the Seller who then resumed the right

to deal with the cargo. In contrast, the Claimants only retained the constructive possession by holding the Bills

of Lading. The Seller thus had a better right to the cargo than the Claimants. Since the Respondents acted on

the Seller’s authority to discharge the cargo to the Seller at Rotterdam,118

they are not liable for conversion.

(ii) The Respondents had a better right to the cargo than the Claimants.

79. Further and/or alternatively, the Respondents themselves had a better right to the cargo than the Claimants.

The Respondents, being the shipowner of the Vessel, had the actual possession of the cargo, which was

authorized by the owner of the cargo. In contrast, the Claimants only had constructive possession of the cargo

through the Bills of Lading, and were not entitled to deal with the cargo. Thus, the Respondents are not liable

for conversion.

115

Jones MA (n 114) [17-82]. 116

Jones MA (n 114) [17-83]. 117

Anonima Petroli Italian SpA and Neste Oy v Marlucidez Armadora SA (The “Filiatra Legacy”) [1991] 2 Lloyd’s Rep 337, 341; Todd

P, “The bill of lading and delivery: the common law actions” [2006] 4 LMCLQ 539, 544. 118

Facts 28, 30.

21

B. The Respondents were acting on the bailor’s order without notice of any alleged defect in the

bailor’s title.

80. Alternatively, if the Tribunal finds any defects in the Seller’s title to the cargo, the Respondents are not liable

for conversion as they had no notice of them before the alleged act of conversion.

81. If a bailee delivers goods to a bailor without notice of any defect in the bailor’s title, the bailee is protected

from liability vis-à-vis the true owner.119

According to Marcq v Christie Manson & Woods Ltd, the bailee is

under no duty to make enquiries as to title.120

82. Since a bailment relationship was established between the Seller and the Respondents shipowner,121

the

Respondents, as the bailee, were required to follow the instructions of the Seller, the bailor. The Respondents

discharged the cargo at Rotterdam following the Seller’s order.122

The Respondents had no duty to make

enquiries as to the Seller’s title. They also had no notice of defects in the Seller’s title, if any, before the

alleged act of conversion, namely the discharge of cargo at Rotterdam on 20-22 March 2009.

83. Although the Claimants sent an email to claim their title to the cargo, the email only reached the Respondents

on 20 March 2009.123

At that time, the Vessel had already arrived at Rotterdam and began discharging the

cargo.124

Furthermore, the email bore no proof of the Claimants’ title. Hence, there was no reasonable ground

for the Respondents to doubt the Seller’s title, and the Respondents are not liable in conversion.

119

Hollins v Fowler (1875) LR 7 HL 757, 766-767. 120

[2003] EWCA Civ 731; [2004] QB 286. 121

See paragraph 61 of this memorandum. 122

Facts 28. 123

Facts 36. 124

Facts 53, 68.

22

VIII. THE CORRECT CALCULATION OF DAMAGES.

84. Based on the above submissions, the Respondents deny that they are responsible for any liability submitted by

the Claimants. Nonetheless, for completeness, the Respondents reply to the Claimants’ calculation of damages

in their submissions. In particular, the Respondents argue that (A) the correct calculation of damages is the

market value of the cargo at Rotterdam, or (B) alternatively, the correct calculation of damages is the market

value of the cargo at Rotterdam plus freight from Rotterdam to Liverpool. Further, (C) the Respondents are

not liable for the legal costs incurred in the Dutch Court Proceedings because they are too remote.

A. The correct calculation of damages is the market value of the cargo at Rotterdam.

85. If the Tribunal finds that there is a non-delivery of the cargo, the normal calculation of damages is the market

value of the goods at the time and place of the due delivery.125

The rationale behind the calculation is to “put

the innocent party into the same position as he would have been if the contract had been performed.”126

86. Accordingly, the Respondents argue that (i) the cargo should be delivered at Rotterdam on about 20 March

2009, and (ii) the market price should be the price at which the Seller sold the other parcel of the PFAD on

board the Vessel at Rotterdam on 19 March 2009.

(i) The cargo should be delivered at Rotterdam on about 20 March 2009.

87. The Respondents were empowered by Clause 29(a) of the Charterparty to discharge the cargo at Rotterdam.127

Rotterdam was the place where the cargo should be, and was in fact, delivered. The time at which the cargo

should be delivered was on 20 March 2009. Thus, the correct calculation should be the market price of the

cargo in Rotterdam on about 20 March 2009.

125

Rodocanachi v Milburn (1887) 18 QBD 61, 76; McGregor H, McGregor on Damages (17th

edn Sweet & Maxwell, London 2003)

[27-003], [27-010]. 126

Koufos v C Czarnikow Ltd (“The Heron II”) [1969] 1 AC 350. 127

See above [38]-[42].

23

(ii) The market price should be the price at which the Seller sold the other parcel of the PFAD

on board the Vessel at Rotterdam on 19 March 2009.

88. As to which prices are to be considered when measuring the “market price”, the Respondents argue that the

selling price of the other parcel of the PFAD on board the same Vessel, USD 350 per mt, is the best

reference.128

There are two reasons for the argument.

89. First, the other parcel of the PFAD was delivered by the same Vessel, at the same time, to the same port, and

under the same conditions. It closely resembled the concerned cargo in the current case. According to the

report129

by Thomas, Cropper, Benedict,130

samples of the PFAD sold to the Claimants and the other parcel

of the PFAD share similar analysis results.131

90. As stated in paragraph 3A of the Single Joint Expert Report,132

the market price of the PFAD is influenced by

many uses of the products and varies greatly.133

The price can therefore fluctuate vigorously within a few

days, and highly depends on their conditions. Albeit different market prices were provided by the relevant

expert reports,134

those PFAD were under different conditions and were sold at different times. They are not

sound references to the market price of the concerned cargo.

