EU top court: no avoiding the bar on intra-Europe ASIs by bringing a damages claim instead. But how far does it matter post-Brexit?

Don’t say it too loudly, especially when there’s a European listening, but yesterday’s CJEU decision in The Alexandros T (C-590/21) [2023] EUECJ C-590/21 might make some English lawyers a bit more relieved that Brexit happened. Put simply, the EU court has held that just as under EU law you can’t get an anti-suit injunction in an EU court preventing suit elsewhere in Europe, you equally can’t sue a litigant for damages for bringing suit there in breach of contract. But this will not affect any ost-2021 proceedings here.

The Alexandros T, a Capesize bulker of 172,000 dwt, will be familiar to most readers. She sank off South Africa in 2006, taking with her 26 crew and a large cargo of Brazilian iron ore destined for China. Her hull insurers were initially not entirely convinced about the resultant claim against them, but around Christmas 2007 paid a sum in settlement under an agreement governed by English law. That agreement provided for a release of the underwriters and everyone associated with them and contained a London jurisdiction clause in respect of any dispute.

Little did the underwriters know that this was not the end, but – this being well before Brexit – rather the beginning of a massive game of juridical Euro-ping-pong.

Four years after the settlement, Alexandros T’s owners Starlight brought proceedings in Greece against the underwriters and also Charles Taylor, a marine insurance consultancy that had acted for them. They claimed big money on the basis that the underwriters and others had indulged in skulduggery in defending the claim, and had acted tortiously in blackening Starlight’s name and causing it serious losses.

Unable to get an anti-suit injunction because of settled EU law based on the full faith and credit principle, the underwriters countered by suing Starlight in England for damages for breach of the settlement agreement (i.e. the costs of defending, and anything they were forced to pay under, the Greek suit). Starlight attempted to invoke the Greek proceedings to stop these latter proceedings in their tracks under the lis alibi pendens provisions of what was then Art.27 of Brussels I (now Art.29 of Brussels I Recast). However they failed, it being held by the Supreme Court that the claims were merely related and did not involve the same subject-matter, and that the new claims should be allowed to go forward. (See The Alexandros T [2013] UKSC 70; [2014] 1 Lloyd’s Rep. 223.) The underwriters duly proceeded, and Burton J’s judgment giving damages against Starlight was upheld by the Court of Appeal in July 2014 in Starlight Shipping Co v Allianz Marine & Aviation Versicherungs AG [2014] EWCA Civ 1010; [2014] 2 Lloyd’s Rep. 544.

Having got this judgment, the underwriters took the battle to the enemy and sought to have it recognised in Greece. The Piraeus Court of Appeal refused recognition, holding in 2019 that it would be manifestly contrary to public policy under Art.34 of Brussels I (Recast Art.45). The Areios Pagos, the Greek Supreme Court, sought the opinion of the CJEU.

Yesterday that court, in a short (by EU standards) judgment, went against the underwriters. It said, first, that a claim for damages for suing in another EU court, being dissuasive of the maintenance of EU proceedings and aimed at impeding them, was no more permissible under the Brussels I scheme than a claim for an anti-suit injunction (see [25]). It then went on to say that this factor provided ample justification for a court in the EU to say that to enforce or recognise a judgment arising out of such a claim was manifestly contrary to EU (and hence national) public policy. It therefore gave a green light to the Greek courts to refuse recognition of the 2014 judgment, something which will no doubt formally take place in the not too distant future.

Fairly predictable was the holding that claims for damages for suing in an EU court were prohibited by Brussels I, contrary to English decisions the other way – notably West Tankers Inc v Allianz SpA [2012] EWHC 854 (Comm); [2012] 2 Lloyd’s Rep. 103. A combination of post-Brexit Schadenfreude, the court’s highly sensitive political antennae, and its ingrained instinct for centralisation of power Brussels-ward whenever possible, saw to that. But in respect of post-Brexit proceedings it is not now very important: such actions for damages continue available in England whatever Brussels says, and the betting must now be that the UK will never again sign up to any jurisdictional framework in the Brussels-Lugano mould.

That leaves the holding that judgments obtained here for damages are not portable to Europe by way of recognition. This raises two issues.

First, it will make the enforcement of judgments like that in The Alexandros T slightly harder – though perhaps this difficulty should not be exaggerated, since most of those involved in international trade will at some time want to deposit monies in London which can then be the subject of execution proceedings.

