Bill of lading shipper liable for sums due under incorporated head charter.

 

In Singapore Arbitration 1/19 a fraudulent broker purported to charter to shipowners on behalf of X and then sub-chartered to Z. Under the charter to X 100% freight was to be paid within six days of signing and release of bills of lading. The cargo was loaded and a bill of lading was issued to Z as  Z, incorporating all the terms and conditions of the charter and stating ‘freight payable as per charterparty dated 9 November 2010’.  Both charters bore that date. The broker received 95% freight from Z and paid part of that to owners in respect of freight under the X head charter. Owners later claim the unpaid balance of freight, and loading port demurrage, under the X charter from Z as bill of lading shipper. The owners had discharged into a port authority warehouse but had lost their lien when receivers managed to take delivery without payment of sums due under the charter with X. Owners commenced arbitration in Singapore against Z under the bill of lading.

The tribunal held that it did have jurisdiction to determine which of two charters with the same date was incorporated into the bill of lading. Both charters were subject to English law. Applying the San Nicholas it was the head charter that was incorporated.  Notwithstanding the transfer of the bill of lading, the shipper’s liability remained due to section 3(3) COGSA 1992.  Owners did not have to give credit for what Z had paid, but only for what they had received. Owners could not be criticised for having failed to act with due diligence once the balance due under the charter with X came due and had not been received. Owners acted reasonably in discharging into a port authority warehouse. The unfortunate Z was liable for the sums claimed by owners.

Are fall in value claims due to delay and deviation “Cargo Claims” ?

 

 

This issue arose in London Arbitration 4/19 under a charter on NYPE form which incorporated the Inter-Club Agreement 1984 with any subsequent modification or replacement. The parties agreed to extend time for six months under an addendum which contained cl.6 providing that charterers would be fully liable for all cargo claims, howsoever caused, including seaworthiness. During the extended charter period the vessel diverted to Goa and spent 36 days there. Charterers then deducted $295,000 from hire being what they had paid receivers in respect of financial losses due to a fall in the sound arrived value of the cargo due to the deviation to and delay at Goa. Although “cargo claims” could as a matter of language be restricted to claims for physical loss or damage, clause 6 had to be interpreted in the light of the Inter-Club Agreement which was also part of the charter and in particular the definition of “cargo claims” contained in the 1996 Agreement as “claims for loss, damage, shortage…overcarriage of or delay to cargo.” Charterer’s claim therefore related to a “cargo claim” for which they were fully liable under the terms of cl.6.

Anti-suit injunction against non-party to contract

Qingdao Huiquan Shipping Company v Shanghai Dong He Xin Industry Group Co Ltd  QBD [2018] EWHC 3009 (Comm) involved a claim for an anti-suit injunction against a non-party to a contract containing a submission to English law and London arbitration. Owners concluded a settlement with cargo receivers whereby the latter paid for the lifting of a lien over cargo which the owners had exercised following time charterers’ default in paying h ire. The agreement was subject to English law and provided for London arbitration. The settlement provided that the receivers authorised agent, SDHX, which was not a party to the agreement, would make the payment. Three years later SDHX sued owners in a Chinese court claiming repayment of those sums. It alleged that there was an oral agreement between itself and the owners. In December 2017 the Qindao Shinan District Court decided that the dispute constituted a maritime dispute, and that the matter should be transferred to the Qingdao Maritime Court to decide on the validity of the London arbitration clause. SDHX’s appeal was dismissed by the Qindao Intermediate Maritime Court which stated that one of the foundations of SDHX’s claim was the settlement agreement between owners and the receivers.

In August 2018 owners applied for an interim anti-suit injunction. Bryan J held that this was an appropriate cased where such an injunction could be obtained against a non-party to the contract. SDHX had sought to rely upon the terms of the Settlement Agreement in advancing its claims in the Chinese proceedings. In doing so, therefore, it had to take the burden of the arbitration clause. For the purpose of the interim relief claim the issue of whether there was an oral agreement with the owners did not need to be considered. SDHX were unable to show that there had been such excessive delay by owners in commencing proceedings that the court should not exercise its discretion. This was not a case involving considerations of comity or where there had been substantive proceedings in China which would lead to the English court second-guessing an existing ruling of a Chinese court. There was also some benefit from the clarity that had been provided by the Chinese appellate court.

