Force majeure and counterfactuals

A nice force majeure issue — and one of considerable importance — came up before Teare J yesterday in Classic Maritime v Limbungan [2018] EWHC 2389 (Comm), argued by IISTL stalwart Simon Rainey QC. Imagine you conclude a contract (in this case a CoA under which you have to provide a number of iron ore cargoes) which in the event you can’t and don’t perform, and never could have performed. An exemption clause in the contract says that if you could have performed it but a force majeure event X (inundations in Brazilian iron ore mines) then occurs that stops you performing it, you are not liable for breach. Event X occurs. Are you (a) in breach of contract, (b) on the hook for substantial damages?

On (a) the answer is Yes. You promised to perform, you haven’t performed, and because you never could have performed in any case you can’t shelter behind the exemption clause.

But what about (b)? There are two ways to look at this. One is to say: this is a simple case of unexcused non-performance, and hence you must be liable to the shipowner for his lost profits on the carriage, a figure amounting to many millions. The other point of view runs thus. If, counterfactually, you could have performed but for X, the shipowner would in the event have had no claim to performance because of the exemption clause. Hence hence it’s no skin off his nose that you didn’t perform, and damages are nominal only. Teare J plumped for the second: nominals only.

This view is highly plausible and for the moment clearly represents the law. It also dovetails quite nicely with the general rule in cases such as The Golden Victory [2007] UKHL 12, [2007] 2 A.C. 353 and Bunge v Nidera [2015] UKSC 43, [2015] 2 CLC 120, that in assessing damages we take into account later events that would have taken away the right to demand performance.

But this case, or the issue in it, may go further. There is a respectable argument, that certainly can’t be dismissed summarily, which suggests a different answer. In so far as the inability to rely on a force majeure clause is due to a party’s own default, which was the case in Classic Maritime, should it be open to that party to argue that if he had acted differently he would have been able to invoke that very same clause? Suppose a force majeure clause requires notice to be given within 7 days after the force majeure event; a party prevented by force majeure nevertheless fails to give notice for 10 days, and thus loses the protection of the clause. Is it really open to the party then to say that if he had given the proper contractual 7 days notice he would have been protected by the clause, the counterparty would have had no right to demand performance, and hence damages are nominal only? I’m doubtful. And I’m equally not sure that this scenario is that different from what happened in Classic Maritime.  It’s just a thought. Whether it’s a good one, only time will tell.

Charter time bar not read  into charterers’ letter of indemnity.

 

In Navig8 Chemicals Pool Inc v. Glencore Agriculture BV (The Songa Winds) [2018] EWCA Civ 1901, the Court of Appeal had to consider whether a time bar clause in a voyage charter operated to bar claims under a letter of indemnity issued by charterers to owners in respect of delivery of cargo without production of bills of lading. Clause 38  of the charter required the owners to release the cargo  against charterers’ letter of indemnity  (LOI) if bills of lading were not available at the discharge port and the period of validity of any letter of indemnity was to be three months from date of issue. The LOI provided by charterers did not refer to any time bar and provided in clause 5 “. As soon as all original bills of lading for the above cargo shall have come into our possession, to deliver the same to you, or otherwise cause all original bills of lading to be delivered to you, whereupon our liability hereunder shall cease.”

Two points arose. Was the LOI provided by charterers subject to the three month time bar provided in the charterparty? If so, how did that time bar run?  Andrew Baker J, [2018] EWHC 397 (Comm) ,had found that the LOI was not subject to the time bar, and that the effect of the time bar was that the period within which the requested delivery of the cargo must take place was three months from the date of delivery.

The Court of Appeal has upheld the first finding. Charterers had the contractual right to insist that the LOI incorporated the terms set out in cl.38 but they had failed to do so. Clause 5 of the  LOIs was a self-contained provision which confines charterers’ liability, and which containeds no reference to any extraneous term which might impact on the time limit of that liability.Their LOIs were distinct agreements to the voyage charter, setting out self-contained obligations and rights which could be relied on by third parties, such as owners’ agents, as against charterers.

On the second point, however, the Court of Appeal rejected the judge’s construction  of cl. 38 and found that cl.38 meant that there was a time limit of three months for making claims.

Management of the vessel, or management of cargo? Effect of s4. of US COGSA on charterers’ claim for costs of unnecessary strapping required by master.

