Viivi Varakas – Katariina Koivisto – Katja Zimmermann – Christopher Mondschein Team 16

 

INTERNATIONAL MARITIME LAW ARBITRATION MOOT COMPETITION

2013

SOUTHAMPTON

MEMORANDUM for

RESPONDENT  

MAASTRICHT UNIVERSITY

 

 

 

ON BEHALF OF RESPONDENT

Twilight Carriers

AGAINST CLAIMANT

Aardvark Ltd

I    

TABLE OF CONTENT

 

SUMMARY OF ARGUMENTS 1

STATEMENT OF FACTS 1

ARGUMENTS ON JURISDICTION 2

I. The Tribunal may rule on its own jurisdiction 2

II. There is no valid arbitration agreement 3

1. The arbitration clause has not been incorporated into the Bills of Lading 3

2. The Parties had no intention to incorporate an arbitration clause into the

Bills of Lading by way of the Fixture Recap

4

III. Alternatively, and in any case, the arbitration clause should be construed

narrowly

4

1. The arbitration clause in the Fixture Recap replaces the arbitration clause

in the Charter Party in its entirety

5

2. The arbitration clause should be construed narrowly 5

3. The arbitration clause does not cover the claims brought forward by the

Claimant

6

ARGUMENTS ON MERITS 6

IV. The Claimant does not have title to sue the Respondent for the damages they

have incurred

6

1. The Claimant is not a lawful holder of the Bill of Ladings 6

2. The Respondent did not hold the chattel in bailment for the Claimant 8

2.1 The Respondent has to be regarded as bailee 8

2.2 The Claimant never became bailor of the chattel 8

V. The Respondent is not liable for the damage or deterioration of the quality of

the goods by reason of the vessel being hijacked

10

1. The Hague Visby Rules apply 10

1.1. The Respondent properly and carefully kept the goods 10

1.1.1. The goods remained of good merchantable quality after the

piracy

11

1.1.2. Alternatively, damage or deterioration of quality of the goods

was not caused by a faulty system

12

2. The Respondent has not breached their duties under bailment 13

II    

3. Alternatively, the Respondent is able to invoke the exception to exclude

liability

13

3.1. The Respondent is exempted from liability for damages to the goods

incurred through the hijacking of the vessel by Somali pirates

14

3.1.1. The danger of the vessel being hijacked is not foreseeable 14

3.1.2. The damage is directly caused by the piracy 14

3.2. Alternatively, the Respondent is exempted from liability under the

catch all exception

15

VI. The Respondent has fulfilled their duty to deliver the cargo at the correct port

of discharge to the party that holds legal title to the cargo

15

1. The duties laid down in the Bills of Lading 16

1.1. The Respondent has not breached their duty under the contract as

they delivered the cargo at the correct discharge port

16

1.1.1. Alternatively, and/or additionally, the Respondent can invoke

Article 29 of the Charter Party

17

1.2. The Respondent has not breached their duties under the contract by

not delivering the cargo against presentation of the Bills of Lading

17

2. The duties arising out of the bailment relationship 18

2.1. The Respondent has not breached this duty under bailment by not

delivering the cargo at the correct discharge port

19

2.1.1. The Respondent can invoke Article 29 of the Charter Party 19

2.2. The Respondent has not breached their duties as a bailee by not

delivering the cargo against presentation of the Bills of Lading

19

3. The Respondent denies the Claimant’s claim for damages for alleged

misdelivery

19

3.1. The Respondent denies the claim for damages based on breach of

contract of carriage

20

3.2. The Respondent is not liable for costs incurred for replacing goods 20

3.3. The Respondent denies liability for legal fees sustained in the

Netherlands

22

3.4. The Respondent denies damages based on breach of duty as bailee

of the goods

23

3.7. The Respondent is entitled to costs of arbitration 24

III    

PRAYER FOR RELIEF 24

IV    

TABLE OF AUTHORITIES

I. Case Law

• AIG Europe SA v QBE International Insurance Ltd [2001] 2 Lloyd’s Rep 268

• Albacora S.R.L. v. Westcott & Laurance Line Ltd. (The Maltesian) [1966] 2 Lloyd's

Rep. 53

• The Aliakmon [1986] A.C. 786, 818

• Axa Re v Ace Global Markets Ltd [2006] EWHC 216 (Comm), [2006] Lloyd’s Rep IR

683

• Biddell v Horst [1912] A.C.18

• The Bunga Seroja, High Court of Australia, 22 October 1998

• The Bunga Seroja [1999] 1 Lloyd’s Rep. 512

• Chris Foodstuffs Ltd. v. Nigerian National Shipping Line [1967] 1 Lloyd's Rep. 293

• Coggs v Bernard [1703] 2 Ld Raym 909

• EJR Lovelock Ltd v Exportles [1968] 1 Lloyd’s Rep 163

• Excess Insurance Co Ltd v Mander [1997] 2 Lloyd’s Rep 119

• Fiona Trust & Holding Corp. v. Privalov [2007] EWHC 1217 (Comm)

• G.H. Renton & Co., Ltd v. Palmyra Trading Corporation of Panama [1956] 2 Llyod’s

Rep 379

• Gill & Dufus v Berger [1984] A.C 382

• Glyn Mills Currie & Co. v. East and West India Dock Co., (1882) 7 App.Cas. 591

• The Gudermes [1993] 1 Lloyd's Rep. 311

• Hadley v Baxendale [1854] EWHC J70

• Henry v Classen [1973] 1 Lloyd’d Rep 143

• Hobbs Padgett & Co (Reinsurance) Limited v J.C. Kirkland Ltd [1969] 2 Lloyd’s Rep

547

• The Houda [1994] 2 Lloyd's Rep 541 108

• Kaines (UK) Ltd v Osterreichische Warrenhandelsgesellschaft Austrowaren

Gesellschaft m.b.H. [1993] 2 Lloyd's Rep 1

• Kuwait Airways Corporation v Iraqi Airways Company and Others [2002] UKHL 19

• Law & Bonar v British American tobacco [1916] 2 K.B. 605

• Leesh River Tea Co. Ltd v. British India S.N. Co. Ltd (The Chyebassa) [1966] 2

Lloyd’s Rep 193

V    

• Mangistaumunaigaz Oil Production v United World Trading Inc. [1995] 1 Lloyd’s

Rep 617

• M.B. Pyramid Sound N.V. v. Briese Schiffahrts G.M.B.H. and Co. K.G. M.S. "Sina"

and

• Latvian Shipping Association Ltd. (The "Ines") Lloyd’s Law Reports [1995] Vol. 2

• Minerva Navigation Inc v. Oceana Shipping Ag (The “Athena”) [2012] EWHC 3608

(Comm), Lloyd’s Law Reports [2013] Vol. 1

• Monarch Steamship Co Ltd v Karlshamns Oljefabriker [1949] AC 196

• Petrs Schmidt [1995] 1 Lloyd’s Rep 202

• The Pioneer Container [1994] 2 AC 324

• Robinson v Harman [1848] 1 Exch 850, 855

• Silversandal (Bache v. Silver Line Inc.) 110F.2d 60, 1940 AMC 731 (2 Cir. 1940)

• The Sormovskiy 3068 (1994) 2 Lloyd's Rep 266

• Star Shipping AS v China National Foreign Trade Transportation Corporation [1993]

Lloyd’s Rep 445

• Sze Hai Tong Bank Ltd. v. Rambler Cycle Co. Ltd [1959] A.C. 576

• Tritonia Shipping Inc v South Nelson Forest Products Corporation [1966] 1 Lloyd’s

Rep 114

• United Steelworkers of Am. V. Warrior & Gulf Nav. Co 363 US 574

• The Vasiliy Golovnin (2008) 756 LMLN 3. Lloyd’s Maritime Law Newsletter,

11.11.2008

II. Statutes & Treaties

• Arbitration Act 1996

• Carriage of Goods by Sea Act 1992

• CMI Travaux Préparatoires

• International Convention for the unification of certain rules of law relating to bills of

lading signed at Brussels on 25th August 1924, as amended by the Protocol signed at

Brussels on 23rd February 1968, (The Hague-Visby Rules).

