London Arbitration 6/23 involved potential interruption to demurrage due to what charterers claimed was the fault of the shipowner. The vessel was chartered for a voyage from Turkey to Futuna Island in the French Pacific Ocean carrying part cargo of steel pipes. Other cargo was loaded and discharged at additional ports as part of the same voyage but under different fixture arrangements. Five months after loading in Turkey the vessel reached Port Louis in Mauritius. Shortly after sailing, the main engine had to be shut down due to excessive exhaust temperatures and the activation of the oil mist detector alarm. The high exhaust temperatures caused defects to the exhaust valve seat surfaces, which were beyond the capability of the crew to repair. The vessel was towed to Reunion for repair. These took four months, which was longer than expected. The Covid-19 pandemic, which affected the availability of spares and labour at the time, was offered as an explanation.
In the meantime new regulations had been introduced at Futuna under which the vessel’s dimensions would not allow it to meet the new requirements. The receivers were forced to agree that the vessel would discharge at an alternative port in Fiji. However, the short space of time between the decision to change discharge ports and the vessel’s arrival at the actual discharge port presented problems to the receivers and contributed to discharge not starting more promptly. Charterers raised a defence to owners’ demurrage claim saying that the delay in discharge that this problem could be traced back to the engine failure and was exacerbated by a failure by the owners to keep them and the receivers more closely advised about progress of the repairs.
The arbitrator found that the fault alleged by the charterers could not have been the engine condition prior to loading in Turkey as there were no engine problems for a further five months into the voyage. The repairs took an unusually long time but took place in the middle of the pandemic which affected availability of spares and personnel. By the time the discharge port had been changed to Lautoka, it seemed that all the vessel’s faults had ceased to exist and the owners were able to tender a valid notice of readiness. Discharge was able to commence reasonably shortly thereafter and the charterers accepted that it did until laytime ran out. It followed that if laytime could run, there was no reason why demurrage should not commence once it expired and consequential loss of time was not recoverable under the doctrine of “fault”. Owners were therefore able to recover their demurrage in full.
Rhine Shipping DMCC v Vitol SA [2023] EWHC 1265 (Comm) involved a counterclaim by Vitol under a voyage charter with Rhine for breach of the charter by way of delay to the Vessel in proceeding to one of the load ports resulting from an arrest by third parties of the bunkers and stores on board at one of the loading ports, in Ghana. The vessel was on bareboat charter to Al-Iraquia who had time chartered it to Rhine with whom it was connected. Delay resulted from the detention of the vessel for some days as security which was alleged to have led to delays in loading the vessel at its next load port in Congo with the result that Vital had to pay an increased price of US$3,692,106.72 to the seller of the cargo loaded there. The arrest in Ghana did not concern the vessel in the voyage charter between Rhine and Vitol. It concerned claims by six vessel owners under other charters with Al-Iraquia. Vitol claimed under an indemnity clause in the charter and also for breach of warranty that at the date of the charter the vessel was free of encumbrances and legal issues that could affect the performance of the charter.
(1) The indemnity.
Clause 13 provided: “Third Party Arrest
In the event of arrest/detention or other sanction levied against the vessel through no fault of Charterer, Owner shall indemnify Charterer for any damages, penalties, costs and consequences and any time vessel is under arrest/detained and/or limited in her performance is fully for Owner’s account and/or such time shall not count as laytime or if on demurrage, as time on demurrage.”
Although the arrest was of the property on board, not of the Vessel, the vessel was detained as the inevitable consequence of the property on board being arrested, in the sense of being constrained or prevented from freely continuing on its voyage. Clause 13 imposed no additional requirement that the detention be “levied against” the vessel in any sense other than that the vessel was detained.
A further issue arose as to whether the indemnity was subject to the rules on remoteness of loss
that apply to a claim in damages. Given his finding in relation to the breach of warranty claims, that the losses claimed by Vitol were not too remote to be recoverable as damages for breach of contract, the amount recoverable here did not turn on this issue. However, Simon Birt KC set out his view that nothing in the terms of the indemnity to suggested that it intended to incorporate the rules on remoteness of damage for breach of contract. If, as a result of a detention, for example, the charterer had suffered a penalty, there would be no reason to conclude that fell outside the scope of the indemnity, even if unforeseeable. He emphasised that his conclusions were based on the terms of clause 13 and the facts and circumstances of this case and did suggest that an express indemnity in any contract will always be interpreted to include losses that would fall outside the remoteness rules for breach of contract, nor did they deal with anything in relation to the scope of the implied indemnity under a time charter.
(2). The breach of warranty.