Clearlake Shipping Pte Ltd v Privocean Shipping Ltd (15 May 2018. QB D (Com Ct) is an unreported decision of Cockerill J on the effect of cl.2 of NYPE 1946 form and s.4(2)(a) of US COGSA 1936 which is applied as a paramount clause. Charterers incurred extra expenses due to unnecessary strapping insisted on by the master with a view to the ship’s stability. The master insisted on the strapping in order to ensure the stability of the vessel. In the arbitration the charterer produced expert evidence that the cargo strapping had been unnecessary and that adequate stability could have been achieved by distributing the cargo differently or by ballasting. The arbitrators found that the master had been negligent and in breach of cl. 8. However, they rejected charterer’s contention that the cost of strapping was for owner’s account by virtue of cl.2 of the charter which provided that “Charterers are to provide necessary dunnage and shifting boards, also any extra fittings requisite for a special trade or unusual cargo…”  The shipowners, though, had a defence to the claim under s.4(2) of the incorporated US COGSA 1936, since the neglect or default of the master was “in the management of the ship”.

On appeal Cockerill J upheld both findings.(i)  Clause 2 said nothing about the position where the charterer had paid for a fitting that turned out to have been unnecessary. (ii) The master’s default was in the management of the ship and owners had a defence under s.4(2) of the incorporated US COGSA 1936. The master’s breach was not any lack of care for the cargo during loading or discharge. His intervention came before loading. Since his action in requiring the cargo to be strapped was directed at the safety of the ship it was an act in the management of the vessel within the s.4(2) exemption. It was also clear that safe stowage without strapping could have been achieved by ballasting, and the same result should be reached whether the issue was one of different distribution of the cargo or of ballasting. Ballasting would be a matter in the management of the vessel and it followed that for that reason also the exemption from liability applied.

The case provides a salutary reminder to time charterers that they may be getting more than they bargained for with a clause paramount. The US COGSA exceptions in s4(2) and the Hague Rules exceptions in art IV(2), are not limited to breaches in respect of the activities listed in s2/art II. As stated by Robert Goff LJ in The Satya Kailash [1984] 1  Lloyd’s Rep 588, 596.

[o]n the approach of the majority of the House of Lords in the Adamastos case, even such general words of incorporation can be effective to give an owner the protection of the statutory immunities in respect not merely of those matters specified in s. 2, but also of other contractual activities performed by him under the charter.”

 

Can an actual carrier rely on a circular indemnity clause in a multimodal bill of lading?

 

Yes, they can, in the US.

In Royal Smit Transformers BV v Onego Shipping & Chartering, and others Case 17-30543, the US Court of Appeals for the Fifth Circuit  on 2nd August 2018 held that actual carriers could rely on a circular indemnity provision in a ‘Himalaya’ clause in a through bill of lading as a complete defence to a claim brought against them by the shipper under that bill. Royal Smit contracted with Central Oceans USA to ship its transformers from the Netherland to Louisiana. The arrangement was established by a multimodal through bill of lading between the parties. Central Oceans made separate contracts with actual carriers for the three legs of the journey; the sea voyage to New Orleans; rail carriage to St Gabriel; truck carriage to the final destination. The actual carriers were not involved in the multimodal bill of lading and Royal Smit were not involved in the contracts made by Central Oceans with the actual carriers.

The bill of lading contained a ‘Himalaya’ clause which provided:

  1. Defenses and limits for [Central Oceans], Servants, etc.

. . . .

(b) [Royal] undertakes that no claim shall be made against any servant, agent, or other persons whose services [Central Oceans] has used in order to perform the Multimodal Transport Contract and if any claim should nevertheless be made, to indemnify [Central Oceans] against all consequences thereof.

(c) However, the provisions of this Contract apply whenever claims relating to the performance of the Multimodal Transport Contract are made against any servant, agent or other person whose services [Central Oceans] has used in order to perform the Multimodal Transport Contract, whether such claims are founded in contract or in tort. In entering into this Contract, [Central Oceans] . . . does so not only on his own behalf but also as agent or trustee for such persons.

The transformers were delivered to the final destination in January 2016, where an inspection revealed that the transformers had been damaged by “excessive vibration” somewhere along the journey. When Royal Smit sued the three actual carriers they relied on cl.15(b), the ‘circular indemnity’ provision, by way of complete defence. The District Court agreed. . Relying on two Supreme Court opinions, Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14 (2004) and Kawasaki Kisen Kaisha, Ltd. v. Regal-Beloit Corp., 561 U.S. 89 (2010), the court concluded that “actual carriers who fall within the scope of Himalaya Clauses can rely on those clauses to limit their liability.” This was the case with the particular Himalaya provision relied on by the actual carriers in the present case. The position was not affected by the separate contracts negotiated by the actual carriers with Central Oceans, such as the non-negotiable bill of lading issued by the sea carrier, Onego.

