“EVER SMART” collision with “ALEXANDRA 1”: The Crossing and Narrow Channel Rules

MAIB Investigation Report: Collision Between Tanker and Containership Off  Jebel Ali – gCaptain

On 19 February 2021 the Supreme Court delivered a seminal judgment in the first appeal in a collision to come before the highest court since the mid 1970s and overturned the decisions of both Mr Justice Teare [2017] 1 Ll.R. 66 and of the Court of Appeal [2019] 1 Ll.R. 130.   

On 11 February 2015 the outbound Ever Smart, a large container ship, collided with the inbound Alexandra 1, a VLCC, within the pilot boarding area, just outside the dredged entrance/exit channel to the port of Jebel Ali. The appeal concerned two questions relating to the application of the “crossing rules” as set out in rules 15 – 17 of the International Regulations for Preventing Collisions at Sea 1972. The Supreme Court emphasised that the Collision Regulations must be capable of implementation by all vessels as defined in the Rules, irrespective of their technological capabilities [72].

The Questions on the Appeal

The first question for determination was whether the crossing rules are inapplicable or are to be disapplied where an outbound vessel (Ever Smart) is navigating within a narrow channel and has a vessel (Alexandra 1) on a crossing course approaching the narrow channel with the intention of and in preparation for entering it. This question concerned the inter-relationship between the crossing rules and the “narrow channel rules” (rule 9).

The second question was whether it is necessary for the putative give-way vessel to be on a steady course for the crossing rules to be engaged. The “putative give-way vessel” is the vessel which, if the crossing rules apply, would be required by rule 15 to keep out of the way of the other vessel. In practical terms it is the vessel which has the “putative stand-on vessel” on her starboard side.

Both Teare J. and the Court of Appeal answered both questions “yes” with the consequence that the crossing rules were either not engaged at all or, if engaged, were overridden by the narrow channel rules. Teare J. apportioned liability 80% (Ever Smart) and 20% (Alexandra 1) and this was upheld by the Court of Appeal.

The decision of the Supreme Court

The Supreme Court disagreed.  Before addressing the two questions the Supreme Court emphasised the international character of the Collision Regulations and their application to “mariners of all nationalities, of all types (professional and amateur), in a wide range of vessels and in worldwide waters”: see [37] – [45]. In this regard the Supreme Court referred to the well-known statement of Lord Wright in The Alcoa Rambler [1949] AC 236 (PC) at p 250 that “wherever possible” the crossing rules “ought to be applied and strictly enforced because they tend to secure safe navigation”. See also Atkin LJ in The Ulrikka (1922) 13 Ll.L.Rep 367 at 368. At [46] –  [74] the Supreme Court carried out a detailed analysis of the context and purpose of the crossing rules, addressing the meaning of “heading”, “course” and “bearing” and emphasising the existence of a risk of collision when two vessels are approaching each other on a more or less steady bearing: see rule 7(d)(i).

The Supreme Court also considered the effect of rule 2(a) and (b). Rule 2(a) had been heavily relied upon by the Alexandra 1 interests for the dis-application of the crossing rule but this argument was rejected as “misconceived”: [66]. In essence the Supreme Court held that:

a.    The crossing rules were of such importance in the context of collision avoidance that “they should not lightly be treated as inapplicable” [68].

b.    Any tension between the obligation of the stand-on vessel to keep her course and speed and to comply with another rule should “be resolved by treating the stand-on obligation as moulded for the purpose of permitting compliance with the other rule” [69]. Teare J. and the Court of Appeal had erred in treating the rules as inconsistent either generally (Teare J.) or on the particular facts (the Court of Appeal).

c.    Any ouster of one rule must be limited to the minimum strictly necessary to avoid danger and uncertainty: [70].

The Second Question

The Supreme Court first addressed the second question and held that neither the give-way vessel nor the stand-on vessel had to be on a steady course for the crossing rules to be engaged: [75] – [115].   In essence the Supreme Court held that two crossing vessels may be approaching each other and remain on a steady bearing, (with consequent risk of collision) without either vessel being on a steady course.  