VI    

III. Reports and Guidance Documents

• IMO Report on Acts of Piracy and Armed Robbery Against Ships, Annual Report

2008, MSC.4/Circ.133

• Best Management Practice for Protection against Somalia based Pirates BMP, Version

1, (2009)

IV. Secondary Sources

• Lord Justice Aikens, Richard Lord QC & Michael Bools, Bills of Lading, Chapter 9,

Claims other than in Contract, (2006). Available at: http://www.i-

law.com/ilaw/doc/view.htm?queryString=bailment+%22duty+of+care%22&sort=date

&querySector=Maritime+and+Commercial&practiceArea=Maritime+and+Commerci

al&sort=date&searchType=advanced-search&se=39&id=131046&searched=true. Last

visited 22.4.2013

• Clare Ambrose, Karen Maxwell and Angharad Parry, London Maritime Arbitration,

3rd Edition, (2009)

• Simon Baughen, Misdelivery claims under bills of lading and international

conventions for the carriage of goods by sea, in: Professor D Rhidian Thomas,

Carriage of Goods under the Rotterdam Rules, (2010). Available at: http://www.i-

law.com/ilaw/doc/view.htm?queryString=misdelivery+&sort=date&querySector=Mar

itime+and+Commercial&practiceArea=Maritime+and+Commercial&sort=date&searc

hType=advanced-search&se=1&id=315695&searched=true. Last visited 22.4.2013

• Hugh Beale, Chitty on contracts, 31st Edition Sweet & Maxwell, UK, (2012)

• Carol SC Bennett, Dictionary of Insurance, Pearson Education Limited, UK, (2004)

• G. B. Born, International Commercial Arbitration, Kluwer Law International, The

Netherlands, (2009)

• Alison Clarke & Paul Kohler, Property Law: Commentary and Materials, Cambridge

University Press, Cambridge (2005)

• P. Friedland, Arbitration Clauses for International Contracts, 2nd edition, Juris

Publishing Inc., New York, (2007)

• E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International

Commercial Arbitration, Kluwer Law International, The Hague, (1999)

VII    

• Lars Gerspacher, ‘Ambigious Incorporation of Charterparties into Bills of Lading,

(2006) 12 JIML

• Edward G Hinkelman, Dictionary of International Trade: Handbook of the Global

Trade Community, California: World Trade Press, (2005)

• J. D. M. Lew et al, Comparative International Commercial Arbitration, Kluwer Law

International, The Hague, (2003)

• Rouhshi Low, Replacing the Paper Bill of Lading with an Electronic Bill of Lading:

Problems and Possible Solutions, in: University of Queensland, International Trade

and Business Law Annual, Cavendish Publishing Ltd, Newport, (2000)

• Thomas Pagonis, The Chartering Practise Manual, Dimeli, (2009)

• J. Paulson et al., The Freshfields Guide to Arbitration and ADR: Clauses in

International Contracts, 2nd edition, Kluwer Law International, The Hague, (1999)

• Caslav Pejovic, Legal Issues arising from Delivery of Goods without the Bills of

Lading: Case Study of some Asian Jurisdiction, (2006) Available at:

https://www.google.com/search?q=Caslav+Pejovic%2C+Legal+Issues+arising+from+

Delivery+of+Goods+without+the+Bills+of+Lading%3A+Case+Study+of+some+Asia

n+Jurisdiction&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:de:official&client=firefox-

a&channel=fflb. Last visited 22.4.2013

• C.H. Spurin, Chapter 4, buyer’s duties under CIF Contracts, (2004). Available at:

http://www.nadr.co.uk/articles/articles.php. Last visited 22.4.2013

• Paul Todd, Maritime Fraud & Piracy, Chapter 5: Maritime Fraud and Carriers,

(2010). Available at: http://www.i-

law.com/ilaw/doc/view.htm?queryString=misdelivery+indemnity&sort=date&querySe

ctor=Maritime+and+Commercial&practiceArea=Maritime+and+Commercial&sort=d

ate&searchType=advanced-search&se=1&id=315382&searched=true. Last visted

22.4.2013

• Paul Todd, Bills of Lading and Bankers Documentary, Chapter 7: The Documents as

Security II: Property, (2007). Availabe at: http://www.i-

law.com/ilaw/doc/view.htm?queryString=tort+of+conversion+bailment+&sort=date&

querySector=Maritime+and+Commercial&practiceArea=Maritime+and+Commercial

&sort=date&searchType=advanced-search&se=7&id=315059&searched=true. Last

visited 22.4.2013

• Günter Treitel & FMB Reynolds, Carver on Bills of Lading, 3rd Edition,Sweet &

Maxwell, London, (2012)

VIII    

• Michael D Tusiani, The Petroleum Shipping Industry: Operations and Practices,

PennWell Corporation, Oklahoma, (1996)

• John F Wilson, Carriage of Goods by Sea, Pitman Publishing, UK, (2008)

IX    

TABLE OF ABBREVIATIONS

Aardvark Aardvark Limited (Buyers of Commodities including

PFAD)

Beatles Beatles Oils & Fats Ltd (Sellers of Commodities

including PFAD)

Bills of Lading The Bills of Lading dated 25 September 2008 covering

the shipment the subject of these proceedings.

Charter Party Voyage Charter Party (VEGOIL VOY FORM

“VEGOILVOY 1/27/50”)

CIF Cost, Insurance, Freight

COGSA 1971 The Carriage of Goods by Sea Act 1971

COGSA 1992 The Carriage Of Goods by Sea Act 1992

Fixture Recap The Fixture Recap sent by email on 12 September 2008

from jwalker@walkerbrokers.com to

paul.taylor@aardvark.com

FOSFA Federation of Oils, Seeds and Fats Associations

GMQ Good Merchantable Quality

Hague Visby Rules Protocol to Amend the International Convention for the

Unification of Certain Law Relating to Bills of Lading

(Brussels 1968)

PFAD Palm Fatty Acid Distillate

X      

Twilight Twilight Carriers Inc. (The Owner of the Vessel

Twilight Trader)

Vessel Twilight Trader

1      

SUMMARY OF ARGUMENTS

The Arbitration Tribunal does not have jurisdiction over the dispute at hand as there is

a valid arbitration agreement. The arbitration clause has not been incorporated into the Bills

of Lading. Alternatively, the arbitration clause is to be construed in a narrow manner. The

arbitration clause in the Fixture Recap has replaced the arbitration clause that is laid down in

the Charter Party. However, it does not cover the claims that are brought forward by the

Claimant. The Claimant does not have title to sue the Respondent for damages, because

the Claimant is not the lawful holder of the Bills of Lading and that the Claimant cannot be

regarded as bailor. The Respondent is not liable for the damage of the quality of the goods

by reason of the hijacking of the Twilight Trader. The Respondent has properly and

carefully kept the goods and in case the Arbitration Tribunal finds that the Claimant has to be

regarded as bailor (which is denied) the Respondent has not breached their duties as bailee. In

the alternative, the Respondent can invoke the exception clauses laid down in the Charter

Party. The Respondent has fulfilled their duties to deliver the cargo at the correct port of

discharge to the party that holds legal title the cargo. The Respondent has not breached

their duties arising out of the Bills of Lading and under bailment. In addition, the Respondent

can invoke Article 29 of the Charter Party.

STATEMENT OF FACTS

The Twilight Trader is a vessel owned by the Respondents, who chartered the vessel by way

of a voyage Charter Party to Beatles on 12 September 2008. The cargo onboard consisted

among other things of 4000 mt PFAD which was to be shipped from Malaysia to Rotterdam

under CIF Incoterm 2000. Beatles had contracted with the Claimant, a commodity buyer

based in Liverpool, about the purchase of 4000 mt PFAD on 23 May 2008. On 23 September

2008, the purchase price was amended to USD 747.50 pmt and port of discharge was altered

to CIF Merseyside. On 25 October 2008 Twilight Carrier issued four Congen Bills of Lading

2      

indicating Liverpool as port of discharge. The Bills of Lading stated that the shipowner is the

Carrier. On 15 November 2008 when the Twilight Trader sailed in the Gulf of Aden, pirates

hijack the vessel. The vessel was released on 12 February 2009. During captivity the entire

crew was mostly confined to the bridge, which prevented the crew from taking cargo care

measures. Once the ship was released the vessel sailed to Fujairah where samples of the

condition of the cargo onboard were taken on 25 February 2009. The Twilight Trader reached

Rotterdam where as a result of contractual arrangements between Beatles and Aardvark the

cargo onboard was discharged between 20 and 22 March 2009 against an indemnity provided

by Beatles. 23 March 2009 Beatles commenced legal proceeding against Aardvark in order to

garnish property before judgment. Aardvark made an application to arrest the Twilight

Trader, which was subsequently arrested on 23 March 2009. The vessel was released on 27

March 2009 against security provided by Twilight, which corresponded an estimation of the

claimant’s claim, totaling USD 1.4 million. An order for sale was granted to Beatles on 24

July 2009. Aardvark appealed the decision but was unsuccessful and the goods were

accordingly sold. Aardvark commenced judicial proceedings in London on 6 April 2010

against Twilight claiming damages for breach of contract and/or breach of duty as bailee

and/or for the tort in conversion.

