Davies Johnson’s Nico Saunders explores some recent decisions on time bar clauses in a shipping context.

Introduction

Charterparties frequently contain clauses requiring claims to be presented within a limited period and purporting to bar claims which are not presented in time. For example, it is common for voyage charterparties to provide for demurrage claims to be time barred if the claim and supporting documents are not presented within, say, 90 days.

The purpose of such clauses is to ensure that claims are made within a short period so they can be investigated and, if possible, resolved while the facts are still fresh and/or to enable the parties to have a final accounting as swiftly as possible (per Bingham J in The Captain Gregos [1991] Lloyds Rep 310 and The Oltenia [1982] 1 Lloyd’s Rep. 448).

Provided the wording is clear, time bar clauses are strictly enforced by the courts, even though their effect may be draconian. In The Sabrewing [2008] 1 Lloyd’s Rep 286 Mrs Justice Gloster remarked that demurrage time bar clauses had to be complied with “carefully and strictly.” She went on to remark that, whilst a time-bar clause shouldn’t be interpreted in such a way as to prevent a legitimate claim from being pursued, clauses have to be given their natural meaning with contra proferentem (i.e. interpreting the clause against the party who drafted it and seeks to rely on it) being a resolution of last resort.

A clause requiring notice of a claim within a certain period will only be effective if it clearly sets out the time for notification and makes it clear what rights would be lost if notice is not given in time (Bremer v Vanden [1978] 2 LLR 109, per Lord Salmon at p128 col 1).

A spate of recent cases have examined clauses requiring supporting documents to be presented within a certain time scale.

The “MTM Hong Kong” [2020] EWHC 700 (Comm) – Robin Knowles J

The Vessel was chartered on an amended Asbatankvoy form for a voyage from Antwerp to Houston. Clause 10 of the Charterparty provided that, in the event of simultaneous discharge of parcels of cargo, laytime and demurrage was to be pro-rated between parcels according to bill of lading quantities. Clause 38, entitled “Time Bar Clause”, provided that Charterers would be discharged and released from all liability for any claim unless the claim and “all supporting documents” were submitted within 90 days of completion of discharge.

Owners submitted a demurrage claim in time along with supporting documents, including a statement of facts which recorded the bill of lading quantity (albeit incorrectly for Charterers’ parcel). However, Owners did not provide bills of lading and Charterers argued the claim was time-barred as “all supporting documents” had not been provided in time.

Owners’ demurrage claim succeeded in arbitration. The Tribunal thought it was enough to provide the statement of facts which recorded the bill of lading figure and was therefore sufficient for Charterers to verify the calculation of apportionment of waiting and discharging time. The Tribunal also doubted whether a bill of lading could be provided to a third party without the permission of the holder of the bill.

On appeal by the Charterers, the Court held the claim was time-barred by reason of Owners’ failure to provide bills of lading within 90 days. The Charterparty made clear that pro-rating of laytime and demurrage was to be calculated by reference to the bill of lading quantities. Moreover, clause 38 referred to all supporting documents. The Court dismissed the confidentiality point referred to by the Tribunal; this could easily be overcome by redacting sensitive information.

The ”Tiger Shanghai” [2019] EWHC 3240 (Comm) – Mrs Justice Cockerill

By a time charterparty on amended NYPE form, the Vessel was chartered for two laden legs, the first of which involved loading of  cement clinker  at the port of Carbenaros, Spain. Clause 46 of the Charterparty provided that Charterers could fit and weld any additional equipment for loading cargo, subject to the Owners’ and Master’s approval, which was not to be unreasonably withheld. Charterers requested permission to cut new feeder holes in the Vessel’s hatch covers to facilitate loading a cement clinker cargo. They obtained a survey report for this purpose (although this was not presented to the Owners at the time). Owners refused to allow the work and Charterers terminated the Charter and claimed for damages, alleging that Owners’ refusal was unreasonable.

Clause 119 required any claim to be notified in detail accompanied by all available supporting documents (whether relating to liability or quantum or both) and an arbitrator appointed within 12 months from completion of charter, failing which the claim would be “totally extinguished” and the other party would be “discharged and released from all liability”.

Charterers commenced arbitration within the 12 months, attaching a Final Hire Statement, which was sufficient to particularise the nature and quantum of the claim. Claim submissions (attaching, indeed relying on, the survey report) were served more than 12 months after termination of the Charterparty.

The arbitrators held by a majority (Ms. Elizabeth Birch and Mr. Robert Gaisford, with Mr. Mark Hamsher dissenting) that the claim was time barred because the survey report was a supporting document that should have been submitted within 12 months. The reason for the split decision was that whereas the majority concluded the report was not privileged, Mr. Hamsher disagreed. The majority’s conclusion on privilege led them, therefore, to conclude that the time bar defeated the claim.

