Hello operator? Limitation of liability and operator of dumb barge.

 

Splitt Chartering APS & Ors v Saga Shipholding Norway AS & Ors [2020] EWHC 1294 (Admlty) (22 May 2020)   involves a limitation action in connection with an underwater cable carrying electricity from France to England which was allegedly damaged by the anchor of the dumb barge STEMA BARGE II. The cable owners, RTE, accepted that the registered owner and a charterer Stema Shipping A/S could limit, but did not accept that the third party it had in its sights, Stema Shipping (UK) limited, a company said to be the operator of STEMA BARGE II whilst it was at anchor off Dover, was entitled to limit liability under the Limitation Convention 1976.

A shipment of rock armour, to be used for repairing the storm damage to the Dover to Folkestone railway line in December 2015, was transported from a quarry in Norway on the barge STEMA BARGE II. The barge arrived off Dover under towage on 7 November 2016, was anchored and then the tug departed. Storm force winds of up to force 9 from Storm Angus were forecast and it was decided to let STEMA BARGE II ride out the storm. STEMA BARGE II began to drag her anchor and at 0634 on 20 November 2016 an undersea cable (cable 12) supplying electricity from France to England registered a tripping.

Stema UK had placed a barge master, Mr. Zeebroek, and crewmember, Mr. Hayman, on board STEMA BARGE II, under a superintendent ashore, Mr. Upcraft. Could Stema UK limit as an operator of the vessel? RTE argued that the operator of a vessel is the person or entity which has “direct responsibility for the management and control of the ship” as regards “the commercial, technical and crewing operations of the ship.” – and that person was Stema A/S, not Stema UK.

Teare J considered that Stema UK were not “the manager of the ship” which would be the person entrusted by the owner with sufficient of the tasks involved in ensuring that a vessel is safely operated, properly manned, properly maintained and profitably employed to justify describing that person as the manager of the ship. A person who is entrusted with one limited task of management may be described as assisting in the management of the ship, rather than as being the manager of the ship.

However, it could qualify as the “operator” of the ship. For the purposes of article 1(2) of the 1976 Limitation Convention, “the operator of a ship” was not intended to cover those on board the vessel physically operating the vessel’s machinery, but imported a notion of management and control over the operation of the ship. Those who cause an unmanned ship to be physically operated have some management and control over the ship and could be said to be its operator, if with the owner’s permission they send their employees on board the ship with instructions to operate the ship’s machinery in the ordinary course of the ship’s business.

The use of the definite article “the” and the singular form of “operator” did not mean that there could be only one “operator”. The definite article was also used in relation to owner and charterer; yet there could be more than one owner, because there can be co-owners, and there could be more than one charterer, because there could be a time charterer and a voyage charterer.

From the barge’s arrival off Dover on 7 November 2016 to the date of the damage to the cable on 20 November 2016, Stema UK had a real involvement with STEMA BARGE II. Not only did its employees anchor her but they prepared the barge for lying safely at anchor. During the discharge operations they operated the barge’s machinery so as to ensure that she was safely ballasted. No personnel of Stema A/S were on board; only personnel of Stema UK (though not permanently because there was no accommodation on board the barge).

Even if Stema UK, as receiver/buyer of the cargo were obliged on the facts of this case to anchor and secure STEMA BARGE II that conduct still amounted to the operation of Stema Barge II. They provided a service of operating STEMA BARGE II in circumstances where there was no-one else to operate her.  The role of Stema UK was limited both in time and in the scope of its activities, but then the scope of the activities required to operate a dumb barge are necessarily limited.

Accordingly, the nature of Stema UK’s operation of STEMA BARGE II off Dover was such as to make it appropriate to describe Stema UK as the operator of the barge off Dover.

Inauspicious start for the UK Trade Secrets Regulations at IPEC

Image by Sang Hyun Cho from Pixabay

Trailfinders v Travel Counsellors [2020] EWHC 591 (IPEC) represented the first opportunity for judicial scrutiny of the UK Trade Secrets (Enforcement, etc.) Regulations 2018 (SI 2018/597).