91. Second, market values of goods are usually awarded as damages to allow claimants to purchase substitutes.

According to McGregor on Damages, a claimant cannot claim a higher price if he can purchase the goods at a

lower price.135

Here, the Seller sold the other parcel of the PFAD at USD 350 per mt. Thus, the Claimants

could likely purchase substitute PFAD at USD 350 per mt at Rotterdam. There is no reason for the Tribunal to

award a higher price.

128

Facts 73, see in particular paragraph 26 of the Defence Submission. 129

Facts 37. 130

Facts 75: Consulting mariners, engineers, and scientists. 131

Facts 37-38. 132

Facts 56. 133

Facts 57. 134

Facts 48, 56, 62. 135

McGregor (n 125) [27-005].

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B. Alternatively, the correct calculation of damages should be the market value of the cargo at

Rotterdam plus freight from Rotterdam to Liverpool.

92. Should the Tribunal finds that the cargo should have been delivered at Liverpool, the correct calculation of

damages should be the sums of its market value at Rotterdam plus freight from Rotterdam to Liverpool. The

reason is that the open market of PFAD at Liverpool operates by way of importing PFAD from Rotterdam,

which is well illustrated by the Single Joint Expert Report.136

93. The Report states that “for March and April 2009 there was … PFAD available on the open market in

Liverpool.”137

It then states that the “cargoes were in Rotterdam” and “a cif buyer in Liverpool would had to

ship the goods to Liverpool”.138

For examples are provided in the Report to support the view.

94. As the time needed for delivery from Rotterdam to Liverpool is estimated to be within ten day, the date of due

delivery would be 20-30 March 2009. The correct market value of the cargo should be its value at Rotterdam

in that period. According to the report prepared by Mr Mark Wiggins instructed by the Seller,139

the

Claimants would be able to carry the cargo from Rotterdam to Liverpool at a freight of around USD 30 per

mt.140

Thus, the market value of the PFAD at Liverpool is USD 350 per mt plus USD 30 per mt, which equals

to USD 380 per mt.

C. The Respondents are not liable for the legal costs incurred in the Dutch Court Proceedings

because they are too remote.

95. The Respondents deny that they are liable for the legal costs incurred in the Dutch Court Proceedings. Since

the Dutch Courts considered the proceedings directly, they were at a better position to ascertain the facts. On

the contrary, the Tribunal does not have sufficient information. It is thereby not in a right position to examine

136

Facts 56. 137

Facts 58. 138

Facts 59. 139

Facts 62. 140

Facts 62.

25

the legal costs as damages.

96. Further, the Respondents are not liable because the alleged damages are too remote. According to Hadley v

Baxendale, a defendant is only liable for damages which the parties have reasonably contemplated when they

enter into the contract.141

The modern test, as provided in The Heron II,142

is whether the loss in question is

“a kind which the defendant, when he made the contract, ought to have realised was not unlikely to result from

a breach”.143

97. In The Mercini Lady (No 2),144

gasoline was delivered to the claimant in a damaged condition. The claimant

sued the shipowner but later found out the fault was at the seller. In his subsequent proceeding against the

seller, he claimed damages for the legal cost incurred in the first proceeding. The court, dismissing the claim,

stated that “the costs were the consequence of the buyer’s choice to fight the owners’ claim, which is a

sufficiently independent matter”.145

The claim was not caused by the seller’s breach and was too remote.

98. Here, the Claimants initiated an appeal against the Seller’s application to arrest the cargo, and a proceeding to

arrest the Vessel. It was their own choice to raise the claims. The claims were independent matters and were

not reasonably contemplated by the Respondents when the contract was entered into. Given the remoteness of

the alleged damages, the Respondents are not liable herein.

141

(1854) 9 Ex 341, 354. 142

The Herron II (n 126). 143

The Herron II (n 126) 382. 144

KG Bominflot Bunkergesellschaft Fur Mineralole MGH & Co v Petroplus Marketing AG (The “Mercini Lady”) (No 2) [2012] EWHC

3009 (Comm); [2013] 1 Lloyd’s Rep 360. 145

The Mercini Lady (No 2) (n 144) [78].

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PRAYER FOR RELIEF

The Respondents respectfully request the Arbitral Tribunal to declare:

1. That there is no arbitration agreement between the Claimants and the Respondents. Therefore the Arbitral

Tribunal does not have the substantive jurisdiction to hear the dispute between the Claimants and the

Respondents;

2. That the Claimants rejected the cargo concerned. Therefore they are not the right party to bring respective

contractual claims;

3. That the Respondents were entitled to deliver the cargo to the Seller at Rotterdam against a letter of

indemnity. Therefore the Respondents are not liable in contract for deviation or delivery without bills of

lading;

4. That the Respondents were entitled to deliver the cargo to the Seller at Rotterdam against a letter of

indemnity. Therefore the Respondents are not liable for the tort of conversion;

5. That the Respondents can invoke the exceptions under Article IV of the Hague-Visby Rules. Therefore the

Respondents are not liable in contract for the alleged damages to the cargo caused by the hijacking of the

Vessel by Somali pirates;

6. That there is no bailment relationship between the Claimants and the Respondents. Therefore the Claimants

are not entitled to bring an action under bailment.

Respectfully submitted

Twilight Trader Inc, the Respondents

(Team 7)