Detention Resulting in Constructive Total Loss (CTL) under the War and Strike Risks Policy- Allegation of “Unfair Presentation of the Risk” and Several More Futile Defences

  

Delos Shipholding SA & Ors v. Allianz Global Corporate and Speciality SE & Ors [2024] EWHC 719 (Comm)

The insured vessel (Win Win) was detained by the Indonesian authorities inside Indonesian territorial waters in February 2019 when she was at anchorage off the island of Bintan without the approval of the authorities. The infringement was one which might ordinarily lead to a fine but instead, the vessel was detained by Indonesian authorities for more than a year while her Master was prosecuted, eventually receiving a suspended sentence of seven months’ imprisonment and a fine of around US$ 7,000. 

The vessel was insured under a war risk policy on the American Institute Hull War Risks and Strikes Clauses (1977). The assured claimed that the vessel became a constructive total loss under the Policy’s Detainment Clause and sought to recover the insured value of US$ 27.5 million. It was common ground that the vessel was a constructive total loss, but the insurers denied the claim on several grounds. One of those grounds was that the risk had not been fairly presented by the assured due to failing to disclose a material circumstance. This one and another issue that was recently introduced by the Insurance Act (IA) 2015 (late payment of claims)- a counterclaim raised by the assured in this case- will be deliberated in this note while other defences raised by the assured will be given a cursory mention.

Unfair presentation of the risk 

The insurers argued that the assured was in breach of its duty of fair presentation of the risk under the IA 2015 by failing to disclose that the sole director of the registered owner of the vessel, Mr Bairactaris, was the subject of criminal charges in Greece. The law in this area has been reformed by the introduction of the IA 2015 and a useful clarification has been provided in the relevant provision as to whose knowledge in the assured’s company amounts to the knowledge of the assured to discharge the duty of fair presentation of the risk. Section 4(3)(a) of the IA 2015 indicates that a corporation knows or ought to know information which is known by an individual who is part of the insured corporation’s senior management or responsible for the assured’s insurance. Therefore, the key question here was whether Mr Bairactaris could be deemed to be part of senior management for the assured corporation (it was clear that he was not involved in the process of obtaining insurance). The Court answered this question in the negative on the premise that Mr Bairactaris was a shipping lawyer in private practice and merely a nominee director of the company. He was, therefore, performing merely an administrative function in signing documents on the instructions of the ultimate beneficial owners of the company. The only person aware of the charges was himself and the beneficial owners were unaware of the situation. On that basis, it was concluded that the assured company could not be deemed to have constructive knowledge of these charges. 

The finding of the court on the constructive knowledge of the assured company under s. 4(6) of the IA 2015 is an interesting one. Under this provision “an insured ought to know what should reasonably have been revealed by a reasonable search of information available to the insured”. It has been speculated that the introduction of this requirement will broaden the scope of the disclosure expected of the assured company as the test is an objective one meaning that the assured would no longer be able to claim that it was not aware of circumstances due to imperfections in the reporting systems in its organization (this was raised successfully before the introduction of the IA 2015 in Simner v. New India Assurance Co Ltd [1995] LRLR 240). Be as it may, it is still a question of fact in each case whether a reasonable search within the assured company would have revealed a particular information- if so, that information is deemed to be in constructive knowledge of that company. Here, however, the judge found that it would not have been reasonable for the assured company to ask whether the holder of a nominee directorship was subject to criminal proceedings given that he was a respected practicing lawyer and his role in the company was a limited one. 

Even if that was wrong, the judge found that the relevant information (the fact that Mr Bairactaris was the subject of criminal charges in Greece) was not material: it had no connection with the present insured risk, and if there had been disclosure then exculpatory material including the director’s denial of any criminality and his limited role for the claimants would also have been disclosed. This finding was adequate to dispose of the case of the insurer, but the trial judge (The Honourable Mrs Justice Dias DBE) went further holding that the insurers were not induced by the alleged non-disclosure (proof of inducement of the relevant insurer is still required under the IA 2015).           

Counterclaim by the Assured- Late Payment of the Claim? 

