Category: Sea Carriage

Actionable fault and general average. Due diligence and unseaworthiness.

Actionable fault and general average. Due diligence and unseaworthiness.

 

In The CMA CGM Libra  [2019] EWHC 481 (Admlty), a container vessel grounded on leaving Xiamen on a shoal in an area in which there is a risk of uncharted shoals. Salvors refloated the vessel which then proceeded on her voyage. The shipowners funded the salvage and declared general average. 8% of cargo interests refused to pay their share on the grounds of actionable fault on the part of the shipowners. The vessel’s primary means of navigation was intended to be paper charts published by the United Kingdom Hydrographic Office (UKHO). Before leaving Xiamen the Second Officer prepared a passage plan which the Master approved. The plan was inadequate in that it did not refer to the existence of a crucial Preliminary Notice to Mariners (NM6274/P10) that had been issued by the UKHO approximately 5 months before the grounding, alerting mariners to the presence of numerous depths less than charted in the approaches to Xiamen and confirming that the charted depths within the dredged channel were sufficient for the vessel. Nor did the passage plan refer to any “no-go areas” which had not been marked or identified on the chart. At trial the Master confirmed that had the chart been marked up with the appropriate “no-go areas” he would not have attempted to execute the manoeuvre that ultimately led to the stranding of the vessel.

Teare J considered the burden of proof. The Supreme Court’s decision in Volcafe related to the burden of proof in relation to Article III.2 of the Hague Rules and did not deal with the burden of proof for Article III.1. There had been actionable fault through a breach of Article III.1 of the Hague Rules Article IV r.1 provides that where loss or damage results from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier. Thus it deals with the burden of proof for the purposes of Article III r.1. It is implicit in Article IV r.1 that the burden of proving causative unseaworthiness must lie upon the cargo owner for the article assumes that such unseaworthiness has been established.

Teare J then found that cargo interests had established a breach of Article III.1 in that the absence of an adequate passage plan was a cause of the grounding.. The presence on board a vessel of the appropriate chart is an aspect of seaworthiness. Where the Admiralty gives notice of a correction to the appropriate chart a vessel will not be seaworthy unless the chart has been corrected. If the vessel’s navigating officer fails, before the commencement of the voyage, to correct the chart the vessel is thereby rendered unseaworthy. The production of a defective passage plan is not merely “an error of navigation” but involves a breach of carrier’s obligation that the vessel is seaworthy “before and at the beginning of the voyage.” If there is a causative breach of Article III r.1 the fact that a cause of the subsequent casualty is also negligent navigation will not protect the carrier from liability. Passage planning by the master before the beginning of the voyage is necessary for safe navigation.

The carrier’s duty under Article III r.1 was not discharged by putting in place proper systems and ensuring that the requisite materials were on board to ensure that the master and navigating officer were able to prepare an adequate passage plan before the beginning of the voyage. As set out in Scrutton on Charterparties and Bills of Lading 23rd.ed at paragraph 14-046:

“The due diligence required is due diligence in the work itself by the carrier and all persons, whether servants or agents or independent contractors whom he employs or engages in the task of making the ship seaworthy; the carrier does not therefore discharge the burden of proving that due diligence has been exercised by proof that he engaged competent experts to perform and supervise the ask of making the ship seaworthy. The statute imposes an inescapable personal obligation.”

Due diligence was not exercised because the Owners’ SMS contained appropriate guidance for passage planning and that the auditors of the vessel’s practices were competent. To comply with Article III r.1, which imposes a non-delegable duty on thecarrier, it is not enough that the owner has itself exercised due diligence to make the ship seaworthy. It must be shown that those servants or agents relied upon by the owner to make the ship seaworthy before and at the beginning of the voyage have exercised due diligence. Negligence by the master or chief engineer or other officer before the commencement of a voyage can amount to a failure by the carrier to make the vessel seaworthy.

 

Accordingly there had been actionable fault by the shipowners and cargo were not required to contribute to general average.

 

Bill of lading shipper liable for sums due under incorporated head charter.

