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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.

  1. 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.

  1. 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.

Nico Saunders – Solicitor

+44 (0)7771 335 196

nico.saunders@tmlawltd.com

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TM Law’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.

Simon Church – Solicitor

+44 (0)7919 576293

simon.church@tmlawltd.com

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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.

Simon Church – Solicitor

+44 (0)7919 576293

simon.church@tmlawltd.com

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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.

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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.

Author: Nico Saunders

+44 (0)7771 335 196

+44 (0)1752 226020

nico.saunders@daviesjohnson.com

[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

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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

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Davies Johnson is delighted to announce that its specialist maritime and logistics legal services will now be available to clients throughout Australia, New Zealand and the region.

The unveiling of the firm’s Australian venture was hailed by Davies Johnson CEO, Peter Jackson, as a turning point in marine legal services in the region. “Australia’s marine and logistics sectors are still growing strongly despite the commodities dip, New Zealand’s ports are performing well, and new infrastructure projects are in the pipeline all over the region. These sectors deserve the same commercial approach and cost-effective structure we have in place with Davies Johnson in the UK, and we’re going to provide that with some of the best talent in the regional market.”

Read more »

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Davies Johnson’s Danella Wilmshurst, Principal Lawyer in the firm’s Sydney office, addressed  the ‘Container Transport Alliance Australia’  conference in Brisbane in August 2016.

The seminar and discussions centred around the present commercial, operational and regulatory environment in Australia, and its effects on the Australian transport and logistics industry.

Danella’ s speech was well received by an audience of  recognised industry experts.

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tmCrew on vessels sailing to offshore installations, for
example, outside the 12 miles zone do not need UK
work permits

A recent case, where a vessel was at risk of detention by Border Force UK, has thrown up some
interesting questions concerning work permits, visas, immigration and manning rules, according to
UK-headquartered marine solicitors Thomas Miller.  Read more »