Law Commission to review the Arbitration Act 1996

Yesterday, on 22 September 2022, the Law Commission for England and Wales published a public consultation paper unfolding provisional law reform proposals to ensure that the Arbitration Act 1996 remains state of art. After the Ministry of Justice asked the Commission to undertake a review of the Arbitration Act 1996 in 2021, the work began in January 2022. While consulting with a wide range of stakeholders in the field and assessing the current legal framework, the Commission has concluded that the Arbitration Act works very well, without any need for substantial reforms. However, it has been revealed that several discrete topics might necessitate amendments to ensure that the Act fits its purpose and continues to promote the UK as a leading destination for commercial arbitration. The Commission has drafted the consultation questions around the shortlisted aspects of arbitration:

1. Confidentiality

2. Independence of arbitrators and disclosure.

3. Discrimination. 

4. Immunity of arbitrators. 

5. Summary disposal of issues that lack merit. 

6. Interim measures ordered by the court in support of arbitral proceedings (section 44 of the Act). 

7. Jurisdictional challenges against arbitral awards (section 67). 

8. Appeals on a point of law (section 69). 

In addition, the Commission encourages consultees to suggest and comment on any other topics which are not covered in the consultation paper but might need reviewing.

The Commission welcomes responses to the paper between 22 September 2022 and 15 December 2022 using an online form, email, or post. After the consultation has been completed, the Commission will analyse the responses and ensure further stakeholder engagement as appropriate. The follow-up report of the final recommendations for law reform will be published by the Commission, and the Ministry of Justice together with other interested departments will decide whether to implement them.

More information on the reform project and the consultation paper are available at Review of the Arbitration Act 1996 | Law Commission.

Harmonised cybersecurity rules? The EU proposes Cyber Resilience Act 2022

On Thursday, 15 September 2022, the European Commission proposed the first-ever EU-wide Cyber Resilience Act regulating essential cybersecurity requirements for products with digital elements and ensuring more secure hardware and software for consumers within the single market.

According to the Commission, cybersecurity of the entire supply chain is maintained only if all its components are cyber-secure. The existing EU legal framework covers only certain aspects linked to cybersecurity from different angles (products, services, crisis management, and crimes), which leaves substantial gaps in this regard, and does not determine mandatory requirements for the security of products with digital elements.

The proposed rules determine the obligations of the economic operators, manufacturers, importers, and distributors to abide by the essential cybersecurity requirements. Indeed, the rules would benefit different stakeholders; by ensuring secure products, businesses would maintain customers’ trust and their established reputation. Further, customers would have detailed instructions and necessary information while purchasing products which would in turn assure data and privacy protection.

According to the proposal, manufacturers must ensure that cybersecurity is taken into account in the planning, design, development, production, delivery, and maintenance phase, and cybersecurity risks are documented, further, vulnerabilities and incidents are reported. The regulation also introduces stricter rules for the duty of care for the entire life cycle of products with digital elements. Indeed, once sold, companies must remain responsible for the security of products throughout their expected lifetime, or a minimum of five years (whichever is shorter). Moreover, smart device makers must communicate to consumers “sufficient and accurate information” to enable buyers to grasp security considerations at the time of purchase and to set up devices securely. Importers shall only place on the market products with digital elements that comply with the requirements set out in the Act and where the processes put in place by the manufacturer comply with the essential requirements. When making a product with digital elements available on the market, distributors shall act with due care in relation to the requirements of the Regulation. Non-compliance with the cybersecurity requirements and infringements by economic operators will result in administrative fines and penalties (Article 53). Indeed, market surveillance authorities will have the power to order withdrawals or to recall non-compliant devices.

The Regulation defines horizontal cybersecurity rules while rules peculiar to certain sectors or products could have been more useful and practical. The new rules do not apply to devices whose cybersecurity requirements have already been regulated by the existing EU rules, such as aviation technology, cars, and medical devices.

The Commission’s press release announced that the new rules will have an impact not only in the Union but also in the global market beyond Europe. Considering the international significance of the GDPR rules, there is a potential for such an expected future. On another note, attempts to ensure cyber-secure products are not specific only to the EU, but different states have already taken similar measures. By comparison, the UK launched consultation ahead of potential legislation to ensure household items connected to the internet are better protected from cyber-attacks.

While the EU’s proposed Act is a significant step forward, it still needs to be reviewed by the European Parliament and the Council before it becomes effective, and indeed, if adopted, economic operators and the Member States will have twenty-four months (2 years) to implement the new requirements. The obligation to report actively exploited vulnerabilities and incidents will be in hand a year after the entry into force (Article 57).

