Incorporation of Inter-Cub Agreement into time charter. Does it bring in the ICA’s security provisions?

 

If your charter incorporates the provisions of the Interclub NYPE Agreement 2011 don’t assume that everything in the agreement is brought into the charter. It all depends on the wording of incorporation, as owners found out in London Arbitration 18/18.   Owners sought counter-security from charterers pursuant to the provisions of cl.9 of the ICA 2011. Clause 35 of the time charter provided “…Liability for cargo claims, as between Charterers and Owners, shall be apportioned/settled as specified by the Interclub New York Produce Exchange Agreement effective from 1996 and its subsequent amendments  (Tribunal’s emphasis).”The Tribunal held that the incorporating words in the time charter brought into the charter only those parts of the ICA relating to apportionment and settlement.  The incorporating words did not bring in the ICA’s provision relating to security for 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.”

 

BIMCO Piracy Clause (2009) and duty to proceed with due despatch

 

 

In London Arbitration 13/18 the vessel was time chartered under a charter on NYPE form which incorporated the BIMCO Piracy Clause for Time Charter Parties (March 2009). This provides:.

(c) If the Owners consent or if the Vessel proceeds to or through an area exposed to risk of piracy the Owners shall have the liberty:

(i) to take reasonable preventive measures to protect the vessel, her crew and cargo including but not limited to taking a reasonable alternative route, proceeding in convoy, using escorts, avoiding day or night navigation, adjusting speed or course, or engaging security personnel or equipment on or about the vessel,

 

Owners employed armed guards and purchased additional security equipment when proceeding through an area exposed to risk of piracy, in this case the Gulf of Aden. Charterers contended that the options in paragraph (c)(ii) of the Piracy Clause were disjunctive so that owners could not recover both costs. The Tribunal disagreed and held that the clause made it clear that the owners were not so limited and could recover both costs. However, owners’ liberty to take ‘reasonable preventive measures’ did not justify their decision to proceed via a route which skirted the border of the high risk area, and constituted a breach of their obligation under cl. 8 to prosecute voyages with due despatch. The vessel employed armed guards for the fourth voyage and had installed a new set of protective materials and had the maximum level of security measures as set out under Best Management Practices 4 for Gulf of Aden Transits, Somalia Transits and Indian Ocean Transits. It was unreasonable to route the vessel in such a way that there would be no chance of interference from pirates and the owners were in breach of cl.8 for which the charterers were awarded damages in hire and fuel costs.

 

A further issue arose as to owners’ right to claim crew war bonuses from charterers. Clause 57 provided that when trading in the Gulf of Aden the crew war bonus if any was to be for charterers’ account. Owners claimed that the only condition was that the war bonus must actually have been paid to the crew. However, the Tribunal pointed to the BIMCO Piracy Clause which provided:

(d) Costs…

(ii) If the Owners become liable under the terms of employment to pay to the crew any bonus or additional wages in respect of sailing into an area which is dangerous in the manner defined by the said terms, then the actual bonus or additional wages paid shall be reimbursed to the owners by the charterers at the same time as the next payment of hire is due, or upon redelivery, whichever occurs first.

 

To be recoverable from charterers any bonus had to be one which owners were obliged to pay under the crew’s terms of employment. Here, the relevant terms provided that a bonus for transit of the Extended Risk Zone would be paid only if the vessel were attacked, which had not been the case. Accordingly, owners were not entitled to recover from charterers the bonus they had paid to the crew.

 

 

 

Meaning of ‘similar amendment’ in cl.8(b) of 1996 Inter-Club Agreement

Agile  Holdings Corporation v Essar Shipping Ltd [2018] EWHC 1055 (Comm) is a recent decision on the meaning of “similar amendment” in cl.8(b) of the 1996 Inter-Club Agreement (‘ICA’), in favour of the claimant shipowners, represented by IISTL’s Simon Rainey QC.

The “Maria” was time chartered for a single trip from Tunisia to India via Trinidad, carrying a consignment of direct reduced iron (“DRI”) which is  highly reactive and combustible in the presence of heat or water. During loading the cargo onto the vessel by means of a conveyor belt at Port Lisas, Trinidad, the belt was seen to have caught fire, but the appointed supercargo inspected the holds and advised that loading could continue. The cargo was still on fire during the voyage and cargo interests, an associated company of the charterers, brought a claim against the shipowners. In turn, they claimed a 100% indemnity from the charterers under the Inter-Club Agreement 1996 which was incorporated into the charter. The charter was on NYPE 1946 form, with an unamended cl.8, so under cl.8(b) of the ICA owners would be entitled to a 100% indemnity in respect of claims “in fact arising out of the loading, stowage, lashing, discharge, storage or other handling of cargo”.