Section 13A of the Insurance Act 2015 implies a term in every contract of insurance that the insurer must pay any sums due under the policy within a reasonable time. The key issue here was whether the insurer was in breach of this implied term given that some of the defences raised were questionable. Under s. 13A(4) the key question is whether the insurer had “reasonable grounds” for disputing claims. The mere fact that a defence fails does not mean that it was unreasonably taken and the judge acknowledged this point in her judgment (this point also has emerged in the judgment of the Court in Quadra Commodities S.A. v XL Insurance & Ors [2022] EWHC 431 (Comm)). The trial judge also expressed serious doubts as to whether it was reasonable for insurers. in the present case to rely on their fortuity, customs, and quarantine exclusion and sue and labour defences. She, however, considered it reasonable to defend the claim on the grounds of unfair presentation of risk. However, she, in the end, concluded that she did not need to decide the question of the reasonableness of defence since the assured in this case had not made out their alleged loss from the delayed settlement. 

In determining whether the actions of the insurer were reasonable, some guidance has been provided by the Law Commissions’ Report and the Explanatory Notes to the legislation and a detailed discussion on this matter would have helped to clarify the scope of this recently introduced obligation. However, this opportunity has been missed here. The insurers had serious concerns when this provision was introduced on the basis that it could trigger counter-claims of this nature from assured every time insurers raise defences under an insurance policy. Surely, it can hardly be the case that in a litigation where the judge ends up writing 111 pages when disposing of the defences raised to regard all those defences raised as unreasonable. In every litigation, some points taken are stronger than others- the fact that some of the defences raised were easier to dispose of does not necessarily mean that the insurer acted unreasonably by defending the claim. One fears that the decision of the judge not to provide any guidance on this issue might be seen by lawyers as an invitation to take this point up more frequently in the future.              

Other Defences Raised By the Insurer 

Lack of Fortuity

The insurer alleged that the detainment was not fortuitous in the present case as the master and/or the claimant assureds knew or should have known that the vessel had anchored in the territorial waters of Indonesia, the arrest was the consequence of their voluntary conduct in doing so. This was a relatively easy defence to dispose of on the basis that there was a long history of vessels anchoring in the same location without any permission from the Indonesian authorities and it was not until 2019 that the Indonesian Navy initiated the campaign of detention of vessels anchored in its territorial waters. Therefore, neither the master nor the owners had reason to suppose that the vessel would, in fact, be detained. 

Customs and Quarantine Exclusion

The American Institute Hull War Risks and Strikes Clauses (1977) contained a clause that excludes loss caused by, resulting from, or incurred as a consequence of “Arrest, restraint or detainment under customs or quarantine regulations and similar arrests, restrains or detainments not arising from actual or impending hostilities.” The insurers alleged that the arrest of the insured vessel under the Indonesian Shipping Law was a similar arrest, restraint, or detainment to one under customs or quarantine regulations. This was also rejected on the premise that the detention of vessels at the relevant time was not a customs or quarantine matter, but the result of a decision prompted by a change of policy on the part of the Indonesian Government to assert sovereignty over its territorial waters.  

Breach of Sue and Labour Obligations  

Another contention of the insurer was that the detention of the vessel in Indonesia was materially caused by the claimants’ unreasonable conduct in breach of their duty to sue and labour. To advance this contention, they relied upon a series of contacts between the assureds and the Indonesian authorities after the detention, to explore a “settlement” with the Navy, on a “commercial” basis, or by paying “fines” without going through an official court process. It was argued that any such payment, had it been made, would not have been an official or lawfully imposed fine, but would have been a bribe or similar, a fact of which the assureds were aware. The trial judge found that the assured’s conduct was not unreasonable (the assured’s contact in this context can be deemed unreasonable so that the chain of causation between the insured peril and the loss could be broken if it can be shown that he acted in a way no prudent uninsured would have done so (see in particular the judgment in ABN Amro Bank NV v Royal & Sun Alliance Insurance plc [2021] EWHC 442 (Comm)). The judge concluded that it was perfectly acceptable for the assured to explore all possibilities and she also found that there was no suggestion that they had any intention of paying a bribe. Having held that there was no breach, it was not strictly necessary to consider whether the assureds’ conduct was, in any case, causative of or contributory to the loss suffered, but in any event, the Judge concluded that it was not. 

Climate Change is a Human Rights Issue, the ECHR finds.

In Verein KlimaSeniorinnen Schweiz and Others v. Switzerland (application no. 53600/20) the European Court of Human Rights on Tuesday held, by a majority of sixteen votes to one, that there had been: a violation by Switzerland of Article 8 (right to respect for private and family life) of the European Convention on Human Rights;and, unanimously, that there had been: a violation by Switzerland of Article 6 § 1 (access to court).