 

In Singapore Arbitration 1/19 a fraudulent broker purported to charter to shipowners on behalf of X and then sub-chartered to Z. Under the charter to X 100% freight was to be paid within six days of signing and release of bills of lading. The cargo was loaded and a bill of lading was issued to Z as  Z, incorporating all the terms and conditions of the charter and stating ‘freight payable as per charterparty dated 9 November 2010’.  Both charters bore that date. The broker received 95% freight from Z and paid part of that to owners in respect of freight under the X head charter. Owners later claim the unpaid balance of freight, and loading port demurrage, under the X charter from Z as bill of lading shipper. The owners had discharged into a port authority warehouse but had lost their lien when receivers managed to take delivery without payment of sums due under the charter with X. Owners commenced arbitration in Singapore against Z under the bill of lading.

The tribunal held that it did have jurisdiction to determine which of two charters with the same date was incorporated into the bill of lading. Both charters were subject to English law. Applying the San Nicholas it was the head charter that was incorporated.  Notwithstanding the transfer of the bill of lading, the shipper’s liability remained due to section 3(3) COGSA 1992.  Owners did not have to give credit for what Z had paid, but only for what they had received. Owners could not be criticised for having failed to act with due diligence once the balance due under the charter with X came due and had not been received. Owners acted reasonably in discharging into a port authority warehouse. The unfortunate Z was liable for the sums claimed by owners.

Are fall in value claims due to delay and deviation “Cargo Claims” ?

 

 

This issue arose in London Arbitration 4/19 under a charter on NYPE form which incorporated the Inter-Club Agreement 1984 with any subsequent modification or replacement. The parties agreed to extend time for six months under an addendum which contained cl.6 providing that charterers would be fully liable for all cargo claims, howsoever caused, including seaworthiness. During the extended charter period the vessel diverted to Goa and spent 36 days there. Charterers then deducted $295,000 from hire being what they had paid receivers in respect of financial losses due to a fall in the sound arrived value of the cargo due to the deviation to and delay at Goa. Although “cargo claims” could as a matter of language be restricted to claims for physical loss or damage, clause 6 had to be interpreted in the light of the Inter-Club Agreement which was also part of the charter and in particular the definition of “cargo claims” contained in the 1996 Agreement as “claims for loss, damage, shortage…overcarriage of or delay to cargo.” Charterer’s claim therefore related to a “cargo claim” for which they were fully liable under the terms of cl.6.

BIMCO’s 2020 Marine Fuel Sulphur Content Clause for Time Charters and 2020 Fuel Transition Clause.

 

BIMCO have produced two clauses for inclusion in time charterparties to deal with the new Annex VI MARPOL requirements on sulphur content in fuel that come into force on 1 January 2020, and the ban on carriage of non-compliant fuel that comes into force on 1 March 2020.

  1. The Marine Fuel Sulphur Content Clause deals with owners obligation to comply with the sulphur content requirements of MARPOL Annex VI and also the sulphur content requirements of ECAs, and replaces BIMCO’s previous sulphur content clause of 2005.

The clause contains an express requirement for the fuel provided by the time charterers to meet the “specifications and grades” which are commonly set out elsewhere in a time charter party and to ensure compliance by their suppliers with applicable regulation relating to sulphur content. Charterers will also provide an indemnity to owners in relation to non-compliance with MARPOL requirements and the vessel will remain on hire throughout. Owners warrant that the ship will comply with the sulphur content requirements of MARPOL Annex VI which means that the ship is able to consume fuels that meet such requirements. Provided the charterers have supplied compliant fuel, they shall not otherwise be liable for any losses, damages, liabilities, delays, deviations, claims, fines, costs, expenses, actions, proceedings, suits, demands arising out of the owners’ failure to comply with their obligation to comply with the MARPOL requirements.

  1. 2020 Fuel Transition Clause for Time Charter Parties

This deals with the advance planning needed before 1 January 2020. “Compliant Fuel” is defined by reference to the requirements of MARPOL as of 1 January 2020.

