The New Warranty Regime Tested in A Common Law Court   

PT Adidaya Energy Mandiri v. MS First Capital Insurance Ltd [2022] SGHC(I) 14; [2022] 2 Lloyd’s Rep 381

Factual and Contractual Matrix

The assured operated an unmanned single point mooring buoy (SPM) at a gas field which was moored to seabed by nine set of chains at three locations on its skirt area. The insurance policy provided cover for physical damage to the SPM on total loss basis only with an insured value of US$ 4, 700,0000. The policy, inter alia, contained two warranties:

Clause 1- “The Insured Equipment is only to be operated by and under the supervision of suitably trained and authorised personnel…”

Clause 8- “Suitable precautions and preservation/maintenance measures to be adopted when storing, handling, transporting and operating Insured Equipment.

The policy was subject to English law as amended by the Insurance Act (IA) 2015. It also contained a clause to the effect that the assured should notify the insurer within 30 days of becoming aware of any incident giving rise to a claim which may be covered under the policy.   

Between 1 and 13 July 2018, several collisions between the SPM and a crude oil tanker (The Bratasena) occurred during loading operations leading to the flooding of the SPM’s compartments. Emergency repairs were carried out in August/September 2018 and further repairs were made in situ in December 2018. The SPM received further repairs in May/June and November 2019. The assured claimed that the SPM was a constructive total loss (CTL) by tendering a Notice of Abandonment (NoA) on 22 May 2019. The assured also claimed expenses incurred to prevent the SPM from becoming a total loss as sue and labouring expenses. The assured’s indemnity claim was rejected by the insurer on various grounds mainly due to breach of marine warranties and procedural issues. The assured’s claim for sue and labouring expenses was also rejected by the insurer. The assured brought the current proceedings against the insurer before the Singapore International Commercial Court as per jurisdiction agreement in the contract.

Breach of Warranty

Sir Jeremy Cooke IJ, was of the opinion that both of the warranties in the contract were breached. The assured was in breach of Clause 1 as no evidence was presented showing that the crew was adequately trained to operate the insured equipment. It was also held that there was a breach of cl. 8 as there was no static tow in place to ensure that The Bratasena did not surge into the SPM. Moreover, it was found that there was no 24/7 watchkeeping during loading operations which meant another failure in the provision of suitable precautions and preservation measures. It was also found that the crew’s failure to notify the assured of every contact with the SPM constituted a further breach as that prevented any corrective measure taken.

Having established that both cl 1 and 8 were breached, the trial judge held that the cover was suspended at the time of the loss by virtue of s. 10(2) of the IA 2015. It was also held that s. 11(3) of the IA 2015 could not assist the assured here as there was no prospect of the assured showing that non-compliance with the warranties did not increase the risk of the loss which actually occurred in the circumstances which it did occur.

Other Defences Raised by the Insurer

The clause requiring the assured to notify the insurer within 30 days of becoming aware of any incident giving rise to a claim which may be covered under the policy was held to be a condition precedent to the liability of the insurer. It was held that this clause was breached (which barred recovery) as the assured even though by 17 July 2018 was aware that there had been several collisions between the SPM and The Bratasena, gave no notification to the insurer until 5 September 2018.    

Agreeing with the contention of the insurer, the Court also found that the SPM was not a constructive total loss as the repair costs (estimated to be around US$ 2 million by the insurer’s expert and US$ 3.2 million by the assured’s expert) did not exceed the insured value under s. 60(2)(ii) of the Marine Insurance Act (MIA) 1906. It was also held that (even if the repair costs had exceeded the insured value of the SPM), the assured could not treat the loss as constructive total loss as it failed to tender NoA within a reasonable time (as required by s. 62(1)(3) of the MIA 1906). The trial judge stressed that NoA was not tendered until 22 May 2019 even though the temporary and permanent repairs required to preserve the vessel from being a total loss had been completed by mid-December 2018.  Sir Jeremy Cooke IJ was convinced that the assured had waived its right to abandon the SPM to the insurers as it sold the equipment in June 2019 for US$ 400,000 at an undervalued price on the premise that it was a liability, but it kept operating it following the collision and kept earning a revenue. All these inconsistent actions pointed to the Court that the assured was dealing with SPM for its own account throughout so its offer to cede its interest in the SMP to the insurer was taken to have been withdrawn.   


The assured’s claim for sue and labouring costs were mostly rejected. By virtue of s. 78(3) of the MIA 1906, to qualify as a sue and labour expense, it is necessary to show the assured that the expenses were incurred for the purpose of averting or minimising a loss to the insured property. This puts a serious limit on a policy like this one which provides cover on “total loss basis” only allowing the assured to claim costs that had been spent to prevent the insured property from an immediate risk of total loss as sue and labouring expenses. On that basis, the Court held that most of the expenses were not recoverable as sue and labouring expenses. More precisely:

  1. Replacement of the mooring hawser was not incurred to preserve the property from total loss;
  2. Inspection costs of the mooring chain, SPM riser and the pipeline end manifold, had no influence on the loss;
  3. Effecting permanent repairs (especially in 2019) did not qualify as there was no longer a risk of sinking.

The only expense recoverable as sue and labouring expense was the inspection costs and repairs to prevent further flooding immediately after the collisions in July 2018 (US$ 20,875 on the estimate of the insurer’s expert).

Comment

The Court’s findings on the CTL issue and sue and labour clause do not break any new ground. What we see here is a very good application of established legal principles to the facts of the case with the assistance of insurance experts.

However, given that this is the first case (known to the author) that gives judicial airing to the changes introduced on the traditional warranty regime by the IA 2015 (in addition to academic scrutiny carried out- see, for example, observations of the author in 3rd edition of Warranties in Marine Insurance (2017, Routledge), his contribution to Cambridge Law Journal [2016] “Risk Control Clauses in Insurance Law” pp, 109- 127, Professor Clarke’s observations published in The Insurance Act 2015: A New Regime for Commercial and Marine Insurance Law (Informa Law, 2017), pp. 54-59 comments of R. Merkin and Ö. Gűrses, “The Insurance Act 2015: Rebalancing the Interests of the Insurer and the Assured” (2015) 78 MLR 1004), it is worth commenting on that aspect of the case.