Secondly, there is a nice issue whether the EU position would survive a UK ratification of the 2019 Hague Judgments Convention, which by Art.7(1)(c) contains a similar public policy let-out. You might think it did: but matters aren’t as simple as that. Unlike Brussels I, the Hague Convention is not an EU instrument and it is therefore not automatically subject to overriding EU public policy considerations to the same extent. It is certainly possible that the EU would be in breach of Hague if the CJEU decided that judgments given in non-EU courts for damages for suing in EU courts were automatically excluded from its ambit as they are from Brussels I. We’ll just have to wait and see.

Limitation for charterers — the Court of Appeal makes life a little easier

The Limitation Convention 1976 isn’t the best drafted of maritime conventions, but the Court of Appeal this morning in The MSC Flaminia (No 2) [2023] EWCA Civ 1007 made a very good stab at cutting through the verbal undergrowth to reach a clear and sensible result.

The background first, for those who don’t know it. In 2012 the MSC Flaminia, a 86,000 dwt container vessel owned by Conti and time chartered to MSC, suffered a disastrous fire while en route from the US to Antwerp when certain containerised chemicals ignited. She received salvage services and was towed dead to Wilhelmshaven, where most of her cargo was discharged and where necessary decontaminated or destroyed. Dirty firefighting water was also offloaded and sent to Denmark to be cleaned up. Further cleanup operations took place in Romania and Denmark; the vessel was then repaired in Romania, and finally returned to service in mid-2014.

All this cost big money. Her owners Conti, having been unsuccessfully pursued by cargo interests in the US, claimed against the time-charterers to recover the expenses of these operations on the basis that they were responsible for the shipment of the dangerous chemicals involved. Arbitrators awarded some $200 million, whereupon MSC sought to limit, the relevant limitation figure being about 25 million SDRs.

Some of Conti’s claims were indubitably outside the 1976 regime limitation, notably the direct cost of repairs (clear since The CMA Djakarta [2004] EWCA Civ 114; [2004] 1 Lloyd’s Rep. 460). But this left the offloading and cleanup costs: were they limitable or not? The Convention was not clear on this. Article 1(2) extended the shipowner’s right to limit to a “charterer, manager and operator of a seagoing ship.” Article 2(1) allowed limitation for personal injury and cargo claims (Article 2(1)(a)), passenger and cargo delay claims (Article 2(1)(b)), tort claims by third parties (Article 2(1)(c)). It then, in its English incarnation, went on to cover “claims in respect of the removal, destruction or the rendering harmless of the cargo of the ship” (Article 2(1)(e)) and “claims of a person other than the person liable in respect of measures taken in order to avert or minimize loss for which the person liable may limit his liability in accordance with this Convention, and further loss caused by such measures” (Article 2(1)(f)). How these all fitted together, however, was not very clear.

The Admiralty judge, Andrew Baker J, denied limitation to MSC (see here, noted here in this blog). True, he said, there was no absolute bar on limitation in respect of claims arising between charterers and owners other than for damage to the vessel: indeed there could not be, since clearly owners had to be able to limit if they found themselves at the sharp end of cargo claims from charterers. But limitation was still impossible in this case because, even if dressed up as a series of claims for offloading cargo, rendering it harmless and the like under Article 2(1)(e), Conti’s claim was in substance a single one for damage to the vessel and its consequences, which was exactly what The CMA Djakarta said was entirely outside the limitation regime.

MSC, or rather its P&I Club, fared no better in the Court of Appeal. But here the reasons, given in a pellucid judgment by Males LJ, were slightly different. The rule he advanced about charterer-owner claims was simple and elegant, and sufficed to dismiss the appeal. Charterers were in a special position, different from that of owners. They could not limit at all, he said, in respect of claims by owners (or anyone else in the charmed circle of those entitled to limit under Article 1) for losses originally suffered by the latter. But by way of exception, charterers could limit in recourse claims from owners, who having paid claims to third parties where limitation did apply, then sought indemnity from them. Here, however, that was beside the point: since there was no element of recourse in the present proceedings, it followed that MSC had to pay in full.

This sufficed to wrap up the case. If one may say so, Males LJ’s solution seems instinctively right. Presumably, it is worth adding, it equally applies to claims not from owners but from other charterers: so if there is (say) a series of time charters and subcharters and a claim – dangerous cargo, stowage damage, or whatever – to be passed down the line, each charterer in turn would be able to limit. Presumably also Males LJ’s reasoning applies to operators of vessels who find themselves in the firing line after a casualty and wish in turn to invoke the power to limit under Article 1(2).