ARGUMENTS ON JURISDICTION

The Responded appears conditionally before this Tribunal. They dispute the jurisdiction of the

Tribunal based on the fact that no binding arbitration agreement exist between the Respondent

and the Claimant, and, consequently, these proceedings ought properly be stayed.

I. THE TRIBUNAL MAY RULE ON ITS OWN JURISDICTION

'The Claimant acknowledges that the Tribunal can rule on its own jurisdiction in accordance

with the principle of Kompetenz-Kompetenz as provided in Article 30 (1) of the Arbitration

3      

Act 1996. However, it will be argued that this Tribunal does not have jurisdiction to decide on

the claims brought forward by the Claimant, because no valid arbitration clause was agreed

upon, and, if the arbitration clause is valid, which is denied, it should be construed narrowly

so as the exclude these claims.'

II. THERE IS NO VALID ARBITRATION AGREEMENT

1. The arbitration clause has not been incorporated into the Bills of Lading

The question of whether an arbitration clause has been incorporated into the relevant contract

(such as a Charter Party or Bill of Lading) is a matter of construction of that contract.1 An

arbitration agreement can form a part of a single written contractual document and indeed, in

such a case, the intention of the parties to that contract to arbitrate is clear. An arbitration

agreement may also be incorporated by reference to the terms of another agreement (e.g. a

Charter Party), it often occurs that such incorporation by reference is not valid.2 Whether a

Charter Party clause is sufficiently clearly incorporated into a Bill of Lading is a question of

construction of that Bill of Lading. For instance, the Congenbill, provides that “all terms and

conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law

and Arbitration Clause, are herewith incorporated” and on the reverse side it is stated:

“Freight payable as per Charterparty dated – “. Where the blank in the Congenbill is not filled

in, there is no certainty as to whether, or which, Charter Party has been incorporated.3

The Bills of Lading dated 25 October 2008, did not include any arbitration clause. The

general Congenbill phrase (see above) was left blank and no date was indicated. Moreover,

the Charter Party was not drawn up.4 Contrary to what the Claimant is claiming, the Bills of

Lading did not incorporate the Charter Party. Further, while it is accepted that the Fixture

                                                                                                                         1 Excess Insurance Co Ltd v Mander [1997] 2 Lloyd’s Rep 119; AIG Europe SA v QBE International Insurance Ltd [2001] 2 Lloyd’s Rep 268; Axa Re v Ace Global Markets Ltd [2006] EWHC 216 (Comm); [2006] Lloyd’s Rep IR 683. 2 Clare Ambrose, Karen Maxwell and Angharad Parry, London Maritime Arbitration, 3rd Edition, (2009). See Chapter 4, ‘Arbitration Agreement’. 3 Lars Gerspacher, ‘Ambigious Incorporation of Charterparties into Bills of Lading, (2006) 12 JIML. p. 192. 4 Moot Problem, pp. 14-21.

4      

Recap is capable of amending the terms of the Charter Party as to the arbitration clause, it is

denied that the arbitration clause contained in the Fixture Recap – on which the Claimant

relies to bring these proceedings – was effectively incorporated into the Bills of Lading, since

there was no intention to do so.

2. The parties had no intention to incorporate an arbitration clause into the Bills of

Lading by way of the Fixture Recap

The Respondent admits that arbitration clauses contained in shipping documents are often

extremely abbreviated, as it is also in the present case where the alleged arbitration clause

only contains words “London Arbitration – English Law to apply”. While such clauses are

nevertheless regularly enforced, they will be interpreted in the light of the parties’ presumed

intentions.5 It is a matter of good practice to make a clear reference to arbitration, designate

the seat, choose the proper law, choice of procedural law etc., and although the arbitration

agreement laid down in the Fixture Recap may still, in the absence of such clarity, be

considered effective, assistance of court may be required in order to determine whether it

actually covers the relationship between the Claimant and Respondent.6

On the basis of the above arguments, the Respondent submits that this Tribunal should deny

its competence, as the preliminary examination of the arbitration agreement indicates that no

valid arbitration agreement between the parties exist, or at least it very doubtful if the poorly

phrased arbitration agreement had been indented to cover the relationship between the parties.

III. ALTERNATIVELY, AND IN ANY CASE, THE ARBITRATION CLAUSE

SHOULD BE CONSTRUED NARROWLY

If this Tribunal decides that the arbitration clause in the Fixture Recap is a valid arbitration

clause, it takes precedence over the conflicting term, e.g. arbitration clause, in the Charter                                                                                                                          5 Hobbs Padgett & Co (Reinsurance) Limited v J.C. Kirkland Ltd [1969] 2 Lloyd’s Rep 547; Tritonia Shipping Inc v South Nelson Forest Products Corporation [1966] 1 Lloyd’s Rep 114; Star Shipping AS v China National Foreign Trade Transportation Corporation [1993] Lloyd’s Rep 445; Mangistaumunaigaz Oil Production v United World Trading Inc. [1995] 1 Lloyd’s Rep 617; See EJR Lovelock Ltd v Exportles [1968] 1 Lloyd’s Rep 163. 6 Tritonia v South Nelson Forest [1966] 1 Lloyd’s Rep 114.

5      

Party. In that case, the arbitration agreement which scope is to be considered is the arbitration

clause in the Fixture Recap.

1. The arbitration clause in the Fixture Recap replaces the arbitration clause in the

Charter Party in its entirety

In the present case the arbitration clause of the Fixture Recap only states “London Arbitration,

English law to apply”. In Petr Smidt7 it was held that the phrase ‘Arbitration in London-

English law to apply’, could amount to an effective arbitration clause. If that phrase is in itself

capable of constituting an effective arbitration clause, it follows that it replaces the arbitration

clause in the Charter Party in its entirety, as the Recap Fixture incorporates the Charter Party

‘save as above’ (referring to the provisions in the fixture itself).

2. The arbitration clause should be construed narrowly

Needless to say, it is apparent that such arbitration clause is very poorly constructed, in fact so

poorly that it can barely be considered an arbitration clause. It logically follows that the

clause can only be interpreted narrowly. As arbitration agreements are of a contractual

nature,8 the Tribunal has to take into account the intentions of the parties at the time of the

conclusion of the Contract in order to determine the scope of the arbitration agreement.9 The

ambiguous wording of the arbitration agreement manifests that the parties have not indented

the clause to have a broad application. In fact, the arbitration clause does not in any way

amount to a same level of specificity as the arbitration clause (Clause 31) of the Charter Party

                                                                                                                         7 Petrs Schmidt [1995] 1 Lloyd’s Rep 202. 8 G. B. Born, International Commercial Arbitration, Kluwer Law International, The Netherlands, (2009), p. 1059; United Steelworkers of Am. V. Warrior & Gulf Nav. Co.; See P. Friedland, Arbitration Clauses for International Contracts, 2nd edition, Juris Publishing Inc., New York, (2007); J. Paulson et al., The Freshfields Guide to Arbitration and ADR: Clauses in International Contracts, 2nd edition, Kluwer Law International, The Hague, (1999). 9 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration (Kluwer Law International, The Hague, 1999) at para. 44 and 45; J. D. M. Lew et al, Comparative International Commercial Arbitration (Kluwer Law International, The Hague, 2003), p. 150; Fiona Trust & Holding Corp. v. Privalov.

