One obligation, one remedy. Now it’s Eternal Bliss for charterers.


In K Line PTE Ltd v Priminds Shipping (HK) Co, Ltd (The Eternal Bliss) [2020] EWHC 2373 (Comm) the vessel was kept at the anchorage at Longkou in China for some 31 days due to port congestion and lack of storage space ashore for the cargo. In consequence when the cargo of soyabeans was discharged it exhibited substantial mould and caking. This led the receivers bringing a cargo claim against owners which they then, reasonably, settled and then sought to recover from voyage charterers by way of damages for breach of their obligation to discharge within the laydays. Charterers responded by saying that demurrage was the exclusive remedy for this breach.

At first instance, [2020] EWHC 2373 (Comm), Andrew Baker J heard a preliminary point of law on assumed facts as to whether demurrage was the sole remedy for this breach of the obligation to discharge within the laydays. He found that it was not. It was the remedy only where what owners were claiming was detention loss. Other consequences of the breach, in this case the sum owners paid to settle the receivers’ claim, were recoverable as unliquidated damages. In doing so he declined to follow the only clear decision on this issue, that of Potter J in The Bonde [1991] 1 Lloyd’s Rep 136 who had held that demurrage is liquidated damages for all the consequences of the charterer’s failure to load or unload within the laytime. Andrew Baker J also found that if demurrage was liquidated damages for all the consequences of the charterer’s delay at the discharge port, an indemnity would not be implied rendering the charterer liable for one of those consequences. Charterers appealed the finding on the extent of the demurrage remedy. Owners did not challenge the indemnity finding on appeal.

The Court of Appeal, EWCA/Civ/2021/1712, for whom Males LJ delivered the judgment of the Court, has today reversed that decision and concluded that in the absence of any contrary indication in a particular charterparty, demurrage liquidates the whole of the damages arising from a charterer’s breach of charter in failing to complete cargo operations within the laytime and not merely some of them. Accordingly, if a shipowner seeks to recover damages in addition to demurrage arising from delay, it must prove a breach of a separate obligation. The Court noted that The Bonde was the only clear decision on this point and that both the academic texts and judicial dicta were divided.

The Court of Appeal gave the following six reasons for its decision.

 “First, while it is possible for contracting parties to agree that a liquidated damages clause should liquidate only some of the damages arising from a particular breach, that strikes us as an unusual and surprising agreement for commercial people to make which, if intended, ought to be clearly stated. Such an agreement forfeits many of the benefits of a liquidated damages clause which, in general, provides valuable certainty and avoids dispute.” [53]

”Secondly, we accept that statements can be found in the case law to the effect that demurrage is intended to compensate a shipowner for the loss of prospective freight earnings suffered as a result of the charterer’s delay in completing cargo operations… No doubt this is the loss which is primarily contemplated and, in most cases, will be the only loss occurring. But that does not mean that this is all that demurrage is intended to do. The statements cited were made in cases where the present issue was not being considered.” [54]

Thirdly, if demurrage quantifies “the owner’s loss of use of the ship to earn freight by further employment in respect of delay to the ship after the expiry of laytime, nothing more”, as the judge held at [61] and again at [88], and does not apply to a different “type of loss” (as he put it at [45]), there will inevitably be disputes as to whether particular losses are of the “type” or “kind” covered by the demurrage clause.”[55]

“Fourthly, as Lord Justice Newey pointed out in argument, the cost of insurance is one of the normal running expenses which the shipowner has to bear. A standard expense for a shipowner is the cost of P&I cover which is intended to protect it against precisely the loss suffered in this case, that is to say liability to cargo claims, whether justified or not. Thus a shipowner will typically have insurance against cargo claims, while a charterer will not typically have insurance against liability for unliquidated damages resulting solely from a failure to complete cargo operations within the laytime. Rather, the charterer has protected itself from liability for failing to complete cargo operations within the laytime by stipulating for liquidated damages in the form of demurrage. Accordingly the consequence of the shipowner’s construction is to transfer the risk of unliquidated liability for cargo claims from the shipowner who has insured against it to the charterer who has not. That seems to us to disturb the balance of risk inherent in the parties’ contract.”[56]

