Actionable fault and general average. Due diligence and unseaworthiness.

Actionable fault and general average. Due diligence and unseaworthiness.

 

In The CMA CGM Libra  [2019] EWHC 481 (Admlty), a container vessel grounded on leaving Xiamen on a shoal in an area in which there is a risk of uncharted shoals. Salvors refloated the vessel which then proceeded on her voyage. The shipowners funded the salvage and declared general average. 8% of cargo interests refused to pay their share on the grounds of actionable fault on the part of the shipowners. The vessel’s primary means of navigation was intended to be paper charts published by the United Kingdom Hydrographic Office (UKHO). Before leaving Xiamen the Second Officer prepared a passage plan which the Master approved. The plan was inadequate in that it did not refer to the existence of a crucial Preliminary Notice to Mariners (NM6274/P10) that had been issued by the UKHO approximately 5 months before the grounding, alerting mariners to the presence of numerous depths less than charted in the approaches to Xiamen and confirming that the charted depths within the dredged channel were sufficient for the vessel. Nor did the passage plan refer to any “no-go areas” which had not been marked or identified on the chart. At trial the Master confirmed that had the chart been marked up with the appropriate “no-go areas” he would not have attempted to execute the manoeuvre that ultimately led to the stranding of the vessel.

Teare J considered the burden of proof. The Supreme Court’s decision in Volcafe related to the burden of proof in relation to Article III.2 of the Hague Rules and did not deal with the burden of proof for Article III.1. There had been actionable fault through a breach of Article III.1 of the Hague Rules Article IV r.1 provides that where loss or damage results from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier. Thus it deals with the burden of proof for the purposes of Article III r.1. It is implicit in Article IV r.1 that the burden of proving causative unseaworthiness must lie upon the cargo owner for the article assumes that such unseaworthiness has been established.

Teare J then found that cargo interests had established a breach of Article III.1 in that the absence of an adequate passage plan was a cause of the grounding.. The presence on board a vessel of the appropriate chart is an aspect of seaworthiness. Where the Admiralty gives notice of a correction to the appropriate chart a vessel will not be seaworthy unless the chart has been corrected. If the vessel’s navigating officer fails, before the commencement of the voyage, to correct the chart the vessel is thereby rendered unseaworthy. The production of a defective passage plan is not merely “an error of navigation” but involves a breach of carrier’s obligation that the vessel is seaworthy “before and at the beginning of the voyage.” If there is a causative breach of Article III r.1 the fact that a cause of the subsequent casualty is also negligent navigation will not protect the carrier from liability. Passage planning by the master before the beginning of the voyage is necessary for safe navigation.

The carrier’s duty under Article III r.1 was not discharged by putting in place proper systems and ensuring that the requisite materials were on board to ensure that the master and navigating officer were able to prepare an adequate passage plan before the beginning of the voyage. As set out in Scrutton on Charterparties and Bills of Lading 23rd.ed at paragraph 14-046:

“The due diligence required is due diligence in the work itself by the carrier and all persons, whether servants or agents or independent contractors whom he employs or engages in the task of making the ship seaworthy; the carrier does not therefore discharge the burden of proving that due diligence has been exercised by proof that he engaged competent experts to perform and supervise the ask of making the ship seaworthy. The statute imposes an inescapable personal obligation.”

Due diligence was not exercised because the Owners’ SMS contained appropriate guidance for passage planning and that the auditors of the vessel’s practices were competent. To comply with Article III r.1, which imposes a non-delegable duty on thecarrier, it is not enough that the owner has itself exercised due diligence to make the ship seaworthy. It must be shown that those servants or agents relied upon by the owner to make the ship seaworthy before and at the beginning of the voyage have exercised due diligence. Negligence by the master or chief engineer or other officer before the commencement of a voyage can amount to a failure by the carrier to make the vessel seaworthy.

 

Accordingly there had been actionable fault by the shipowners and cargo were not required to contribute to general average.