6      

which provides that “any dispute arising from…”.10 And even such wording has been held to

be a narrow provision.11

3. The arbitration clause does not cover the claims brought forward by the

Claimant

It is clear that the arbitration clause contained in the Fixture Recap should be interpreted as

narrowly as possible. In the light of the foregoing, the Respondent submits that if the Tribunal

finds, which the Respondent denies, that there is a valid arbitration clause in the Fixture

Recap, the scope of this Arbitration Agreement only extends to those matters that are in direct

relation to the Charter Party itself, i.e. in direct relation to the contract of carrying PFAD by

sea. The clause, therefore, does not extend to disputes arising from the fact that the ship was

pirated, and it does not extend to any claims brought for consequential or pure economic loss.

Furthermore, as the arbitration clause only extends to the contract itself, no tortious claims

can be brought under it.

ARGUMENTS ON MERITS

IV. THE CLAIMANT DOES NOT HAVE TITLE TO SUE THE RESPONDENT

FOR THE DAMAGES THEY HAVE INCURRED

1. The Claimant is not a lawful holder of the Bill of Ladings

An anticipatory breach of contract is defined in a following way: “If, before the time arrives at

which a party is bound to perform a contract, he expresses an intention to break it, or acts in

such a way to lead a reasonable person to the conclusion that he does not intend to fulfill his

part, this constitutes an anticipatory breach of the contract…”12 It was the Claimant’s

                                                                                                                         10 Moot Problem, p. 11. 11 G. B. Born, International Commercial Arbitration (Kluwer Law International, The Netherlands, 2009), p. 1097, sn 169. 12 See Hugh Beale, Chitty on contracts, 31st Edition Sweet & Maxwell, UK, (2012).

7      

obligation to accept the endorsement of the documents and pay.13 Further, it was the

Claimant’s obligation under the CIF contract to take the delivery of the goods which were

shipped.14 Nevertheless, on 6 March 2009, it became clear that the Claimant was no longer

prepared to fulfill their obligations under the contract, namely to take the delivery of the

goods for which it had received a document title by way of a Bill of Lading.15 Instead, the

Claimant placed Beatles in repudiatory breach of contract merely on the basis that the latter

had not, allegedly, complied with the former’s expectation as to the insurance policy for the

cargo. Indeed, in accordance with the Law & Bonar v British American tobacco16, under CIF

contracts, the seller has a duty to insure the goods for the voyage in a manner usual in the

trade. Nothing in the facts indicated that the Seller had not done so. Indeed, the Claimant

claims that Beatles was not in compliance with the sales contract’s (Fosfa 81) requirement as

to the insurance policy (Clause 6) but there is no evidence that the Seller in fact was in breach.

The Seller never accepted that claim. Moreover, the Claimant wrongly used the piracy (which

it was fully aware of at the time of the performance of the contract) as an excuse to terminate

the contract and further claim damages as a result. This was unreasonable as the Claimant

ought to have been fully aware of the fact that as a buyer it assumed the risk of damage to the

cargo. 17 Although the Claimant had no reasonable ground to claim repudiatory breach on the

part of the Seller, it nevertheless did so, and by all means anticipated to avail itself from the

remaining obligations it was bound by as a consequence of the contract.

It is reasonable to conclude that the Claimant did not intend to fulfill their part of the contract

any longer, and therefore was clearly in anticipatory breach of the contract. From that moment

onwards the Claimant could not reasonably be considered as being the lawful holder of the

                                                                                                                         13 Gill & Dufus v Berger [1984] A.C 382; Biddell v Horst [1912] A.C.18. 14 Henry v Classen [1973] 1 Lloyd’d Rep 143. See C.H. Spurin, Chapter 4, buyer’s duties under CIF Contracts, (2004), p. 33. Available at: http://www.nadr.co.uk/articles/articles.php. Last visited 22.4.2013. 15 Moot Problem, p. 25. 16 Law & Bonar v British American tobacco [1916] 2 K.B. 605. 17 C.H. Spurin, Chapter 4, buyer’s duties under CIF Contracts, (2004), p. 33. Available at: http://www.nadr.co.uk/articles/articles.php. Last visited 22.4.2013.

8      

Bills of Lading. This is a fact that the Claimant himself admitted on 16 March by literally

naming the Seller as the owner of the cargo.18 Clearly the Claimant must be considered as

having abandoned the cargo and any title to it.

2. The Respondent did not hold the chattel in bailment for the Claimant

In maritime law, obligations of contractual nature are accompanied by obligations from

bailment.19 In the following it will be established that such a relationship never existed

between the Claimant and the Respondent.

2.1. The Respondent has to be regarded as bailee

Twilight has voluntarily accepted to hold possessory title to the cargo to which Beatles held

legal title for the duration of the voyage from Malaysa to Rotterdam. In accordance with the

ruling in The Pioneer Container, the Respondent is thus to be qualified as bailee.20 To be

specific, the bailment relationship with Beatles came about when the Respondent confirmed

that the relevant cargo was loaded into the Twilight Trader.21 This was accomplished by the

issuance of the Bills of Lading.22

2.2. The Claimant never became bailor of the chattel

The Claimant argues in their Claim Submission that they are entitled to invoke an action in

bailment against the Respondent. This can only be possible if the Claimant is to be regarded

as bailor. This argument cannot be successful as the Claimant as never replaced Beatles as

bailor. When Beatles sold the cargo to the Claimant and transferred the Bills of Lading to

them, this action did not automatically lead to the substitution of Beatles as bailor.23 Any

                                                                                                                         18 Moot Problem, p. 27. 19 Coggs v Bernard [1703] 2 Ld Raym 909; See Alison Clarke & Paul Kohler, Property Law: Commentary and Materials, Cambridge University Press, Cambridge (2005), pp.649-650. 20 Alison Clarke & Paul Kohler, Property Law: Commentary and Materials, Cambridge University Press, Cambridge, (2005), p.649-650; See The Pioneer Container [1994] 2 AC 324. 21 Ibid. 22Rouhshi Low, Replacing the Paper Bill of Lading with an Electronic Bill of Lading: Problems and Possible Solutions, in: University of Queensland, International Trade and Business Law Annual, Cavendish Publishing Ltd, Newport, (2000), p.159. 23 The Aliakmon [1986] A.C. 786, 818. See Lord Justice Aikens, Richard Lord QC & Michael Bools, Bills of Lading, Chapter 9, Claims other than in Contract, (2006). Available at: http://www.i-law.com/ilaw/doc/view.htm?queryString=bailment+%22duty+of+care%22&sort=date&querySector=Maritime+

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changes in this bailment construction require an action of attornment. As was held in the case

The Gudermes, “attornment by a bailee consists in an acknowledgment that someone other

than the original bailor now has title to the goods and is entitled to delivery of them”.24

Furthermore, it is of the essence that attornment is done expressly and that it is conveyed to

the new bailor.25 The underlying idea behind this is that the shipper, who – after having

transferred the bills of ladings to a third party – does not have contractual rights to sue the

carrier, continues to be entitled to pursue an act of attornment.26 In the present case, the

Respondent never acknowledged that someone else than Beatles had become bailor. In fact,

the Respondent was not even aware of the fact that the goods were sold, and that the Bills of

lading had been transferred to Aardvark. Neither can the Claimant successfully invoke the

argument that attornment was granted in advance. Although evidences of this way of

argumentation can be deducted from legal doctrine, two points need to be stressed in this

regard: first, these views are to be qualified as minority views, and second, even the

defenders of these views have acknowledged that they suffered the loss of persuasive power

in the course of time.27 In addition, it was clearly stated by Lord Brandon that “I would add

that, if the argument for the buyers on terms of bailment were correct, there would never have

                                                                                                                                                                                                                                                                                                                                                                                           and+Commercial&practiceArea=Maritime+and+Commercial&sort=date&searchType=advanced-search&se=39&id=131046&searched=true. Last visited 22.4.2013. 24 The Gudermes [1993] 1 Lloyd's Rep. 311 at 324, per Staughton L.J; See Lord Justice Aikens, Richard Lord QC & Michael Bools, Bills of Lading, Chapter 9, Claims other than in Contract, (2006). Available at: http://www.i-law.com/ilaw/doc/view.htm?queryString=bailment+%22duty+of+care%22&sort=date&querySector=Maritime+and+Commercial&practiceArea=Maritime+and+Commercial&sort=date&searchType=advanced-search&se=39&id=131046&searched=true. Last visited 22.4.2013. 25 Also see Lord Justice Aikens, Richard Lord QC & Michael Bools, Bills of Lading, Chapter 9, Claims other than in Contract, (2006). Available at: http://www.i-law.com/ilaw/doc/view.htm?queryString=bailment+%22duty+of+care%22&sort=date&querySector=Maritime+and+Commercial&practiceArea=Maritime+and+Commercial&sort=date&searchType=advanced-search&se=39&id=131046&searched=true. Last visited 22.4.2013. 26 Paul Todd, Bills of Lading and Bankers Documentary, Chapter 7: The Documents as Security II: Property, (2007). Available at: http://www.i-law.com/ilaw/doc/view.htm?queryString=tort+of+conversion+bailment+&sort=date&querySector=Maritime+and+Commercial&practiceArea=Maritime+and+Commercial&sort=date&searchType=advanced-search&se=7&id=315059&searched=true. Last visited 22.4.2013. 27 Ibid.