“Fifthly, The Bonde has now stood for some 30 years, apparently without causing any dissatisfaction in the market.” [57]

“Sixthly, that reason would have less force if we agreed with the judge (at [127]) that the reasoning in The Bonde “is clearly faulty” or that the judgment “is explicable only if a non sequitur lies at its heart”. With respect, however, we do not accept the judge’s criticisms of The Bonde.” [58]

The Court of Appeal then noted that allowing the appeal would produce clarity and certainty, while leaving it open to individual parties or to industry bodies to stipulate for a different result if they wished to do so.

It will be interesting to see if owners now try to draft clauses stating expressly that demurrage only covers certain stated categories of loss – and whether charterers accept that.

It will also be interesting to see whether the case eventually ends up before the Supreme Court.

Article III(1) and IV(1) of the Hague Rules. Navigational errors by master in passage plan preparation before and at the beginning of the voyage.

Yesterday, the Supreme Court gave judgment in Alize 1954 and another (Appellants) v Allianz Elementar Versicherungs AG and others (Respondents) [2021] UKSC 51.

The case arose out of the grounding of the container vessel CMA CGM LIBRA on leaving the port of Xiamen, China, on a voyage to Hong Kong. The Admiralty Judge, Teare J, found that the vessel’s defective passage plan was causative of the grounding and that this involved a breach of the carrier’s seaworthiness obligation under article III rule 1 of the Hague Rules. The Court of Appeal upheld the decision. Owners contended that these decisions were wrong because the vessel was not unseaworthy and/or due diligence was exercised, and that any negligence in passage planning was a navigational fault which is exempted under article IV rule 2(a) of the Hague Rules.

Two issues were raised the appeal. First, is the carrier’s seaworthiness obligation under the Hague Rules subject to a category-based distinction between a vessel’s quality of seaworthiness, its attributes and equipment, or navigability and the crew’s act of navigating which concerns how the crew operates the vessel using those attributes? Second, what amounts to due diligence under article IV rule 1 of the Hague Rules? Has the carrier shown due diligence if it has equipped the vessel with all that is necessary for her to be safely navigated, including a competent crew?

The Supreme Court upheld the decisions of the Court of Appeal and the Admiralty Court. The carrier’s obligation under the Hague Rules was not subject to a category based distinction between a vessel’s quality of seaworthiness or navigability and the crew’s act of navigating. Given the “essential importance” of passage planning for the “safety … of navigation”, applying the prudent owner test, a vessel is likely to be unseaworthy if she begins her voyage without a passage plan or if she does so with a defective passage plan which endangers the safety of the vessel. The fact that the defective passage plan involves neglect or default in “the navigation of the ship” within the article IV rule 2(a) exception was no defence to a claim for loss or damage caused by the vessel being rendered unseaworthy before and at the beginning of the voyage as a result of that navigational  negligence. The vessel was therefore unseaworthy before and at the beginning of the voyage by reason of the defective passage plan.

The owners were unable to show that they had taken due diligence to make the vessel seaworthy. Their duty was non-delegable and the crew’s failure to navigate the ship safely was capable of constituting a lack of due diligence by the carrier. It made no difference that the delegated task of making the vessel seaworthy involved navigation. The carrier is liable for a failure to exercise due diligence by the master and deck officers of his vessel in the preparation of a passage plan for the vessel’s voyage, irrespective of the fact that navigation is the responsibility of the master and involves the exercise by the master and deck officers of their specialist skill and judgment.

Additional freight claim. Effect of change of nominated discharge port/s by voyage charterers.

