IISTL’s 17th Colloquium 6-7 September

DAMAGES, REMEDIES AND RECOVERIES IN SHIPPING AND COMMERCIAL LAW

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By popular demand, the seventeenth International Colloquium organised by the Institute of International Shipping and Trade Law at Swansea University Law School is back this year, being once again held in person in its traditional slot in the first week of September 2022.

In shipping, insurance and commercial law, what matters at the end of the day is what remedy, whether money or otherwise, the claimant can get (or the defendant resist). In this latest Colloquium we shine the spotlight on these issues and look to a number of new trends and liability issues. As ever, the discussions will range freely over national, international, and EU legal dimensions, and will in each case be led by panels of top professional and academic experts.

Topics discussed are very varied, but will include:

· Deductions from damages, net values

· Smart contracts- loss and damages

· Ship sales and seller’s potential duty of care

· Judgments in Bitcoin- currency of judgment

· Damages and agreed compensation

– Limitation of liability- recent developments

– Claims for Third Party Loss

· Reflective loss

· Internet of things and potential damages

· Digital Banking and Liability Issues

– Liability for drones

· Damages and force majeure

· Specific Remedies

· Anti-suit injunctions

· Punitive Damages in Maritime Cases — A View from Across the Pond

· Shipping operators’ obligations & liabilities under the EU emission reductions strategy

The format will be unchanged, and familiar to anyone who has been to any of our previous Colloquia. Each session will be regulated by a chairperson with discussion led by two or three speakers, followed by as much free and open debate as time allows. All delegates will be provided with a full pack containing papers and source materials. The proceedings will, at a later date, be published in full by Informa (to whom we are enormously grateful for continued sponsorship and unstinting support).

The following is the list of speakers and chairpersons confirmed:

Adam Sanitt, Knowledge Director, Digital and Innovation, Norton Rose Fulbright

Grace Asemota, Partner, Hannaford Turner LLP

Professor Simon Baughen, Institute of International Shipping and Trade Law, Swansea University

Simon Croall QC, Barrister, Quadrant Chambers

Josephine Davies, Barrister, Twenty Essex

Peter MacDonald-Eggers QC, 7 KBW

Chris Kidd, Partner, Ince

Associate Professor George Leloudas, Institute of International Shipping and Trade law, Swansea University

Dr Andrea Miglionico, Lecturer, Reading University

Gemma Morgan, Barrister, Quadrant Chambers

Dr Melis Ozdel, Lecturer, Faculty of Laws, UCL | Director, UCL Centre for Commercial Law, and Consultant, Birketts LLP

Professor B. Soyer, Institute of International Shipping and Trade law, Swansea University

Andrew Preston, Partner, Preston Turnbull LLP

Dr Frank Stevens, Associate Professor, Erasmus University Rotterdam

Professor Andrew Tettenborn, Institute of International Shipping and Trade Law, Swansea University

Jonathan Webb, Partner, HFW

Professor Lia Athanassiou, University of Athens

Professor Michael F Sturley, University of Texas

Breaking limitation under the CMR?

The owner of two extremely valuable cars, a Mercedes Benz CLK GTR 97 and a 1948 Talbot-Lago T26 GS Franay Cabriolet claimed damages from the carrier, CARS, after they were damaged while in its possession. The carrier CARS was engaged through Peter Auto, a French events management company, to transport the two cars from the premises of their owner, Mr Knapfield, in Beaconsfield to the Chantilly Arts & Elegance Richard Mille Concours d’Etat (“Chantilly”), north of Paris, and back again after the event. During the return journey both cars were damaged when the Talbot – which had been stowed forward of the CLK 97 –  slipped backwards into the CLK 97, due to the front wheel straps attached to the Talbot becoming free, as a result of inadequate securing of its front wheel straps.