The case is a very good reminder that when dealing with a warranty that requires the assured to adopt safety standards and practices (such as cl 8 here),  when such standards are not maintained by the assured, it will be very difficult (if not impossible) to convince the Court that non-compliance with such warranty could not have increased the risk of loss which actually occurred in the circumstances in which it occurred (s. 11(3) of the IA 2015). From the way the arguments were presented to the judge, it is also evident that (as predicted by academics) the effect of s. 11(3) is to introduce a test of causation from the backdoor! Inevitably, the courts will be drawn into an enquiry as to whether the loss would have happened in the manner it did, had the safety standards been appropriately adopted.    

One should also bear in mind that the effect of s. 11(3) could be negated altogether (i.e., the assured could be prevented from arguing that the breach of warranty did not contribute to the occurrence of the loss so that it should not have any detrimental impact on coverage) if it is drafted in a way that serves the purpose of describing the limits of the cover as a whole. A warranty of that nature is excluded from the application of s. 11(3) on the premise that such a term will have a general limiting effect not linked to a specific risk (s. 11(1) stipulates: “This section applies to a term (express or implied) other than a term defining the risk as a whole,…”). Unfortunately, this matter was not deliberated by the trial judge in depth, but it could be plausibly argued that cl. 1 is such a term as it requires the insured equipment to be operated only by and under the supervision of suitably trained and authorised personnel. On that basis, it can be viewed as going to the definition of the insured risk rather than simply being a term designed to reduce the risk of a particular type of loss. If so, regardless of whether breach of cl. 1 has contributed to the loss, the risk is suspended the moment the insured equipment is operated by personnel who are not adequately trained until that situation is rectified (as long as, of course, the breach does have a lasting impact on the risk (s. 10(2) of the IA 2015). Lack of discussion on the nature of cl. 1 did not here have any impact on the outcome as the judge was convinced that non-compliance with the warranty did, in fact, increase the risk of loss which actually occurred in the manner in which it occurred but such an analysis would have helped us to see how judges actually deal with the issue of identifying whether a warranty is one that “describes the risk” (which is excluded from the application of s. 11(3) of the IA 2015) or is one which is designed to reduce the risk of “loss of a particular kind” or “loss at a particular location” or “loss at a particular time”.     

Caught up in the sanctions web? Not quite: a lucky escape.

The trouble with sanctions, especially with shipping, is that they can hit innocent third parties almost as hard as sanctionees themselves. Full marks, therefore, to Foxton J in Gravelor Shipping Ltd v GTLK Asia M5 [2023] EWHC 131 (Comm) for finding a way to rescue a shipowner caught in the cross-fire when its Russian financiers were fingered by the UK, the EU and the US.

Cypriot owners Gravelor had financed a couple of their small to medium bulkers by a bareboat arrangement with Russian lenders GTLK. These finance charters required hire payments into a Hong Kong account or any subsequently nominated account; they bound Gravelor to purchase the ships at expiry, but also by Clause 19 gave it an option to buy during the charter on three months’ notice on payment of all sums owing plus a “termination amount”. In the event of default, the lenders themselves had a right under Clause 18 to cancel the charter and insist on a sale to Gravelor against payment of all sums due, with a right to sell elsewhere if Gravelor would or could not come up with the money.

Following the 2022 Ukraine debacle, GTLK was sanctioned by the US, the UK and the EU. (It made a half-hearted and decidedly fishy bid to avoid the sanctions by a supposed sale of the business, but we can ignore this here.) At that point the vessels’ insurers and P&I club backed out, and it became illegal for Gravelor to credit the Hong Kong account stipulated in the charter or in any other way to make cash available to GTLK.

To protect its rights, Gravelor immediately gave notice exercising its option to purchase; it paid no more sums in Hong Kong but offered to pay to a blocked account elsewhere. GTLK declared Gravelor in default, gave notice cancelling the charter and rejected Gravelor’s notice exercising the option. It also put in a formal demand for payment under Clause 18; it did disingenuously offer to transfer the vessels against payment to a Russian Gazprom account nominated by it, no doubt hoping that if Gravelor could not do so, this might enable it to get the vessels into its own hands.

Gravelor now sought specific performance of the purchase agreement, arguing either that GTLK had exercised its option to sell under Clause 18 and thereby given them the right to buy, or (which was more advantageous to them) that they themselves had validly exercised their option under Clause 19. Accepting that the latter claim raised triable issues, in the present proceedings they concentrated on the former and sought an immediate interim order for transfer of the vessel.

Despite what might look like serious obstacles, they were largely successful. Foxton J accepted that there was no objection to such an interim order (rightly so: see The Messiniaki Tolmi (No 2) [1982] Q.B. 1248, esp at 1265-1269), if necessary on the basis of paying the higher of the sums due under Clause 18 or 19. By cancelling the charter under Clause 18 the owners had implicitly given notice to Gravelor requiring it to buy the vessels, thus creating a contractual obligation to transfer them, and their demanding payment of sums due had had the same effect.

GTLK then fell back on payment arguments. First, they said that once they had demanded payment into the Gazprom account, this was what was required under the charter, and if for what ever reason Gravelor could not make it (which they clearly could not), then any right of theirs to a transfer of the ship disappeared. Foxton J neatly disposed of this by pointing to clause 8.10, saying that if the owner was sanctioned and payment as stipulated could not be processed as a result, the parties would negotiate another means of payment. This, he said, applied to (in effect) any impossibility of payment, whether by Gravelor or to GTLK. Furthermore, the fact that payment might have to be in Euros rather than dollars did not affect the matter (a point previously decided in the slightly similar case of MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm).

Secondly, GTLK then argued that if the only payment open to Gravelor was to a blocked account (which in EU law was the case), this could not amount to payment triggering a right to the vessel. Despite cases like The Brimnes [1973] 1 WLR 386 holding that payment was not payment unless immediately cashable by the payee, his Lordship rejected this too: payment meant payment that would be available to a payee in normal circumstances, even if this particular one had been sanctioned.

