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.

Economic loss and limitation under Hague-Visby Rules. The Limnos not followed.

Trafigura Pte Ltd v TKK Shipping Pte Ltd (Rev1) [2023] EWHC 26 (Comm) (13 January 2023) involved a point of law relating to what is meant by Article IV(5)(a) of the Hague-Visby Rules which limits the carrier’s liability to a sum based upon the weight of the “goods lost or damaged”. The ‘Thorco Lineage’ carried cargo from the US to Australia under a bill of lading issued in Switzerland. Following an engine failure, the salvors re-floated the vessel, and obtained a lien on the cargo in respect of the cargo interests’ liability for salvage remuneration. A small part of the cargo was also physically damaged in the re-floating efforts. The claimants incurred four heads of loss which they claimed were the result of the carrier’s breach of contract.

i) Liability to pay the Salvors US$7,355,000.

ii) Physical loss and/or damage to the cargo US$278,658.31.

iii) On-shipment costs in respect of the cargo (some of which was physically damaged and some of which was not) US$723,831.85.

iv) Costs incurred in arranging for the salvage sale and/or disposal of some of the physically damaged cargo US$58,934.74.

The dispute was whether the words “goods lost or damaged” refer and refer only to physically lost or damaged goods. In this case there were two such expenses, salvage payable pursuant to LOF and the cost of on-shipping goods from a place of safety to the port of discharge, resulting in a diminished value for the merchant at the port of discharge to the extent of the additional expense which he has incurred. The goods were clearly economically “damaged”. Teare J departed from the previous first instance decision of Burton J in The Limnos [2008] 2 Lloyd’s Rep 166 in finding that “goods lost or damaged” means “goods lost or which survived in damaged form”. Teare J held that “goods lost or damaged” includes goods which are economically damaged. The travaux préparatoires were of no assistance as there was no discussion of the meaning of the words “goods lost or damaged”. Under Article IV r.5 (a) the liability of the Defendant in respect of the Claimant’s liability to the Salvors was limited to 2 SDRs per kilogramme of the whole cargo. Likewise the liability of the Defendant in respect of the on-shipment costs incurred by the Claimant was limited to 2 SDRs per kilogramme of the whole cargo.

Teare J then considered the position based on the assumption that Burton J’s decision in The Limnos was correct. First, the cargo in this case was physically damaged in that it was subject to the salvor’s maritime lien and so the Claimant’s proprietary or possessory title to the cargo was damaged and therefore the liability of the defendant in respect of the claimant’s liability to the salvors would be limited to 2 SDRs per kilogramme of the whole cargo. However, the maritime lien did not extend to the on-shipment costs incurred by the Claimant. Teare J accepted the submission of Counsel for the Defendants that if there is economic loss or damage in connection with the goods which were the subject of the contract of carriage then, if there is also physical loss or damage to such goods, the carrier’s liability for the economic loss or damage is limited by reference to the weight of the physically lost or damaged goods and if there is no such physical loss or damage then the carrier’s liability for the economic loss lor damage is unlimited. The limit of the Defendant’s liability in respect of the on-shipment costs would be based upon 2 SDRs per kilogramme of the physically lost or damaged cargo.

What’s coming in 2023?

What’s coming in 2023?

Nearly two weeks into the New Year and the IISTL’s version of ‘Old Moore’s Almanack’ looks ahead to what 2023 is going to have in store us.

Brexit. EU Retained EU Law (Revocation and Reform) Bill will kick in at end of the year. It will be a major surprise if the two Conflicts Regulations, Rome I and Rome 2 aren’t retained, but not the Port Services Regulation.

Ebury Partners Belgium SA/NV v Technical Touch BV, Jan Berthels [2022] EWHC 2927 (Comm) is another recent decision in which an ASI has been granted to restrain proceedings in an EU Member State (Belgium) in respect of a contract subject to English jurisdiction.

Electronic bills of lading. Electronic Trade Documents Bill. Likely to become law in 2023 and to come into effect two months after getting Royal Assent. The Law Commission will publish a consultation paper “Digital assets: which law, which court?” dealing with conflicts of law issues in the second half of 2023.

Autonomous vessels. The Department for Transport consultation on MASS and possible amendments to the Merchant Shipping Act 1995 closed in November 2021. Maybe some results in 2023?

Supreme Court cases

Okpabi v Royal Dutch Shell. The case may well go to trial in 2023, although in May 2022 the High Court EWHC 989 (TCC), held it was premature to grant a Group Litigation Order and directed that each individual claimant should specify additional details to formulate a proper cause of action for the defendants to respond to.

In similar proceedings in the Netherlands in which the Court of Appeal in the Hague gave judgment in January 2021 relating to multiple oil pipeline leaks in the Niger Delta, it was announced just before Christmas 2022 that Shell will pay 15 million euros ($15.9 million) to the affected communities in Nigeria in full and final settlement on a basis of no admission of liability.

The Eternal Bliss appeal to the Supreme Court is likely to be heard in 2023, with possibility of judgment given in 2023.

But there must be a question mark over London Steam-ship Owners’ Mutual Insurance Association Ltd (Respondent) v Kingdom of Spain (Appellant), Case ID: Case ID 2022/0062 where it is stated “This appeal has been adjourned by request of the parties.”