The case concerned a complaint by four women and a Swiss association, Verein KlimaSeniorinnen Schweiz, whose members are all older women concerned about the consequences of global warming on their living conditions and health, claiming that the Swiss authorities are not taking sufficient action, despite their duties under the Convention, to mitigate the effects of climate change.

The court held that the four individual applicants did not fulfil the victim-status criteria under Article 34 of the Convention and declared their complaints inadmissible. However, the applicant association, did have locus standi to bring a complaint regarding the threats arising from climate change in Switzerland on behalf of those individuals who could arguably claim to be subject to specific threats or adverse effects of climate change on their life, health, well-being and quality of life as protected under the Convention.

The Court found that Article 8 of the Convention encompasses a right for individuals to effective protection by the State authorities from the serious adverse effects of climate change on their lives, health, well-being and quality of life. A contracting State’s main duty is to adopt, and to apply in practice, regulations and measures capable of mitigating the existing and potentially irreversible, future effects of climate change. it noted that in line with the international commitments undertaken by the member States, most notably under the United Nations Framework Convention on Climate Change (UNFCCC) and the 2015 Paris climate agreement, and in the light of the compelling scientific advice provided, in particular, by the Intergovernmental Panel on Climate Change (IPCC), States need to put in place the necessary regulations and measures aimed at preventing an increase in GHG concentrations in the Earth’s atmosphere and a rise in global average temperature beyond levels capable of producing serious and irreversible adverse effects on human rights under Article 8.

Effective respect for those rights requires States to undertake measures to reduce their GHG emission levels, with a view to reaching net neutrality, in principle within the next three decades. In this respect, States need to put in place relevant targets and timelines, which must form an integral part of the domestic regulatory framework, as a basis for mitigation measures. there had been critical gaps in the process of putting in place the relevant domestic regulatoryframework, including a failure by the Swiss authorities to quantify, through a carbon budget orotherwise, national greenhouse gas (GHG) emissions limitations.

 Furthermore, the Court noted that Switzerland had previously failed to meet its past GHG emission reduction targets. The Swiss authorities had not acted in time and in an appropriate way to devise and implement the relevant legislation and measures in accordance with their positive obligations pursuant to Article 8 of the Convention, which were of relevance in the context of climate change.

The Court also found that the rejection of the applicant association’s legal action, first by an administrative authority, DETEC, and then by the national courts at two levels of jurisdiction, amounted to an interference with their right of access to a court. The Court found that the national courts had not provided convincing reasons as to why they had considered it unnecessary to examine the merits of the complaints. They had failed to take into consideration the compelling scientific evidence concerning climate change and had not taken the association’s complaints seriously. As there had been no further legal avenues or safeguards available to the applicant association, or individual applicants/members of the association, the Court found that there had been a violation of Article 6.1 of the Convention.

The Court also gave judgments in two other climate change cases. In Carême v. France Court declared inadmissible the application by a former inhabitant and mayor of the municipality of Grande-Synthe, on the ground that the applicant did not have victim status within the meaning of Article 34 of the Convention.In Duarte Agostinho and Others v. Portugal and 32 Others the Court declared the application inadmissible for non-exhaustion of domestic remedies. There were no grounds in the Convention for the extension of extraterritorial jurisdiction to other Convention States, in the manner requested by the applicants.

The message seems to be, if you can establish victim status under Article 34, and you have exhausted domestic remedies, you may well have success in proceeding in the ECHR against your State for a violation of Article 8, and, possibly Article 6.1, for a claim that it is not doing enough to protect you from the adverse impacts of climate change. NGOs throughout Convention States are doubtless taking note.

Meanwhile, in a civil action against Shell in the Netherlands brought by an NGO, the appeal by Shell against the first instance decision in 2021, began on 2 April and is due to conclude on 13 April.

The Ever Given. Court of Appeal upholds decision that no salvage contract concluded.