GTLK’s last line of defence was that specific performance was inappropriate and damages more appropriate, but this too was quickly disposed of. A distinct line of authority held that if damages might be difficult to extract from a defendant, that itself might make them an inadequate remedy: the judge applied that here, pointing out that quite apart from any credit risk encashing a money judgment against a sanctioned entity would be fraught with difficulty under the sanctions legislation.

Subject to a minor matter of no real importance here, he therefore said in effect that the order should go.

The news is therefore good for Gravelor. But there is an element of luck here. Had the provisions as to payment, or possibly the options to sell or purchase, been different, there might not have been the same result in the Commercial Court. There is something to be said for some general rules about the effects of sanctions on contracts, for example dealing with the effect of payment to a blocked account on contractual rights. But that is a medium to long-term idea.

Meanwhile, both vessels, presumably still manned by Gravelor crews, seem at the time of writing to have been on the high seas in the Baltic, a comfortable distance from the nearest Russian territory (at Kaliningrad). So not only does Gravelor now have an English judgment: it might even have its ships back.

Covid, off hire and construction of clause requiring owners’ consent to deductions from hire.

Fastfreight Pte Ltd v Bulk Trident Shipping Ltd (Re Arbitration Act 1996) [2023] EWHC 105 (Comm) (24 January 2023) is a case involving off- hire arising out of lengthy COVID related delays off a Chinese discharge port in 2021.

The “Anna Dorothea”, was chartered for a trip time charter for the carriage of a bulk cargo from East Coast, India to China in April 2021 on an amended NYPE 1993 form.  The vessel loaded a cargo of iron ore pellets at Visakhapatnam, India for carriage to China, and was ordered by the Charterers to sail to Lanqiao for discharge. It arrived off that port on 4 May 2021 but was not able to obtain a berth. In the event, the cargo was not discharged, and the vessel was not redelivered by the Charterers to the Owners until 28 August 2021.

Except for a period of five days between 22 and 26 May 2021, the Charterers did not pay any hire for the vessel between 4 May and 28 August 2021. They contended that the vessel went off-hire on 4 May 2021 and remained off-hire thereafter on the basis that three crew members had positive rapid lateral flow tests for Covid on 1 May 2021. Owners case was that it was impossible to arrange for PCR testing of those crewmembers, but if they had Covid-19 (lateral low tests not being wholly reliable) they would have recovered by no later than 13 May, as their temperature records for that day and subsequent days showed. The Charterers relied on clause 67 to justify their putting the vessel off hire.

Owners claimed that charterers could not deduct for off hire by virtue of line 146 appended to cl.11 which was headed “Hire Payment” and provided:

“(a) Payment

Payment of Hire shall be made so as to be received by the Owners or their designated payee in cash in to Owners’ bank account in Germany…

(line 146) Notwithstanding of the terms and provisions hereof no deductions from hire may be made for any reason under Clause 17 or otherwise (whether/ or alleged off-hire underperformance, overconsumption or any other cause whatsoever) without the express written agreement of Owners at Owners’ discretion. Charterers are entitled to deduct value of estimated Bunker on redelivery. Deduction from the hire are never allowed except for estimated bunker on redelivery…

Clause 17, headed “Off Hire” stated:

“In the event of loss of time from deficiency and/or default … of officers or crew … or by any other similar cause preventing the full working of the Vessel, the payment of hire and overtime, if any, shall cease for the time thereby lost. Should the Vessel deviate .. during a voyage, contrary to the orders or directions of the Charterers, … the hire is to be suspended from the time of her deviating .. until she is again in the same or equidistant position from the destination and the voyage resumed therefrom. …

If upon the voyage the speed be reduced by defect in, or breakdown of, any part of her hull, machinery or equipment, the time so lost, and the cost of any extra bunkers consumed in consequence thereof, and all extra provide directly related and actually paid expenses (always limited to one shift maximum) expenses [sic] … may be deducted from the hire only after having reached an agreement with the Owners on the figures (costs, times, bunkers). (emphasis added)”

The charterparty also additional clause 67 BIMCO Terms:

“Notwithstanding anything within this charter party, the riders, the recap, and/or the “BIMCO infections or contagious disease clause for time charter parties” and/or its equivalent, in the event any member of the crew or persons (except those on charterers’ behalf) on board the vessel is found to be infected with a highly infectious or contagious disease and the vessel has to (i) deviate, (ii) be quarantined, or (iii) barred from entering any port, all time lost, delays and expenses whatsoever shall be on owners’ account and the vessel shall be off-hire.

Owners are fully aware that vessel is fixed for one trip via East Coast India to China.

The arbitrators made a partial final award of hire in the sum of US$2,147,717.79, without prejudice to the Charterers’ right thereafter to counterclaim the whole or any part of that sum, and reserved jurisdiction accordingly as well as jurisdiction to decide all other undetermined matters that had been referred to them. Three days ago Henshaw J decided  to uphold the decision of the arbitrators on an appeal on the following question of law.

“Where a charterparty clause provides that no deductions from hire (including for off-hire or alleged off-hire) may be made without the shipowner’s consent: Is non-payment of hire a ‘deduction’ if the Vessel is off hire at the instalment date?”

Henshaw J noted the importance of the opening words of line 146 “Notwithstanding of the terms and provisions hereof”. Line 146 singled out cl. 17, the off hire provision, as one which it qualifies. Clause 17 was not primarily directed at allowing the offsetting of overpaid hire but was mainly directed at the prior question of whether hire accrues or ceases to accrue at all. The final part of cl.17 was specifically directed at the making of deductions in the sense of subtractions from hire payments but that portion of the clause clearly included its own bespoke provision requiring the Owners’ written agreement. Read as a whole and in context, the restriction on “deductions” in line 146 applied to any exercise of rights that would otherwise arise under or by reason of cl 17 to reduce (wholly or partly) a hire payment based on the vessel being off hire. 

The use of the words “whether/ or alleged off hire” showed that line 146 was designed to cater for situations where a dispute exists about whether the vessel is off hire or not, and to address the situation by requiring the hire to be paid, leaving the argument for later. The Owners did not have an unfettered discretion when deciding whether or not to agree to an alleged off-hire: their discretion had to be exercised for a contractually appropriate purpose (so there has to be a genuine dispute about the deduction) and rationally. Under clause 23 the Charterers had a cross-claim in debt for any overpaid hire which was secured by a lien on the vessel. The arbitrators were correct to reject Charterers’ submission, that line 146 applied only to set-offs and cross-claims.

