Category: Sea Carriage

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. 

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.

Permission to appeal to the Supreme Court was granted on 16 September 2022.

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.

Apparent good order and condition: apparent to whom?

Shippers are in the nature of things in a position to know rather more about a cargo they are shipping than the carrier who transports them. This can cause problems, as appears from the Court of Appeal’s decision a couple of days ago in Noble Chartering v Priminds Shipping [2021] EWCA Civ 87. The Tai Prize, a 73,000 dwt bulker owned by Tai Shing Maritime, was voyage-chartered by Priminds from time-charterers Noble to carry a cargo of Brazilian soya beans from Santos to Guangzhou in southern China. They presented clean bills of lading to agents who signed it on behalf of the head owners Tai Shing. On arrival the beans were mouldy and damp; this was due to the fact they had been shipped too wet, something which the master had had no reason to suspect, but which Priminds ought to have realised.

The consignees sued Tai Shing in China and got $1 million (in round figures). Tai Shing claimed in turn from Noble, who settled the claim for $500,000. Noble then claimed this sum from Priminds. They relied on their right of indemnity under the charter and an allegation that a dangerous cargo had been shipped, and also argued that the bill of lading that Priminds had sent for signature had been inaccurate, since a cargo which Priminds had had reason to know was over-wet could not be said to have been shipped in apparent good order and condition. The first two claims were rejected by the arbitrator, and nothing more was heard of them; but the arbitrator allowed the third claim. HHJ Pelling on a s.69 appeal held that she had been wrong to do so (see [2020] EWHC 127 (Comm)). Noble appealed.

The issue was simple. “Apparent good order and condition” means good order and condition “as far as meets the eye” (e.g. Slesser LJ in Silver v Ocean SS Co [1930] 1 K.B. 416, 442). But whose hypothetical eye matters here? The master’s, or that of the shipper presenting the bill? The Court of appeal had no doubt: upholding HHJ Pelling, it decided that it was the former. The master here had had no reason to suspect anything wrong with the soya beans in Santos; Tai Shing had there therefore been entitled (and indeed bound) to sign a clean bill. It followed that the clean bill presented had been correct and not misleading, and equally that Priminds had not been in breach.

The arbitrator’s decision on this had, we suspect, been seen by most as heterodox. We agree, and join what we suspect will be the majority of shipping lawyers in welcoming the Court of Appeal’s decision. It is worth making three points, however.

First, this is actually a hard case, even though it does not make bad law. It is difficult not to have some sympathy for the head owners (and through them Noble). On any normal understanding of the law the head owners, having issued entirely legitimate clean bills, were not liable to the receivers at all. It is perhaps tactful not to inquire too closely into how judgment was given against them for $1 million. Priminds, by contrast, were pretty clearly liable for a breach of contract in shipping wet beans. One can see why the head owners’ P&I Club might have felt sore at becoming piggy-in-the-middle and bearing a loss that by rights ought to have fallen on the shippers who escaped scot-free.

Incidentally, it is worth noting one possibility in this respect. A consignee not infrequently has the option, in a case where it is alleged that a clean bill was improperly issued, to sue either the carrier for failing to deliver a cargo in good condition, or his seller for breach of contract in not shipping it in like good condition. It is in most cases more convenient to sue the carrier, if necessary by threatening to arrest the ship at the discharge port. Nevertheless all may not be lost for P&I interests. It seems at least arguable that they may be able to lay off at least some of the risk by bringing contribution proceedings against the seller as a person who, if sued by the consignee, might also have been liable for the same loss. They do not even have to show that they were in fact liable to the consignee: merely that the claim alleged against them was good in law (see s.1(4) of the Civil Liability (Contribution) Act 1978).

Thirdly, Males J in the Court of Appeal at [57] left open the possibility of the liability of a shipper who presented clean bills when he actually knew of hidden defects in the cargo. This will have to remain for decision on another day. But it is certainly hard to have much sympathy for such a shipper: particularly since there are suggestions that a carrier who knows that a cargo is defective cannot legitimately issue a clean bill merely by looking complacently at impeccable outside packaging and then sanctimoniously turning a Nelsonian blind eye to the horrors he knows lurk beneath it (see e.g. Atkinson J in Dent v Glen Line (1940) 67 Ll.L.L.R. 72, 85).

COVID 19. Lengthy delays for discharge of coal cargoes in two Chinese ports.