The Charterers appealed. Their primary argument was that the survey report was no more than “contingently relevant”; it might or might not be relevant depending on how the Owners sought to justify their refusal. The Commercial Court dismissed this:

• the scope of the clause was particularly wide, with specific reference to “all relevant supporting documents (whether relating to liability or quantum or both)”, while not confining itself to any particular sort of claim;
• Charterers’ claim depended on their being entitled to terminate, which itself depended on unreasonable refusal on the part of the Owners. The report was therefore within the ambit of the claim that Charterers advanced and supportive of it (and it was telling that Charterers turned to the survey report to support its case as well as anticipating a defence).

The Court also considered Charterers’ argument that if a document is reasonably arguable to be privileged, its disclosure is not required by an “all supporting documents” time bar clause and it does not matter (even if, in the final analysis, it is held not to be privileged). For the purposes of this argument, (i) Owners accepted that the clause did not require provision of a privileged document and (ii) Charterers accepted the survey report was not privileged.

The Court commented that such clauses would rarely be designed to require the provision of the kinds of documents which were or might be privileged. The present case was unusual in that the width of the clause and the nature of the disputes capable of arising meant that this point was at least arguable in this case. However, the Court dismissed the argument as “profoundly uncommercial” which would provide highly fertile ground for protracted disputes.

The judge also touched upon the question as to what is a “document”, drawing on the distinction (raised by Hamblen J in The Adventure [2015] 1 Lloyd’s Rep 473) between primary material (i.e. contemporaneous, factual documents) and secondary material (such as witness statements or expert reports, created later and for the purpose of the dispute) which, whilst possibly relevant was not decisive in this instance.

Charterers’ appeal was therefore dismissed and the Tribunal’s majority finding that the claim was time barred was upheld.

The “Amalie Essberger” [2019] EWHC 3402 (Comm) – Peter MacDonald Eggers QC

The Vessel was chartered on amended Asbatankvoy form for a voyage carrying a cargo of Cyclohexane from Rotterdam  to Castellon.

Clause 5 provided “Any claim for demurrage… shall be considered waived unless received … with all supporting calculations and documents, within 90 days after completion of discharge of the last parcel of Charterer’s cargo(es). Demurrage, if any, must be submitted in a single claim at that time”. It then listed a number of documents to be submitted, including pumping logs and letters of protest.

Clause 23 provided that certain documents, including pumping logs and letters of protest, had to be provided within 7 banking days after completion of loading or discharge.

After loading, Owners sent the pumping log and a letter of protest within 7 days as required by clause 23. Owners subsequently submitted a demurrage claim, within 90 days as required by clause 5. However, the pumping log and letter of protest was not submitted with the demurrage claim.

Charterers applied for summary judgment to dismiss the claim on the grounds that the demurrage claim was time-barred because it was not submitted in accordance with the requirements of Clause 5 of the Charterparty within the permitted time period of 90 days

The Court refused to grant summary judgment, rejecting Charterers’ submission that the supporting documents must be provided at the same time as the demurrage claim. Owners were not obliged to re-submit the pumping log and letter of protest.

The Court provided the following helpful guidance:

• “supporting documents” means documents on which Owners rely in support of their claim or one that requires the submission of documents which taken at face value establishes the validity of the claim. In the context of a demurrage claim, that would include documents which evidence the time used in berthing, loading, and discharging operations and the interruptions and stoppages in such operations, including the notice of readiness and the statement of facts or time logs.
• The categories of documents listed in clause 5 were required to be provided in support of the demurrage claim, even if they were strictly irrelevant to that claim.

Interestingly, although the issue did not arise because of his decision that the documents had been provided, the Judge said that if a particular document was not submitted in time, the whole demurrage claim would be time-barred (and not only that part of the demurrage claim to which the missing document relates).

The “Ocean Neptune” [2018] EWHC 163 (Comm) – Mr Justice Popplewell 

The voyage charter incorporated the ExxonMobil VOY2005 form, and the Lukoil International Trading and Supply Company Exxonvoy 2005 clauses (the LITASCO Clauses), in each case as amended. The Vessel loaded petroleum products at Taiwan for carriage to Australia. She was delayed at the first discharge port, Gladstone, when receivers refused to take delivery of the cargo on the grounds that it was alleged to be contaminated/off specification.

LITASCO Clause 2B specified certain documents which had to accompany demurrage claims, which had to be presented within 90 days of discharge. Charterers argued that the demurrage claim was time-barred because the documents specified in LITASCO Clause 2B had not been provided in time.

In arbitration , the Tribunal determined the time bar defence as a preliminary issue. It held that the Owners failed to provide all the supporting documents required by LITASCO Clause 2B and that the demurrage claims were time-barred for that reason, save in respect of the delays at Gladstone. It treated the delays at Gladstone as falling outside the scope of the time bar defence because although the claim was initially categorised as a claim for demurrage by the Owners, they subsequently re-labelled it as a claim for time lost waiting for orders falling within LITASCO Clause 4. The Tribunal held that the documentary requirements of LITASCO Clause 2B would not apply to the claim so re-labelled. Accordingly, the claim in respect of the delays at Gladstone was not time-barred.

