A Brussels I glitch for underwriters, but perhaps no great harm

The sequel to the Atlantik Confidence debacle hit the Supreme Court this week. That court determined that UK courts won’t be doing any more deciding on the affair.

To recap, the Atlantik Confidence, a medium bulk carrier, was scuttled by her owners just over seven years ago in an insurance scam. Her hull underwriters, who had paid out some $22 million in all innocence to Credit Europe, the bank assignee of the policy, understandably asked for their money back. Unfortunately the bank was Dutch, and stood on its right to be sued in the Netherlands under Art.4 of Brussels I Recast, and also under Art.14, which says that insurers can only sue a policyholder or beneficiary in his own jurisdiction. Teare J held (as we noted here) that in so far as the underwriters could prove misrepresentation by the bank (which they had a chance of doing) they could sue in tort in England, since the effects of the misrepresentation had been felt here. Art.14 was no bar, since although this was a matter relating to insurance that provision was predicated on the person sued by the insurer being a weaker party (see Recital 18 to the Regulation), and no sensible person could think Credit Europe needed to be protected from the foul machinations of overbearing insurers. The Court of Appeal agreed (see Aspen Underwriting Ltd & Ors v Credit Europe Bank NV [2018] EWCA Civ 2590), citing the Advogate-general’s view in Kabeg v Mutuelles Du Mans Assurances (Case C-340/16) [2017] I.L. Pr. 31 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”.

The Supreme Court was having none of it: see Aspen Underwriting Ltd & Ors v Credit Europe Bank NV [2020] UKSC 11. It was brief and to the point. This was a matter related to insurance; there was no agreement binding on the bank to submit to English jurisdiction; and Art.14, as so often in the case of Euro-law, should be interpreted as seeking bureaucratic certainty rather than nuanced determination. Any reference to relative weakness was merely background, there to explain why the EU has a bright line rule that insurers can’t ever be allowed to sue except in the defendant’s domicile.

Where from here? On present indications our final Brexit disentanglement from the EU will be no escape, since the present intention is for the UK to jump sideways from Brussels I to Lugano, which also has identical provisions about insurers (for Art.14 read Art.12).

But remember that in the case of marine insurance Art.14 can be ousted; and the sting of this decision might well be able to be drawn by some nifty drafting. Obviously every policy must have a provision under which the policyholder submits expressly to the jurisdiction of the English courts. There needs to be added to this a provision that no assignee can enforce payment except against the giving of an express undertaking to submit to English jurisdiction in the event of any dispute; and a cast-iron practice of never making payment to any assignee except against receipt of such an undertaking by the underwriter.

Of course we don’t know what the ECJ would say about this (though it’s difficult to see how it could object). But that may not matter. By the time the issue comes to be tested, we are likely to be outside the clutches of that court anyway.

THE FIRST ADMIRALTY CASE HEARD REMOTELY OWING TO COVID19 PANDEMIC

On 29 January 2020, the Admiralty Court made an order at the request of the claimant in Qatar National Bank QPSC v Owners of the Yacht Force India [2020] EWHC 103 (Admlty) that the yacht Force India be sold. The circumstances in which the order for the sale was granted were described in a previous post on this blog. See https://iistl.blog/2020/03/09/no-judgment-in-default-of-a-defence-in-in-rem-proceedings-against-an-arrested-ship-unless-the-court-is-satisfied-that-the-claim-has-been-proved/.

After twenty bids had been received by the Admiralty Marshal during the sale process, Qatar National Bank QPSC applied to the Court for an order to set aside the order for the sale. While the Admiralty Court declined to grant such order, it suspended the sale to enable a proper hearing to take place on notice to the interested parties. 

On 20 March 2020, the hearing took place by telephone as a result of the COVID19 pandemic, making Qatar National Bank QPSC v Owners of the Yacht Force India [2020] EWHC 719 (Admlty) the first case to be heard by the Admiralty Court remotely.

The Court decided to set aside the order for sale in the present case. That is because an independent third party paid the sums secured by the mortgage. As a result, the judicial sale of the yacht Force India was rendered unnecessary.