Climate Change

IMO Two measures aimed at reducing shipping’s contribution to GHG emissions, EEXI and Cii, both came into force as from 1 January 2023 and will be in the forefront of the minds of those negotiating new time charters.

EU. Shipping is likely to come into the ETS system with the amendments to the 2003 ETS Directive with phasing in from 1 January 2024. Here and here.

BIMCO has produced time charter clauses to deal with all three of these measures.

Ewan McGaughey et al v. Universities Superannuation Scheme Limited is a case involving whether the investments in fossil fuels by a large pension fund in the UK breach the directors’ fiduciary duties and duties towards contributors of the pension fund. On 24 May 2022, the High Court refused permission to bring a derivative action against USSL, but the Court of Appeal gave permission to appeal in October 2022, so a hearing in 2023 is “on the cards”.

European Union

On 15 July 2022, the EU Taxonomy Complementary Climate Delegated Act covering certain nuclear and gas activities came into force on 4 August 2022 and has applied from 1 January 2023. A legal challenge against the Commission before the CJEU by various NGOs and two member states, Austria and/or Luxembourg has been threatened in connection for the inclusion of nuclear energy and natural gas in the Delegated Act. Climate mitigation and adaptation criteria for maritime shipping, were included in the EU Taxonomy Climate Delegated Act adopted in April 2021.

Previous requests from other NGOs asking the Commission to carry out an internal review of the inclusion of certain forestry and bioenergy activities in the EU green taxonomy had already been rejected by the Commission in 2022.

The Corporate sustainability reporting directive came into effect on 16 Dec, 2022

For EU companies already required to prepare a non-financial information statement, the CSRD is effective for periods commencing on or after 1 January 2024. Large UK and other non-EU companies listed on an EU regulated market (i.e. those meeting two of the three following criteria: more than €20 million total assets, more than €40 million net turnover and more than 250 employees) will be subject to the CSRD requirements for periods commencing on or after 1 January 2025.

UK and other non-EU companies that are not listed in the EU but which have substantial activity in the EU will be subject to the CSRD for periods commencing on or after 1 January 2028.

Finally, a very happy 2023 to all our readers.

Under pressure. Duress and non-contractual waiver.

In London Arbitration 33/22 a shipyard claimed in London arbitration for the balance under a final repair invoice and the shipowners claimed for breach of contract and delay in completion of the repairs. A principal issue was whether the shipowners were entitled to make such claims due to the fact that their agent had signed a final agreed invoice in the sum of US$1,712,222 which contained the following waiver:

“Owners are accepting this invoice unconditionally and in full and final settlement of the repairs of [the vessel] in [the yard]. It is expressly stated that repairs carried out and completed to fill (sic) satisfaction of Owners/Representatives/Their and no (sic) any claim/losses can be raised. The warranty as per article 12 from the contract remains in full.”

Article 12 of the ship repair agreement provided that the yard “guarantees the quality of the performed repair works and of the materials and equipment used for the repairs, for a period of 3 (three) months counting as from the date of the completion of the repairs and re-delivery of the vessel” and went on to provide “In any event, the SHIPYARD’S liability for all and any guarantee repairs shall not exceed 10 % of the price of the repairs under this Agreement.” Article 13.4 provided “The yard shall in no case be held responsible for any indirect damages, incl. due to loss of charter or loss of earnings of the vessel.”

Owners paid the first instalment of the invoice and the vessel left the yard the following day, but did not pay the second and third instalments which came due one month and two months later.

At the hearing one of owners’ witnesses, one of the owners’ witnesses, the technical manager at the vessel’s managers, gave evidence that in final negotiations the yard had agreed to a 10 per cent discount but he was then presented with a settlement agreement which included the waiver in dispute. He was told that if he did not sign the vessel would not be permitted to sail and could be delayed for months and was given one hour to decided. He concluded that there was no alternative but to sign. The tribunal accepted his evidence. He had been given authority to agree the final invoice without a waiver, but the yard’s insistence on including a non-contractual waiver in the final invoice was unlawful, and therefore amounted to illegitimate pressure, as was the threat to refuse to allow the ship to sail by exercising a non-contractual lien with no common law basis. It was not realistic for the owners to have been expected to make an urgent application to the Commercial Court for an order to release the vessel, or commence arbitration proceeding for an expedited order.

Owners were therefore entitled to bring their counterclaims which mostly succeeded albeit at lower amounts. However, their claim that because of the delay of 62 days in completion of the repair works, they lost the opportunity to trade the vessel in a rising market was rejected. The parties did not intend to include loss of hire or loss of earnings as a consequential loss. The owners had included a penalty of US$12,000 per day in Article 12 which covered their direct losses because of delay. If loss of earnings was covered under clause 13.4, there would be no need to include a penalty for delay.

The yard was awarded the sum of US$852,222.22 (the balance under the final invoice) less US$396,449.21 on account of owners’ counterclaim, giving a sum due of US$455,773.01.

The yard claimed interest under Article 10 of the repair contract which provided for interest at 0.1 per cent per day, effectively 36.5 per cent per annum and owners argued that it should be struck out as penal.

Although the tribunal accepted that the general commercial practice was for interest rates to be at least 10 per cent above the national base rate, the rate of 0.1 per cent per day was excessive and should not be applied to any sum due to the yard.