The approach adopted by HH Judge Hacon was provisions of the EU Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (EU Dir. 2016/943), especially Chapter II and Articles 6, 7 and 16, had already been implemented – without the need for these Regulations – into our law under common law and equity. Hacon J accordingly, “assumed that the substantive principles governing the protection of confidential information under English law, including that afforded by terms implied into contracts of employment and by equitable obligations of confidence, are unaffected by the Directive. However, the Directive shines an occasional light on those principles.[para.9]

In particular, Hacon J found,”the best guide to the distinction between information which is confidential and that which is not is now to be found in the definition of ‘trade secret’ in Article 2(1) of the Directive 2016/943.[para.29]

This would imply that the established three stage common law test for confidentiality of: (1) the information itself must have the necessary quality of confidence; (2) the information must have been imparted in circumstances importing an obligation of confidence (either expressly, or which ought reasonably to have been understood by the recipient) and; (3) there must be an unauthorised use of that information to the detriment of the rights holder; now needs to be updated in line with the new statutory definition of a ‘trade secret’ being information which: (1) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among, or readily accessible to, persons within the circles that normally deal with the kind of information in question; (2) has commercial value because it is secret, and; (3) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

However, the difficulties inherent within this interplay between the new statutory definition of a ‘trade secret’ and the old common principles of confidentiality can be illustrated by Hacon J’s legal treatment of the two terms, ‘secret’ and ‘reasonable steps’.

Secret

The preamble to the EU Trade Secrets Directive makes clear that its definition, “excludes trivial information and the experience and skills gained by employees in the normal course of their employment, and also excludes information which is generally known among, or is readily accessible to, persons within the circles that normally deal with the kind of information in question.” [para.14]

Mr La Gette and Mr Bishop as the defendants in this case had argued that Trailfinder’s information on clients’ names, nationalities, interests, contact details and past bookings was already in the public domain and was therefore ‘readily accessible’ to them. Trailfinders held this client information on two systems: Viewtrail was an online portal used to record booking details and Superfacts was a software system which recorded information about clients. Bishop had admitted using the Superfacts system to assemble, for about six months before he left Trailfinders, a ‘contact book’ about clients and both he and La Gette admitted accessing Viewtrail after they had left Trailfinders.

Hacon J took the view that the Trailfinder information had met the statutory threshold for being ‘secret’ but went further adding, “Lewison LJ observed in Force India Formula One Team Ltd v Aerolab Srl [2013] EWCA Civ 780; [2013] RPC 36 (with whom Briggs LJ and Sir Stanley Burton agreed): It is certainly not a defence [to an allegation of breach of confidence] that the person in breach of confidence could have obtained the information elsewhere if he did not in fact do so.(at [72]) [para.35]

Reasonable Steps

Wearing the ‘clean hands’ spectacles demanded of equity Hacon J felt able to find that although, “[T]he protection may not have been as rigorous as it should have been [but] Trailfinders clearly took steps to ensure that the Client Information was not openly available to anyone by requiring the use of a password or, in the case of Viewtrail, limiting access to information to clients only if their name and booking reference was known”. [para.73]

Image by Zach Dulli from Pixabay

This approach would appear to be at variance with that adopted by judicial counterparts in the USA, who, whilst not requiring of perfection, on the whole would take a dim view of any failure on the part of a holder of trade secrets not to identify and label confidential information as such, nor take any steps to restrict ex-employee online access. It is worthy of note that the origins for the broad definition for a ‘trade secret’ under the UK Regulations ultimately lies within American jurisprudence, where State and now Federal Courts have had decades of experience in its interpretation.

The issue may lay in the fact that Hacon J categorised the confidential information at play in this case as class 2 information acquired during the normal course of employment which remains in the employee’s head and becomes part of his own experience and skills (not class 3 information, namely specific ‘trade secrets’ requiring of a higher degree of confidentiality) – see Goulding J’s classification in Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724, albeit the Court of Appeal ultimately differed with Goulding J’s analysis of where to draw the line between classes 2 and 3. This begs the unanswered question, would Hacon J have demanded more in the way of ‘reasonable steps’ from Trailfinders had he categorised the confidential information as class 3?