“ …. if two vessels, both moving over the ground, are crossing so as to involve risk of collision, the engagement of the crossing rules is not dependent upon the give-way vessel being on a steady course. If it is reasonably apparent to those navigating the two vessels that they are approaching each other on a steady bearing (over time) which is other than head-on, then they are indeed both crossing, and crossing so as to involve a risk of collision, even if the give-way vessel is on an erratic course. In such a case, unless the overtaking rule applies, the crossing rules will apply.” [111]

Although it was in issue on the facts, the Supreme Court also considered that the stand-on vessel need not be on a steady course for the engagement of the crossing rules [112] – [114].

The Supreme Court concluded that, subject to the first question, the crossing rules were engaged even though “ALEXANDRA 1 was not on a steady course, or speed” [115].

The First Question

The Supreme Court identified a number of relevant factual situations where the inter-relationship between the crossing and narrow channel rules needed to be considered.  The Supreme Court sought “to determine with clarity and as precisely as possible” [124] the circumstances in which the crossing and narrow channel rules would apply in the vicinity of the entrance to a channel

Three broad groups of cases were identified [134]:

“Group 1 are vessels which are approaching the entrance of the channel, heading across it, on a route between start and finishing points unconnected with the narrow channel. They are approaching the entrance of the channel, but not intending or preparing to enter it at all. Group 2 are vessels which are intending to enter, and on their final approach to the entrance, adjusting their course to arrive at their starboard side of it. ….. Group 3 are approaching vessels which are also intending and preparing to enter, but are waiting to enter rather than entering …. ”

The crossing rules would clearly apply in a Group 1 case. The crossing rules would not apply in relation to Group 2 “because the approaching vessel is both preparing and intending to enter it, and already shaping (ie adjusting her course and speed to do so), on her final approach”. The decisions in The Kaiser Wilhelm Der Grosse [1907] P 36 and 259, The Canberra Star [1962] 1 Lloyd’s Rep 24 and Kulemesin v HKSAR [2013] 16 HKCFA 195 fell within Group 2.  

However the present case fell with Group 3 because Alexandra 1 had not yet shaped to enter the narrow channel on her final approach. The Supreme Court held that the crossing rules should continue to apply to a “Group 3 waiting vessel, or any vessel approaching the channel intending to enter it, which has yet to shape her course to enter it on her starboard side of it” [138].  Further there were no reason why the outbound vessel could not comply both with the crossing and narrow channels: [139] – [140]. 

At [145] the Supreme Court concluded on the first question as follows:

“Where an outbound vessel in a narrow channel is crossing with an approaching vessel so as to involve a risk of collision, the crossing rules are not overridden by the narrow channel rules merely because the approaching vessel is intending and preparing to enter the narrow channel. The crossing rules are only overridden if and when the approaching vessel is shaping to enter, adjusting her course so as to reach the entrance on her starboard side of it, on her final approach.”

Apportionment will now be re-determined by Sir Nigel Teare on the basis that the crossing rules applied from about C-23 and that the Alexandra 1 was the give-way vessel.

Simon Rainey QC and Nigel Jacobs QC represented the successful Ever Smart Interests. They were instructed by Ince Gordon Dadds LLP (Christian Dwyer, Sophie Henniker-Major and James Drummond) in consultation with Stann Law Limited (Faz Peermohamed).

Supreme Court overrules Court of Appeal on interaction of crossing and narrow channel rules in COLREGs.

 Evergreen Marine (UK) Limited (Appellant) v Nautical Challenge Ltd (Respondent)

[2021] UKSC 6

On 11 February 2015, the appellant’s large container vessel, Ever Smart, and the respondent’s VLCC (very large crude carrier), Alexandra 1, collided at sea at night just outside the entrance/exit channel to the port of Jebel Ali in the United Arab Emirates.