The central issue in Knapfield v CARS Holdings Ltd Company (No. 05481676) & Ors [2022] EWHC 1437 (Comm) (13 June 2022). was whether the owner’s damages were limited by the Carriage of Goods by Road Act 1965 which incorporates the CMR Convention (“CMR”).  The Convention’s provisions have the force of law “so far as they relate to the rights and liabilities of persons concerned in the carriage of goods by road under a contract to which the Convention applies” (s1) and a person concerned in the carriage of goods by road includes a consignee (s14(2)(b)). Under CMR the carrier’s liability would be limited to SDR 23,490.60, about $20,000, considerably lower than the diminution in value claimed by the owner of the two cars.

The CMR applied because there was a contract for the carriage of goods for the vehicles by road in the Transporter for reward, and because CARS took over the vehicles in France for carriage to the United Kingdom. The owner of the cars was not a party to that contract, but CMR applied because he was the consignee.  The failure of CARS to issue a consignment note did not affect the applicability of CMR due to article 4 which provides “The contract of carriage shall be confirmed by the making out of a consignment note. The absence, irregularity or loss of the consignment note shall not affect the existence or the validity of the contract of carriage which shall remain subject to the provisions of this Convention.” There was nothing in CMR which expressly placed the burden of issuing the consignment note on the carrier so that a claim for breach of contract could be made against the carrier for failure so to do.

The owner’s case was that the liability of CARS was not limited by CMR, due to three exceptions, all of which were rejected by Charles Hollander QC, acting as a Deputy Judge of the High Court:

a. Where the sender declares in the consignment note a value for the goods (Article 24 CMR).

The owner was not a party to the contract of carriage and was not the sender, who was the party that needed to make such declaration. Any discussion between the owner and the sender about the value of the vehicles, which was disputed, was oral and was not declared in the consignment note, as there was no consignment note. Any declaration of value needed to have been made with the agreement of CARS as the carrier and be evidenced in writing. There was no such agreement here.

b. Where the sender fixes the amount of a special interest in delivery in the consignment note (Article 26 CMR).

This argument failed for the same reasons as the Article 24 argument, with the additional reason being that “special interest” must provide for loss or damage which is not provided for in Articles 23, 24 and 25, such as consequential loss.

c. Where the damage was caused by the wilful misconduct of the carrier or its servants or agents (Article 29 CMR).

To establish wilful misconduct on the part of the carrier or its servants and agents, the Claimant needed to prove that:

a. There must have been misconduct.

b. The carrier, employee or agent either (a) must have committed the misconduct deliberately knowing that the conduct was wrongful, regardless of the consequences, or (b) must have committed the misconduct deliberately with reckless indifference as to whether what he or she was doing was right or wrong, where such misconduct was unreasonable in all the circumstances.

c. There must have been an increased real and substantial risk of damage to the goods resulting from such misconduct and the carrier, employee or agent must have been aware of that additional risk.

Such misconduct was not made good by negligence or even gross negligence. The case of wilful misconduct was based on the combination of an unjustified failure by CARS’ driver, Mr Constantinou, to follow instructions given by the owner to him and the use of an unsafe method of securing the Vehicles in circumstances. Responsibility and expertise in carrying the Vehicles lay with CARS rather than the owner and whilst a failure to do what the owner had proposed or advised might be evidence of deliberate or reckless conduct, it would not be a breach of any obligation to fail to follow the owner’s instructions,

The cause of the damage was the failure of Mr Constantinou properly to secure the front over-the-wheel straps on the Talbot on the return journey, so that in the course of that journey they worked loose. Although that failure could readily be described as negligent, perhaps even grossly negligent, there was no reason to think it was reckless, still less deliberate. Although Mr Constantinou had failed to follow company policy to use chocks were possible, there was a legitimate explanation for this – he did not do so because the Transporter had forward wheel wells sunk into the deck, and the Talbot was driven into the wells, which had already acted as chocks. Significantly, that method for transportation was the same as been used for the carriage to Chantilly without incident, which went against any suggestion that the method of carriage was reckless.