Males LJ also said something about MSC’s other grounds of appeal, though these strictly did not arise. In particular, Andrew Baker’s holding that the claim from Conti had to be looked at as a whole he found unimpressive. It is suggested he was right to do so: there seems no reason to demand that a large and possibly disparate claim be pigeonholed as a whole into some category or another rather than looked at seriatim as regards its parts.

It seems to follow that had it been not been found that all the expenses had been incurred as part of the operation of repairing the vessel, and that some had been genuine recourse claims arising from Conti’s potential liabilities to cargo, limitation would have been allowed.

All in all, however, this is a decision that will make the lives of lawyers and P&I executives seeking to settle claims, not to mention academics, a great deal easier. Just what we want: a bit of good news as we all return from our holidays for the new term.

Electronic trade documents: a bit more detail

At last. A couple of days ago the King signed the Electronic Trade Documents Act 2023, with the result that from 20 September we modernise and join jurisdictions such as Singapore and New York, in giving at least some computerised trade documents equivalent status to paper versions. Yesterday we gave you the heads-up: today we go into some details.

The new Act is in many ways an object lesson in how to legislate for commercial law. It is brief and to the point: aside from incidental powers to pass regulations and other boring stuff, it consists of just four sections. This is good regulation showing (to mix metaphors) both a broad brush and a light touch.

1. The Act and bills of lading

The main import of the new Act concerns bills of lading. The problems of paper bills are well-known. They are increasingly easy to forge. The need to present them in order to get goods, and the carrier’s equal and opposite duty not to release goods to someone who cannot present them, create headaches for carriers, banks and others which in practice cost big money. Also troublesome is the fact that, just as by the laws of physics nothing can move more rapidly than light, by the limitations of business no physical bill of lading can travel faster than DHL. This means that by the time a bill of lading has passed through the hands of a number of cargo owners and banks, it not infrequently arrives at the discharge port considerably after the ship carrying the cargo it relates to.

The statutory solution produced by the Act is neat. Section 2, summarised, provides that a computerised document can stand in for a paper one provided a reliable system is used aimed at ensuring that it can be identified, protected from unauthorised alteration or copying, and is susceptible to control by a single person to the exclusion of others, such that that power of control can be passed to another person who obtains a similar power. (See ss.2(2), 2(3).) The foundations thus laid, s.3 then states baldly (i) that an electronic document satisfying these criteria has the same effect as a written one (s.3(2)); (ii) that such a document can be possessed, endorsed and delivered (s.3(1)); and (iii) that anything done in relation to it has the same effect as the equivalent action as regards a paper document (s.3(3)).

You might say, why is this important? After all, two functions of the bill of lading are that of a contract of carriage and a receipt, and there has never been any difficulty about the enforceability of computerised contracts, or about the efficacy of electronic receipts. The answer is that it does matter, for three reasons.

First, we now know that once the Act is in force ss.2 and 3 of the Carriage of Goods by Sea Act 1992 will be effective to transfer contractual rights and duties under e-bills (which they probably were not before, the power under s.1(5) to extend them to such instruments having languished unexercised by governments with other, doubtless weightier, matters on their plate).

Secondly, there may have been some lingering uncertainty about whether the shipowner’s duty to hand over cargo only to a bill of lading holder, and his protection from liability to a true owner if in good faith he did so, necessarily applied to holders of e-bills. In commerce, such dubiety can be fatal to the adoption of new ways of doing things. The Act now puts this issue beyond doubt. This means that many of the reservations previously entertained by carriers and P&I interests about using e-bills outside closed contractual schemes such as BOLERO and essDocs can now be put aside.

Thirdly, the security provided by e-bills to banks is now greatly strengthened. At common law, it should be remembered, a valid pledge over goods requires a transfer of possession to the pledgee; and while there has never been any doubt that delivery of a paper bill of lading to a financier will suffice for this purpose, it was never very clear whether the same applied to an e-bill. It is now confirmed that it does. As a result, banks can rest assured that as a matter of English law possession of an e-bill gives them a full possessory security, and not some less satisfactory alternative such as a mere equitable charge.

Fourth, there is an intensely practical point. While e-bills will not eliminate the problem of slow transit of bills of lading (bureaucrats working for traders and banks in certain countries can be just as slow handling documents on a screen as they are when shuffling paper), they certainly reduce it. The possibility of transmission over cyberspace rather than by van or cargo plane may greatly reduce the incidence of documents arising after the cargo they represent. (Memo: perhaps this is the time to mull selling your shares in DHL and the banks that currently make large sums issuing bank guarantees allowing delivery to non-bill-of-lading-holders.)

