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SHIPPING E-BRIEFWINTER 2015
CONTENTS
SHIPPINGBill of lading “law and arbitration” clause incorporates charterparty court jurisdiction provision 2
Court grants anti-suit injunction in respect of some but not all cargo claims 3
General Average – dealing with the costs of a hijacking 5
When does an indorsee of a bill of lading have title to sue the carrier? 6
Delayed delivery: the right to cancel shipbuilding contracts 8
Beware the pitfalls of inconsistent dispute resolution clauses 9
When an English jurisdiction clause in a bill of lading will be deemed exclusive 10
Who pays the Suez Canal fees? 12
Consecutive time charters – check your contract terms 13
Court sets aside arbitration award for serious irregularity 14
SHIPPING LEGISLATION AND REGULATIONAn update on the IMO’s proposed Polar Code 15
The entry into force of the Nairobi Convention on Wreck Removal: is it a big deal? 17
Global anti-corruption update January 2015 – what’s new? 18
NEWS AND EVENTSWho’s Who Legal: Transport 2015 names Ince & Co lawyers as leading practitioners for Aviation and Shipping 20
Ince & Co advised Bahri on the transfer of 20 vessels from Vela, as part of a merger worth US$1.3 billion 20
Ince & Co advises PVM Group and its sellers on completion of sale to Tullett Prebon PLC 21
Ince & Co’s Beijing office has moved 21
02 SHIPPINGE-BRIEF, WINTER 2015
SHIPPING Bill of lading “law and arbitration” clause incorporates charterparty court jurisdiction provision
Caresse Navigation Ltd v. Zurich Assurances MAROC and others (Channel Ranger) [2014] EWCA Civ 1366
The Court of Appeal in this case has considered whether reference in a bill of lading to the incorporation of a “law and arbitration clause” was effective to incorporate a law and court jurisdiction (not arbitration) clause in a charterparty. This dispute concerns a claim for cargo damage of around US$1 million under a bill of lading on the Congenbill 1994 standard form. The appeal was against a Commercial Court decision upholding an anti-suit injunction made on the basis that the bill of lading did incorporate an English law and court jurisdiction clause referred to in the charterparty. The Court of Appeal dismissed the appeal and upheld the Commercial Court’s decision.
The Commercial Court decision was reported in the Ince January 2014 Shipping E-Brief.
The background factsThe Respondent Owners commenced proceedings in the English Commercial Court seeking a declaration of non-liability regarding salt-water damage to the cargo at the discharge port in Morocco. The cargo insurers (Appellants in the current proceedings) challenged the English Court’s jurisdiction and commenced proceedings in Morocco against the Owners in relation to the cargo damage.
The Owners were granted an anti-suit injunction by the Commercial Court restraining pursuit of the Moroccan proceedings by the cargo insurers.
The Congenbill 1994 bill of lading contained the following typed clause: “All terms, conditions, liberties and exemptions including the law and arbitration clause, are herewith incorporated.” The terms of the governing voyage charterparty, however, provided that it would be governed by the exclusive jurisdiction of the English courts and did not provide for arbitration.
The Commercial Court decisionThe Commercial Court held that the provision in the bill of lading expressly seeking to incorporate an arbitration clause from the charterparty was sufficient to incorporate the English High Court jurisdiction clause in that charterparty. The Court took the view that this issue was one of construction of the terms of the contract, rather than one of incorporation, and that the real question was what the parties reasonably understood by the words “law and arbitration clause”. The Court held that the only clause that the parties could have intended to refer to by the words “law and arbitration clause” was the court jurisdiction clause in the relevant charterparty, rather than to incorporate an arbitration clause “if any”. Construing the clause in this way did not offend against the need for clarity and certainty in the construction of these types of clauses.
The Commercial Court therefore held that the Defendant cargo insurers were bound by the English law and court jurisdiction clause in the charterparty and granted the anti-suit injunction to restrain the proceedings that the Defendants had commenced in Morocco.
The cargo insurers appealed the Commercial Court’s decision to the Court of Appeal.
The Court of Appeal decisionThe Court of Appeal agreed with the Commercial Court’s reasons and dismissed the appeal. The Court of Appeal reiterated the Commercial Court’s view that the question in this case is not one of incorporation of terms but of construing the meaning of the words used in the bill of lading. In addition, the words in the bill of lading must be read as a whole in their context. The argument put forward by the Appellant cargo insurers that the meaning of the words in the bill of lading is “arbitration clause if any” was found to be wholly uncommercial since the original parties to the bill of lading are taken to have known of the terms of the charterparty and that it did not contain an arbitration clause. The reference to an arbitration clause in the bill of lading was therefore not inconsistent with the incorporation of the charterparty’s court jurisdiction clause. The Court of Appeal confirmed that, in its view, this finding did not run contrary to the need for clarity and certainty when incorporating terms into bills of lading since the clause in the charterparty was one that was usual in the trade.
Notably, the Court of Appeal also referred to The Merak [1965] (relied upon by the Appellant cargo insurers in the present case) in which the Court of Appeal by a majority found that they could not correct an error in the bill of lading terms that referred to the incorrect clause number of the arbitration clause in a charterparty. The Court of Appeal in the present case commented that the approach of the Court in The Merak to the interpretation of contractual terms was “old-fashioned and outdated”. In view of subsequent important decisions on the construction of contracts, the Court suggested that if the same case were to be decided today, it is very likely that it would be decided differently.
CommentEnglish law has long recognised the principle that general words of incorporation in a bill of lading only incorporate those provisions in the charterparty that are directly relevant or “germane” to the shipment, carriage, discharge and delivery of the cargo, and not ancillary charterparty terms such as arbitration and jurisdiction clauses. This case falls outside this general principle since, rather than general words being used, there was a specific reference in the bill of lading to one kind of charterparty ancillary provision, being the “law and arbitration clause”. This reference was sufficient to incorporate the charterparty court jurisdiction (rather than arbitration) clause since the terms used were usual in the shipping trade and it was clear that the parties were aware that there was no arbitration clause in the charterparty and therefore intended to incorporate the court jurisdiction clause.
03SHIPPINGE-BRIEF, WINTER 2015
This case is a further reminder that, for certainty and to avoid potential disputes, parties should use clear and specific words of incorporation in a bill of lading and as far as possible refer to the correct law and jurisdiction clause(s) in the appropriate charterparty.
Pavlo SamothrakisSolicitor, [email protected]
Rania TadrosPartner, [email protected]
Court grants anti-suit injunction in respect of some but not all cargo claims
Golden Endurance Shipping SA v. RMA Watanya SA and others (Golden Endurance) [2014] EWHC 3917 (Comm)
This dispute related to cargo claims brought under three bills of lading. One issue was whether the claims were subject to London arbitration and/or English court proceedings and/or Moroccan court proceedings. The Commercial Court decision held that the claims under one bill were subject to London arbitration and granted an anti-suit injunction in respect of Moroccan court proceedings brought in breach of the arbitration agreement. In respect of the claims under the other two bills, the Court held that these could be pursued in the English courts, but refused to grant an anti-suit injunction. The result is that, unless the parties come to some agreement, there will be three sets of proceedings in respect of cargo claims arising out of the same voyage: London arbitration, English court proceedings and Moroccan court proceedings. Clearly not ideal.
The background factsThe Golden Endurance loaded a cargo of wheat in Gabon, Togo and Ghana for discharge in Morocco. The cargo arrived in a damaged condition, the ship was arrested and the Owners had to put up security in Morocco and become involved in the court proceedings there. However, the charterparty provided for English law and London arbitration. The bills were based on the Congenbill form. So the Owners applied to the English Commercial Court for an anti-suit injunction which, in this context, meant an order from the English Court that cargo interests were not allowed to pursue the substantive claims in Morocco. The Owners wanted the cargo claims to be decided in London, where the Hague Rules would apply, rather than in Morocco where the local court would apply the Hamburg Rules.
Anti-suit injunctions can no longer be obtained if the court proceedings are within the EU, but they can still be obtained where cargo interests have commenced proceedings outside the EU. Readers may well ask themselves why a Moroccan cargo claimant, holding a bank guarantee that responds to a decision of the Moroccan Court, would take any notice of an order from the English Court. The answer to this is that to ignore the order is a very serious thing. Were the directors of that company to come to the UK, they could be fined and imprisoned for contempt of court. Furthermore, many cargo claims are, as in this case, brought by subrogated cargo insurers who in turn may come to the UK on business and/or place their reinsurance here and/or have assets in the UK. So anti-suit injunctions can be effective but, if you want to obtain one, you must act quickly and be sure not to submit to the jurisdiction of the local courts, save under protest. Legal advice should be obtained promptly.
The Commercial Court decisionThe facts of this case gave rise to some interesting findings by the Court, some of which may be useful for dealing with other cargo claims and some of which relate solely to the business of obtaining anti-suit injunctions.