Bully off. New amendments to Maritime Labour Convention now in effect.

 

On 8 January 2019 the 2016 amendments to the Maritime Labour Convention came into effect. These amend Guideline B4.3.1 concerning the provisions on occupational accidents, injuries and diseases so as to include harassment and bullying. Governments and shipowners are expected to adopt measures to improve protection for seafarers from shipboard harassment and bullying using as a reference the Guidance on Eliminating Shipboard Harassment and Bullying  jointly published by the International Transport Workers’ Federation and the International Chamber of Shipping. The amendments also allow for an extension of the validity of maritime labour certificates in circumstances where ships have passed the relevant inspection but where a new certificate cannot immediately be issued and made available on board.

Who is your neighbour? Corporate social responsibility and the tort of negligence.

In Das v. George Weston Limited, claims were made against a Canadian garment retailer, Loblaws, whose sub-suppliers, New Wave, had occupied premise in the Rana Plaza Building at the time of its collapse on  24 April 2013, and Bureau Veritas who had been employed to audit the corporate social responsibility code that Loblaws had inserted into its contracts with its suppliers and sub-suppliers. On April 23, 2013, cracks were discovered in three pillars of the structure of Rana Plaza. Local police evacuated the site and workers were sent home. Later that day, however, managers at New Wave ordered New Wave employees to return to work the following day. The next morning, April 24, 2013, New Wave advised workers that the building was safe and threatened to terminate their employment if they did not return to work.

That same morning, as a result of a power outage, the large back-up generators on the upper floors of Rana Plaza began to operate, causing substantial vibration. Around 9 a.m., Rana Plaza collapsed, killing 1,130 people and injuring 2,520 others. Those injured or killed included employees of New Wave, employees of other garment businesses operating out of Rana Plaza, and other people who happened to be in or around the building at the time of the collapse. The claimants were workers in and relatives of workers who had been killed or injured in the collapse . the action not only on behalf of employees of New Wave and their survivors, but on behalf of all persons who were in Rana Plaza at the time of the collapse and survived, the estates of all persons who died as a result of the collapse, and the family members and dependents of those who died or were injured. Claims were brought in 2015 shortly before the second anniversary of the collapse.

In 2017 Perell J dismissed the action 2017 ONSC 4129. The claims for death and personal injury were a time barred, save for claimants born after 22 April 1996, under the law of Bangladesh which was the governing law, as the lex loci delecti. There was no plausible case for liability in tort on either party under either the law of Bangladesh (effectively English tort law) and that of Ontario.

Shortly before Christmas 2018 the Court of Appeals in Ontario upheld the decision,  2018 ONCA 1053 (CanLII).

With respect to Loblaws’ liability, the Court found that it was plain and obvious that a negligence claim against Loblaws would fail under Bangladeshi law. The facts did not amount to the type of relationship or control over New Wave’s operations by Loblaws that has been found in English law to be sufficient to establish proximity or assumption of responsibility, and to thereby impose a duty of care to protect against harm by third parties. Loblaws was not directly involved in the management of New Wave, nor in the process of manufacturing the products. Loblaws did not have control over where the manufacturing operation took place. Loblaws’ only means of controlling New Wave was through cancellation of its product orders from Pearl Global for non-compliance with the CSR Standards. Nor was there any pleaded history of Loblaws using that lever to enforce any change in New Wave’s operations. The social audits required by Loblaws the limited social audits did not and were not intended to cover any structural issues in the New Wave factories and there was therefore no basis for any reliance on Loblaws or Bureau Veritas with respect to the structure of the Rana Plaza premises.

Similarly, the Court held that the judge correctly held that it was plain and obvious that the appellants’ pleaded claim in negligence against Bureau Veritas would fail under Bangladeshi law.