Canada asks: can a shipowner claim costs and expenses when they caused the oil pollution and were the only ship involved? (Spoiler alert: no)

At the end of August, the Canadian Federal Court dismissed a statutory appeal made by Haida Tourism Limited Partnership (Haida) against a decision of the Ship-Source Oil Pollution Fund (SOPF) Administrator. In doing so, it raised a few interesting points and gave us an excuse to take a quick look at one of the more claimant-protective ship-source oil pollution damage compensation regimes out there.

Facts:

On 08 September 2018, the Tasu I – an accommodation barge owned and operated by Haida – came loose from its mooring buoy in Alliford Bay, Haidi Fwaii, and drifted to a grounding point in Bearskin Bay on Lina Island, BC, Canada, where it released a mixture of gasoline and/or diesel. Haida contacted the Canadian Coast Guard about the incident and attempted to assuage the oil pollution damage caused by the grounding.

In late December 2018, Haida submitted a claim to the SOPF – pursuant to s103(1) of the Marine Liability Act SC 2001 c6 (MLA) – to recuperate the costs and expenses it incurred as a result of its mitigation efforts. They claimed the Tasu I’s mooring lines had been intentionally and wilfully tampered with by a third party, with the intent to cause harm, thereby providing Haida with a defence against liability under s77(3)(b) MLA. In early August 2021, the SOPF’s Administrator denied the claim and Haida appealed. 

The appeal did not assess the validity of the defence put forward in the initial claim (or other factual matters), but focussed on a question of law, specifically, on the interpretation of s103 of the MLA and whether it permits a right of recovery for costs and expenses by the shipowner when such costs and expenses are incurred as a result of preventing, repairing, remedying or minimizing potential oil pollution damage when the incident has been caused solely by the shipowner’s own ship.

Haida

Canadian law:

The Marine Liability Act 2001 addresses matters of maritime claims and liability. Of relevance to the appeal were Parts 6 and 7, which address liability and compensation for oil pollution damage, and the SOPF, respectively.

Division 1 of Part 6 gives several ship-source pollution conventions the force of law in Canada, including the International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001 (Bunker Convention), the International Convention on Civil Liability for Oil Pollution Damage, 1992, (CLC) and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992 (Fund Convention).

The CLC imposes a capped, strict liability regime upon the shipowner of oil tankers/vessels adapted for the carriage of oil that cause oil pollution damage. In situations where the shipowner does not pay (because they are unable to/have reached the liability cap/ benefit from a defence), victims are able to seek compensation via a fund set up by the Fund Convention.

The Bunker Convention – which is similar in nature to the CLC but applies to pollution damage caused by spills from any seagoing vessel’s bunker oil (rather than cargo oil) – has no equivalent fund or Fund Convention.

Part 6, Division 2 concerns itself with liability that has not been covered by the international conventions incorporated into law by Division 1. Of particular note is s77 MLA, which – subject to some limited exceptions – imposes strict liability on a shipowner for oil pollution damage from their ship (s77(1)(a)), as well as for the costs and expenses incurred by the Minister of Fisheries and Oceans (a response organization under the Canada Shipping Act 2001), or any other person in Canada, in respect of measures taken to prevent, repair, remedy or minimize oil pollution damage from the ship, including measures taken in anticipation of a discharge of oil from it, to the extent that the measures taken and the costs and expenses are reasonable, and for any loss or damage caused by those measures (s77(1)(b)).

Liability for pollution and related costs

77 (1) The owner of a ship is liable

a) for oil pollution damage from the ship;

b) the Minister of Fisheries and Oceans in respect of measures taken under paragraph 180(1)(a) of the Canada Shipping Act, 2001, in respect of any monitoring under paragraph 180(1)(b) of that Act or in relation to any direction given under paragraph 180(1)(c) of that Act to the extent that the measures taken and the costs and expenses are reasonable, and for any loss or damage caused by those measures, or any other person in respect of the measures that they were directed to take or refrain from taking under paragraph 180(1)(c) of the Canada Shipping Act, 2001 to the extent that the measures taken and the costs and expenses are reasonable, and for any loss or damage caused by those measures; and

(c) in relation to pollutants, for the costs and expenses incurred by

i. the Minister of Fisheries and Oceans in respect of measures taken under paragraph 180(1)(a) of the Canada Shipping Act, 2001, in respect of any monitoring under paragraph 180(1)(b) of that Act or in relation to any direction given under paragraph 180(1)(c) of that Act to the extent that the measures taken and the costs and expenses are reasonable, and for any loss or damage caused by those measures, or

ii. any other person in respect of the measures that they were directed to take or refrain from taking under paragraph 180(1)(c) of the Canada Shipping Act, 2001 to the extent that the measures taken and the costs and expenses are reasonable, and for any loss or damage caused by those measures.