It may be worth noting here that the case at hand is exceptional in that the mortgage had been granted as additional security for a €27 million loan to finance the acquisition of a company which owned a property on an island off the coast of France. Thus, when the loan secured by the charge on the property was paid to Qatar National Bank QPSC, the smaller sum secured by the mortgage on the yacht was also discharged.

Indeed, the Admiralty Court emphasised the need for orders setting aside judicial sales of vessels to remain the exception rather than the norm, with a view to protecting its reputation and its ability in future cases to achieve a vessel’s market value when an order for sale is made.

EU to get tough on GHG emissions from shipping?

 

In October 2014, the EU set domestic GHGs reduction target of at least 40% below 1990 levels by 2030. Shipping is currently outside those targets with climate change regulation for international shipping being parked in the slow lane in the International Maritime Organization. That may be about to change over the next two years.

 

  1. COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS The European Green Deal Brussels, 11.12.2019 COM(2019) 640 final

 

The Commission indicated that it would be looking at measures extending the emissions trading system (ETS) to shipping and would look closely at the current tax exemptions including for aviation and maritime fuels and at how best to close any loopholes will take action in relation to maritime transport, including to regulate access of the most polluting ships to EU ports and to oblige docked ships to use shore-side electricity.

 

  1. On 4 March 2020 the Commission proposed a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing the framework for achieving climate neutrality and amending Regulation (EU) 2018/1999 (European Climate Law) under which, by September 2020, the Commission would review the Union’s 2030 target for climate referred to in Article 2(11) of Regulation (EU) 2018/1999 in light of the climate-neutrality objective set out in Article 2(1), and explore options for a new 2030 target of 50 to 55% emission reductions compared to 1990.

 

  1. On 24 January 2020 Green MEP, Jutta Paulus, as Rapporteur for the European Parliament’s Committee on the Environment, Public Health and Food Safety produced a draft report (COM(2019)0038 – C8-0034/2019 -2019/0017(COD)) on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) 2015/757 in order to take appropriate account of the global data collection system for ship fuel oil consumption data. The report recommends the following amendments to the 2015 MRV Regulation ((Regulation (EU) 2015/757 on the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and amending Directive 2009/16/EC)):

– the inclusion of maritime transport in the ETS;

– the establishment of a maritime transport decarbonisation fund to foster research and development in the energy efficiency of ships and support investments in innovative technologies and infrastructure to decarbonise maritime transport, including short sea shipping and ports, and the deployment of sustainable fuels. The fund would be established for the period from 2021 to 2030 and would be financed from revenues of the ETS;

– Establishing a target of reduction of CO2 emissions per transport work by at least 40 % by 2030 over the first reporting year of the MRV, 2018;

– The extension of the scope of the amended regulation to all GHG emissions, especially methane, from ships of 5000 grt or above. The amended regulation would cover GHG emissions released during voyages of such ships from their last port of call to a port of call under the jurisdiction of a Member State and from a port of call under the jurisdiction of a Member State to their next port of call, as well as within ports of call under the jurisdiction of a Member State;

– The Commission to set targets for member states for deployment of shore side electricity.

 

These proposed changes to EU law may make last year’s anxiety over the IMO’s Sulphur Cap come to seem like very small beer indeed.

Of ships and sea ROVers.

For most Admiralty lawyers most of the time, the question “what is a ship?” does not feature large on the radar. In the vast majority of cases there is no difficulty; the detailed working out of the question thus tends to be something left to law professors with time on their hands. Not always, however. An important recent battleground is ROVs. Although almost invariably controlled from ships, these can be pretty valuable pieces of kit in their own right, such that a right to arrest them and thus obtain security over them becomes worth having for a maritime claimant.

Yesterday the Australian Federal Court faced the issue in Guardian Offshore v Saab Seaeye 1702 [2020] FCA 273. The definition of a “ship” in the Admiralty Act 1988 (Cth) is very similar to that in s.313 of our own Merchant Shipping Act 1995: namely, a vessel of any kind used or constructed for use in navigation by water (though a few specifics are expressly incorporated). Colvin J had to deal with a purported arrest in Western Australia of a Saab Leopard, an electric underwater survey contraption looking a bit like an overgrown air-conditioning unit which could be made buoyant but only by the inflation through an umbilical cord of flotation bags attached to it.