Exercising its discretion under s.49 of the Arbitration Act 1996, section 49, the tribunal awarded interest at the rate of 4.5 per cent per annum compounded at three-monthly intervals upon the sum of US$455,773.01 due under the final invoice after deduction of owners’ counterclaims, from 30 days after the date of the final invoice until final payment.

Shipping and the EU Emissions Trading Scheme. It’s going to cost you from 2024 onwards.

Over the last two years the proposed inclusion of shipping in the Emissions Trading Scheme has bounced around the organs of the EU in the trilogue procedure. The EU Parliament’s initial proposal of 16 September 2020 was to amend the MRV Regulation 2015/757 and to include ships of 5000 grt and over in the ETS for all voyages into and out of a port in the EU including from and to ports outside the EU, starting on 1 January 2022. The shipowner, demise charterer, and time charterer would all be responsible under the ETS for the costs of acquiring ETS allowances.

The Commission responded on 14 July 2021 https://iistl.blog/2021/07/14/bastille-day-eu-commissions-present-to-the-shipping-industry/with a proposal to amend the 2003/87/EC directive establishing the Emissions Trading Scheme (‘ETS Directive’) so as to include maritime transport within the ETS but with only 50% cost for CO2 emissions on a voyage from or port outside the EU to one in EU, and to a voyage from the EU to a port outside the EU. There would be a phase in period between 2023 and 2026 for surrender of allowances. Only the shipowner and demise charterer would be responsible for allowances.

The Parliament made various counter amendments in June 2022 as did the Council, noted in here https://iistl.blog/2022/07/06/eu-inclusion-of-shipping-in-the-ets-latest-developments/.

On 18 December 2022, hopefully before the World Cup Final took place, the Parliament and Council made a provisional agreement as outlined in the press release quoted below. The text of the agreement has yet to be released but the press release quoted below indicates agreed amendments to the Commission’s proposed amending of the ETS Directive.

“EU ETS maritime

The Council and Parliament agreed to include maritime shipping emissions within the scope of the EU ETS. They agreed on a gradual introduction of obligations for shipping companies to surrender allowances: 40% for verified emissions from 2024, 70% for 2025 and 100% for 2026.

Most large vessels will be included in the scope of the EU ETS from the start. Big offshore vessels of 5000 gross tonnage and above will be included in the ‘MRV’ on the monitoring, reporting and verification of CO2 emissions from maritime transport regulation from 2025 and in the EU ETS from 2027. General cargo vessels and off-shore vessels between 400-5 000 gross tonnage will be included in the MRV regulation from 2025 and their inclusion in EU ETS will be reviewed in 2026.

In addition, the agreement takes into account geographical specificities and proposes transitional measures for small islands, ice class ships and journeys relating to outermost regions and public service obligations and strengthens measures to combat the risk of evasion in the maritime sector.

Certain member states with a relatively high number of shipping companies will in addition receive 3.5% of the ceiling of the auctioned allowances to be distributed among them.

The co-legislators agreed to include non-CO2 emissions (methane and N2O) in the MRV regulation from 2024 and in the EU ETS from 2026.”

www.consilium.europa.eu/en/press/press-releases/2022/12/18/fit-for-55-council-and-parliament-reach-provisional-deal-on-eu-emissions-trading-system-and-the-social-climate-fund/

It now looks clear that shipping is going to be brought into the EU’s ETS in just over a year’s time. This will entail added costs to voyages into and out of the EU which will fall on owners and bareboat charterers. It should be noted that, although the UK has established its own ETS, this does not currently include shipping.

An example of these coming ETS costs was given by Safety4Sea in late September 2022, https://safety4sea.com/prepare-for-higher-shipping-costs-but-the-eu-ets-should-be-a-manageable-change/, who posited the example of a voyage from Brazil to Rotterdam, using a carbon credit price of $85 per metric tonne of carbon emitted, a similar figure to the current price of $85.20 per m/t. The example has been updated in line with the recently agreed phase-in period.

The example takes a Capesize dry bulk voyage carrying iron ore from Ponta da Madeira in Brazil to Rotterdam (4,100 nm). Assuming a Capesize speed of 14 knots this would take around 12 days: at 62 tonnes per day this corresponds to 744 tonnes of fuel consumed, emitting 2,300 tonnes of CO2. As the voyage starts outside Europe, only half of the emissions qualify for allowances – 1,150 tonnes.

40% of this will need to be covered for 2024– 460 tonnes. Therefore, at a carbon credit price on 13 December 2022 of just over EUR 85/mt of carbon emitted, the total cost for the carbon allowance would be EUR 39,100, plus a small addition for consumption in port. This compares with a fuel cost for the voyage of around EUR 520,000 (equivalent to 8%).

But two years later, in 2026, the cost for the carbon allowance would rise to 100% almost EUR 100,000 – equivalent to 20% of the total fuel bill for the voyage

For voyage charters to and from the EU, these costs will likely be reflected in increased freight rates for voyages in and out and within the EU. For time charters, although charterers bear the cost of bunkering the vessel during the currency of the charter, that does not mean that owners will be able to recover the costs of ETS allowances from them. Assuming that the EU is a permitted trading area, there is no mechanism for owners under the standard form time charters by which to recover these additional costs. The express or implied indemnity will not work, as these costs will be regarded as the natural costs of trading, as was the case in The Dimitris L [2012] EWHC 2339; [2012] 2 Lloyd’s Rep. 354, where the time charterers’ orders to proceed to the United States did not entitle the owners to be indemnified against the cost of U.S. Gross Transportation Tax.