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been any need for the Bills of Lading Act 1855 or for the decision of the Court of Appeal in

Brandt v. Liverpool, Brazil and River Plate Steam Navigation Co. Ltd”.28

For the foregoing considerations, it has to be concluded that an action of attornment has not

occurred in the case at hand. The Claimant cannot thus be regarded as having replaced Beatles

in their function as bailor. Therefore, Twilight did not owe the Claimant any duties arising out

of a bailment relationship.

2 THE RESPONDENT IS NOT LIABLE FOR THE DAMAGE OR

DETERIORATION OF THE QUALITY OF THE GOODS BY REASON OF THE

VESSEL BEING HIJACKED

1. The Hague-Visby Rules apply

The Bills of Lading indicate the Hague-Visby Rules to apply.29 Pursuant to Article I (b)30 in

conjunctio with Article X (c) Hague-Visby Rules, contracts for carriage by sea covered under

a Bill of Lading are governed by these Rules if ‘the contract contained in or evidenced by the

Bill of Lading provides that these Rules or legislation of any State giving effect to them are to

govern the contract’.

1.1 The Respondent properly and carefully kept the goods

Article III, r. 2 Hague-Visby Rules provides that “[s]ubject to the provisions of Article IV, the

carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the

goods carried.” This Article, as incorporated via the Bill of Lading, provides for a prima facie

obligation for the Carrier during the voyage which, when breached, can be justified under the

exceptions provided in Article IV, r.2 Hague-Visby Rules.31

                                                                                                                         28 Ibid. 29 Moot Problem, p. 14-21. 30International Convention for the unification of certain rules of law relating to bills of lading signed at Brussels on 25th August 1924, as amended by the Protocol signed at Brussels on 23rd February 1968, (The Hague-Visby Rules). 31 Sir Norman Hill in the CMI Travaux Préparatoires, p. 185.

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1.1.1 The goods remained of good merchantable quality after the piracy

As evidenced in the expert report issued by Dutch Surveyors B.V. there are no clear standards

as to when PFAD loses its status as GMQ.32 Furthermore, there are no clear guidelines as to

gauge the quality of PFAD in relation to its status as being of GMQ.33 Even though the PFAD

was required to be heated, the non-compliance with the heating instructions for a period of

three months did not lead to the deterioration of quality of the PFAD since, in unheated

condition, PFAD can be stored for up to one year.34 Therefore, there is a lack of evidence to

prove that not heating the PFAD during the time of capture resulted in its accelerated

deterioration and, subsequently, to the loss of its GMQ. Additionally, the classification as

GMQ of the shipment of PFAD was not accompanied by a specification of its intended use in

the human food/feed chain. Such a specification ought to be made by the Claimant if they

want to rely on this. Neither the Bills of Lading nor the FOSFA 81 contract indicate the use of

the PFAD in the human food/feed chain. Coupled with the different markets that exist for the

use of PFAD with different standards, the lack of specificity should not be construed to the

detriment of the Carrier.35 Traceability was not a factor that was specified in relation to the

goods and, therefore, the Claimant cannot rely on the allegation that the PFAD lost its

traceability and, hence, it’s GMQ. Lastly, it is claimed that the arsenic content in the testing is

indicative for a contamination of the goods that triggered their loss of GMQ. The Master and

the Chief Officer reported that they did not observe any broaching of the cargo tanks; also,

there was a visible sign of corrosion present indicating that the hatches were not opened.36

Hence, the arsenic, in its low content, did not alter the GMQ of the PFAD. Based on these

facts and the lack of specification given by the Claimant for which market the PFAD was

                                                                                                                         32 Moot Problem, p. 50. 33 Ibid. 34 Moot Problem, pp. 50-51. 35 Moot Problem, pp. 57-58. 36 Moot Problem, p.42.

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intended to be used it can be concluded that the PFAD is, for all purposes of clarity, of GMQ

after the piracy.

1.1.2 Alternatively, damage or deterioration of quality of the goods was not caused by

a faulty system

Whether the goods are properly and carefully stored depends on the conditions that may be

expected during the voyage and may vary thereupon.37 Further, the notion of ‘properly and

carefully’ in Article III, r.2 denotes a duty of care supplemented with an element of skill and a

sound system of storage.38 The Respondent took all available measures to carefully and

properly keep the goods: a sound system existed that followed the required standards of the

FOFSA terms;39 additionally, no evidence for the contamination of the goods due the system

of storage not being of a sound nature existed.40 As an additional factor, Lord Reid held in The

Maltesian that the meaning of ‘properly’ includes "[...] the obligation to adopt a system which

is sound in light of all the knowledge which the carrier has or ought to have about the nature

of the goods."41 The Respondent could not have foreseen the chance of a piracy happening

since 2008 was an exceptional year with a spike in incidents of piracy in the Gulf of Aden.42

Arguing that the system of storage for the goods should have been revised in the light of

possible piracy incidents is not convincing since (i) the problem is rather novel and (ii) such

measures would not be reasonable in relation to the risk. Furthermore, to argue that the crew

should have acted differently to prevent the piracy or the vessel should be equipped better

                                                                                                                         37 Bunga Seroja, High Court of Australia, 22 October 1998, [1999] 1 Lloyd’s Rep. 512, paras. 34-35. 38 Lord Pearson in Albacora S.R.L. v. Westcott & Laurance Line Ltd. (The Maltesian) [1966] 2 Lloyd's Rep. 53 at p. 64 (H.L.); See Silversandal (Bache v. Silver Line Inc.) 110F.2d 60, 1940 AMC 731 (2 Cir. 1940); G.H. Renton & Co., Ltd v. Palmyra Trading Corporation of Panama [1956] 2 Llyod’s Rep 379. 39 Section 5 of the Shipment And Classification, Federation of Oils, Seed and Fats Association Limited, FOSFA International, Issued amd approved jointly with the Palm Oil Refineries Association of Malaysia (PORAM) and the ;alayan Edible Oil Manufacturers’ Association (MEOMA) Contract for Palm and Palm Kernel Oil Products in Bulk – CIF TERMS – No. 81. 40 Moot Problem, p. 38. 41 Moot Problem, p. 58. See also Chris Foodstuffs Ltd. v. Nigerian National Shipping Line [1967] 1 Lloyd's Rep. 293 at p. 297 (C.A.). See also Scrutton, 20 Ed., 1996 at p. 430. 42 IMO Report on Acts of Piracy and Armed Robbery Against Ships, Annual Report 2008, MSC.4/Circ.133, see especially Annex IV for the graph representing East Africa the yearly statistics of incidents which occurred since 1984.

13    

would fall under the seaworthiness condition of Article III, r.1. However, both the crew and

the equipment of the vessel followed the latest standards: the crew put up pirate watch when

entering the water of the Gulf of Aden and there are no descriptions of shortcomings of the

vessel in any reports.43

2. The Respondent has not breached their duties under bailment

If the Arbitration Tribunal finds that the Claimant has to be regarded as having replaced

Beatles as a bailor (which is denied), the Respondent has corresponded properly to that duty.