“Non-Compliant Fuel” is defined in the context of use or removal of fuel with a sulphur content greater than 0.50%. Such fuel would be MARPOL compliant before 1 January 2020 but the clause is designed to deal with the use or removal of such fuel before that date.

Charterers will need to have supplied the ship with sufficient compliant fuel on board before 1 January 2020 to enable the ship to reach a bunkering port after that date to bunker with compliant fuel. No later than 1 March 2020 there must be no non-compliant fuel carried for use by the vessels. The parties are to cooperate and use reasonable endeavours to ensure no non-compliant fuel is carried by the vessel no later than  1 January 2020. This is to be done preferably by burning, with off-loading of any remaining fuel by 1 March 2020.

Charterers’ obligation is to pay to offload and dispose of any remaining non-compliant fuel they have been unable to burn. Disposal of non-compliant fuel  must be done in accordance with local regulations. Owners’ obligation is to ensure the ship is fit to receive compliant fuel “taking into account the type of Compliant Fuel that will be loaded…”

 

The two clauses are not intended for use by vessel fitted with and operating exhaust gas cleaning systems (i.e. scrubbers).

Remedies for delivery without production of the bill of lading

A case in the CA of some interest today. Imagine carriers or forwarding agents have delivered goods to a buyer without getting payment for them. No point in suing the buyer in 99% of such cases: and often carriers and forwarding agents will be men of straw too (remember in addition that P&I clubs won’t sub up for this sort of thing). But had you thought of suing the rich man behind the buyer who sweet-talked the forwarding agent or carrier into letting the goods go without payment? You hadn’t? It’s actually a classic case, in most situations, of inducing breach of contract: a point confirmed by the Court of Appeal in Michael Fielding Wolff v Trinity Logistics [2018] EWCA Civ 2765, upholding Sara Cockerill QC at first instance. Happy hunting.

Back to bailment. A storm in a coffee cup.

 

In today’s decision in Volcafe Ltd and others (Appellants) v Compania Sud Americana De Vapores SA (Respondent) [2018] UKSC 61 the Supreme Court has overruled the decision of the Court of Appeal on the incidence of the burden of proof in relation to the exception of inherent vice in article IV (2)(m) of the Hague Rules.

The claim arose out of for nine separate consignments of bagged Colombian green coffee beans shipped at Buenaventura in Colombia between 14 January and 6 April 2012 on various vessels owned by the defendant shipowners for carriage to Bremen. They were stowed in a total of 20 unventilated 20-foot containers.

The bills of lading, which were subject to English law and jurisdiction and incorporated the Hague Rules, were on LCL/FCL (less than full container load/full container load) terms which meant that the carriers were contractually responsible for preparing the containers for carriage and stuffing the bags of coffee into them. If coffee is carried in unventilated containers from a warm to a cooler climate the beans will inevitably emit moisture which will cause condensation to form on the walls and roof of the container. This makes it necessary to protect the coffee from water damage by lining the roof and walls with an absorbent material such as cardboard, corrugated paper or “Kraft” paper. This was a common commercial practice in 2012 and was used by the carriers in this case, but when the containers were opened the bags in 18 of them were found to have suffered water damage from condensation.

The case raised the issue of the legal burden of proof at two stages. First, does the cargo-owner bear the legal burden of proving breach of  article III(2) of the Hague Rules, or is it for the carrier, once loss or damage to the cargo has been ascertained, to prove compliance? Second, as regards to article IV.2, and particularly exception (m), what is the burden of proof.. The carrier accepted that he must bear the burden of proving facts which bring the case within an exception, but submitted that once he had done so it is for the cargo-owner to prove that it was the negligence of the carrier which caused the excepted peril (in this case, inherent vice) to operate on the cargo. This was the analysis adopted by the Court of Appeal.

Lord Sumption gave the leading judgment and found that the questions must be resolved by examining the nature of a contract for the carriage of goods by sea. This was a contract of bailment under which the carrier is under an obligation is to take reasonable care of the goods accepted into its custody with a rule that the carrier would be liable for loss or damage to the goods while in its custody unless it could disprove negligence. The scheme of the Hague Rules assumes that the carrier does indeed have the burden of disproving negligence albeit without imposing that burden on him in terms.