The Fifth Circuit has now upheld this decision. The clause did not fall foul of s.3(8) of  COGSA 46 U.S.C. § 30701.  A Himalaya Clause that protects downstream carriers from suit by a cargo owner did not, in and of itself, limit the cargo owner’s ability to receive the recovery to which it is entitled. Royal had agreed with Central Oceans to a COGSA-authorized damages limitation and the mere fact that it must recover its remedy only from Central Oceans did not prevent it from receiving the full measure of that bargain. Nothing in the Himalaya Clause precluded Central Oceans from suing the defendants to recoup its losses from Royal.

The Court also rejected Royal’s arguments that it had never agreed to be bound by the Himalaya clause in the bill of lading. Royal had based its claim on the bill of lading and had therefore accepted the terms of the bill of lading including unnegotiated clauses (Mitsui & Co. (USA), Inc. v. Mira M/V, 111 F.3d 33, 36 (5th Cir. 1997)). Furthermore,  basic principles of maritime law governing the interpretation of contracts foreclosed Royal’s argument that the court should look to extrinsic evidence to discern an intent contrary to the plain text of the bill of lading. Only if the written language of the document was ambiguous, which was not the case here, could the court look beyond the written language to determine the parties’ intent.

The decision is good news for sub-contractors under multi-modal bills of lading involving carriage to the US. The position regarding such clauses under English law is somewhat different. First, the circular indemnity provision does not provide a defence to the actual carrier but provides a right to the carrier under the bill of lading to step in and prevent suit against its sub-carrier by the shipper/holder of the bill. Second, where an actual sea carrier is involved, art III(8) of the Hague Rules has been held to render null and void a ‘Himalaya’ clause giving the sub-contractor a complete exemption from liability (The Starsin  [2004] 1 AC 715 ) and the same is probably the case with a circular indemnity clause.

 

A small step on the road to Rotterdam?

 

Two bills are currently before the Parliament of the Netherlands concerning the Rotterdam Rules  2008. The first would give the four separate components of the Kingdom of the Netherlands –  the Netherlands, Aruba, Curacao and Sint Maarten – the power to ratify the Rotterdam Rules and denounce the version of the Hague-VisbyRules to which they are party. The second would remove the Hague-Visby provisions of the Civil Code and replace them with the Rotterdam Rules which would be incorporated into it by reference.

The bills are expected to pass soon but this will not lead to an immediate replacement of the Hague-Visby Rules with the Rotterdam Rules. The explanatory notes to both bills state that it will be for the government to decide on the date of ratification and entry into force and this may depend on ratification of the Rotterdam Rules by neighbouring countries, such as Germany and France and major trading parties such as China and the US-  no mention is made of the UK.

 

 

Carriers and bills of lading: an unexpected duty to arbitrate.

An important point for bill of lading holders arose a couple of days ago in the Commercial Court. Everyone knows that you have to watch your back when becoming the holder of a bill of lading, in case you end up with not only the right to sue the carrier but also the duty to foot the bill for an insolvent shipper’s liabilities.

Traditionally the teaching has been: you are safe unless you take or demand delivery of the goods or make a claim against the carrier. It follows that if you are pretty sure you never did any of those things but nevertheless receive a demand from the carrier, you can smugly respond “Nothing doing. Sue me if you dare.” So far so good. But what if you receive a demand for arbitration pursuant to an arbitration clause contained in the bill? Can you still say “See you in court”, or are you now bound to arbitrate the claim, with the risk of losing by default if you do nothing? This was the point that arose in Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd [2018] EWHC 1902 (Comm), where Popplewell J preferred the latter answer.

A bank financed A, a seller of Argentine extracted toasted soya meal, who voyage-chartered a vessel to deliver it to Moroccan buyers. The transaction was a disaster for A, with the deal and a series of replacements falling through and the vessel sailing round North Africa and the Mediterranean, rather like Captain Hendrick’s Flying Dutchman, in search of someone somewhere to love the cargo. Big demurrage liabilities built up. The bank meanwhile acquiesced in the issue of a switch bill with a LMAA arbitration clause incorporated, naming it as consignee. A being (one assumes) insolvent, the owners claimed against the bank and claimed arbitration, alleging the bank was liable either as an original party to the switch bill, or as a transferee of it.