Ever Smart was outbound from Jebel Ali and had been navigating along the channel at a speed over the ground of 12.4 knots at the time of the collision. Alexandra 1 was inbound to Jebel Ali but had not entered the channel as she was waiting in the pilot boarding area to pick up a pilot, and was moving over the ground very slowly, approaching the channel at a speed over the ground of 2.4 knots, but with a varying course. Visibility was good enough for the vessels to have seen each other from about 23 minutes before the collision. For the whole of that period, the two vessels were approaching each other on a steady bearing.

The High Court held Ever Smart 80% liable for the damage caused by the collision and Alexandra 1 20% liable. The Court of Appeal agreed on both issues and on apportionment. Two issues arose on appeal.

1. The interplay between the narrow channel rules and the crossing rules.

2. Whether the crossing rules only engaged if the putative give-way vessel is on a steady course.

The Supreme Court in which Lords Briggs and Hamblen gave the judgment, addressed the second issue first.

The Supreme Court held that there was no ‘steady course’ requirement. In The Alcoa Rambler the Privy Council had held that the crossing rules did not apply because the putative give-way vessel (the vessel which would be required to keep out of the way if the crossing rules applied) could not determine that she was on a steadily crossing course with the putative stand-on vessel, as that vessel was concealed behind other anchored vessels until the last moment before the collision. Importantly, there was no opportunity for the putative give-way vessel to take bearings of the putative stand-on vessel. In the present case Alexandra 1 had been approaching Ever Smart on a steady bearing for over 20 minutes before the collision, on a crossing course, enough to engage the crossing rules even though she was not on a steady course. For the same reasons the stand-on vessel need not be on a steady course to engage the crossing rules either.

On the first issue, the  interplay between the narrow channel rules and the crossing rules, at first instance and in the Court of Appeal it had been  held that the narrow channel rules displaced the crossing rules, relying on The Canberra Star [1962] 1 Lloyd’s Rep 24 and Kulemesin v HKSAR [2013] 16 HKCFA 195. However, the Supreme Court noted that these cases concerned a vessel intending to enter and on her final approach to the entrance, shaping her course to arrive at the starboard side of it. They did not apply where the approaching vessel was waiting to enter rather than entering. The crossing rules should not be overridden in the absence of express stipulation, unless there was a compelling necessity to do so.

Here, Alexandra 1 was the approaching vessel, intending and preparing to enter the channel but, crucially, waiting for her pilot rather than shaping her course for the starboard side of the channel, on her final approach. Accordingly, there was no necessity for the crossing rules to be overridden as the narrow channel had not yet dictated the navigation of the approaching vessel.

That vessel could comply with its obligations under the crossing rules, whether it was the give-way vessel or the stand-on vessel. Nor did the crossing rules need to be displaced as regards the vessel leaving the channel. The crossing rules were only displaced when the approaching vessel was shaping to enter the channel, adjusting her course so as to reach the entrance on her starboard side of it, on her final approach. Here, the crossing rules applied and Alexandra 1, as the give-way vessel, was obliged to take early and substantial action to keep well clear of Ever Smart.

The Supreme Court unanimously allowed the appeal. Apportionment of liability would be redetermined by the High Court.

His last bow. As Teare(s) go by.

On 5 October 2020, Sir Nigel Teare gave his last judgment in the Admiralty Court, in a three handed collision case involving a pile up of three laden bulk carrier vessels in the Suez Canal in 2018. The Panamax Alexander (PA) was the final vessel in an eight vessel southbound convoy that halted some two hours after the initial convoy vessel suffered an engine breakdown and blocked the canal. The other vessels had to take emergency anchoring and/or mooring action. The sixth and seventh vessels managed to do this. About fifteen minutes later PA collided with the first of these, the Sakizaya Kalan (SK) which led to PA and SK drifting downstream and colliding with the Osios David (OD), over an hour after the initial collision. For a few minutes all three vessels were locked together and a further two sets of collisions took place.