However, specific clauses may be developed to deal with the apportionment of ETS costs. One such clause was is BIMCO’s Emissions Trading Scheme Agreement for Time Charterparties released on 31 May 2022.

The clause, which is not limited to the EU ETS, provides a mechanism for making the time charterer responsible for providing and paying for emission allowances with both parties cooperating and exchanging data necessary to facilitate compliance with any applicable ETS scheme and to calculate the amount of allowances that need to be surrendered for the period of the charterparty.

While the vessel is off-hire the charterers have the right to offset any allowances due or to require owners to return a quantity of emission allowances equivalent to that for which the charterers would have been responsible for this period had the vessel been on hire.

If charterers fail to transfer any emission allowances in accordance with the provisions in the clause, owners may suspend performance of all or any of their obligations, on giving charterers five days notice, until the time owners receive the emissions allowances in full. During this period of suspension the vessel is to remain on hire and owners are to have no responsibility whatsoever for any consequences arising out of the valid exercise of this right. The right of suspension is without prejudice to any other rights or claims owners may have against charterers under the charterparty.

Unlike many BIMCO clauses, there is no provision for the incorporation into any bills of lading or waybills issued under the charter. This makes sense as ensuring the time charterers bear the financial consequences of acquiring ETS allowances required during the currency of the charter will not directly impact on third party holders of bills of transport documents. This may happen, though, with delay due to owners operating their rights to suspend services under the clause in which case owners would be able to pass on to charterers any resulting liabilities incurred to such third parties.

What is the contract of carriage of goods by sea? Booking note or sea waybill?

Poralu Marine Australia Pty Ltd v MV Dijksgracht – [2022] FCA 1038 is an interesting case 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.

Between 6 and 11 December 2019, 23 pontoons and 11 pallets were loaded on board the motor vessel Dijksgracht at the port of Cork, Ireland, as breakbulk cargo. The cargo of 23 pontoons and 11 pallets was loaded at Cork on The Dijksgracht and was consigned to Poralu Marine Australia Pty Ltd, for installation at the Royal Geelong Yacht Club. The cargo was discharged on or about 13 February 2020 at Geelong and it was alleged that three pontoons were discharged damaged having been loaded in sound condition. Poralu brought actions in bailment and negligence against the shipowner, RT, in rem and against ST as carrier, in personam

The carriage agreement began with a series of emails between Poralu and ST, between 7 and 9 November 2019, culminating in an unsigned booking note issued by ST which Poralu accepted on 20 November 2019. The booking note, which provided that it was to “prevail over any previous arrangements”, was accepted by Poralu on 20 November 2019. After loading ST issued a sea waybill was issued acknowledging receipt of the cargo in good order and condition. The sea waybill contained a “Himalaya Clause” under which RD as owner was entitled to the benefit of:

Poralu alleged that the cargo was loaded on board the vessel in sound condition and that three pontoons were found to have been damaged when the cargo was discharged. Poralu commenced two actions for damages arising from the alleged damage to the cargo, 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.

An issue arose as to the applicable limitation figure in respect of the three damaged pontoons. Poralu asserted that the contract of carriage was concluded in the recap in the emails, so that there was a binding arrangement in advance of the acceptance of the booking note. On that basis the contract was subject to and incorporated the Australian Hague Rules and that it was a term of the contract of carriage that a bill of lading would be issued to Poralu in respect of the cargo either immediately or on request. Under the Australian Hague Rules the limitation figure would be that in the 1979 SDR Protocol to the Hague-Visby Rules.

The two defendants denied negligence and claimed that the contract of carriage was subject to the terms and conditions of ST’s booking note which applied the law of the Netherlands and incorporated the terms of Articles I-VIII of the Hague Rules 1924 and therefore excluded the operation of the Australian Hague Rules under the Carriage of Goods by Sea Amendment Act 1997 (Cth) and the Carriage of Goods by Sea Regulations 1998 (Cth). The booking note stated specifically that liability was limited to £100 lawful money of the UK per package or unit. ST and RD argued that the Hague Rules had been incorporated and that such incorporation excluded the application of the Australian Hague Rules.

Stewart J held that the liability of ST was limited to £100 UK money per package, and that applied to the claims in bailment and negligence. The court’s starting point was that the Australian conflict of laws rule for determining the question whether a contract was concluded is the law of the forum (in contrast to the English conflict rule which applies the law of the putative contract). A binding contract had not been concluded at the end of the initial email exchanges but came into being with the acceptance of ST’s booking note which contained all of the terms previously agreed in the recap and filled in the gaps, so that it constituted an offer capable of acceptance, and it was immaterial that it was unsigned. The booking note anticipated the issue of a bill of lading or a sea waybill, and provided that the booking note would prevail over the terms of such a document. The sea waybill that was issued made no change in the contractual relationship. The sea waybill was not a contractual document at all but a receipt only, as was the case with the bill of lading received by the fob charterer in The Dunelmia. The overriding clause in the booking note meant that the terms of the booking note prevailed over the sea waybill. Further, the booking note, which had been found by the court to be a contractual document, preceded the shipment of the cargo, whereas the sea waybill was only agreed and issued long after the cargo had been shipped