COVID 19 has caused numerous delays in loading and discharging at ports throughout the world. Sometimes we have seen total exclusion of ships from specified countries, as with the UK’s exclusion of all ships from Denmark for a time in November due to the ‘covid-mink’ scare, and with the brief exclusion by France of accompanied road freight from the UK shortly before Christmas.  

News has now come in of very serious delays in certain Chinese ports. Two Indian ships carrying coal from Australia are still waiting at anchorage for a very long time. The ‘Anastasia’ with 23 crew members on board arrived off Jingtang in Hebei Province on 13 June and the ‘Jag Anand’ with 16 crew members arrived off Caofeidian port on September 20. On New Year’s day India said it was looking at several options to repatriate the 39 Indian sailors on the two ships, including a crew change at sea or at a Chinese port. 

War Risks and Kidnap & Ransom in charter do not exclude GA claim for piracy under bills of lading.

The Polar [2020] EWHC 3318 (Comm) – HERCULITO MARITIME LIMITED v. GUNVOR INTERNATIONAL BV – involved an appeal pursuant to section 69 of the Arbitration Act 1996, in respect of a claim by shipowners against cargo owners under six bills of lading for general average  in respect of ransom payments made by owners to pirates. under the relevant bills of lading. The general average expenditure was the payment of a ransom to pirates to enable the release of the vessel so that she could complete her voyage.  Cargo owners contended that the GA claim was barred because the bills of lading incorporated the terms of the relevant charterparty under which the shipowners’ only remedy in the event of having to pay a ransom to pirates was to recover the same under the terms of a Kidnap and Ransom insurance policy and a War Risks policy taken out by the shipowners, the premium for which was, pursuant to the charterparty, payable by the charterers. Previous cases on incorporation had involved demurrage clauses and jurisdiction and arbitration clause. Incorporation of insurance terms and their possible constitution of a complete code excluding other remedies, such as claiming in GA, was a novelty.

The clauses were incorporated as directly germane to the loading, carriage and discharge of the cargo, but they provided  for payment of the premiums

by charterers and this language would not be manipulated so as to include bills of lading holders. Sir Nigel Teare, acting as a Judge of the High Court, held that “to substitute “bill of lading holders” for “Charterers” when reading clause 39 into the bills would be inconsistent with the obligation of the bill of lading holders to pay freight as per the charterparty as the price for the performance by the Owners of the contract of carriage. It would mean that the holders of the bills of lading, in the event that certain liberties were exercised by the Owners, had to pay may more than the agreed freight for the performance of the contract of carriage. Moreover, such additional sums would be unknown and unlimited.”  Similar provisions applied as regards kidnap and ransom insurance premiums payable under the Gulf of Aden clause.

As regards, the argument that the charter provisions on payment of the premiums constituted a ‘complete code’ excluding owners’ remedies in the event of piracy, this was certainly the position as regards the charterers. On the true construction of the charter the parties had agreed to look to the additional policies for the recovery of relevant losses and so the Owners were precluded by that agreement from seeking to recover that loss by way of a contribution in general average. However, as regards the position under the bill of lading, the only parts of the clauses in question which have been incorporated into the bills so as to bind the holders of the bills were the liberties conferred on the Owners not to complete the voyage or to depart from the usual or expected route. There was an important difference between the position under the Charter and the position under the bills of lading –  it could not be said of the bill of lading holders, as Lord Roskill said of the charterers in the Evia No.2, that theyhad paid the premiums not only for no benefit for themselves but without shedding any of their liability to contribute in general average in respect of losses caused by the additional insured perils. The point was not that the Owners had agreed to transit the Gulf of Aden at no cost to themselves, but that the charterers had agreed to pay for the insurance.

For these reasons the contract of carriage contained in or evidenced by the bills of lading did not contain an agreement by the Owners not to seek a contribution in general average from the holders of the bills from liability in respect of losses covered by the additional insurance taken out by the Owners.

Off-hire Clauses- Normally Construed Narrowly Unless the Wording Is Expansive!

Disputes concerning ‘off-hire’ clauses often require various legal construction techniques to be employed and can be rather challenging for the courts/arbitrators. However, the arbitrator managed to resolve the dispute under the relevant off-hire clause in London Arbitration 25/19 with not much difficulty.