Part 7 lays out the specifics of the SOPF, which was set up as a fund of first recourse, providing an extra layer of protection to ship-source oil spill victims by compensating them in situations where a shipowner is either unable to do so, refuses to do so or is not obliged to do so, irrespective of whether any of the above conventions apply (s101)[1]. The SOPF is a unique feature in oil pollution damage compensation, combining the benefits of the CLC regime and the American one – the USA, not being a party to the CLC, set up a similar regime (encompassed in its Oil Pollution Act 1990), including a fund which covered situations akin to those compensable under the Fund Convention, as well as situations outside of it.

Canada’s Ship-Source Oil Pollution Fund does not cap its limits and includes pay outs for pure economic loss.

Liability of Ship-source Oil Pollution Fund

101(1) Subject to the other provisions of this Part, the Ship-source Oil Pollution Fund is liable in relation to oil for the matters referred to in sections 51, 71 and 77, Article III of the Civil Liability Convention and Article 3 of the Bunkers Convention in respect of any kind of loss, damage, costs or expenses — including economic loss caused by oil pollution suffered by persons whose property has not been polluted — if

a) all reasonable steps have been taken to recover payment of compensation from the owner of the ship or, in the case of a ship within the meaning of Article I of the Civil Liability Convention, from the International Fund and the Supplementary Fund, and those steps have been unsuccessful;

b) the owner of a ship is not liable by reason of any of the defences described in subsection 77(3), Article III of the Civil Liability Convention or Article 3 of the Bunkers Convention and neither the International Fund nor the Supplementary Fund are liable;

c) the claim exceeds

i) in the case of a ship within the meaning of Article I of the Civil Liability Convention, the owner’s maximum liability under that Convention to the extent that the excess is not recoverable from the International Fund or the Supplementary Fund, and

ii) in the case of any other ship, the owner’s maximum liability under Part 3;

d) the owner is financially incapable of meeting their obligations under section 51 and Article III of the Civil Liability Convention, to the extent that the obligation is not recoverable from the International Fund or the Supplementary Fund;

e) the owner is financially incapable of meeting their obligations under section 71 and Article 3 of the Bunkers Convention;

f) the owner is financially incapable of meeting their obligations under section 77;

g) the cause of the oil pollution damage is unknown and the Administrator has been unable to establish that the occurrence that gave rise to the damage was not caused by a ship; or

h) the Administrator is a party to a settlement under section 109.

Section 103(1) permits the filing of claims by persons suffering loss or damage or incurred costs or expenses in respect of actual or anticipated oil pollution damage, against the Administrator of the SOPF for such loss, damage, costs or expenses. This right is in addition to those granted to claimants under s101.

Claims filed with Administrator

103 (1) In addition to any right against the Ship-source Oil Pollution Fund under section 101, a person may file a claim with the Administrator for the loss, damage, costs or expenses if the person has suffered loss or damage, or incurred costs or expenses, referred to in section 5171 or 77, Article III of the Civil Liability Convention or Article 3 of the Bunkers Convention in respect of any kind of loss, damage, costs or expenses arising out of actual or anticipated oil pollution damage, including economic loss caused by oil pollution suffered by persons whose property has not been polluted.

The appeal:

Haida initially framed its claim under s101, being based on the view that they needed to satisfy one of the criteria under s101 before being able to proceed with s103. It was noted in the initial decision made by the Administrator against Haida that ss101 and 103 were separate and independent mechanisms for claims and that requiring the establishment of criteria in s101 in order to proceed with a s103 claim contradicts the express wording, “in addition to any rights against the [SOPF] under s101,” and would also reduce access to justice by imposing additional burdens on the claimant. Haida had been permitted to recategorize their claim under s103(1) and thus argue that the provision did not preclude a shipowner from making a claim for costs and expenses in situations where they had a defence to liability. Additionally, ‘liability of the shipowner’ and ‘costs and expenses’ were separate under s77.

Even with the permitted re-categorisation, the Administrator viewed this interpretation as problematic for several reasons.