No doubt, as a result of all this, we will see in the near future a flurry of announcements from P&I Clubs – who as the bodies that have to pick up the tab when things go wrong hold the whip hand here, in practice if not in law – that at least in principle they are prepared for their clients to operate with e-bills. We will await these with interest.

2. The Act and other documents relating to good

The Act does not only apply to bills of lading: it alaso applies to ship’s delivery orders, warehouse receipts, mate’s receipts, marine insurance policies, and cargo insurance certificates. Indeed this list is not exhaustive: on principle the statute affects any commercial document used in connection with trade or finance, provided its possession is “required as a matter of law or commercial custom, usage or practice for a person to claim performance of an obligation.”

On first sight, one might wonder why the list of documents was as wide as this. The difficulties with e-bills largely stemmed fromquestions about whether the bill of lading’s function as a document of title extended beyond paper instruments. But none of therse extra documents was ever a document of title anyway: so why bother?

The answer here is varied. With mate’s receipts it is difficult to see that the Act changes anything much. Save very exceptionally these are not only not documents of title, but entirely untransferable instruments relevant largely as evidence of the state and quantity of goods loaded: whether they are embodied on paper or in computer code seems beside the point.

With ship’s delivery orders and warehouse receipts there are two issues of possible significance. First, ship’s delivery orders are covered under the Carriage of Goods by Sea Act 1992, and are often as a matter of practice if not strict law presented to obtain goods: it is thus reassuring to have confirmation that they work as well in electronic form as they do on paper. Secondly, both ship’s delivery orders and warehouse receipts in paper form are regarded as documents of title within ss.24, 25 and 47 of the Sale of Goods Act 1979 such that their delivery can in certain cases of goods in transit or storage defeat the rules of nemo dat and a seller’s lien or right of stoppage. Again, it is reassuring to know that from September on electronic versions will equall;y fir this particular bill.

The extension of the operation of the Act to insurance policies and insurance certificates also looks odd. But it may be worth noting for two purposes. First, s.22 of the Marine Insurance Act 1906 still theoretically requires a contract of marine insurance to be embodied in a “policy;” a term that some, especially international traders not over-familiar with the detailed workings of English law, might think required a paper policy. True, this section is almost entirely a dead letter in practice: but it remains helpful to have an assurance that an e-policy will now indubitably fit the bill. Secondly, documentary sales, especially on a cif basis, very frequently require the provision by the seller of an insurance policy or certificate; althgough this matter can of course in theory be dealt with by specific agreement, there is something to be said for a default rule that a seller under such a contract will satisfy his obligations by providing an e-policy or e-certificate.

3. Other documents

Although the main thrust of the Act concerns carriage and related documents, note that it also applies to bills of exchange and promissory notes. This is a more specialised area, which we do not go into detail about here. Suffice it to say that the burgeoning finance trade, in particular the forfaiting industry, finds it more convenient to deal with electronic than paper negotiable instruments, and that for this reason it very successfully promoted the idea of creating a regime receptive to e-bills of exchange and e-promissory-notes.

4. The future.

Excellent marks to the Law Commission: this is a workmanlike and well-drafted Act, which will solve most of the difficulties over e-documents. Most: but not all. One big shadow hangs over the whole thing, however: conflict of laws, something crucial in transnational trade. Two issues arise in this connection.

First, does the Act apply to claims under bills of lading not governed by English (or Scots or Northern Irish) law? We do not know; but the likely result is that it does not. If parties choose to incorporate a Ruritanian choice-of-law clause, and Ruritanian law does not recognise the validity of bills in other than paper form, it would be to say the least presumptuous for an English court to hold that in English litigation the Act applies willy-nilly, and the betting must be that it would not do so. Similarly if an e-bill is governed by the law of, say, Singapore, which does recognise e-bills, then it would still seem to make sense that claims should be governed not by the 2023 Act, but rather by the Singapore Bills of Lading Act 1992 as amended to incorporate the UNCITRAL Model Law on Electronic Transferable Records in so far as this yields a different result.

Second, while English law will clearly govern contractual claims arising out of e-bills with an English choice-of-law clause (i.e. the majority of claims in practice), what of non-contractual matters such as title conflicts? Imagine an e-bill governed by English law is indorsed to a bank in Utopia which has issued (or confirmed) a letter of credit on behalf of a now-bankrupt buyer B, and the law of Utopia does not recognise that the bank has a valid security. Unless we say that because an e-bill of lading is a disembodied pattern of electrons rather than anything touchable its situs is deemed to be that of the jurisdiction by whose law it is governed, it is hard to avoid the conclusion that the law of Utopia as the lex situs applies to questions of proprietary interests in it. If so, then were litigation to arise in England between the bank and the creditors of B, a court or arbitrator might well be driven to hold that the bank’s security was ineffective despite s.3(3) of the 2023 Act.