PA was held 100% to blame in failing to appreciate that there was a risk of collision and, not mooring earlier to avoid that risk of collision. These were causative breaches of Rules 5, 7 and 8 of the International Collision Regulations (Colregs).

Although OD was at fault in that she had failed to inform SK and PA behind of her intention to moor, that fault had no causative potency as the duty to inform was owed mainly to the vessel immediately behind, which had already stopped before the first collision. Were the subsequent collisions caused by the initial collision for which PA was wholly to blame? Teare J stated:

“That question of causation depends upon whether the effect of the first collision was continuing in such a way as not merely to provide the opportunity for the later collisions but as to constitute the cause of them. The courts have answered questions of this nature (which usually arise where there has been intervening negligence) by the use of metaphors. Was the hand of negligent navigator on board PA still heavy on SK and OD at the time of the later collisions? Were those on board SK and OD not free agents by reason of the hard necessities imposed on them by the first collision? Were those on board SK and OD still in the grip of the first collision? These metaphors and their source are described by Brandon J. in The Calliope at p.101. Such questions are to be approached in a broad common sense way; see p. 102.[298].”

Teare J concluded that the initial collision “not merely provided the opportunity for the later collisions but constituted the cause of” those subsequent collisions, even though they took place over an hour after that and recognized the difficulties faced by the master of SK and of OD on the horns of a dilemma created by the fault of PA. Accordingly, PA was found wholly responsible and liable for all the collisions.   

IISTL Member (Simon Rainey QC) Has Argued in Historical Collision Case

Evergreen Marine (UK) Limited (Appellant) v Nautical Challenge Ltd (Respondent)

This is the first collision case to reach the highest court on land since 1976. This appeal concerns the International Regulations for Preventing Collisions at Sea 1972, as amended (“the Collision Regulations”). The issues in the appeal are:

(1) The proper construction of the Collision Regulations. In particular whether the crossing rules are inapplicable, or whether they should they be disapplied where an outbound vessel is navigating within a narrow channel and has a vessel on her port (or starboard) bow on a crossing course approaching a narrow channel with the intention of and in preparation for entering it.

(2) On the proper construction of the Collision Regulations, in determining whether the crossing rules are applicable, whether there is a requirement for the putative give-way vessel to be on a steady course before the crossing rules can be engaged.

Facts

This appeal concerns a collision at sea between the appellant’s vessel (“EVER SMART”) and the respondent’s vessel (“ALEXANDRA 1”). The collision took place on 11 February 2015 just outside the dredged channel by which vessels enter and exit the port of Jebel Ali in the United Arab Emirates. ALEXANDRA 1 was inbound; EVER SMART was outward bound. The damage suffered by ALEXANDRA 1 amounted to over US$9.3 million and the damage suffered by EVER SMART amounted to over US$2.5 million.

The Admiralty Court determined that the appellant’s vessel, EVER SMART, should bear 80% of the liability for the collision and the respondent’s vessel, ALEXANDRA 1, should bear 20%. The judge held that the crossing rules (Rules 15-17 of the Collision Regulations) did not apply and therefore that ALEXANDRA 1 did not navigate in breach of Rule 16, the crossing rule which was said by the appellant to have applied to the ALEXANDRA 1. The Court of Appeal dismissed the Appellant’s appeal [2018] EWCA Civ 2173. The Appellant now appeals to the Supreme Court.

Damage to Alexandra 1’s bow

Who is an “operator” under OPA 1990? Dumb barges and dumb tug.

 

Who is an “operator” under OPA 1990? Dumb barges and dumb tug.