The owner also claimed by way of damages for misrepresentation under s2(1) of the Misrepresentation Act 1967, and by way of an alleged contract with CARS  whereby it agreed to reimburse him for the damage which had occurred in full, that contract being separate to CMR. The Misrepresentation claim could not succeed as this claim could not succeed because the misrepresentation would have been made to someone who was neither a contracting party or their agent. The claim based on the reimbursement contract could not succeed as there was no consideration for CARS’ promise, and if there were to be an enforceable promise to surrender the right to rely on the statutory limit of liability under CMR, there would have to have been express reference to the right to limit. Without such a reference, the promise would not be clear and unequivocal, which is a requirement for a contractual surrender of such rights of limitation.

Deductions from Charter Hire Made in Good Faith and on Reasonable Grounds?

London Arbitration 1/22

Disputes often arise in time charters on whether any deduction from charter hire can be made especially when there is an alleged underperformance of the chartered vessel.

It is well established principle of law that if a deduction is made from hire, such deduction must be made in good faith and be based on reasonable grounds (otherwise such deduction amounts to breach of contract on the part of the charterer). This effectively means that in case of a deduction for underperformance of the chartered vessel, the charterer might be called upon at short notice to demonstrate that its deductions were made bona fidei and its calculations were based in reasonable grounds (The Kostas Melas [1981] 1 Lloyd’s Rep 18).

This was the central issue in this dispute. The charterers withheld US$ 53,550.40 gross in respect of what they claimed was time loss due to underperformance to the extent of 6.6938 days (off-hire).

When the tribunal asked the charterers to demonstrate a prima facie case as to whether the deduction from hire was made bona fidei and on reasonable grounds, they responded with a report of weather routing company they appointed, some further comments from that company and the fact that the owners did not appoint their own weather routing company.

The tribunal found that charterers failed to address the question of good faith nor had they made any attempt to show that they had a claim for off hire. It was also noted by the tribunal that the charterers did not address the point made by the owners that there was no speed/consumption warranty in the charterparty as the fixture description of the ship was qualified by the words “all details about/in good faith”.

The tribunal here was simply deciding that the charterers had not shown that their deduction was made in good faith and on reasonable grounds so they were wrong to withheld the deduction from hire. It is theoretically open to charterers to claim that there was an underperformance of the chartered vessel but as hinted by the tribunal, based on the wording in the charterparty qualifying the performance of the vessel, it will be an uphill struggle to prove the existence of a speed/consumption warranty and the fact that it was breached!        

 

A classic problem returns – bills of lading, charterparties and the terms of the contract of carriage

As any shipping lawyer will tell you, the law is not at its tidiest when a bill of lading ends up in the hands of a voyage charterer. Yesterday’s decision in Unicredit AG v Euronav NV [2022] EWHC 957 (Comm) adds a further chapter to the saga, which may be more tendentious than it looks.

The case arose out of the insolvency and suspected fraud of Indian oil trader GP (Gulf Petrochem FZC, now a restructured GP Global, not to be confused with oil major Gulf Oil). BP chartered the 150,000-ton Suezmax Sienna from her owners Euronav and agreed to sell her cargo to GP. GP financed the deal through Unicredit, under an arrangement whereby Gulf agreed to pledge and assign to Unicredit all rights in cargoes and rights arising under bills of lading, and agreed that it would resell the cargo to buyers who would pay Unicredit direct.

A bill of lading was issued by Euronav to BP. On the sale, Unicredit paid BP on GP’s behalf; but instead of the bill of lading being endorsed to GP, the charter itself was novated, BP dropping out and being supplanted by GP. BP retained the bill of lading, still made out in its favour.

In April 2020, GP sweet-talked Unicredit into condoning a series of STS transfers of the cargo to what seem to have been connected entities, despite the fact that the bill of lading was still in the hands of BP. The sub-buyers never paid Unicredit; at the same time GP showed worrying signs of financial strain. Unicredit now realised that something had gone badly wrong with the deal, with their security and with GP as a whole. It swiftly got BP to endorse the bill of lading to it and tried to salvage the situation by suing Euronav for delivering the cargo without its production.

The claim was unsuccessful. And rightly so. On the evidence it was clear that Unicredit had actually condoned the STS transfers in the knowledge that the bill of lading would not available, and therefore had only itself to blame. With this we have no argument.