In London Arbitration 20/21 a shipowner claimed additional freight for discharge ports nominated by the voyage charterer who then changed the nomination to discharge ports which were not subject to additional freight. The vessel was chartered to carry 60,000 mt bulk soya to ½ ports in China with the sole/1st disport to be declared 10 days prior to the vessel passing Singapore. The charterers nominate Zhoushan for lightening and Taixing for discharge of the balance of the cargo. The charter provided for $1.75 per mt extra on entire cargo if Taixing was the nominated discharge port. Thirteen days later charterer changed the discharge port to Tianjin. Owners sent charterers an invoice for Zhoushan and Taixing, and charterers insisted on Tianjin. Eventually the disputed extra freight was paid into an escrow account and the vessel discharged at Tianjin.

The tribunal held that in accordance with established authorities culminating with The Jasmine B [1992] 1 Lloyd’s Rep. 39 the initial declaration of the discharge ports made by charterers had the effect of treating those ports as have been written into the charter from the outset. Charterers assumed the risk of any change of nomination subsequently made by their sub-contractors. The nomination provision was a typically worded nomination provision and nothing in it was special in permitting a change of nomination.

The fact that the owners only proceeded to Tianjin under protested, confirmed by the terms of the escrow agreement, was fatal to all charterer’s arguments as to variation, waiver and estoppel. Nor had owners been unjustly enriched at charterer’s expense because the voyage for which additional freight was contemplated was never performed. Nothing in the charter obliged owners to relinquish the freight for the contractual voyage if in the event that voyage was not performed. Owners were accordingly entitled to the freight payable on the original nomination which was held in the escrow account.

Demurrage time bar clause. What is the time for “completion of discharge”?

In Euronav NV v Repsol Trading SA (mt Maria) [2021] EWHC 2565 (Comm) Henshaw J was faced with a dispute between owners and charterers as to whether a demurrage claim was barred by clause 15(3) of the Shellvoy 6 form, which requires notification to be made of a demurrage claim “within 30 days after completion of discharge” failing which the claim becomes time-barred. The Vessel discharged at Long Beach and disconnected hoses at 21:54 local time (PST – Pacific Standard Time) on 24 December 2019, as noted in the Statement of Facts and laytime statement. On 24 January the Charterers received owners’ brokers an email stating that: “According to owners, demurrage has incurred on above [subject] voyage. Hence, please take this email as demurrage notice”.

Whether owners’ notification was within the thirty days after completion of discharge depended on which time zone was used in respect of ‘completion of discharge’. It was agreed that when computing a period of time within which a certain thing must be done, the first day is not ordinarily counted and that the date of discharge – whichever date it was – was ‘day 0’ and not counted as one of the 30 days within which notification had to be given. In addition ‘day’, absent any contrary indication meant a calendar day, i.e. the period of twenty-four hours beginning and ending at midnight, and not merely a period of twenty-four consecutive hours.

If as charterers’ argued, one took local time in California, where discharge took place, day one would be 25 December and the claim submitted on 24 January would be out of time and time-barred. Owners argued that for three alternatives which would give the date of completion on 25 December, and day one on 26 December:   (a) the time zone of the recipient of the required notice (here, Spanish time, that of Charterers), (b) the time zone of the giver of the required notice (here, Belgian time, that of Owners) or (c) GMT, given that the contract applied English law?  On each of these approaches the claim would not be time-barred.