Given the EU Trade Secrets Directive does not replace English common law, the overall effect was said to be that a UK trade secret holder could apply for remedies under the common law of confidentiality either in addition, or as an alternative, to the remedies provided under the Trade Secrets Regulations (i.e. in instances where the English common law provided for ‘wider remedies’ – Regulation 3). It will be interesting to see in the future whether our more senior judicial brethren continue to follow Hacon J’s approach of an interplay between the two. But for the time being at least the new Trade Secrets Regulations, and Regulation 2 in particular, can (merely) be viewed as an aid to common law interpretation, illuminating what information now has ‘the necessary quality of confidence’ under both classes 2 and 3, as categorised in the Faccenda Chicken case.

Commencement of Laytime- Covid 19 and “Free Practique” Rears Its Face Again

“Free pratique” is essentially the licence given to a vessel by authorities to enter a port on the assurance that she is free from contagious diseases. In normal times, obtaining this certificate is regarded as a mere formality and this led some judges to comment in some cases, like Longmore, LJ did in The Eagle Valencia [2010] EWCA 713, that lack of this certificate will not prevent a valid notice of readiness (NOR) essential for the commencement of laytime. However, it should not be disregarded that the decision in this case was the result of judicial construction of various contradictory terms incorporated into the relevant charterparty. So, it will be ambitious to suggest that this case establishes a principle to the effect that obtaining free pratique is not essential for a vessel to be ready in legal sense!

In fact, the “free pratique” forms an important part of the ship’s papers and has the potential to cause problems for owners in today’s climate especially if the charterparty in question does not expressly state otherwise. It has been doubted in a number of old authorities (e.g. The Delian Spirit [1971] Lloyd’s Rep 64) whether incorporation of a “WIFPON” clause (Whether in free pratique or not) removes the need for obtaining a “free patique” certificate so a vessel which is physically ready becomes an “arrived ship” in legal sense of the word. To say that WIFPON clause does not have this effect clearly contradicts plain meaning of such a clause. And, it is hoped that this point receives some judicial attention soon.

aerial photo of cargo ships on pier
Photo by Tom Fisk on Pexels.com

However, in the absence of a specialized clauses (e.g.  BIMCO’s Infectious or Contagious Diseases Clause for Voyage Charterparties) and in  today’s world hit by the Covid-19 pandemic, it is very likely that not being able to obtain free pratique will have grave consequences for the owners and time lost in a loading or discharging port as a result will be on their account. Reports are suggesting that in many ports around the world, vessels are asked to remain in quarantine for 14 days before authorities grant the free pratique certificate. For example, recently Argentinian Ministry of Transport and the Ministry of Health have instructed the maritime authorities in the country to compel specific vessels- under certain circumstances- to remain in quarantine for 14 days.

When entering into charterparties, shipowners need to be aware of the so-called “new normal” and it is advisable to insist on incorporating specialized clauses to deal with such problems.  BIMCO’s Infectious or Contagious Diseases Clause, mentioned above, or INTERKANKO’s Covid-19 Clause, (discussed in an earlier blog) offers protection to owners as under such clauses any time lost in a port of loading or discharge due to reasons associated with Covid-19 pandemic will count as laytime  (or demurrage).

Spain says ‘manana’ to time limits for the duration of its lockdown

 

On the 14th March 2020, the Spanish legislature published Royal Decree 463/2020 declaring a state of alarm throughout Spain as a result of the COVID-19 pandemic. One of the exceptional measures under the Fourth Additional Provision was the suspension of the time periods for the application of the statute of limitations and expiration of actions and rights.

This continues until 24 May unless the Spanish Parliament approves a further lockdown extension. At this date, the time limits will be revived for the equivalent time that was left to run prior to the 14th March. Where the time limit was due to expire after 24 May (or any later end to lockdownt) the majority view of legal experts is that it will be extended by the duration of the lockdown.

The Spanish Government is currently seeking to extend the lockdown for a further month.

