Category: Carriage of Goods

Singapore Court orders sale of liened cargo

In Five Ocean Corporation v Cingler Ship Pte Ltd [2015] SGHC 311 the High Court of Singapore has ordered the sale of cargo subject to a lien exercised by the shipowner on behalf of the head charterer pursuant to a bill of lading incorporating the terms of the sub-charter, which was subject to Singapore arbitration and English law. The order was made pursuant to the powers of the court under s12 A (4) of the International Arbitration Act, which is in similar terms to s 44(3) of the English Arbitration Act 1996. Section 12 A (4) provides “If the case is one of urgency, the High Court or a Judge thereof may, on the application of a party or proposed party to the arbitral proceedings, make such orders under subsection (2) as the High Court or Judge thinks necessary for the purpose of preserving evidence or assets.” All parties were before the court and subject to its in personam jurisdiction.

The court held that an order for sale was “necessary” in order to preserve the “asset”, the disponent owner’s right to detain possession of the Cargo. The vessel was in international waters in the Bay of Bengal and the crew had been on board the vessel for almost four months, and some were falling ill. There was a lack of fresh food, water and medical supplies and overheating of the cargo of coal had been detected, with the risk of self-ignition should it continue to remain in the Vessel’s holds, a dire situation exacerbated by the monsoon season. The shipowners had been willing to exercise their lien under the bill of lading but the court noted that they would have been obliged to do so by reason of the employment clause in the time charter.

Profits remain profits even if given away

“Sir,” said Dr Johnson on one occasion, “there is no settling the point of precedency between a louse and a flea.” To some extent, Teare J’s decision in Glory Wealth Shipping PTE Ltd v Flame SA [2016] EWHC 293 (Comm) recalls this bon mot.

In the heady days of the bull shipping market, Glory Wealth entered into a series of contracts of affreightment with Flame. On the collapse of freight rates, Flame failed to provide the necessary cargoes. Glory Wealth sued. In previous proceedings, we got the answer to one nice contract question: namely, that if you sue for damages following anticipatory repudiation you do have to prove that you could have performed the contract if called on to do so. The background to the present proceedings was slightly different. The debacle referred to above had rendered Glory Wealth essentially insolvent. Seeing this coming and rightly realising that irate Glory Wealth creditors might just consider themselves entitled to seize any monies paid by Flame, the directors of Glory Wealth at an early state conceived a dubious, and possibly illegal, scheme to frustrate those creditors. They executed a document instructing Flame to pay any sums owing to Glory Wealth  to two other companies controlled by them for their own benefit instead.

In the present proceedings for damages against Flame by a pretty undeserving claimant, Flame raised a correspondingly unmeritorious defence. It took the point that because of this arrangement no loss had been suffered by Glory Wealth, since if the contracts had been performed Glory Wealth would not have received any profits anyway. Teare J smartly dismissed this plea. If one was entitled to receive monies, the fact that one might have directed them elsewhere was irrelevant: prospective profits remained an entitlement whatever the prospective profiteer might have done with them. And quite right too.

Disponent owners’ liens on cargo

Can disponent owners lien cargo for sums due under their sub-charter? Dicta in The Clipper Monarch [2015] EWHC 2584 (Comm); [2016] 1 Lloyds’ Law Rep 1, suggests that they can. The sub-charterers, Silver Rock, had failed to pay freight, deadfreight, and demurrage to disponent owners, CCS, and the vessel waited outside Chinese territorial waters. CCS obtained and order to sell the cargo under CPR Part 25.1(1)(c)(v), which provided for the gross proceeds of sale to be held by the claimant’s solicitors to the order of the court and “treated as if subject to the same rights (if any) as [CCS] had in respect of the goods prior to their sale”.