Applying Dutch law, to which the booking note was subject, the Hague-Visby Rules were not applicable. The Dutch law experts disagreed regarding the application of the Hague-Visby Rules where the carrier and the shipowner did not agree, when concluding the contract, whether or not a bill of lading or sea waybill will eventually be issued. They disagreed about whether the mere existence of the unexercised right of the shipper to demand a bill of lading (pursuant to Art 3(3) of the Rules or Art 8:399 of the DCC) was sufficient for the material application of the Rules or whether the shipper had actually to exercise its right to demand a bill of lading. The experts agreed that that question was undecided by the Dutch courts. However, assuming that the shipper’s right to demand a bill triggered the issue of the Hague-Visby Rules, the Hague-Visby Rules could not operate on the facts of this case. Ireland was not a contracting state so such a possible bill of lading would not have been issued in a contracting state nor would there be carriage was from a contracting state. As regards Article X(c) whereby the Rules apply to a bill of lading relating to the carriage of goods between ports in two different states if “the contract contained in or evidenced by the bill of lading provides that the rules of this Convention or legislation of any State giving effect to them are to govern the contract” Poralu relied on the standard bill of lading terms that ST would have used had a bill of lading been issued. That would have contained the following clause paramount:

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.

Since the Hague Rules were not enacted in Ireland, the first sentence of the paramount clause had no application, and the second sentence applied. Since the paramount clause in the present case here referred separately and deliberately to the Hague Rules and the Hague-Visby Rules, the conclusion in The Superior Pescadores was inapplicable

Neither did the Hague-Visby Rules apply by virtue of the Australian legislation under which the booking note would be regarded as a charterparty (in this case a “space” or “slot” charter) over which the Rules would apply only where a sea carriage document was issued for the carriage. The booking note here was a charterparty, but the sea waybill was not a sea carriage document in that it was a mere receipt and was not negotiable. Accordingly the parties’ agreement on limitation remained applicable. Stewart J rejected Poralu’s argument that as they had a contractual right to demand a bill of lading then the contract of carriage was a contract covered by, relevantly, “a sea carriage document”. It was doubtful whether a contract of carriage is “covered by” a sea carriage document when the document in question, whether actually issued or merely the subject of a right of demand to be issued, did not or would not contain or evidence the contract.

Finally, RD were entitled to rely on the £100 package limitation in the booking note by virtue of its Himalaya clause. The clause satisfied all four of Lord Reid’s conditions set out in Midland Silicones v Scruttons and Stewart J rejected Poralu’s argument that the clause did not satisfy the third element, in that the carrier had not had authority from the third party to contract as agent. The evidence showed that RD and ST were parties to a pooling agreement under which ST had to use all reasonable endeavours to protect and promote the interests of pool members. The pooling agreement conferred the necessary authority.

Claims against time charterers for damage to ship, caused by damage to cargo, not subject to limitation under 1976 LLMC.

In July 2012 while under charter to MSC from the owner Conti, the MSC Flaminia suffered an explosion which killed five of her crew, and one crew member was never found. Hundreds of containers were destroyed and extensive damage was caused to the ship. The explosion was caused by auto-polymerisation of the contents of one or more of three tank containers laden with 80% divinylbenzene (‘DVB’) which had been shipped at New Orleans on 1 July 2012. In a series of arbitration awards MSC was held liable to Conti in respect of the casualty, and Conti was awarded damages of c.US$200 million on a quantification by the arbitrators of its recoverable losses.

In June 2020 MSC commenced an Admiralty limitation claim under the 1976 LLMC as amended by the 1996 Protocol which came before Andrew Baker J who gave judgment at the start of this month, MSC Mediterranean Shipping Company SA v Stolt Tank Containers BV & Ors [2022] EWHC 2746 (Admlty) (02 November 2022)

There were three defendants two Stolt companies (the first and second defendants, ‘Stolt’), Stolt having been the road carrier of the DVB tank containers to New Orleans, and vis-à-vis MSC the shippers of those containers onto MSC Flaminia, claimants other than Stolt in a claim brought by cargo claimants whose bill of lading claims against MSC were subject to English law and jurisdiction, and Conti, the shipowner.

Conti’s claims included ship repair costs, payments to public authorities in Belgium, France, the UK and Germany following the casualty and also the costs of and associated with removing the waste from the ship. Could MSC limit in respect of these claims? This involved a question of whether the effect of the phrase ‘consequential loss’ in Article 2(1)(a). Where losses caused by damage to the cargo were losses which Conti was required to incur in order to repair the ship, could Conti’s claims in respect of those losses be characterised as claims in respect of damage to the ship or consequential losses resulting from such damage and if so, did it follow that those claims could not be limited under Article 2(1)(a)?

Claims for consequential loss had been found to be limitable in The Aegean Sea and The APK Sydney. Andrew Baker J, considered that the lost profits claims in The Aegean Sea, were claims for consequential loss resulting from the environmental damage, and the lost profits claims in The APL Sydney, had been claims for consequential loss resulting from the pipeline damage, where the relevant property damage occurred in direct connection with the operation of the ship in question, and was not damage to the ship herself. Those claims as made against the owner were limitable, and similarly the claim by the owner to pass those claims on to the charterer.