The conclusion as to the construction of line 146 meant that it was not necessary to consider the effect of the Bingham J’s decision in The Lutetian [1982] 2 Lloyd’s Rep. 140 that where the vessel is off hire at the date on which a hire instalment would otherwise fall due, the effect of what is now cl. 17 of the charterparty is that the obligation to pay hire is suspended. The Lutetian clearly could not be dispositive of the present case, because it contained no equivalent to line 146.

Comment.

Essentially the additional clause in line 146 reverses the position with claims for off hire. The usual position with a time charter is that a charterer may make deductions on an interim basis only where it can establish that they were made both in good faith and on reasonable grounds at the time of deduction (those requirements applying whether the deduction is made pursuant to equitable set-off or an express term of the charterparty). This is reversed with line 146. Hire continues to be paid, unless owners consent to the deduction for the claimed off hire, with charterers then having to claim overpaid hire from owners. This discretion has to be made for a contractually appropriate purpose -there must be a genuine dispute about the deduction – and rationally.  For charterers it is a case of “pay now, claim back later.”

 COVID may have provided the occasion for this decision, but there is no decision as to whether charterers will be able to claim back hire for this period as off-hire. This will involve construing how cl.67 will operate in circumstances where the port authority refuse to allow the vessel into berth for a substantial period of time during which it is clear that the affected crew members must no longer be infected.

But that is a matter for another day.

The Ball is Rolling: The UK to ratify the Hague Judgments Convention?

On 15 December 2022, the UK government published a public consultation paper on the possible ratification of the Hague Judgments Convention 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (HJC). With the UK-wide call open in all three jurisdictions by 9 February 2023, the Government is seeking expert views from practitioners, academics, businesses, and any other persons with an interest in or who may be affected by cross-border civil and commercial litigation in the UK on its very welcome plan to become a Contracting State to the Convention. Besides the open call and public responses, the officials including experts from the Lord Chancellor’s Advisory Committee on Private International Law will get involved in the consultation before the publication of the outcomes.

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, to guarantee 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.”

In August 2022, with the subsequent ratifications of the Convention by the EU and Ukraine, its entry into force became a long-awaited reality and indeed, the Convention is about to enter into force from 1 September 2023 (see my earlier blog post here: Hague Judgments Convention to enter into force! – The Institute of International Shipping & Trade Law (IISTL) Blog).

As the jurisdiction is well-known for its strong legal traditions and robust private international law rules, the UK instantly enhances its routes of international judicial cooperation to ensure certainty and predictability for citizens and businesses involved in cross-border commercial relationships. Most likely, the EU’s opposition to the UK’s application to ratify the Lugano Convention will impede the ratification of the HJC for the provision of continuing civil judicial cooperation.

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, serve 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 mutual recognition and enforcement of judgments in civil and commercial disputes. It will significantly contribute to legal certainty in the post-Brexit era with its sister instrument HCCCA. Indeed, 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.

Following the analysis, the Government will make its final decision on becoming a Contracting State to the HJC and on whether to make any reservations. If signed and ratified, the Convention would be implemented in domestic law under the terms of the Private International Law (Implementation of Agreements) Act 2020, subject to appropriate parliamentary scrutiny. As provided in Articles 28 and 29 of the HJC, the Convention would enter into force for the UK 12 months after the date it deposits its instrument of ratification.

Further details of the paper and consultation questions are available here: Consultation on the Hague Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (Hague 2019) – GOV.UK (www.gov.uk).

Economic loss and limitation under Hague-Visby Rules. The Limnos not followed.

Trafigura Pte Ltd v TKK Shipping Pte Ltd (Rev1) [2023] EWHC 26 (Comm) (13 January 2023) involved a point of law relating to what is meant by  Article IV(5)(a) of the Hague-Visby Rules which limits the carrier’s liability to a sum based upon the weight of the “goods lost or damaged”. The ‘Thorco Lineage’ carried cargo from the US to Australia under a bill of lading issued in Switzerland. Following an engine failure, the salvors re-floated the vessel, and obtained a lien on the cargo in respect of the cargo interests’ liability for salvage remuneration. A small part of the cargo was also physically damaged in the re-floating efforts. The claimants incurred four heads of loss which they claimed were the result of the carrier’s breach of contract.

i) Liability to pay the Salvors US$7,355,000.

ii) Physical loss and/or damage to the cargo US$278,658.31.

iii) On-shipment costs in respect of the cargo (some of which was physically damaged and some of which was not) US$723,831.85.

iv) Costs incurred in arranging for the salvage sale and/or disposal of some of the physically damaged cargo US$58,934.74.

The dispute was whether the words “goods lost or damaged” refer and refer only to physically lost or damaged goods. In this case there were two such expenses, salvage payable pursuant to LOF and the cost of on-shipping goods from a place of safety to the port of discharge, resulting in a diminished value for the merchant at the port of discharge to the extent of the additional expense which he has incurred. The goods were clearly economically “damaged”. Teare J departed from the previous first instance decision of Burton J in The Limnos [2008] 2 Lloyd’s Rep 166 in finding that “goods lost or damaged” means “goods lost or which survived in damaged form”. Teare J held that “goods lost or damaged” includes goods which are economically damaged. The travaux préparatoires were of no assistance as there was no discussion of the meaning of the words “goods lost or damaged”. Under Article IV r.5 (a) the liability of the Defendant in respect of the Claimant’s liability to the Salvors was limited to 2 SDRs per kilogramme of the whole cargo. Likewise the liability of the Defendant in respect of the on-shipment costs incurred by the Claimant was limited to 2 SDRs per kilogramme of the whole cargo.

