Author: Professor Simon Baughen

Professor Simon Baughen was appointed as Professor of Shipping Law in September 2013 (previously Reader at the University of Bristol Law School). Simon Baughen studied law at Oxford and practised in maritime law for several years before joining academia. His research interests lie mainly in the field of shipping law, but also include the law of trusts and the environmental law implications of the activities of multinational corporations in the developing world. Simon's book on Shipping Law, has run to seven editions (soon to be eight) and is already well-known to academics and students alike as by far the most learned and approachable work on the subject. Furthermore, he is now the author of the very well-established practitioner's work Summerskill on Laytime. He has an extensive list of publications to his name, including International Trade and the Protection of the Environment, and Human Rights and Corporate Wrongs - Closing the Governance Gap. He has also written and taught extensively on commercial law, trusts and environmental law. Simon is a member of the Institute of International Shipping and Trade Law, a University Research Centre within the School of Law, and he currently teaches at Swansea on the LLM in:Carriage of Goods by Sea, Land and Air; Charterparties Law and Practice; International Corporate Governance.

What’s your contract? What’s your package limitation?

Poralu Marine Australia Pty Ltd v MV Dijksgracht – [2023] FCAFC 147 is a recent decision  from the Federal Court of Australia on identifying what constitutes the contract of carriage of goods by sea, and what terms are applicable to that contract. It will not necessarily be the transport document that is issued on loading, in this case a sea waybill. The cargo of 23 pontoons and 11 pallets was carried from Ireland to Australia and it was alleged that three pontoons were discharged damaged having been loaded in sound condition. Poralu commenced two actions for damages arising from the alleged damage to three of the pontoons, both in bailment and the tort of negligence. The first action was in rem against the vessel and its owner, said to be Dijksgracht CV (DCV), a Netherlands company. The second was an action in personam against Spliethoff Transport (ST) as carrier and Rederij Dijksgracht (RD), said to be the shipowner.

There were various contenders for the contract of carriage by sea; the second recap email; the booking note; the sea waybill. At first instance, [2022] FCA 1038, Stewart J found that the contract was concluded in the booking note which applied the law of the Netherlands and stated specifically that liability was limited to £100 lawful money of the UK per package or unit. The Hague-Visby Rules did not apply to the contract of carriage and accordingly the package limitation was the very low figure of £100 in sterling. By virtue of the Himalaya clause in the bill of lading the shipowner was able to rely on the limitation figure in the contract of carriage.

On appeal the Federal Court of Australia has upheld the decision that the shipowner could rely on the Himalaya clause in the standard form of bill of lading which formed part of the contract of carriage. However, it overruled the decision as to what constituted the contract of carriage and what was the applicable limitation of liability thereunder.

The Federal Court found that the contract of carriage was contained in the second recap email, which preceded the booking note.  This specified English law and was subject to the terms of the contemplated bill of lading which contained clause 3(a) a clause paramount which reads:

“1    Except in case of US Trade, the Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels, 25th August 1924, as enacted in the country of shipment, shall apply to this Bill of Lading.

2    If no such enactment is in force in the country of shipment, the articles I-VIII inclusive of the said Convention shall apply.

3    In trades where the International Brussels Convention 1924 as amended by the Protocols signed at Brussels on 23 February 1968 and 21 December 1979 (the Hague-Visby Rules) apply compulsorily, the provisions of the Hague-Visby Rules shall be considered incorporated in this Bill of Lading.

….

5    If the Hague Rules are applicable otherwise than by national law, in determining the liability of the Carrier, the liability shall in no event exceed £100 (GBP) sterling lawful money of the United Kingdom per package or unit.”

 The fact that the contract contemplated the issue of a bill of lading, even though a sea waybill was eventually issued, was enough potentially to engage the Hague-Visby Rules, as held by the English Court of Appeal in The Maersk Tangier [2018] EWCA Civ 778. As for the sea waybill, that was a mere receipt.  

The contract did not fall under Article 10(a) as Ireland, where the goods were loaded, was not a Contracting State, but did fall under Article 10(c) by virtue of paragraph 1 of the clause paramount in the contemplated bill of lading. Ireland had enacted the Hague-Visby Rules domestically and therefore, in line with the decision of the English Court of Appeal in The Superior Pescadores [2016] EWCA Civ 101, involving a similarly worded clause paramount, the reference to “the Hague Rules…as enacted in the country of shipment” referred to the “Hague-Visby Rules as amended by the 1979 Protocol”.  As a result, those Rules applied to the contract of carriage so that the relevant package limitation would be calculated in accordance with the operation of the SDR Protocol unless, at the trial, Art 4(5)(e) was found to apply (namely, because the damage to the pontoons resulted from an act or omission of the carrier done with intent to cause damage or recklessly and with knowledge that damage would probably result).