On this we will have to wait. But there is at least some relief round the corner: the Law Commission is now hard at work on precisely these questions, and we are promised a consultation paper later this year. Meanwhile, you have two months to bone up on the existing proposals and be ready for at least something of an Big E-bang in September.

Choice of court agreements — the Hague Convention 2005 means what it says

It’s not often we get decided cases on the 2005 Hague Convention on Choice of Court Agreements. But the Irish High Court produced a helpful one last week, which practitioners on both sides of St George’s Channel would do well to bear in mind.

In Compagnie de Bauxite & d’Alumine De Dian Dian SA v GTLK Europe DAC [2023] IEHC 324 GTLK, a company controlled by the Russian state but registered in Ireland, had issued a demand guarantee for $20 million in favour of the plaintiffs CBA SA. The guarantee, stated to be governed by English law and subject to the exclusive jurisdiction of the English courts, was in respect of a contract by a Cypriot entity, POLA, to aid CBA in the shipment of quantities of bauxite from Guinea to an aluminium smelter in Limerick.

POLA allegedly fell down in its performance and CBA claimed under the guarantee. GTLK, by then sanctioned by the EU following the Ukrainian debacle, denied liability (predictably if somewhat quixotically, the guarantee being a demand bond), and did its best to play hard to get, pointing out smugly that in any case EU sanctions prohibited it from making any payment without a derogation from the Irish government.

Exasperated, CBA finally sued GTLK in Ireland, claiming payment and potentially a mandatory injunction ordering it to seek the necessary official derogation to enable it to meet any judgment. Faced with the tricky argument that the English jurisdiction clause brought the case directly within the Hague Convention which not only permitted but required the Irish courts to stand aside, CBA argued that enforcing this clause would give rise to manifest injustice within Article 6(c) of the Convention. Why, it said, should it be forced to sue in London and then seek to port its judgment to Dublin, where GTLK’s assets were? Why should it have to face the double uncertainty of whether an English court could issue a mandatory order to an Irish company to petition its own government in Dublin, and if it could whether any such order would be enforceable in Ireland? Was not the injustice was made worse by GTLK’s delay in making its position clear, coupled with CBA’s expenditure of considerable sums on Irish lawyers?

Twomey J was having none of it. He essentially accepted the views of the Hartley and Dogauchi report produced by the HCCH, that “manifest injustice” was a very restrictive concept indeed, being limited to cases such as fraud, corrupt courts and genuine inability of a party to access the chosen forum. Here the essential complaint of CBA was merely that they found it thoroughly inconvenient to have to abide by the clause thay had agreed to: but neither this, nor the fact that there had been some little delay by GTLK and expenditure by CBA, came close to showing manifest injustice.

This must, with respect, be right. The message coming from the Convention is that, very exceptional cases aside, a person who has agreed to exclusive jurisdiction has made his bed and has to lie in it: to this extent, the rule under Hague is a good deal stricter than that at common law, under which a stay of local proceedings may be refused if there are strong reasons to do so (e.g. The El Amria [1981] 2 Lloyd’s Rep. 119 and Citi-March Ltd v Neptune Orient Lines Ltd [1996] 1 W.L.R. 1367). Any reinforcement of this message is a good thing, and will one suspects be welcomed by business.

Two other minor points are worth noting.

First, what happens about the case where a defendant genuinely leads a claimant to believe that he will not invoke the Convention and a claimant then irrevocably seriously relies on this? The Convention does not include estoppel within the Art.6 exceptions to the duty of a national court other than the chosen court to decline jurisdiction. It is to be hoped, however, that English and Irish courts will accept that where estoppel would otherwise be made out, then Article 6(c) will encompass it.

Secondly, on an unconnected issue Twomey J seemed to accept the possibility of a mandatory order on a sanctioned defendant against whom judgment was given to take at least some steps to attempt to lift the sanctions. This would certainly be a useful remedy against stonewalling by a sanctioned entity, and it seems unobjectionable as a matter of principle. Not only was this apparently recognised explicitly in the Irish legislation effectuating the 2005 Convention (see s.9 of the Choice of Court (Hague Convention) Act, 2015), but in England it seems well within the scope and intention of s.37(1) of the Senior Courts Act 1981.