Charterers appealed. They submitted that a claim under LITASCO Clause 4 was a claim for demurrage, and the entire claim was therefore time barred under LITASCO Clause 2B.  The Court agreed. The language of the charter provided in clear terms that a LITASCO Clause 4 claim was a demurrage claim.

Owners had argued that if Charterers’ construction was correct the owners would at least in some circumstances be required to submit irrelevant documents. The Court held that was not a sufficient reason for failing to give effect to the clear wording of the contract. The requirement was not onerous: it applied to a very limited class of documents which, if they existed, ought to be readily to hand and capable of submission without undue difficulty or expense.

The appeal was allowed and the Owners’ whole claim was held to be time barred.

The cases discussed above referred to less recent cases including:

The Oltenia [1982] 1 Lloyd’s Rep. 448, in which Bingham J commented, in respect of a time bar clause requiring all available supporting documents, that “the object [of the clause] could only be achieved if the Charterers were put in possession of the factual material which they required in order to satisfy themselves whether the claims were well-founded or not … Owners would not … be debarred from making factual corrections to claims presented in time … nor from putting a different legal label on a claim previously presented, but the owners are in my view shut out from enforcing a claim the substance of which and the supporting documents of which (subject always to de minimis exceptions) have not been presented in time…”

In The Abqaiq [2012] 1 Lloyd’s Rep 18, Tomlinson LJ said “For my part I am not sure that it is helpful to introduce into the approach to provisions [requiring supporting documents to be provided with a certain time] a notion of strict compliance. Where in a commercial contract one finds a provision to the effect that one party is only to be liable to the other in respect of claims of which he has been given notice within a certain period, it is fair to assume that the parties wish their relationship to be informed rather by certainty than by strictness… Thus the touchstone of the approach ought in my view to be a requirement of clarity sufficient to achieve certainty rather than a requirement of strict compliance which, if applied inflexibly, can lead to uncommercial results.”

In The Adventure [2015] 1 Lloyd’s Rep 473 the clause required “all supporting documentation substantiating each and every constituent part of the claim” to be provided within 90 days of completion of discharge. Hamblen J held “Where the Owners have available documentation from the load and discharge ports such as port logs and time sheets those are, as the Tribunal found, ‘relevant’ to the claim made. In the present case that is specifically borne out by the fact that the letters of protest relied upon refer to delays and stoppages recorded in the port log/time sheets. As such they are clearly supporting documentation for the claim made. In any event I consider they are primary documents containing factual material which should be made available to the Charterers so that they may satisfy themselves that the claim is well founded, consistent with the purpose of the clause.”

Comment

Contractual time bars are common in charterparties and failure to comply could result in an otherwise strong claim being defeated. Their application will depend upon the wording of the clause, the factual circumstances and the type of claim. It is therefore important that careful consideration is given to complying with their requirements.

The authorities discussed above suggest:

• Where a clause expressly sets out the documents to be provided, those must be submitted, even if irrelevant;
• “supporting documents” means documents on which the claimant relies or which establish the validity of the claim;
• The word “all” before “supporting documents” widens the scope of the documents which should be provided;
• Documents need not be submitted at the same time.

If a clause requires documents to be provided within a certain time, it is important that an available document which supports any claim or a limb of a claim is presented within the time bar. Parties should err on the side of caution in providing all potentially required documents in good time.

If such a clause covers a wide scope of documents and/or claims, this could lead to further complications, for example, a document may be “primary” or “secondary” material and it could be privileged. Parties would be well minded to restrict the clause to the presentation of specified documents or to cover only certain types of dispute if possible.

For further guidance or questions on this topic please contact Nico, Andrew or Charles in the Plymouth office.

Author: Nico Saunders

Davies Johnson’s Nico Saunders and Henry Stockley summarise the legal and practical consequences associated with the practice of issuing switch or split bills of lading.

Introduction

By way of simple summary of industry practice, upon shipment of a cargo a bill of lading is issued to the shipper who, once they receive payment, transfers the bill to the consignee, enabling them to take delivery of the cargo at the discharge port by presenting the bill of lading to the Master. When a bill of lading is ‘negotiable’, it may be transferred multiple times before delivery is taken by the ultimate purchaser of the goods.

Bills of lading therefore usually constitute:

• a receipt for the goods (evidence of quantity & condition);
• evidence of the contract of carriage and its terms; and
• a document of title to the goods (giving the lawful holder the right to claim delivery upon presentation, the power to transfer that right, symbolic possession of the goods and title to sue the carrier).

A bill of lading also often forms an important part of a credit arrangement and represents a bank’s security in respect of any credit advanced to a buyer.

The practice of “switching” bills of lading involves a second bill being issued in substitution for the first bill of lading.

Although the practice is widespread and often has a sound commercial basis, potential issues arise as to whether the carrier can and should comply with such request.

The issuance of switch bills may involve risk and uncertainty for the carrier.  The primary questions are whether the party requesting switch bills has the right to do so, and what a carrier can do to mitigate risk.