Delay due to COVID 19 tests on crew and off-hire.

London Arbitration 13/23 involved an off-hire claim was made by time charterers in respect of a period of delay in transiting the Panama Canal due to the vessel’s quarantine pending the results of PCR tests on the crew. Shortly before the vessel’s arrival at the Panama Canal the Master fell ill on May 24 2021 and the vessel deviated to the nearest port in Puerto Rico to land the master ashore. The next day the master died with the vessel then having an eta at Cristobal for transiting the canal on the morning of 28 May. A test was taken on the deceased master which came back negative and the crew took PCR tests but not until these came back negative was the vessel allowed to come out of quarantine, and the vessel ultimately started its transit of the Panama Canal at 16.47 on 31 May 2021.

Charterers advanced their claim by reference to four clauses, and all were unsuccessful.

1.  cl.15. That in the event of the loss of time from deficiency and/or default and/or strike of crew and/or of men … or by any other cause preventing the full working of vessel, the payment of hire shall cease for the time thereby lost …”

Although in The Apollo [1978] 1 Lloyd’s Rep 200 a delay in berthing awaiting free pratique caused by previous illnesses on board was found to be an off-hire event, the off-hire clause there had included the term “any other cause whatsoever” and it was on the basis of that wording that the charterers had been found able to place the vessel off hire. Here, there was no cause within the terms of clause 15.

2. cl. 38. Certificates/Vaccinations

Owners are obliged to deliver and maintain throughout the currency of this Charter Party the vessel, her crew and anything pertaining hereto supplied with up to date and complete certificates (including Oil Pollution Certificates), approvals, equipment and fittings enabling the vessel and her crew to trade within the trading limits … Officers and crew to comply with vaccination and sanitary regulations in all ports of call and corresponding certificates to be available on board, enabling the vessel to obtain radio free pratique.

If requested, Owners to provide Charterers with copies of any certificates/approvals.

Any time lost and all proven and directly related expenses resulting from Owners’ non-compliance with the above to be for Owners’ account and may be deducted from hire.”

This clause was concerned with the kind of certificates, approvals and vaccinations that the owners would be able to procure, arrange or ensure had been obtained in advance to be maintained on board for the purposes of the service, rather than the more transitory PCR tests in issue, the need for which only arose as a result of the master’s unexpected death during the course of the voyage and which were necessarily only valid for a limited period of time.

PCR tests obtained before the vessel set out on the voyage would have been of no assistance by the time the vessel reached Panama as the requirement of the Panamanian authorities was for tests to be undertaken on arrival. The vessel complied with the authorities’ requirements in producing the negative PCR test results for the crew and there was no question of any non-compliance by the owners under the clause.

3. cl.55. Off Hire

“… in the event of loss of time … caused by sickness of or accident to the crew … or capture/seizure or threatened detention by any authority/legal process … the hire shall be suspended from the time of inefficiency until the vessel is again efficient in the same and equidistant position in Charterers’ option and voyage resumed therefrom. All extra expenses incurred including bunkers consumed during a period of suspended hire shall be for Owners account …”

The requirement for the crew to provide satisfactory PCR test results did not amount to a detention or threatened detention of the vessel.” Detention”  involved something more than mere delay and required some element of restriction and restraint that was clearly not present here.

4. cl.58. Panama/Suez Canal

“Owners warrant that the vessel is fitted for the transit of the Suez and Panama Canal in loaded and/or ballast condition and complies with all and any regulations of the relevant canal authority and shall not be subject to any conditions of transit not customarily required by the relevant canal authority whether pursuant to their regulations or otherwise.

Should the vessel not comply with all warranties contained in this clause and/or any regulations or conditions of transit laid down by the relevant authority, Charterers may suspend hire for all time lost and Owners to pay all expenses arising as a consequence of Owners’ failure to comply with the warranty.”

The Tribunal held that the clause was clearly concerned with the fittings of the vessel and its suitability for transit of both the Panama and Suez Canals. It did not contain a provision and code dealing with the (ultimately unjustified) concerns about Covid-19 that arose following the death of the master.

Accordingly the vessel had not gone off-hire.

Between discharge and delivery. What is the sea carrier’s responsibility?

What are the responsibilities of an ocean carrier in respect of damage to cargo that is sustained after discharge and before delivery? That was the question at issue in JB Cocoa SDN BHD & Ors v Maersk Line AS (The Maersk Chennai).  [2023] EWHC 2203 (Comm) (05 September 2023).  The vessel carried cocoa beans in containers from Lagos to Tanjung Pelepas, Malaysia. Discharge was on 1 October 2017 but the cargo was not collected until about 28 November 2017 when it was found to be suffering from condensation and mould damage which had occurred during the period between discharge and delivery. JB Cocoa, and their insurers, claimed both as lawful holder and indorsee of the bill of lading, which incorporated the Hague Rules, and also in negligence, in an attempt to claim free of the contractual provisions of the bill of lading.