But the claim also failed for another reason, which we are less sure about: namely, that the bill of lading in fact never governed the liabilities of Euronav in any case. The reason was this. When the bill was issued to BP, it was uncontroversial that it did not form the contract between the parties, since there was also a charter in force between BP and Euronav, and as between the two the charter prevailed (see Rodocanachi v Milburn (1887) 18 Q.B.D. 67). True, at the time of the STS transfers there was no longer a charter between BP and Euronav because GP had been substituted for BP. But this (it was said) made no difference. Although the bill of lading would have been the governing document had BP endorsed it to GP (Leduc v Ward (1888) 20 Q.B.D. 475), this did not apply where there had been no such transfer. In the present case there was no reason to infer that at that time the document’s status in BP’s hands had been intended to change from that of mere receipt to full contractual document; it therefore remained in the former category.

With respect, it is not entirely clear why this should be the case. For one thing, if a carrier issues a bill of lading to a charterer, arguably the reason why the bill of lading does not form the contract between the parties is simply that one has to choose between two inconsistent contracts, and that the obvious choice is the charter. If so, once the charter drops away as between those parties, there is no reason not to go back to the bill of lading. This seems, if one may say so, rather more convincing than the idea that the carrier is implicitly agreeing that the bill of lading gains contractual force if, and only if, endorsed by the charterer to someone else so as to cause a new contract to spring up. (In this connection it is worth remembering that it is equally possible for a bill of lading that once did have contractual force to cease to have it as a result of transfer to a charterer – see for instance The Dunelmia [1970] 1 Q.B. 289 – despite the fact that in such a case there can be no question of any new contract springing up.)

Put another way, it seems odd that entirely different results should follow according to whether a charterer transfers the bill of lading and retains the charter, or transfers the charter and retains the bill of lading.

There is also a practical point. Suppose that in the Unicredit case the unpaid party had not been Unicredit, but BP. BP might have thought that they were safe in allowing the charter to be novated in favour of GP provided they kept hold of the bill of lading and with it the assurance that the cargo could not reach GP’s hands without their consent. One suspects they would have been somewhat surprised to be told in such a case that the bill of lading was, and remained, of no effect despite the fact that they were no longer charterers of the vessel.

There clearly won’t be an appeal in this case, given the consent of Unicredit to what would otherwise have been a misdelivery. But the bill of lading point will no doubt give academics and others plenty to speculate about in the next editions of Scrutton, Aikens and other works. We await the results with interest.

UNCTAD training course: implications of the COVID-19 pandemic for commercial contracts – International Sale of Goods on Shipment Terms and Carriage of Goods by Sea



IISTL Member, Professor Simon Baughen will be part of a team delivering UNCTAD’s forthcoming four-day virtual training course https://unctad.org/meeting/unctad-training-course-implications-covid-19-pandemic-commercial-contracts-international

The course will focus on the implications of the pandemic for some of the key commercial contracts in international shipping and trade, in particular contracts for the international sale of goods on Shipment Terms CIF and FOB and carriage of goods by sea under charterparties and bills of lading.

Each course consists of four daily sessions (am or pm CEST), covering: international sale of goods on CIF and FOB terms and related payment mechanisms; time and voyage charterparties; specialist standard form ‘pandemics’ clauses and force majeure clauses; bills of lading and related cargo claims, including special considerations applicable in the context of charterparty bills.

The course  will be offered on four occasions, to enable broad participation and accommodate participants in different time-zones.

03 – 06 May:      9:30 – 13:00 CEST – for participants in Asia, Africa, Europe

10 – 13 May:    15:00 – 18:30 CEST – for participants in Americas, Africa, Europe

16 – 19 May:    15:00 – 18:30 CEST – for participants in Americas, Africa, Europe

07 – 10 June:     9:30 – 13:00 CEST – for participants in Asia, Africa, Europe
 

UK bans Russian ships from entry to UK ports

As part of the UK’s sanctions against Russia following its invasion of Ukraine, Regulations 57 a-i of The Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2022 (SI 2022/203) took effect on 1 March 2022. These ban the entry into UK ports of

(a)a ship owned, controlled, chartered or operated by a designated person,

(b)a ship owned, controlled, chartered or operated by persons connected with Russia,

(c)a ship registered in Russia,

(d)a ship flying the flag of Russia, or

(e)a specified ship.