The clause contains the proviso “ unless [1]  the words “and responsibility” are added in clause 8 [of the NYPE form]” to which the 1996 form added the words  “or there is a similar amendment making the Master responsible for cargo handling”, in which case a 50/50 split applies. Charterers pointed to cl.49 which provided “The Stevedores although appointed and paid by Charterers/Shippers/Receivers and or their Agents, to remain under the direction of the Master who will be responsible for proper stowage and seaworthiness and safety of the vessel…” and argued that this constituted a ‘similar amendment’. Charterers argued that  this would transfer back responsibility to the owners that aspect of cargo handling which was in fact in issue in the particular case. His Honour Judge Waksman QC rejected this, and held the required “similar amendment” must be one which would have the same effect as the addition of the words “any responsibility” and therefore, connotes the transfer of all aspects of cargo handling generally back to the Owner. He went on to observe that Clause 49 only transferred back responsibility for stowage, and probably only stowage affecting the seaworthiness or safety of the vessel. A transfer back of stowage only did not connote any transfer back of other cargo handling responsibilities.

What constitutes a ‘claim’ under stakeholder proceedings? The CV Stealth (again).

 

 

The CV Stealth involved the lengthy detention of the vessel in Venezuela while waiting to load cargo, pursuant to time charterers’ orders. This resulted in claims for  hire during this period by head owners against the bareboat charterers and indemnity claims by the bareboat charterers against the time charterers.  The bareboat charter remains in force, although the vessel was redelivered under the time charter in 2015. The case has already come before the Commercial Court on two occasions (reported in this blog on May 24th 2016  and  November 16th 2017).  It has now come back for a third time, ST shipping and Transport Pte Ltd & Ors v. Space Shipping Ltd, Psara Energy Ltd [2018] EWHC 156 (Comm), with an issue as to what constitutes a ‘claim’ for the purposes of stakeholder proceedings under CPR Rule 86.1 which provides: “ This Part contains rules which apply where — a person is under a liability in respect of a debt or in respect of any money, goods or chattels; and competing claims are made or expected to be made against that person in respect of that debt or money or for those goods or chattels by two or more persons.”

The time charterers had become subject to an award under which they were to pay $6.4m to disponent owners. They then became notified by head owners of an assignment in their favour by disponent owners of $1,787,375 reflecting 181 days’ hire under the bareboat charter. Disponent owners subsequently made a claim for the full of the award of $6.4m  under a letter of undertaking that had been issued by Glencore, as guarantors for time charterers. The demand took no account of the assignment effected in favour of head owners, and Glencore and time charterers issued stakeholder proceedings in respect of US$6.4m held by time charterers’ solicitors. Disponent owners then accepted that the sum representing 181 days hire which had been the subject of the assignment could be paid out to head owners.

However, charterers did not accept that they had now received the “all clear” to pay the balance to disponent owners. First, a dispute remained between head owners and disponent owners as to the scope of the assignment although this was swiftly decided against head owners in the third arbitration. Secondly, the head owners then obtained from the US District Court of Connecticut a Rule B attachment order which attached or garnished “the debts of [the charterers] to [the disponent owners]”, in support of their claims against the  disponent owners totalling some US$19.6m. The head owners then gave notice of the order to the time charterers pursuant to which they said that the charterers were directed to “attach and freeze and all tangible or intangible property and/or assets held for the benefit of [the disponent owners]”.  Head owners claimed that this gave then a proprietary claim over time charterers’ debt to the disponent owners. The order was subsequently vacated on charterers’ application of the grounds that as the court could not exercise personal jurisdiction over charterers, property held by the charterers were outside the jurisdiction of the court. Head owners appealed against the decision. Charterers resisted the payment out of the sums in the stakeholder account because there was still the risk of a double payment, if head owners’ appeal in the Rule B proceedings were successful.

The matter came before the Commercial Court and Teare J had to decide whether there was a stakeholder claim within CPR Part 86. The disponent owners submitted that this stakeholder claim was not within CPR Part 86 because there were no “competing claims ”.  First, the disponent owners did not have a claim, but, rather, an arbitration award. The disponent owners relied on Stevenson & Son v Brownell [1912] 2 Ch 344 and the note in the White Book at 86.1.2 based upon that case to the effect that “claim” in interpleader or stakeholder actions did not extend to concluded claims where judgment has been obtained . Second, Part 86 requires or envisages proceedings in the English court, whereas here the Rule B proceedings had been commenced in Connecticut, not in in England. Teare J rejected both contentions and held that there was a ‘claim’ within CPR Part 86. The context of Part 86 did not require ‘claim’ to be limited to proceedings before an English court and a competing claim could be one that was made in another jurisdiction. The present case was distinguishable from Stevenson, a case involving two competing claims to royalties, one of which had ripened into a judgment. The present case did not concern rival claims by two persons claiming to be entitled to be paid hire under the time charterparty. Rather, head owners claimed a proprietary right by way of lien on the chose in action represented by the disponent owners’ right to payment of the award by the charterers. Furthermore, although the disponent owners were the beneficiaries of several arbitration awards they were not judgment creditors.