First, on title to sue , JB Cocoa and their subrogated insurers had title to sue as the lawful holder of the bill of lading under COGSA 1992, but JB Cocoa were not the owner of the goods at the relevant time and could not sue in negligence. Even if they had been able to sue in negligence the claim would fail on the basic principle that there is in general no liability in negligence for omissions and no positive duty to intervene to prevent loss. The claimants did not allege that the defendant did anything to damage the cocoa beans but failed to deliver the cocoa beans in good condition because it left them in their containers and failed to take steps to prevent their deterioration in the containers. The answer to this would be to rely on voluntary assumption of risk in respect of more onerous responsibilities which was not pleaded and could not plausibly have been alleged on any basis other than a bailment subject to the terms of the bill of lading.

On the substantive claim, HH Judge Keyser KC started by reiterating the Court of Appeal’s statements in The Giant Ace [2023] EWCA Civ 569,that the Hague, and Hague-Visby Rules, only operated up to the point of discharge, although the time bar in art III (6) applied to misdelivery claims where delivery had been made after discharge. The carrier’s obligations in respect of the period between discharge and delivery were to be determined by the terms of the bill of lading.

The relevant terms of the bill were contained in clauses 5 and 22.

“5. Carrier’s Responsibility: Ocean Transport

5.1 Where the Carriage is Ocean Transport, the Carrier undertakes to perform and/or in his own name to procure performance of the Carriage from the Port of Loading to the Port of Discharge. The liability of the Carrier for loss of or damage to the Goods occurring between the time of acceptance by the Carrier of custody of the Goods at the Port of Loading and the time of the Carrier tendering the Goods for delivery at the Port of Discharge shall be determined in accordance with Articles 1-8 of the Hague Rules save as is otherwise provided in these Terms and Conditions. These articles of the Hague Rules shall apply as a matter of contract.

5.2 The Carrier shall have no liability whatsoever for any loss or damage to the Goods, howsoever caused, if such loss or damage arises before acceptance by the Carrier of custody of the Goods or after the Carrier tendering the cargo for delivery. Notwithstanding the above, to the extent any applicable compulsory law provides to the contrary, the Carrier shall have the benefit of every right, defence, limitation and liberty in the Hague Rules as applied by clause 5.1 during such additional compulsory period of responsibility, notwithstanding that the loss or damage did not occur at sea.”

“22. Notification, Discharge and Delivery

22.1 Any mention in this bill of lading of parties to be notified of the arrival of the Goods is solely for information of the Carrier. Failure to give such notification shall not involve the Carrier in any liability nor relieve the Merchant of any obligations hereunder.”

HH Judge Keyser KC held that

“The first sentence of clause 5.1, taken together with the definition of “Carriage” in clause 1 but otherwise by itself, would suggest that the carrier is responsible for all handling of the goods and other services provided in respect of the goods at the port of discharge, even if the handling or other services came after discharge. However, the second sentence of clause 5.1 has the effect that the carrier’s liability for loss of or damage to the goods between two points in time—acceptance of custody at the port of loading, and tender for delivery at the port of discharge—shall be determined in accordance with Articles I to VIII of the Hague Rules. The Hague Rules do not regulate the liability of the carrier in respect of any period before loading or after discharge from the vessel; the references in Article II to “custody” and “care” relate to the period prior to discharge: [96]”

Turning to cl.5(2) the first sentence meant that the carrier is liable for loss and damage only within the limits of the Hague Rules, that is, from loading to discharge. Prior to and after those points in time, the goods are at the risk of the shipper or the consignee as the case may be. However, if the temporal delimitation of the carrier’s liability is ineffective in law, the defences, limitations etc. under the Hague Rules will apply to this additional period of liability as they apply to the period governed by the Rules themselves.

HH Judge Keyser KC then rejected the argument that the failure to give notification of arrival under cl. 22(1) amounted to a failure to tender the goods for delivery and rendered the carrier subject to an ongoing obligation to take reasonable care of the goods. The carrier was not obliged to serve an arrival notice at all and therefore such a notice was not an integral part of delivery or of tender of delivery.

If the carrier had remained responsible, HH Judge Keyser KC would have held it liable for the damage to the cocoa beans on the grounds that it failed to take reasonable care of them by opening the container doors to provide ventilation. However, as the carrier was not responsible for the goods after discharge it was under no duty to open the container doors.

So, for owners of containerised goods damaged between discharge and delivery, look closely at the terms of your bill of lading. Terms and conditions apply.