A ship is ‘controlled’ by “a person who is able to take decisions about its operation, including (but not limited to) decisions about the route the ship may take and the appointment of master or crew.

The Secretary of State may direct the UK Ship Registrar to terminate the registration of such ships and to direct harbour authorities to detain Russian ships at ports or anchorages.

The Secretary of State may also specify a ship for the purposes of the entry prohibitions provided the Secretary of State—

(a) has reasonable grounds to suspect that the ship is, has been, or is likely to be, involved in a relevant activity, and

(b) considers that it is appropriate for that ship to be specified, having regard to the purposes stated in regulation 4.

A ship is “involved in a relevant activity” if the ship is used for any activity whose object or effect is to contravene or circumvent, or to enable or facilitate the contravention or circumvention of, any provision of these Regulations.

The prohibition on entry does not, as yet, apply to Russian cargo although there have been incidents where dockers in the UK have refused to unload such cargo.

Canada also closed its port to Russian ships on 1 March. The European Commission has also proposed banning Russian ships from docking at European ports but there is currently opposition to this.

The Wall Street Journal has reported that an estimated 60,000 Russian and Ukrainian sailors are stuck at ports, with Russia providing over 10% of the global workforce for shipping.

Russia’s prime minister, Mikhail Mishustin, has said that nations that ban Russian ships from their ports could face retaliation.

IISTL Professor’s UNCTAD Report on “Legal and Practical Implications of Covid-19” Is Out

“CONTRACTS FOR  THE CARRIAGE OF GOODS BY SEA AND MULTIMODAL  TRANSPORT KEY ISSUES ARISING FROM THE IMPACTS  OF THE COVID-19 PANDEMICA” is now available at https://www.google.com/url?q=https%3A%2F%2Functad.org%2Fsystem%2Ffiles%2Fofficial-document%2Fdtltlbinf2022d1_en.pdf&sa=D&sntz=1&usg=AFQjCNGYpOUVQNY4G-u7Vkox_kWvDs8Nkw

This is a report for the United Nations Conference on Trade and Development and was  prepared by  Professor  Simon  Baughen,  with contributions  by  Regina Asariotis  and  Anila  Premti,  Policy  and Legislation  Section,  Trade  Logistics  Branch,  Division  on  Technology  and  Logistics  of  UNCTAD. The report forms  part  of  the  ‘International commercial transport  and  trade  law’  component of the  UN Development Account project (UNDA  2023X)  project on “Transport and trade  connectivity  in the  age  of pandemics”.  

This report examines some  of  the  key legal issues  arising from  the  pandemic  as  they  affect  contracts  for the  carriage  of  goods  by  sea, multimodal  contracts  of  carriage  that  (may)  involve  carriage  by  sea,  as well as voyage  and time  charters. 

Performance Claims in Trip Time Charters- Log Book Entries and Weather Routing Company Reports

London Arbitration 23/21

The charterted vessel was on a trip charter of about 55 days without guarantee from Recalada (Argentina) to Cuba. The charterparty form used was NYPE 1946 with additional clauses, and contained a performance warranty (cl 74) which stipulated:         

SPD/CONS ARE ABOUT, UNDER GOOD WEATHER CONDITION’ I.E. THE WINDS NOT EXCEEDING BF4, EVEN KEEL, NO DECK CARGO, NO SWELL, NO ADVERSE CURRENTS, THE SEA STATE UP TO DOUGLAS SEA SCALE 3 (MAX 1.25M). THE WORD ABOUT IN SPEED/CONSUMPTION REFERS TO AN ALLOWANCE OF +/- 0.5 KNOTS ON SPEED AND +/- 5% ON BUNKER CONSUMPTION RESPECTIVELY BOTH ALWAYS IN VESSEL’S FAVOUR. ANY GAIN ON TIME AND/OR CONSUMPTION TO BE SET OFF AGAINST LOSS OF TIME AND/OR CONSUMPTION – IF ANY.