In The Ever Given  [2024] EWCA Civ 260, the Court of Appeal has upheld the decision of Andrew Bake J that no salvage contract came into being between the shipowners and the salvors, SMIT, in connection with the assistance rendered to the vessel when it became stuck in the Suez Canal in March 2021. Andrew Baker J found, on a preliminary issue, that no salvage contract had come into existence between the parties. Instead, Smit’s claim for salvage, in respect of its services in successfully refloating the vessel and bringing it to a place of safety, fell under the 1989 Salvage Convention, with the quantum of the claim to be determined by the Admiralty Court. The parties had reached agreement on remuneration on 26 March 2021 but that was not enough to show that they had concluded a contract. In that email exchange the parties made it clear to each other that they were still negotiating, and showed the detailed work of negotiating the contract terms by which they would be bound. They did not communicate to each other an intention to be bound in the absence of completing that work of negotiating and agreeing a detailed set of contract terms. That further work was not completed, as a counter-proposal on detailed terms later sent by Capt Sen put the parties some considerable distance apart, and that gap was never closed.

The Court of Appeal, for whom King LJ gave the leading judgment, agreed. Owners bore the burden of proving that the parties’ exchanges unequivocally showed an intention to be down, and they fell considerably short of doing so. At the very least the exchanges with SMIT were consistent with there being no intention to be legally bound until all outstanding matters were agreed, which was not good enough for owners’ purposes.

The series of ultimatums did not undermine this analysis. At no stage did SMIT suggest, either unequivocally or at all, that it would be content with a binding contract dealing only with remuneration terms. The urgency to conclude a contract did not continue with the same intensity when the parties reached agreement on the terms of remuneration. However, once the refloating attempt on 26th March had failed, SMIT was in a strong commercial position as the vessel still needed to be refloated without further delay and it was becoming increasingly apparent that SMIT was, in effect, the only realistic means by which this could be done. If the owners would not agree to SMIT’s terms, it was increasingly likely that SMIT would at least be entitled to some form of salvage award. This defused the urgency of the situation for SMIT whose engagement of the tugs ‘ALP GUARD’ and ‘CARLO MAGNO’ became less and less and less of a speculation.

Baltimore and beyond

We don’t know what happened to the Dali to make her demolish the Francis Scott Key Bridge on her way out from Baltimore Port down the Patapsco River en route for Sri Lanka, though there are indications that she lost power a few minutes before impact. We will find out more in due course, since the VDR we understand has been recovered intact. The immediate impact on lives is tragic: we know six are unaccounted for, and it may be more. (Unfortunately your survival chances when pitched at dead of night into water at about 6 degrees Centigrade aren’t high.) Clearing up the mess and reopening Baltimore Harbour may take a fair while, as no doubt will discharging the Dali’s cargo and repairing her once the US authorities have finished their investigations.

There have been some gloomy predictions of problems to supply chains and even commodity price spikes as a result of this, though they may be overblown: Baltimore is only the US’s 14th largest port, and one suspects that a good deal of the LNG and Appalachian coal that form its most important exports can be diverted to other outlets with a little effort.

The legal issues are going to be complex, and will take a good while to sort out.

One question is where litigation against the vessel’s Singaporean owners (who had chartered her to Maersk) will proceed, following her arrest or threat thereof in Maryland (which is a foregone conclusion). There are advantages to suing in the US federal courts, and one suspects this is where much of the immediate lawfare will actually happen. The US is, after all, the place of the disaster; the plaintiffs, in the shape of the owners of the bridge and those killed or injured, are American or US residents; and damages may well be generous.

There are of course downsides. One is that for large but not-entirely-new vessels like the Dali (she was built in 2015 and weighs in at a bit over 95,000 GRT), the US limitation figure, based on the value of the vessel and her freight under 46 USC App 183, is likely to be relatively low compared to the LLMC figure, based on tonnage. True, US limitation is relatively easy to break, requiring effectively just a showing of clear personal fault in owners. On the other hand, there is little to stop the Dali’s owners trying to obtain a limitation decree in a LLMC + Protocol state, where the limitation figure, though much higher, is all but unbreakable; furthermore, if they succeed, such a decree may make enforcement of a big US judgment based on full liability more difficult.

But even these factors may be less of a protection than they look. If the owners wish to continue trading in the US, and their parent Mitsui wants to avoid severe reputational damage there, they may have to take steps to make sure a US award is paid.

