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.

Halcyon times for shipowners – not so good for physical bunker suppliers.

 

 

A victory for owners in the latest round of arrests by physical bunker suppliers left unpaid by their contracting party, the time charterers. In The Sam Hawk [2016] FCAFC 26 the Full Court of the Federal Court of Appeal of Australia has just held that a claim by bunker suppliers, which would not constitute a maritime lien under Australian law, did not constitute a “proceeding on a maritime lien” under s15(1) of the Admiralty Act 1988 (Cth) (Act). A foreign maritime lien would be recognised, but only if it was analogous to the four categories of lien set out in s15(2) – salvage, damage done by a ship; wages of the master, or of a member of the crew, of a ship; master’s disbursements.

 

The claim arose out of a supply of bunkers to the vessel in Istanbul by a Canadian bunker supplier. Its contract with the time charterer expressly provided that the “laws of the United States and the State of Florida” applied “with respect to the existence of a maritime lien”. The bunker supplier argued that this contractual provision showed that the lex causae was that of the US, which recognises claims by suppliers of necessaries to vessels as a maritime lien.

 

The Court of Appeal unanimously rejected this argument as there was no privity of contract between the bunker supplier and the vessel. For this reason the arrest did not fall under s.17 of the Admiralty Act which covers statutory liens, as the shipowner was not the ‘relevant person’ a “relevant person” who would be liable on the claim in a proceeding commenced as an action in personam. The claim was non-contractual and could be subject to Turkish law as the place of supply, or to the law of Hong Kong where the vessel was flagged. No evidence had been led as to the law on maritime liens in Turkey or Hong Kong and the Court of Appeal dealt with the matter on the assumption that the law of the forum, Australia, applied – under which a claim for necessaries supplied to a vessel did not constitute a maritime lien.

 

The Court of Appeal then went on to consider the position had the bunker suppliers made out their allegation that the lex causae was that of the US. Four of the five Justices, Rares J dissenting, were of the view that the claim would still not fall within s. 15(1) of the Admiralty Act as it did not constitute a maritime lien under the law of Australia, the lex fori, a position previously adopted by the Privy Council in The Halcyon Isle [1981] AC 221.

No package limitation for bulk cargo under Hague Rules.

 

In The Aqasia [2016] EWHC 2514 (Comm) the English High Court has determined the effect of Article IV r.5 of the Hague Rules which provides that the carrier’s liability for loss or damage to or in connection with goods shall not exceed £100 “per package or unit”. The shipowners argued that Article IV r.5 can be applied to bulk or liquid cargo by reading the word ‘unit’ as a reference to the unit used by the parties to denominate or quantify the cargo in the contract of carriage, relying on the description of the cargo in the charterparty as “2,000 tons cargo of fishoil in bulk”. The cargo claimants argued that the word ‘unit’ can only refer to a physical item of cargo, or to a combination of physical items bundled together for shipment.

 

Sir Jeremy Cooke, sitting as a judge of the High Court, found in favour of the cargo claimants’ contention, concluding that “[t]he word “unit” in Article IV Rule 5 of the Hague Rules is not apt to apply to bulk cargoes and that even if it could apply, the only legitimate application would be by way of interpreting the word “unit” as “freight unit”. This cannot be done in the present case in a way which gives rise to a lower limitation figure than the claim because of the lump sum nature of the freight.”

 

 

Brexit judicial review latest.

 

 

Lord Chief Justice Thomas has now started hearing the judicial review proceedings brought by investment manager Gina Miller to determine whether the Prime Minister can give notice under article 50, without the prior authorisation of  Parliament. Any appeal will be leapfrogged to the Supreme Court to enable a final decision to be given before the end of the year on this matter of fundamental importance.

Breaking the unbreakable. Owners’ limitation claim scuttled.

 

Under article 4 of the 1976 LLMC the right to limit is lost if the party challenging limitation can prove that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result. This is an extremely high hurdle to surmount and the right to limit has been regarded as virtually unbreakable – until now.