The arbitrators declined jurisdiction, on the basis that there was no evidence the bank had become liable on the bill under s.3 of COGSA 1992 and thus that the bank was not bound by the arbitration clause. However, on a s.67 application Popplewell J disagreed. The arbitration agreement was, he said, separate from the rights and liabilities under the bill itself: as soon as the bank fell to be treated as a party to the bill under s.2 of the Act, it was bound fully by any arbitration provision in it. It followed that the case had to be remitted to the arbitrators with a direction to continue with their hearing of the claim.

A result which, one suspects, will please neither banks nor traders, since it deprives both of the advantage of inertia: but there you are. At least carriers will be happy.

Arbitration agreement governs claims under divested contract. A new take on s.2(5) of COGSA 1992.

 

An everyday tale of switch bills and financing banks. An fob buyer of goods who had chartered the vessel  lost its on sale during the course of the voyage, and found a new buyer at a different discharge port.  The charterer agreed with the shipowners to issue new bills of lading and the bank who held the original bills as security for the money advanced to its customer for the purchase of the cargo agreed to switch the bills at its counter. The bank brought cargo claims against the owners under the original bills and the owners counterclaimed with a substantial claim for unpaid demurrage against the bank under the second bills.

The tribunal determined that the bank was not a party to the agreement to switch the bills of lading, and rejected the argument that the bank became party to the bill of lading contracts.  It rejected an argument that the bank had made a demand for delivery of the cargo or made a claim against the vessel under the contract of carriage so as to incur liabilities under section 3 of COGSA.  For those reasons, it held that it did not have jurisdiction to determine the owners’ counterclaim for demurrage against the bank. The owners applied under s.67 of the Arbitration Act 1996 to set aside or vary the award.

Popplewell J held that the tribunal did have jurisdiction to determine owner’s counterclaim for demurrage. The bank argued that the effect of section 2 of COGSA was to vest in the holder rights of suit under the contract of carriage, and vested a right to arbitrate (with an attendant obligation to do so if the rights of suit are exercised), but no obligation to do so if it did not exercise the rights of suit vested by section 2. Popplewell J rejected this argument. An arbitration agreement contains obligations by which a party is bound irrespective of the assertion of substantive rights by that party or the commencement by that party of arbitration or other proceedings.   They arise when there is an arbitral dispute, irrespective of which party is the maker or recipient of the claim which is disputed.  Sections 2 and 3 of COGSA did not split the arbitration clause in the bill of lading  such as to confer arbitration rights under section 2 and arbitration obligations under section 3.

The bank also argued that although it had become the lawful holder of the bill of lading it had been divested of its rights thereunder by virtue of s2(5) when it transferred the bill of lading under the letter of credit opened by the new buyer of the goods. The divestment of rights under s.2(5) did not affect the agreement to arbitrate. Under the doctrine of separability an arbitration agreement has a separate and independent existence from that of the matrix contract in which it is found. Therefore once you have become a party to an agreement to arbitrate, the extinguishment of rights under the matrix contract does not affect the arbitration agreement, which remains applicable to disputes falling within its ambit.

Accordingly owners’ s.67 application succeeded on this issue. No finding was made on the other ground of owners’ application, that the bank was an original party to the contract contained in or evidenced by the switch bills. This was a substantive issue for the tribunal to determine.

 

 

Geographical deviation. Can carrier rely on Hague Rules time-bar?

 

In Dera Commercial Estate v Derya Inc ( The Sur) [2018] EWHC 1673 (Comm) we have the first decision on geographical deviation since Hain Steamship Company Ltd v Tate & Lyle Ltd [1936] 41 Com Cas, 350, eighty two years ago. The vessel carried a cargo from Vizag to Aqaba but was not allowed to discharge the cargo because of “broken percentage, foreign matters, impurities, damaged kernels…and apparent fungus”. After hanging around Aqaba for two months, the owners decided to leave for Mersin, Turkey, without the consent of the bill of lading holder and the Jordanian customs authorities. They there discharged the cargo and obtained an order for its sale by the Turkish court. Dera, the bill of lading holders commenced arbitration within the one year Hague Rule time limit but no formal procedural steps were taken by either side in the arbitration for a further three and a half years, when owners served particulars of claim seeking a declaration of non-liability for the cargo claim. In 2017 the Tribunal made an award on two preliminary issues deciding first that the claim was not extinguished by virtue of the orders made by the Turkish court, and secondly that Dera’s claim should be struck out for want of prosecution under s.41(3) of the Arbitration Act 1996.