However, a couple of points to bear in mind. An exception against “loss and damage” after discharge won’t protect the carrier against liability for misdelivery East West Corp. v. DKBS 1912 [2003] 1 Lloyd’s Rep 239. Second, where the ocean carrier supplies the container, the start of loading under the Hague Visby Rules can begin earlier than loading onto the vessel. In Volcafe it was the start of stuffing the container at an inland facility. Similarly, ‘discharge’ can be extended to the point of delivery. In Australia in Seafood Imports Pty Ltd v ANL Singapore Pte Ltd [2010] FCA 702 it was held that where a refrigerated container was supplied by the carrier, the duty under the Hague-Visby Rules to discharge the goods properly and carefully extended to ensuring that the refrigerated container in which they had been carried did not have a propensity to become stuck in defrost mode while at the port terminal and before the goods could reasonably be expected to be removed from the container.

Fit for 55. Two more EU laws for shipping to think about.

Two more ‘Fit for 55’ measures that will affect maritime transport have now reached the legislative finishing line with approval by the Council on 25 July 2023. The new rules will be published in the Official Journal of the European Union and enter into force 20 days after publication.  

  1. FuelEU Maritime

FuelEU Maritime sets maximum limits on the yearly greenhouse gas intensity of the energy a ship uses, covering CO2, methane and nitrous oxide emissions over the full lifecycle of the fuels and applies to all commercial vessels of 5,000 gross tonnes with exemptions for naval vessels, fishing vessels, and ships using non-mechanical propulsion. It covers all energy used on board when the ship is at the port, all energy used on voyages between EU ports and 50% of the energy used on voyages departing from or arriving at an EU port. The reduction schedule from a 2020 baseline is -2 per cent from 2025; -6 per cent from 2030; -14.5 per cent from 2035; -31 per cent from 2040; -62 per cent from 2045; -80 per cent from 2050. Offsetting emissions credits are given to those ship owners who use renewable fuels of non-biological origin (RFNBO) from 2025 to 2034, and a 2 per cent renewable fuels usage target as of 2034 will be set if the Commission reports that in 2031 RFNBOs amount to less than 1 per cent in fuel mix. There are also similar provisions to those in the ETS regarding evasive container transhipments from ports less than 300 nautical miles from an EU port, with the Commission to provide the first list of such ports before 31 December 2025.

From January 2030, container ships and passenger ships at EU ports will also have to connect to the onshore power supply and use it for all energy needs while at berth at quayside in TEN-T core and comprehensive network ports or use alternative zero-emission technologies. From January 2035, this will apply to container ships and passenger ships at quayside in all EU ports where the quay is equipped. Whether this onshore power supply will be provided from green sources remains to be seen.

The responsibility for compliance lies with the “company”, defined in the same way as the ‘shipping company’ in the amend MRV Regulation and the amended ETS Directive. Shipping companies must submit to verifiers a standardised emissions monitoring plan for each of their vessels by 31 August 2024. Their records must contain the ‘well to wake’ emissions factors for each type of fuel used at berth and sea. At the end of April each year, shipping companies must submit their data, including that already reported for MRV regulation. There are harmonised penalties for non-compliance with the requirements on both the greenhouse gas intensity content and the connection to onshore electricity. The Regulation provides for a voluntary pooling mechanism under which ships will be allowed to pool their compliance balance with one or more other ships, thereby making it the overall pool that has to meet the greenhouse gas intensity limits on average.

FuelEU Maritime also recognises the polluter pays’ principle, providing in Article 23(8):
“The company shall remain responsible for the payment of the FuelEU penalties, without prejudice to the possibility for the company to conclude contractual agreements with the commercial operators of the ship that provide for the liability of the commercial operators to reimburse the company for the payment of the FuelEU penalties, when the responsibility for the purchase of the fuel or the operation of the ship is assumed by the commercial operator. For the purposes of this paragraph, operation of the ship shall mean determining the cargo carried, the route and the speed of the ship.”
There is a similar provision in Article 23(9) with regard to contracts with fuel suppliers. Unlike the costs of surrendered ETS allowances in the revised ETS Directive, there is no provision for any statutory right of pass-through from the company to the time charterer of penalties in Article 23(8) and (9).

  1. Regulation on the deployment of alternative fuels infrastructure (AFIR). This amends the Directive on the Deployment of Alternative Fuels Infrastructure 2014/94/EU (DAFI) to require Member States to take necessary measures to ensure that minimum shore-side electricity supply for seagoing container and passenger ships is provided in maritime ports by 1 January 2030. Additionally, Article 11 requires Member States to ensure that an ‘appropriate’ number of refuelling points for liquified methane ‘liquefied methane’ are put in place at TEN-T core maritime ports by 31 December 2024. On 19 October 2022, the Parliament proposed adding hydrogen and ammonia to the core network of refuelling points for LNG at maritime ports by 2025 but this does not appear in the final text of the Regulation. Instead Article 14 requires Member States to develop draft a national policy framework for developing alternative fuels for transport, containing various elements, in particular (k) “an overview of the state of play, perspectives and planned measures in respect of the deployment of alternative fuels infrastructure in maritime ports other than for liquefied methane and shore-side electricity supply for use by seagoing vessels, such as for hydrogen, ammonia, methanol and electricity.”