Teare J then considered the position based on the assumption that Burton J’s decision in The Limnos was correct. First, the cargo in this case was physically damaged in that it was subject to the salvor’s maritime lien and so the Claimant’s proprietary or possessory title to the cargo was damaged and therefore the liability of the defendant in respect of the claimant’s liability to the salvors would be limited to 2 SDRs per kilogramme of the whole cargo. However, the maritime lien did not extend to the on-shipment costs incurred by the Claimant. Teare J accepted the submission of Counsel for the Defendants that if there is economic loss or damage in connection with the goods which were the subject of the contract of carriage then, if there is also physical loss or damage to such goods, the carrier’s liability for the economic loss or damage is limited by reference to the weight of the physically lost or damaged goods and if there is no such physical loss or damage then the carrier’s liability for the economic loss lor damage is unlimited. The limit of the Defendant’s liability in respect of the on-shipment costs would be based upon 2 SDRs per kilogramme of the physically lost or damaged cargo.

Limitation — life gets simpler

Last week – some, one suspects, will ruefully have noted that it was Friday 13 – P&I clubs got some unwelcome news. An old limitation conundrum arising under the Hague-Visby Rules which they had previously assumed fell to be answered in their favour was dealt with by Sir Nigel Teare, who ruled firmly and decisively against them.

The issue concerned the interpretation of the last few words of Hague-Visby Art.IV, Rule 5(a): “neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding 666.67 units of account per package or unit or 2 units of account per kilogramme of gross weight of the goods lost or damaged, whichever is the higher.” Now, did “the goods lost or damaged” mean “those goods irretrievably lost or physically affected”, or “any goods in respect of which a claim arose”?

The point matters because a breach of contract by the carrier will not necessarily damage the goods or cause them to disappear forever in Davy Jones’s locker: it may leave them in impeccable physical condition and entirely accessible, but nevertheless have the effect of depreciating them in the hands of the shipper or consignee. This was exactly what happened in Trafigura v TKK Shipping [2023] EWHC 26 (Comm). A vessel grounded owing to a breach by the carrier of its obligations while carrying a cargo of zinc calcine (since you asked, an impure form of zinc oxide with uses in the ceramic industry). She had to be expensively rescued, refloated and unloaded. Less than ten percent of the cargo was actually lost or even damaged: but in order to get any of the rest the owner had to sub up several million dollars for salvage, onshipment and various odds and sods.

In the ensuing claim, the question of limitation arose. The carriers sought to limit on the basis of SDR 2,000 per tonne of the fairly small amount of cargo lost or damaged. The cargo owners argued that the limitation figure should encompass the whole cargo, since its losses embraced even the undamaged portion, a position that would enable them to recover all their loss rather than a smallish percentage of it.

Sir Nigel Teare gave a very careful judgment dissecting all the authorities and also giving an informative account of the diplomatic argy-bargy making up the travaux préparatoires behind the 1968 Visby amendments. At the end of the day, however, he had no doubt that the cargo owners were right. The limitation figure applied to all the cargo in respect of which a claim was brought, whether or not it had suffered physical lesion. The Limnos [2008] 2 Lloyd’s Rep. 166, a decision on admittedly slightly different facts (it concerned depreciation of a whole cargo consequential on damage to part of it) that for some fifteen years had been taken to settle the position in favour of the P&I clubs’ position, he politely declined to follow.

It seems not unlikely that this will go on appeal. It’s certainly worth a punt, since there is something like $7 million at stake. For what it is worth, however, we think the decision is right. There seems no good reason to have what is in effect two different two different package limitation regimes according to whether we are talking physical or economic loss. Whether cargo is physically damaged in a casualty or not can be pretty arbitrary. Suppose, for instance, delay due to unseaworthiness depreciates one owner’s cargo of meat but slightly taints another’s. It seems odd that the first owner recovers in full but the second faces a limitation defence. Again, had the defendants been right in the Trafigura case, then as pointed out by both Sir Nigel and our own Professor Baughen (see [2008] LCMLQ 439) there would be a perverse incentive in cargo owners not to try to mitigate damage where it does occur, since the more cargo he can show to have been physically damaged the higher the limitation figure will be.

In short, however much law professors might enjoy arguing over what amounts to physical damage, and what counts as economic damage or consequential losses, this case is welcome in sparing insurers and P&I clubs the trouble of doing so. It simplifies the settlement of cargo claims, avoiding hair-splitting dissensions; for that reason alone we should welcome it.

What’s coming in 2023?

Nearly two weeks into the New Year and the IISTL’s version of ‘Old Moore’s Almanack’ looks ahead to what 2023 is going to have in store us.

Brexit. EU Retained EU Law (Revocation and Reform) Bill will kick in at end of the year. It will be a major surprise if the two Conflicts Regulations, Rome I and Rome 2 aren’t retained, but not the Port Services Regulation.

Ebury Partners Belgium SA/NV v Technical Touch BV, Jan Berthels [2022] EWHC 2927 (Comm) is another recent decision in which an ASI has been granted to restrain proceedings in an EU Member State (Belgium) in respect of a contract subject to English jurisdiction.

Electronic bills of lading. Electronic Trade Documents Bill. Likely to become law in 2023 and to come into effect two months after getting Royal Assent. The Law Commission will publish a consultation paper “Digital assets: which law, which court?” dealing with conflicts of law issues in the second half of 2023.

Autonomous vessels. The Department for Transport consultation on MASS and possible amendments to the Merchant Shipping Act 1995 closed in November 2021. Maybe some results in 2023?

Supreme Court cases

Okpabi v Royal Dutch Shell. The case may well go to trial in 2023, although in May 2022 the High Court EWHC 989 (TCC), held it was premature to grant a  Group Litigation Order and directed that each individual claimant should specify additional details to formulate a proper cause of action for the defendants to respond to.

In similar proceedings in the Netherlands in which the Court of Appeal in the Hague gave judgment in January 2021 relating to multiple oil pipeline leaks in the Niger Delta, it was announced just before Christmas 2022 that Shell will pay 15 million euros ($15.9 million) to the affected communities in Nigeria in full and final settlement on a basis of no admission of liability.

The Eternal Bliss appeal to the Supreme Court is likely to be heard in 2023, with possibility of judgment given in 2023.

But there must be a question mark over London Steam-ship Owners’ Mutual Insurance Association Ltd (Respondent) v Kingdom of Spain (Appellant), Case ID: Case ID 2022/0062 where it is stated “This appeal has been adjourned by request of the parties.”