The Tribunal concluded that the applicable limitation period for the cargo claim should be “the yardstick of inordinate delay” and that (pursuant to Article III Rule 6) the applicable limitation period was one year. The Tribunal held that the one year limitation period applied even in cases pleaded in tort or where there has been a serious breach of contract such as a geographic deviation, basing its finding on the decision in The Kapitan Petko Voivoda [2003] 2 Lloyd’s Rep 1 at [16] to [17] in which it was held that the words “in any event” suggest that the limitation provision applies even in cases where the breach is of the obligation to stow cargo below deck. Comparing the delay of three years nine months from the time at which Dera was first able to particularise its claim to the time at which it particularised it in the arbitration with the one year contractual time limit, it was clear that there had been inordinate delay.

On appeal to the High Court, Dera challenged the Tribunal’s finding that the one year Hague Rule limit could be relied on by the carrier following a geographic deviation. Mrs Justice Carr held that as a matter of construction Article III Rule 6 did cover such a claim, but the special rule on geographical deviation set out by the House of Lords in Hain still applied and had not been abrogated by the subsequent rejection of the doctrine of fundamental breach in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. It is clear from the speech of Lord Wilberforce in Photo Productions (at p. 845D-H) that the geographical deviation cases were not swept up under the auspices of the general law of contract, but might be considered a separate body of authority with “special rules derived from historical and commercial reasons”.

Following the ratio of Hain, a geographic deviation did preclude a carrier from relying on the one-year Hague Rules time bar created by Article III Rule 6 if the other party to the contract of carriage elected to terminate. Mrs Justice Carr noted that there had been no finding in the case on the question of election or on the question of whether there was a deviation.  Accordingly, the Tribunal  had erred in law in concluding that, in a contract evidenced by a bill of lading subject to the Hague Rules, a geographic deviation does not preclude a carrier from relying on the one year time bar created by Article III Rule 6.

In The Kapitan Petko Voivoda Longmore LJ stated “It has not yet been conclusively decided whether what I may call the deviation cases and the warehouse cases must be regarded as dead and buried along with the doctrine of fundamental breach….”

It has now.

 

 

New Package Holiday Regulations in Force in the UK as of 1 July 2018

On 1st July 2018, the Package Travel and Linked Travel Arrangements Regulations 2018 (hereinafter referred to as the Package Regulations 2018) (SI 2018/634) entered into force to give effect to the Directive (EU) of the European Parliament and of the Council EU 2015/2302. This replaces the Package Travel, Package Holidays and Package Tours Regulations 1992.

The Package Regulations 2018 introduce several changes taking into account the transformation that the travel industry has gone through especially in the last decade. The main changes are:

  1. Redefining “package holiday” and extending the scope of the Regulations

Today, people do not usually purchase their holidays from travel shops but instead utilise internet (i.e. their mobile phones, laptop etc). It is also common to use an online travel agent where elements of holiday (i.e. flight, hotel) are bought separately although the consumer might get the impression that he/she is purchasing a package. Therefore, to offer extended protection for today’s consumers, a new definition of “package holiday” has been introduced. The new definition will capture thousands of more arrangements sold on a daily basis especially on the internet increasing consumer protection. For example, if elements of a holiday are offered or sold separately this will still be treated as a package holiday for the purposes of 2018 Regulation if a total price is charged to the consumer (Article 2, (5)(b)(ii)). Similarly, if a consumer purchases a product commonly known as “holiday gift box”, this will be treated as a package holiday even if the precise hotel, for example, or precise combination, is yet to be ascertained(Article 2, (5)(b)(iv)).

Also, consumers purchasing package holidays are increasingly interesting in renting cars for sightseeing purposes. Under 1992 Regulations, there was a package holiday if at least two travel services were included in the package- i.e. transport, accommodation and other tourist services. With 2018 Regulations, “car rental” is added to the list meaning that a contract that provides the consumer holiday accommodation and a rental car will be viewed as a package holiday within the scope of the Regulations.

2. Price Alterations

Article 10 indicates in which instances the price of the package holiday can be increased after the booking is made.

This is only possible if:

  • The contract expressly stipulates that such an increase may be made;
  • The prize increase is a direct consequence of changes in a) the price of the carriage of passengers resulting from the cost of fuel or other power sources; and b) the level of taxes or fees on the travel services included in the contract imposed by third parties not directly involved in the performance of the package.

The procedure as to how the price increase may be made is stipulated in the Regulation.