The vicarious liability claim also failed. It had not been pleaded that New Wave was acting as agent for, or on behalf of, Loblaws in conducting its operations. The exceptional circumstances in which an enterprise can be vicariously liable for the misdeeds of independent contractors were not present here. Loblaws was a retailer not a garment manufacturer and was not an enterprise engaged in a hazardous or inherently dangerous industry. It had no control over how its supplier and the sub-supplier carried on their manufacturing business or treated their employees.

Two other interesting cases on corporate liability for the acts of third parties were heard last month before the Supreme Court in Canada and the UK.

The former is the appeal in Araya v Nevsun Resources Ltd, 2017 BCCA 401, a claim against a Canadian company in respect of alleged slavery at a mine in Eritrea operated by the Eritrean government under a joint venture with it. The two issues under appeal were (a) whether the claim was barred by the Act of State doctrine and (b) whether there was a cause of action against the company for participating in a violation of customary international law.

The latter is the Vedanta Resources Plc v Lungowe noted here https://iistl.blog/2018/07/10/no-direct-liability-in-tort-for-uk-parent-company-third-anchor-defendant-decision-in-the-court-of-appeal/

This involved claims against the UK parent company and its Zambian subsidiary for environmental damage and personal injury in respect of the operation of a copper mine in Zambia. There were five issues: (i)  The proper approach to the “real issue”/”proper party” test under Practice Direction 6B para. 3.1, where a claimant seeks to sue a foreign subsidiary and a UK-domiciled parent company.

(ii) The proper approach to the exercise of discretion under CPR r.6.37(3) in mass tort claims, particularly the weight to be given to the prospect of parallel foreign proceedings as against the prejudice caused to a foreign defendant in defending mass tort claims in England and Wales.

(iii) The proper approach when determining whether there is a real risk that a claimant cannot obtain substantial justice in a foreign jurisdiction.

(iv)  The proper application of EU law principles and cases to claims brought against an English domiciled parent company, where the non-EU claimant sues both an EU-domiciled parent company and its non-EU subsidiary company.

(v) Whether to refer point (4) above to the EU Court of Justice.

 

 

No deal and jurisdiction

 

A few interesting developments on jurisdiction in the event of a no-deal Brexit on 29 March.

  1. On 1st April 2019, the UK would become a contracting party to the Hague Convention on Choice of Courts Agreement 2005 in its own right (it currently participates through the EU’s ratification). The UK government deposited its instrument of ratification on 28 December 2018 – while still a member of the EU, which has exclusive competence over jurisdiction.
  2. The European Commission set out its position in a notice on 18 January. EU rules on enforcement of UK judgments in the EU under the Brussels Regime will no longer apply even where the judgment was handed down before the withdrawal date, or the enforcement proceedings were commenced before the withdrawal date. Enforcement of such a judgment in a Member States will be subject to its national law. However, where the instrument concerned requires exequatur, a UK court’s judgment which has been exequatured but not yet enforced in a Member State before the exit date, will still be enforced under the Brussels Regime.
  3. The draft Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019 would see the end of the Brussels Regime and the Lugano Conventions. These regimes and the domestic legislation that implements them will, for transitional purposes, continue to apply in England and Wales, Northern Ireland and Scotland to determine jurisdiction for proceedings commenced in the UK before exit day. Judgments obtained in EU and EEA States will continue to be enforced under these regimes where proceedings were initiated before the withdrawal date.

 

The Sun newspaper reported today that Ladbrokes has put the odds at 3/1 that the UK will leave the EU without a deal before April 1, 2019, although it is not clear whether or not this was before the passage in the House of Commons tonight of two resolutions, Sir Graham Brady’s and Dame Caroline Spelman’s.

 

Clearing up after a marine casualty: comfortable words from the Advocate-General.

As a matter of EU law, moving waste across borders can be an expensive bureaucratic nightmare. Regulation 1013/2006 on waste shipments lays down all sorts of notification, insurance, and other requirements that must be satisfied before any such shipment can take place.