First, the Administrator (sensibly) did not believe that s103’s reference to art 3 of the Bunker Convention (which expressly imposes liability on the shipowner for pollution damage) was intended by its drafters to sever shipowner liability from loss, damage, costs and expenses. And since a shipowner is incapable of being liable to itself, the Administrator did not believe it was possible for Haida to make its claim under s103 by using art 3 of the Bunker Convention.

Secondly, s77’s express reference to costs and expenses could not be divorced from shipowner liability when the provision was read in its full context – it is perfectly possible for a shipowner to suffer losses (including costs and expenses) when their ship is damaged in an oil spill incident, but not under s77(a)-(c) as that would result in the shipowner being liable to itself. For this reason, s77 could also not be used by Haida for its claim under s103(1).

The Federal Court agreed with this interpretation and further pointed out that simply benefitting from a defence from strict liability under s101 did permit a claim for costs and expenses under s103(1) as they were distinct claims processes. In addition, when investigating and assessing a s103(1) claim, the Administrator is restricted to considering only two factors (s105(1)). Neither of these two factors involve consideration of a shipowner’s defence to its strict liability, and when viewed within the overall context of Parts 6 and 7, the obvious and correct conclusion of s103(1) not creating a right for a shipowner to recover costs and expenses incurred during damage mitigation in an incident was correct.


[1]  Where a shipowner is liable but does not pay out, the Administrator settles the claims and then subrogates the claimants’ rights in order to pursue the shipowner. They are also able to commence actions in rem either against the ship or the proceeds from the sale of the ship (s102).

Performance Warranties in Charterparties- “Good Weather” Qualification Again!  

Eastern Pacific Chartering inc v. Pola Maritime Ltd (The Divinegate) [2022] EWHC 2095 (Comm)

The Divinegate was trip chartered on an amended NYPE 1946 form with additional clauses for a carriage of pig iron from Riga via the Baltic Sea to the Mississippi River in the United States. Following discharge of the cargo, the owners sought unpaid hire, bunkers and expenses totalling US$ 99,982.79 and the charterers sought deductions from hire of US$ 93,074.55 for the failure to proceed with utmost despatch on the voyage and hull fouling. The charterers also made a counterclaim for US$ 72, 629.01 as damages in tort on grounds of the owners’ allegedly wrongful arrest of the vessel, The Polo Devora, of which charterers believed to be the beneficial owner. The wrongful arrest counterclaim failed and will not be discussed here.

The charterparty contained a performance warranty to the effect that “Speed and consumption basis no adverse currents and valid up and including Douglas Sea State 3/ Beaufort Force 4.”

The essence of the litigation was the assessment of the chartered vessel’s performance to determine whether there was, in fact, a failure to proceed with utmost despatch on the voyage. The owners contended that the performance of the vessel should be assessed in a conventional way, i.e. by reference to the vessel’s speed during “good weather”. The charterers, on the other hand, suggested that underperformance could be established by reference to the vessel’s measured RPM (revolution per minute) which reflects the engine speed maintained by the crew.   

The Judgment and Lessons for the Future          

Ms Clare Ambrose, sitting as a High Court Deputy Judge, made significant observations on the state of law in this area and reached interesting conclusions which are likely to inform the judges and arbitrators who are often called in to deal with performance related claims in the context of time (and trip) charters.

  1. It was stressed that traditional way of establishing breach and loss in performance claims is the “good weather” method and in instances where the parties have adopted such a formulation in their contracts (which was the case here) this will be the primary method of assessment used by the court.

2. The judge also appreciated that this is not the only available methodology for making calculations and there is no bar for alternative methods being used to measure vessel’s performance. However, any alternative method must be consistent with the express wording contained in the charterparty and must also be established as “reliable”. On the facts of this case, the RPM method was not found to be reliable in identifying loss of time as it made incorrect assumptions as to the resistance on the hull and made no allowance for weather conditions being a reason for a reduction in engine speed, as well as ignoring the fact that there were periods the vessel could not achieve the warranted speed due to other factors, e.g. currents.

Therefore, the judge left it open to parties to argue that alternative methods (especially in the light of emerging technologies) could be used to assess a chartered vessel’s performance but strongly hinted that so far no satisfactory method has been put forward to sway judges/arbitrators away from the traditional method and legal principles that have been developed for years. Referring to the “good weather” method, Ms Ambrose said (at [90]):

The approach adopted in the authorities reflects commercial practice in assessing performance and the specific wording chosen by the parties, rather than the court imposing legal methodologies.