04 SHIPPINGE-BRIEF, WINTER 2015
1. There was an argument about whether the charterparty needed to be signed in circumstances where the Charterers asked the Owners to sign and return the charterparty. The Court confirmed that it did not need to be signed.
2. The shipper must have been using fake Bimco bills of lading because one of the bills that was signed by the Owners’ agents at the load port was a curious mix of Congenbill 1978 and 1994. Older readers will remember that the main reason for the change from 1978 to 1994 was that the 1978 version did not expressly say that it incorporated the arbitration clause from the charterparty and that, without these express words, the English court would not bring the arbitration clause into the bill. The other two bills that were issued were 100% Congenbill 1978. The outcome of this was that only the first bill (we will call this the 1994 bill) incorporated the arbitration clause from the charterparty, the other bills just incorporated the English law clause.
3. The fact that the 1994 bill incorporated the arbitration clause made it easy for the Court to grant an anti-suit injunction in respect of this bill.
4. With regard to the 1978 bills, the Judge agreed that the English Court was a more appropriate forum than the Moroccan Court to decide the case because the parties had chosen English law and the Owners would be unjustly deprived of the benefit of their bargain if the claims were not allowed to proceed in the UK (because the Moroccan court would apply the Hamburg Rules).
5. The Court had the jurisdiction to decide whether the Owners were liable for the cargo claim, but that did not mean the Court could necessarily grant an anti-suit injunction because the anti-suit was not of itself a contractual claim that was subject to English law. The Judge decided, however, that he could grant the anti-suit injunction because it was “ancillary” to the English contractual claim.
6. Nonetheless, the Judge refused to grant the anti-suit injunction because an English law clause did not, unlike an English jurisdiction clause, trump other competent jurisdictions. This notwithstanding that he recognised that two sets of proceedings, one in London and one in Morocco, might lead to inconsistent judgments in respect of claims under the 1978 bills.
7. Finally, the Judge touched upon an argument by cargo interests that the phrase “or corresponding legislation”, which is found in all Congenbills, could mean the Hamburg Rules. The Court’s provisional view was that this argument did not work, but the Judge said the point required further investigation.
CommentFor our shipowner clients and their P&I insurers, this case is a good reminder that, whenever you face a cargo claim at the discharge port despite an English law and jurisdiction clause in the bill of lading, you should consider whether an anti-suit injunction from the English Court might assist. In addition, just as you take care over the wording of your charterparties, take care as regards the wording of the bills of lading you sign. The Owners’ position would have been very much better in this case had the 1994 version of the Congenbill been used rather than 1978.
This case also helps to clarify a couple of legal issues relating to the jurisdiction to grant anti-suit injunctions. First, no separate jurisdictional gateway is required, provided the injunction is ancillary to claims where English jurisdiction is established – in this case, the application for a declaration of non-liability for the cargo claim. Second, in the absence of an exclusive English jurisdiction clause, an anti-suit injunction will not be granted merely because the local court will apply the Hamburg Rules, rather than those applying under the proper law of the contract, in this case the Hague/Hague Visby Rules.
Margot WastnageSolicitor, [email protected]
Ted GrahamPartner, [email protected]
05SHIPPING E-BRIEF, WINTER 2015
General Average – dealing with the costs of a hijacking
Mitsui & Co Ltd & others v. Beteiligungsgesellschaft LPG Tankerflotte MBH & Co KG (Longchamp) [2014] EWHC 3445 (Comm)
The recent judgment in the Longchamp has overturned accepted industry thinking in how bunkers and crew wages are dealt with in a hijacking. Not only has it wrong-footed lawyers, but it flies in the face of the written and considered views of the Advisory Committee of the Association of Average Adjustors and opens up interesting questions on other heads of claim not considered in the judgment.
The Judge was asked to consider whether a number of items (familiar to anyone who has dealt with a Somali hijacking case) were recoverable in General Average (“GA”). These included: media response services, crew wages, bunkers and telephone charges. The hijacking took place in January 2009, lasted just under two months and resulted in a ransom of US$1.85 million. The total amount of expenses in issue was a modest US$181,604, reflecting the short duration of the hijacking. Of these, the most controversial were the bunkers and crew wages.
The background factsAfter capture, the vessel’s Master was directed to sail the vessel to the Somali coast, to what the Advisory Committee referred to as a “pirates’ lair” which, in their view, was not a port of refuge in the sense understood under the York Antwerp Rules (“YAR”). Their rationale was that the lives of the crew were at the complete mercy of the pirates and the dangers threatening the vessel were at their maximum. Any vessel anchored off Somalia in the control of pirates remains in the grip of an insured peril.
The negotiations began with the pirates demanding US$6 million and the Owners countering with their own opening of US$373,000. The pirates’ arbitrary opening was matched by a figure set by the Owners at an amount giving rise to the impression of accounts being emptied. The “target settlement figure” was said to be US$1.5 million, which put it at what must have been the lower end of the pirates’ own expectation of an acceptable settlement range; that is, the range of figures where both sides can be happy with the result, which is often referred to as the “market rate” – a concept roundly condemned by the Judge. The figures are important in the context of the dispute and argument that arose between the parties on “substituted” expenses.
Substituted expensesUnder Rule F of the YAR, a substituted expense is only allowed in GA if, amongst other things, there was a hypothetical alternative course of action which, had it been adopted, would have involved expenditure claimable in GA. The expense is allowed where it appears more economical than the alternative expense and, in the event that the substituted expense turns out to be more expensive, it is capped at the lower alternative amount.
Having concluded that bunkers, like wages, were an expense, the Court considered whether the saving between the ransom initially demanded and the ransom ultimately paid was real, in circumstances where no owner would ever pay the original demand made. The final hurdle for the Claimants was to prove that the expenditure was “reasonably ... incurred”. That was not the same, the Judge held, as the ransom being “reasonable” which, he said, was “...rationally misconceived”. There is no such thing it seems as a “reasonable ransom”. Surprisingly, however, he also found against the assertion made that it was inevitable that the amount of ransom would be reduced by the process of negotiation. Such was the unpredictability of the pirates, it seems, that this was not certain. Pirates are not necessarily rational in many things but it seems improbable that any owner has ever paid a ransom that exceeded the initial demand and certainly not one that was for more than the value of the vessel.
Whereas the Judge found that the US$6 million could have been “reasonably incurred”, the Association had said that the only “reasonable” ransom was the one actually agreed and paid. The Court’s conclusion meant that the starting point for the calculation of the substituted expenses was the opening demand of the pirates, not the actual amount paid. It would therefore follow that in any normal piracy hijacking situation, where there would normally always be a saving between the original demand and the amount paid, then the costs and expenses incurred during the negotiation (including those not directly incurred to secure the release of the vessel) are recoverable in GA. In this case, that also included the media communication costs and the telephone charges claimed.
It follows that those costs, which are claimed as substituted expenses, are capped at the difference between the starting point of the pirates’ ransom demand and the final amount paid. One can foresee a situation where that figure may be exceeded and the cap comes into play.
CommentIn the end, the Judge seems to have been guided by principles of equity and accordingly it was right, in his view, that natural justice requires that all should contribute to such substituted expenses. In this case, the amounts in issue were small. However, in the larger, more drawn out hijackings involving higher value tankers that lasted over ten months, the cost of wages and bunkers could have been as much as US$2 million and there are several claims and adjustments that have not been settled that may yet need to be reconsidered.
Having opened the door on such expenses, particularly bunkers, the decision raises another interesting possibility that was not considered by the Judge. There were vessels where pirates burnt the bunkers on board and then, when these were exhausted, burned cargo to avoid the need for a bunker resupply. This happened in circumstances where the negotiation process was completely controlled by owners, leaving charterers and cargo unable to influence or contribute to the strategy being followed. In the interests of equity, it will be interesting to see whether these costs can also be brought into GA.
06 SHIPPINGE-BRIEF, WINTER 2015
This case is going to appeal.
David RichardsSenior associate, [email protected]
Stephen AskinsPartner, [email protected]
When does an indorsee of a bill of lading have title to sue the carrier?
Standard Chartered Bank v. Dorchester LNG(2) Limited (Erin Schulte) [2014] EWCA Civ 1382
The Court of Appeal has recently given judgment concerning the application of s.5(2)(b) of the Carriage of Goods by Sea Act 1992 (“COGSA”) and, in particular, the circumstances in which an indorsee in possession of a bill of lading has title to sue under the bill.