The cargo had been purchased by Silver Rock from Max Coal and sold on to Grupo Minero, the original consignee. Silver Rock found a new purchaser and the vessel berthed to discharge the cargo. The cargo was sold and its proceeds held by CCS’s solicitors pursuant to the High Court’s order. CCS obtained arbitration awards against Silver Rock for sums due under the voyage charter, and against Grupo Minero, claiming as assignee of the head owner’s right to claim an almost identical amount as carrier under the bill of lading. The awards were converted into judgements. His Honour Judge Waksman QC held that the sale proceeds representing the cargo clearly belonged to one of the two judgment debtors and CCS was entitled to the monies as judgment creditor against whichever of them was the appropriate owner.

His Honour Judge Waksman QC then considered, obiter, a second ground on which CCS would be entitled to the proceeds of the sale – by way of its rights on a lien on the cargo which arose prior to the sale. If the cargo was owned prior to sale by Grupo Minero, CCS relied on the voyage charter “lien” clause as incorporated into the bills of lading, CCS having taken an assignment of the carrier’s rights. If the cargo was owned by Silver Rock, CCS relied on the voyage charter “lien” clause as giving it a right with similar effect to a possessory lien, namely a right to procure that the cargo be withheld from Silver Rock by directing the employment of the vessel in its capacity as time charterer.

This second ground assumes that the time charterer has the right, under the employment clause, to direct the shipowner to lien the cargo by not unloading it. Such an order would only be lawful if the shipowner had the right to lien the cargo under the bill of lading, as was the case in The Clipper Monarch. It is worth noting that a similar argument was rejected  in The Mathew [1990] 2 Lloyd’s Law. Rep 323 where Steyn J held that there was no implied term that the time charterers could direct the shipowners to lien cargo.

Hague-Visby, gold sovereigns and the reasonable businessman

In a welcome decision on clauses paramount in bills of lading, the Court of Appeal yesterday sent a clear message that it preferred commercial common sense over clever but convoluted construction. In Yemgas FZCO & Ors v Superior Pescadores SA [2016] EWCA Civ 101 machinery was damaged to the tune of $3.6 million while being carried from Antwerp to Yemen under a Congenbill clone. The point in issue was the limit of liability. The bill of lading contained in effect the standard Congenbill clause paramount, like so:

“The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply, but in respect of shipments to which no such enactments are compulsorily applicable, the terms of the said Convention shall apply.”

One might have thought it obvious, as the carriers’ P & I club did, that since Belgium was a party to Hague-Visby the Hague-Visby limitation applied by force of law. But cargo had a trick up its sleeve. Fastening on the reference to the “Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment”, it argued that this referred exclusively to the old Hague Rules, including the original £100 gold limitation, which yielded a much higher figure than Hague-Visby. The parties had therefore, it said, agreed – as they were entirely free to do – on a higher figure than that provided for in Hague-Visby.

Males J agreed that the reference to the Hague Rules was indeed a reference to the old rules. He nevertheless rejected cargo’s somewhat implausible argument, on the basis that the mere inclusion of a reference to the 1924 Hague Rules in a case otherwise governed compulsorily by Hague-Visby did not amount to an implicit rejection of the Hague-Visby limits.

The Court of Appeal dismissed cargo’s appeal, but on a wider ground. Longmore LJ found Males J’s holding on intention highly plausible. But he did not have to pronounce finally on it, since he thought, like the other members of the Court, that on a reasonable businessman’s reading the reference to the “Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment” was a reference to Hague or Hague-Visby, as the case might be according to legislation currently in force in the state of shipment.

With respect, this seems entirely right. With its robust reference to the understanding of people in the shipping market rather then minute exegesis, It will also (one suspects) avoid a great deal of pettifogging argument of the kind that can lead shippers and others to despair of the ability of English courts to reach commercially sensible results.

There is only one qualification. Some bespoke forms of bill of lading (and charters), having incorporated in the clause paramount the reference in question to the “Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment”, then explicitly go on to refer separately to trades where Hague-Visby is applicable as a matter of mandatory law. In such a case, Tomlinson LJ is presumably right to suggest that, in situations where Hague-Visby is not compulsorily applicable, the reference can only be to the old rules (as was held to be the case in The Happy Ranger [2003] 1 C.L.C. 122).