Henshaw J held that the date of completion of discharge is to be determined applying local time at the place of discharge for the following reasons [61]:

“i)                   The ordinary and natural approach is to allocate to an event (e.g. a historical event, or a person’s birth, marriage or death) the date that was current in the place where the event occurred.

ii)                 That approach gains some support from the authorities and commentary referred to in §§ 30-35 above.

iii)               The discharge of cargo from a vessel is a tangible physical event, which occurs at a specific location and in a particular time zone.  It will in the ordinary course be recorded in documents, such as the Statement of Facts and any laytime statement, as having occurred at the time and date current applying local time.  A contracting party would naturally expect the date stated in such documents to be the date of completion of discharge for contractual purposes.

iv)               The date of discharge of the cargo is significant not only for the purpose of notification of demurrage claims, but also for other purposes.  It represents the end of the contractual service to the shipper, and ends the running of laytime or demurrage.  Under clause 15(3) itself it is also the start date for the separate 90-day period for service of supporting documents.  It is generally the starting point for the time limit under the Hague-Visby rules for cargo claims.  It would be unnatural and illogical either (a) for there to be more than one date of discharge, used for different purposes, or (b) for the date of discharge pursuant to (say) the Hague-Visby rules to be determined by something as potentially arbitrary and non-transparent as the place of receipt (or, even, potential receipt) of a notice of any demurrage claim.  Whether the date of delivery for Hague-Visby purposes is determined using local time at the place of discharge (which I am inclined to consider the obvious approach) or using the relevant court’s own time zone (as was mooted during submissions but appears to me less attractive), Owners’ case creates the prospect of the same event being differently dated for different purposes.

v)                  The use of local time at the place of discharge gives rise to a single, clear and easily ascertainable date and time of completion of discharge.  It tends to promote certainty and reduce the risk of confusion.

vi)               It is inherent in a date based system that different time zones may apply to the events which define the start and end of the period, if they are in different countries.

vii)             The point that it is not essential to apply the same time zone to the beginning and end of the 30 day period under clause 15(3) is illustrated by a case where daylight saving time changes during the period.  If, for example, discharge is completed on a particular day in the UK, and a notice is served at half past midnight on day 31, the notice would be out of time even if the clocks had gone forward an hour to GMT + 1 in the meantime (so that half past midnight was 11.30pm on day 30 GMT).  

viii)           If it were appropriate to determine both dates using a single time zone, it would be more logical for that to be the time zone of the place of discharge.  As already noted, the completion of discharge is a significant physical event, with a natural date, usually recorded in contemporaneous documents, and with several consequences under the contracts relating to the voyage.

ix)               The considerations discussed in section (D) above give no compelling or sufficient to depart from the natural approach.

x)                  There is no ambiguity in clause 15(3) that might justify a contra proferentem interpretation.”

Time charter trip. Quantifying shortfall of bunkers remaining on board on redelivery.

In London Arbitration 19/21 the bunker clause in a trip time charter from the Far East to Egypt provided:

“8. BUNKER CLAUSE:

BOD about 830 metric ton IFO 380 CST about 78 metric ton LSMGO.

Prices both ends: USD425 PMT for IFO 380 and USD685 PMT for LSMGO. 

BOR about same as BOD of IFO and BOR as onboard of LSMGO.”

The vessel was delivered with 888.56 mt of IFO on board and redelivered with 686.07 mt. The owners were prepared to allow a margin of 2 per cent for the term “about” but submitted that even on that basis the charterers had redelivered with a shortfall of 184.7188 mt of IFO. They said that the prevailing market price of IFO at the place of redelivery in Egypt was US$510 per mt, and claimed the difference between that price and the charterparty price of US$425 per mt on the shortfall, a total of US$15,701.10.

The Tribunal  held that the word ‘about’ without further clarification imported a 5 percent margin for both delivery and redelivery. Owners argued that this was not the case on redelivery because the charterers had the opportunity of supplying further bunkers to make up the shortfall but deliberately decided not to do so. Although the Tribunal could see the attraction of the argument it rejected it as adding such a gloss to the usual understanding of the term ‘about’ would cause uncertainty and leave the parties in the dark as to the nature and extent of their obligations.

The Tribunal then held that the charter prices on redelivery only applied to legitimate quantities on delivery and redelivery and not to any quantities as submitted by the charterers. The appropriate comparison to be made was between the charterparty price and prevailing market price at the place of redelivery. Speculation as to where and at what price the owners might have taken on bunkers after redelivery had to be discounted as a matter of an independent commercial decision of the owners after redelivery. 