 

In The Atlantik Confidence Kairos Shipping Ltd & Anor v Enka & Co LLC & Ors [2016] EWHC 2412 (Admlty) (11 October 2016) Teare J. held that the right to limit was lost in circumstances where the cargo was lost following a decision by the owners to scuttle the vessel. Cargo had managed to establish that the vessel was lost due to a deliberate starting of a fire by the master and chief engineer upon the instructions of the  alter ego of the Owners, Mr. Ahmet Ali Agaoglu, the sole shareholder and director. Teare J. concluded: “In those circumstances the loss of the cargo resulted from his personal act committed with the intent to cause such loss. The loss of the cargo was the natural consequence of his act as he must have appreciated. There can be no doubt that he intended the cargo to be lost just as much as he intended the vessel to be lost.”

Everybody out! Brexit by April 2019

 

 

The Prime Minister today has announced her intention (a) to trigger article 50 by the end of March 2017 at the latest and (b) to introduce a Great Repeal Bill to convert all EU legislation into UK law on the date of leaving the EU and to repeal the 1972 European Communities Act 1972 at the same time. Doubtless, there will be scrutiny of the EU legislation involved with a view to amendment or repeal post Brexit – a task that could keep government lawyers busy for years beyond our departure from the EU.

 

There have been predictable noises off about a so-called Scottish veto on the Bill but as stated in a previous blog it is very unlikely that this exists and the most that could be done would be for SNP Members of Parliament to vote against it in Parliament.

 

Watch out, too, for revival of the judicial review proceedings commenced earlier in the summer on the issue of whether article 50 has to be triggered by Parliament or whether the Prime Minister may go it alone under the Royal Prerogative. Whatever the first instance decision it is inevitable that there will be a leapfrog appeal to the Supreme Court. Lots for lawyers to look forward to in the new year.

What’s in a name? From DECC to DBEIS to OGA.

On 1 October 2016 the Energy Act 2016 (Commencement No.2 and Transitional Provisions) Regulations 2016 (the “Regulations”) will bring into force most of the sections of the Energy Act  2016 which relate to oil & gas operations. Various powers will be transferred from the former Department of Energy and Climate Change (‘DECC’) – which became the Department for Business, Energy & Industrial Strategy (‘DBEIS’) over the summer – to the Oil and Gas Authority (‘OGA’). The powers transferred will be the licensing and regulatory powers, and decommissioning powers, under the Petroleum Act 1998, as well as certain powers relating to assessment of offshore tax liability. DBEIS remains the principal environmental regulator for the offshore oil and gas industry and the changes should not materially affect the operation of the Offshore Safety Directive Regulator (‘OSDR’), responsible for overseeing industry compliance Offshore Safety Directive 2013. The OSDR is a partnership between the Health and Safety Executive and DBEIS.

Tomorrow the movie ‘Deepwater Horizon’ opens worldwide. A must-see for all concerned with offshore oil and gas operations.

Charterers recover consequential loss of time in addition to off-hire.

 

 

London Arbitration 24/16 provides a salutary reminder to owners that charterers may recover additional time to that allowed for under the off-hire clause, if the off-hire event is also a breach of contract by owners. A trip charter had been concluded on NYPE 1946 form with additional rider clauses, the relevant one being cl. 7. This provided: a warranty that on arrival at 1st loading port the holds should be clean and ready to receive charterers’ cargo in all respects; if the vessel failed the hold survey by the shippers’ surveyor then the vessel was to be placed off-hire from the time of rejection until the time of acceptance in all holds; any extra directly-related costs/expenses/time therefrom to be for owners’ account.

 

The vessel failed her holds survey and on passing it, the vessel had lost her turn to berth and it was a further week before she eventually berthed. The owners argued that the off-hire provision in cl. 7 was conclusive as to the amount of time that charterers could claim and that the vessel would be off hire only for the 70 hours between failing and then passing the survey. The tribunal held that additional time consequential on the failure of the hold survey could be recovered by reason of the owners’ breach of their clean holds warranty in the first part of cl. 7. The additional time spent in waiting for a berth after the vessel reentered the berthing queue was directly related to the breach of the warranty. That appropriate form of compensation was that charterers were relieved of the obligation to pay hire for that time.