In a bailment relationship, the bailee owes the bailor a “general duty to take reasonable

care”.44 Additionally, it requires that the bailee fulfils the conditions of the Bills of Lading as

these have to be regarded as the terms of bailment. As has been established above, the Bills of

Lading have been fully complied with by the Respondent. Regarding the “general duty to take

reasonable care”, it has been demonstrated in paragraph 1.1.2, that Twilight fulfilled the

duties set out in the FOSFA 81 contract and that the hijacking – in 2008 – could not be

regarded as a foreseeable risk.

3. Alternatively, the Respondent is able to invoke the exception to exclude liability

In order to invoke the exceptions under Article IV, r. 2 Hague Visby Rules, Judge McHugh

argued in The Bunga Seroja, that “[w]here the owner alleges a breach of art. III, r. 2 and the

carrier relies on one of the identified matters in [Art. IV, r. 2] paras. (a)-(q) as a defence, the

liability of the carrier will turn on whether the loss or damage arose or resulted from the

breach or from the identified matters.”45 In the present case, the damage can clearly be

pinpointed on the piracy which falls under the exception of Article IV, r.2 (e)-(f) since only

through the act of hijacking the ship, traceability of the PFAD was lost. Further/alternatively,

Article IV, r.2 (q) provides for a catch-all exception that Twilight can invoke.

                                                                                                                         43 Moot Problem, p. 42. 44 Alison Clarke & Paul Kohler, Property Law: Commentary and Materials, Cambridge University Press, Cambridge, (2005), p.651. 45 The Bunga Seroja [1999] 1 Lloyd’s Rep. 512, paras. 91-92.

14    

3.1. The Respondent is exempted from liability for damages to the goods incurred

through the hijacking of the vessel by Somali pirates

If the goods were damaged or deteriorated in quality during the time the vessel was hijacked,

which is denied, the Respondent is able to exempt liability based on the exception under

Article IV, r.2 (e)-(f) Hague Visby Rules. The exceptions deal with acts of war and public

enemies and are, arguably, applicable to piracy. As previously stated, the damage to the

goods, if there is any, did not arise or result from a breach of duties under Article III, r. 2

Hague Visby Rules but from the piracy itself.

3.1.1. The danger of the vessel being hijacked is not foreseeable

Based on the statistical evidence, the likelihood of a vessel being hijacked in the Gulf of Aden

has only peaked in 2008.46 Further, preventive measures, resolutions and best practice

guidelines for ship crews were only published in 2009.47 Therefore, the problem of piracy in

the Gulf of Aden and the likelihood of a vessel being hijacked were perceived as relatively

modest compared to the following years. Hence, it cannot be expected from the crew of the

vessel to utilize further safety measures than those taken in form of, i.a., posting piracy

watch.48

3.1.2. The damage is directly caused by the piracy

If, which is denied, there is damage to the goods, it resulted directly from the piracy and not

from a deficiency in the system of cargo, negligence of the crew, or any other reason. As

stated above, the system of storage was sound. Further, the crew acted accordingly to what

could reasonably be expected by them.49 It was impossible to for the crew to apply cargo care

measures during their period of captivity since they were even prohibited from leaving the

                                                                                                                         46 IMO Report on Acts of Piracy and Armed Robbery Against Ships, Annual Report 2008, MSC.4/Circ.133, see especially Annex IV for the graph representing East Africa the yearly statistics of incidents which occurred since 1984. 47 See e.g.: Management Practice for Protection against Somalia based Pirates BMP, Version 1, (2009). 48 Moot Problem, p. 42. 49 I.e. posting pirate watch; Moot Problem, p. 42.

15    

bridge.50 Therefore, all potential damage to the goods transpired outside the possible sphere of

influence of the crew. Hence, it would be unjust to hold them accountable for the damages

since there was no negligence in their conduct.

3.2. Alternatively, the Respondent is exempted from liability under the catch all

exception

The events caught by the scope of Article IV, r.2 (q) Hague Visby Rule include malicious

actions (such as theft) done by third parties which resulted in the damaging of the goods

which could not be prevented from the application of reasonable diligence by the carrier.51 As

evidenced before, the reason for the damage to the goods is the piracy for which the crew of

the vessel cannot be held responsible. The crew took safety measures, including the posting of

pirate watch.52 Further, the crew was actively prohibited from taking cargo care measures or

even standing up during their time of capture.53 Hence, it was impossible to enact cargo care

measure during the capture which cannot be blamed on the fault or neglect of the crew since

they have taken all measures possible.

3 THE RESPONDENT HAS FULFILLED THEIR DUTY TO DELIVER THE

CARGO AT THE CORRECT PORT OF DISCHARGE TO THE PARTY THAT

HOLDS LEGAL TITLE TO THE CARGO

As has been set out in paragraph VI, the Claimant does not have a right to sue under the Bills

of Lading and under bailment. However, in case the Arbitration Tribunal finds that the

Claimant has title to first sue under the Bills of Lading and second, under bailment (which is

denied), in the following, it will be established that the Respondent nevertheless has not

breached the duties arising out of neither the Bills of Lading nor the bailment relationship.

                                                                                                                         50 Moot Problem, p.42. 51 Leesh River Tea Co. Ltd v. British India S.N. Co. Ltd (The Chyebassa) [1966] 2 Lloyd’s Rep. 193. 52 Moot Problem, p. 41. 53 Moot Problem, p. 41.

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1. The duties laid down in the Bills of Lading

From the Bills of Lading, two main duties can be enumerated. First, the carrier – generally

speaking - shall discharge the cargo in return for the Bills of Lading.54 Second, Twilight is

under the duty to deliver the cargo at the correct port. Both of these duties have been

complied with by the Respondent.

1.1 The Respondent has not breached their duty under the contract as they delivered

the cargo at the correct discharge port

The Bills of Lading state Liverpool as port of discharge.55 Nevertheless, the Respondent was

entitled to discharge the cargo in Rotterdam. This is due to the fact that the Claimant has

agreed in the course of the email correspondence with Beatles to the cargo’s change of

destination. In the email dated 16 March 2009, Mr Taylor stated that “we did not consider that

the cargo should be sent to Liverpool where it would have no value” and “that this is a

decision for you as cargo owners and charterers to make”.56 In the very same email it is even

suggested that there are “better alternative destinations for the cargo (…) in Spain or

Holland”. On 18 March 2009, the Claimant even sends the Bills of Lading to Johnston &

Johnston who are located in Rotterdam.57 At no point of time did the Claimant express their

dissatisfaction with the change of discharge port. Instead, it can be deducted from the cited

correspondence, that the Claimant, on the contrary, favored such a recourse. The fact that the

terms of the Bills of Lading were not varied in this respect, cannot lead to the conclusion that

                                                                                                                         54 Simon Baughen, Misdelivery claims under bills of lading and international conventions for the carriage of goods by sea, in: Professor D Rhidian Thomas, Carriage of Goods under the Rotterdam Rules, (2010). Available at: http://www.i-law.com/ilaw/doc/view.htm?queryString=misdelivery+&sort=date&querySector=Maritime+and+Commercial&practiceArea=Maritime+and+Commercial&sort=date&searchType=advanced-search&se=1&id=315695&searched=true. Last visited 22.4.2013 See M.B. Pyramid Sound N.V. v. Briese Schiffahrts G.M.B.H. and Co. K.G. M.S. "Sina" and Latvian Shipping Association Ltd. (The "Ines") Lloyd’s Law Reports [1995] Vol. 2; The Houda [1994] 2 Lloyd's Rep 541 108; The Sormovskiy 3068 (1994) 2 Lloyd's Rep 266; Sze Hai Tong Bank Ltd. v. Rambler Cycle Co. Ltd [1959] A.C. 576; Glyn Mills Currie & Co. v. East and West India Dock Co., (1882) 7 App.Cas. 591 per Lord Blackburn. 55 Moot Problem, p. 14, 16, 18, 20. 56 Moot Problem, p.27. 57 Moot Problem, p.33.

17    

the Respondent has breached their duties. As was held in Vasiliy Golovnin58, “antecedent

agreements and other surrounding circumstances would not suffice to vary the terms of a bill

of lading, in particular, the port of discharge, unless known and agreed to by all affected

parties.”59 Therefore, the fact that the Claimant knew about and agreed to the change of

destination lead to a change of the terms of the Bills of Lading. Consequently, it was not

required to take the usual route of replacing the Bills of Lading with a new set of Bills.60 As a

result, the Respondent did not breach their duties by discharging the cargo in Rotterdam

instead of Liverpool.