The background factsThe underlying transaction in this case was a sale by Gunvor International BV (“Gunvor”) to United Infrastructure Development Corporation (“UIDC”) of a cargo of gasoil. That sale was secured by the transfer of a letter of credit (the “LC”) confirmed by Standard Chartered Bank (“SCB”). Having shipped the cargo on the Erin Schulte (“the Vessel”), Gunvor presented the documents, including bills of lading indorsed to SCB, required under the LC to SCB on 4 June 2010. SCB wrongly rejected the presentation and refused to pay. In the meantime, the Vessel was ready to discharge and, to avoid delays, Gunvor arranged for a letter of indemnity (“LOI”) to be issued to the carrier to permit discharge of the cargo without presentation of the bills of lading, which were still held to Gunvor’s order by SCB.
Gunvor ultimately commenced proceedings against SCB and, following service of those proceedings, SCB agreed on 7 July 2010 to pay the full amount claimed by Gunvor plus interest and costs.
As a result of confirming acceptance of amendments to the LC with the issuing bank that had not been agreed by Gunvor, SCB, having paid Gunvor, had no recourse against the issuing bank. Accordingly, SCB issued proceedings against the Owners of the Vessel (“Owners”), the Defendants in these proceedings, alleging that, by virtue of the indorsement and transfer of the bills to SCB, SCB had become the lawful holders of the bills within the meaning of s.5(2)(b) of COGSA and thus had title to sue. They claimed the full value of the cargo on the basis of an alleged mis-delivery by Owners.
SCB alleged that despite their rejection of the presentation, they had become the lawful holders of the bills of lading within the meaning of s.5(2)(b) of COGSA upon presentation. This required SCB to show that they had possession of the bills “as a result of the completion, by delivery of the bill, of an indorsement of the bill”.
So far as relevant to the appeal, SCB argued that they became lawful holders of the bills at two alternative moments in time:
1. When, on 4 June 2010, the bills were physically received by them as part of the documentary presentation under the LC (“the 4 June point”); or
2. When, on 7 July 2010, SCB paid the sums claimed by Gunvor in the proceedings they commenced (“the 7 July point”).
07SHIPPINGE-BRIEF, WINTER 2015
The 4 June point The Judge at first instance held that SCB became the lawful holders of the bills upon their presentation on 4 June.
As to the question of completion by delivery of the indorsement, the Judge accepted that delivery of an indorsed bill of lading requires the requisite intention on the part of the deliveror and deliveree to give and accept delivery. However, he went on to conclude that there is no requirement to consider the contractual position as between the deliveror and deliveree of the bill of lading, i.e., in this case, the contractual position as between the bank and the beneficiary of the LC. It was, in the Judge’s view, irrelevant that SCB had received the documents for checking and, upon completion of those checks, had declined to accept them.
By contrast, the Court of Appeal noted that there was a striking difference between the treatment of consignees and indorsees under COGSA and stated that “delivery” was an essential element in assessing whether the indorsee had become the lawful holder of the bills. The Court concluded that the completion of an indorsement by delivery for the purposes of s.5(2)(b) of COGSA requires the voluntary and unconditional transfer of possession by the holder to the indorsee and an unconditional acceptance by the indorsee. The fact that SCB declined to accept the unconditional presentation and held the bills to the order of Gunvor’s bank meant that the indorsement was not completed by delivery on 4 June 2010.
The 7 July pointThe Court of Appeal held that the Judge had been right to proceed on the basis that Gunvor’s claim to recover the face value of the credit properly sounded in debt rather than in damages. It followed that there was a corresponding obligation on Gunvor to transfer the documents, including the bills of lading, to SCB, since presentation and transfer of the documents was a condition of the existence of the debt.
As to whether there had been a completion by delivery of the indorsement of the bills, the Court of Appeal held that, by accepting payment of the face value of the LC, Gunvor necessarily accepted that SCB was entitled to “take up” the documents. Accordingly, there was, at the time of the settlement, an unconditional transfer of the documents sufficient to render SCB the lawful holder of the bills of lading for the purposes of s.5(2)(b) of COGSA.
CommentThis decision confirms that s.5(2)(b) of COGSA distinguishes between a consignee in possession of a bill and an indorsee in possession of a bill; in the former case, physical possession is sufficient to confer rights of suit upon the holder, whereas in the latter case there must be an unconditional transfer and acceptance of the bill.
However, the decision on the 7 July point leaves a beneficiary faced with a wrongful rejection of documents, which include a bill of lading, presented under a letter of credit on the horns of a dilemma. In these circumstances, the beneficiary may only maintain a claim in debt against the bank if it is willing to transfer the documents against payment; in other words, leave the bill(s) of lading with the bank.
In the meantime, the beneficiary will thereby prevent itself from safely taking any steps to mitigate the separate losses to which it may be exposed by way of demurrage by instructing the discharge of the cargo against a LOI. In the meantime, the cargo will need to remain on the vessel until the position is resolved as between the LC bank and the beneficiary, which could take months or years, during which time the vessel cannot be employed.
Ince & Co LLP represent the Owners in this litigation. An application for permission to appeal to the Supreme Court is pending.
Carl WalkerSolicitor, [email protected]
Stuart ShepherdPartner, [email protected]
08 SHIPPINGE-BRIEF, WINTER 2015
Delayed delivery: the right to cancel shipbuilding contracts
Zhoushan Jinhaiwan Shipyard v. Golden Exquisite Inc. [2014] EWHC 4050 (Comm)
A recent decision in the Commercial Court offers helpful guidance to both shipyards and buyers facing and considering possible cancellations of shipbuilding contracts due to delayed delivery.
The background factsThe Court heard appeals from four arbitration awards in relation to disputes regarding the interpretation of four shipbuilding contracts between a Chinese shipyard (the “Yard”) and four buyers (“Buyers”, all part of the same group). The contracts were materially identical and, in each case, the Buyers relied on a contractual right to cancel the contract for delayed delivery of the vessel.
In arbitration, the Tribunals found that the Buyers’ cancellations were valid. The issue on appeal was whether the Buyers had lawfully cancelled the contracts, or whether, as the Yard alleged, cancellation was unlawful because the Buyers had themselves caused part of the delays to the delivery of the vessels.
Right to cancel The contracts provided the Buyers with the right to cancel the contracts in the following circumstances:
> Under Article III.1(c): after 210 days of “non-permissible delays” to the contractual delivery date; and
> Under Article VIII.3:
i. after 225 days of “permissible delays”, which were specific causes beyond the Yard’s control and which were enumerated in Art VIII.1; and
ii. after 270 days of combined “permissible” and “non-permissible” delays.
The Buyers gave notice of cancellation of the contracts more than 270 days after the contractual delivery date, and claimed a refund of the instalments paid. If, as the Buyers claimed, the contracts were cancelled under Article III.1(c), the Yard would also have to pay interest. There would be no obligation to pay interest if the contracts were cancelled under Article VIII.3.
After the Buyers gave notice of cancellation, the Yard alleged that the Buyers were in breach of Article IV of the contracts, which provided for inspection of the vessel by a supervisor appointed by the Buyers. Although the Yard had not previously issued any notice of such delays under the contracts, the Yard alleged that the Buyers were in breach of their obligation to “...carry out inspections in accordance with the agreed inspection procedure and schedule and usual shipbuilding practice...”. The Yard alleged that the Buyers’ supervisors had worked insufficient hours, imposed extra-contractual requirements and taken unreasonable amounts of time to return crucial documentation.
The Yard therefore sought a finding that on a true construction of the contracts, the delays caused by these so-called “Buyers’ breach delays” of at least 90-100 days each should not count towards the delay thresholds relied upon by the Buyers. If the days lost to “Buyers’ breach delays” did not count towards the thresholds, the Buyers’ cancellation of the contracts was premature and unlawful.
If the Yard was correct that the cancellations were unlawful, the Buyers would have been in repudiatory breach of the contracts, and the Yard would have been entitled to keep the instalments paid and re-sell the vessels, crediting the Buyers only with the balance of the proceeds of sale after the Yard had recouped its expenses.
The Commercial Court decision: types of delayThe Court rejected the Yard’s arguments and found in favour of the Buyers. The Court found that there were only three types of delay provided for in the contractual scheme:
i. Permissible delays: delays defined in Article VIII.1 and deemed to be outside the control of the Yard. They allowed the Yard an extension of time for delivery of the vessel and, if they persisted, gave the Buyers a right to cancel the contracts and recover the instalments (without interest).
ii. Non-permissible delays: delays which did not allow the Yard any extension of time for delivery but which, if they persisted, allowed the Buyers to cancel the contracts and recover the instalments of the price paid with interest.
iii. Excluded delays: delays excluded from consideration when determining whether the Buyers were entitled to reduce the contract price or cancel the contract because of delayed delivery, but which delays may, under the terms of the contract, have allowed the Yard an extension of time for delivery of the vessel.
The Court rejected the Yard’s argument that the “Buyers’ breach delays” constituted a separate, fourth category of delays.