 

FOB Sellers liable to Buyers for shortage and overshipment.

 

 

London Arbitration 23/16 is an interesting award on the obligation of fob sellers in delivering the correct quantity of goods to the vessel/s nominated by the buyers. The sellers concluded three fob sales for a total of 12,000 mt straight steel bars of different qualities and specifications, which were subject to two shipments. There was a shortage on the first shipment, and an excess discharged on the second shipment which included bundles of 10 mm bars with white painted ends that should not have formed part of the cargo for that vessel.

The buyers successfully claimed damages from the sellers for (a) the compensation paid to receivers for the shortage and (b) compensation paid to shipowners in respect of delays to the discharge of the vessel, detention of the vessel following discharge, shifting expenses and a fine, consequent upon the over-shipment. The type of loss – expenses on shifting at orders of port authority consequent on discharge of excess cargo – was reasonably foreseeable.

The tribunal held that sellers’ were in breach of their obligation to place the correct quantity and quality of cargo on board the vessels nominated by the buyers, and this obligation was not limited to delivering the steel to the forwarding agent. Clause 4 of the contract specifically stated that this was an fob contract and its meaning was not affected by the fact that there was no specific requirement for the buyers to nominate a vessel.

The tribunal rejected the sellers’ argument that the chain of causation had been broken by the failure of the masters of the two vessels to issue accurate bills of lading. The bills of lading did not identify the different bar sizes loaded but simply stated the total number of bundles and the total weight of the cargo under the heading “Shipper’s description of goods”, and stated “shipped in apparent good order and condition … weight, measure, quality, quantity, condition, contents and value unknown”. It was fanciful to suggest that the master of the first vessel should have been aware that there was a shortage of 70 bundles out of 2793 bundles, or that the master of the second vessel should have been aware that he was loading a quantity of 10 mm bars with white markings which should not have formed part of that shipment.

 

Hanjin Rehabilitation. Claims by Owners and the UK Recognition Order

 

 

As well as having its own vessels, Hanjin is also believed to have time chartered a substantial number of vessels. It is a good bet that many of those charters will be subject to London arbitration and English law. The Hanjin collapse will see those shipowners making claims against Hanjin, such as for damages for the unexpired residue of the charters following their termination, (an issue on which the Court of Appeal’s decision in Spar Shipping is eagerly awaited).

Shipowners will also seek to claim against third parties connected with Hanjin, by exercising liens on sub-freights against parties who have sub-chartered from Hanjin, or by claiming freight due under shipowners’ bills incorporating the terms of those sub-charters. The mechanism for making such claims is by giving notice to the sub charterer or to the bill of lading shipper that payment is to be made to owners and not to Hanjin, and hoping that the freight hasn’t already been paid. However, the basis of the two types of claim is quite different. The nature of the lien on sub freights has not been definitively ascertained under English law, but the better view is that the lien operates as an equitable assignment giving  rise to a floating charge over the charterer’s asset, its contractual right to sub-freights. The claim to freight under the bill of lading on the other hand is a claim under a separate contract between the shipowner and the shipper.

Following the rehabilitation proceedings in South Korea (which are similar to US Chapter Eleven proceedings), recognition orders have been obtained in various jurisdictions including the UK. Under article 20(1) of the UNCITRAL Model Law, which is given the force of law by the Cross-Border Insolvency Regulations 2006, there will be then be an automatic stay of certain actions, such as commencement or continuation of actions or proceedings against the debtor or its assets, or execution against a debtor’s assets. The stay will effect any arbitration proceedings against Hanjin, or its sub-charterers against whom the lien on sub-freights has been exercised. However, article 20 (6) provides that the court has power to modify or terminate the automatic stay and to do so upon such terms and conditions as it thinks fit. Article 20(2) requires the court to apply the same test and principles as it would apply to the stay of a winding up order under section 130(2) of the Insolvency Act 1986 which gives the court a free hand to do what is right and fair according to the circumstances of each case. The stay will usually be lifted when disputed claims need to be resolved by proceedings and it is right and fair in all the circumstances to accept and implement this need.