The Tribunal rejected Charterer’s argument that they had requested the owners to load more bunkers at Singapore but were told that the vessel did not have sufficient tank capacity to load the quantity proposed by the charterers. The charterers had not then taken on additional bunkers in Egypt because the supply of bunkers there was unreliable both in terms of service and quality. There was no warranty as to the bunker capacity of the vessel and/or its ability to take on board any quantity of bunkers required by the charterers at any time at Singapore, or elsewhere, during the course of the trip.

Repudiation of time charter. Owners’ claim for summary judgment for damages.

The Marquessa (Giorgis Oil Trading Ltd v AG Shipping & Energy PTE Ltd) [2021] EWHC 2319 (Comm) involved repudiation of a time charter on Shelltime 4 form (as amended). Following repeated non-payment of instalments of hire, owners eventually accepted this conduct as Charterers’ repudiation and terminated the charter.  The vessel was then carrying a cargo, loaded on the orders of Charterers, for sub-sub-charterers, and having exercised a lien, as an act of mitigation, Owners agreed with Voyage Charterers to complete the voyage in exchange for payments to escrow.

 Owners applied for summary  judgment in respect of:

i)  unpaid hire accrued due prior to the termination of the Charterparty (the “Pre-Termination Claim”), and,

ii) damages consequent upon Owners’ termination of the Charterparty on the basis of Charterers’ repudiation or renunciation (the “Post-Termination Claim”), but excluding damages in respect of the period after the discharge of Charterers’ cargo from the Vessel.

Henshaw J rejected Charterers’ assertion that Owners had failed to allow for off-hire periods, presumably for the periods during which Owners suspended performance. Suspension of performance was permitted by the following clause in the charter.

“… failing the punctual and regular payment of hire …  [Owners] shall be at liberty to at any time withhold the performance of any and all of their obligations hereunder … and hire shall continue to accrue …”

Owners’ right to suspend performance was not a penalty. Nor was it arguable that Owner’s exercise of the right to suspend performance was an unlawful exercise of a contractual discretion.  The nature of the right is such that owners could reasonably have regard purely to their own commercial interests.  In any event, the suspension of performance in the present case was not arguably irrational, arbitrary, or capricious. Neither were Owners obliged to mitigate. Their claim was for liquidated sums due under the contract, not damages for breach. Further, any obligation to mitigate did not require them to refrain, while the Charterparty remained on foot, from exercising their right to suspend performance.  In any event, Owners did subsequently take reasonable steps to mitigate by means of their arrangement with the Voyage Charterers.

Henshaw J agreed that by the time Owners treated the Charterparty as having come to an end by reason of Charterers’ breaches a reasonable owner would have concluded from Charterers’ conduct that they would not pay hire punctually in advance as required by the Charterparty:

i) Charterers had failed to pay hire from the outset, and this continued over the ensuing months. 

ii) At most, Charterers expressed a willingness to perform, but repeatedly proved unable or unwilling to do so. 

iii) Charterers’ conduct in the present case deprived Owners of “substantially the whole benefit” of the Charterparty, and they were seeking to hold Owners to an arrangement “radically different” from that which had been agreed. 

It was not arguable, that Owners themselves were in repudiatory breach, for suspending performance and then reaching an agreement with Voyage Charterers: The charter entitled Owners to suspend performance, and the arrangement with the Voyage Charterers was a lawful step in mitigation, realising value from the exercise of Owners’ lien, and in any event post-dated the contract having come to an end upon their acceptance of Charterers’ breaches.

When the Charterparty came to an end in November 2020, the Vessel was laden with cargo and until discharge, no replacement charterparty at the current market rate was possible, and therefore there was no scope for entering into a mitigation charterparty. Accordingly damages ran at the charter rate up until discharge, from which Owners gave credit for address commission, Charterers’ payments and relevant sums received from the Voyage Charterers.  Credit was also given credit for the value of bunkers remaining on board at the date of discharge at the contractual rate in the absence of any evidence from Charterers as to the actual sums paid for the bunkers.