ABT 13 KNOTS ON ABT 20 TONS VLSIFO + 0,1 MT LSMGO ECO SP/CONS:

ABT 12 KNOTS ON ABT 18 TONS VLSFO + 0,1 MT LSMGO

Clause 67 of the charterparty also provided:

The Charterers may supply an independent weather bureau advice to the Master, during voyages specified by the Charterers and the Master shall comply with the reporting procedure of the weather bureau. However, the Master remains responsible for the safe navigation and choice of route. Alternatively Charterers have the option to instruct the Master to report daily to a weather bureau during the execution of sea voyages. The weather bureau will subsequently produce a performance analysis report.

Evidence of weather conditions shall be taken from Vessel’s logs. Consideration of minimum 24 hours continuous good weather periods from noon to noon. No hire deductions for alleged underperformance claims. Vessel to be monitored by Charterers’ appointed weather routing company strictly in accordance with the performance warranty. The independent weather reporting bureau appointed by Charterers will be for their account. This does not preclude Owners from appointing their own independent weather reporting bureau for their account which evidence along with Vessel’s evidence shall be taken into consideration by all parties.

The charterers instructed a weather routing company (WRC) which prepared a report on the performance of the chartered vessel during the trip concluding that the chartered vessel achieved a good weather performance speed of 10.63 knots on the voyage compared to the minimum 12.5 knots warranted. As part of its assessment, the WCR employed a “good weather parameter” which utilised significant wave height (which naturally included swell) and ignored the effect of the adverse currents. Accordingly, the charterers claimed that the trip took an additional 87.78 hours (so was off hire during that period)- a sum of US$ 49,383 and they also claimed excessive bunker consumption in the sum of US$ 31,423.20. The charters also contended that the hull was fouled on entry into charterparty, which was a breach of line 22 of the Charter form providing that “On delivery the vessel to be… tight, staunch and in every way fitted for the service.” The charterers also challenged the veracity of the logbooks as “not true and correct logs of the voyage.”            

The arbitrator found that:

1) In the light of the evidence presented by the charterers, the vessel’s hull was fouled on entry into the charter (especially the constantly high slip figures on the laden voyage were inconvertible indication of hull fouling). This was a defect of the hull in breach of line 22 of the charterparty. Moreover, as the vessel was not in every way fit for the service to be undertaken, the owners were in breach of the charterparty, which resulted in a loss of time. The loss of time was an off-hire event under cl. 15 of the charterparty.

2) The arbitrator was convinced that the master exaggerated the wind and sea conditions recorded in the log book from sailing from Recalada until 16 February so he failed to maintain a true and correct log in breach of cl. 11.

3) The arbitrator found that the role of cl 67 was to evaluate the performance strictly in accordance with the parameters set in this clause. However, WRC essentially devised its own methodology of assessing the vessel’s true performance by construing the parameters set in cl. 67. Therefore, WCR’s findings were based on non-contractual criteria and not binding. However, based on the finding that the log entries were not accurate, the arbitrator was satisfied that the vessel underperformed in speed due to a hull deficiency.    

The finding of the arbitrator was in favour of the charterer but it clearly demonstrates that if the charterparty specifies the source of data from which good weather assessment should be derived, that data needs to be used and an assessment that employs other methods (or data) will be regarded as non-contractual regardless of how sound those methods are.  The arbitral finding also shows that increasingly reports from weather routing companies play a significant role in performance claims and the days of relying solely on the log book entries of the master are long gone! Performance claims usually require complicated assessment methods and there is plenty technical analysis in this arbitral finding that might be useful to parties and arbitrators in the future especially when depicting “good weather” qualification.          

Incorporation of charter terms into bills of lading. Is shipowner’s right to a general average contribution from cargo interests excluded?