His Honour, having gone through the English and Australian authorities going back to The Gas Float Whitton [1897] AC 337, decided it was not used for navigation and hence not a ship. It was very small, lived a lot of time on the sea bed, had very little power of directed motion, and had little in common with any other kind of vehicle used in navigation. He therefore vacated the arrest.

One suspects strongly that the result would be similar in England. But note three things.

  1. This case does not hold that a ROV is not a ship: merely that this ROV isn’t. A miniature submarine with substantial power of directional travel and natural neutral buoyancy we suspect would be likely to be potentially classed as a vessel used in navigation, and hence liable to arrest. There’s nothing odd in saying some ROVs are and some are not ships, just as (probably) some jetskis are and some aren’t: compare Steedman v Scofield [1992] 2 Lloyd’s Rep. 163 (simple jet-ski not a vessel with R v Goodwin [2005] EWCA Crim 3184; [2006] 1 W.L.R. 546 at [17] (more substantial jetski might be a vessel).
  2. An interesting issue remains unexplored. If the mother ship had been arrested, would a ROV operable only from and in connection with that vessel be regarded as part and parcel of it? (Compare Morlines Maritime Agency Ltd v The Skulptor Vuchetich [1996] FCA 41; (1996) 136 A.L.R. 206). What if one person arrests the ship and someone else the ROV?
  3. A ROV can be not only a ship but something supplied to a ship under s.20(2) of the SCA 1981: The Sarah [2010] CSOH 161, [2011] 1 Lloyd’s Rep. 546. This looks odd, but seems logically possible: compare the case of, say, a motor lifeboat.

One thing seems certain. We haven’t heard the last of this.

NO JUDGMENT IN DEFAULT OF A DEFENCE IN IN REM PROCEEDINGS AGAINST AN ARRESTED SHIP UNLESS THE COURT IS SATISFIED THAT THE CLAIM HAS BEEN PROVED

In Qatar National Bank QPSC v Owners of the Yacht Force India [2020] EWHC 103 (Admlty), the claim arose out of a mortgage granted by Qatar National Bank QPSC over the yacht Force India as additional security for a €27 million loan to finance the acquisition of a company which owned a property on an island off the coast of France. The mortgage was limited to a principal amount of €5 million. Due instalments were not paid and the claimant, Qatar National Bank QPSC, served a notice of default in June 2018.

Two months later, Qatar National Bank QPSC issued in rem proceedings and arrested the yacht Force India. The defendants, Force India Ltd, did not appear at the trial. It was, however, apparent from a letter from their former solicitors to the Court dated 14 January 2020 that Force India Ltd were aware of the trial. Against this backdrop, Qatar National Bank QPSC applied for an order to strike out the defence if Force India Ltd did not attend the trial. Mr Justice Teare granted this order pursuant to CPR Part 39.3 (1).

His Justice explained, however, that, in a case concerning in rem proceedings against an arrested ship, it is not appropriate to grant judgment in default of a defence pursuant to CPR Part 61.9(3)(a)(iii), unless the Court is satisfied that the claim has been proved. That is because other parties may have an action in rem against the arrested vessel. Thus, their interests might be damaged if judgment is given without the claim having been proved. Furthermore, the Practice Direction to CPR Part 39 provides that the claimant must prove his/her claim where the trial proceeds in the absence of the defendant.

Accordingly, Mr Justice Teare examined the documents which proved the claim and gave judgment for the sums claimed. These included €5 million for the value of the mortgage plus interests and the costs of collection. In addition, ancillary orders were given for the yacht to be appraised and sold.

Unseaworthy ship, or just a careless crew?