Why are Switch Bills required?

Switch bills are often requested for reasons such as:

1. There may be a change to the contracting parties because a sale has fallen through. Therefore the cargo may have to be redirected to a new buyer.
2. A seller of the goods in a chain of contracts may not want the original shipper to appear on the bills of lading. Instead the seller is named as the shipper (this is not uncommon in practice).
3. A change in discharge port because the goods have been resold, the onward transport arrangement has changed or the seller has an option to discharge at one of a number of ports.
4. The buyer requires one bill of lading to cover multiple small parcels to facilitate on-sale or requires multiple bills of lading which effectively break a bulk shipment into smaller parcels.
5. To take account of commingling, consolidation or blending of cargo or to change the description of the goods.
6. If the cargo is discharged and reloaded other than at the original loadport.

Who can request Switch Bills?

The owner of the goods (i.e. the holder of the first bills) at the time of the request.

What are the risks associated with Switch Bills? 

Switching bills of lading is not prohibited as a matter of English law, provided there is no fraudulent purpose behind the request.  However, the practice potentially exposes the carrier to risks such as:

1. Theft and misdelivery claims

Issuing switch bills of lading risks there being multiple bills of lading in circulation for the same cargo, in which case the carrier could face a claim in misdelivery for the value of the cargo covered by the bill(s).  For example, a fraudulent shipper may sell the goods to two consignees, facilitated by the issuance of a second bill. If the first set is not cancelled and surrendered, both consignees may present bills of lading purportedly entitling them to delivery, putting the carrier in a very difficult (and potentially very costly) position.

2. Claims in Deceit / Misrepresentation

A false or negligent representation in switch bills could expose the carrier. In the case of intentional deception or fraud a claim could be brought under the tort of deceit and in the case of negligence or innocent misrepresentations claims could be brought under the Misrepresentation Act 1967 or via the tort of negligent misstatement.

Particular concerns arise if bills are switched in order:

• To hide the place the cargo was loaded (which may be an attempt to avoid import duty on the cargo, or circumvent a sanctions regime).
• To amend the date of shipment (which may be to avoid problems in the sale contract with letter of credit terms where bills of lading must be issued within certain dates of loading).

3. Prejudiced insurance cover

Some P&I insurers exclude cover for liability arising from or under switch bills. Cover may be refused for cargo claims or, in the case of fines and loss, due to custom laws infringements.

Often a letter of indemnity (“LOI”) is requested by the carrier from the person requesting the second bill.  An LOI issued to facilitate an unlawful purpose will not be enforceable.

4. Other issues

The applicable international convention may be altered by issuing a switch bill.  For example, a Hague-Visby Rules bill of lading could become subject to the Hague Rules by the insertion of different terms or depending on how, where and by whom the new switch bill is issued.

Letters of credit could be declined in the case of discrepancies.

Minimising the risks

Certain considerations will always apply when the parties request a bill of lading to be switched or amended:

1. Ask why the switch is being done; simple due diligence may flush out any untoward practice. Beware of any evasive answers and indicators of fraud.
2. Consider whether the process of switching the bills of lading may amend, vary or replace the contract of carriage. Particular care must be given to the charterparty and other terms incorporated into the original and switch bills.
3. Consider whether any feature of the proposed switch bill of lading will mislead a third party about the representations in the bills which are being changed.
4. The first set of bills of lading should be surrendered and cancelled before releasing the switch bill. This is the only way the carrier is able to confirm that all the parties to the carriage consent to the switch, and that the requestor is the true owner of the cargo. Surrender and cancellation will also reduce the risk of misdelivery claims.
5. Seek the consent of the relevant parties to the contract of carriage (the carrier and the holder of the bills).
6. Consult insurers as to whether the switch bill of lading, in the circumstances, will prejudice cover.
7. If an LOI is offered in return for switching bills of lading, the carrier must consider whether the LOI will be enforceable. This includes whether the requestor has sufficient assets against which to enforce; how well the requestor knows the entity offering the LOI; how often the parties have done business together before; and, whether the requestor can be “trusted”.
8. The use of electronic bills of lading. These can be mutably stored in, for example, a centralised digitalised system using blockchain, helping to decrease document exchange and enable carriers to track bills of lading in real time.  Such systems may reduce the risks associated with switch bills of lading outlined above. However, any idiosyncratic risks involved in the use of electronic bills of lading are not considered in this brief article.

Conclusion

Whilst it is not uncommon in practice for switch bills to be requested for valid and honest commercial reasons, as Longmore J. said in The Atlas [1996] 1 Lloyd’s Rep. 642, issuing such bills is a practice fraught with danger. A carrier opens himself to potential claims for which insurance cover may be refused. Before issuing switch bills, it is crucial for a carrier to insist upon surrender of the first set of bills, ensure all parties to the ‘bill of lading contract’ consent and obtain guidance from insurers, in particular P&I insurers.

For further guidance or questions on this topic please contact Davies Johnson’s Plymouth office.