 

Bareboat charters — keep your paperwork up to date

Life can be demanding for bareboat charterers, whether they are simply chartering in, or using a bareboat charter from a bank as a financing device.

In Silverburn Shipping v Ark Shipping [2019] EWHC 376 (Comm) owners under a Barecon1989 charter had suspicions as to their Korean charterers’ ability and intention to look after the vessel properly, and terminated the charter. One reason they gave was that the charterer had allowed the BV classification to lapse a short time before the vessel went into dry dock, thus breaking its obligation under Clause 9 to “keep the Vessel with unexpired classification of the class … and with other required certificates in force at all times”. Arbitrators refused to order the immediate redelivery of the vessel, holding that the duty to maintain class was not absolute, but rather to renew any expired entry in a reasonable time, and in adition that the duty to maintain the vessel in class was an intermediate term and not a condition.

On a s.69 appeal, Carr J disagreed. She saw no reason to read the obligation to keep the vessel in class as anything other than an absolute duty. Further, while accepting that the oft-emphasised requirement of commercial certainty could be over-used and could not “be deployed as some trump card” (a bon mot at para.[53] that is likely to find its way quickly into textbooks and counsel’s argument), she decided that the duty to keep in class was a condition of the contract, Breach of it could be serious in respect of the tradeability of the ship, and affect insurance, ship mortgage and flag: entry in class was moreover a black-and-white criterion with no shades of grey which was redolent of the idea of a condition.

This is something that needs to be taken seriously by charterers. Although the wording of Clause 13 of Barecon2017 differs slightly from the 1989 version, any discrepancy is minor and Carr J’s reasoning would, we suggest, continue to apply. Moreover, the right to terminate a bareboat charter can have considerable effects, particularly in the case of a financing charter with a purchase option: once the charter goes, so does the option. True, if the grounds for termination were wholly technical, in theory the court would have a right to relieve a bareboat charterer from forfeiture (The Jotunheim [2005] 1 Lloyd’s Rep. 181); but this is a difficult jurisdiction to persuade it to exercise, particularly in the face of an agreement for termination entered into by commercially-savvy parties. Charterers and borrowers, you have been warned.

Anti-suit injunction against non-party to contract

Qingdao Huiquan Shipping Company v Shanghai Dong He Xin Industry Group Co Ltd  QBD [2018] EWHC 3009 (Comm) involved a claim for an anti-suit injunction against a non-party to a contract containing a submission to English law and London arbitration. Owners concluded a settlement with cargo receivers whereby the latter paid for the lifting of a lien over cargo which the owners had exercised following time charterers’ default in paying h ire. The agreement was subject to English law and provided for London arbitration. The settlement provided that the receivers authorised agent, SDHX, which was not a party to the agreement, would make the payment. Three years later SDHX sued owners in a Chinese court claiming repayment of those sums. It alleged that there was an oral agreement between itself and the owners. In December 2017 the Qindao Shinan District Court decided that the dispute constituted a maritime dispute, and that the matter should be transferred to the Qingdao Maritime Court to decide on the validity of the London arbitration clause. SDHX’s appeal was dismissed by the Qindao Intermediate Maritime Court which stated that one of the foundations of SDHX’s claim was the settlement agreement between owners and the receivers.

In August 2018 owners applied for an interim anti-suit injunction. Bryan J held that this was an appropriate cased where such an injunction could be obtained against a non-party to the contract. SDHX had sought to rely upon the terms of the Settlement Agreement in advancing its claims in the Chinese proceedings. In doing so, therefore, it had to take the burden of the arbitration clause. For the purpose of the interim relief claim the issue of whether there was an oral agreement with the owners did not need to be considered. SDHX were unable to show that there had been such excessive delay by owners in commencing proceedings that the court should not exercise its discretion. This was not a case involving considerations of comity or where there had been substantive proceedings in China which would lead to the English court second-guessing an existing ruling of a Chinese court. There was also some benefit from the clarity that had been provided by the Chinese appellate court.