A further issue was whether Glencore were entitled to claim stakeholder relief as they had only been subject to one claim under the LOU, from the disponent owners. Teare J found that as the LOU was a contract of surety it was sensible that both the primary obligor and the surety were made party to the stakeholder claim.

Teare J then decided that the sum in the stakeholder account should be paid out to the disponent owners. There was no risk of time charterers being later ordered to pay the same sum to head owners if their Rule B appeal were to succeed. As party to the stakeholder claim, head owners were bound  by reason of the doctrine of res judicata by any order the court makes. The court’s order would estop them  from contending that they, rather than the disponent owners, were entitled to the debt owed by the charterers.

“Act” does not import culpability under cl.8(d) of ICA 1996. The Yangtze Xing Hua  

 

The Court of Appeal in The Yangtze Xing Hua  [2017] EWCA Civ 2107 has upheld the decision of Teare J that “act” in the phrase “act or neglect” in cl. 8 (d) of the 1996 Inter-Club Agreement means any act, whether culpable or not. The charterers, who had not been paid for the cargo, had ordered the vessel to remain off the Iranian discharge port for four months, during which time the cargo overheated, leading to a claim being brought against the owners, which they settled. Owners were entitled to recover the full amount of the settlement from charterers under the proviso to cl. 8(d): “unless there is clear and irrefutable evidence that the claim arose out of the act or neglect of the one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim.”

The Court of Appeal has confirmed that the natural meaning of the word “act” was something which is done and did not connote culpability. “Neglect” did connote culpability but in the context of the ICA, which contained various provisions which applied regardless of culpability, this did not colour the meaning of “act”. Under cl.8 the critical question was that of causation, whether the claim “in fact” arose out of the act, operation or state of affairs described.

Causation and Contingencies. The CV Stealth, again.

In The CV Stealth [2016] EWHC 880 (Comm) an attempt by the sub-charterer to load a cargo of oil from Venezuela without the necessary export permission led to the detention of the vessel. Popplewell J upheld the arbitrator’s finding that the bareboat charterers could recover the resulting expenses from time charterers by way of an indemnity under cl. 13 of Shelltime 4 form. The time charterer’s employment order to load the cargo was the effective cause, or at least an effective cause of the detention of the vessel up to and including 21 July 2015.

The judicial detention of the vessel in Venezuela continued and on 25 May 2017 the Arbitrator issued a Fourth Partial Final Award awarding owners detention expenses and hire paid to the owners for the period after 21 July 2015, but subject to a provisional deduction of $1.4 m for saved drydocking expenses. The deduction was made because “as matters stand there must be a substantial possibility that the vessel will never, in her lifetime, be redelivered to the head owners and thus that the drydocking costs will never have to be borne by the owners here.”

The charterers appealed against the award on the grounds that in considering the issue of causation the arbitrator had merely asked himself whether anything had changed since his initial Partial Award. Charterers argued he should have asked whether the employment order continued to be an effective cause of the detention of the Vessel, or whether the sole effective cause of that detention eventually became the intractable and perverse refusal of the Venezuelan courts to order the release of the vessel as required by Venezuelan law.

Popplewell J held that the arbitrator had not misapplied the test for causation ([2017] EWHC 2808 (Comm). The arbitrator had already found that the employment order had causative potency up to 21 July 2015. The fact that the approach of the Venezuelan courts had not changed from then, could legitimately be taken as evidence that the chain of causation had not been broken; a finding confirmed by the arbitrator’s finding that the subsequent judicial behaviour was insufficient to “obliterate the original cause of the detention”, which reflected the language of the test in Borealis v Geogas [2011] 1 Lloyd’s Rep 482, [44], on when an effective cause will be replaced by another intervening cause.

The owners also appealed against the provisional deduction of saved drydocking expenses, arguing that deductions could only be made if there were a finding that there was a benefit and that the benefit was legally caused by the breach. Popplewell J dismissed the disponent owner’s appeal. The arbitrator had adopted a “wait and see” approach of considering loss by reference to events as they unfolded which was a permissible approach to the date of assessment of loss where its extent may depend upon future contingencies.

Liens on sub-freights. Where do they need to be registered as a charge?

The Singapore High Court decision in Duncan, Cameron Lindsay v. Diablo Fortune Inc  [2017] SGHC 172 provides a cautionary tale for shipowners about the need to register a lien on sub freights as a charge, and where this should be done.

The shipowners let their vessel on bareboat charter to a company incorporated in Singapore, under which they were given a lien on all cargoes, sub-hires and sub-freights belonging or due to the charterers or any sub-charterers and any bill of lading freight for all claims under the charter. Following default in payment by the charterer, the owners notice of lien to a sub charterer which employed the vessel in a pooling arrangement. The bareboat charter was subject to English law and provided for London arbitration.