The correct date for assessing the credit for bunkers remaining on board was that of discharge on completion of the voyage for which Charterers had given orders, and not the date of termination. Clause 15 of the Shelltime 4 form (as amended) provides that “… Owners shall on redelivery (whether it occurs at the end of the charter or on the earlier termination of this charter) accept and pay for all bunkers on board …”.

The relevant date must, logically, be the date of actual redelivery, even if it was in fact later than the (natural) end of the charter or the date on which it was contractually brought to an end.  In any event, even if clause 15 were not construed in that way, owners would be still entitled to recover the bunkers used to complete Charterers’ voyage on a different basis, viz as damages or in bailment – as in The Kos [2012] UKSC 17.

Accordingly, Henshaw J found that Owners were entitled to summary judgment for a sum equivalent to hire from when they accepted Charterer’s repudiation to the date of discharge on the laden voyage in progress at that date, less credit for commission and bunkers remaining on board at the latter date.

Grant Shapps and ‘The Commitments’. UK sets out its plans for decarbonising shipping.

Hot on the heels of the bumper 581 page communication from the EU Commission on its decarbonisation plans comes a mere 221 page communication from the Department for Transport Decarbonising Transport: A Better, Greener Britain.

This deals with various sectors, and contains various commitments as regards the domestic maritime sector.

Commitment. “We will plot a course to net zero for the UK domestic maritime sector, with indicative targets from 2030 and net zero as early as is feasible We will establish, following public consultation in 2022, an ambitious ‘Course to Zero’. This consultation will explore the technical, operational and policy options available for Government to accelerate decarbonisation in this sector to achieve net zero by no later than 2050 or earlier if possible. Following consultation, we will establish ambitious indicative targets for the domestic maritime sector recognising that we have ground to make up, covering 2030 and onwards. These targets will guide the design and enable us to measure the success of future policy interventions. We will embed this course in our Clean Maritime Plan (CMP), as part of a planned review and refresh which is due to start in 2022 and include within the CMP the long term interventions needed to achieve full decarbonisation.”

Commitment. “We will consult on the potential for a planned phase out date for the sale of new non-zero emission domestic vessels Following the conclusion of the current Clean Maritime Demonstration Competition and the Course to Zero consultation, we will consult in mid-2022 upon the potential for long term decarbonisation to be accelerated through carefully designed, well signposted measures to phase out the sale of new, non-zero emission domestic vessels, building on the experiences of the steps being undertaken today in other modes of transport.”

Commitment. “We will accelerate the development of zero emission technology and infrastructure in the UK We have recently launched a £20 million funding package – the Clean Maritime Demonstration Competition (CMDC) – to support and accelerate research, design and development of zero emission technology and infrastructure solutions for maritime and accelerate decarbonisation.”

Commitment. “We will consult this year on the appropriate steps to support and, if needed, mandate the uptake of shore power in the UK

We will consult in winter 2021 on how government can support the wider deployment of shore power, including consideration of regulatory interventions, for both vessels and ports, that could drive deployment as we transition to a net zero world, and bring forward appropriate measures.”

 Commitment. “We will extend the Renewable Transport Fuel Obligation (RTFO) to support renewable fuels of non-biological origin used in shipping We consulted in March 2021, on a potential expansion of the RTFO to include some advanced maritime fuels in order to support their deployment.109 The RTFO mandates that a certain proportion of road fuel must be from a sustainable renewable source. Maritime fuels currently have no equivalent system, which we aim to change. We recently announced that we will make renewable fuels of non-biological origin used in shipping eligible for incentives under the RTFO.”