In short, a useful little judgment which English and Irish lawyers alike would be well advised to keep a copy of on their hard disks.

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.

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.

Charters, subjects and arbitrators’ jurisdiction

Hopeless appeals sometimes clear the air. One such was today’s appeal by the claimants in the arbitration decision of The Newcastle Express [2022] EWCA Civ 1555.

Owners of a largish bulker fixed her for a voyage carrying coal from Australia to China. The charter was on the terms of an accepted proforma containing a London arbitration clause, and subject to Rightship approval. The recap, however, contained the words SUB SHIPPER/RECEIVERS APPROVAL, and no sub was ever lifted. The charterers declined to accept the vessel, alleging that Rightship approval had not been obtained on time; the owners alleged wrongful repudiation, and claimed arbitration.

The charterers argued that because the necessary approvals had not been forthcoming no agreement of any kind had been concluded, and politely sat out the owners’ proceedings. The arbitration tribunal decided that there had been a concluded contract; that it therefore had jurisdiction; and that the owners were entitled to something over $280,000 in damages. On an appeal under ss.67 and 69 of the Arbitration Act Jacobs J allowed the charterers’ s.67 appeal, holding that there had never been either a contract or an agreement to arbitrate anything; hence neither the charter nor the arbitration bound the charterers. For good measure he also said that he would have allowed a s.69 appeal on the law.

The owners unsuccessfully appealed to the Court of Appeal. They argued first, one suspects without much enthusiasm, that the “sub shipper/receivers approval” term was not a precondition of there being any contract, but instead acknowledged the presence of an agreement and merely qualified the duty to perform it. The Court of Appeal had little difficulty sweeping this point aside. Terms fairly clearly giving a person the right to disapprove a transaction on commercial grounds, as here, were fairly consistently construed in the same way as other “subject to contract” terms: and this one was clearly intended to allow either party to walk away without penalty.

This left the separability point: why not invoke the “one-stop-shop” preference adumbrated in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40, [2007] 4 All ER 951 and engage in a bit of constructive interpretation, so as to treat the parties as having agreed that even if the main agreement hadn’t been concluded they had agreed on any dispute, including whether the agreement was enforceable, being decided by arbitrators? To this, however, there was a simple answer. Harbour Assurance v Kansa Insurance Co [1993] QB 701 before the 1996 Act, and the post-1996 Fiona Trust case itself, showed that this chicken wouldn’t fight. It was all very well to separate out the arbitration agreement in cases where the parties had seemingly agreed but there was some alleged vitiating factor, such as mistake or duress, in their agreement. But here the very point at issue was whether there had been agreement on anything in the first place: if there had not, any arbitration provision fell with the agreement itself. Game set and match, therefore, to the charterers.

This must all be right. Admittedly it does leave claimants in a quandary when faced with defendants who, like the charterers in this case, deny that parties ever reached agreement and refuse to arbitrate. Do they have to go to the expense of an arbitration in the full knowledge that they may then have to traverse the same ground again in a court to prove that the arbitrator had jurisdiction to decide in their favour?

The solution suggested by Males LJ at [86], an agreement ad hoc to arbitrate the jurisdiction point, is certainly useful, though it requires agreement from the other party. A further possibility might be to amend s.32 of the Act. Currently this allows an application to the court to determine jurisdiction, but only with the agreement either of both parties or of the tribunal and the court. There is something to be said for relaxing this requirement where one party refuses to take part in the proceedings at all, and saying that in such a case either party can demand a court determination as of right. Ironically the threat to force on the other party a quick trip to the Commercial Court, with the extra costs that involves, might act as a wholesome encouragement to agree to the one-stop-shop businesspeople are always said to want and which Males LJ advocates.

The Law Commission, as it providentially happens, is currently looking at s.67 and s.32, and has a consultation paper out (in which it tentatively suggests, among other things, that a s.67 appeal should not be a rehearing except where the other party plays no part in the arbitration). This is perhaps another idea that could be discreetly fed to it. You have till 15 December, when the consultation closes, to get any proposals together.

Insurance and P&I: life in Europe just got easier

Whatever you think of Brexit, there can be little doubt that English P&I Clubs have reaped a substantial dividend from it when it comes to jurisdiction. A discreet bottle or two will no doubt be cracked open as a result of Foxton J’s judgment today in QBE Europe SA v Generali España de Seguros y Reaseguros [2022] EWHC 2062 (Comm).