The Polar ( [2021] EWCA Civ 1828) involved a claim by owners to recover cargo’s proportion of general average in relation to a payment to pirates who had detained the vessel in the Gulf of Aden. The cargo owners defended the claim on the ground that the shipowner’s only remedy in the event of having to pay a ransom to pirates was to recover under the terms of insurance policies, the premium for which had been paid by the voyage charterer.

The charter was on BPVOY 4 standard form, cl.39 of which provided a war risks clause which covered “acts of piracy”. There was also a Gulf of Aden clause which provided:

“Any additional insurance premia (including, but not limited to, those in respect of H&M, crew, P&I kidnap risks and ransoms), crew bonuses (which to be in accordance with the international standard) shall be for chrtrs account. Max USD 40,000 for charterer’s account for any additional insurance premium except for crew bonus which to be max USD 20,000 for charterers account.”

Six bills of lading were issued all of which incorporated the terms of the charterparty and five provided for general average to be settled under the York-Antwerp Rules 1974, with one providing for general average to be settled under the 1994 Rules. The insurance premium was just short of the $40,000 figure in the Gulf of Aden clause and the premiums were paid by the shipowner who was then reimbursed by the charterer.

The arbitrators on a determination of two preliminary issues found that: (1) the terms of the voyage charter, including in particular the war risks and Gulf of Aden clauses, were incorporated into the bills of lading; (2) the shipowner, on the true construction of the bills of lading and/or by implication, agree to look solely to its insurance cover under the war risks and/or K&R insurance in the event of a loss covered by that insurance.

On appeal Teare J held that the incorporating words in the bills of lading were wide enough to incorporate the war risks and Gulf of Aden clauses. However, the bills of lading holders were not liable for additional premium as it was not appropriate to substitute the “bills of lading holders” for “charterers” so as to impose a liability on them to pay the premium. As between the shipowner and charterers the parties had agreed that the shipowner would look to the insurers for indemnification in respect of losses under the Gulf of Aden clause and not to the charterer so that they were precluded from seeking a contribution from the charterer in respect of general average. However, the incorporated provisions of the charterparty did not have this effect as regards the bill of lading holders, who had not agreed to pay the premium.

The Court of Appeal has now upheld the decision. Males LJ, giving the judgment of the Court, noted that this was a weaker case than either The Evia (no 2) or the Ocean Victory for concluding that the shipowner had agreed not to claim a contribution in general average from the charterer. However, the question did not need to be decided, and the case could  proceed on the basis that there was an implicit agreement to this effect as between owners and charterers. As regard the bills of ladings, it was doubtful that the very wide words of incorporation were wide enough to encompass what was merely implicit in the express terms considered as a whole. To find in the bills of lading an agreement by the shipowner not to seek a general average contribution from the cargo owners, that must be because the express terms of the charterparty which are incorporated into the bills demonstrate that the same (or an equivalent) agreement was intended to apply also under the bills of lading.

Part of the additional war risks and Gulf of Aden clauses were prima facie incorporated into the bills of lading contracts, but the next issue was whether the requirement on the charterer to pay the premium should be “manipulated” so as to impose that obligation on the bill of lading holders. Males LJ found that is was not appropriated to engage in such manipulation. There was nothing in either the bills or the charter to say how liability for the premium would be apportioned between different bill of lading holders. The fact that neither the bills nor the charterparty addressed this question suggested that the bill of lading holders were not intended to be liable for the premium. However, the incorporation of these terms did serve a useful purpose as the basis on which the shipowner has agreed in the bill of lading contract that the voyage will be via Suez and the Gulf of Aden, without which there would be uncertainty as to the vessel’s route.

Cargo argued that the premium paid by the charterer could be regarded as paid for the benefit of the bill of lading holders on the basis that its counterparty would not seek contribution from them as the party for whose benefit the premium is paid in the event of an insured loss. Males LJ rejected the argument as the risks of piracy and the potential need to pay a ransom were foreseen by the parties to the bill of lading contract and dealt with expressly by them. There were no clear express words to rebut the presumption that the shipowner did not intend to abandon its right to a contribution from the cargo owners in general average. Any “implicit understanding” was not so clear as to show that this was what the parties intended, particularly as the charterer was not necessarily paying the whole of the additional premium which would be necessary to obtain the cover required.