The Court found that the wording of Article IV did not contain any provision that permitted the time for delivery to be extended because, as a matter of contractual interpretation, the Buyers’ supervisor had no power to delay the construction of the vessel: in fact, the Yard was not required to wait for the Buyers’ supervisor to attend tests and carry out inspections. “Buyers’ breach delays” were not, therefore, excluded delays.
“Buyers’ breach delays” also did not fall within the scope of Article VIII.1, and so were not permissible delays, and did not allow the Yard an extension of time for delivery. Even if “Buyers’ breach delays” were permissible delays, the Yard’s failure to comply with the contractual requirement to give notice meant that the Yard could not rely on these delays to claim an extension of time for delivery. The delays were therefore non-permissible delays that did not allow the Yard an extension of time for delivery.
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Wai Yue LohPartner, [email protected]
Ajay AhluwaliaSolicitor, [email protected]
At the time of the notices of cancellation, the Buyers had the right to cancel the contracts under both Article III.1(c) and Article VIII.3. The Buyers were entitled to cancel the contract under Article III.1(c), obtain a refund of paid instalments and claim interest at the rate of 5% per annum.
CommentThe decision presents valuable assistance to parties considering or facing possible cancellations under shipbuilding contracts. Parties should be wary of stretching the meaning of the contractual terms: the Court described the Yard’s arguments as “untenable” and cautioned against an over-reliance on “commercial common sense” to justify interpretations that were “inconsistent with the language of the contract”.
As a practical tip, parties with genuine concerns over issues causing delays to the construction of the vessel should issue notices of delay under the contract to ensure they are not precluded from relying on such delays at a later stage.
Beware the pitfalls of inconsistent dispute resolution clauses
Transgrain Shipping BV v. Deiulemar Shipping SpA & Another (Eleni P) [2014] EWHC 4202 (Comm)
Parties should be very careful to ensure that no competing dispute resolution clauses are contained in the same contract. In this case, two competing arbitration clauses meant that it was unclear whether a time bar provision applied to a claim under the charterparty. The parties had to go to court to establish which arbitration clause applied.
The background factsHead Owners time chartered the vessel to Disponent Owners, who chartered the vessel to Charterers who sub-let the vessel to sub-Charterers. The various charterparties were on back-to-back terms, save for the period and rate of hire.
Each charterparty provided for arbitration in London, but there were two sets of arbitration terms incorporated into each contract that were inconsistent with each other. One set of terms (“clause 75”) contained a specific time bar in which claims had to be made within 13 months of the vessel redelivery. The other set of terms, the BIMCO arbitration clause, did not contain any specific time bar.
In the circumstances, if clause 75, which contained the 13 month time bar, did not apply, the Charterers would have been unable to rely on that time bar in order to defeat a US$5.56 million claim that Head Owners had sought to introduce into the arbitration after 13 months of the vessel’s redelivery, following the bankruptcy of the Disponent Owners.
In arbitration proceedings, the Tribunal made a decision that called into question whether the applicable arbitration regime was clause 75 or the BIMCO arbitration clause. An application was made to the Commercial Court to set aside the Tribunal’s decision.
The Commercial Court decisionSince the parties could not have intended both clauses to apply, the Court had to decide which clause applied. The Court concluded that the BIMCO arbitration clause applied.
The Court relied on the following reasons:
1. The Court was not persuaded that clause 75 had been specifically negotiated between the parties, such that it should take precedence over the BIMCO arbitration clause. Whilst clause 75 was specifically referenced throughout each charter, about 70 other clauses were also referenced. If the parties had deliberately chosen clause 75 over the BIMCO arbitration clause, the Court would have expected the parties to have deleted all references to the BIMCO arbitration clause throughout the charters. They did not do so.
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2. Both clauses allowed for arbitration under a specific set of rules – the LMAA arbitration rules. Those rules recommend the use of the exact BIMCO arbitration clause that had been included in the charters. The Court was therefore persuaded that the BIMCO arbitration clause is an “industry standard” clause and, given that the parties had contemplated that the arbitration would be conducted by members of the LMAA, they probably intended that the BIMCO arbitration clause was the applicable clause.
3. The BIMCO arbitration clause is in two parts. The second part deals with mediation. Mediation is now a well-accepted alternative to litigation and arbitration. The Court stated that it expected commercial parties to value the benefits of a mediation and to include a clause that allowed for mediation.
The Court went on to say that the question as to whether the parties had agreed on the 13 month time limit for claims (even in circumstances where the BIMCO arbitration clause was applicable) was a matter for the Tribunal to rule on.
CommentIt is vitally important for parties to check that only one dispute resolution clause is incorporated into their contracts. If there is more than one – and they are inconsistent – costs are likely to be incurred in order to sort out which clause is applicable before the parties can turn to actually resolving the differences that exist between them.
Ian CranstonPartner, [email protected]
Ruth MonahanSolicitor, [email protected]
When an English jurisdiction clause in a bill of lading will be deemed exclusive
Compania Sud Americana de Vapores SA v. Hin-Pro International Logistics [2014] EWHC 3632 (Comm)
The facts of the underlying dispute in this case are less interesting than the Court’s findings that the English law and jurisdiction clause in the bills of lading was an exclusive jurisdiction clause and consequently that a permanent anti-suit injunction should be granted in relation to proceedings brought by cargo interests in China under the bills. Of particular relevance in the Court’s opinion was the fact that, in agreeing to English law as the governing law of the bills, the parties should also be taken to have intended that the English courts should have exclusive jurisdiction. This is a particularly interesting decision, given that the jurisdiction clause in question provided for other courts to have jurisdiction in certain circumstances.
The background factsThe original claim was one for mis-delivery of goods. Hin-Pro, a Hong Kong freight forwarder, alleged that the carrier, CSAV, wrongly delivered cargo without production of original bills of lading in various ports in Venezuela. The shipments in question were all from China to Venezuela and on CSAV bills. The bills were straight bills naming CSAV’s Venezuelan agents, Raselca, as consignee. Only some, not all, the bills named Hin-Pro as shippers. Nonetheless, Hin-Pro claimed to be an original party to the contract of carriage contained in each bill (which numbered about 70 in total).
In Chinese proceedings brought by Hin-Pro, CSAV contended that, under Venezuelan law, cargo had to be delivered to the storage provider authorised by the Venezuelan Government in almost all cases and that CSAV were therefore legally obliged under Venezuelan law to deliver the goods to the authority which then had sole control over the goods. The bills they issued specifically provided for this eventuality and CSAV said that the goods had all eventually been on-delivered to the buyers by their local agents. Indeed, no claim had been brought by any of those buyers.
CSAV subsequently sought and obtained both an anti-suit injunction and a worldwide freezing order against Hin-Pro from the English Commercial Court. The matter then came back before the Court, which was asked to make the anti-suit injunction permanent and to award CSAV damages in respect of Hin-Pro’s breaches of the jurisdiction clause in the bills.
Clause 23 of the CSAV bills provided as follows:
“Law and jurisdiction.
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.”
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Reema ShourProfessional Support Lawyer, [email protected]
Max CrossPartner, Hong [email protected]
The Commercial Court decisionThe Judge considered whether or not, by this clause, the parties had agreed to the exclusive jurisdiction of the English Court, with the result that the proceedings in China amounted to a breach of contract. He decided that they did, because English law was the mandatory governing law of the bills and the parties must therefore also have intended that the English courts should have exclusive jurisdiction. In his view, the English courts would be seen by the parties as best able to apply the provisions of English law which the parties agreed to be applicable in the circumstances. On the Judge’s interpretation of the clause, it was not simply an agreement to submit to the English Court’s jurisdiction, which could be read as allowing proceedings to be brought elsewhere, but actually required that claims and disputes arising under the bills be determined in accordance with English law by the English Court.
The Judge also commented on the fact that the second and third sentences of the clause provided for different courts to have jurisdiction in different circumstances. He said that the clause as a whole had to be seen in light of the clause paramount in the bills, which provided for the application of the Hague Rules, save in three situations:
1. Where, as a matter of English law and the English COGSA 1971, the Hague-Visby Rules are compulsorily applicable;
2. Where there are shipments to and from the US, in which case US COGSA is to apply; and
3. Where the bill of lading is subject to legislation which makes the Hamburg Rules compulsorily applicable.
The Judge concluded that the second and third sentences of the jurisdiction clause were intended to provide for the situation where proceedings are brought elsewhere than in England. Notwithstanding the choice of English law and English jurisdiction, therefore, US COGSA or the Hamburg Rules might apply in certain circumstances (e.g. Chile, where CSAV is incorporated, applies the Hamburg Rules, which contain their own jurisdiction provision). The second and third sentences of the clause provided, therefore, a fall-back defence, in the event that the English law and jurisdiction clause proved ineffective in some foreign courts. The third sentence was, however, (based on evidence put before the Court) ineffective as a matter of Chilean law. So any proceedings begun in Chile against CSAV would have been in breach of clause 23 and, similarly, the Chinese proceedings were also in breach of the exclusive English jurisdiction clause.