Commitment. “Internationally, the UK will press for greater ambition during the 2023 review of the International Maritime Organisation Initial Greenhouse Gas Strategy and urge accelerated decarbonisation.

The IMO will review its strategy in 2023 and as set out in the recent G7 Climate and Environment Communique112 the UK will be seeking to increase ambition to ensure that international shipping plays its part in delivering decarbonisation. We will promote close alignment with the Paris temperature goals and challenge the international community to deliver on the IMO initial strategy commitment to ‘phase out’ emissions from the international sector as soon as possible.”

Commitment. “We will ensure we have the right information to regulate emissions, and to judge the effectiveness of the steps we are taking in the UK and at the IMO We will review, and if appropriate amend, the operation of the UK’s existing monitoring, reporting and verification system for greenhouse gas emissions from international shipping, to ensure it is fit for purpose and delivering the information we need to decarbonise the maritime sector. We will keep the measurement approach to the UK’s international shipping emissions under review and consider the appropriateness of fuel or activity-based measures. Additionally, we will consider how similar information can be collected for the domestic fleet, in order to provide a better evidence base for future policy interventions.

We will include the UK international aviation and shipping emissions in the Sixth Carbon Budget The Government has set the Sixth Carbon Budget to include the UK’s share of international aviation and shipping emissions, as recommended by our independent climate advisors, the Climate Change Committee (CCC). This allows those emissions to be accounted for consistently with other emissions included within the Sixth Carbon Budget. In line with the CCC’s recommended method for CB6 and UNFCC reporting, the projections for international shipping emissions represent the estimated emissions from fuel sold in the UK for use in international shipping.”

It is noteworthy that shipping is not included in the UK’s ETS and international shipping enters the stage only in the last of the above mentioned commitments.

“Ever Given” on its way at last.

On Wednesday 7 July the Ever Given was finally released following a ceremony at Ismailia with the signing a settlement of the Suez Canal Authority’s claims for the salvage operation, costs of stalled canal traffic, and lost transit fees for the week the Ever Given had blocked the canal. Local reports suggest that the shipowners will also present the authority with a tug boat.

The amount of the settlement is undisclosed but is thought to be rather less than the $900m initially claimed, which included $300,00 for ‘loss of reputation’. It is possible that the ship may still face tort claims from cargo carried on ships delayed by the incident, particularly if perishable cargo sustained damage due to the delay.

The British horticultural sector will be particularly delighted to receive a much delayed consignment of garden gnomes carried on the vessel.

Bastille Day. EU Commission’s present to the shipping industry.

Today the EU Commission has issued a 581 page document with a proposed directive amending the 2003 ETS Directive. This is considerably less extensive that the proposed amendment to the 2015 MRV Regulation which is what the EU Parliament voted for last October.

Maritime transport will now fall within the Directive (inserted articles 3g to 3ge) which will apply in respect of: emissions from intra-EU voyages; half of the emissions from extra-EU voyages and; emissions occurring at berth in an EU port. This rows back from the Parliament’s proposed amendments to the 2015 MRV Regulation which would have included all emissions from extra-EU voyages which started from or ended within the EU. The same rules that apply to other sectors covered by the EU ETS should apply to maritime transport with regard to auctioning, the transfer, surrender and cancellation of allowances, penalties and registries (Article 16).  Shipping will enjoy phased entry into the ETS. Shipping companies shall be liable to surrender allowances according to the following schedule: (a) 20 % of verified emissions reported for 2023; (b) 45 % of verified emissions reported for 2024; (c) 70 % of verified emissions reported for 2025; (d) 100 % of verified emissions reported for 2026 and each year thereafter: somewhat different from the inclusion in the ETS as of 1.1.2022 proposed by the EU Parliament. The current MRV Regulation applies only to CO2 emissions and the Commission leaves extension to other gases to a later phase, once the monitoring approaches and emissions factors of these gases has been agreed.