The German owners of the MSC Flaminia got a taste of this in 2012. En route from Charleston to Antwerp with a cargo of nearly 5000 containers, including 151 stated to contain dangerous cargo, the vessel suffered a fire and a number of explosions. These left her in an unholy mess, with quantities of scrap metal, possibly contaminated sludge and water used to put out the fire slopping about everywhere. She ran for Wilhelmshaven and made arrangements for cleaning-up operations in Romania. The German environmental authorities then said “Not so fast”, arguing that all the rigmarole of the waste shipments directive had to be gone through. The owners argued that the exception in Art.1(3)(b) applied, which excises from the Regulation “waste generated on board vehicles, trains, aeroplanes and ships, until such waste is offloaded in order to be recovered or disposed of.” The government argued that this did not cover waste created by a casualty outside normal ship operations; a Munich court duly sent the issue to the ECJ.

The Advocate-General’s opinion came down clearly for the shipowners: there was no specific exception for waste arising from an accident or casualty, and no need to imply one. One suspects the ECJ will follow suit. The relief for shipowners is likely to be considerable: it means that cleaning-up operations can now proceed smoothly wherever is easiest. And a good thing too.

See Schifffahrts GmbH MSC Flaminia v Land Niedersachsen (Case C698/17), as ever available on BAILII (unfortunately in French).

No implied term qualifying free standing demurrage provision in sale contract

 In Gunvor SA v CruGas Yemen Ltd [2018] EWHC 2061 (Comm) a term contract of sale was made for the sale of  gasoline by 12 monthly consignments cif Hodeidah. The buyer was named as CruGas Ltd but the claimant argued that the contract was made with CruGas Yemen Ltd, and that it had been unaware that within the relevant group there was a Cayman Islands company named CruGas Ltd. The claimant obtained performing vessels from a separate entity within its group of companies, Clearlake Shipping Pte Ltd (Clearlake), under a long-term contract of affreightment on an amended Asbatankvoy form. It claimed demurrage totalling $18m under the sale contract and claimed against CruGas Yemen Ltd and CruGas Ltd in the alternative. The defendants denied liability for demurrage on three grounds. First, the demurrage claims were time-barred by reason of a demurrage time bar provision in the COA. Second, a term should be implied into the sale contract that the claimant was required to prove the demurrage rates claimed were “in line with the market rate”. Third, the claimant had to prove that it paid the demurrage sums it claimed under the sale contract.

Phillips J first found that the contract had been made with CruGas Yemen Ltd, and then proceeded to reject all three of the buyer’s arguments. First, it was established in OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd’s Rep 160 that words of general incorporation in a sales contract concerning demurrage provisions in a separate charter did not bring in terms ancillary to the accrual of demurrage, such as time bars relating to the presentation of demurrage claims. Second, there was no justification for the implication of the term contended for, which was neither necessary for the business efficacy of the sale contract, nor would give effect to the obvious but unexpressed intentions of the parties at the time they contracted. In any event, expert evidence from a chartering expert, was that the demurrage rates were all consistent with the market, insofar as such a thing could be said. Third, the demurrage provision under the sale contract was free-standing and not an indemnity.

 

New Year, New Regulations.

 

Two international regulations came into effect today and one EU regulation came into effect yesterday

 

  1. The IMO’s mandatory Data Collection System on fuel consumption under MARPOL Annex VI starts on 1 January 2019 for each ship of 5000 gross tonnage and above. The EU’s Monitoring Reporting and Verification Regulation on carbon dioxide emissions for Companies operating ships of over 5000GT which carry passengers or cargo for commercial purposes to or from European ports has been in force since 1 January 2018.

 

  1. The IMO’s amendments to the International Maritime Solid Bulk Cargoes (IMSBC) Code MSC.426(98) come into effect on 1 January 2019 for new and existing ships carrying IMSBC cargo. New individual schedules with specific carriage requirements have been introduced for the following Group B cargoes:

Sugarcane biomass pellets

Sand, mineral concentrate, radioactive material and low specific activity (LSA-I) UN 2912

Monocalcium phosphate (MCP)

Monoammonium phosphate (MAP) and mineral-enriched coating has been updated with Group B properties.

 

Shippers must shippers now declare whether a solid bulk cargo is classified as:

As HME (harmful to the marine environment), or non- HME. Overboard discharge restrictions will apply to HME solid bulk cargo.