AI and Civil Liability. The EU Commission’s proposed AI Liability Directive.

 Over the past three years the EU has become involved in developing legislation to deal with the operation of Artificial Intelligence (AI) in the Union. There are three strands to this legislation: the overall regulatory AI Act; the updating of the 1986 Product Liability Directive; addressing civil liability arising out of the operation of AI systems.   On 22 October 2020 the European Parliament sent a draft regulation to the Commission for a new strict liability regime for operators of AI systems. The Parliament’s proposal was followed on 28 September 2022 by the European Commission’s proposal for the AI Liability Directive along with a proposed updating of the 1986 Product Liability Directive. This blog pointed out that the proposed Regulation could lead to a confusing overlap with maritime strict liability regimes in the context of vessels at MASS 3 and 4.

Unlike the Parliament’s proposal of October 2020, the Commission’s proposal is framed as a Directive, and contains no substantive rules regarding liability arising out of use of an AI system.   Instead, the proposed Directive applies to non-contractual fault-based civil law claims for damages, in cases where the damage caused by an AI system occurs after the end of the transposition period, but the Directive lays down two sets of common rules.

First, Article 3 deals with the disclosure of evidence on high-risk artificial intelligence (AI) systems to enable a claimant to substantiate a non-contractual fault-based civil law claim for damages. 

Second, Article 4 deals with the burden of proof in establishing causality in non-contractual fault-based civil law claims brought before national courts for damages caused by an AI system. For the presumption of causality to apply, the fault of the defendant should be established as a human act or omission which does not meet a duty of care under Union law or national law that is directly intended to protect against the damage that occurred.  It should also be necessary to establish that it can be considered reasonably likely, based on the circumstances of the case, that the fault has influenced the output produced by the AI system or the failure of the AI system to produce an output and the claimant should still be required to prove that the output or failure to produce an output gave rise to the damage.

However, fault still has to be proved under the applicable Union or national laws, although fault can be established in respect of non-compliance with Union rules which specifically regulate high-risk AI systems. It is likely that in the future such rules will apply to vessels at MASS 3 and 4 for entry into ports and the territorial sea of Member States. The Directive does not affect rules of Union law regulating conditions of liability in the field of transport. With maritime transport the only such rules of Union law concerning fault based civil law claims would be Directive 2009/20/EC on the insurance of shipowners for maritime claims.  

Art 5  provides for the Commission to submit a report to the Parliament, the Council, and the Economic and Social Committee, assessing the Directive’s achievement five years after its transposition.  In particular, that review should examine whether there is a need to create no-fault liability rules for claims against the operator combined with a mandatory insurance for the operation of certain AI systems, as suggested by the European Parliament resolution of 20 October 2020 on a civil liability regime for artificial intelligence.  

The restriction to fault-based liability regimes means that, in relation to MASS 3 and 4 vessels operating with the territory of the Union, the proposed Directive will have no application to the two current strict liability pollution regimes, the CLC and the Bunkers Convention, and will have no application to the HNS regime when it eventually comes into force. It will, though, have application in the Member States to fault based tort claims such as general pollution claims and collision claims, as regards the rebuttable presumption of a causal link in the case of fault provided for in Art 4, and almost certainly as regards the evidential provisions in Art 3 if MASS 3 and 4 vessels are eventually classified as ‘high risk’.  

The proposed Directive now has to go back to the Parliament and the Council, and may well be subject to amendment. The European Economic and Social Committee (EESC) adopted an opinion on the proposal on 25 January 2023 broadly welcoming the proposal but insisting  upon clear legal definitions, calling upon the Commission to closely monitor the development of financial guarantees or insurance covering AI liability and recommending the Directive be reviewed three years after entry into force.

Greenhouse gas emissions and international shipping. IMO sets new reduction targets.

At MEPC 80 on Friday 7 July the IMO revised its 2018 GHG reduction targets for international shipping with a new target for international shipping reaching ‘net zero’ close to 2050 and indicative checkpoints of a cut in total greenhouse gas emissions of at least 20% by 2030, but ‘striving’ to reach cuts of 30% by then, and 70% in 2040 but ‘striving’ for 80%.  GHG emissions are now to be calculated on a ‘well to wake’ basis. There is also a target that at least 5% of the energy used for international shipping by 2030 should be zero carbon, or near zero carbon, but ‘striving’ to reach 10% by then. There is no change to the 2018 target of reducing the carbon intensity (emissions produced per cargo and distance travelled) of international shipping by 40% by 2030, compared with 2008 levels.   The IMO has set a deadline of 2025 for the development of mid-term measures to support its GHG strategy, with them to come into effect in 2027.