 

 

Covid-19 and Business Interruption Policies- Courts Are Expected to Be Called into Action Soon

More than 300 small and medium sized businesses have formed an action group (Hiscox Action Group) with a view to bringing a class action against Hiscox’s decision to refuse payment under its commercial business interruption policies. It now looks like the Financial Conduct Authority (FCA) will also be involved in the ongoing debate by seeking clarity from the courts about whether the wording of some business interruption insurance policies should provide cover as a result of the pandemic. Although this particular class action might involve Hiscox, there is no doubt that other insurers, such as AXA, Allianz, RSA, QBE and Zurich, might face potential multi-million pound lawsuits from businesses such as hotels, pubs, restaurants and leisure groups that allege legitimate business interruption claims have been rejected by their insurers.

covid19-business-interruptions

The legal issue at stake here is a matter of construing the scope of such policies. Several assureds claim that their policies specifically provide cover for the “inability to use the insured premises due to restrictions imposed by a public authority following an occurrence of any human infectious or human contagious disease.” However, Hiscox and other insurers are arguing that cover is only available under such policies if “there is an incident within a mile radius of the insured building” and therefore unless the businesses are closed by authorities due to outbreak of the disease at the premises, the relevant business interruption policy will not respond.

On several occasions, courts have adopted purposive interpretation techniques when construing terms in commercial contracts. Lord Clarke, famously, in Rainy Sky S.A. and others v. Kookmin Bank [2011] UKSC 50 stipulated [at 14]: “The ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant”.

On that basis, taking into account the wording in question, it will be hard to say that a reasonable person would not have understood the parties to have meant that cover would not be available if the commercial activities of a business are restricted due to restrictions imposed by authorities following an occurrence of any human infectious or human contagious disease. That said, more recently the Supreme Court seemed to be trending back towards the literal approach moving away from the contextual approach. See, for example, Arnold v. Britton [2015] UKSC 36 where Lord Neuberger [at 17] stated that “the reliance placed in some cases on commercial common sense and surrounding circumstances … should not be invoked to undervalue the importance of the language of the provision which is to be construed.”

The Supreme Court in Wood v. Capita Insurance Services Ltd [2017] UKSC 24 attempted to reconcile these authorities by confirming the validity of both literal and contextual approaches to contract construction. Lord Hodge [at 13] explained the appropriate approach in the following fashion:

“The extent to which [textualism or contextualism] will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. …”

This approach indicates that a more contextual approach can be adopted in construing some commercial contracts. The key question will be whether standard business interruption policies sold to small and medium sized businesses can be viewed as sophisticated contracts negotiated and prepared with the assistance of skilled professionals? That is highly doubtful! So, there might be room for the courts to adopt a more contextual approach when it comes to construing such contracts bearing in mind the factual matrix. Defining the factual matrix in this context will not be an easy task but the approach taken by courts when construing the scope of professional indemnity policies in actions brought by those who suffered from mesothelioma or their families (Employers’ Liability Policy Trigger Litigation Durham v. BAI [2012] UKSC 14) might give clues as to the likely direction of travel in this context as well.

On the other hand, one appreciates the genuine concerns of insurers- providing indemnity for losses they did not intend to cover- will have implications on their businesses and also their re-insurance arrangements. They can plausibly argue that higher rate of premium would have been charged if they were expected to cover the financial losses emerging from a global pandemic.

One feels that a lengthy and tough legal battle lies ahead!

The Existence of a Possessory Lien in respect of a Claim would Affect the Priority to be Given to the Costs Incurred in Enforcing that Claim in an Admiralty Action in Rem

It is well settled that in actions against the proceeds of sale of property arrested in rem, costs have the same priority as the claim in respect of which they have been incurred. However, it remains uncertain whether the proper application of this rule should result in costs being accorded the same priority as a possessory lien or a statutory lien where a claimant has a possessory lien over an arrested ship in respect of a claim which, but for the possessory lien, would have priority only as a statutory lien in admiralty. In the recent case of Keppel FELS Ltd v Owner of the vessel “SONGA VENUS” and Songa Offshore SE (The Songa Venus) [2020] SGHC 74, the Singapore High Court addressed this issue.