However that was not the case in the instant case, which involved claims in respect of damage to the ship which were not limitable, as held by the Court of Appeal in The CMA Djakarta , approved obiter by the Supreme Court in The Ocean Victory. The fact that it could be said, in point of fact, that all the damage to the ship can be traced back, by a chain of causation, to loss of or damage to the DVB that exploded, did not mean that a claim by Conti for compensation for damage to the ship was a claim in respect of loss of or damage to the DVB (or consequential loss resulting therefrom). The causal connection on the facts did not turn a claim for damaging the ship into a cargo claim. Conti’s claim against MSC, established in the arbitration, did not seek to enforce a right of redress in respect of loss of or damage to cargo, but rather a right of redress in respect of the risk of harm to the ship that had been posed by the cargo, and the damage the ship suffered when that risk eventuated

MSC also claimed that costs incurred by Conti related to the removal or destruction of cargo waste, burned or unburned were limitable under Article 2(1)(e), as claims “in respect of the removal, destruction or the rendering harmless of the cargo of the ship”. This claim was also found not to be limitable. The ordinary meaning of Article 2.1(d)/(e), is that tonnage limitation is to apply in respect of liabilities such as might be incurred by an owner for casualty intervention or aftermath liabilities of the kinds indicated, i.e. wreck removal (etc.) (Article 2.1(d)) and cargo removal, destruction or neutralisation (Article 2.1(e)). Conti’s claim for reimbursement of or damages in respect of the cost of cargo handling due to MSC’s breach in loading dangerous cargo was not a claim in respect of the removal, destruction or rendering harmless of cargo within Article 2.1(e). Nor could the claims be limitable to the extent that the relevant costs related to the removal or destruction of cargo waste, burned or unburned as they were to be characterised as claims in respect of damage to the ship or for consequential losses resulting from such damage.

As regards Conti’s costs cost incurred in disposing of the firefighting water these were not limitable under Article 2.1(f) as the claim was not distinct from the non-limitable category of claims in respect of the loss of or damage to the ship.

Effectively, all Conti’s claims related to damage to the ship and the fact that had occurred due to the damage to the cargo in the explosion did not mean that the claim was one relating to damage to cargo. All the claims were claims for damage to the ship and were not subject to limitation.

We shall ‘overcome’ – through offering non contractual performance.

MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm) raised the question of whether the effect of financial sanctions obliges a contractual party to accept payment in a currency other than that specified in the contract, which has now come before the Court of Appeal [2022] EWCA Civ 1406.

Mur Shipping BV (“the Owners” or “MUR”) concluded a Contract of Affreightment (“COA”) with RTI Ltd (“the Charterers” or “RTI”) in June 2016. Under the COA, the Charterers contracted to ship, and the Owners contracted to carry, approximately 280,000 metric tons per month of bauxite, in consignments of 30,000 – 40,000 metric tons, from Conakry in Guinea to Dneprobugsky in Ukraine. On 6 April 2018, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) applied sanctions (“the sanctions”) to RTI’s parent company, adding them to the Specially Designated Nationals and Blocked Persons List. This led to the Owners invoking a force majeure clause in the COA by sending a force majeure notice (“FM Notice”) on 10 April 2018 in which the Owners said that it would be a breach of sanctions for the Owners to continue with the performance of the COA and noted that the “sanctions will prevent dollar payments, which are required under the COA”. Charterers offered to make the payment in euros and to bear the cost of converting those euros into dollars which the tribunal described as a “completely realistic alternative” to the payment obligation in the COA, which was to pay in US dollars.

The force majeure clause provided for the suspension of the obligation of each party to perform the Charter Party while such Force Majeure Event is in operation. The clause provided that

“36.3. A Force Majeure Event is an event or state of affairs which meets all of the following criteria:

a) It is outside the immediate control of the Party giving the Force Majeure Notice;

b) It prevents or delays the loading of the cargo at the loading port and/or the discharge of the cargo at the discharging port;

c) It is caused by one or more of acts of God, extreme weather conditions, war, lockout, strikes or other labour disturbances, explosions, fire, invasion, insurrection, blockade, embargo, riot, flood, earthquake, including all accidents to piers, shiploaders, and/or mills, factories, barges, or machinery, railway and canal stoppage by ice or frost, any rules or regulations of governments or any interference or acts or directions of governments, the restraint of princes, restrictions on monetary transfers and exchanges;

d) It cannot be overcome by reasonable endeavors from the Party affected.”

The matter went to arbitration and the Tribunal in its award held that Mur could not rely on the force majeure clause because the offer of payment in euros meant that the ‘event or state of affairs’ could have been ‘overcome by reasonable endeavours from the Party affected’. The Tribunal found that RTI was therefore entitled to damages for MUR’s refusal to nominate vessels to load the relevant cargoes.

On an appeal under s69 of the Arbitration Act 1996 Jacobs J held that the Tribunal had erred in their finding that “reasonable endeavours” required the Owners to accept the Charterers’ proposal to make payment in a non-contractual currency. A party does not have to perform the contract otherwise than in accordance with the contract in order to avoid a force majeure event. He held that the contract required payment in US dollars and that “a party is not required, by the exercise of reasonable endeavours, to accept non-contractual performance in order to circumvent the effect of a force majeure or similar clause”, referencing the decision in Bulman v Fenwick & Co [1894] 1 QB 179. The case involved a voyage charter where the charterer could discharge the cargo of coal at one of certain named places on the Thames. The charterer nominated the Regents Canal which subsequently became subject to a strike. The charterer resisted a demurrage claim on the grounds of a strike exception. Owners claimed charterers should have ordered discharge at one of the other possible places on the Thames. It was held that the charterer was entitled to send the vessel to the Regent’s Canal, with no limitation express or implied on its choice of discharge place and that the delay fell within the strike exception clause.