Climate Change

IMO  Two measures aimed at reducing shipping’s contribution to GHG emissions,   EEXI and Cii, both came into force as from 1 January 2023 and will be in the forefront of the minds of those negotiating new time charters.

EU. Shipping is likely to come into the ETS system with the amendments to the 2003 ETS Directive with phasing in from 1 January 2024. Here and here.

BIMCO has produced time charter clauses to deal with all three of these measures.

Ewan McGaughey et al v. Universities Superannuation Scheme Limited is a case involving whether the investments in fossil fuels by a large pension fund in the UK breach the directors’ fiduciary duties and duties towards contributors of the pension fund. On 24 May 2022, the High Court refused permission to bring a derivative action against USSL, but the Court of Appeal gave permission to appeal in October 2022, so a hearing in 2023 is “on the cards”.

European Union

On 15 July 2022, the EU Taxonomy Complementary Climate Delegated Act covering certain nuclear and gas activities came into force on 4 August 2022 and has applied from 1 January 2023. A legal challenge against the Commission before the CJEU by various NGOs and two member states, Austria and/or Luxembourg has been threatened in connection for the inclusion of nuclear energy and natural gas in the Delegated Act. Climate mitigation and adaptation criteria for maritime shipping, were included in the EU Taxonomy Climate Delegated Act adopted in April 2021.

Previous requests from other NGOs asking the Commission to carry out an internal review of the inclusion of certain forestry and bioenergy activities in the EU green taxonomy had already been rejected by the Commission in 2022.

The Corporate sustainability reporting directive came into effect on 16 Dec, 2022

For EU companies already required to prepare a non-financial information statement, the CSRD is effective for periods commencing on or after 1 January 2024. Large UK and other non-EU companies listed on an EU regulated market (i.e. those meeting two of the three following criteria: more than €20 million total assets, more than €40 million net turnover and more than 250 employees) will be subject to the CSRD requirements for periods commencing on or after 1 January 2025. 

UK and other non-EU companies that are not listed in the EU but which have substantial activity in the EU will be subject to the CSRD for periods commencing on or after 1 January 2028.

Finally, a very happy 2023 to all our readers.

New “Consumer Duty”- Would It Affect Insurers Utilising AI and Algorithms?

By 31 July 2023, all retailers in the UK must comply with a new “Consumer Duty” when selling new and existing products and services to their customers (the date of implementation is 31 July 2024 for firms offering closed products and services). This Duty has been introduced by the Financial Conduct Authority (FCA) with an amendment to existing Principles for Business (PRIN) and intends to impose a higher standard of behaviour for firms interacting directly or indirectly with retail customers. The scope of the duty has been extended to the regulated activities and ancillary activities of all firms authorised under the Financial Services and Markets Act 2000 (FSMA), the Payment Services Regulations 2017 (PSRs) and E-money Regulations 2011 (EMRs), and on that basis applies not only to insurers but also to insurance intermediaries (e.g., insurance brokers).

What Does the New “Consumer Duty” Entail?

In a nutshell, the new “Consumer Duty” requires retailers to take a more proactive approach and put their customers’ needs first. It should, however, be noted that the duty is neither a “duty of care” nor a “fiduciary” one. It also does not require retailers to provide advice to customers.  Although the Duty does not give customers a private right of action, it enables the FCA to investigate any allegation of breach and the FCA could accordingly issue fines against firms and secure redress for customers who have suffered harm through a firm’s breach of the Duty.

More specifically, the Duty introduces:

  1. An overarching customer principle that firms must act to deliver good outcomes for retail customers.
  1. This overarching principle requires firms: i) to act in good faith; ii) to avoid causing foreseeable harm; and iii) to enable and support customers to pursue their financial objectives. No firm definition of the term “good faith” in this context has been provided but the FCA put forward some examples where a firm would be judged not be acting in good faith. Accordingly, an insurance firm will not be acting in good faith if it sells insurance to a customer by taking advantage of his/her vulnerability. Similarly, an insurance company will not be acting in good faith if it exploits its customers’ behavioural bias- i.e. renewing a policy automatically without reviewing the details of any revised terms or endorsements as well as any changes to excess or premiums introduced by the policy.    
  1. The Duty focuses on four outcomes (products and services, price and value, consumer understanding and consumer support) and requires firms to ensure consumers receive communications so that they can understand products and services that meet their needs, offer fair value and the support needed to consumers.

The Duty, therefore, will require insurers to reflect on how they assemble, sell, market insurance products to their customers and what kind of support they provide to customers who make inquiries. The insurers are now under a statutory duty to act in good faith, avoid causing foreseeable harm and support their customers in the process of delivering these outcomes.      

Specific Implications for Insurance Companies- Especially Those Using AI and Algorithms

The insurers are already reflecting on how they present their policies and various terms in their policies. They will be expected to inform customers fully of the limits of cover (especially policy excesses). Similarly, any proposed changes to cover at renewal stage should be made clear to customers so that they are aware of the changes to their policy and scope of cover. Many insurers would tell you that these are the good practices that they have been implementing for some time anyway.

One area that insurers need to pay careful attention is the standard questions they expect potential customers to answer in cases where they utilise automated computer underwriting systems through which applications for insurance are evaluated and processed without the need for individual underwriter involvement. In some recent cases, the vagueness of such questions has raised legal issues (see, for example, Ristorante Ltd T/A Bar Massimo v. Zurich Insurance Plc [2021] EWHC 2538 (Ch)). For example, if a consumer had a “declined to quote” decision from a pervious insurer, how would s/he be expected to respond to a standard question on such an automated system asking him/her to specify whether s/he has been refused insurance previously? Would a standard customer expected to appreciate that “decline to quote” might not necessarily mean refusal of insurance? The insurers need to think how they phrase such questions, and it would be advisable in the light of the new Duty to provide additional explanation on such a question posed on an automated underwriting platform. 

However, more interesting questions might arise in cases where insurance companies utilise AI and algorithms for pricing, risk assessment and consumer support purposes.