The facts will be entirely familiar to any P&I claims handler. The Angara, a small superyacht insured against P&I risks by QBE UK under a policy later transferred to QBE Europe, allegedly damaged an underwater cable linking Mallorca and Menorca to the tune of nearly $8 million. The cable owners’ underwriters Generali brought a subrogated claim in the Spanish courts against QBE, relying on a Spanish direct action statute (Arts. 465-467 of the 2014 Ley de Navegación Marítima). QBE pointed to a London arbitration clause requiring disputes between insurer and assured to be arbitrated in London, said that if Generali wanted to enforce the policy they had to take the rough with the smooth. This being a post-Brexit suit, they sought an ASI.

Generali resisted. They argued that they were enforcing a direct delictual liability under Spanish law, and that in any case since the arbitration clause merely referred to assured and insurer (and indeed the whole policy excluded any third party rights under the Third Parties (Rights against Insurers) Act 1999) they were unaffected by it.

Pre-Brexit, QBE’s position would have been fairly hopeless: intra-EU ASIs were banned, and furthermore the effect of Assens Havn (Judicial cooperation in civil matters) [2017] EUECJ C-368/16 (noted here in this blog) would have largely pre-empted the matter in the Spanish courts.

But in this, one of the first post-Brexit P&I cases to come to the English courts, QBE won hands down. Solid first instance authority had extended the rule in The Angelic Grace [1995] 1 Lloyd’s Rep 87 (i.e. that very good reasons had to be shown for not granting an ASI to halt foreign proceedings brought in blatant breach of contract) to cases where the person suing was enforcing transferred rights, as where a subrogated insurer sought to take advantage of contractual provisions between its insured and the defendant. That line of decisions applied here: and Foxton J duly followed it, confirmed it and lengthened it by one.

He then asked whether, properly characterised, Generali’s suit was a tort claim or in substance a claim to piggy-back on the policy QBE had issued. His Lordship had no doubt that it was the latter. True, the Spanish direct action provisions disapplied certain limitations in the policy, such as pay to be paid provisions and a number of defences based on misconduct by the assured; but the matter had to be viewed in the round, and overall the cause of action arising under the 2014 Spanish law, being based on the existence of a policy and limited to sums assured under it, was clearly contract-based. It remained to deal with Generali’s further point based on the limited wording of the arbitration clause. Here his Lordship accepted that parties could provide that an arbitration clause in a contract did not apply to those suing under some derivative title, but said that much more would be required to demonstrate such an intent: the mere fact of reference to the original parties to the contract was not nearly enough.

And that was it: having failed to show any substantial reason why the ASI should not go, Generali were ordered to discontinue the Spanish proceedings.

What messages can P&I clubs and other insurers taker away? Three are worth referring to. One is that the enforcement of jurisdiction and arbitration clauses in a European context is now fairly straightforward. Another refers to the specific case of Spain, which altered its direct action statute in 2014: the QBE case has confirmed that under the new dispensation, as much as under the old, an attempt to use direct action as a means of getting at insurers abroad will continue to be be regarded as essentially an attempt to enforce the insurance contract. And third, judges in the UK are unlikely to be very receptive to attempts by claimants desperate to litigate at home to give arbitration or jurisdiction clauses an unnaturally narrow meaning.

Life, in short, has got a good deal easier for P&I interests. Now, where’s that bottle of cava?

Collision litigation and the ASG forms: if you’re offered proper security, take it and don’t argue.

A nice little ship collision decision from the Court of Appeal this morning.

Suppose you’re a collision defendant, and the claimant has nabbed one of your other ships in port elsewhere. You want your vessel back and agree collision jurisdiction in England under ASG1 and ASG2. Relying on ASG2 (“Each party will provide security in respect of the other’s claim in a form reasonably satisfactory to the other”), you put up reasonable security from your P&I Club. Straightforward? Er … not quite. The other guy sucks on his teeth, says that even if your security is reasonable he doesn’t like it, and on second thoughts he prefers to say “thanks but no thanks” and hold on to your ship instead. You’d be miffed, wouldn’t you?

That was essentially what happened in M/V Pacific Pearl Co Ltd v Osios David Shipping Inc [2022] EWCA Civ 798. After the ASG1 / ASG2 agreement had been signed, collision defendants Pacific Pearl put up security to obtain the release of another vessel of their then languishing under arrest in South Africa. But to their dismay, collision claimants Osios David refused it on the (now admittedly bad) ground that it contained a sanctions clause. Put to sizeable expense as a result of their declining to lift the arrest, Pacific Pearl sued them for damages for breach of contract.