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Davies Johnson’s Nico Saunders examines some recent decisions, and their significance for claims handled under the ICA.

Introduction

The ICA is designed to facilitate settlement of cargo claims as between Owners and Charterers, to avoid arbitration and protracted discussion by providing a more or less mechanical apportionment of liability depending on the nature of the underlying cargo claim.

Paragraph 8 of the ICA sets out the basis for apportionment, depending upon whether the claim arose out of: (a) unseaworthiness; (b) cargo handling; (c) shortage or overcarriage; or (d) all other claims. There are several provisos to this section, providing fertile breeding ground for disputes.

The ICA has doubtless reduced disputes for such claims. However, where high value and complex claims occur, parties are understandably keen to get the best result, particularly with deductibles and claims records in issue. Additionally, the cause of damage is often unclear or involves multiple factors. It is unsurprising, therefore, that the ICA itself has given rise to its fair share of disputes.

1. Can a party recover costs of successfully defending the cargo claim?

The issue concerns two provisions of the ICA, namely 3(c) (by which costs incurred in defence or settlement of the underlying claim can be included in the apportionment) and 4(c) (that the underlying claim must have been properly settled or compromised and paid). Two contradictory arbitration decisions have considered the question:

London Arbitration 10/15

The Tribunal refused to allow apportionment of costs incurred in successful defence of a cargo claim. For the ICA to apply, there had to be liability to a third party.

London Arbitration 30/16

Owners incurred costs successfully defending the cargo claim and claimed apportionment under the ICA.

The Tribunal declined to follow London Arbitration 10/15. The ICA applied to costs incurred in the defence of the underlying cargo claim. 4(c) extended to costs incurred in defence of the claim as long as they had been paid.

2. When will the first proviso to 8(b) apply?

NYPE Clause 8 transfers responsibility for loading, stowing and discharge from Owner (the position at common law) to Charterers (to be performed “under the supervision of the Captain”). A frequent amendment (adding “and responsibility”) transfers responsibility back to Owners.

The starting point under 8(b) of the ICA is that Charterers bear 100% liability for claims arising out of cargo handling. However, if the words “and responsibility” are added to NYPE Clause 8 “or there is a similar amendment making the Master responsible for cargo handling” apportionment will be 50/50 (the first proviso to 8(b)). The Commercial Court recently considered what constitutes a “similar amendment”:

AGILE HOLDINGS CORPORATION v ESSAR SHIPPING LTD [2018] EWHC 1055

Cargo damage arose from improper loading. Clause 8 of the NYPE charter was unamended, but Clause 49 transferred responsibility for stowage back to Owners. In arbitration, the Tribunal apportioned liability 50/50 under the first proviso to 8(b) because clause 49 was a “similar amendment making the Master responsible for cargo handling” as it made the Master “responsible for (part at least of) the loading process”.

The Court overturned the Award on appeal; the Arbitrators were wrong to treat a partial transfer of responsibility for cargo handling back to Owners (such as stowage under clause 49) as sufficient to engage the first proviso of 8(b). The required “similar amendment” must transfer responsibility for all aspects of cargo handling back to the owner.

3. When will the proviso to 8(d) apply?

8(d) apportions all cargo claims which do not fall into 8(a), (b) or (c) equally between Owners and Charterers, unless the claim arose out of the act or neglect by one or the other (in which case that party will bear 100%). The question as to what constitutes “act or neglect” has been a contentious issue in numerous cases.

London Arbitration 30/16

A cargo of soyabeans was damaged as a result of self-heating causing caking and ship’s sweat producing condensation. The Tribunal held the single cause of damage was the shipment of an inherently unstable cargo.

Charterers were 100% liable under the proviso to 8(d) of the ICA. The relevant “act” of Charterers was either (i) the shipment of an inherently unstable cargo which was not fit for the voyage; alternatively (ii) shipping a cargo with a propensity to self-heat which took the cargo outside the limits of the charter, and outside the kind of risk which the owners agreed to bear.

London Arbitration 19/17

A cargo of steel products suffered condensation damage during a voyage from Asia to Antwerp, principally due to significantly different temperatures between the three load ports. There was also criticism of the vessel’s ventilation.

Applying the ICA, the cause of the damage was not exclusively due to stowage, so 8(b) did not apply.

The Tribunal ordered 50/50 apportionment under 8(d) of the ICA. The proviso did not apply because the damage was caused by a number of factors and not solely due to Charterers’ “act” of loading cargo into the same holds at different ports (as Owners argued). In the tribunal’s view, the word “act” was directed at some specific and definable event or occurrence, not at Charterers’ general compliance with the charter.

MV YANGTZE XING HUA [2017] EWCA Civ 2107 (CA)

A cargo of soyabean meal, carried from South America to Iran, suffered heating damage. Charterers had ordered the vessel to wait off the discharge port for 4 months (pending payment). Owners settled the cargo claim.

The cause of the damage was a combination of the inherent nature of the cargo (and its oil and moisture content) and the prolonged waiting time at the discharge port.