If you were mown down by a car, you would presumably think it a tad surreal if the driver got out, looked you over, and walked away, saying “I don’t have to pay you a penny. There was nothing wrong with my car. I merely drove it very badly.” Unless, of course, you were a lawyer dealing with carriage of goods by sea. In that case you would understand perfectly; after all, this merely reflects the distinction you will have imbibed with your mother’s milk between Article III r 1 and Article IV r 2(a) of the Hague-Visby Rules. The one says that anyone’s failure to show due diligence to make your vessel seaworthy makes you liable even when it’s not your fault; the other, that negligence in navigation excuses you from liability even where it was your fault.

Drawing the distinction between these has never been easy. The latest episode comes in the Court of Appeal’s decision today in The CGM Libra [2020] EWCA Civ 293. A sizeable container ship sailed from Xiamen in China (a pleasant subtropical spot which older readers may remember as Amoy) in the wee hours and grounded, rather expensively, a shortish distance outside. The reason she grounded was that when preparing the passage plan the owners had indolently failed to transcribe a Notice to Mariners indicating that outside the strict boundaries of the fairway the soundings on local charts were completely unreliable.

In a general average claim by owners against cargo, the issue arose: was this a matter of navigational fault (owners not liable and hence entitled to contribution) or unseaworthiness (owners liable and thus barred)? Teare J held for unseaworthiness. Owners appealed, on the basis that failing to make a note of possible shallows so as to avoid them was a clear navigational error. But the Court of Appeal was having none of it. Even if the failure to prepare an adequate passage plan was a navigational sin, there was no reason why it could not also amount to unseaworthiness in so far as it was due to someone’s negligence before the voyage began.

The holding itself is pretty unexceptionable. If lack of proper charts on board at the start of the voyage is unseaworthiness, it would be odd if the same did not apply to the absence of a proper passage plan, this having been regarded as more or less as essential for a dozen years or so at the time of the events in question.

On the other hand, cases like this do begin to raise the question: have we now reached the point that where there is any negligence before the voyage, there will be a case of unseaworthiness so as to leave the Article IV(2)(a) defence in effect a dead letter? Some incautious words suggest we might have. At [61] Flaux LJ was sceptical whether unseaworthiness had to stem from an attribute of the vessel at all, and Haddon-Cave LJ seems to have suggested that the distinction was simply temporal: negligence before departure is unseaworthiness, for owners’ account, and later negligence for cargo’s account.

But this would look odd, apart from being for obvious reasons unwelcome to P&I interests. Does it make sense to say that a vessel is unseaworthy even though we cannot say what it is about it that makes it unseaworthy? It seems doubtful. One strongly suspects that The CGM Libra will not be the last word, and that we may well see more litigation before too long aimed at clearing up the awkward distinction between bad ships and careless crews.

England v Spain grudge match. Appeal against registration of ‘Prestige’ judgment against London Club likely to be heard in December 2020.

 

Following the break up of ‘The Prestige’, Spain brought proceedings for compensation for the resulting pollution against various defendants, including the owner’s P&I Club. The Club got its response in early by obtaining an arbitration award against Spain which declared that, as a result of the “pay to be paid” clause in the policy the Club had no liability to Spain. The arbitrator’s jurisdiction was challenged unsuccessfully in the English Courts and the award was converted into a judgment. London SS Mutual v Kingdom of Spain, [2015] EWCA Civ 333; [2015] 2 Lloyd’s Rep. 33

In 2016 the Spanish Supreme Court held that the owners and their club were liable for the damage caused and in execution proceedings in La Coruna the court held that the club would liable in respect of the claims up to a global limit of liability in the sum of approximately €855 million. Spain has obtained an order in England registering the Spanish judgment to enable its enforcement here in England. The Club have appealed against that order, principally on the ground that, under art 34.3 of the Brussels Regulation the judgment is irreconcilable with the previous decisions of the English courts converting the award into a judgment.

In a Case Management Conference before Teare J [2020] EWHC 142 (Comm) it was ordered that the trial be after 1 December 2020. It is estimated that it will last 5-6 days. Disclosure has been ordered of documents held by Spain which relate to the alleged refusal of the Spanish Courts  to allow the master to participate in an underwater investigation of the strength of the vessel’s hull and to disclose the results of the investigation (so that there was a breach of the master’s right to equality of arms and to be able to prepare a defence) or whether the results were disclosed to the master in sufficient time to allow him to prepare his defence.