3. An interesting debate in the case related to the impact of currents in the assessment of performance of the vessel. It was contended by the charterer that allowance should be made for the positive currents and positive currents should be, therefore, a factor in determining whether the vessel’s performance is at the warranted level. This argument found no support from the judge. It was held that in the absence of wording excluding the benefits of positive currents, such benefits should not be deducted in measuring the vessel’s speed for the purposes of the performance warranty. This provides a judicial clarity on the matter and is logical from a commercial perspective. A contrary solution would have meant that the owners would be penalised for its master finding a favourable current and ensuring that the vessel goes faster and burns less fuel (something that is economically beneficiary for both parties).

The judge applying the “good weather” method, reached the conclusion that the chartered vessel failed to meet the warranted speed so there was underperformance giving rise to a loss of time of 16 hours.

4. The judge also rejected the claim for hull fouling indicating that the use of good weather method for calculating loss from slow steaming would otherwise lead to double recovery.

The judgment is a reminder to the market that in the absence of clear and contrary wording it will be rather difficult to shift the traditional method of assessing a chartered vessel’s performance with reference to good weather method. However, especially in trip charters there remains a realistic possibility that it might not be possible to obtain good weather sample so as to be able to assess the performance of the vessel. In those instances, with the advances in technology, the courts and arbitrators might come under pressure to consider alternative assessment methods that could shed light on the performance of the chartered vessel.              

Excluded wreck removal claims under art 2(d) LLMC in Hong Kong. No limitation of liability through the back door.

In Perusahaan Perseroan (Persero) PT Pertamina v Trevaskis Ltd (The Star Centurion and The Antea) – [2022] HKCA 1089 a collision occurred between the “Antea” and the “Star Centurion”, a vessel at anchor in Indonesian waters. The Star Centurion sank and the authorities issued a wreck removal order. The claimant, the owner of the “Antea”, established a limitation fund in Hong Kong and paid HK$175,062,000 into court. The wreck removal claims were HK$139 million and growing.

The claimant issued a summons seeking a declaration that that part of the defendant’s claim for damages, in respect of the raising, removal, destruction or the rendering harmless of the  “Star Centurion” was subject to limitation under article 2 of the 1976 Convention and under the limitation fund constituted by the claimant. Article 2 (d) of LLMC specifically covers wreck removal claims but Article 18(1) allows a contracting party to disapply it through a reservation. The UK has made such a reservation, and so has Hong Kong.

The claimant argued that the wreck removal claims could be limited as they fell within art 2(1)(a) “claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation), occurring on board or in direct connection with the operation of the ship or with salvage operations, and consequential loss resulting therefrom”; and also 2(1)(c) “claims in respect of other loss resulting from infringement of rights other than contractual rights, occurring in direct connection with the operation of the ship or salvage operations;”

The Hong Kong Court of Appeal has recently upheld the first instance decision [2021] HKCFI 396 that the wreck removal claims were excluded from limitation by virtue of the reservation in respect of article 2(d). Claims under this head encompassed direct claims by statutory authorities, whether under statute or at common law, and private recourse claims by shipowners for consequential loss or damage to property or resulting from the infringement of rights. There could be no “partial reservation” under article 18(1) in excluding the application of article 2(1)(d) only as regards claims by waterway authorities and not to recourse claims by shipowners. Although wreck removal claims fell within articles 2(1)(a) and (c), general provisions should give way to the specific terms of article 2(1)(d) where the claim was for wreck removal costs.

The Hong Kong Court of Appeal in reaching this conclusion referred to majority obiter dicta of the Full Court of Queensland in The Tiruna and Pelorus [1987] 2 Lloyd’s Rep 666 and to the decision of the Supreme Court of the Netherland in  Shipping Co MS Amasus BV v ELG Haneil Trading GmbH. It is likely that a UK court would come to the same decision.

Liability of demise charterer for bunkers supplied to vessel on time charterer’s orders. Contracting in to US law on what constitutes a maritime lien.

In London Arbitration 28/22 a bunker supplier that had supplied bunkers on the order of the time charterers successfully obtained an award against the demise charterers, who later exercised their option to purchase the vessel. The bunker supplier’s invoice, dated 17 May 2021, was issued to “Master and/or Owners and/or Charters (sic) of [the Vessel] and/or [registered owners] and/or [time charterers]”.