Charterers were found 100% liable under the proviso to 8(d) of the ICA. Although they were not “in breach or at fault or neglect”, their decision to use the vessel as floating storage (leading to cargo damage) constituted an “act” for the purposes of 8(d). This was upheld on appeal by Teare J and the Court of Appeal.

The word “act” is to be given its natural meaning and is not confined to a culpable act. The critical question is whether the claim “in fact” arose out of the act, operation or state of affairs described.

Whilst it is clear the word “act” does not require culpability, the application of 8(d) is likely to continue to fuel disagreement depending upon the apparent cause or causes of cargo damage.

Summary

The ICA is well-established and is here to stay. Whilst Tribunals and the Courts are keen to promote a mechanical application, parties will inevitably continue to dispute liability, using creative arguments where possible.

In most cases, a party faced with a cargo claim would be well advised to seek agreement from their charterparty counterpart before settling the underlying cargo claim (for an example of such an agreement being upheld, see London Arbitration 28/17) or at least put the other party on notice of the intended settlement and be prepared to explain the basis of the settlement when it comes to ICA apportionment.

Subtle distinctions may make all the difference. Multiple causes of damage will complicate matters and may preclude 100% liability either way. If the cause of damage (or the amount attributable to each in the case of multiple causes) is not identifiable, a Tribunal may take a broad brush approach to apportionment, in keeping with the ethos behind the ICA. In London Arbitration 28/17 for example, a West African bagged rice case, it was not possible to ascertain the proportion of damage arising from two competing causes, one of which was Owners’ responsibility and the other Charterers’. The Tribunal considered the fairest solution to be to apportion liability 50/50, for each side to bear its own costs and for the Tribunal’s fee to be shared.

Davies Johnson’s Simon Church considers the recent decision of the Court of Appeal in RBRG TRADING (UK) LTD V SINOCORE INTERNATIONAL CO LTD [2018] EWCA Civ 838 regarding enforcement of a China Arbitration Award issued by CIETAC.

Background

The claim concerned a shipment of 14,500 MT rolled steel coils which the Appellant, RBRG, had agreed to pay for by an irrevocable letter of credit in favour of Sinocore.  The Sale Contract provided for disputes to be referred to the China International Economic and Trade Arbitration Commission (CIETAC ) and determined in accordance with Chinese law.

Having opened the letter of credit for payment of US$12,616,000 in accordance with the Sale Contract terms, RBRG unilaterally arranged for the Dutch opening bank to amend the LC terms by providing for a later shipment date.

Bills of lading having already been issued within the prescribed period for doing so, dated 5 and 6 July 2010, Sinocore presented a new set of bills of lading with a later date to enable payment under the amended LC.  In response, RBRG obtained an injunction from the Court of Amsterdam against payment under the LC on the basis that payment was being claimed against falsely issued bills of lading.   Sinocore then responded by terminating the sale contract on the grounds of non-payment.

The CIETAC Award

In arbitration in China Sinocore successfully argued that RBRG were in breach of the sale contract in amending the LC terms.   The Tribunal acknowledged Sinocore had wrongfully arranged for issue of a new set of bills but determined that as a matter of causation it was RBRG’s breach and not the issue of false  bills which had resulted in the failure of payment and thereby Sinocore’s loss. CIETAC duly issued an Award in Sinocore’s favour which they then sought to enforce against RBRG in the UK.

Enforcement in the UK

RBRG resisted Sinocore’s application to enforce the  Award (a) on the “narrow ground” that  it had been open to Sinocore to present the genuine bills of lading but they had failed to do so, such that the claim in arbitration was based on a fraud and (b) on the “broad ground” that the English Courts will not as a matter of policy assist a seller which presents forged documents under a letter of credit.  Having failed in its action to set aside the Order granting enforcement in the High Court, RBRG proceeded to the Court of Appeal which held:

1. The CIETAC Tribunal had in issuing its Award expressly considered the issue of causation and found that the cause of termination of the contract and Sinocore’s failure to obtain payment was the tender of a non-conforming letter of credit, not the new set of bills of lading which had been presented after RBRG’s breach and had not deceived anyone.  It was not for the English Courts to interfere with the Chinese Tribunal’s findings as to the primary or fundamental cause, and questions of causation fell to be determined under Chinese law rather than English law.
2. In considering the test under S 103 Arbitration Act of whether it would be contrary to public policy to recognise or enforce a foreign Award, the Court held that such public policy considerations would only be engaged where the alleged illegality reflected considerations of international rather than purely domestic public policy. As such, the recent landmark judgment of the Supreme Court in Patel v Mirza [2016] UKSC 42 concerning the application of public policy concerns in cases of collateral illegality did not apply, but even if it had done, there were strong domestic public policy arguments in support of enforcement and the collateral nature of the conduct complained of by RBRG was such that the Award would be enforced.