Bully off. New amendments to Maritime Labour Convention now in effect.

 

On 8 January 2019 the 2016 amendments to the Maritime Labour Convention came into effect. These amend Guideline B4.3.1 concerning the provisions on occupational accidents, injuries and diseases so as to include harassment and bullying. Governments and shipowners are expected to adopt measures to improve protection for seafarers from shipboard harassment and bullying using as a reference the Guidance on Eliminating Shipboard Harassment and Bullying  jointly published by the International Transport Workers’ Federation and the International Chamber of Shipping. The amendments also allow for an extension of the validity of maritime labour certificates in circumstances where ships have passed the relevant inspection but where a new certificate cannot immediately be issued and made available on board.

Clearing up after a marine casualty: comfortable words from the Advocate-General.

As a matter of EU law, moving waste across borders can be an expensive bureaucratic nightmare. Regulation 1013/2006 on waste shipments lays down all sorts of notification, insurance, and other requirements that must be satisfied before any such shipment can take place.

The German owners of the MSC Flaminia got a taste of this in 2012. En route from Charleston to Antwerp with a cargo of nearly 5000 containers, including 151 stated to contain dangerous cargo, the vessel suffered a fire and a number of explosions. These left her in an unholy mess, with quantities of scrap metal, possibly contaminated sludge and water used to put out the fire slopping about everywhere. She ran for Wilhelmshaven and made arrangements for cleaning-up operations in Romania. The German environmental authorities then said “Not so fast”, arguing that all the rigmarole of the waste shipments directive had to be gone through. The owners argued that the exception in Art.1(3)(b) applied, which excises from the Regulation “waste generated on board vehicles, trains, aeroplanes and ships, until such waste is offloaded in order to be recovered or disposed of.” The government argued that this did not cover waste created by a casualty outside normal ship operations; a Munich court duly sent the issue to the ECJ.

The Advocate-General’s opinion came down clearly for the shipowners: there was no specific exception for waste arising from an accident or casualty, and no need to imply one. One suspects the ECJ will follow suit. The relief for shipowners is likely to be considerable: it means that cleaning-up operations can now proceed smoothly wherever is easiest. And a good thing too.

See Schifffahrts GmbH MSC Flaminia v Land Niedersachsen (Case C698/17), as ever available on BAILII (unfortunately in French).

Ship arrest: no undertaking in damages exigible from arresting party

The Court of Appeal declined yesterday to upset the ship arrest apple-cart. In The Alkyon [2018] EWCA Civ 2760 it upheld the decision of the Admiralty Judge, Teare J, noted here on this blog, that a bank could hold an arrest over a mortgaged ship without having to give any undertaking to pay damages for loss of use should it turn out that its claim was ill-founded. The owners of the MV Alkyon, a 36,000 dwt bulker, had argued that there was no default justifying her arrest in Newcastle; that they could not afford to bail her; that her immobilisation by arrest would cause them big losses; and that it was only fair that if the bank was indeed wrong, it should carry the can for those losses.

Despite the fact that there is theoretically no restriction on the court’s discretion to release an arrested vessel (see CPR 61.8(4)(b)), Teare J disagreed; and the Court of Appeal agreed with him. Although there was much in common between ship arrest and freezing orders, where an undertaking in damages was emphatically the rule, for the court to demand such an undertaking in arrest cases would  cut across the idea that arrest was available as of right, and also the established principle that liability for wrongful arrest could not be imposed unless the claimant proved bad faith or possibly gross negligence. This was not something for the judiciary — barring possibly the Supreme Court — to do.