 

In January 2013, a tugboat owned by Nature’s Way was moving two oil-carrying barges owned by Third Coast Towing down the Mississippi River. The barges were “dumb” barges lacking the ability for self-propulsion or navigation. The barges collided with a bridge, resulting in one of the barges discharging over 7,000 gallons of oil into the Mississippi. Nature’s Way and its insurer, and Third Coast Towing and its insurer were all designated by the Coast Guard as “responsible parties” under the 1990 Oil Pollution Act (‘OPA’). Nature’s Way subsequently spent over $2.99 million on the clean-up, and various governmental entities spent over an additional $792,000. In May 2015, Nature’s Way submitted a claim to the National Pollution Funds Center (NPFC) seeking reimbursement of over $2.13 million on the grounds that its liability should be limited by the tonnage of the tugboat and not the tonnage of the barges and also claiming relief from any obligation to reimburse the government for the additional $792,000-plus. Those claims were denied by the NPFC based upon its determination that Nature’s Way was an “operator” of the oil-discharging barge at the time of the collision.

 

The District Court held that Nature’s Way was an “operator” and its decision has been upheld by the Court of Appeals for the Fifth Circuit in US v Nature’s Way 21 Sept 2018. Case: 17-60698. OPA does not define the term “operator” but the Supreme Court in United States v. Bestfoods, 524 U.S. 51, 66 (1998) analysed the definition of the term in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as follows:

In a mechanical sense, to “operate” ordinarily means “[t]o control the functioning of; run: operate a sewing machine.” American Heritage Dictionary 1268 (3d ed. 1992); see also Webster’s New International Dictionary 1707 (2d ed. 1958) (“to work; as, to operate a machine”). And in the organizational sense more obviously intended by CERCLA, the word ordinarily means “[t]o conduct the affairs of; manage: operate a business.”

 

Applying that analysis, the ordinary and natural meaning of an “operator” of a vessel under the OPA would include someone who directs, manages, or conducts the affairs of the vessel, and would thereby include the act of piloting or moving the vessel. Nature’s Way undisputedly had exclusive navigational control over the barge at the time of the collision, and, as such, it was a party whose direction (or lack thereof) caused the barge to collide with the bridge. It was, therefore, “operating” the barge at the time of the collision based on the ordinary and natural meaning of the term.

 

The Fifth Circuit rejected Nature’s Way’s argument that its conduct in moving the barge was more akin to the “mere mechanical activation of pumps,” and it could not be deemed to have been “operating” the barge because it was merely moving the barge as per Third Coast’s directions, and it did not exercise control over its environmental affairs or inspections.

Nature’s Way directed precisely the activity that caused the pollution—it literally was the party that crashed the barge into the bridge. It was clearly “operating” the barge at the time of the collision and therefore constituted a “responsible party” under OPA.

 

Court of Appeal decision on crossing rule and causative potency in collision.

In Evergreen Marine (UK) Ltd v Nautical Challenge Ltd [2018] EWCA Civ 2173, we have the first Court of Appeal decision on collision liability since Bow Spring v Manzanillo II [2004] EWCA Civ 1007; [2005] 1 WLR 144, in 2004.

On the 11th February, 2015 the  “Alexandra I” and the “Ever Smart” collided just outside the dredged channel by which vessels enter and exit the port of Jebel Ali…” At first instance Teare J held that the crossing rules did not apply, so that when ‘Alexandra 1’ the inbound vessel approached the dredged channel (“the narrow channel”), she was not under a duty to keep out of the way of ‘Ever Smart’, the outbound vessel.  Instead, the navigation of the two vessels was governed by the narrow channel rule, rule 9 of the Collision Regulations, in the case of ‘Ever Smart’ and rule 2 of the Collision Regulations, the ordinary practice of seamen (i.e., the requirement of good seamanship), in the case of ‘Alexandra 1’ .   Furthermore, the crossing rule was inapplicable because ‘Alexandra 1’ was not on a sufficiently constant direction or heading to be on a course; she was waiting to embark a pilot rather than herself being on a course at the relevant time.