Conclusions

This is a judgment which reflects the recent decisions of the Supreme Court in Versloot Dredging v HDI Gerling [2016] UKSC 45 (collateral lies in the context of insurance claims) and Patel v Mirza and the considerations applied in reaching a determination in favour of a party notwithstanding  that there may have been some act or omission by that party which was tainted by illegality.  The Court of Appeal’s decision has affirmed the principle of judicial comity and should be welcomed by the arbitration associations of China and elsewhere as indicating the English courts’ respect for the arbitral process as applied in other jurisdictions.

Davies Johnson’s Simon Church discusses the recent decision of the Commercial Court in CLEARLAKE SHIPPING PTE LTD v PRIVOCEAN SHIPPING LTD on the scope of the exception to Owners’ liability for neglect or default of the Master in “management of the ship”.

The Facts

Under a Time Charterparty on the NYPE 1946 Form, and incorporating the United States Carriage of Goods by Sea Act (US COGSA),  a cargo of soya beans was shipped from New Orleans to China via the Panama Canal.  Upon loading the cargo in question stowage plans were submitted which contemplated leaving one hold empty and two partly loaded.  For the purposes of ensuring the vessel’s stability, the Master refused to agree to this proposal unless cargo in one of the holds was strapped.  He also rejected an alternative proposal involving ballasting.

The Issues

In London arbitration proceedings, brought by Owners for recovery of approximately US$400,000 unpaid hire, Charterers counter claimed for US$410,000 costs which they said were unnecessarily incurred in strapping the cargo. Charterers’ case was argued on two principal grounds:

(a)          That Clause 2 of the NYPE 1946 wording stipulated that “Charterers are to provide necessary dunnage and shifting boards, also any extra fittings requisite for a special trade or unusual cargo…” From this they said, it should be inferred that Owners should be liable for the cost of the strapping employed because this was not necessary or required.

(b)          Because the Master had negligently insisted on the use of strapping  before sailing in circumstances where stability could have been ensured by distributing the cargo differently  and/or ballasting, giving rise to unnecessary costs for which Owners should be liable.

The Decisions

The Tribunal held, as Charterers had contended, that the vessel could have safely sailed without the additional strapping required by the Master.  Notwithstanding this finding, however, the Tribunal found in favour of Owners and its decision was upheld on Appeal to the High Court on the following grounds:

• Clause 8, not Clause 2 of the NYPE wording was the reference point for determining the parties’ obligations in respect of loading and stowage. The reverse inference which Charterers drew from the Clause 2 wording could not be supported.
• Section 4(2) US COGSA excluded a carrier’s liability for neglect or default of the Master in “the management of the ship”. Although the default of the Master in this case related to the stowage/ securing of cargo, his negligence/ default arose through his seeking to ensure the ship’s safety and stability and as such was concerned with the management of the ship such that Owners were exempt from liability.

Conclusions – Clarity or Muddied Waters?

In the context of the equivalent terms of Article IV Rule 2(a) Hague Visby Rules, which likewise excludes Owners’ liability for the Master’s negligence or default in management of the ship, there has been considerable judicial debate in the past as to where one should draw the line between management of the vessel and of cargo, and to what extent it is necessary to draw a line at all.

Cooke on Voyage Charters states that:

““Management” means management of the ship and not the general carrying on of the business of transporting goods by sea; it does not include management of the cargo, nor, probably management of those parts of the vessel whose function is concerned with the safety of the ship and with the safety of the cargo, such as an inert gas system.”   Hence the decision in Caltex Refining Co Pty Ltd v BHP Transport Ltd (The Iron Gippsland) [1994] 1 Lloyd’s Rep. 335 in which failure to maintain the vessel’ s inert gas system, leading to contamination of cargo was held to be a failure in management of the cargo notwithstanding that this system was provided for the safety of the vessel.

The present case provides an interesting corollary to The Iron Gippsland as one where a failure in relation to the securing of cargo has been held to be a failure in management of the vessel.   As the Court held, these matters very much turn on the facts, but it seems that  the key question will always be that of which interest the Master is primarily concerned with protecting, or which interest is primarily at risk in the event of the Master’s default – ship or cargo?  And it may be that in managing cargo the Master will be found to have been negligent in the management of the vessel.

Davies Johnson is delighted to announce the launch of its Swiss office, based in Geneva.

The expansion into Switzerland is a natural progression for Davies Johnson, building on its core shipping, international trade and commercial team in the UK.

We welcome on board two lawyers who bring with them a wealth of varied experience, and add a new dimension to what the firm can offer the shipping, trading, commodity and insurance sectors.

Bob McCunn
Bob was admitted in 1986 and worked with two leading London shipping and international trade firms, including a period in Greece. He has vast experience in marine insurance, reinsurance and general shipping, and has specialised further in oil and commodity trading, fraud and asset tracing. He has represented international commercial clients in several high-profile matters, including recovering for the insurers of Brinks Mat following the infamous Heathrow robbery, and secondment to a major Kuwaiti oil and tanker company following the Iraqi invasion in 1990. A non-executive Director of various major trading companies, Bob has been based in Geneva since 2008.