The Judge held that there was a good arguable case that fraud was being perpetrated in relation to the Chinese proceedings and he made the anti-suit injunction permanent. He also awarded CSAV damages for breach of the exclusive jurisdiction clause in the amount of any sums awarded to Hin-Pro in China.
Comment Although the word “exclusive” did not appear anywhere in the English law and jurisdiction clause in the bills of lading, the Court still came down in favour of exclusive English Court jurisdiction. This was not a foregone conclusion, however, and, for the avoidance of doubt, it is always worth specifying expressly that a particular jurisdiction should be “exclusive” if that is what the parties want.
It should be noted that Hin Pro did not participate in the proceedings and the Court did not therefore have the benefit of any submissions which they might otherwise have made.
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12
Who pays the Suez Canal fees?
HBC Hamburg Bulk Carriers GmbH & Co KG v. Huyton Inc (Glory Sanye) [2014] EWHC 4176 (Comm)
This was an appeal from an arbitration award on a point of construction in relation to the wording of an addendum to a charterparty.
The Commercial Court held that the costs of transiting the Suez Canal arising as a result of amended voyage orders were for the Charterers’ account, even though the Disponent Owners would have had to incur them anyway in order to redeliver the vessel.
The background factsThe Claimant Disponent Owners (“Owners”), chartered the vessel to the Respondents for a voyage from Constanza to Djibouti. The vessel arrived at Djibouti but was unable to discharge because there were no receivers for the cargo. After the vessel had spent three months off Djibouti, the Owners and the Charterers agreed an addendum (“addendum no. 1”) to the charterparty whereby the discharge port was changed to Ain Sukhna, Egypt, a port to the south of the Suez Canal.
Addendum no. 1 provided:
“Owners and Headowners to be held harmless and indemnified against all losses, expenses, damages, risk whatsoever and howsoever arising including but not limited to those which may arise from any 3rd party including but not limited to Egyptian authority’s rejection refusal or inability to accept delivery of the cargo or from charterer’s failure to discharge cargo.”
Later, by a further addendum (“addendum no. 2”), the discharge port was changed again from Ain Sukhna to Damietta, an Egyptian port on the Mediterranean coast, meaning that the vessel would have to transit the Suez Canal northbound in order to arrive at the discharge port. Materially, addendum no. 2 provided:
“...the cargo is to be discharged at the port of Damietta (Egypt) instead of Ain Sukhna (Egypt) and all other terms, conditions, clauses and paragraphs as per Charter Party dated 23 October 2009 and addendum no. 1 and reservations of rights to remain in force.”
Under the head charterparty, a time trip charter, the Owners had to re-deliver the vessel at Port Said after completion of the voyage. She would, therefore, have had to transit the Suez Canal irrespective of the change of discharge port under addendum no. 2. The head charterparty provided that the Owners (as charterers under that charter) were responsible for all canal tolls and, therefore, as between them and the registered Owners, would have to bear the costs of transiting the Suez Canal.
In the arbitration, the Tribunal held that the costs of transiting the Suez Canal were not an expense that the Charterers had agreed to bear in the addenda on the basis that the Owners would have had to transit the Suez Canal anyway and:
“in the context, “losses” or “expenses” [in addendum no. 1, as cited above] must be construed as limited to additional losses and expenses which would not have been incurred in any event.”
It was this finding that was the subject of the Owners’ appeal.
The Commercial Court decisionThe Court found that the commercial aim of the addenda had been to allow the Charterers to bring the voyage (and therefore their liability to pay demurrage) to an end and to allow the Owners to discharge the cargo and redeliver the vessel. The Court considered both the commercial objectives of the parties and their background knowledge when they agreed the addenda. The Court noted that the Owners’ liability under the head charterparty to bear the costs of transiting the Suez Canal was not within the knowledge of the Charterers and should not therefore be taken into account when assessing the scope of the Charterers’ indemnity.
Given the Court’s finding on the facts, the question which it had to answer was simply whether the expense of transiting the Suez Canal arose from the Charterers’ failure to discharge the cargo at Djibouti. The Court found that the Suez Canal transit would not have been required in order to perform the original voyage to Djibouti but was required to perform the amended voyage to Damietta and, as such, the costs of the transit were ones that the Charterers had agreed to bear. The appeal was therefore allowed.
CommentThis judgment shows the Court applying the clear wording used by the parties, since the expense arose from the Charterers’ failure to discharge the cargo at Djibouti, and that is what was expressly covered by the indemnity. The decision also emphasises that the background knowledge against which contracts will be interpreted is limited to that knowledge available to both parties.
Daniel JonesPartner, [email protected]
Jonathan ReeseSolicitor, [email protected]
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Consecutive time charters – check your contract terms
London Arbitration 18/14 – LMLN, 16 October 2014
If the vessel’s hull is fouled during a charter and there is no opportunity to clean it before delivery under the follow-on charter to the same charterer, is the owner liable for the underperformance during the second charter? According to the Tribunal in London Arbitration 18/14, on the facts of that case, the Owners were indeed liable.
The background facts The vessel was fixed for a time charter trip on the 1946 NYPE form. Rider clause 128 stated that “Owners not to be responsible if the vessel under the currency of this charter party stays at port or anchorage or any other place for more than 28 days and therefore vessel’s speed, due to bottom fouling which may have formed to the ship’s hull as a direct result of such prolonged stay, is reduced and/or consumption increased. In case of need for underwater cleaning same to be for Charterer’s account in terms of time and expenses”.
The vessel’s hull became fouled with marine growth as a result of her spending 48 days waiting, loading and remaining at the port of Morowali, Indonesia during the first charter.
Towards the end of the prolonged stay, the Owners advised the Charterers that the hull may have been fouled, that the prolonged stay clause was activated by this and that the Owners would be conducting an underwater inspection at the discharge port (Lianyungang, China). A week later, before sailing from Morowali, the parties agreed a follow-on charterparty in direct continuation, on substantially the same contractual terms.
Following discharge at Lianyungang, an underwater inspection confirmed that the hull was fouled. However, it was not cleaned. The vessel sailed in ballast to Indonesia under her follow-on charter, loaded a cargo of nickel ore and discharged it at Lianyungang.
The Owners claimed reimbursement of the Charterers’ deduction of (1) US$21,020.10 for the lost time and IFO/MDO overconsumption during the first charter; and (2) US$12,287.94 for the lost time and IFO/MDO overconsumption during the second charter. The Owners also claimed US$4,500 in lieu of hold cleaning on redelivery and US$2,900 for stevedore damage during discharge under the second charter.
The arbitration award As for the underperformance during the first charter, the Tribunal held that this was for the Charterers’ account under clause 128. Therefore, the Owners’ claim for reimbursement of the Charterers’ US$21,020.10 deduction succeeded.
As for the underperformance during the second charter, the Tribunal held that this was for the Owners’ account:
1. There was no basis for the Owners’ argument that the Charterers were estopped from claiming in respect of the underperformance on the alleged basis that the second charter was in direct continuation of the first and there was no time for the hull to be cleaned.
2. When the second fixture was concluded, the Owners were aware that the hull may have been fouled during the prolonged stay. Yet they fixed the vessel on identical terms to the first charterparty, taking the risk that the vessel might not be able to meet the (identical) speed and consumption warranties by reason of the hull fouling. Indeed, they may even have intended to clean the hull during the ballast voyage under the second charter (but did not do so, resulting in underperformance for the remainder of that charter).
However, the Charterers’ deduction for MDO overconsumption during the second charter had to be returned to the Owners because the lack of a reference to MDO consumption in the charterparty performance description meant that the Owners had given no MDO consumption description at all. Furthermore, the lower IFO overconsumption figure reported by the Charterers’ router prevailed over their own figure, and their time loss figure had to be reduced to factor in the address commission. Finally, the Owners’ claim for the US$4,500 and US$2,900 additional claims succeeded in full.
The Owners therefore recovered US$37,623.28 (80%) of their US$45,386.86 total claim and were awarded their costs in full.
Comment When fixing consecutive time charter trips with the same charterer, the parties should give thought to the terms of the follow-on charterparty, or agree the further trip as an extension of the existing charterparty. Otherwise, problems may arise. An owner should certainly not be quick to assume that underperformance during a follow-on charter resulting from a prolonged stay during the preceding charter (for which the charterer is liable under the first charterparty) will be for the charterer’s account. On certain facts it may be, but London Arbitration 18/14 is an example of the owner being liable for such underperformance.