1.1.1 Alternatively, and/or additionally, the Respondent can invoke Article 29 of the

Charter Party

Article 29 of the Charter Party contains the “Liberty Clauses”.61 This clause is incorporated

into the Bills of Lading and has thus been part of the conditions of carriage that are binding to

those that hold the Bills of Lading.62 For the these reasons, the Respondent can successfully

invoke the exception clause. According to paragraph (a) of Article 29, the port of discharge

may be changed by the Owner. More specifically, it is stated therein that “the owner may,

when practicable, have the Vessel call and discharge the cargo at another or substitute port

declared or requested by the Charterer”. As established above, the Charterer, Beatles, has

requested the Respondent to discharge the cargo in Rotterdam instead of Liverpool. Due to

the “Liberty Clauses”, the Respondent was thus entitled to sail to a different port of discharge.

1.2 The Respondent has not breached their duties under the contract by not

delivering the cargo against presentation of the Bills of Lading

The Respondent has not breached their duty under the contract by discharging the cargo to

Beatles. In maritime practice, it often occurs that the Owner needs to deliver the cargo without                                                                                                                          58 The Vasiliy Golovnin (2008) 756 LMLN 3. See Lloyd’s Maritime Law Newsletter, 11.11.2008. 59 Ibid. 60Minerva Navigation Inc v. Oceana Shipping Ag (The “Athena”) [2012] EWHC 3608 (Comm), Lloyd’s Law Reports [2013] Vol. 1. 61 Moot Problem, p. 11. 62 Bills of Lading, paragraph 1.

18    

an original Bill of Lading.63 This is due to the fact that it cannot always be ensured that the

party that is legally entitled to the cargo is in possession of the Bills of Lading at the time the

ship arrives at the port of discharge.64 In these cases, the party legally entitled to the cargo

distributes a letter of indemnity to the Owner.65 Such an indemnity is enforceable as long as it

is free from a notion of theft.66 Beatles has provided the Respondent with such a letter of

indemnity.67 As it can by no means be attributed to theft, it follows that it is enforceable.

Twilight decided to discharge the cargo against a guarantee embodied in this indemnity, as

they were not aware of the conversations between the two parties claiming to be entitled to

the cargo – Beatles and Aardvark. Thus, they were not able to assess who the legal owner of

the cargo at the time they arrived in Rotterdam was.

2. The duties arising out of the bailment relationship

Under the bailment relationship, Twilight was under the primary duty to deliver the PFAD to

the correct bailor.68 In addition, the conditions of the Bills of Lading have to be obeyed as

they equal the terms of the bailment.69

                                                                                                                         63 Paul Todd, Maritime Fraud & Piracy, Chapter 5: Maritime Fraud and Carriers, (2010). Available at: http://www.i-law.com/ilaw/doc/view.htm?queryString=misdelivery+indemnity&sort=date&querySector=Maritime+and+Commercial&practiceArea=Maritime+and+Commercial&sort=date&searchType=advanced-search&se=1&id=315382&searched=true. Last visted 22.4.2013 See John F Wilson, Carriage of Goods by Sea, Pitman Publishing, UK, (2008), p.155; Caslav Pejovic, Legal Issues arising from Delivery of Goods without the Bills of Lading: Case Study of some Asian Jurisdiction, (2006), p.1. Available at: https://www.google.com/search?q=Caslav+Pejovic%2C+Legal+Issues+arising+from+Delivery+of+Goods+without+the+Bills+of+Lading%3A+Case+Study+of+some+Asian+Jurisdiction&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:de:official&client=firefox-a&channel=fflb. Last visited 22.4.2013 64 Paul Todd, Maritime Fraud & Piracy, Chapter 5: Maritime Fraud and Carriers, (2010). Available at: http://www.i-law.com/ilaw/doc/view.htm?queryString=misdelivery+indemnity&sort=date&querySector=Maritime+and+Commercial&practiceArea=Maritime+and+Commercial&sort=date&searchType=advanced-search&se=1&id=315382&searched=true. Last visited 22.4.2013. Also see Thomas Pagonis, The Chartering Practise Manual, Dimeli, 2009, p.169. 65 Ibid. 66 Ibid. 67 Moot Problem, p.53. 68 Alison Clarke & Paul Kohler, Property Law: Commentary and Materials, Cambridge University Press, Cambridge, (2005), p.651; Carol SC Bennett, Dictionary of Insurance, Pearson Education Limited, UK, (2004), p.36. 69 Paul Todd, Bills of Lading and Bankers Documentary Credits, Chapter 5 The Documents As Security I: Lost, Damaged or Misdescribed Goods, (2007). Available at: http://www.i-law.com/ilaw/doc/view.htm?queryString=tort+of+conversion+bailment+&sort=date&querySector=Maritime+an

19    

2.1 The Respondent has not breached this duty under bailment by not delivering the

cargo at the correct discharge port

The Respondent has not breached their duties as a bailee. First and foremost, as has already

been established in paragraph 1.1, the terms of the Bills of Lading have not been violated by

the Respondent when the cargo was brought to Rotterdam. Concluding, the duties arising out

of a bailment relationship were not breached by Twilight.

2.1.1 The Respondent can invoke Article 29 of the Charter Party

As has been established in 1.1.1, the exception clause can successfully be invoked by the

Respondent.

2.2 The Respondent has not breached their duties as a bailee by not delivering the

cargo against presentation of the Bills of Lading

In practice, cargo-owners are not always able to distribute the Bills of Lading at the time the

vessel arrives at the port of discharge.70 In these cases letters of indemnity are used as an

alternate.71 It is for this reason that the Respondent has discharged the cargo to Beatles.

3. The Respondent denies Claimant’s claim for damages for alleged misdelivery

Twilight denies the following claims for damages:

(1) the full value of the purchase price of the goods

(2) costs for replacing goods to sub-buyers in Liverpool,

(3) legal fees incurred in legal proceedings in the Netherlands, and;

(4) costs.

                                                                                                                                                                                                                                                                                                                                                                                           d+Commercial&practiceArea=Maritime+and+Commercial&sort=date&searchType=advanced-search&se=6&id=315060&searched=true. Last visited 22.4.2013 70 Paul Todd, Maritime Fraud & Piracy, Chapter 5: Maritime Fraud and Carriers, 2010, (http://www.i-law.com/ilaw/doc/view.htm?queryString=misdelivery+indemnity&sort=date&querySector=Maritime+and+Commercial&practiceArea=Maritime+and+Commercial&sort=date&searchType=advanced-search&se=1&id=315382&searched=true). Also see John F Wilson, Carriage of Goods by Sea, GB: Pitman Publishing, 2008, p.155. Also see Edward G Hinkelman, Dictionary of International Trade: Handbook of the Global Trade Community, California: World Trade Press, 2005, p.114 and Günter Treitel & FMB Reynolds, Carver on Bills of Lading, London: Sweet & Maxwell, p.331. 71 Michael D Tusiani, The Petroleum Shipping Industry: Operations and Practices, PennWell Corporation, Oklahoma, (1996), p.48; John F Wilson, Carriage of Goods by Sea, Pitman Publishing, UK, (2008), p.156.