The charterer’s liquidator contended that the lien was void against them for want of registration under s.131(1) of the Singapore Companies Act. The shipowners contended that as the charter was subject to English law, it was the UK Companies Act 2006 that applied to the registration of charges and whose provisions applied only to companies incorporated in England, Wales, or Scotland, but not to a company incorporated abroad. The Singapore High Court held that as the company was incorporated in Singapore, the requirements of s 131 of the Singapore Companies Act applied regardless of the law governing the creation of the charge or the location of the property.

A distinction needed to be made between the law governing the initial validity and/or creation of the security interest and the law governing the priority of such interests and the distribution of assets in the insolvency of the company. The latter issues are resolved by the law of the state in which the insolvency proceedings are commenced. The invalidity of a charge as against a liquidator due to non-registration is one such issue.

The court then considered whether the lien was a charge within the meaning of s131 and followed the English authorities cited by the Liquidator to the effect that a lien on sub freights give rise to an equitable assignment by way of charge and may be void for want of registration against a liquidator and creditors of the company. The lien on sub freights possessed the characteristics of a floating charge and amounted to a charge on a book debt under s131.

Shipowners, therefore, need to be aware of the insolvency law of their time charterer’s place of incorporation and its law regarding registration of charges.

Court’s power  to order sale of liened cargo

In The Moscow Stars [2017] EWHC 2150 (Comm) a cargo of crude oil was loaded in October 2016 under a time charter with PDVSA, the Venezuelan state-owned oil and gas company. Shortly afterwards the owners gave notice of lien to charterers in respect of shortfalls of hire accruing since January 2016. The charter provided for London arbitration and December 2016 the claimant sought and obtained permission from the arbitral tribunal to apply to the court for an order for sale of the cargo.  The vessel with its cargo is currently drifting off Curacao, there being no other viable way of exercising the lien such as discharge into storage.

The first question before the court was whether the court had jurisdiction to order a sale under s.44 of the Arbitration Act 1996. Under s44(1) the court has “same power of making orders about the matters listed below as it has for purposes of and in relation to legal proceedings.”  The matters listed below are set out in s44(2) and heading (d) provides for “the sale of any goods the subject of the proceedings.” Males J held that the court did have power to order a sale and s.44(2)(d) applied where a contractual lien is being exercised over a defendant’s goods as security for a claim which is being advanced in arbitration. The time charterer here was the owner of the cargo. There was no need to consider the position had the cargo been owned by a third party that was not a party to the arbitration.

The second question was whether an order for sale fell within the powers of the court under CPR 25.1 which gives the court the power to make an order for “the sale of relevant property which is of a perishable nature or which for any other good reason it is desirable to sell quickly.”  The cargo was not perishable but there were good reasons why it was desirable for it to be sold quickly. The cargo had been on board the vessel for over nine months and, in the absence of an order, would likely remain there for many months to come.  This prejudiced the owner which was not receiving hire but was continuing to incur the operating costs of the vessel and was faced with approaching deadlines to drydock in January 2018 to comply with SOLAS and Class requirements.  Accordingly, Males J  ordered that the cargo be sold and directed the time charterers to sign any contract of sale as the seller.

 

 

Implied indemnity and the Inter-Club Agreement

 

When an owner settles cargo claims, is the Inter-Club Agreement (ICA) the exclusive means of seeking recovery from a charterer under a charter containing the ICA, or can recovery be made under the implied indemnity? This was the issue before the tribunal in London Arbitration 19/17. The head owners settled claims under the bills of lading in respect of condensation damage to a cargo of steel carried from various ports in China and Taiwan to Antwerp. The principal cause of sweat developing was the difference in the ambient temperature between the Chinese loading ports and the loading port in Taiwan. The head owners then recovered a contribution from the time charterers under the ICA which was incorporated into the charter, which was on NYPE form. The disponent owners then sought to recover the full amount of what they had paid the head owners from their sub-charterer. The sub charter was also on NYPE form incorporating the ICA. They claimed this by way of an implied indemnity, on the ground that the claims had arisen as a consequence of following charterers’ orders to load cargo into the same holds at different ports with varying temperatures, so resulting in the cargo sweat which damaged the cargo.

 

The tribunal rejected this claim on two grounds. First, the disponent owners had agreed to a voyage, which inevitably involved the possibility of loading cold cargo which then had to be carried through warmer waters to the destination and the risk of cargo sweat occurring was something the disponent owners had agreed to undertake. Second, for cargo claims the implied indemnity gave way to the express provision that cargo claims were to be apportioned between owners and charterers in accordance with the ICA. On the facts these cargo claims were subject to 50-50 apportionment under cl. 8(d).