Evangelos CatsambasPartner, [email protected]
Natalie NielsenTrainee solicitor, [email protected]
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14
Court sets aside arbitration award for serious irregularity
Lorand Shipping Limited v. Davof Trading (Africa) B.V. (Ocean Glory) [2014] EWHC 3521 (Comm)
This case is a rare example of a successful challenge to an arbitration award on the ground of serious irregularity under section 68 of the Arbitration Act 1996 (the “Act”).
Section 68 sets out a limited list of irregularities which, taken alone, might allow very wide grounds of challenge. However, the requirement to establish “substantial injustice” in relation to all the grounds imports strict limits to the parties’ prospects of successfully challenging awards.
The Commercial Court held that the Tribunal’s failure to give notice to the parties that it intended to adopt a course of action that neither party had advocated, and without giving them an opportunity to make submissions on the proposal, constituted a serious irregularity leading to substantial injustice. The Court granted the order sought by the applicant Owners and remitted the award back to the Tribunal for determination of certain disputes.
The background factsDisputes arose between the parties to a voyage charterparty that provided for the shipment of animal feed from Ivory Coast to Morocco. The vessel lost her rudder and was towed to Morocco but discharge was significantly delayed and the condition of the cargo deteriorated as a result.
Pursuant to the terms of the charterparty, the dispute was governed by English law and was to be referred to London arbitration. There was a time bar clause under which any claims had to be lodged within six months of the completion of discharge.
The arbitration awardFollowing completion of discharge, the Owners commenced arbitration proceedings against the Charterers. In a rather unclear Claim Submission, the Owners sought an interim award on demurrage and also asked the Tribunal to reserve its jurisdiction over other disputes and claims, including an indemnity from the Charterers in respect of any cargo damage claims that might be brought against the Owners by the cargo receivers.
The Tribunal made a final award, awarding the Owners demurrage. Regarding the other potential claims, the Tribunal declined to reserve its jurisdiction. They based this rejection on:
a. the length of time that had elapsed since the cargo had been discharged; and
b. the absence of any evidence that claims would be brought by cargo interests against the Owners.
The effect of the award in the terms issued exhausted the Tribunal’s jurisdiction. The Tribunal envisaged that if there were any further claims, then these would be brought in new arbitration proceedings. But, in the circumstances, this was
not possible. The effect of the contractual time bar was that the Owners were unable to commence fresh arbitration proceedings against the Charterers. Therefore, the Owners were precluded from pursuing indemnity claims.
It was also plain from the arbitration award that the course adopted by the Tribunal had not been advocated by either party. Further, neither party had been given the opportunity to make written or oral submissions.
Owners’ arguments on appealThe Owners challenged the award for serious irregularity under section 68. They argued that the Tribunal had failed to comply with its mandatory general duty under section 33 of the Act to “act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent”. Rather, the Tribunal had:
a. relied solely on two considerations (the length of time since the cargo was discharged and the absence of evidence that cargo interests intended to bring claims against the Owners) which had not been raised by either of the parties and which the Tribunal gave the parties no opportunity to address; and
b. had adopted a course of action that had not been advocated by either party and without giving the parties the opportunity to comment. The Owners had asked the Tribunal to reserve jurisdiction over any other claims arising under the charterparty; the Charterers had asked for those claims to be dismissed on their merits. The Tribunal adopted neither of these courses of action and followed a path of its own devising.
The Owners submitted that the course of action followed by the Tribunal constituted a serious irregularity leading to a substantial injustice under section 68.
The Charterers opposed the Owners’ application, arguing that the high threshold of serious irregularity leading to substantial injustice under section 68 had not been met.
The Commercial Court decisionThe Commercial Court granted the Owners’ application. The Judge held that:
a. despite the lack of clarity of the Claim Submissions, it was relatively plain that indemnity claims had been referred to the Tribunal – or at least that the parties had proceeded on that basis. The fact that (as the Judge put it) no specific claims had been quantified was not fatal;
b. where a tribunal wishes to adopt a course not advocated by either party, it is generally incumbent upon the Tribunal to give the parties the opportunity to present their views on that particular course before it is finally adopted. The Tribunal’s failure to do so amounted to serious irregularity. In this case, the Tribunal adopted a “halfway house” approach that had not been advocated by either party. Where a claim is submitted to a tribunal for determination, the Tribunal is obliged to determine it one way or the other
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– it has no power to decline to act. This Tribunal should either have reserved jurisdiction over further claims (as the Owners requested), or dismissed those claims on their merits or on other grounds (as the Charterers requested). In this case, the Tribunal adopted neither of those courses of action.
c. The requirement under section 68 to show “substantial injustice” did not require the Court to be satisfied that the Tribunal would have reached a different view if it had given the parties the opportunity to make submissions – it sufficed that the Tribunal might realistically have done so.
CommentAlthough the Ocean Glory application succeeded, the Commercial Court decision and the comments by the Judge reaffirm the very high threshold for applications under section 68 of the Act.
The case also serves as a reminder to arbitrators that they should aim to adopt a course of action advocated by the parties. In the event that they consider there is a more practical approach, then this should be put to the parties to give them a fair opportunity to consider and address it.
Jonathan ElveyPartner, [email protected]
Despina Plomaritou Solicitor, [email protected]
SHIPPING LEGISLATION AND REGULATION An update on the IMO’s proposed Polar Code
Reduced ice levels in recent years have resulted in increased maritime traffic in the Northern Sea Route (“NSR”). Whilst the NSR offers both time savings in terms of voyage duration and also bunker cost savings, navigating the Arctic presents a number of challenges for the shipping industry and raises a number of safety and environmental concerns.
As a result, the International Maritime Organisation (“IMO”) has produced a draft Polar Code to cover all aspects of shipping in the Arctic and Antarctic areas. The Polar Code comprises a set of mandatory safety and environmental protection regulations, together with non-mandatory provisions relating to both. In May 2014, the IMO’s Marine Safety Committee (“MSC”) agreed and approved in principle the mandatory safety provisions and then formally adopted them in November 2014. Furthermore, in October 2014, the IMO’s Marine Environment Protection Committee (“MEPC”) agreed many of the environmental protection regulations, which will become mandatory under the International Convention for the Prevention of Pollution from Ships (“MARPOL”).
The MEPC is expected to adopt the Polar Code and associated MARPOL amendments in May 2015. The IMO Council should then formally approve the final Code, which is expected to come into force in January 2017.
This article considers why a Polar Code was deemed necessary and highlights its principal provisions.
The backgroundThe NSR (also known as the North East Passage) runs along the Russian coast from the Atlantic to the Pacific and has historically been used for domestic Russian shipping. Reduced levels of ice in the Arctic Sea in recent times, however, have resulted in the NSR increasingly attracting international commercial shipping. While the NSR is only available for part of the year, namely the period covering late summer and autumn, nonetheless the number of international commercial transits has been steadily increasing annually since 2009 and this general rising trend is expected to continue in the long term, despite a reported fall in transit permit approvals by the Northern Sea Route Administration (“NSRA”) in 2014.
In addition to the bunker cost and time savings that the NSR brings, the risk of piracy for ships travelling via the Gulf of Aden has proved an additional attraction of the NSR. Nonetheless, the shipping industry faces a number of concerns arising out of transits through the NSR. These include the challenges of harsh and extreme weather conditions, restricted visibility, poor communications, unreliable navigational aids, risk of contact with icebergs, under-developed casualty response infrastructure, potential remoteness for salvage and clean-up facilities in the event of an incident, lack of bunkering facilities, and so on. Furthermore, due to the weather conditions, any wreck
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removal in case of a casualty is likely to prove both expensive and dangerous. If there is a collision or grounding in the NSR, there may also be a serious risk of oil pollution, which is especially problematic in the Arctic region because cold temperatures and ice may make the detection of oil in icy waters particularly difficult and the spilt oil less easy to contain and control. This in turn leads to a number of environmental, as well as safety, concerns. Marine underwriters will also have to decide how to price and reserve Arctic risks.
While Russia has federal laws regulating vessels transiting the NSR, the IMO has deemed it necessary to develop a mandatory international Code. Hence the draft International Code for Ships Operating in Polar Waters (the “Polar Code”), which the IMO has been working on since 2009.
The Polar CodeThe Polar Code is not a self-standing convention, which would require a potentially lengthy ratification process before it came into force. Rather, the mandatory safety regulations of the Code will be implemented through the International Convention for the Safety of Life at Sea 1974 (“SOLAS”) and the mandatory environmental protection regulations will supplement and be adopted via amendments to MARPOL. The Antarctic area is already established as a Special Area under MARPOL Annexes I and V and the Code aims to replicate many of those provisions for the Arctic area. The Code also comprises non-mandatory but recommended safety and environmental measures.