The claimants, Keppel FELS Ltd, provided various services to the vessel Songa Venus, including repairs, modifications, supply of materials, equipment and berthing. The owners of the vessel failed to pay for the said services, and so Keppel FELS Ltd commenced these proceedings, arrested the vessel, and obtained an order for the vessel to be appraised and sold without prejudice to their possessory lien over the vessel, if any. After the vessel was sold for US$3,749,463.14, Keppel FELS Ltd obtained final judgment for the sum of US$1,169,370 with interest. The court also held that Keppel FELS Ltd had a possessory lien over the vessel in respect of the portion of its claim relating to repairs, modifications, supply of various materials, equipment and services. The sums amounted to US$328,723 plus costs. The intervener, Songa Offshore SE, commenced a separate in rem action against the vessel for sums outstanding under a seller’s credit agreement which was secure by a second preferred mortgage over the vessel. Songa Offshore SE obtained a final judgment for the sum of US$34,200,000.

Against this backdrop, Keppel FELS Ltd filed an application to determine the priority of the relevant claims and payment out of the proceeds of sale. The parties were not in dispute as to the priority of the substantive claims. The dispute revolved around the costs of the claims. Keppel FELS Ltd argued that costs attributable to the portion of their claim for which they had a possessory lien should be accorded the same priority, ranking before the mortgage. However, Songa Offshore SE contended that all costs of Keppel FELS Ltd’s claim should be granted the priority of a statutory lien and rank below the mortgage.

The court found in favour of Keppel FELS. It explained that ‘considerations of justice and equity required the court to accord the disputed costs the same priority as the portion of Keppel FELS’ claim for which it had a possessory lien’. Particular emphasis was placed on the fact that, for the possessory lien holder to surrender the ship to the admiralty court, the admiralty court has to give an undertaking to put the possessory lien holder ‘exactly in the same position as if he/she had not surrendered the ship’. In principle, a possessory lien holder retains possession of the res until he/she has been paid in full, in return for its release. He/she does not have to initiate any legal proceedings to enforce the possessory lien and, thus, does not incur any legal costs. However, whenever the possessory lien holder has to surrender the ship to the admiralty court, he/she would have to initiate in rem proceedings to satisfy his/her claim through the judicial sale of the vessel. This implies that, for the admiralty court to fulfil its undertaking to put the possessory lien holder ‘exactly in the same position as if he/she had not surrendered the ship’, the admiralty court should protect the costs incurred by the possessory lien holder when bringing a claim in rem to the same extent as the possessory lien itself.

Classification societies are commercial — OK?

There is an easy side, and also a more wide-ranging and difficult one, to the CJEU’s decision last week in RINA SpA, Case 614/18, ECLI:EU:C:2020:349 on a point concerning the Brussels I Regulation.

Something over 14 years ago, a Red Sea ro-ro ferry, the Al Salam Boccaccio 98, sank with horrendous loss of life on a voyage between Duba in Saudi Arabia and Safaga in Egypt. She was registered in Panama and classed with Italian classification society RINA SpA.

A number of passengers sued RINA in its home state, Italy, for negligently certifying the vessel fit to sail, relying on what is now Art.4 of Brussels I Recast (the case actually concerned the previous 2001 jurisdiction regulation). RINA however had a trick up its sleeve. It pleaded sovereign immunity, on the basis that although it had been chosen and paid by the owners of the vessel, it had been acting on behalf of the Panamanian government. For that reason it argued that the Italian court had no jurisdiction over it in this respect, and that the Brussels Regulation was beside the point since this was not a civil or commercial matter. The Tribunale di Genova, faced with interesting issues of EU and public international law, understandably made a reference to the CJEU on the matter; was the claim covered by the Regulation?

The court, following the Advocate-General, had no doubt that RINA’s plea was misconceived. Even if the society had been acting for the Panamanian authorities in certifying the vessel so that those authorities in turn could, as the organs of the state of registration, give her the necessary clean bill of health, this was a matter governed by private law principles. According to the generally accepted rules of public international law, there was no way this could be construed as an act iure imperii; it was therefore covered by the Regulation.