The proposed amending directive includes new definitions for “shipping company” and “administering authority in respect of shipping companies” in Article 3(v) and Article 3(w) respectively.  The person or organisation responsible for the compliance with the EU ETS should be the shipping company, defined as the shipowner or any other organisation or person, such as the manager or the bareboat charterer, that has assumed the responsibility for the operation of the ship from the shipowner and that, on assuming such responsibility, has agreed to take over all the duties and responsibilities imposed by the International Management Code for the Safe Operation of Ships and for Pollution Prevention. This definition is based on the definition of ‘company’ in Article 3, point (d) of Regulation (EU) 2015/757, and in line with the global data collection system established in 2016 by the IMO. This is good news for time charterers who would have become responsible under the Parliament’s proposed amendment to the MRV Regulation.

Still, half a loaf is better than what is currently being served up by the IMO on its GHG reduction menu for international shipping.

The proposed Directive can be found here: https://ec.europa.eu/info/sites/default/files/revision-eu-ets_with-annex_en_0.pdf

Recap term in sale contract prevails over printed incorporated terms.

Septo Trading Inc v Tintrade Ltd (The Nounou) [2021] EWCA Civ 718 (18 May 2021) involved a dispute under an international sale contract of fuel oil as to the effect of a quality certificate issued by an independent inspector at the load port  and whether it was intended to be conclusive evidence of the quality of the consignment.

The recap email of confirmation of the sale said that the certificate would be binding on the parties in the absence of fraud or manifest error, but it also provided for the BP 2007 General Terms and Conditions for FOB Sales (“the BP Terms”) to apply “where not in conflict with the above”. Those terms say that the quality certificate will be conclusive and binding “for invoicing purposes”, but without prejudice to the buyer’s right to bring a quality claim. The quality certificate issued by the independent inspector certified that the fuel oil was in accordance with the contractual specification at the load port.

Teare J, [2020] EWHC 1795 (Comm), found as a fact that it was not and held that the BP Terms qualified the Recap term. Had this stood alone, it would have excluded the buyer’s quality claim, but there was no conflict between Recap term and the BP terms which could be read together so as to give effect to both of them. The buyer’s claim succeeded and damages of US $3,058,801 were assessed.

The Court of Appeal, for whom Males LJ gave the leading judgment, have now overruled Teare J and found that there was inconsistency between the two sets of terms and that the Recap term prevailed. Applying the approach adopted by the Court of Appeal in Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565, the starting point was the meaning of the Recap term and a provisional view of its meaning needed to be formed, without taking account of the term which is alleged to be inconsistent. The Recap term provided that the quality certificate issued by the mutually acceptable independent inspector is binding on the parties, so that (assuming always that the certificate shows the product to be on-spec) the buyer cannot thereafter bring a claim on the ground that the quality of the product is not in accordance with the contract. Nobody would think, reading the Recap term, that the word “binding” meant “binding for invoicing purposes”.

Next the BP terms had to be considered and Section 1.2 provides that the quality certificate is to be “conclusive and binding on both parties for invoicing purposes” and that the buyer is obliged to make payment in full, but that this is “without prejudice to the rights of either party to make any claim pursuant to Section 26”, that is to say a claim that the product is not in accordance with the specification. This conflicted with the Recap term and the two provisions cannot fairly and sensibly be read together. The printed term did not merely qualify or supplement the Recap term, but rather deprived it of all practical effect.

Similarly, section 1.3 of the BP Terms which provided for a fundamentally different testing regime from that set out in the Recap term was held to have no application. The Recap provided for the independent inspector’s certificate of quality to be binding, with the parties free to agree (as they did) what instructions should be given to the inspector which will lead to the issue of that binding certificate. Section 1.3 undermined this regime by insisting that if the parties agree that the certificate of quality should be based on shore tank samples, it is nevertheless a condition of the contract that the seller must provide the same quality of product at the vessel’s permanent hose connection as set out in the certificate of quality.