Naturally, there is an expectation on any insurance firm that utilise AI in risk assessment process to ensure that the system in use does not inadvertently lead to discriminating outcomes and the new Consumer Duty amplifies this. That is easy to say but difficult to achieve in practice. It is well-known that it is rather difficult, if not impossible, when algorithms are used for risk assessment purposes to know what data has been used by the algorithm and what difference any factor made in such risk assessment (commonly known as the ‘black-box problem’). Insurers rely on programmers, designers and tech experts when they employ AI for risk assessment purposes and as much as they expect such experts to assist them in fulfilling their “Consumer Duty”, it is ultimately something they have very little control over. More significantly, it is rather doubtful that the FCA will have that degree of expertise and technical knowledge to assess whether an algorithm used could deliver good outcomes for the customers. To put differently, it is not clear at this stage whether the new Consumer Duty will in practice enhance the position of consumers when underwriting decisions are taken by AI and algorithms.

Another advantage that algorithms could provide to insurers is to differentiate in price not simply based on risk related factors but other factors (such as the tendency of an individual to pay more for the same product). If allowed or left unchecked, an algorithm by taking into account factors (i.e. number of luxury items ordered by an individual online), might quote a higher premium to an individual than it would have quoted for another individual with a similar risk portfolio. We have a similar problem here- could the algorithm be trained not to do this and more significantly how can a regulator check whether this is complied with or not?

Also, today many insurance companies use chatbots when interacting with customers. Given that the Customer Duty requires insurance companies to provide adequate support to consumers, it is likely that an insurer might fall short of this duty by employing a chatbot that could not deal with unexpected situations or non-standard issues. Checking whether a chatbot is fit for purpose should be easier than trying to understand what factors an algorithm has utilised in making an insurance decision. I suppose the new Consumer Duty would mean that insurers must invest in more advanced chatbots or should put in place alternative support mechanisms for those customers who do not get adequate or satisfactory answers from chatbots.

There is no doubt that the objective of the new Consumer Duty is to create a culture change and encourage retailers, and insurers, to monitor their products and make changes to ensure that their practices and products are “appropriate” and deliver good outcomes for customers. This will also be the motivating factor when insurers utilise AI and algorithms for product development, underwriting and customer support. However, it is also evident that the technical expertise and knowledge within the insurance sector is at an elementary level, and it will probably take some time until the insurers and regulators have the knowledge and expertise to assess and adapt AI and algorithms in line with the consumers’ needs.              

Under pressure. Duress and non-contractual waiver.

In London Arbitration 33/22 a shipyard claimed in London arbitration for the balance under a final repair invoice and the shipowners claimed for breach of contract and delay in completion of the repairs.  A principal issue was whether the shipowners were entitled to make such claims due to the fact that their agent had signed a final agreed invoice in the sum of US$1,712,222 which contained the following waiver:

“Owners are accepting this invoice unconditionally and in full and final settlement of the repairs of [the vessel] in [the yard]. It is expressly stated that repairs carried out and completed to fill (sic) satisfaction of Owners/Representatives/Their and no (sic) any claim/losses can be raised. The warranty as per article 12 from the contract remains in full.”

Article 12 of the ship repair agreement provided that the yard “guarantees the quality of the performed repair works and of the materials and equipment used for the repairs, for a period of 3 (three) months counting as from the date of the completion of the repairs and re-delivery of the vessel” and went on to provide “In any event, the SHIPYARD’S liability for all and any guarantee repairs shall not exceed 10 % of the price of the repairs under this Agreement.” Article 13.4 provided “The yard shall in no case be held responsible for any indirect damages, incl. due to loss of charter or loss of earnings of the vessel.”

Owners paid the first instalment of the invoice and the vessel left the yard the following day, but did not pay the second and third instalments which came due one month and two months later.

At the hearing one of owners’ witnesses, one of the owners’ witnesses, the technical manager at the vessel’s managers, gave evidence that in final negotiations the yard had agreed to a 10 per cent discount but he was then presented with a settlement agreement which included the waiver in dispute. He was told that if he did not sign the vessel would not be permitted to sail and could be delayed for months and was given one hour to decided. He concluded that there was no alternative but to sign. The tribunal accepted his evidence. He had been given authority to agree the final invoice without a waiver, but the yard’s insistence on including a non-contractual waiver in the final invoice was unlawful, and therefore amounted to illegitimate pressure, as was the threat to refuse to allow the ship to sail by exercising a non-contractual lien with no common law basis. It was not realistic for the owners to have been expected to make an urgent application to the Commercial Court for an order to release the vessel, or commence arbitration proceeding for an expedited order.

Owners were therefore entitled to bring their counterclaims which mostly succeeded albeit at lower amounts. However, their claim that because of the delay of 62 days in completion of the repair works, they lost the opportunity to trade the vessel in a rising market was rejected. The parties did not intend to include loss of hire or loss of earnings as a consequential loss. The owners had included a penalty of US$12,000 per day in Article 12 which covered their direct losses because of delay. If loss of earnings was covered under clause 13.4, there would be no need to include a penalty for delay.

The yard was awarded the sum of US$852,222.22 (the balance under the final invoice) less US$396,449.21 on account of owners’ counterclaim, giving a sum due of US$455,773.01.

The yard claimed interest under Article 10 of the repair contract which provided for interest at 0.1 per cent per day, effectively 36.5 per cent per annum and owners argued that it should be struck out as penal.

Although the tribunal accepted that the general commercial practice was for interest rates to be at least 10 per cent above the national base rate, the rate of 0.1 per cent per day was excessive and should not be applied to any sum due to the yard.

Exercising its discretion under s.49 of the Arbitration Act 1996, section 49, the tribunal awarded interest at the rate of 4.5 per cent per annum compounded at three-monthly intervals upon the sum of US$455,773.01 due under the final invoice after deduction of owners’ counterclaims, from 30 days after the date of the final invoice until final payment.

Shipping and the EU Emissions Trading Scheme. It’s going to cost you from 2024 onwards.

Over the last two years the proposed inclusion of shipping in the Emissions Trading Scheme has bounced around the organs of the EU in the trilogue procedure. The EU  Parliament’s initial proposal of 16 September 2020 was to amend  the MRV Regulation 2015/757 and to include ships of 5000 grt and over in the ETS for all voyages into and out of a port in the EU including from and to ports outside the EU, starting on 1 January 2022. The shipowner, demise charterer, and time charterer would all be responsible under the ETS for the costs of acquiring ETS allowances.