A key provision is that all vessels will be required to carry a Polar Ship Certificate as well as a Polar Water Operational Manual at all times whilst operating in the polar regions. The Polar Ship Certificate will classify vessels according to the suitability of their design for operating in polar waters. Issuing the Certificate would require an assessment that takes into account the range of operating conditions and hazards the vessels may encounter in polar waters. The assessment would include information on identified operational limitations and plans or procedures or additional safety equipment necessary to mitigate incidents with potential safety or environmental concerns.
The Polar Water Operational Manual is designed to provide the owner, operator and crew of vessels operating in the polar region with sufficient information about the vessel’s operational capabilities and limitations to support their decision-making process.
The combination of these two documents is intended to provide key information about the vessel’s operational capabilities and limitations – such as Polar Ship Class and Ice Class, temperature capabilities, safe ice-going capability and ice transit capability – as well as the procedures that have to be followed routinely and in worst case scenarios.
Other noteworthy safety provisions include rules dealing with stability, ship structure, watertightness, machinery and operational safety, fire safety, life-saving appliances, navigation, communications, manning and training, and voyage planning.
As regards the mandatory environmental protection
regulations, these include measures designed to prevent oil pollution, pollution by noxious liquid substances from ships, pollution by sewage from ships and pollution by discharge of garbage from ships. MARPOL Annexes I to V will be amended accordingly to introduce these regulations.
Some of the non-mandatory recommendations of the Code include a recommendation to refrain from carrying heavy fuel oil as cargo or fuel in the Arctic and a recommendation to apply the standards contained in the Ballast Water Management Convention, which has not yet entered into force.
CommentConcerns have been expressed that the Polar Code does not take account of the fact that conditions in the Arctic are never uniform and that the Code does not link the ice-classes of vessels with the actual ice conditions prevailing in the polar regions. However, it is anticipated that industry standards will be developed to deal with such concerns. By way of example, POLARIS (Polar Operational Limit Assessment Risk Indexing System) has already been developed by the International Association of Classification Societies (“IACS”) with the help of Arctic counties, such as Denmark, Finland, Sweden, Russia and Canada. POLARIS reportedly provides a chart listing the level of risk against each type of ice condition and how these apply to the different ice classes of vessel. Other industry standards are likely to follow.
There have also been criticisms from environmental organisations that the Code does not go far enough and that it fails to address certain marine safety and environmental protection issues. Notwithstanding these criticisms, the Polar Code is arguably a significant step in ensuring that any safety and environmental risks presented by increasing Arctic maritime traffic are both contained and controlled.
Reema ShourProfessional Support Lawyer, [email protected]
Rory MacfarlanePartner, Hong [email protected]
Florian SchackerTrainee solicitor, [email protected]
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The entry into force of the Nairobi Convention on Wreck Removal: is it a big deal?
The Nairobi Convention will come into force in April 2015. It provides a strict liability regime for the removal of hazardous wrecks in Exclusive Economic Zones, with states able to pursue owners for compensation when forced to carry out remedial measures themselves. Direct action against insurers is also permitted but the relevant states’ powers are curbed by the requirement to ensure that measures taken are proportionate to the hazard. The immediate impact of the Convention is likely to be limited but it nonetheless represents a step towards global uniformity in this currently inconsistent area of law and practice.
Origins and early controversyThe Convention comes into force on 14 April 2015, some thirty years after the wrecking of the Mont Louis focused governments’ attention on the lack of a coherent international system for coping with the aftermath of maritime disasters that occur within countries’ Exclusive Economic Zones (“EEZs”) – the area outside a state’s 12 nautical mile territorial waters, usually extending to 200 nautical miles from a baseline that generally follows the coastline. In 1984, the Roll On-Roll Off vessel Mont Louis was carrying an extremely hazardous cargo of uranium hexafluoride when she collided with the ferry Olau Brittania and sank off Ostend. The Belgian authorities were left powerless, as the wreck was just outside territorial waters. The Nairobi Convention is the result of many years of hard work by the IMO Legal Committee.
Although the Convention aims primarily to remove the uncertainty over states’ powers over wrecks within their EEZs, the seemingly common sense suggestion that it might be extended to cover territorial waters caused great controversy. In 2007, Lloyd’s List reported “heated exchanges, which are rare in the legal committee”, with opposition to the “opt-in” clause whereby state parties could choose to extend the Convention’s effect to their territorial waters. Ultimately, the opters-in carried the day, although, as at 20 January 2015, only Antigua & Barbuda, Bulgaria, Denmark, Liberia, the Marshall Islands and the UK (less than half of the current state parties) have decided to apply the Convention to territorial waters, where the majority of wrecks of course occur.
Rising wreck removal expensesThe Convention’s potential importance has grown in recent years because of the significant escalation of wreck removal costs. It is discomforting that the MSC Napoli and the MV Rena were both a fraction of the size of the current generation of giant container ships, yet cost USD135 million and USD244 million to remove respectively. Environmental concerns and intervention by local authorities are probably the key factors: for example, the Italian authorities’ order that the Costa Concordia be refloated and towed, rather than dismantled in place, greatly increased the total wreck removal bill in that case.
How the Convention worksIf a ship is involved in a maritime casualty and becomes a wreck within a state’s EEZ, the master or the ship’s operator must report it without delay to the affected state. A “wreck” may include, amongst other things, drifting ships (if measures are not in hand to assist them) and floating debris. An assessment by an affected state that a wreck poses a navigational or major environmental hazard triggers the Convention’s provisions. Once a hazard is declared, states have powers to locate and mark wrecks, warn mariners and “facilitate the removal of wrecks”. Shipowners and their insurers can take some comfort from the fact that the Convention provides that owners may contract with whichever contractor they choose, and that if measures are in hand then states may do no more than set “a reasonable deadline in writing” for removal. Non-compliance permits the state to remove the wreck at the owner’s expense, but only by “the most practical and expeditious means available”.
Other featuresThe Convention imposes a strict liability on shipowners for the costs of locating, marking and removing wrecks, with only the narrow exceptions of war; natural phenomena of “exceptional, inevitable and irresistible character”; intentional acts and omissions of third parties; and negligence of the authorities responsible for lights and other navigational aids. Although tonnage limitation regimes will still apply, this will often not help owners because most states do not include wreck removal within their limitation regime.
The Convention also provides that all ships over 300 GT must carry insurance up to the limits of the 1996 Protocol to the London Convention on tonnage limitation and provides for direct action against insurers up to this limit. This will allow states to recover at least some costs even when vessels belonging to single ship companies with no other assets are wrecked. Ships must also obtain certificates to prove their insurance cover and the UK, Germany, Denmark, Liberia and the Marshall Islands are taking the lead in issuing certificates to ships flagged in countries that are not parties to the Convention. The International Group of P&I clubs have all agreed to issue “Blue Cards”, which demonstrate that ships have the cover mandated by the Convention and thus allow them to apply for the required certificate. The International Group has also signed memoranda of understanding with the Australian and South African governments, as part of an outreach programme aiming to raise awareness of the role of P&I clubs and improve relations with state authorities. As at 20 January 2015, discussions were also ongoing with the US, Canada, Malaysia, Singapore and EU states grouped together as the European Maritime Safety Agency.
To balance these heavy obligations placed on shipowners, the Convention also provides that measures taken by states shall be proportionate to the hazard, and “shall not unnecessarily interfere with the rights and interests of other States including the State of the ship’s registry, and of any person, physical or corporate, concerned”.
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Significance of the ConventionWhere it applies, the Convention may lead to owners being able to take a more assertive approach when faced with a wreck removal situation. Although questioning the decisions of state bodies through judicial review or the administrative courts is often an uphill struggle, the Convention gives clear grounds for resisting unreasonable actions taken by states. The strict liability regime may also help to reduce the number of wrecks that occur in the first place by encouraging states to provide ports of refuge rather than turn ships away, because they will be more likely to provide refuge when they are confident that someone will pay if they do become wrecks.
Currently the Convention’s effect is limited by the small number of states – fifteen – that have incorporated it into their law, and by the fact that only six of those have applied it to territorial waters. Its effect in the short term is therefore likely to be limited, but greater adoption and “opting-in” by states to extend its effect to territorial waters, which may prove to be an attractive step since it gives them an agreed right of direct action against insurers, could bring much-needed uniformity and clarity. The delegates at a Salvage and Wreck Conference in London in December 2014 summed the situation up well by voting that although the Convention will not change the situation overnight, it is nonetheless a move forward and deserves the support of the shipping industry and the world’s maritime nations.
Kevin CooperPartner, [email protected]
Martin Laughton Trainee solicitor, [email protected]
Global anti-corruption update January 2015 – what’s new?
December 2014 has seen the first three convictions brought by the Serious Fraud Office (“SFO”) under the Bribery Act 2010, in the Sustainable Growth Group case, involving the fraudulent selling and promotion of investment products based on green biofuel. The three individuals were convicted, amongst other things, of bribing and receiving bribes and the sentences for the offences relating to bribery were significant, ranging from four to six years’ imprisonment. Also in December 2014, the UK Government announced that it intended to set up a specialist police unit to tackle bribery and corruption.