No decision was made on the proposed carbon levy, but the proposal lives on for future discussion. Discussion on the application of on-board carbon capture and storage or utilization, has been postponed to the next intersessional meeting of the Working Group on GHG reductions.

Shipping and Emissions Trading Schemes. Latest from the EU and the UK.

The EU’s inclusion of shipping in the ETS comes into effect on 1 January under DIRECTIVE (EU) 2023/959 of 10 May 2023. The amended directive will also affect the position of storage of captured emissions from a registered emitter. Previously, a registered emitter was under no obligation to surrender allowances in respect of emissions which are verified as captured and transported by pipeline to a storage facility, authorised in accordance with the CCS Directive. The amended ETS Directive now removes the previous requirement that CCS had to be transported by pipeline to a storage facility. The reference to CCS in the table to Annex I to Directive 2003/87/EC is amended so as to read “Transport of greenhouse gases for geological storage in a storage site permitted under Directive 2009/31/EC, with the exclusion of those emissions covered by another activity under this Directive.”

This is amplified by article 69 of the Preamble which states:

 “As CO2 is also expected to be transported by means other than pipelines, such as by ship and by truck, the current coverage in Annex I to Directive 2003/87/EC for transport of greenhouse gases for the purpose of storage should be extended to all means of transport for reasons of equal treatment and irrespective of whether the means of transport are covered by the EU ETS. Where the emissions from the transport are also covered by another activity under Directive 2003/87/EC, the emissions should be accounted for under that other activity to prevent double counting.”

This means that captured carbon from a registered emitter can now be transported a permitted storage facility by ship without the emitter being obliged to surrender allowances in respect of its captured emissions.

As for the UK and its ETS scheme, on Monday 3 July the UK government announced that: domestic shipping for vessels above 5000 grt will be required to participate in the UK’s Emissions Trading Scheme starting in 2026.

The government would also: expand the existing scope of the scheme to create a level playing field between operators who use pipeline and non-pipeline modes of transportation of CO2, working with key regulatory partners to establish how Non-Pipeline Transport (NPT) should best be integrated into the existing UK ETS framework; and  review its policy of expanding the UK ETS to methane emissions from upstream oil and gas and other traded sectors.

Interruption of demurrage due to ‘fault’ of shipowner?

London Arbitration 6/23 involved potential interruption to demurrage due to what charterers claimed was the fault of the shipowner. The vessel was chartered for a voyage from Turkey to Futuna Island in the French Pacific Ocean carrying  part cargo of steel pipes. Other cargo was loaded and discharged at additional ports as part of the same voyage but under different fixture arrangements. Five months after loading in Turkey the vessel reached Port Louis in Mauritius. Shortly after sailing, the main engine had to be shut down due to excessive exhaust temperatures and the activation of the oil mist detector alarm. The high exhaust temperatures caused defects to the exhaust valve seat surfaces, which were beyond the capability of the crew to repair. The vessel was towed to Reunion for repair. These took four months, which was longer than expected. The Covid-19 pandemic, which affected the availability of spares and labour at the time, was offered as an explanation.

In the meantime new regulations had been introduced at Futuna under which the vessel’s dimensions would not allow it to meet the new requirements. The receivers were forced to agree that the vessel would discharge at an alternative port in Fiji. However, the short space of time between the decision to change discharge ports and the vessel’s arrival at the actual discharge port presented problems to the receivers and contributed to discharge not starting more promptly. Charterers raised a defence to owners’ demurrage claim saying that the delay in discharge that this problem could be traced back to the engine failure and was exacerbated by a failure by the owners to keep them and the receivers more closely advised about progress of the repairs.

The arbitrator found that the fault alleged by the charterers could not have been the engine condition prior to loading in Turkey as there were no engine problems for a further five months into the voyage. The repairs took an unusually long time but took place in the middle of the pandemic which affected availability of spares and personnel. By the time the discharge port had been changed to Lautoka, it seemed that all the vessel’s faults had ceased to exist and the owners were able to tender a valid notice of readiness. Discharge was able to commence reasonably shortly thereafter and the charterers accepted that it did until laytime ran out. It followed that if laytime could run, there was no reason why demurrage should not commence once it expired and consequential loss of time was not recoverable under the doctrine of “fault”. Owners were therefore able to recover their demurrage in full.

CMR Art 23.4. Broad interpretation of ‘other charges incurred in respect of the carriage of the goods’ covers excise duty levied on stolen goods.