Piggy back jurisdiction under CMR? The Supreme Court answers ‘No’

Where jurisdiction is established over the first road carrier under the CMR, can proceedings against successive carriers be brought in that forum? In British American Tobacco Switzerland S.A. and Others v Exel Europe Ltd [2013] EWCA Civ 1319, [2014] 1 Lloyd’s Rep. 503, the Court of Appeal said ‘yes’. The Supreme Court has now reversed the decision, [2015] UKSC 65.

The cargo owner entered into a CMR contract of carriage with a carrier, based in England, and agreed exclusive English jurisdiction for disputes arising out of the contract of carriage. The claims arose out of thefts of cigarettes from two cargo containers while in the custody of Dutch sub-contractors, the first in Belgium, the second near Copenhagen. The cargo sued the first carrier and the two Dutch sub-carriers. An advantage of suing in England would be that recovery of customs duty is allowed in full under art. 23(4) CMR by the English courts.

Although it was entitled to bring proceedings in England against the first carrier, this was not the case as regards the successive carriers who did not fall within any of the grounds of jurisdiction in art. 31 of CMR. What about art. 34 which has the effect of joining a successive carrier to the contract of carriage on the terms of the consignment note? The jurisdiction clause did not appear in the consignment note and it would be contrary to principle to hold a party to a choice of court clause of which he had no express notice. Then there is art. 36, under which joint and several liability is imposed on the first, the last, and the guilty carrier. However, this was not to be interpreted to include an additional head of jurisdiction allowing for a defendant domiciled in one member state to be sued in the courts of the place where a co-defendant was domiciled. The 2001 Brussels Judgments Regulation did not provide any other basis for jurisdiction over the two sub-contractors or otherwise act as an aid to the interpretation of the CMR.

Lord Clarke and Lord Sumption both considered that the commercial logic of articles 34 and 36 points towards the recognition of a jurisdiction to receive claims against all three carriers in one set of proceedings. However, they agreed with Lord Mance that the language of the CMR clearly provides otherwise. The only way for a cargo owner to ensure that its claims against all the carriers that are potentially liable under art. 34 is to ensure that the jurisdiction clause in the head contract is expressly referred to in the consignment note.

Demurrage is not just for ships – and cannot last for ever.

Demurrage is a provision for liquidated damages for breach of the charterer’s obligation to load or discharge the vessel within the agreed laytime. Demurrage provisions are also to be found in carriage contracts in respect of detention of containers supplied by the carrier. In MSC Mediterranean Shipping Company S.A. v. Cottonex Anstalt [2015] EWHC 283 (Comm), we have the first case considering container demurrage, which is of general interest in its treatment of the carrier’s right to keep a repudiated contract alive and continue claiming demurrage.

In the summer of 2011 the carrier made several contracts with the shipper to carry containers of raw cotton by sea from Middle East ports to Chittagong in Bangladesh. However, the goods were never collected and the containers still remain in a yard in the port at Chittagong and the customs authorities have at all material times refused to allow the containers to be released.

The carrier claimed demurrage from the shipper pursuant to cl.14.8 of the bill of lading which provided for a period of free time for the use of containers and providing that the responsibility of the “Merchant”, defined as including the shipper, was “to return to a place nominated by the Carrier the Container and other equipment before or at the end of the free time allowed at the Port of Discharge or the Place of Delivery”. Demurrage on a daily basis was to be payable by the Merchant thereafter in accordance with the carrier’s tariff. As at 1 January 2015 the total demurrage claimed, from the expiry of free time in 2011, exceeded US$1m.

Leggatt J held that the shipper was liable to pay demurrage under cl. 14 (8) and that there was no scope for reducing the amount payable for this breach on the grounds that the carrier had not taken reasonable steps to mitigate its loss. A liquidated damages clause made proof of the claimant’s actual loss unnecessary and irrelevant.

However, demurrage would not run forever. On 27 September 2011 the shipper had committed a repudiatory breach of the contracts of carriage by sending an email to the carrier in which it indicated that there was no realistic prospect of it being to arrange for any of the containers being collected. The question now arose as to whether the carrier should accept the repudiation and sue for damages or whether it could keep the contract alive.