Teare J found both vessels to have been at fault and in apportioning liability had regard to the relative culpability and causative potency of each vessel’s faults.  Those of ‘Ever Smart’ were very serious in terms of culpability. ‘Alexandra 1’ ’s fault was culpable to a substantial degree.  In terms of relative culpability, the faults of ‘Ever Smart’ were much more culpable than those of ‘Alexandra 1’. The ‘Ever Smart’,  due to her unsafe speed, contributed far more to the damage resulting from the collision than the very much lower (and safe) speed of ‘Alexandra 1’ , and its. It followed that the causative potency as greater than that of ‘Alexandra 1’. Teare J held that ‘Ever Smart’ should bear 80% of the liability for the collision and ‘Alexandra 1’ 20%.

The Court of Appeal has now upheld the decision of Teare J. For the crossing rules to apply both vessels, the give-way vessel included, must be on sufficiently defined courses for the crossing rules to apply.  Had the crossing rules otherwise have applied it was argued that they were to be disapplied because ‘Alexandra 1’ ’ was “a vessel restricted in her ability to manoeuvre” within rule 18 (a)(ii) of the Collision Regulations.  the definition contained in rule 3(g)(iii),  provides as follows:

“ The term ‘vessel restricted in her ability to manoeuvre’ means a vessel which from the nature of her work is restricted in her ability to manoeuvre as required by these Rules and is therefore unable to keep out of the way of another vessel.  The term ‘vessels restricted in their ability to manoeuvre’ shall include but not be limited to:

(iii) a vessel engaged in …..transferring persons…while underway;”

For the ‘Alexandra 1’  it was argued that she came within the definition as she was waiting in the pilot boarding area for the pilot to board with minimum steerage way. The Court of Appeal rejected this and upheld Teare J’s conclusion that:

“….had the crossing rule applied and ‘Alexandra 1’ ’ been obliged to keep out of the way of ‘Ever Smart’ she could have done so, for example at C-6, by putting her engines astern and so permitting ‘Ever Smart’ to cross ahead in safety or by turning to starboard.  She was not restricted in her ability to take such action by reason of embarking the pilot because that work had not commenced (and never did commence)….”

The Court of Appeal also upheld Teare J’s decision on causative potency. The Judge was not precluded, when apportioning liability, from considering the relative impact of each vessel’s faults on the severity of the collision and no double-counting had been involved. Causative potency has two aspects; the first relates to the extent to which the fault contributed to the fact of the collision occurring; the second, to the extent to which the fault contributed to the damage or loss resulting from the collision. Excessive speed is a prime example of a fault likely to contribute to the extent and severity of the damage or loss suffered. A Judge may take into account the propensity of excessive speed to increase the damage suffered when undertaking the exercise of apportionment – and thus to have regard in broad terms to the magnitude of the damage sustained.  The excessive speed of the ‘Ever Smart’ bore on both the fact of the collision and its severity, amounting to the separate counting of two different (and cumulative) aspects of the same fault.

Admiralty jurisdiction over torts in the UK’s EEZ.

 

Virgin Media Ltd v Joseph Whelan T/A M and J Fish [2017] EWHC 1380 Admlty is an interesting decision on whether the Admiralty Court has jurisdiction in personam over a tort claim arising in the exclusive economic zone of the United Kingdom.  The claimant alleged that its fibre optic telecommunications cable, which ran across the Irish Sea between Dublin and Lytham St Annes, was damaged by a trawler at a location within the exclusive economic zone of the UK, but outside its territorial waters. The issue before the Admiralty Court was whether the courts of England and Wales had jurisdiction under the 2012 Recast Judgments Regulation. Under art.4 of the Regulation the defendant should be sued in the place of its domicile, the Republic of Ireland, subject to any of the additional grounds of jurisdiction provided for in the Regulation. Here the relevant one was contained in art 7(2) which provides that “A person domiciled in a Member State may be sued in another Member State in matters relating to tort, delict or quasi-delict in the courts for the place where the harmful event occurred or may occur”.