In the view of this blog, the Court of Appeal was quite right not to draw the analogy with freezing orders. For one thing not all arresters are plutocratic banks: think crewmen seeking wages or damages for injury on board, or for that matter suppliers of canned food and water for those crewmen to eat and drink. For another, the right to arrest is there for a purpose, namely to assure people that they will be paid by the owners of peripatetic pieces of maritime machinery: to allow a threat to arrest to be met with a threat to claim damages would not further this end. For a third, damages for arrest may well bear no proportion to the amount of the claim: the losses caused by the arrest of a large bulker or reefer would be likely to dwarf a straightforward $100,000 bunkers debt. And lastly, it’s all very well saying a single arrester ought to carry the can for immobilisation losses: but what if cautions against release then pile on? Which of the undeserving claimants should have to pay how much? Nice work for lawyers, maybe: less good news for shipping claimants who want to get on with their commercial lives.

Where is General Average?

Jurisdiction decisions in the shipping context follow each other in close succession. Yesterday we had another, from Males J, of some interest to insurers: namely, Griffin Underwriting Ltd v Varouxakis (The Free Goddess) [2018] EWHC 3259 (Comm).

The Free Goddess, a 22,000 dwt bulker owned by Freeseas, was seized by Somali pirates while en route to Thailand with steel coils. K & R insurers Griffin, based in Guernsey but doing business in London, paid out something over $6 million to free her, whereupon she sailed to Oman. Griffin clearly had a right to take over from Freeseas a pretty cast-iron GA claim against cargo interests: on arrival it duly entered into a settlement agreement with Freeseas under which Freeseas agreed to furnish all assistance, including preservation of security, in claiming GA and also to account to Griffin for all sums received on that basis. GA, as might be expected, was settlable and payable in London.

According to Griffin’s (as yet unestablished) allegations, Freeseas did no such thing. Instead of the obvious course of oncarrying the cargo to Thailand and claiming GA in due course, it sold the ship in Oman, destroying any security for GA and providing cargo with a counterclaim for damages which was likely to dwarf the GA liability in any case. In addition it had allegedly trousered a large sum in interim GA contributions without accounting for it. 

Freeseas not being worth powder and shot, Griffin sued one Ion Varouxakis, the Greek-domiciled owner of the company, for inducing it to break the settlement agreement. They alleged that the damage had been suffered in London and therefore they could invoke Art.7, the tort article of Brussels I Recast. Mr Varouxakis insisted that he could only be sued in Greece, arguing for good measure that this was a suit by an underwriter in a matter relating to insurance under Art.14, so the other exceptions did not apply.

In fact Mr Varouxakis was held to have waived any jurisdiction point, so the claim is going ahead in London anyway. But Males J did go on to give a view on the other points. On the issue of the loss of the right to GA, he regarded the issue of where the loss had been suffered as finely balanced, but expressed the view that the direct damage had been suffered in Oman, where he opined that the right to enforce GA had been effectively lost: the fact that GA had not been paid in London he regarded as a remoter consequence and not in account because of decisions such as Kronhofer v Mayer [2004] All ER (EC) 939. So there would have been no jurisdiction. On the other hand, he thought the loss had been suffered in London as regarded the failure to account, and so would have allowed the claim under that head to go ahead on that head in any event. As for the suggestion that this was a matter relating to insurance, he smartly rebuffed the point: insurance might be the background, but this arose out of an independent settlement agreement.

The second point was fairly obvious: if someone infringes my right to an accounting in London, it is difficult to think of anywhere apart from London where the damage occurs. The third is also welcome: the insurance rules under under Art.14 are ill-thought-out even by Euro-standards, and anything that prevents their becoming any more bloated than they already are can only be a good thing.  

This blog is less sure about the first. Saying the damage occurred in Oman gets pretty close to conflating damage with the act giving rise to it; it also means that the place of the damage in cases of this sort becomes wildly arbitrary, depending on which port a vessel happens to be in at the time. On the other hand, if GA is settled and negotiated in London, it seems fairly convincing to argue that preventing it being settled and paid there causes a direct loss within the Square Mile. Unfortunately, because the claimants won in any case, we are unlikely to see an appeal here. But this shouldn’t be regarded as necessarily the last word.


Atlantik (misplaced) Confidence — the saga continues.