3. Regulation (EU) No 1257/2013 of the European Parliament and of the Council of 20 November 2013 on ship recycling.

From 31 December 2018, large commercial seagoing vessels flying the flag of an eu Member State may be recycled only in safe and sound ship recycling facilities included in the european List of ship recycling facilities. Three UK yards are currently listed on the european list. Ship recycling facilities located in third countries and intending to recycle ships flying a flag of a Member State must submit an application to the Commission for inclusion in the European List. Two facilities in Turkey and one in the USA have been included on the list. As from 29 March 2019 2300 the UK will no longer be a member of the european union and the UK yards currently on the european list will have to reapply to be admitted as a third party state.

Condition Precedents/Warranties in Insurance Contracts

Wheeldon Brothers Waste Limited v Millennium Insurance Company Limited [2018] EWHC 834 (TCC)

Constructing the meaning of words used in insurance contracts is a regular function of courts. In this case, the meaning of various terms, which appeared in the policy that Wheeldon (the assured) had with Millennium Insurance Co Ltd (the insurer), received judicial airing. The assured owned a waste processing plant which was destroyed in a major fire in June 2014. The assured’s claim for indemnity was turned down by the insurer who argued that the assured was in breach of several terms of the policy. The assured brought this action seeking declaratory relief that the insurer is liable under the policy for the loss.

The Deputy Judge, Mr Jonathan Acton Davis QC, first of all sought to identify the cause of fire at the plant. The plant produced solid recovered fuel by removing non-combustible components from inputted waste material transported on conveyor belts. It was discovered that a failed bearing caused a misalignment of one of the conveyor belts which created a gap between it and a trommel (a rotating industrial sieve). Combustible materials which would have been otherwise caught by the sieve, dropped through the gap at the bottom of the conveyor and began to accumulate there. The friction caused by the failed bearing led to hot metal fragments dropping into the accumulated combustible material thus starting a fire.

The insurer, inter alia, argued that the assured was in breach of:

  1. A condition precedent to liability which provided that “combustible waste must be stored at least 6m away from any fixed plant” (storage condition)
  2. A warranty that required “all combustible stocks and/or wastes to be removed from picking station base and/or trommels and/or hopper feeds and balers etc when business is closed.” (combustible materials warranty)
  3. A condition precedent which required the assured “to maintain all machinery in efficient working order in accordance with the manufacturer’s specifications and guidelines and keep records of all such maintenance” (maintenance condition)

At the plant, there were potentially combustible materials, such as a combination of glass, stones and soils which passed through the sieve, and were kept 6 meters of the fixed plants. Also, combustible materials had accumulated in the gap created by the conveyor belt misalignment. The Deputy Judge held that the presence of such materials did not amount to breach of the “storage condition” in the policy. It was stressed that the word “combustible” should be given the meaning, which would be understood by an ordinary person and not its scientific meaning, which is anything which burns when ignited. On that basis, a layman would not regard a combination of “glass, stones and soils” as combustible. The judge also indicated that the word “store” implied a degree of permanence and a conscious decision by the assured to designate an area to keep a particular material. On that basis, materials accumulated in the gap created by malfunctioning cannot said to be “stored” within the meaning of the condition in the policy.

With regard to (ii), the combustible materials warranty, the assured provided evidence that there was a system requiring employees to undertake a visual inspection and carry out the necessary cleaning each day. The judge held that even though the system, without more, was insufficient, the fact that it was in place and had been adhered to were adequate to comply with the warranty.

On third point, the judge found that the failure of the bearing, without more, did not conclusively mean that there was a breach of this condition. In any event, there was no evidence of any breach. As to the requirement to keep formal records, the judge agreed with the assured that their system of daily and weekly checklist was adequate. Furthermore, the judge stressed that if the insurer required records to be kept in a particular format, this should have been prescribed clearly in the maintenance condition.

Although the focus of the case is construction of certain terms in an insurance contract, it is a reminder to insurers that they need to be clear and specify the particulars carefully in the clause if they want to attribute a specific or scientific meaning to a word or requirement on the part of the assured. Otherwise, any word or requirement in a condition precedent or warranty is likely to be construed by courts as an ordinary person would read them.

It should be noted that request for permission to appeal against this judgment has recently been turned down by the Court of Appeal.