The Admiralty Registrar held that the Admiralty Court had no greater rights over a collision with a fixed structure than it would in respect of any collision between ships which would be none unless the action is brought in rem or falls within one of the exceptions in s.22 of the Senior Courts Act 1981. Any extension of jurisdiction would have to be established by reference to an international convention or treaty. The relevant treaty would be the UN Convention on the Law of the Sea (UNCLOS).

Article 60(2) of UNCLOS provides that the coastal state has exclusive jurisdiction over artificial islands, installations and structures within its EEZ, and this formed the basis for Burton J’s decision in Conocophillips (UK) Ltd v Partnereederei MS Jork [2010] EWHC 1214 (Comm) that the Commercial Court had jurisdiction over a negligence claim against a shipowner in connection with a collision between a vessel and an unmanned oil platform 40 miles off the coast of Norfolk. Where there is a collision between a vessel and a platform which is an effective prolongation of the territory of the United Kingdom, the Court would have jurisdiction. The concept of ‘place’ in the predecessor provision to art 7(2) in the 2001 Judgments Regulation was limited to matters addressed in UNCLOS art. 60.

In contrast, art.58(1) provided that all States, and not just the Coastal State had the freedom to lay submarine cables and pipelines within their EEZ, but did not provide for the coastal state to have jurisdiction. Article 56 of UNCLOS gives an English court jurisdiction over matters with respect to fishing, but did not provide that the coastal state may assume jurisdiction with regard to civil disputes arising out of fishing. Accordingly, the Admiralty Court was not a court for the place where the harmful event occurred under art 7(2) and the Court declared it had no jurisdiction over the claim. The appropriate jurisdiction was in the Courts of the Republic of Ireland under art. 4 of the Recast Regulation.

Narrow channels and crossings

A rare pure collision case in the Admiralty Court today in Nautical Challenge Ltd v Evergreen Marine (UK) Ltd [2017] EWHC 453 (Admty). Suppose Vessel A is coming out of a narrow channel and Vessel B is entering it: suppose further that Vessel A is approaching Vessel B on the latter’s starboard bow. The Colregs crossing rule says Vessel A has priority: the narrow channel rule says Vessel A must manoeuvre to pass Vessel B port to port. Which applies? Teare J has little doubt: it’s the narrow channel rule, following the Hong Kong decision in Kulemesin v HKSAR [2013] 16 HKCFA 195. Useful to know, and to clear up a long-standing controversy.

Direct actions against insurers — EU-style

P&I clubs already have their issues with the EU, as regards (for instance) Solvency II: see our post here. Now another cloud looms. P&I clubs based in the UK jealously guard their English law and jurisdiction clauses. But where a direct action is brought in an EU state, is the jurisdiction clause compatible with EU law?

The point has arisen in Denmark and is headed for the ECJ. A Danish tug, entered with Navigators Management (UK) Ltd, caused mayhem in the Danish port of Assens. The tug’s bareboat charterers being insolvent, the port sued Navigators in Denmark under the Danish direct action statute: Navigators relied on the English law and jurisdiction clause and insisted on being sued in England. The port relied on Arts 10 and 11 of Brussels I (equivalent to Recast 12 and 13, there being no relevant difference between the two here), saying that in matters of insurance the club could be sued in Denmark as the place where the damage occurred. Navigators said that Art.13 (recast Art.15) allowed the relevant jurisdiction to be ousted by agreement. The port retorted that this was all very well, but a term in the contract between the charterers and the club could not in the nature of things be binding on it as a third party. Whereupon the club riposted that if the port wanted the advantage of the contract between it and the charterers then the port had to take that contract warts (i.e. jurisdiction clause) and all.

At this stage it’s not clear why the port wanted so much to sue in Denmark. We can only presume that, despite the cover being written under English law, Danish law would apply to the exclusion of English law to at least some aspects of the direct claim and deprive the club of some advantage or defence otherwise available.