Last year we dealt here with Teare J’s meticulous decision in Aspen Underwriting Ltd & Ors v Kairos Shipping Ltd [2017] EWHC 1904 (Comm), in which following the Atlantik Confidence debacle, hull underwriters, having previously paid out on the orders of her owners’ (Dutch) bank under an insurance assignment provision, now sued the bank to recover their money on the basis that the ship had been deliberately scuttled. The issue was whether the bank could insist on being sued in the Netherlands on the basis of Art.4 of Brussels I Recast. The decision was that most claims, including those based on unjust enrichment, had to be brought in the Netherlands. Howver, claims based on tortious misrepresentation and under the Misrepresentation Act 1967 could be brought here. The fact that such claims related to insurance under Art.14 was no bar, since there was no question of a large Dutch bank being a weaker party who, according to Recital 18 to the Regulation, needed to be protected from the machinations of big bad insurers.

The Court of Appeal has dismissed an appeal (seeAspen Underwriting Ltd & Ors v Credit Europe Bank NV [2018] EWCA Civ 2590). On most points it simply said that the Judge had got it absolutely right. The only exception was that it was not open to a judge, consitently with Euro-law, to take the sensible view and decline to apply Art.14 to anyone he thouht was not in fact a weaker party. But this did not matter, since in Kabeg v Mutuelles Du Mans Assurances (Case C-340/16) [2017] I.L. Pr. 31 the ECJ Advocate-General had since Teare J’s judgment accepted that Art.14 could be disapplied to a subrogee “regularly involved in the commercial or otherwise professional settlement of insurance-related claims who voluntarily assumed the realisation of the claim as party of its commercial or otherwise professional activity”. This was near enough to the position of the bank here to justify ignoring Art.14.

Some good news, in other words, for marine underwriters trying to get their money back from those acting for crooks.  On the other had, the moral we advanced in our previous article still stands: all policies in future ought to contain a term, rigorously enforced, stating that no monies will be paid out save against a signed receipt specifically submitting to the exclusive jurisdiction of the English courts in respect of any subsequent dispute respecting the payment or the policy generally.

 

The Athens Convention: uniformity rules – and quite right

Athens Convention time-bars are not the most riveting topic, but can be important. P&I clubs have little compunction in pouncing on inexperienced personal injury solicitors who miss the two-year time-bar and assume their clients have what is otherwise the normal three years to sue. But what happens when the claimant has the benefit of something that would delay the starting of the clock, such as a later date of knowledge, incapacity or even fraudulent concealment? Subject always to the absolute three-year Athens longstop, can they take advantage of this? Upholding the Inner House, the Supreme Court in a brief decision has now said they can, thus setting to rest doubts stemming from Higham v Stena Sealink Ltd [1996] 1 WLR 110.

The issue turns on the wording of Art.16(2), under which periods of “interruption” or “suspension” of a time-bar are governed by the law of the forum. These terms are normally used in connection with Continental systems’ long-standing habit of switching limitation periods on and off after they have started, rather like a malfunctioning Belisha beacon, on account of all sorts of matters such as ongoing negotiations. We don’t do that, being happy on occasion to delay the starting of the clock, but insisting that once it has started it ticks on to the bitter end. Can “interruption” or “suspension” cover this situation, that is a limitation clock that never starts, as against one that starts and then temporarily stops? The answer is Yes; the only exception is s.33, allowing the limitation period to be disregarded entirely if just and equitable, which clearly neither interrupts nor suspends anything.. And rightly so: Athens needs uniform interpretation, and a reading that took account of Continental modifications of the limitation period but not UK ones would be not only nit-picking but highly non-uniform. It would represent a kind of UK exceptionalism we can well do without.

Warner v Scapa Flow Charters (Scotland) [2018] UKSC 52 was, as readers no doubt noticed as a result of the reference to the Inner House, technically a Scots decision turning on the Scots law of prescription. But it is plainly just as relevant to our own Limitation Act 1980. Happy reading.