In principle where cargo is shipped in apparent good order and condition but is discharged damaged the carrier bears the burden of proving that that was not due to its breach of the obligation in article III.2 to take reasonable care. The Hague Rules authorities, such as Gosse Millard v Canadian Government Merchant Marine Ltd [1927] 2 KB 432 and Silver v Ocean Steamship Co Ltd [1930] 1 KB, bear this out. The true rule is that the carrier must show either that the damage occurred without fault in the various respects covered by article III.2, or that it was caused by an excepted peril. If the carrier can show that the loss or damage to the cargo occurred without a breach of the carrier’s duty of care under article III.2, he will not need to rely on an exception.

As regards the second issue, the burden of proof under article IV (2), pre Hague Rules decisions such as Notara v Henderson (1872) LR 7 QB 225 and The Xantho (1887) 12 App Cas 503 and Hamilton, Fraser & Co v Pandorf & Co (1887) 12 App Cas 518 treated absence of fault as an integral part of the exception of perils of the sea. Against that there is the decision of the Court of Appeal in The Glendarroch [1894] P 226,  holding that the burden of proving that an excepted peril had been occasioned by the carrier’s negligence lay on the cargo owner.

Even if the decision was correct as regards the exception for perils of the sea, it would not apply to the exception for inherent vice. The distinction between the existence of the peril and the standard of care required of the carrier is impossible to make in that context. A cargo does not suffer from inherent vice in the abstract, but only in relation to some assumed standard of knowledge and diligence on the part of the carrier.  Lord Sumption stated:

  1. It follows that if the carrier could and should have taken precautions which would have prevented some inherent characteristic of the cargo from resulting in damage, that characteristic is not inherent vice. Accordingly, in order to be able to rely on the exception for inherent vice, the carrier must show either that he took reasonable care of the cargo but the damage occurred nonetheless; or else that whatever reasonable steps might have been taken to protect the cargo from damage would have failed in the face of its inherent propensities.

The Court of Appeal held that the Deputy Judge’s had misdirected himself in finding that article III (2) meant that the cargo had to be carried in accordance with a system that would prevent damage, and that inherent vice could be demonstrated only if damage was inevitable. The Deputy Judge had found that the evidence did not establish what weight of paper was used for these shipments, except that it was more than 80 gsm, and did not establish how many layers were used, and there was no evidence to show what thickness of paper ought to be used for a given number of layers, in order to avoid condensation damage, and no generally accepted commercial practice this point. The Court of Appeal had made two different findings of fact. First, that there was an accepted industry practice in 2012 for lining unventilated containers for the carriage of bagged coffee, either by using two layers of paper of at least 80 gsm or one layer of at least 125 gsm. Second, that two layers of paper had been used. It therefore followed that the containers had been lined in accordance with accepted industry practice. The Court of Appeal was not justified in overturning the deputy judge’s findings on either of these two critical points.

Lord Sumption concluded:

  1. I would hold that the carrier had the legal burden of proving that he took due care to protect the goods from damage, including due care to protect the cargo from damage arising from inherent characteristics such as its hygroscopic character. I would reinstate the deputy judge’s conclusions about the practice of the trade in the lining of unventilated containers for the carriage of bagged coffee and the absence of evidence that the containers were dressed with more than one layer of lining paper. In the absence of evidence about the weight of the paper employed, it must follow that the carrier has failed to prove that the containers were properly dressed.

 

Today’s decision is of great importance to both carriers and cargo owners. It reiterates the accepted wisdom as regards the operation of the burden of proof in respect of Article III(2), but departs substantially from that  position as regards the incidence of the burden of proof in respect of the exceptions afforded to the carrier under Article IV(2). Although the case concerned the specific exception of inherent vice, the Supreme Court’s decision would apply equally to all the exceptions in Article IV(2) – save for the nautical fault exception in (a) and the ‘catch-all’ exception in (q) which in terms specifically requires the carrier to prove absence of fault on its part or that of its servant or agents.