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3.1 The Respondent denies the claim for damages based on breach of contract of

carriage

Firstly, Twilight has not breached their contractual duty by virtue of the Liberty Clause in

paragraph 29 of the Charter Party, as already established above. Twilight was contractually

permitted to discharge the cargo in Rotterdam instead of Liverpool based on the Liberty

Clause and therefore, Aardvark cannot be entitled to damages. Secondly, Aardvark had

consented to the cargo being delivered in Rotterdam, which proves that Twilight has not

violated the contract of carriage. As no breach of contract took place, Twilight cannot be held

liable for damages. Thirdly, the Claimant is not entitled to claim damages for breach of

contract because Aardvark no longer was the lawful holder of the Bills of Lading. As

Aardvark did not rightfully hold the Bills of Lading, they no longer had title to sue Twilight at

first place. Alternatively and/or in the event, the amount of damages the Claimant claims is

not proportional. The loss should be calculated based on the amount required to purchase

similar goods on the open market at the time and place of delivery minus freight and

insurance costs.72 This is in line with the principle of restitutio integrum73, because the

Claimant can place itself in the position as if the contract would have been performed by

purchasing equivalent goods and the objectives of the contract are accordingly achieved. The

fact that PFAD was worth considerably more when Aardvark bought the original goods in

2008 compared to its current value on the market is a result of the commodity price being

highly fluctuating, also confirmed by experts in this matter,74 and not because of any fault of

the Respondent. However, if the Arbitration Tribunal considers, which Twilight strongly

                                                                                                                         72 Art. IV r. 5 (b) of the Hague-Visby Rules provides that “The total amount recoverable shall be calculated by reference to the value of such goods at the place and time at which the goods are discharged from the ship in accordance with the contract or should have been so discharged. The value of the goods shall be fixed according to the commodity exchange price, or, if there be no such price, according to the current market price, or, if there be no commodity exchange price or current market price, by reference to the normal value of goods of the same kind and quality.” See also Kuwait Airways Corporation v Iraqi Airways Company and Others [2002] UKHL 19 for tort in conversion. 73 Restitutio integrum is mainly used in tort, but similar principle was established in contract in Robinson v Harman [1848] 1 Exch 850, 855. 74 Expert opinion, Moot problem, p. 51.

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denies, that they are liable for delivering the cargo to Beatles instead of Aardvark, the

Respondent should be liable to recover Aardvark the market value of the cargo in Rotterdam,

which is the correct discharging port, minus freight and insurance costs, on approximately 20

March 2009. The damages should however be limited to the amount of USD 1.4 million in

accordance with the security, 75 which the Respondent provided in return for lifting the arrest

of the vessel in the Dutch Court proceedings. The amount of the security is based on an

estimation of the market value of the goods made by the Dutch court.76 Moreover, the

applicable market value of the goods was USD 350 pmt, for which the other PFAD cargo

onboard the vessel were sold on 19 March 2009, which amounts to USD 1.4 million.77

Furthermore, if the Arbitration Tribunal finds that Twilight should have delivered the cargo in

Liverpool instead of Rotterdam, which Twilight does not admit, the Respondent should only

be liable for damages totaling the market value of goods in Liverpool on approximately 20-30

March 2009. The correct amount of damages should be calculated by adding freight costs for

transporting the cargo from Rotterdam to Liverpool, to the market value of the goods in

Rotterdam on 20 March 2009.78 Hence, the correct amount should be limited to USD 1.52

million79, adding freight costs of USD 30 pmt80 to the market value of USD 350 pmt in

Rotterdam.

3.2 The Respondent is not liable for costs incurred for replacing goods

Firstly, reference is made to everything stated above, where it is established that the

Respondent did not breach the contract of carriage. Secondly, this cannot be considered as

loss. Conversely, this can solely be regarded as steps taken by the Claimant to avoid business

loss by buying substituting goods to their sub-buyers. The Claimant’s sub-buyers in Liverpool

have paid a price as consideration for the goods, as in a normal sales contract, and therefore                                                                                                                          75 Moot problem, p. 45. 76 Moot problem, p. 54. 77 Moot problem, p. 73. 78 Established i.e. in Monarch Steamship Co Ltd v Karlshamns Oljefabriker [1949] AC 196. 79 350 x 4000 + 30 x 4000 = 1 520 000,00. 80 Expert opinion, Moot Problem, p. 62.

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the Claimant has not suffered a loss. As a consequence, the Respondent is not liable to pay

damages for replacing goods, as this does not constitute loss.

Alternatively, which is denied, the loss incurred by Aardvark for buying replacing goods to

their sub-buyers was not reasonably foreseeable and is therefore too remote. Following the

test established in Hadley v Baxendale81 Twilight could not have reasonably foreseen at the

time of entering into the contract that it would not be unlikely to suffer the damage. The loss

has not actually and naturally resulted from the alleged breach of contract, because it was due

to legal proceedings unrelated to the Respondent, by which Aardvark lost goods that it alleges

it held the lawful title to, and consequently had to buy replacing goods. Hence, the loss

sustained by Aardvark occurred independently from the respondent’s alleged breach of

contract.

Further and/or alternatively, if this is considered as mitigating steps taken by the Claimant to

avoid suffering damages by reason of the Respondent’s alleged breach of contract by

acquiring substituting goods, the amount of damages is measured incorrectly. The damages

should amount to the market value of the goods in question on the date of delivery.82 The

substituting goods constitute different quality and they were bought considerably later than

the delivery of the cargo occurred,83 therefore, the purchase price does not reflect the real

market value of the cargo delivered in Rotterdam on 20 March 2009.

3.3 The Respondent denies liability for legal fees sustained in the Netherlands

Firstly, reference is made to everything stated above, where it is established that the

respondent did not breach the contract of carriage. Moreover, Section 17 of the Charter Party

states that “Neither the vessel nor the Master or Owner shall be or shall be held liable of any

loss or damage or delay to the cargo or for any failure in performing hereunder arising or

resulting from: … any act… of the Charterer…”. Hence, according to the Charter Party,                                                                                                                          81 Hadley v Baxendale [1854] EWHC J70. 82 Kaines (UK) Ltd v Osterreichische Warrenhandelsgesellschaft Austrowaren Gesellschaft m.b.H. [1993] 2 Lloyd's Rep 1. 83 Sales contracts dated on 16 April 2009 for the price USD 522.50 pmt.

23    

forming a part of the contract of carriage, Twilight cannot be held liable for Beatles, the

Charterer, commencing legal proceedings in Netherlands against Aardvark.

Alternatively, the loss incurred by Aardvark for legal fees was not reasonably foreseeable and

is accordingly too remote. Twilight could not have reasonably foreseen at the time of entering

into the contract that it would not be unlikely to suffer the damage. The loss has not actually

and naturally resulted from the alleged breach of contract, because the proceedings are not

related to Twilight. The proceedings were caused as a consequence of an unresolved dispute,

entirely unrelated to the alleged breach of contract. The dispute between Aardvark and

Beatles ensued already prior to the date when the alleged breach of contract occurred.84

Aardvark even appealed the decision, which prolonged the proceedings and caused additional

costs. The appeal was unsuccessful, which means that the appeal should never have been

brought. Consequently, by these reasons the Arbitration Tribunal should not question the cost

orders made by the Dutch court and Twilight cannot be held liable for damages. In any event,

Twilight cannot be held liable for damages for the appeal brought by Aardvark, as it was not

successful.

3.4 The Respondent denies damages based on breach of duty as bailee of the goods

As already established, Aardvark could not be considered as bailor therefore the Claimant is

not in a bailment relationship with the Respondent. As there is no bailment relationship,

Aardvark cannot claim damages for the full value of the purchase price of the cargo based on

an alleged breach of duty as a bailee of the cargo.

3.5 The Respondent is entitled to the costs of arbitration

According to section 61 of the Arbitration Act 1996 the Tribunal has the discretion to allocate

costs between the parties in a manner it deems suitable, although as a general rule the costs of

arbitration should follow the event. If the Arbitration Tribunal finds in favor of the

Respondent, Twilight should recover all costs sustained in these proceedings.

                                                                                                                         84 This is confirmed by email correspondence between Aardvark and Beatles, Moot problem, p. 25-33.

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PRAYER FOR RELIEF

For the reasons submitted above, the Respondent respectfully requests this Arbitration

Tribunal to:

Declare that this Arbitration Tribunal does not have jurisdiction to hear the case;

Further and/or alternatively

Reject the Claimant’s claim that it was:

I. Lawful holder of the Bills of lading; and/or

II. Holder of legal title under bailment;

Further and/or alternatively

Adjudge that the Respondent is not liable:

I. for breach of contract of carriage and/or duty under the Bills of Lading; and/or

II. for breach of duties under bailment;

Further,

Reject the Claimant’s claim for damages, alternatively limit the damages to:

I. the market value of the cargo, namely USD 1,400,000.00, or;

II. the market value of the cargo in addition to freight costs from Rotterdam to Liverpool,

namely USD 1,520,000;

Further,

Adjudge that the Respondent is entitled to:

I. recover all costs sustained in the present Arbitration proceedings