It follows that in so far as it is sought to make a classification society liable for damage, loss or injury (a matter on which European and other legal systems differ considerably, and which we have no intention of going into here), lawyers can at least sleep easy on this point: as regards jurisdiction, it is simply a matter of looking up the relevant provisions of Brussels I Recast. It is a fair inference that the same also goes for other certification bodies (something likely to be relevant for international product liability cases) and probably state licensing bodies such as the CAA in so far as they are sued under private law provisions.

So much for the easy bit. Now for the harder one. Does this mean that state immunity law has now been quietly Europeanised as a matter of principle? This issue is not dealt with as such, and was explicitly left open by the Advocate-General in Para [106] of his opinion. The original Jurisdiction Regulation said nothing about it either; and although the Recast version adds a further few words to Art.1.1 saying explicitly that it does not apply to acts done iure imperii, this takes us little further.

The answer seems to be that we do have de facto Europeanisation, but only partly. RINA, read closely, says merely that in so far as Brussels I applies to an EU-based defendant, it is not open to a member state to apply a more generous home-grown version of state immunity and decline jurisdiction. It does not state the converse; namely, that if EU law regards a matter as covered by state immunity then an EU domestic court must not take jurisdiction at all. Why the case ended up in the CJEU in the first place is apparent only from a careful look at the facts: Italy indeed does as a matter of domestic law apply a very generous doctrine of state immunity, and it was this that the claimant sought, successfully, to sideline.

So for the moment – and, assuming Lugano or something similar to Brussels I applies after the transition period – English lawyers can breathe easy on this point too. There’s life yet in their well-thumbed copies of the State Immunity Act 1978.

No maritime lien against demise chartered vessel for claim for disbursements made to vessel on time charterer’s orders.

 

The Irish Court of Appeal has recently decided in The Almirante Storni [2020] IECA 58 that a claim against the demise charterer by a ship’s agent in respect of  disbursements made to the vessel on the orders of the time charterer does not constitute a “maritime claim” within the meaning of article 1 of the International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-Going Ships done at Brussels on 10 May 1952 (The Arrest Convention). Insofar as the claim involved “disbursements” they were not disbursements made by the master but by the ship’s agents.

Article 1(n) of the Arrest Convention did not entitle an agent to maintain a claim against the owner of the vessel for disbursements made by such agent “on behalf of a ship”, in the absence of any personal liability on the part of the owner. The argument that the time charterer ordered services from the plaintiff as agent of the owners was not tenable. There was no evidence of any actual or ostensible authority to support a finding of agency.

 

Abandoning the myth that decisions rendered by international arbitral tribunals are not binding

Against the backdrop of China recently renaming several disputed insular features in the South China Sea, which led to protests from Vietnam, the suggestion has been raised that Vietnam might to turn to “the world arbitration court” to have the matter adjudicated. Although a court by that name does not exist, it may be inferred that reference is made here to an international court or tribunal. A myth rears its head in the same news article, one that has been perpetuated particularly after the Arbitral Tribunal established pursuant to Annex VII of the 1982 Law of the Sea Convention (LOSC) rendered its award in the South China Sea Arbitration (The Republic of the Philippines v. The People’s Republic of China) in 2013. The myth being that “Arbitral rulings aren’t binding”. To reinforce this seriously flawed argument, the news article does indeed invoke the South China Arbitration.

After the Arbitral Tribunal delivered its decision on the merits in South China Sea Arbitration, some have used it to argue that this arbitral decision, and arbitral decisions in general, are not binding. Having declared under Article 298(1)(a) of the LOSC its non-acceptance of arbitration with respect to maritime boundary disputes or those involving historic titles, China argued that the Arbitral Tribunal could not consider the case on the merits. It also abstained from participating in the proceedings. After the Tribunal assumed that it had jurisdiction over the dispute, and went on to hand down its final decision on the merits, China reinforced its earlier expressed intentions that it would not follow the final outcome of the award.