Sir Nigel Teare, having held the security good, slightly surprised the profession by going on to decide that even if it was it made no difference. The ASG2 obliged both sides to offer reasonable security, but said nothing about any obligation on either side to accept it; from which it followed that Osios David had been entirely within its rights to say it preferred to maintain the arrest after all. He therefore dismissed the action: see M/V Pacific Pearl Co. Ltd v Osios David Shipping Inc. [2021] EWHC 2808 (Comm).

This decision has now been reversed by the Court of Appeal, which read the ASG2 undertaking as requiring reasonable security to be both provided and, once tendered, taken up. This was, said Males LJ, implicit in the nature of the ASG1/ASG2 procedure. In place of a collision being litigated potentially worldwide, with arrest being threatened almost anywhere and the rights and wrongs of such arrests being thrashed out wherever they happened to take place, the whole matter should be dealt with by sober argument in London. In short, the whole object of the ASG2 undertaking attached to ASG1 was that such proceedings should, if at all possible, replace arrest rather than leaving it up o a claimant’s discretion.

Alternatively, he would also have been prepared to read the ASG2 undertaking to offer security as comporting, even if it did not say so explicitly, an implied obligation in the offeree to accept it. It did not matter which line one took: in either case, Osios David was in breach of contract and thus liable in damages.

This blog is loath ever to disagree with Sir Nigel Teare. But in this instance, it is our view that the Court of Appeal must be right. This both for the reasons given by Males LJ, and also because, in an era where it is almost invariably envisaged that insurers – whether P&I or H&M or both – will argue the toss over collisions and pick up the eventual tab, arrest should be seen very much as a last resort. Ships are better employed sailing the seven seas earning freight than being used as pawns in expensive transnational litigation; in so far as this decision will in future make this more likely to happen, we welcome it.

Moral: if in doubt, get your own bank account

A straightforward tort case from the Privy Council a week ago, with an equally straightforward message for financial operators, was reported today: Royal Bank of Scotland International Ltd v JP SPC 4 [2022] UKPC 18.

In 2009 Cayman Islands operators JPSPC4 (JP for short) set up an investment fund to make specialised loans to UK lawyers. It employed as “loan originator / manager” a Manx company known as SIOM, owned by two gentlemen called Timothy Schools and David Kennedy. SIOM had a Manx account with the RBS in Douglas. Simplified, the scheme was that loan funds would be fed to SIOM’s account, to be held on trust for JP; SIOM would then disburse them to borrowers and receive repayments on JPSPC4’s behalf. Unfortunately the plan was a disaster. Of something over £110 million transferred to SIOM, the majority allegedly ended up in the hands of Messrs Schools and Kennedy (both of whom are currently on trial for fraud).

JP went into liquidation in 2012. In the present proceedings it sued RBS in Douglas for negligence, alleging that it had known SIOM held the funds on trust, and had missed obvious signs that withdrawals from its account amounted to a breach of that trust. RBS applied for a strike-out. The Manx courts granted it, and JP appealed.

The Privy Council had no hesitation in dismissing the appeal, and rightly so. As it pointed out, the holder of the account at RBS was not JP but SIOM; and while a bank might owe its customer a Quincecare duty (see Barclays Bank plc v Quincecare [1992] 4 All ER 363), there was no respectable indication that any such duty extended to third parties, and certainly not to trust beneficiaries. Furthermore, it made the obvious point that the liability of third parties for assisting in a breach of trust (which was essentially what was alleged against RBS) was under Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 based on proof of dishonesty, which was not alleged here; incautious suggestions to the contrary from Peter Gibson J in Baden v Société Générale [1983] 1 WLR 509, 610-611 were specifically said to be heterodox. There being no other plausible reason to accept a liability in tort here, it followed that the claim had been rightly struck out.

Two comments are in order.

First, financial services companies should now be advised to get their own bank accounts rather than operate through the accounts of nominees. Had JP disbursed funds from an account in its name, perhaps having given drawing rights to SIOM, none of these problems would have arisen.

Secondly, JP could have got a remedy in the present case. There is no doubt that SIOM would have had standing to bring a Quincecare claim against the bank (see Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2019] UKSC 50; [2020] AC 1189), and that JP could have claimed against it for breach of trust, put it into liquidation and got the liquidators to pursue RBS. Why it didn’t we don’t know; it may simply be that it viewed such a proceeding as unduly cumbersome and expensive. If so, it seems to have made a pretty costly mistake. Such are the risks of litigation.