The bunker supplier’s general terms and conditions (GTC) expansively identified the buyer under cl.2.1 as “ the contracting party/ies identified in the Nomination including but not limited to any agent, principal, associate, manager, partner, servant, parent, subsidiary, owner or shareholder thereof and any vessel as defined in clause and/or vessel owner and/or charterer and/or operator to which the Products have been delivered to and/or any other party benefiting from the consumption of the Products.” Cl.15 asserted that the seller had a lien against the vessel for sums due under the contract and also provided “It is expressly agreed between Seller and Buyer that the delivery of Marine Bunker/products creates a maritime lien in accordance with article 46 US Code § 31342 of the United States Federal Maritime Lien Act.” Cl 19 provided for English law but as regards what constituted a maritime lien the US federal Maritime Lien Act was to apply.

Arbitration was brought against the demise charterer and the time charterer. The arbitrator rejected an attempt part way through the reference to add the registered owner at the time of the sale. The only way to get at the registered owner would be by commencing second proceedings against them.

The arbitrator found that both the bareboat and time charterers came within the definition of Buyer in clause 2.1 of the GTC and that the time charterers had apparent and/or ostensible authority to bind the bareboat charterers to being liable under the GTC. Although the supply of bunkers would not create a lien under English law, it would do so under US law as a supply of ‘necessaries’. The lien could extend to bunkers supplied outside the United States if that was what the parties provided for in their contract of supply. The GTC allowed him to determine the existence of such maritime liens applying US maritime law. The maritime lien transferred to the bareboat charterers when they became the owners of the vessel upon its sale and delivery to them some months after the supply of the bunkers to the vessel. Although both the time charter and the bareboat charter contained ‘no-lien’ clauses, no notice of those clauses was given to the bunker supplier before issue of its confirmation letter.

The award may cause some alarm amongst owners and demise charterers as to their potential in personam and in rem liability in respect of unpaid bunkers ordered by time charterers. The award goes against The Yuta Bondarovskaya [1998] 2 Lloyd’s Rep 357 QB, where it was held that it was not arguable that the time charterer had any sort of authority from the owner, whether implied actual or ostensible, to make bunker contracts on its behalf. It also goes against The Halcyon Isle  [1981] AC 221 where the Privy Council found that maritime claims were classified as giving rise to maritime liens which were enforceable in actions in rem in English Courts where and only where the events on which the claim was founded would have given rise to a maritime lien in English law if those events had occurred within the territorial jurisdiction of the English Court. By contrast, under this award it is the terms of the bunker supply contract that determine what system of law, in this case US maritime law, is to apply as regards what claims constitute a maritime lien against the vessel.

Laytime- Once Starts Can Only Be Stopped in Limited Instances

The MT Stena Primorsk [2022] EWHC 2147 (Comm) 

The vessel was charted for a single voyage (from Bilbao to Paulsboro on the Delaware River) pursuant to the terms of an amended Shellvoy 6 form. A period of 72 hours was allocated as laytime in the charterparty for loading and discharge and 68 hours and 54 minutes of the laytime had been used at the loading port (Bilbao).

The water depth at the intended discharge berth at Paulsboro was 12.19m. The vessel draft was 12.15m but the tide was expected to vary by 1.6m. Accordingly, in line with charterparty provisions, the master submitted a risk assessment and sought a waiver from the technical operators of the under keel clearance policy as stipulated in the charter form. The technical operators granted the waiver for the transit from anchorage and for the berthing. The waiver was issued on the assumption that the vessel’s draft was equal to or less than the draft of the river/berth at high water. The master was also asked to ensure that prompt commencement of discharge was discussed with the terminal officers.

The chartered vessel arrived at the discharge berth on 31 March 2019. The terminal informed the master that unloading needed to be conducted at a reduced rate initially. This could, in master’s calculations, mean that the discharge rate would be less than the rate necessary to maintain a safe under keel clearance. On that basis, the master took the decision to leave the berth (a short while berthing) and return to anchorage.

Another berth became available on 1 April and the master prepared a fresh under keel clearance calculation, and risk assessment and sought another waiver from the technical operators. The technical operators refused to give waiver on this occasion stating that the safety for margin was too small and there were not sufficient controls in place to mitigate the risk of the vessel touching bottom.

The vessel managed to berth only after a portion of the cargo was lightened on 4 April 2019. This caused a further delay and laytime ended on 6 April (10.24). By that time, a further 154.63 hours were used at Paulsboro, bringing the total time used to 226.63 hours. The owners sought demurrage in the sum of US$ 143,153.64. The charterers raised objection to the demurrage claim arguing:

  1. Two incidents (the owner’s decision to leave the discharge terminal within 12 minutes of berthing on 31 March 2019 and the owner’s refusal to comply with the charterer’s request to return to berth at 21.00 on 1 April) had the effect of suspending the running of laytime;
  2. The notice of readiness (NOR) given by the owner upon arrival at Paulsboro was not valid because “free pratique” certificate had not been granted.