On fault, it’s early days: we don’t know. But it may be difficult for the owners and their P&I Club to wriggle out. In the US they will face the disadvantage of the Oregon rule (based on The Oregon, 158 U.S. 186 (1895)), presuming fault in a moving vessel that hits a stationary object; and even if there was an unexpected loss of power, attorneys are no doubt already poring minutely over both the bridge and engine room logs and the the owners’ records of maintenance, preparedness, crew training and the rest to pick out some element of fault. Not only will this exercise give them an excellent chance of finding negligence: the latter aspects of it will also provide a decent prospect, at least in the US context, for overcoming any limitation defence.

What of cargo, charter and insurance claims, GA and the like? Again, we don’t know. Many of these, however, may be governed by English law and end up before London arbitrators or the Commercial Court.

One thing is certain. We haven’t heard the last of this. In a few years’ time, who knows? The case named The Dali may be on every Admiralty student’s lips. For the moment all we can do is wait and see.

BIMCO. New Emissions Trading Scheme Clausefor Ship Managers.

To add to its suite of ETS clauses, on 8 December 2023 BIMCO released the ETS – SHIPMAN Emission Trading Scheme Allowances Clause 2023.

The clause deals with two situations.

First, the default position under the EU ETS, whereby owners are the responsible entity for surrendering emissions allowances. The owners are to comply with, or procure compliance with, surrender of emissions allowances under any relevant scheme, and the ship manager are to provide Owners with emissions data in a timely fashion to enable Owners to comply with their emissions allowance obligations.

Second, where the party responsible for emissions allowances is the ship manager (with the ETS that will be the case where there has been an appropriate written delegation in accordance with the Implementing Regulation of November  2023). 

The clause provides for the Ship Managers to surrender the allowances in accordance with the provisions of the relevant emissions scheme and provides a framework for Owners to pay the Ship Managers in respect of those emissions allowances.

The Ship Manager is to be responsible for:

-providing the Owners with Emission Data together with the calculation of the Emission Allowances required;

-monitoring and reporting Emission Data to the administering authority in accordance with the Emission Scheme(s) applicable to the Vessel, and; 

-each month preparing and presenting to the Owners, in writing, their estimates of the Emission Allowances for the Vessel for the ensuing month, including the reconciliation of the Vessel’s actual emissions under each Emission Scheme applicable to the Vessel for the previous months and adjustment for any previous shortfall or excess.

Owners who  have made the necessary delegation to the ship manager to act as the shipping company under the ETS, needs to be aware of the provisions of Article 16(11a) of the revised ETS Directive.

“In the case of a shipping company that has failed to comply with the surrender obligations for two or

more consecutive reporting periods, and where other enforcement measures have failed to ensure compliance, the competent authority of the Member State of the port of entry may, after giving the opportunity to the shipping company concerned to submit its observations, issue an expulsion order, which shall be notified to the Commission, the European Maritime Safety Agency (EMSA), the other Member States and the flag State concerned. As a result of the issuing of such an expulsion order, every Member State, with the exception of the Member State whose flag the ship is flying, shall refuse entry of the ships under the responsibility of the shipping company concerned into any of its ports until the shipping company fulfils its surrender obligations in accordance with Article 12. Where the ship flies the flag of a Member State and enters or is found in one of its ports, the Member State concerned shall, after giving the opportunity to the shipping company concerned to submit its observations, detain the ship until the shipping company fulfils its surrender obligations.

Where a ship of a shipping company as referred to in the first subparagraph is found in one of the ports of the Member State whose flag the ship is flying, the Member State concerned may, after giving the opportunity to the shipping company concerned to submit its observations, issue a flag State detention order until the shipping company fulfils its surrender obligations. It shall inform the Commission, EMSA and the other Member States thereof. As a result of the issuing of such a flag State detention order, every Member State shall take the same measures as are required to be taken following the issuing of an expulsion order in accordance with the first subparagraph, second sentence.

This paragraph shall be without prejudice to international maritime rules applicable in the case of ships in distress.”

Accordingly, an owner could find themselves adversely affected by a default by their ship manager in regard to emissions from other vessels whose owners have made a delegation to them to constitute them as their shipping company. Some provision for this should be made in owner’s ship management contract, such as a provision that the managers warrant that they will make timely and full surrender of allowances accrued in respect of other vessels for whom they have been constituted as the ‘shipping company’ under the revised ETS Directive 2023/959

EU Corporate Sustainable Due Diligence Directive. Not dead yet.