3. Cancellation of the Contract

Article 12(4) for the first time allows organisers to stipulate “reasonable standardised termination fees” when a booking is cancelled by the consumer. On the other hand, consumers have been afforded a new right to cancel without paying cancellation charges “… in the event of unavoidable and extraordinary circumstances occurring at the place of performance of the package, or which significantly affect the carriage of passengers to the destination.” (Article 12(7)). It is envisaged that this provision might prove problematic in practice especially if extraordinary events occur in the vicinity of the place of performance but there is no evidence that such events have caused disturbance at the location which the holiday maker was planning to go. For example, if a hurricane hits a nearby state (Alabama), would that justify the consumer to cancel a package holiday to Florida?

4. Liability of the Organiser

Under 1992 Regulations, the organiser is liable to compensate the consumers if something goes wrong during the holiday (i.e. problems arising during transportation or sub-standard accommodation is offered to the consumer) or if the consumer suffers illness or injury. This position is not altered under the 2018 Regulations but the liability of the organiser has been defined slightly differently. Under Article 15, the organiser is liable if there is “lack of conformity” with the package travel contract. It is submitted despite the use of new terminology, this will not create a significant change in the liability regime. This is because “lack of conformity” has been defined in Article 2(b) as “a failure to perform or improper performance of the travel services included in a package” which is precisely the wording used in 1992 Regulations.

From the perspective of transport law rules, 2018 Regulations offers the organisers the same protection that the previous Regulations provided.

Article 16(5) of 2018 Regulations provides that:

“In so far as the international conventions limit the extent of, or the conditions under which compensation is to be paid by a provider carrying out a travel service which is part of a package, the same limitations are to apply to the organiser.”

This means that if a passenger is injured whilst on board a ship involved in an international voyage, if the organiser is treated as a “contractual carrier” from the perspective of the relevant international regime, the Athens Convention on the Carriage of Passengers and their Luggage by Sea, the organiser will be able to rely on the limits afforded to carriers by that Convention. (It was stressed by HHJ Hallgarten QC in Lee v. Airtours Holidays Ltd & Another [2004] 1 Lloyd’s Rep 683, at [32] that a tour operator could be treated as “contracting carrier” under the Athens Convention as long as it assumes responsibility for the performance of the contract including the sea leg.) The position will be the same if the passenger is injured on a plane in an international voyage or on a train engaged in an international voyage.

5. Insolvency protection

The Regulation requires the organiser of a package holiday, who is established in the United Kingdom, to provide effective security in the event of organiser’s insolvency to cover the cost of refunding all payments made by or on behalf of travellers for any travel service not performed as a consequence of the insolvency (Article 19).

The Regulation 2018 also introduces a mutual recognition requirement. Accordingly, the UK must accept the insolvency protection arrangements entered into by organisers established in another EU Member State. Likewise, other Member States are required to accept the insolvency protection put in place by UK-based organisers.

One word of caution! Given that the Regulation is intended to implement an EU Directive, it is hard to predict what the position will be after BREXIT in March 2019 especially with regard to insolvency protection requirements. There is a serious risk that UK companies might be cut out of the European market unless they start a business in an EU county and offer insolvency protection as required by the Directive.

Assignee’s right to damages for cargo claim. Title to sue is not the whole story.

 

In making a cargo claim, a party’s title to sue is separate to the question of whether it has suffered loss and is thus entitled to substantial damages. The issue arose in The Fehn Heaven [2018] EWHC 1606 (Comm) where charterers loaded a cargo of organic sunflower seeds and organic wheat, carried under two straight bills of lading which named Justorganic, as consignee. At some stage in the voyage the cargo had to be fumigated and as a consequence it could no longer be sold as organic. Charterers had to discount the price to their two Dutch buyers and sought to recover the amount of the discounts from the shipowner. They claimed in arbitration against the shipowner either as assignees of the consignee’s rights under the bills of lading or in their own right under the charterparty.

The tribunal awarded the charterers damages and found that charterers had title to sue, as assignee of the consignee’s rights under the bill of lading. However, the tribunal  made no express finding that Justorganic, the assignor, had suffered loss. This was a critical absence in the award because of the principle that an assignee could not recover more from the debtor than the assignor could have done had there been no assignment.(Chitty on Contracts (32nd edition at paragraph 19-075). The award could not be upheld on the alternative basis of charterers’ claim, that they had a right to recover their losses under the charterparty, as it was clear that the tribunal had decided that charterers’  title to sue was based on the assignment rather than on the charterparty. Owners’ appeal, therefore, succeeded and the matter was remitted to the tribunal.