His Honour Judge Bird found on both of these points in favour of the owners:                        

  1. The running of the laytime is suspended only when time is lost due to “default on the owner’s part, or on the part of those for whom they are responsible” (The Fontevivo [1975] 1 Lloyd’s Rep 339). This was not the case here as the owner acted in a way permitted and required by the relevant charterparty (the need to operate the vessel safely was explicitly specified in the charter and the contract made clear that under keel clearance was binding and not to be breached without consent). It was also noted that the power to grant or refuse a waiver of the policy was not limited in any way in the charterparty.
  2. The evidence indicated that there was no formal mechanism for the grant of “free pratique” at the discharge port and the port appeared to have operated a free pratique by default system, with decisions communicated if there was disease on board. Accordingly, the NOR had been valid.             

Comment

The running of laytime can only be suspended by express terms of the contract or if there is a “fault” on the part of the owners preventing the loading or discharging operations. It is clear that the “fault” does not need to be an actionable breach of the charterparty, but the present decision (in line with earlier authorities) also makes clear that no fault can be established in cases where the master takes steps that cause delay for safety reasons and such decisions are deemed to be “entirely justifiable” in the circumstances. In the present context, a “capricious refusal” to grant a waiver of keel clearance policy by the operators, for example, could have amounted to a “fault” capable of suspending the running of the clock but that was not the case.

The obtaining of a “free pratique” certificate was a mere formality prior to the commencement of the global pandemic and the finding in this case reflects that position. The matter might be rather different now especially given that some countries have introduced strict quarantining and/or testing requirements for Covid. It is very unlikely that in today’s commercial world we could easily assume that any port operates on a “free pratique” default system. And, in those instances lack of “free pratique“ certificate could prevent the chartered vessel from being regarded as an “arrived ship” which is vital for the commencement of the laytime period.          

Eternal Bliss to go to Supreme Court

The Supreme Court has just granted shipowners permission to appeal in K Line PTE Ltd v Priminds Shipping (HK) Co, Ltd (The Eternal Bliss). At first instance,  [2020] EWHC 2373 (Comm)] Andrew Baker J held, on a preliminary point of law on assumed facts, that demurrage was not the sole remedy for charterer’s breach of the obligation to discharge within the laydays. Demurrage only liquidated the shipowner’s loss of use claim resulting from delay after expiry of the laydays and different types of losses flowing from such a breach, such as the cargo claim shipowners settled with Chinese receivers in the instant case, could be recovered as unliquidated damages.

Towards the end of 2021 the Court of Appeal reversed the decision, [EWCA/Civ/2021/1712], and held that demurrage was the exclusive remedy for breach of this obligation.

The case will now proceed to the Supreme Court for a definitive determination of this important legal question. The shipowners are represented by IISTL member, Simon Rainey KC, and Tom Bird.

Because of whose COVID? Quarantine and offhire under a trip time charter.

London Arbitration 27/22 is the latest in a series of arbitration awards being published which deal with the effects of delays due to COVID-19 on vessels under time charter trips. The vessel here was chartered for a time charter trip on amended NYPE form in March 2020 for loading in South America and discharge in the Far East. In April 2020 the vessel arrived at the load port and was quarantined after the bosun tested positive for COVID 19. The charterers argued that the vessel was off-hire for the period of quarantine from 12 April to 1 May 2020. As well as the standard NYPE offhire clause 15, the charter contained two rider clauses, a pestilence and disease clause cl 78; and cl.114 which provided:

“Notwithstanding anything in this charter to the contrary, in the event that, at any time during the currency of this charter, the vessel suffers any loss of time (directly or indirectly) in connection with procedures (including, but without limitation, inspections and/or quarantine and/ or disinfection) imposed on the vessel, cargo or officers/ crew by any port authority or other authorized authority, body or agency, in order to combat avian influenza (or other similar disease) (influenza procedures), the vessel shall not be off hire for any such loss of time and any such loss of time (and the consequences of any such loss of time) shall be for charterers account and, irrespective of whether or not there has been any loss of time charterers shall be liable for the cost of all such influenza procedures which may be charged to or levied against the vessel or owners or officers/crew or cargo provided always that the vessel shall be off hire in respect of any such loss of time and shall be responsible for all influenza procedure costs which arise solely as a consequence of the vessel’s or officers/crew’s history prior to delivery under this charter …”