The Commission responded on 14 July 2021 https://iistl.blog/2021/07/14/bastille-day-eu-commissions-present-to-the-shipping-industry/with a proposal to amend the 2003/87/EC directive establishing the Emissions Trading Scheme (‘ETS Directive’) so as to include maritime transport within the ETS but with only 50%  cost for CO2 emissions on a voyage from or  port outside the EU to one in EU, and to a voyage from the EU to a port outside the EU. There would be a phase in period between 2023 and 2026 for surrender of allowances. Only the shipowner and demise charterer would be responsible for allowances.

The Parliament made various counter amendments in June 2022 as did the Council, noted in here  https://iistl.blog/2022/07/06/eu-inclusion-of-shipping-in-the-ets-latest-developments/.

On 18 December 2022, hopefully before the World Cup Final took place, the Parliament and Council made a provisional agreement as outlined in the press release quoted below. The text of the agreement has yet to be released but the press release quoted below indicates agreed amendments to the Commission’s proposed amending of the ETS Directive.

“EU ETS maritime

The Council and Parliament agreed to include maritime shipping emissions within the scope of the EU ETS. They agreed on a gradual introduction of obligations for shipping companies to surrender allowances: 40% for verified emissions from 2024, 70% for 2025 and 100% for 2026.

Most large vessels will be included in the scope of the EU ETS from the start. Big offshore vessels of 5000 gross tonnage and above will be included in the ‘MRV’ on the monitoring, reporting and verification of CO2 emissions from maritime transport regulation from 2025 and in the EU ETS from 2027. General cargo vessels and off-shore vessels between 400-5 000 gross tonnage will be included in the MRV regulation from 2025 and their inclusion in EU ETS will be reviewed in 2026.

In addition, the agreement takes into account geographical specificities and proposes transitional measures for small islands, ice class ships and journeys relating to outermost regions and public service obligations and strengthens measures to combat the risk of evasion in the maritime sector.

Certain member states with a relatively high number of shipping companies will in addition receive 3.5% of the ceiling of the auctioned allowances to be distributed among them.

The co-legislators agreed to include non-CO2 emissions (methane and N2O) in the MRV regulation from 2024 and in the EU ETS from 2026.”

www.consilium.europa.eu/en/press/press-releases/2022/12/18/fit-for-55-council-and-parliament-reach-provisional-deal-on-eu-emissions-trading-system-and-the-social-climate-fund/

It now looks clear that shipping is going to be brought into the EU’s ETS in just over a year’s time. This will entail added costs to voyages into and out of the EU which will fall on owners and bareboat charterers. It should be noted that, although the UK has established its own ETS, this does not currently include shipping.

An example of these coming ETS costs was given by Safety4Sea in late September 2022, https://safety4sea.com/prepare-for-higher-shipping-costs-but-the-eu-ets-should-be-a-manageable-change/, who posited the example of a voyage from Brazil to Rotterdam, using a carbon credit price of $85 per metric tonne of carbon emitted, a similar figure to the current price of $85.20 per m/t. The example has been updated in line with the recently agreed phase-in period.

The example takes a Capesize dry bulk voyage carrying iron ore from Ponta da Madeira in Brazil to Rotterdam (4,100 nm). Assuming a Capesize speed of 14 knots this would take around 12 days: at 62 tonnes per day this corresponds to 744 tonnes of fuel consumed, emitting 2,300 tonnes of CO2. As the voyage starts outside Europe, only half of the emissions qualify for allowances – 1,150 tonnes.

40% of this will need to be covered for 2024– 460 tonnes. Therefore, at a carbon  credit price on 13 December 2022 of just over EUR 85/mt of carbon emitted, the total cost for the carbon allowance would be EUR 39,100, plus a small addition for consumption in port. This compares with a fuel cost for the voyage of around EUR 520,000 (equivalent to 8%).

But two years later, in 2026, the cost for the carbon allowance would rise to 100% almost EUR 100,000 – equivalent to 20% of the total fuel bill for the voyage

For voyage charters to and from the EU, these costs will likely be reflected in increased freight rates for voyages in and out and within the EU. For time charters, although charterers bear the cost of bunkering the vessel during the currency of the charter, that does not mean that owners will be able to recover the costs of ETS allowances from them. Assuming that the EU is a permitted trading area, there is no mechanism for owners under the standard form time charters by which to recover these additional costs. The express or implied indemnity will not work, as these costs will be regarded as the natural costs of trading, as was the case in The Dimitris L [2012] EWHC 2339; [2012] 2 Lloyd’s Rep. 354, where the time charterers’ orders to proceed to the United States did not entitle the owners to be indemnified against the cost of U.S. Gross Transportation Tax.

However, specific clauses may be developed to deal with the apportionment of ETS costs. One such clause was is BIMCO’s Emissions Trading Scheme Agreement for Time Charterparties released on 31 May 2022.

The clause, which is not limited to the EU ETS, provides a mechanism for making the time charterer responsible for providing and paying for emission allowances with both parties cooperating and exchanging data necessary to facilitate compliance with any applicable ETS scheme and to calculate the amount of allowances that need to be surrendered for the period of the charterparty.

While the vessel is off-hire the charterers have the right to offset any allowances due or to require owners to return a quantity of emission allowances equivalent to that for which the charterers would have been responsible for this period had the vessel been on hire.

If charterers fail to transfer any emission allowances in accordance with the provisions in the clause, owners may suspend performance of all or any of their obligations, on giving charterers five days notice, until the time owners receive the emissions allowances in full. During this period of suspension the vessel is to remain on hire and owners are to have no responsibility whatsoever for any consequences arising out of the valid exercise of this right. The right of suspension is without prejudice to any other rights or claims owners may have against charterers under the charterparty.

Unlike many BIMCO clauses, there is no provision for the incorporation into any bills of lading or waybills issued under the charter. This makes sense as ensuring the time charterers bear the financial consequences of acquiring ETS allowances required during the currency of the charter will not directly impact on third party holders of bills of transport documents. This may happen, though, with delay due to owners operating their rights to suspend services under the clause in which case owners would be able to pass on to charterers any resulting liabilities incurred to such third parties.