The Court of Appeal has now, in a majority decision [2022] EWCA Civ 1406, reversed the decision at first instance. The Court of Appeal focussed on the word ‘overcome’ in cl 36.3.(d). Males LJ, giving the principal judgment of the majority, held that the real question was whether acceptance of RTI’s proposal to pay freight in euros and to bear the cost of converting those euros into dollars would overcome the state of affairs caused by the imposition of sanctions on Rusal. Could that state of affairs only be overcome if RTI found a way to make timely payments of freight in US dollars, in strict accordance with the terms of the contract? The answer was ‘no’.

Clause 36 should be applied in a common sense way which achieves the purpose underlying the parties’ obligations –that MUR should receive the right quantity of US dollars in its bank account at the right time. RTI were able and willing to pay in euros and to bear any additional costs or exchange rate losses in converting the euros to US dollars. Accepting their proposal would have achieved precisely the same result as performance of the contractual obligation to pay in US dollars. The word “overcome” did not necessarily mean that the contract must be performed in strict accordance with its terms, given that the arbitrators’ conclusion in their award that the force majeure could have been “overcome by reasonable endeavours from the Party affected” was a finding of fact, or at any rate of mixed fact and law, with which the court should not interfere. The cases of Bulman v Fenwick and the Vancouver Strikes case referred to by Jacobs J were not relevant as neither case involved a force majeure provision such as cl.36 (d).

Arnold LJ dissenting found that if the parties to the contract of affreightment intended clause 36.3(d) to extend to a requirement to accept non-contractual performance, clear express words were required and there were none. He gave the example of a contract of carriage requiring discharge at port A which was strike bound. Clause 36 would not require acceptance of an offer by the other party to divert to port B which would involve no detriment to the party invoking the clause because the goods were required at a place equidistant to the two ports. The party invoking the clause is entitled to insist on contractual performance by the other.

The decision is very much tied to the wording of the particular force majeure clause in question and to the fact that the offer to pay the dollar equivalent in euros would have involved no detriment to owners. In the absence of such a clause a party would still be entitled to insist on contractual performance, as in Bulman v Fenwick.

Running of laytime. Charterers’ order owners not to permit cargo sampling or to berth/discharge.

London Arbitration 31/22 is another reminder that once laytime starts it runs continuously unless interrupted by a laytime exception or a laytime definition or through delay due to the fault of the ship owner.

The vessel was chartered on an amended Gencon 94 form to carry wheat from Russia to Turkey. On Friday 17 September the vessel tendered NOR and was ordered by the harbour master to remain at anchor pending authorisation being given for cargo samples to be taken and analysed. The charterers’ agent then told owners’ operations manager not to send cargo documents to the discharge port agents and not to allow sampling, berthing and discharging as the receiver had not yet paid for the cargo. Eventually charterers permitted sampling and discharge on 29 September and discharge completed on 2 October.

As well as the laytime provisions, under which time would have started to run on 20 September, the voyage charter in question had two separate provisions dealing with time lost, and the question was which applied in the circumstances attending the vessel’s delay at the discharge port.

These two provisions were:

“TIME LOST WAITING FOR CARGO ANALYSES AND/OR LABORATORY TESTING AND/OR IMPORT AND/OR EXPORT FORMALITIES IF ANY TO COUNT AS LAYTIME OR TIME ON DEMURRAGE W/O WEATHER INTERRUPTIONS AND/OR ANY EXCEPTIONS.” (Provision 1.)

“TIME LOST DUE TO CHARTERERS’ INSTRUCTIONS AND/OR FAULT TO BE REIMBURSED BY CHARTERERS AS DAMAGES FOR DETENTION.” (Provision 2.)

The owners claimed damages for detention at the demurrage rate under Provision 2 for the period from tender of NOR on 17 September until 29 September when the charterers authorised the taking of samples. The tribunal held that this claim must fail because the time lost waiting for cargo sampling clearly fell under the express terms of Provision 1. The arbitrator found that time lost on arrival was due to the failure by the charterers to authorise/arrange for cargo samples to be taken, a problem that was caused by lack of payment for the cargo which fell within Provision 1. Provisions 1 and 2 appeared consecutively in the fixture recap and the parties could not have intended there to be any overlap between them, and time lost for reasons covered in Provision 1 could not come within the time lost in Provision 2.

Had the arbitrator found that Provision 2 applied, he would have been inclined to accept charterers’ argument that laytime would have started on 29 September and demurrage would have been unlikely to have accrued. Therefore, the arbitrator might have accepted that, given the evidence of lower demurrage rates in similar charters, damages for detention up to 29 September would have been assessed at a rate lower than the charter demurrage rate.

The owners also presented two alternative laytime statements and the arbitrator held that their second was correct. Under this laytime began at 08.00 on Monday 20 September and the vessel went on demurrage from 13.30 on 23 September until discharging was completed at 17.00 on Saturday 2 October.

The charterers argued that “cargo analyses and laboratory testing” did not include “cargo sampling” but the arbitrator considered that the wording in Provision 1 covered any delay in the import formalities after arrival at the discharge port, including the charterers authorising the taking of samples, analysis, communication of the results and allocation of a berth.