The Club were also given permission to adduce evidence of a naval architect on the question whether the results of the underwater inspections enabled conclusions to be drawn as to the strength of the hull and if so what those conclusions were. On both issues the Club is to provide its evidence first.

FAL Convention. Electronic documentation for ports replacing paper.

On 1 January 2017 the Facilitation Convention was amended to provide for exchange of FAL data electronically from 8 April 2019. The amendments provide for a transition period of 12 months during which paper and electronic documentation co-exist for FAL documents.

The amendments provide that consideration should also be given to such a Single Window serving as the mechanism through which the public authorities communicate decisions and other information covered by this Convention in connection with the arrival, stay and departure of ships, persons and cargo.

The documents in question are:

General Declaration

Cargo Declaration

Ship’s Stores Declaration

Crew’s Effects Declaration

Crew List

Passenger List

Dangerous Goods Manifest

The document required under the Universal Postal Convention for mail

Maritime Declaration of Health

Security-related information as required under SOLAS regulation XI-2/9.2.2

Advance electronic cargo information for customs risk assessment purposes

Advanced Notification Form for Waste Delivery to Port Reception Facilities, when

communicated to the Organization.

 

The amendments only affect FAL documents and not the certificates of liability insurance under the CLC, the Nairobi Wreck Removal Convention, the Bunker Oil Pollution Convention. These must be carried on board vessels as paper certificates.

 

‘Properly due’ in General Average Guarantee. Guarantor’s reliance on Rule D of YAR 1974.

 

 

The BSLE Sunrise [2019] EWHC 2860 (Comm) involved a preliminary  issue as to whether the issuer of the GA guarantee can raise a defence under Rule D of YAR 1974 as to their liability under the GA guarantee.

Following a grounding off Valencia in 2012, owners incurred expenses in attempting to refloat vessel and in conducting temporary repairs. General Average Bonds and General Average Guarantees were issued. Each GA bond provided

“In consideration of the delivery to us or our order, on payment of the freight due, of the goods noted above we agree to pay the proper proportion of any … general average

… which may hereafter be ascertained to be properly and legally due from the goods or the shippers or owners thereof …”

Each of the GA guarantees, in the wording approved by the Association of Average Adjusters and the Institute of London Underwriters, provided:

“In consideration of the delivery in due course of the goods specified below to the consignees thereof without collection of a deposit, we the undersigned insurers, hereby undertake to pay to the ship owners … on behalf of the various parties to the adventure as their interest may appear any contributions to General Average … which may hereafter be ascertained to be properly due in respect of the said goods.

Cargo interests maintained that the grounding was due to owners’ breach of their obligation of seaworthiness under art III.1 of the Hague/Hague-Visby Rules which were incorporated into each of the bills of lading, and accordingly under Rule D of YAR 1974 which was incorporated into those contracts, no general average was due from them.

Judge Pelling QC held that this defence also applied in respect of the general average guarantees. The wording in the bonds and the guarantees should be construed in the same word and that the word “due” when applied to a monetary obligation meant that it is legally owing or payable. No sum becomes legally due or payable “ … on behalf of the various parties to the adventure as their interest may appear …” by way of contribution to general average unless and until it has been decided whether the Rule D defence  succeeds or fails. The inclusion of the word “properly” served to put the point beyond doubt.

The Maersk Neuchâtel, [2014] EWHC1643 (Comm); [2014] 2 Lloyds Rep 377 on which owners relied contained different wording whereby the undertaking was to pay “ … on behalf of the various parties to the adventure as their interest may appear …” the GA “… which may hereafter be ascertained to be properly due in respect of the said goods”. This was construed as requiring the charterer to pay the sum ascertained to be due in the adjustment, with the omission of the words in the standard bond such as ‘is payable’ and ‘properly due’, making the contract akin to an on-demand guarantee, payment being due upon here certification.

Accordingly the Preliminary Issue was resolved in favour of the guarantors. Nothing was payable under the GA guarantees issued by them if the loss was caused by the owner’s actionable default or until that issue has been resolved.