However, from the fact that China did not recognise the validity of the Tribunal’s decision, the inference cannot be drawn that it is therefore not legally binding. To the contrary, Article 296(1) of the LOSC leaves no doubt in this regard: any decision rendered by a court or tribunal assuming jurisdiction over the dispute “shall be final and shall be complied with by all the parties to the dispute”. This is reinforced in Article 11 of Annex VII of the LOSC:  an “award shall be final and without appeal, unless the parties to the dispute have agreed in advance to an appellate procedure. It shall be complied with by the parties to the dispute”. In this light, rather than perpetuating this myth that decisions of international tribunals are not binding, the opposite, that is abandoning this rhetoric, is far more appropriate.

Demand guarantees: interpretations and paradoxes.

Cases about letters of credit and performance bonds often raise points of intellectual interest in commercial law. Waksman J’s decision in Técnicas Reunidas Saudia Ltd v Korea Development Bank [2020] EWHC 968 (TCC), decided 12 weeks ago but only up on BAILII this week, is a case in point. It raised nice issues of contractual interpretation, and also discussed the old chestnut of what to do about non-documentary conditions. And in both cases it got the answer right: a good thing, given that quite big money (something like £8 million) turned on it.

TRS were a big construction company involved in a mega-project in Saudi Arabia. One of its subcontractors was S. The bank, a Korean corporation, issued TRS with what was effectively an advance payment guarantee, operable on first written demand by TRS, to cover TRS’s cash-flow advances to S. The guarantee, which was subject to URDG758, went on to say: “It is a condition for any claim and payment under this guarantee to be made that the funds paid as advance payments subject to the terms of the subcontract must have been received by the sub-contractor on its account number 042-117994-03 held with HSBC.”

S ceased work in circumstances at best murky. TRS called on the guarantee and provided evidence of advances made to the named account number at SABB, a Saudi associate of HSBC which traded on the connection and indeed used the HSBC logo. Meanwhile a court in Korea was asked to issue an injunction preventing the bank from paying. Caught between a rock and a hard place (it being clear that the English court would ignore any Korean court order, Korea being the place neither of the governing law nor of payment), the bank thrashed around for a reason not to pay. It eventually refused on the basis that, payment to an account at SABB was not payment to HSBC and hence the condition was unsatisfied. Waksman J was unimpressed and gave summary judgment for TRS. This he did for two reasons.

First, he said that the generic reference to “HSBC” had to be interpreted to mean HSBC or its associated banks. Not only was this what a reasonable man present at the time of contracting would have understood; it also avoided the awkwardness that would follow from any other answer, which was that the guarantee would have been waste paper from the beginning because it was subject to a condition that could not be complied with. He also added a reference to a further point, often forgotten by busy lawyers, known as the principle of misnomer. If a document referred to an entity by an incorrect name and the reference was not ambivalent between two separate entities, extrinsic evidence was admissible to show which entity was meant. This was the case here.

More interestingly, his Lordship also took the point that the condition in the guarantee was non-documentary, and said that TRS could invoke Art.7 of the URDG, equivalent to Art.14.h of the UCP600, which provides that “[i]f a credit contains a condition without stipulating the document to indicate compliance with the condition, banks will deem such condition as not stated and will disregard it”. The non-documentary condition, he held, simply fell to be excised; from which it followed that even if TRS had failed to comply with it this was irrelevant.

This has always been a matter of controversy, raising the same sort of paradoxical issue as Odysseus’s order to his crew to tie him to the mast as they sailed past the Sirens and to ignore any subsequent commands he might give (they duly disobeyed a subsequent order to untie him, thus assuring his safe arrival in Ithaca). On one argument, parties inserting a non-documentary condition are to that extent contracting out of Art.7 and so the condition still takes effect; but although accepted in Singapore (see Kumagai-Zenecon v Arab Bank [1997] 3 S.L.R. 770), this solution does have the disadvantage of leaving the provision like Cinderella: all dressed up, but with nowhere to go. In the present case Waksman J emphatically rejected it. Even if the UCP and URDG technically became binding on traders by contractual incorporation and were in no way legislative, they were a special kind of instrument not necessarily subject to the ordinary rules of contractual interpretation. And, whatever the logical problems, a court should interpret them so as to give effect as far as possible to all their provisions.

This may not be the last word, especially on Art.7 and its UCP equivalent. It is nevertheless a very sensible word. We at IISTL hope future courts will take it up, amplify and confirm it.