Where is General Average?

Jurisdiction decisions in the shipping context follow each other in close succession. Yesterday we had another, from Males J, of some interest to insurers: namely, Griffin Underwriting Ltd v Varouxakis (The Free Goddess) [2018] EWHC 3259 (Comm).

The Free Goddess, a 22,000 dwt bulker owned by Freeseas, was seized by Somali pirates while en route to Thailand with steel coils. K & R insurers Griffin, based in Guernsey but doing business in London, paid out something over $6 million to free her, whereupon she sailed to Oman. Griffin clearly had a right to take over from Freeseas a pretty cast-iron GA claim against cargo interests: on arrival it duly entered into a settlement agreement with Freeseas under which Freeseas agreed to furnish all assistance, including preservation of security, in claiming GA and also to account to Griffin for all sums received on that basis. GA, as might be expected, was settlable and payable in London.

According to Griffin’s (as yet unestablished) allegations, Freeseas did no such thing. Instead of the obvious course of oncarrying the cargo to Thailand and claiming GA in due course, it sold the ship in Oman, destroying any security for GA and providing cargo with a counterclaim for damages which was likely to dwarf the GA liability in any case. In addition it had allegedly trousered a large sum in interim GA contributions without accounting for it. 

Freeseas not being worth powder and shot, Griffin sued one Ion Varouxakis, the Greek-domiciled owner of the company, for inducing it to break the settlement agreement. They alleged that the damage had been suffered in London and therefore they could invoke Art.7, the tort article of Brussels I Recast. Mr Varouxakis insisted that he could only be sued in Greece, arguing for good measure that this was a suit by an underwriter in a matter relating to insurance under Art.14, so the other exceptions did not apply.

In fact Mr Varouxakis was held to have waived any jurisdiction point, so the claim is going ahead in London anyway. But Males J did go on to give a view on the other points. On the issue of the loss of the right to GA, he regarded the issue of where the loss had been suffered as finely balanced, but expressed the view that the direct damage had been suffered in Oman, where he opined that the right to enforce GA had been effectively lost: the fact that GA had not been paid in London he regarded as a remoter consequence and not in account because of decisions such as Kronhofer v Mayer [2004] All ER (EC) 939. So there would have been no jurisdiction. On the other hand, he thought the loss had been suffered in London as regarded the failure to account, and so would have allowed the claim under that head to go ahead on that head in any event. As for the suggestion that this was a matter relating to insurance, he smartly rebuffed the point: insurance might be the background, but this arose out of an independent settlement agreement.

The second point was fairly obvious: if someone infringes my right to an accounting in London, it is difficult to think of anywhere apart from London where the damage occurs. The third is also welcome: the insurance rules under under Art.14 are ill-thought-out even by Euro-standards, and anything that prevents their becoming any more bloated than they already are can only be a good thing.  

This blog is less sure about the first. Saying the damage occurred in Oman gets pretty close to conflating damage with the act giving rise to it; it also means that the place of the damage in cases of this sort becomes wildly arbitrary, depending on which port a vessel happens to be in at the time. On the other hand, if GA is settled and negotiated in London, it seems fairly convincing to argue that preventing it being settled and paid there causes a direct loss within the Square Mile. Unfortunately, because the claimants won in any case, we are unlikely to see an appeal here. But this shouldn’t be regarded as necessarily the last word.


Rotterdam Rules in Cameroon’s hat-trick of international trade conventions.

 

Just over a year ago on 11 October 2017 Cameroon ratified or acceded to three UNCITRAL Conventions.

  1. Cameroon ratified the Rotterdam Rules. There are now four states that have ratified. Sixteen more to go before the Convention comes into force. At the current rate we’ll be there in 2058.
  2. Cameroon acceded to the he United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG) which comes into force for Cameroon on 1 November 2018.
  3. Cameron acceded to the United Nations Convention on the Use of Electronic Communications in International Contracts (2005) which came into force for Cameroon on 1 May 2018.

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.