Want to Arrest in Singapore? If you’re Not Actually Malicious, Feel Free

For more than 150 years, the test for wrongful arrest of a vessel has been that of ‘malice’ and ‘gross negligence’ on the part of the arresting party, as first described in The Evangelismos (1858) 12 Moo PC 352. While this test remains unchallenged in England and Wales, other common law jurisdictions including, but not limited to, Australia, South Africa, and Singapore have questioned its validity. More recently, the so-called Evangelismos test came under scrutiny in the judgment of the Singapore High Court in Hansa Safety Services GmbH v The Owner of the Vessel, the “King Darwin” (The King Darwin) [2019] SGHC.

On 13 November 2018, the claimant, Hansa Safety Services GmbH, brought an action in rem for services rendered to the vessel, the King Darwin. The total sum of the claim was 5,864.00 euros. On the same day, Hansa Safety Services GmbH arrested the King Darwin pursuant to a warrant of arrest. On 19 November 2018, the owners of the King Darwin provided security and the vessel was released.

On 21 January 2019, the Insolvency Administrator of the owners of the King Darwin, Hendrik Gittermann, was granted leave to intervene in the action. In his summons, Hendrik Gittermann sought to set aside the warrant of arrest and obtain damages for wrongful arrest of the vessel from Hansa Safety Services GmbH.

On 21 March 2019, Hansa Safety Services GmbH served a Notice of Discontinuance which it had filed on 7 February 2019, fourteen days after service of the defence to it. The purpose of the Notice of Discontinuance was to rescind the action as a whole including the counterclaim for damages for wrongful arrest of the vessel from Hansa Safety Services GmbH.

On 22 March 2019, Hendrik Gittermann applied to strike out the Notice of Discontinuance on the ground that it is necessary to prevent injustice or an abuse of process of the Court. The Senior Assistant Registrar granted the application. Hansa Safety Services GmbH appealed.

Vincent Hoong JC dismissed the appeal and upheld the order to strike out the Notice of Discontinuance. According to Vincent Hoong JC, this was an appropriate case for the Court to exercise its inherent powers to strike out a Notice of Discontinuance to prevent injustice to Hendrik Gittermann. The time and effort that Hendrik Gittermann would expend in recommencing a claim for the wrongful arrest of the King Darwin from Hansa Safety Services GmbH, taken in conjunction with the uncertainty of the test to be applied when bringing a claim for damages for wrongful arrest outside of in rem proceedings, were sufficient to set aside the Notice of Discontinuance.

Hendrik Gittermann argued that, by discontinuing the action, Hansa Safety Services GmbH would deprive him of his right to pursue a claim for wrongful arrest, which must be pursued in the context of an in rem action by the arresting party. Vincent Hoong JC rejected this argument. Hendrik Gittermann could bring a claim for damages for wrongful arrest independently of any in rem action by the arresting party. Vincent Hoong JC, reviewing the judgments in The Wallet D Wallet [1893] P 202, Best Soar Ltd v Praxis Energy Agents Pte Ltd [2018] 3 SLR 423 and Congentra AG v Sixtenn Thirteen Marine Sa (The Nicholas M) [2009] 1 All ER 479 (Comm), explained that such claim could be brought under the tort of wrongful arrest, which has long been recognised by the English Courts.

Furthermore, Hendrik Gittermann argued that, were he to pursue a claim for wrongful arrest independently of any in rem action by the arresting party, the test to be applied is unclear. Vincent Hoong JC recognised that the Court of Appeal’s observations in The Kiku Pacific [1999] 2 SLR (R) 91 and The Vasiliy Golovin [2008] 4 SLR (R) 994 have raised arguments that the applicable test for pursuing a claim for wrongful arrest when an in rem action is discontinued and an independent action is brought should be that of ‘without reasonable or probable cause’, rather than ‘malice’, as suggested in The Evangelismos (1858) 12 Moo PC 352. Nevertheless, Vincent Hoong JC took the view that these observations were not enough to lay down a less stringent test and ‘malice’ would almost certainly be the relevant threshold.