In 1897, Mark Twain, on reading his own obituary, was said to have remarked, “The reports of my death are greatly exaggerated.” Last Friday, on 15 March, the compromise text of the Corporate Sustainable Due Diligence Directive (CSDDD) was endorsed by the EU Council. This followed a compromise text circulated by the Belgian presidency on March 6, which was subject to further concessions on 13 March. The Parliament must now approve the Council’s compromise text at a vote likely to take place in April.

The compromise text raises the qualifying threshold for EU Companies (1000 rather than 500 employees and EUR 300 million rather than Euro 150 million.). Similarly, the thresholds for non-EU companies are also raised to a net turnover in the Union of Euro 450 million (previously Euro 150 million). Lower threshold figures for EU and non-EU companies operating in high impact sectors have gone. Thresholds for franchises are raised to EUR 80 million (compared to EUR 40 million in the provisional agreement) and EUR 22.5 million in royalties (compared to EUR 7.5 million in the provisional agreement).

An exemption for parent companies has been added where the parent does not engage in in taking “management, operational or financial decisions” affecting the group or its subsidiaries. The parent company must also now apply to the competent supervisory authority for any such exemption

Companies already subject to Corporate Sustainability Reporting Directive are no longer required to adopt a climate transition plan.

Member States have two years to transpose the directive into national law following its adoption at the EU level.

The application of the Directive is now to be phased-in for in-scope companies for periods of three, four, five years after the Directive comes into forces, depending on number of employees and net world turnover for EU companies and for non-EU companies based on net turnover in the Union.

BIMCO. Three new Emissions Transfer Scheme Clauses for Voyage Charters.

To complement its 2022 Emissions Trading Scheme Allowances Clause for time charterers, on 8 December 2023, BIMCO released three ETS clauses for voyage charters.

As with the 2022 time charter clause, the clauses seek to place all the costs of incurring liability for emissions allowances onto the voyage charterer.  This can be done as follows: 

– by including them in the freight rate, under the ETS – Emission Scheme Freight Clause for Voyage Charter Parties 2023, or

– by requiring payment of a surcharge for payment of emission allowances under the voyage with owners remaining responsible for surrendering the appropriate number of emissions allowances under the ETS – Emission Scheme Surcharge Clause for Voyage Charter Parties 2023, or

– by the voyage charterer transferring emission allowances to the owners for the voyage and the owners remaining contractually responsible for surrendering the appropriate number of emission allowances in accordance with the applicable Emission Scheme. ETS – Emission Scheme Transfer of Allowances Clause for Voyage Charter Parties 2023.

Of course, charterers may not be willing to accept a transfer of emissions allowance costs in their fixtures. In the case of a time charter, account needs to be taken of the ‘pass-through’ in Directive 2023/959, amending the ETS Directive, and Regulation 2023/957.

Article 3gc of the 2023 ETS Directive, requires Member States to
“take the necessary measures to ensure that when the ultimate responsibility for the purchase of the fuel and/or the operation of the ship is assumed by a different entity than the shipping company pursuant to a contractual arrangement, the shipping company is entitled to reimbursement from that entity for the costs arising from the surrender of allowances.”.

Unless the time charter incorporates a clause such as  BIMCO’s  Emission Trading Scheme Allowances for Time Charterparties Clause 2022 which places all emissions costs on the time charterer, time charterers planning to employ the vessel in the EU may want to include a  form of “circular indemnity” clause in their fixture. The owner would warrant that the ‘shipping company’ under Directive 2023/959 will not make a claim against the time charterer under any legislation of a Member State providing for reimbursement of costs arising from the surrender of allowances, pursuant to Article 3gc of Directive 2023/959. Further, in the event of any judgment in favour of the shipping company that is made against the time charterer in respect of the costs arising from the surrender of emissions allowances by the courts of any EU Member State, the shipowner will indemnify the time charterer in respect of all resulting costs of such a judgment.

Hull Fouling Clause. Time charterers’ liability in debt to owners for cleaning after redelivery.

When do time charterers have to pay hire after redelivery? When there’s the right form of underwater cleaning clause. So held Sir Ross Cranston (sitting as a High Court Judge) in The Globe Danae (Smart Gain Shipping v Langlois Enterprises) [2023] EWHC 1683 (Comm). The clause in question, in a trip charter, provided:

“Clause 86 Hull Fouling

Owners not to be responsible for any decrease in speed/increase in consumption of the Vessel whether permanent or temporary cause [sic] by Charterers staying in ports exceeding 25 days trading in tropical and 30 days if in non-tropical waters. In such a case, underwater cleaning of hull including propeller etc. to be done at first workable opportunity and always at Charterers’ time and expense. After hull cleaning vessel’s performance warranties to be reinstated.”