Two days ago in JTI POLSKA Sp. Z o.o. and others (Respondents) v Jakubowski and others (Appellants) [2023] UKSC 19  the Supreme Court gave its judgment in a ‘leap-frog’ appeal from the decision of Judge Pelling KC [2021] EWHC 1465 (Comm) that the road carrier under CMR was liable for excise duty levied by HMRC on the owner of 289 cases of cigarettes which were stolen at a service station on the M25 during the course of carriage by road from Poland to England.

Article 23.4 of the CMR provides that in the case of the loss of goods the cargo claimant may claim “carriage charges, Customs duties and other charges incurred in respect of the carriage of the goods”, in addition to the value of the goods. Courts in CMR jurisdictions have interpreted the phrase “other charges incurred in respect of the carriage of the goods” in article 23.4 in two main but different ways. The “broad interpretation” is that it encompasses charges incurred because of the way that the goods were actually carried and lost, so that the cargo claimant can recover excise duty levied on goods stolen in transit. The “narrow interpretation” is that it is limited to those charges which would have been incurred if the carriage had been performed without incident and so does not include excise duty levied as a result of the loss of the goods in transit through theft. In James Buchanan & Co. Ltd v Babco Forwarding & Shipping (UK) Ltd. [1978] AC 141 (Buchanan), which also involved excise duty levied on goods stolen in transit, the House of Lords decided by a 3:2 majority that the broad interpretation should be adopted. Their Lordships’ interpretation was subsequently criticised in obiter dicta of the Court of Appeal in Sandeman Coprimar SA v Transitos y Transportes Integrales SL [2003] EWCA Civ 113; [2003] QB 1270.

The Appellants submitted that the narrow interpretation is to be preferred and that the Supreme Court should exercise its power to depart from Buchanan pursuant to the Practice Statement (Judicial Precedent) [1966] 1 WLR 1234 (“the 1966 Practice Statement”). In the light of the authorities on the 1966 Practice Statement, if the Supreme Court was to exercise its power to depart from Buchanan, the appellants to show that the decision was untenable or manifestly wrong.

The Supreme court found that Buchanan was tenable, which was supported by the fact that it reflected the conclusion of the judges at all levels in the case itself, other than the minority in the House of Lords and decisions reached by the Supreme Courts of Denmark, the Czech Republic, Lithuania and (arguably) Belgium as well as the Italian Court of Appeal.

As to the ordinary meaning of article 23.4, there was little doubt that the relevant wording is widely drawn. “In respect of” is commonly understood as equating to “in connection with”. It was very difficult to say that a loss which occurs during the course of road carriage and as a result of the way in which that carriage is performed is not connected with that carriage. Under art 23.4 the loss had to be a “charge” in order to be recoverable which excluded the most obvious form of consequential loss claim, such as a claim for loss of bargain or expectation loss or other lost profits, so giving content to the concluding words that “no further damage shall be payable”.

Even if the Supreme Court had concluded that Buchanan was wrong more would be needed to justify departing from that decision. There was no uncertainty created by contrary dicta of the Court of Appeal in Sandeman. It was the inappropriate statement by the Court of Appeal which should not have been made, which caused any uncertainty rather than the decision in Buchanan. Academic views on the decision were not unanimous in disapproval and the German and Swedish Supreme Court decisions applying the ‘narrow’ interpretation had to be balanced against the contrary decisions reached by, for example, the Supreme Courts of Denmark, The Czech Republic and Lithuania. There was no international consensus on the interpretation of art 23.4 of CMR. Nor had it been shown that Buchanan decision worked unsatisfactorily in the market place, as parties do not attempt to contract around the decision. Liability for excise duty is a recognised risk and insurers of both cargo interests and carriers underwrite on the basis of the full value of the cargo, including excise duty. Nor was it suggested that Buchanan produces manifestly unjust results. Despite the desirability of a uniform view as to the proper interpretation of article 23.4, that would not be achieved by reversing Buchanan. Uniformity would need an  amendment through a Protocol, as had been done for CIM, but that was a matter for the parties to the CMR.

So, as you were, with regard to recovery of excise charges on stolen goods under CMR.

Voyage charter. Liability of disponent owner for delays caused by arrests of bunkers on board pursuant to arbitrations unconnected with the vessel.

Rhine Shipping DMCC v Vitol SA [2023] EWHC 1265 (Comm) involved a counterclaim by Vitol under a voyage charter with Rhine for breach of the charter by way of delay to the Vessel in proceeding to one of the load ports resulting from an arrest by third parties of the bunkers and stores on board at one of the loading ports, in Ghana. The vessel was on bareboat charter to Al-Iraquia who had time chartered it to Rhine with whom it was connected. Delay  resulted from the detention of the vessel for some days as security which was alleged to have led to delays in loading the vessel at its next load port in Congo with the result that Vital had to pay an increased price of US$3,692,106.72 to the seller of the cargo loaded there. The arrest in Ghana did not concern the vessel in the voyage charter between Rhine and Vitol. It concerned claims by six vessel owners under other charters with Al-Iraquia.  Vitol claimed under an indemnity clause in the charter and also for breach of warranty that at the date of the charter the vessel was free of encumbrances and legal issues that could affect the performance of the charter.