The arbitrator also rejected charterers’ claims that time did not count during ‘port congestion’ nor for ‘weather interruption’, alternatively was suspended by duty pilot due to bad weather. Time lost on arrival was due to the failure by the charterers to authorise/arrange for cargo samples to be taken, a problem that was caused by lack of payment for the cargo which came within Provision 1 and the charterers were wrong to argue that congestion was a circumstance obstructing the sampling/berthing/discharging, which was beyond their control. Once a valid NOR was tendered and took effect, laytime ran continuously against the laytime allowed. Congestion was therefore a charterers’ risk.

Brexit the endgame. Part 2. EU retained law in the maritime sphere.

Further items of maritime EU law that amount to retained law which were implemented through a statutory instrument pursuant to the powers given to the Secretary of State under s2(2) of the European Communities Act 1972.

– The Merchant Shipping (Oil Pollution) (Bunkers Convention) Regulations 2006 SI 2006/ 1244 which implemented the Bunkers Convention

– the Merchant Shipping (Carriage of Passengers by Sea) Regulations 2012 which implemented the Protocol to the Athens Convention, pursuant to the powers given to the Secretary of State under s2(2) of the European Communities Act 1972, and also applied it to domestic voyages within the UK on board Class A ships on or after 30 December 2016 and Class B ships on or after 30 December 2018. When the Protocol entered into force internationally on 23 April 2014, the UK ratified the Protocol by means of the Merchant Shipping (Convention relating to the Carriage of Passengers and their Luggage by Sea) (Amendment) (Order) 2014 no 361 in exercise of the powers conferred by sections 183(4) and (6) and 184(1) and (3) of the Merchant Shipping Act 1995, and therefore the Protocol itself will remain part of the law of the UK after Brexit. The provision relating to domestic voyages within the UK does, however, constitute retained EU law.

– The Environmental Damage (Prevention and Remediation) (England) Regulations 2015 SI 2015/810 (and equivalent Regulations in Northern Ireland, Scotland and Wales);

– The Merchant Shipping (Compulsory Insurance of Shipowners for Maritime Claims) Regulations 2012, SI 2012 No. 2267.

These will all be subject to the sunset provisions of the Retained EU Law (Revocation and Reform) Bill 2022 unless restated by regulation by a relevant national authority no later that 23 June 2026 (the tenth anniversary of the EU referendum).

All clear now? A unified interpretation on breaking limitation under LLMC 1976 and 1992 Protocol, and 1992 Protocol to CLC.

On 15 December 2021 the International Maritime Organization adopted two resolutions on the interpretation of Art 4 of LLMC 1976 and of the 1996 Protocol to LLMC 1976. The resolution is framed as a statement by the State Parties to the LLMC 1976. As such, it would have binding effect as between the State Parties. Article 31(3) (a) of the 1969 Vienna Convention on the Law of Treaties provides: “There shall be taken into account, together with the context (a) any subsequent agreement between the parties regarding the interpretation of the treaty of the application.” Domestic courts must “take into account” the subsequent agreement when interpreting the treaty but are not required to so. The two resolutions, which are identical, state that the test for breaking limitation of liability under LLMC is to be interpreted as follows:

“(a) as virtually unbreakable in nature, i.e. breakable only in very limited circumstances and based on the principle of unbreakability;

(b) to mean a level of culpability analogous to wilful misconduct, namely:

(i) a level higher than the concept of gross negligence, since that concept was rejected by the 1976 International Conference on Limitation of Liability for Maritime Claims;

(ii) a level that would deprive the shipowner of the right to be indemnified under their marine insurance policy; and

(iii) a level that provides that the loss of entitlement to limit liability should begin where the level of culpability is such that insurability ends;

(c) that the term “recklessly” is to be accompanied by “knowledge” that such pollution damage, damage or loss would probably result, and that the two terms establish a level of culpability that must be met in their combined totality and should not be considered in isolation of each other; and

(d) that the conduct of parties other than the shipowner, for example the master, crew or servants of the shipowner, is irrelevant and should not be taken into account when seeking to establish whether the test has been met;”

The interpretation largely reflects the existing interpretation of Art 4 under UK law, but the linking of culpability in (b) to a level analogous to wilful misconduct and the loss of insurance cover under a marine insurance policy is a new factor in determining when the right to limit liability is to be lost. In Canada in Peracomo Inc. v. TELUS Communications Co., [2014 SCC 29, [2014] 1 S.C.R. 621, Wagner J dissenting in part.] the Supreme Court held that Art 4 imposes a higher standard of fault than does the insurance exclusion in s. 53(2) of the Marine Insurance Act1993, the provision equivalent to s.55(2) (a) of the UK Marine Insurance Act 1906,and that the shipowner who had been guilty of wilful misconduct in cutting a submarine cable could limit their liability but the loss was excluded from coverage under their marine insurance policy.

Cromwell J, at para 67, identified the distinction as follows

“While the threshold to break liability under the Convention requires intention or recklessness with knowledge that the loss will probably occur, wilful misconduct under the Marine Insurance Act does not require either intention to cause the loss or subjective knowledge that the loss will probably occur. It requires, in the context of this case, simply misconduct with reckless indifference to the known risk despite a duty to know.”

A third resolution adopted the same interpretation as regards Art 6 of the 1992 Protocol to the CLC.