The chartered vessel arrived at a port on the US West Coast on 23 October to discharge a cargo of steel products. The vessel’s cranes were inspected on behalf of the charterers’ stevedors by or on behalf of the International Longshore and Warehouse Union (ILWU) and the vessel failed that inspection. The owners maintained that the cranes were in good working order as they complied with all statutory and Class requirements and they had been inspected and used for loading and discharging in the US three months earlier. They also put forward a recent report from the crane manufacturers. The relevant off-hire clause in the charter party was worded in the following manner:

‘The Vessel will comply with any and all safety regulations and/or requirements applicable during the currency of this Charter Party, including those in effect of any port of loading and/or discharge. If the Vessel does not comply with said safety regulations or requirements, the Vessel will be off-hire until the Vessel is compliant with the said safety regulations or requirements… ‘

The charterers’ argument was that the vessel was off hire from the time when she failed the inspection to the time when she passed (i.e. after the cranes were repaired) and discharging started. The arbitrator found that the vessel’s failing the inspection amounted to breach of the Pacific Coast Marine Safety Code. This Code governed safe working practices and conditions for the whole of the US West Coast when ILWU labour was employed. The arbitrator found that the Code was at the very least a ‘safety requirement’ and quite possibly, for practical purposes also a ‘safety regulation’. The views of crane manufacturers, Class and engineering company were treated as irrelevant as they only reflected the earlier experience of the ship.

Given that the off-hire clause made explicit reference to ‘safety requirements’ as well as ‘safety regulations’, the outcome does not come as a surprise. Had it made reference only to ‘safety regulations’, a closer legal scrutiny of the nature and status of the Pacific Coast Marine Safety Code would have been necessary. The fact that the arbitrator refers to the Code as a ‘safety regulation for practical purposes’ indicates that from a technical perspective it might not qualify as a safety regulation! The message to charterers is very clear. Off-hire clauses are often construed in a narrow fashion so to be able to bring themselves under the off-hire clause they need to ensure that the wording used is expansive! Charterers in this case were glad that the wording in the off-hire clause was very broad i.e. made explicit reference to ‘safety requirements’. Few doubts can be raised for a finding that a Code that provides safe working practices and conditions in a port for stevedors, who are members of a trade union, is a ‘safety requirement’ for that port.                    

Times’ up. NBF gets s.12 extension.

The fate of Times’ anti-suit injunction against National Bank of Fujairah was reported in this blog on May 6 2020 –  they got their injunction on condition not to take any time bar point in any subsequent arbitration against them commenced by NBF.

Shortly afterwards, in National Bank of Fujairah v Times Trading Corp [2020] EWHC 1983 (Comm) Foxton J came part two of the saga. NBF had commenced arbitration against the registered owners, Rosalind, within the one year time limit under the Hague Rules, in respect of misdelivery. This expired on 20 June 2019. Shortly after receiving a copy of the bareboat charter, after months of asking, on 20 March NBF then made an application under s.12 of the Arbitration Act 1996, in respect of its claim against bareboat charterer, Times, on the assumption that the one year time bar applied to that claim.

In the first period before 18 January 2019 Times, through their solicitors, Waterson Hicks (WH), communicated in a manner which implied, and contributed to the belief of R&T, acting for NBF, that WH acted for the carrier liable under the Bills of Lading, and for the entity to whom the claims were appropriately addressed. WH acted innocently but Times knew the true position. In the second period after 18 January 2019, the conduct of WH, and of Times, was open to more criticism. The objective effect of the communications of WH and Holman Fenwick and Willan, solicitors for charterers Trafigura who became responsible for handling NBF’s misdelivery claims on behalf of Rosalind and Times, conveyed an impression which did not accord with the facts as Times and the parties acting for them understood them.

The question before Foxton J was whether the effect of this conduct such as to render it unjust hold NBF to the strict terms of the time bar. As regards the first period, the impression given on Times’ behalf, in ignorance of the true position up to 18 January 2019 and with knowledge of it thereafter, was a significant factor in NBF missing the time bar, such that the requisite causative nexus is established which made it unjust to hold NBF to the strict terms of the time bar. The jurisdictional threshold under s.12(3)(b) – whether the respondent’s conduct makes it unjust not to extend time – was satisfied.

On the matter of discretion, it was right to say that there had been significant culpable delay by NBF in failing to seek s.12 relief before it did – delay measured in months rather than merely weeks or days. The delay was particularly difficult to justify from early November 2019, when NBF did not appear to have taken the possibility that Times might be the carrier seriously. However, this was not a case in which it could be said that Times itself played no part in NBF’s delay in the period after 18 July 2019 when Reed Smith sent its letter advising that Rosalind was not the carrier, and that it was Times. However, the continuing refusal to provide a copy of the demise charter could be regarded as a continuation of the approach which had been adopted by or on behalf of Times before 18 July 2019, and which made it unjust to enforce the strict time bar against NBF. Its clear contribution to NBF’s delay in seeking s.12 relief was seen in the fact that, once the Bareboat Charter was produced for the purposes of Times application for an anti-suit injunction, NBF prepared and issued its s.12 application within short order.