(1) The indemnity.

Clause 13 provided: “Third Party Arrest

In the event of arrest/detention or other sanction levied against the vessel through no fault of Charterer, Owner shall indemnify Charterer for any damages, penalties, costs and consequences and any time vessel is under arrest/detained and/or limited in her performance is fully for Owner’s account and/or such time shall not count as laytime or if on demurrage, as time on demurrage.”

Although the arrest was of the property on board, not of the Vessel, the vessel was detained as the inevitable consequence of the property on board being arrested, in the sense of being constrained or prevented from freely continuing on its voyage. Clause 13 imposed no additional requirement that the detention be “levied against” the vessel in any sense other than that the vessel was detained.

A further issue arose as to whether the indemnity was subject to the rules on remoteness of loss

that apply to a claim in damages. Given his finding in relation to the breach of warranty claims, that the losses claimed by Vitol were not too remote to be recoverable as damages for breach of contract, the amount recoverable here did not turn on this issue. However, Simon Birt KC set out his view that nothing in the terms of the indemnity to suggested that it intended to incorporate the rules on remoteness of damage for breach of contract. If, as a result of a detention, for example, the charterer had suffered a penalty, there would be no reason to conclude that fell outside the scope of the indemnity, even if unforeseeable. He emphasised  that his conclusions were based on the terms of clause 13 and the facts and circumstances of this case and did suggest that an express indemnity in any contract will always be interpreted to include losses that would fall outside the remoteness rules for breach of contract, nor did they deal with anything in relation to the scope of the implied indemnity under a time charter.

(2). The breach of warranty.

Vitol could also claim their losses by way of a breach of a warranty in the charter  that “at the time of and immediately prior to fixing the charter, the vessel, owners, managers and disponent owners are free of any encumbrances and legal issues that may affect vessel’s approvals or the performance of the charter. Al-Iraqia were held to fall within the warranty by virtue of their description as “managers” within the clause, and, had it been necessary to determine, whether they also fell within the clause as “owners” or “disponent owners” Simon Birt KC would have held that they did fall within that description. At the time of and immediately prior to fixing the charter, Al-Iraqia was not “free of any encumbrances and legal issues that may affect the Vessel’s approvals or the performance of the charter.” When the charter was agreed on 27 March 2020, London arbitration was already on foot in relation to vessels other than the one subsequently arrested in Ghana. The word ‘may’ imposed a low bar and the London arbitration was a legal issue affecting Al-Iraqia at the relevant and it was possible that issue could affect the performance of the Charter, and indeed did so.

The Congo bills of lading were dated 12 May 2020 and Vitol claimed a loss of on the basis that had there been no delay due to the arrest Congo bills of lading would have been dated 6 May 2020 and Vitol would have paid its seller a lower price for the cargo. Rhine put forward three arguments as to why it should not be liable. First, it put Vitol to proof that, even without the arrest in Ghana, the vessel would have loaded at the Congo port in sufficient time to obtain bills of lading dated 6 May 2020 for the cargo loaded there. Second, any loss Vitol had suffered had been reduced by Vitol’s hedging arrangement and so insofar as so reduced it was not recoverable from Rhine. Third, even if Vitol’s loss had not been so reduced in fact, the only loss that was recoverable as not too remote was loss that would still have been suffered if those hedging arrangements had so reduced the loss.

Simon Birt KC rejected all three arguments. First, had there been no delay due to the arrest in Ghana, there was certainly a real or substantial chance that Vitol’s Congo seller or the Congo terminal would have acted in such a way as to lead to the issue of  a bill of lading dated 6 May. There would be no discount to be applied for any “chance” that the bills of lading might not have been dated 6 May. Second, the transactions by which the Swaps were rolled were not external transactions, but were internal to Vitol. The rolling of the internal Swaps by which the pricing risk on the Congo sale contract arising from the delay was transferred between Vitol portfolios, did not make good any loss to Vitol. Unlike an external hedge, one transaction would not have been entered into for the purpose of managing the specific pricing risk arising from an identified risk from an existing transaction. Third, the loss claimed by Vitol was of a type that was usual in respect of a charter such as this, and was reasonably within the contemplation of the parties at the time of contracting. there was no evidence to the effect that there was a “general expectation” in the market that shipowners would not expect to bear this type of loss, such as had been the case in The Achilleas [2009]1 AC 61 (HL).