Cyrus Siassi
Cyrus is admitted in England and Switzerland, and has over twenty years’ experience of representing major insurance, financial and institutional clients in complex and high-profile matters. Cyrus handles litigation, arbitration, mediation and other dispute resolution work in England and Switzerland, specialising in cross-border transactional matters, shipping, international trade, aviation, construction, finance, insolvency, fraud and debt-collection. He has particular experience in the metals, energy and commodities sectors, and is an authority on international sanctions and embargoes. Cyrus also advises clients on regulatory, compliance and criminal liability, white collar crime, judicial investigations in Switzerland and anti- money-laundering and terrorist financing worldwide.

Kashima’s long wavelengths and severe northerly winds combined in the loss of OCEAN VICTORY (Photo copyright: MS3866 at http://forum.shipspotting.com)

The Supreme Court has given its long-awaited judgment in this US$170 million case concerning the total loss of a capesize bulk carrier in 2006. This note focusses on the circumstances in which weather and similar temporary hazards may amount to a characteristic of a port and the meaning of “abnormal occurrence” within the classic definition of safety set out in the EASTERN CITY[1].

The vessel was discharging its cargo of iron ore at berth in the modern and purpose built port of Kashima in October 2006. The quay in use was vulnerable to a meteorological condition known as long waves which can make it difficult for a vessel to remain at berth. The port was also prone to severe northerly winds, which can make it difficult for a vessel to navigate the relatively narrow entrance channel. These conditions operate independently of one another; however, on the date in question, both occurred simultaneously. The vessel sought to leave port due to the adverse effect of long waves, but was unable to navigate the entrance channel due to the severe northerly winds and she grounded on a breakwater, becoming a total loss.

Owners claimed a breach of the safe port warranty. It was common ground that the test was whether damage was caused by an “abnormal occurrence”.

At first instance[2], Charterers were found to be in breach of the safe port warranty. Teare J ruled that long waves and northerly storms were each characteristics of the port and the concurrence of those two conditions, although rare, could not be said to be an “abnormal occurrence”.

The Court of Appeal[3], however, disagreed. The question was whether the critical combination of long waves and northerly gales was an abnormal occurrence or a normal characteristic of the port. This requires an evidential evaluation of the particular event giving rise to the damage and the relevant history of the port. No vessel in the port’s history had been dangerously trapped at the quay at the same time the entrance channel was not navigable due to gale force winds (it was also relevant that the storm was of exceptional severity) and the combination was therefore “abnormal”.

The Supreme Court unanimously upheld the Court of Appeal decision. Lord Clarke, giving the leading judgment, began by reinforcing that the date of the safe port promise is the date of nomination and is a prediction about the safety of the port when the ship arrives in the future. “Abnormal occurrence” should be given its ordinary meaning, namely something which is rare and unexpected, out of the ordinary course, well removed from the normal and which a notional charterer would not have in mind. One should ask whether the particular event was sufficiently likely to occur to have become an attribute of the port. The evidence in this case established that the conditions were an abnormal occurrence and there had accordingly been no breach of the safe port warranty.

From an operational perspective, the judgment reinforces the importance of considering the likelihood of the vessel being exposed to danger during its visit and, if so, whether the set-up of the port adequately deals with such hazards. Temporary events such as weather conditions may be considered characteristics of a port if they are sufficiently regular or sufficiently foreseeable in the historical context of the port.  If more than one event is concerned, it is the likelihood of the combination of those occurrences which is to be considered.

[1] Leeds Shipping Company Ltd. v. Société Française Bunge [1958] 2 Lloyd’s Rep. 127

[2] [2014] 1 Lloyd’s Rep. 59

[3] [2015] 1 Lloyd’s Rep. 381

Davies Johnson’s Danella Wilmshurst has been recognised by legal peers and industry experts as a leader in the field of Shipping & Maritime Law.

Danella, a Director of the firm, was recently named in Best Lawyers Australia for her work in this area.

Best Lawyers’ methodology is based entirely on peer review and is designed to capture the consensus of opinion among leading lawyers, about the professional abilities of their colleagues within the same geographical and legal practice areas.

If that was not enough, Danella was also listed in “Who’s Who Legal: Transport 2017”. Unlike Best Lawyers, the Who’s Who listing is based on extensive research into the opinions of law firm clients and transport experts.

For Danella to receive this recognition from both her peers and the industry as a whole, is a fantastic achievement.

Danella has been advising the shipping and insurance industry on maritime and transport law for over twenty years, having been a partner at two of Australia’s leading maritime and transport firms. An expert on wet and dry shipping, freight forwarding and logistics, transport contracts and transactional work, Danella is a Director of the Maritime Law Association of Australia and New Zealand and a Member of the Australian Federation of International Forwarders. She has taken several complex cases through litigation or arbitration, ranging from charter party disputes to oil pollution, and has an international reputation for her expertise and sound guidance to the industry.

Danella Wilmshurst, Principal Lawyer
danella.wilmshurst@daviesjohnson.com
+61 (0)438 012733