 In this case both parties were insured against the risk of piracy and allowing the shipowner to claim would mean that each set of insurers would bear its proper share of the risk which it has agreed to cover. In contrast, if the bills of lading were construed so as to exclude a claim by the shipowner, the loss would be borne entirely by the shipowner’s insurers and  the cargo owners’ insurers would escape liability for a risk which they agreed to cover.

When is a bill of lading not a bill of lading?

If something looks like a duck, but doesn’t swim like a duck or quack like a duck, then there’s a fair chance it may not actually be a duck. A salutary decision last Friday from Singapore made just this point about bills of lading. You can’t simply assume that a piece of paper headed “Bill of Lading” and embodying the kind of wording you’re used to seeing in a bill of lading is anything of the sort if the circumstances show that the parties had no intention to treat it as one.

The Luna [2021] SGCA 84 arose out of the OW Bunkers debacle, the gift that goes on giving to commercial lawyers with school fees to pay. In brief, Phillips was in the the business of acquiring and blending fuel oil in Singapore, and then supplying it to bunkering companies that would ship it out in barges to ocean-going vessels in need of a stem. One of those companies was the Singapore branch of OW. Phillips sold barge-loads of bunkers to OW on fob terms, with ownership passing to OW when the oil went on board the barge, payment due in 30 days and – significantly – not so much as a smell of any retention of title in Phillips.

When OW collapsed in 2014 owing Phillips big money, Phillips, having given credit to the uncreditworthy, looked around for someone else to sue. Their gaze lighted on the barge-owner carriers. For each barge-load, the latter had issued a soi-disant bill of lading to Phillips’s order with the discharge port designated rather charmingly as “Bunkers for ocean going vessels or so near as the vessel can safely get, always afloat”. The modus operandi, however, had been somewhat at odds with everyday bill of lading practice. The bunkers had in normal cases been physically stemmed within a day or so; OW (while solvent) had paid Phillips after 30 days against a certificate of quantity and a commercial invoice; and the bill of lading had remained at all times with Phillips, and no question had ever arisen of any need to present it to the carriers to get hold of the goods it supposedly covered.

On OW’s insolvency Phillips totted up the bunkers sold by it to OW and not paid for, took the relevant bills of lading out of its safe, and on the basis of those documents formally demanded delivery of the oil from the issuing carriers. When this was not forthcoming (as Phillips knew perfectly well it would not be) Phillips sued the carriers for breach of contract, conversion and reversionary injury, and arrested the barges concerned.

Reversing the judge, the Singapore Court of Appeal dismissed the claim. The issue was whether these apparent bills of lading had been intended to take effect as such, or for that matter to have any contractual force at all. Whatever the position as regards the matters that could be regarded when it came to interpretation of a contract, on this wider issue all the underlying facts were in account. Here the practice of all parties concerned, including the acceptance that at no time had there been any question of the carriers demanding production of the bills before delivering a stem to a vessel, indicated a negative answer.

Having decided that there could be no claim under the terms of the so-called bills of lading, the court then went on to say – citing the writings of a certain IISTL member – there could equally be no claim for conversion or reversionary injury.

This must be correct. Further, given the tendency of businesses to issue documents without being entirely sure of their nature or import, the result in this case needs noting carefully by commercial lawyers throughout the common law world.

A note of caution may also be in order, however, as regards carriers. You must still be careful what documents you do issue. True, the carrier in The Luna escaped liability because all parties accepted that the so-called bill of lading didn’t mean what it seemed to say (indeed, it doesn’t seem to have meant very much at all). But imagine that a bill of lading issued in these circumstances which ends up in the hands of a bank or other financier who is not aware of the circumstances and who in all innocence lends against it. The betting there must be that, as against the financier, the carrier issuing it would take the risk of being taken at its word. And this could be a very expensive risk, particularly since the chances of it being covered by any normal P&I club are pretty remote. Carriers, you have been warned.