The issue at stake was whether Owners could claim the hire rate (and related expenses) for the time used in hull cleaning after redelivery, or whether they were confined to a claim in damages for breach of the charterparty. In arbitration the Charterers argued that they were not obliged to carry out cleaning after redelivery of the vessel, and Owners were confined to a claim in damages to put them in the position they would otherwise have been in and were not entitled to the cost of hire since there was no longer an obligation to pay it. The Tribunal rejected these arguments and found for Owners, referring to The Nicki R [1984] 2 Lloyd’s LR 186, which involved a similar clause concerning stevedore damage, as authority for the proposition that the Owners were not required to demonstrate loss of time regardless of whether the cleaning was performed before or after redelivery. If a clause allocates liability for the time to the charterer, the owners do not have to prove any actual loss of time and Owners can claim in debt.

On an appeal pursuant to s.69 of the Arbitration Act 1996, Sir Ross Cranston upheld the award of the Tribunal. First, the words of the second sentence supported the tribunal’s conclusion and the Owners’ construction. Cleaning was to be “always at Charterers’ time”, and that meant  that the Charterers must always pay for the time associated with underwater cleaning. The phrase “at the first workable opportunity” covered both before and after the charterparty. As this charterparty was for a single trip, the first workable opportunity for cleaning following a 25 or 30-day idle period would likely be once the charter had concluded and the vessel had been redelivered.

Had the parties intended for Charterers to compensate the Owners for any “loss of time” resulting from the cleaning, the language of clause 86 could have said this. But the clause used the phrase “always at Charterers’ time”.  The charterparty contained clauses “at Charterers’ time” or similar, and clauses referring to “loss of time” or similar, so that the parties must be taken to have intended that a distinction be drawn between the two phrases. The plain words of the clause therefore supported the Tribunal’s conclusion, The clause required that the cleaning be at the Charterers’ time and expense. The charter did not expressly stating that underwater cleaning must be undertaken before the vessel is redelivered to the Owners.

As to commercial purpose, the rationale of clause 86 was that the vessel needed underwater cleaning because of the Charterers’ orders that it remain idle and must therefore pay for the time and cost of remedying the consequent fouling. The vessel could be redelivered unclean, but then Charterers must compensate the Owners at the hire rate for the time when cleaning is undertaken. This was commercially sensible. What would not be commercially sensible would be to provide the Charterers with an incentive to redeliver the vessel without cleaning, and to evade having to pay hire for the time spent cleaning, unless there was a workable opportunity for that to be undertaken before redelivery.

To conclude, there was no reason not to apply The Nicki R and it was binding.

Corporate sustainability due diligence directive. Vote scheduled for 28 February.

An update on yesterday’s item. Today, there was the vote.  13 EU members abstained and one voted against. Therefore, the Directive did not meet the threshold for qualified majority voting. Looks like the legislative process will have to start again after the new Parliament is elected in June.

The proposed Directive imposes mandatory due diligence obligations relating to human rights, the environment and climate change, on large EU companies, and large non-EU companies that do a specified level of business in the EU. It contains provisions for administrative sanctions as well as for civil liability and applies not only in relation to subsidiary companies but their value chains. Financial services are excluded but the position is due for review after two years.

The ‘trilogue’ legislative procedure culminated in political agreement being reached in December 2023 with the final agreed text released on 30 January. All that remained was a final vote by the Member States which was scheduled for 9  February 2024. This was assumed to be a formality but following objections by parties in the German coalition, Germany indicated it would abstain and it then became clear that Italy planned to do likewise. It then became clear that there would not be sufficient votes to reach the threshold for a qualified majority vote. The vote was rescheduled for 14 February and then postponed again. An article yesterday by Forbes indicates that the vote will be tomorrow, 28 February.

If passed, the proposed Directive still needs to meet two imminent thresholds. It must receive approval of the Legal Affairs Committee by 7 March, and must be approved by the European Parliament by 15 March if it is to be adopted prior to the EU Parliament elections June.

Otherwise, it is back to the drawing board with a new legislative process commencing after those elections.