Following a repudiation, the innocent contracting party may decide to keep the contract alive, unless it has no legitimate interest in doing so which will be the case when: (a) damages are an adequate remedy and; (b) maintaining the contract would be “wholly unreasonable”. Here, the carrier had no legitimate interest in maintaining the contract of carriage. It was restricted to a claim for damages, which would be subject to the mitigation principle. If the containers were in its possession it could mitigate by unpacking them. If, as was the case here, the containers were not in its possession, it could mitigate by buying replacements. Had cl. 14 (8) purported to give the carrier an unfettered right to ignore the shipper’s repudiation and carry on claiming demurrage indefinitely, the clause would have been treated as penal and would be unenforceable.

When is a sale not a sale? When you reserve title to consumable goods — apparently

In PST Energy 7 Shipping LLC Product Shipping & Trading S.A. v O.W. Bunker Malta Ltd & Ors [2015] EWCA Civ 1058 (available on BAILII) bunker suppliers OWBM delivered bunkers to a vessel at a Russian port, on 60 days’ credit. Under the contract they reserved title until payment but, realising that bunkers exist to be burnt, consented to the ordinary use of the bunkers to propel the ship.

Big deal, you might say: what’s the hassle? Well, the suppliers had bought from other suppliers RMUK also on reservation of title terms — not including any provision for use — and hadn’t paid. The shipowners were at a loss who to pay — OWBM or RMUK. To forestall a demand from RMUK the shipowners argued that they could not have to pay OWBM, since OWBM had not provided title to the bunkers and hence were in breach of s.12 of the SGA. Males J said ([2015] EWHC 2022 (Comm)) that the owners were bound to pay OWBM. This was not, he said, a sale of goods at all (!!), since both parties contemplated that by the time property passed there wouldn’t be any goods for the shipowners to become owners of. The shipowners had agreed to pay, not for oil, but for a licence to burn oil: they had received this, and therefore had no defence to a claim for payment.

A screwy result? Certainly looked like it, and expedited leave to appeal was given. Not that it did any good: the CA has now dismissed the appeal and confirmed the shipowners’ liability to pay. What, you might ask, if the shipowners now find themselves liable to RMUK? We’ll leave that to another day, says the court.

At the risk of sounding cynical, this looks like at least another couple of terms’ school fees assured to the lawyers engaged in sorting out this debacle. And you thought the definition of what counts as a sale of goods was a boring subject …

Andrew Tettenborn

Temporal scope of Hague Rules

Volcafe v CSAV [2015] EWHC 516 (Comm); [2015] 1 Lloyd’s Rep 639.

Loading of a cargo of coffee inland by the carrier into its containers has been held to fall within the temporal scope of the Hague Rules. This may seem somewhat surprising in the light of Article 1 (e) of the Rules which provides: “(e) “Carriage of goods” covers the period from the time when the goods are loaded on to the time they are discharged from the ship.” However, David Donaldson QC in the London Mercantile Court has held that the initial loading into the carrier’s containers and the subsequent loading of the container onto the vessel were to be regarded as part of a single loading process. Even if this were not the case, the parties had exercised their freedom to agree what constituted loading under art 1. (e) which they had done by providing that the carrier would stuff the cargo into its own containers.

Simon Baughen

Free in/ Free out clauses and cargo claims

SDTM-CI v Continental Lines N.V. [2015] EWHC 1747 (Comm)

Cargo claims were brought against the shipowner under two bills of lading incorporating the terms of a charterparty which contained a clause providing “Cargo shall be loaded, spout trimmed and/or stowed at the expenses and risk of Shippers/Charterers … Cargo shall be discharged at the expenses and risk of Receivers/Charterers at the average rate of 1,500 metric tons per weather working day ……Stowage shall be under Master’s direction and responsibility…” Flaux J has held that the incorporated provision has the effect of transferring responsibility for loading and discharging away from the shipowner. To the extent that it was established that the cargo was damaged by bad loading and/or discharge, as opposed to bad stowage, the cargo interests could not recover such damages from the shipowner.

Simon Baughen