Last year in proceedings arising out of another set of rehabilitation proceedings involving a South Korean charterer, Re Pan Ocean Co. Ltd Pan Ocean); subnom another  v. Pan Ocean Co Ltd and another [2015] EWHC 1500 Ch, the discretion was exercised in favour of allowing arbitration proceedings to continue, although the owners’ application to the Company Court was made however on the basis that they would not seek to enforce any arbitration award or subsequent judgement against the assets of Pan Ocean. This follows a similar result in Cosco v Armada [2011] EWHC 216 (Ch), a case involving a recognition order of Swiss bankruptcy proceedings against a time charter. Briggs J allowed the stay to be lifted in respect of owners’ arbitration proceedings against sub-charterers, pursuant to the lien on sub-freights. This was subject to a condition that after an award in owners’ favour had become final, charterers should have the opportunity to restore the matter to the court, in the event that any aspect of the interests of its creditors or office-holder have not been addressed by the arbitrators, or upon appeal.

However, a claim to freight under the bill of lading, as a contractual claim against the shipper, should not be affected by the recognition order unless the freight exceeded the amount of owners’ claim in which case the surplus would be held on account of the time charterer.

As a post-script it may well be that under South Korean insolvency law the rehabilitation proceedings will not affect the exercise of a lien on sub-freight. This was the position in The Bulk Chile [2012] EWHC 2107 (COMM). It was there argued at first instance that the lien on sub freight was subject to the Comprehensive Stay Order, designed to suspend creditors’ compulsory enforcement, which is defined in article 44 of the Debtor Rehabilitation and Bankruptcy Act as meaning, among other things, “the compulsory auction sale proceedings for the execution of security interests”. Andrew Smith J heard conflicting evidence from South Korean lawyers on this and concluded that the Stay Order did not affect the exercise of the lien. He stated [69]:

“Mr Kim’s suggestion of such a purposive construction of the statute is advanced in tentative terms. “Mr Choi firmly rejected it in a report in response dated 22 June 2012, and cited in support of his opinion the views of the Bankruptcy Division of the Seoul court published by them in “Practice in Rehabilitation Cases”. His opinion is in line with a decision of the Seoul court of 21 December 2011 in case no 2011 Hoehwak 382.” I cannot accept that Mr Kim’s suggestion represents the present state of Korean law, and I conclude that the orders of the Seoul court afford the defendants no answer to the lien claims. I uphold the lien claim against Metinvest.”

 

OWB Bunkers. Arrests by physical suppliers in US.

 

 

The OWB Bunker saga has placed owners on the horns of a dilemma. Pay ING as assignee of OWB or pay the physical supplier? Owners certainly do not want to have to pay twice. Three recent arrest cases in the US by the physical suppliers indicate that they will not obtain a maritime lien for necessaries. Valero Marketing & Supply Co v M/V ALMI SUN, 2016 US Dist 2016 AMC 632 (ED La Feb 8 2016); O’Rourke Marine Servs LP, LLP v M/V COSCO HAIFA, 2016 (SDNY April 8 2016);Bunker Holdings v M/V YM SUCCESS, 2016 (WD Wash June 6 2016).

There are three elements to the maritime lien for necessaries. 1. Necessaries must be furnished (2) to a vessel (3) on the order of the owner or person authorised by the owner. In these three decisions by district courts it has been held that a person with authority to bind the vessel must have some control over the subcontractor’s selection or performance in order for the subcontractor to have a maritime lien for necessaries. Accordingly, the third requirement for a maritime lien had not been satisfied as OW Bunker selected the physical supplier without the direction or involvement of the party with authority to bind the vessels. The Fifth Circuit is expected to give its decision in the Valero appeal by the end of the year.