The tribunal found that the opening wording of cl.114 ‘notwithstanding anything in this charter to the contrary’ meant that the clause provided a complete code to allocate the rights and obligations of the parties as regards loss of time due to quarantine imposed in order to combat avian influenza (or other similar disease) (influenza procedures). Covid-19 being a similar disease, cl.114 covered the off-hire position due to the quarantine at the loading port. The vessel would remain on hire as regards any loss of time due to such quarantine procedures, with the sole exception being that owners would bear the loss of time and associated costs if these arose as a direct consequence of the vessel’s or officer’s or crew’s history prior to delivery.

Entries in the medical log from mid to late March 2020 recorded the third engineer as having a dry cough, a possible indicator of COVID-19,  and this was advised to the port health authorities along with details of the last historical crew shore leave back in December 2019. The vessel arrived on 12 April 2020 but on 16 April 2020 the port health authority decided that due to the log entries regarding the third engineer’s coughing symptoms, which happened prior to delivery, the entire crew should be tested for COVID-19. On 17 April 2020 19 of the 20 crew, including the third engineer, were found to have tested negative, but the bosun tested positive and as a result the vessel was quarantined for 14 days. The bosun tested negative on 27 April but the port authority maintained the quarantine until 1 May when they granted free pratique.

Clause 114 required the tribunal to address whether the quarantine directive was imposed as a result of the ship’s medical records, which disclosed the pre-delivery coughing symptoms of the third engineer, or for some other reason. The port health authority showed no further interest in the third engineer after his negative result on 17 April and its focus of interest was entirely on the bosun due to his positive test. Had all the crew tested negative it is likely that free pratique would have been granted on 17 April. As the quarantine directive did not therefore arise as a consequence of historical events prior to delivery, the charterers had not brought themselves within the exceptions provision of clause 114 and the vessel remained on hire between arrival on 12 April and the granting of free pratique on 1 May.

Hague Judgments Convention to enter into force!

On 29 August 2019, the European Union deposited its instrument of accession to the Hague Judgments Convention 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (HJC). On the same day, Ukraine ratified the Convention.

According to Articles 28 and 29 of the HJC, the Convention shall enter into force on the first day of the month following the expiration of the twelve months after the second State has deposited its instrument of ratification, acceptance, approval, or accession. On this occasion, the Convention has already two Contracting States, and as a practically effective tool, it will be utilised by commercial parties for the swift resolution of international disputes from 1 September 2023.

The Hague Conference on Private International Law (HCCH) adopted the HJC on 2 July 2019 – 27 years after the initial proposal of a mixed instrument covering both jurisdiction and recognition and enforcement rules. Indeed, with the aim of guaranteeing the effectiveness of court judgments similar to what the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) ensured for arbitral awards, the HJC has become a game-changer in the international dispute resolution landscape. As the HCCH announced, “the Convention will increase certainty and predictability, promote the better management of transaction and litigation risks, and shorten timeframes for the recognition and enforcement of a judgment in other jurisdictions.”

The HJC provides recognition and enforcement of judgments given in civil and commercial cases including the carriage of passengers and goods, transboundary marine pollution, marine pollution in areas beyond national jurisdiction, ship-source marine pollution, limitation of liability for maritime claims, and general average. As a complementary instrument to the Hague Convention on Choice of Court Agreements 2005 (HCCCA), the HJC shares the same goals to ensure commercial certainty and access to justice, serves legal certainty and uniformity by providing free circulation of judgments and parties’ autonomy, also, advances multilateral trade, investment and mobility. The HJC also aims at judicial cooperation and recognition and enforcement of judgments given by the courts designated in the parties’ agreement, other than an exclusive choice of court agreement whereas the HCCCA applies to exclusive jurisdiction agreements and resulting judgments.

The HJC is the only global instrument for the mutual recognition and enforcement of judgments in civil and commercial disputes and it will significantly contribute to legal certainty in the post-Brexit era together with its sister instrument HCCCA. Now, it is the UK’s turn to take appropriate measures to accede to the treaty for facilitating the free movement of judgments in civil and commercial cases between the UK and the EU. Indeed, the EU’s opposition to the UK’s application to ratify the Lugano Convention will most likely impede the ratification of the HJC for the provision of the continuing civil judicial cooperation.