With corruption increasingly hitting the headlines (think GlaxoSmithKline in China and Qatar’s World Cup bid), in early December 2014, the OECD issued a new report on corruption, highlighting the scale of bribery worldwide. It finds that transportation is one of the four sectors most affected by the issue of bribery.
In addition to highlighting the scale of corruption, the OECD report concludes that the senior management of corporations is often either involved in, or aware of, the practice of foreign bribery. In other words, it “rebut[s] perceptions of bribery as an act of rogue employees” and places blame more squarely on the shoulders of corporations and their leaders. According to the report, in 12% of cases, the CEO was aware of and endorsed the bribe; in 41% of cases, other members of management were aware of and endorsed the bribe; and 41% of cases related to bribes paid in well-developed countries. These findings underline the relevance of the corporate offence of failing to prevent bribery, which was introduced in the UK’s Bribery Act 2010 (“the Act”).
Corporate responsibility under the Bribery ActSince the entry into force of the Act, much column space has pointed out the difficulties faced by commercial organisations trading in developing countries – including in the shipping sector. The Act created a new form of corporate liability for failing to prevent bribery for all companies that carry on business or part of their business in the UK. But the impact of the Act goes far beyond such companies: even if not subject to the Act themselves, many companies will trade with, insure or otherwise be “associated persons” to companies that are bound by the Act, and those companies that are bound by it will (if they have done their homework properly) require compliance with its principles as a matter of contract.
Any company subject to the Act can receive a potentially unlimited fine if a person associated with it bribes another person intending to obtain or retain business, or an advantage in the conduct of business, for that company. It does not matter if the bribe takes place outside the UK or if the company had no knowledge of the bribe. This new “failure to prevent” type of offence is, of course, very far reaching, but it is a defence for the company to show that it has in place “adequate procedures” designed to prevent persons associated with it from acting corruptly. In other words,
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companies carrying out business in the UK must ensure that they have in place adequate procedures to prevent bribery by persons associated with them, and those that trade with companies subject to the Act may have a contractual obligation to comply with its principles.
Are you adequately protected?In a recent speech published by the SFO, Stuart Alford QC, SFO Joint Head of Fraud, reminded firms and individuals that the Act is at the forefront of the SFO’s priorities for prosecutions. Not many cases have been prosecuted yet, but this is unsurprising considering that the Act does not have retrospective effect. In order to reach court, therefore, an offence must be committed, detected, reported, investigated and the case prepared. All this will need to have happened since the Act came into force in 2011 but David Green QC, the Director of the SFO, has promised that large-scale prosecutions are imminent.
It is therefore more important than ever to have “adequate procedures” in place. Some assistance is provided by guidance issued by the UK’s Ministry of Justice addressing, among other things, the type of procedures that commercial organisations should put into place to avoid being found guilty of the offence of failure to prevent bribery. What this means is that companies must have in place policies and procedures that are proportionate to the company’s size and bribery risk, and are effective. There is no “one size fits all” solution and no place for an extensive anti-bribery policy that employees and “associated persons” are unlikely to read. It is necessary to assess whether the policy is effective and amend it if it is not. Do employees and associated persons know what it says and follow it? If not, then the policy certainly needs to be revised. The best advice is to aim for as short a policy as possible: the simpler the message, the more likely will it be understood and followed.
The development of “failure to prevent” offences in the area of economic crimesThe “failure to prevent” offence, which puts the onus on companies to reduce the risk of bribery, is a strong tool in the UK Government’s fight against bribery. With the world focusing on economic crimes and on the role businesses are being required to have in preventing such crimes, this type of offence will most certainly be used more widely. Indeed, in September 2014, the UK Government announced its intention to create a new offence of failing to prevent economic crime, which will be modelled on the Act’s “failure to prevent bribery” offence. Economic crime has yet to be exactly defined, but it will likely encompass a wide range of unlawful activities, including corruption, cyber-crime, money-laundering, insider trading and fraud.
If this new offence is introduced, it will significantly broaden the scope of corporate liability for entities carrying out business in the UK. An “adequate procedures” defence will be available to companies who can show that they have adequate
procedures in place to prevent the occurrence of the crime, but the need for wide-ranging revision of compliance policies can be expected. We shall continue to keep you updated on developments in this fast-changing area.
Kevin CooperPartner, [email protected]
Florence Preux Solicitor, [email protected]
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NEWS AND EVENTS Who’s Who Legal: Transport 2015 names Ince & Co lawyers as leading practitioners for Aviation and Shipping
This year Who’s Who Legal has conducted research on the world’s leading shipping lawyers for the first time since 2010 and subsequently combined the findings with in-depth aviation research, identifying the leading practitioners and firms.
Ince lawyers in China, France, Germany, Greece, Hong Kong, Monaco, Singapore, United Arab Emirates and the UK are among those listed as specialists in the aviation, maritime and shipping legal market.
Shipping law encompasses a range of areas including insurance, commercial disputes, corporate transactions and tax, and is dominated by several leading law firms with an international presence. The directory said “Ince & Co has a “highly reputable” global shipping practice”.
Ince & Co advised Bahri on the transfer of 20 vessels from Vela, as part of a merger worth US$1.3 billion
Ince & Co advised The National Shipping Company of Saudi Arabia (Bahri) in relation to the transfer of 20 tanker vessels from Vela International Marine Limited (Vela) as part of the largest merger in the history of the Kingdom of Saudi Arabia between Bahri and Aramco Vela.
The transaction, which had been on-going for approximately two years, concluded on 15th December when the ownership of the final ship was transferred.
Ince & Co assisted with preparing shipping documentation for each vessel delivery, in addition to arranging registration of a mortgage for each of the vessels. The deal involved 14 very large crude carriers (VLCCs), a floating storage VLCC, one Aframax tanker and four product tankers and resulted in Bahri becoming the third-largest owner of VLCCs in the world.
Rania Tadros, Managing Partner of the Ince & Co Dubai office, commented:
“We were delighted to have been able to assist Bahri successfully with this transaction. This deal represents the growing stature of both Bahri and Saudi Arabia on the international shipping stage and we congratulate all the parties involved. We thank Bahri for giving us the opportunity to be part of their team.”
Rania TadrosPartner, Dubai [email protected]
Ince & Co advises PVM Group and its sellers on completion of sale to Tullett Prebon PLC
Ince & Co advised on the $160 million corporate sale of the PVM Group, an independent broker of oil instruments, to Tullett Prebon PLC, one of the world’s leading interdealer brokers. The transaction completed on November 26, 2014.
The Ince London team was led by corporate partners Stephen Jarvis and Matthew Stratton and senior associate Mona Patel, together with solicitors Richard Hyman and Marcus Gwyer, and trainees Andrew McAdam and Sam Batchelor amongst others. The team worked alongside Bill Ricquier and Nirev Shah from Incisive Law LLC, with whom Ince & Co Singapore has a Formal Law Alliance, and Amaka Edomobi from our Dubai office.
“It has been a pleasure to work with the team at PVM throughout the deal. Bringing this major transaction to a close involved multiple complex legal and logistical issues. We coordinated legal teams in the US, Singapore, Austria and Bermuda, and worked closely with them to carry out a major pre-completion group reorganisation and obtain relevant regulatory approvals. We also assisted on a placing of shares on the London Stock Exchange, which were issued in consideration for the transaction,” said Stephen Jarvis, who led Ince’s team. “This deal is closely aligned to Ince’s global strength and our dedicated team of corporate specialists in the energy and international trade sectors.”
Ince’s corporate and commercial lawyers provide advice on a wide range of matters including joint ventures, mergers, acquisitions, disposals and group corporate structures to UK domestic and overseas companies, whether they are start-ups or long-established.
Ince & Co’s Beijing office has moved
Ince & Co’s Beijing office has moved with effect from 12 January to:
Ince & Co LLP Beijing Representative Office (UK)Room 405, 4th FloorChina Central Place Tower 2No. 79, Jianguo Road, Chaoyang DistrictBeijing 100025, China
Wai Yue Loh, partner and chief representative of Ince & Co’s Beijing office said:
“Our relocation highlights the dynamic development of both our Greater China and Beijing practices. We are very happy to be moving into this new office and expect to continue to go from strength to strength.”
Ince & Co’s Greater China practice comprises 11 partners and more than 28 lawyers based in three offices across Beijing, Shanghai and Hong Kong.
Stephen JarvisPartner, [email protected]
Wai Yue LohPartner, [email protected]
Ince & Co is a network of affiliated commercial law firms with offices in Beijing, Dubai, Hamburg, Hong Kong, Le Havre, London, Monaco, Paris, Piraeus, Shanghai and Singapore.
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