The fault of NBF was not a reason for denying its application for relief under s.12, and NBF got its extension.

The Legal Effect of “Subject-to” in Charterparty Contracts

When negotiating charterparties, it is very common to make such negotiations “subject to” a variety of conditions. Justice Foxton in Nautica Marine Ltd v. Trafigura Trading (The Leonidas) [2020] EWHC 1986 (Comm) offered a valuable guidance on the legal effect of such clauses in charterparty contracts.

In the case, the owners entered into negotiations between 8-13 January 2016 to conclude a voyage charterparty for their crude carrier, the Leonidas, with Trafigura. These negotiations were initially subject to “Charterers’ Stem/Suppliers’/Receivers’/Management Approval” latest 17.00 Houston time, Tuesday 12 January, 2016. The loading ports were to include Aruba and St. Eustasius (collectively referred to as Statia). The intended loading terminal rejected the Leonidas on the basis that the vessel was too large to load at that particular berth (the vessel could have been able to load from the Statia SBM- another nearby terminal not chosen by the charterers).

The owners brought an action against Trafigura arguing that this was a performance condition, meaning that it is a condition which does not prevent a binding contract coming into existence, but if not satisfied the contract would cease to be binding. Building up on that, the owners argued that it was an implied term of the charterparty that Trafigura would take reasonable steps to satisfy the suppliers’ approval subject. It was maintained that Trafigura took no such steps to obtain that approval, or alternatively, that Trafigura bearing the burden of proof, would have to show that the suppliers’ approval would not have been obtained even if reasonable steps had been taken.

Foxton, J, held that the “Suppliers’ Approval Subject” was a pre-condition to a contract (condition precedent to contract) and, therefore, Trafigura was not required to take steps to obtain its suppliers’ approval. A few factors led him to conclude in this manner:

  • a “subject” is more likely to be a pre-condition than a performance condition where the subject involves the exercise of a personal or commercial judgment of one of the potential parties to a contract. Here, it was a commercial choice for Trafigura to determine who the relevant supplier would be and which terminals and berths/tanks within terminals, cargo would be loaded from;
  • the particular negotiating language of the parties referring to agreements as “on subjects” and “lifting” subjects, point towards a subject in the chartering context being more likely to be a pre-condition because it connotes that the subject is resolved by one or both parties removing it, rather than the subject being resolved automatically on the occurrence of an external event; and       
  • based on previous authority, the “Stem Subject” and “Management Approval Subject” were both pre-conditions; where “subjects” appear as a compendious phrase, it is more likely that they are all intended to have the same effect.

Obiter dictum, Foxton, J, considered how damages were to be assessed if the clause had been a performance condition. He held that because the alleged lost benefit (loss of profit under a concluded charterparty) was dependent on the decision of a third party (supplier) to approve the vessel, damages in that case had to be assessed on a “loss of chance” basis (Wellesley Partners v. Withers [2015] EWCA 1146)

Two points emerge from the judgment that have implications for the market. First, the judgment strongly indicates that a “subject to” clause in a charterparty will normally be construed as a condition precedent to a contract given that such clauses often involve the exercise of a personal or commercial judgment of one of the parties to the contract. Obviously, it is still possible that a “subject to” clause could be treated as a performance clause if it depends on the approval or performance of those other than the parties to the contract; e.g. “subject to the approval of the Ministry”. In that case, the question may arise whether or not one of the parties to the contract must act reasonably or in good faith in taking steps to ensure that the condition is lifted (See, The John S Darbyshire [1977] 2 Lloyd’s Rep 457). Second, there was a disagreement in the case as to whether the suppliers referred to in the subject were only terminals from which cargo was intended to be loaded or included the charterers’ contractual suppliers. Foxton, J was adamant that the phrase encompassed all those approvals which the charterer commercially wished to obtain on the supply side. This sounds sensible but naturally makes such conditions more challenging from the shipowners’ perspective.          

Supremes give permission to appeal in big passage planning case.

On 30 July the Supreme Court gave permission to appeal in The CMA CGM Libra – an important case on the boundary between crew negligence and unseaworthiness under the Hague Rules. At first instance, and in the Court of Appeal, matters went against the owners and the master’s failure to correct the passage plan before setting out from a port in China had the result of making the vessel unseaworthy and the owners in breach of art. III(1) of the Hague Rules.