What the ECJ will hold is anyone’s guess. One hopes it will side with the insurer: one way P&I clubs keep costs down and liabilities in check is to avoid entanglements with foreign law as far as possible, and keep in reserve the possibility of insisting on “pay to be paid” provisions — something many EU jurisdictions take a poor view of. There’s certainly some logic on that side. In particular, the right under Art.13 to exclude jurisdiction is specifically stated not to apply to direct personal injury claims against liability insurers: something that seems to suggest that but third party direct claims in general can be excluded. On the other hand, logic (if one may say so) has not always been the ECJ’s strong suit when the court has been presented with the opportunity to extend EU control over commercial activities.

If the decision goes against Navigators, we may see yet another item added to the already long UK Brexit wish-list.

Many thanks to HFW (who give the arguments in detail) for the tip-off. More detailed coverage of the affair (in English) from the Copenhagen law firm Gorrissen Federspiel can be found here.

Common sense on limitation

Some robust old-fashioned common sense on limitation from Lord Clarke in the Privy Council today. In BORCO v The Cape Bari [2016] UKPC 20 the Cape Bari, a sizeable tanker of about 160,000 dwt, managed to demolish large parts of a Bahamian berth where it was docking to pick up a cargo of crude oil. The damage was about $22 million; the limitation fund about $16 million. The vessel had docked under a contract stating:

“If in connection with, or by reason of, the use or intended use by any vessel of the terminal facilities or any part thereof, any damage is caused to the terminal facilities or any part thereof from whatsoever cause such damage may arise, and irrespective of weather [sic] or not such damage has been caused or contributed to by the negligence of BORCO or its servants, and irrespective of whether there has been any neglect or default on the part of the vessel or the Owner, in any such event the vessel and the Owner shall hold BORCO harmless from and indemnified against all and any loss, damages, costs and expenses incurred by BORCO in connection therewith. Further, the vessel and her Owner shall hold BORCO harmless and indemnified against all and any claims, damages, cost and expenses arising out of any loss, damage or delay caused to any third party arising directly or indirectly from the use of the terminal facilities or of any part thereof by the vessel … ”

BORCO, owners of the berth, claimed their full losses, saying that the owners of the Cape Bari had contracted out of their right to limit. The first instance judge agreed with BORCO. The Court of Appeal, without the point being argued, allowed the shipowners’ appeal on the basis that the right to limit under the Limitation Convention 1976 as enacted was mandatory law and could not be ousted by agreement.

The decision of the Court of Appeal faced some little criticism, and BORCO appealed (with IISTL stalwart Peter Macdonald-Eggers QC leading the charge). The Privy Council held today (1) that the right to limit could be waived in advance; but that (2) it hadn’t been, on the proper interpretation of the contract. They therefore dismissed the appeal.

Both holdings are to be welcomed.

The first holding corresponds with what had always been assumed by shipping lawyers, and also with one’s instinctive feeling as a commercial lawyer: why ever not? It is also quite important in practice. Not only port usage agreements, but offshore construction contracts quite often contain waivers of the right to limit, with insurance arrangements doubtless made to match. There is only one word of caution: owners and P&I interests will now have to get it absolutely clear what the coverage position is where there is an effective contractual waiver of this sort (as an increasing number of ports in countries like Indonesia are said to demand).

The second holding seems entirely in accordance with the the terms of the agreement. The Privy Council rightly said that a shipowner should not lightly be regarded as having abandoned a crucial right of his: the gravamen of the clause in question was clearly aimed at making the owners strictly liable, and there was no reason to think that a reference to “all and any loss, damages, costs and expenses”, without more, implicitly got rid also of the right to limit. [Note for classical contract law buffs: the holding in that golden oldie, The Satanita [1897] AC 59, that similar words did oust the right to limit was, shall we say, not unequivocally endorsed. See Lord Clarke’s dry comment at [59]].

Speculative question for readers: how soon will the Bahamian port authorities and others re-write their terms of use to say expressly that the right to limit is waived? Answers on a postcard, please.