Vitol could also claim their losses by way of a breach of a warranty in the charter that “at the time of and immediately prior to fixing the charter, the vessel, owners, managers and disponent owners are free of any encumbrances and legal issues that may affect vessel’s approvals or the performance of the charter. Al-Iraqia were held to fall within the warranty by virtue of their description as “managers” within the clause, and, had it been necessary to determine, whether they also fell within the clause as “owners” or “disponent owners” Simon Birt KC would have held that they did fall within that description. At the time of and immediately prior to fixing the charter, Al-Iraqia was not “free of any encumbrances and legal issues that may affect the Vessel’s approvals or the performance of the charter.” When the charter was agreed on 27 March 2020, London arbitration was already on foot in relation to vessels other than the one subsequently arrested in Ghana. The word ‘may’ imposed a low bar and the London arbitration was a legal issue affecting Al-Iraqia at the relevant and it was possible that issue could affect the performance of the Charter, and indeed did so.
The Congo bills of lading were dated 12 May 2020 and Vitol claimed a loss of on the basis that had there been no delay due to the arrest Congo bills of lading would have been dated 6 May 2020 and Vitol would have paid its seller a lower price for the cargo. Rhine put forward three arguments as to why it should not be liable. First, it put Vitol to proof that, even without the arrest in Ghana, the vessel would have loaded at the Congo port in sufficient time to obtain bills of lading dated 6 May 2020 for the cargo loaded there. Second, any loss Vitol had suffered had been reduced by Vitol’s hedging arrangement and so insofar as so reduced it was not recoverable from Rhine. Third, even if Vitol’s loss had not been so reduced in fact, the only loss that was recoverable as not too remote was loss that would still have been suffered if those hedging arrangements had so reduced the loss.
Simon Birt KC rejected all three arguments. First, had there been no delay due to the arrest in Ghana, there was certainly a real or substantial chance that Vitol’s Congo seller or the Congo terminal would have acted in such a way as to lead to the issue of a bill of lading dated 6 May. There would be no discount to be applied for any “chance” that the bills of lading might not have been dated 6 May. Second, the transactions by which the Swaps were rolled were not external transactions, but were internal to Vitol. The rolling of the internal Swaps by which the pricing risk on the Congo sale contract arising from the delay was transferred between Vitol portfolios, did not make good any loss to Vitol. Unlike an external hedge, one transaction would not have been entered into for the purpose of managing the specific pricing risk arising from an identified risk from an existing transaction. Third, the loss claimed by Vitol was of a type that was usual in respect of a charter such as this, and was reasonably within the contemplation of the parties at the time of contracting. there was no evidence to the effect that there was a “general expectation” in the market that shipowners would not expect to bear this type of loss, such as had been the case in The Achilleas [2009]1 AC 61 (HL).
UKSC 2022/0009 Herculito Maritime Ltd and others (Respondents) v Gunvor International BV and others (Appellants) “The Polar”
What is the proper interpretation of a charter agreement and bills of landing (sic) for a vessel, in respect of losses arising out the seizure of the vessel by pirates.
UKSC 2022/0064 R (on the application of Finch on behalf of the Weald Action Group) (Appellant) v Surrey County Council and others (Respondents)
Under Directive 2011/92 EU of the European Parliament and of the Council and the Town and Country Planning (Environmental Impact Assessment) Regulations 2017, was it unlawful for the Council not to require the environmental impact assessment for a project of crude oil extraction for commercial purposes to include an assessment of the impacts of downstream greenhouse gas emissions resulting from the eventual use of the refined products of the extracted oil?
Hearing on 21 June 2023
The case raises similar issues on scope 3 emissions to that in Greenpeace Ltd v (1) Secretary of State for Business, Energy and Industrial Strategy and (2) the Oil and Gas Authority; and Uplift v (1) SSBEIS and (2) the OGA (North Sea oil and gas licensing)
On 26 April 2023 permission was granted to proceed with a Judicial Review of the Government’s decision to launch a new licensing oil and gas round, without taking into account the environmental effects of consuming the oil and gas to be extracted. In the new licensing round fossil fuel companies have submitted submitting more than 100 licences to explore for new oil and gas.
UKSC 2021/0231 Priminds Shipping (HK) Co Ltd (Respondent) v K Line PTE Ltd (Appellant)The Eternal Bliss
Whether the Charterers are liable to compensate or indemnify the Owners for the cost of settling the cargo claim by way of (a) damages for the Charterers’ breach of contract in not completing discharge within the permitted laytime; and/or (b) an indemnity in respect of the consequences of complying with the Charterers’ orders to load, carry and discharge the cargo.
The answer given by the Court of Appeal was ‘no’. This is now definitive.
Clause 2 of Gencon 1994 first saw light of day in the 1922 charter and is the product of the thinking of an era that predates the Hague Rules when freedom of contract reigned supreme and carriers were able to include in contracts of carriage clauses that exempted them from liability for practically anything. Consequently, many people and certainly most charterers, now consider the clause to be completely out of touch with modern industry practices and current legislation. By way of contrast, and perhaps not surprisingly, many owners continue to value the wide protection that they believe it affords against liability. However, the reality is that the clause does not really meet the needs of either party and can give rise to some unforeseen and highly unwelcome surprises. Consequently, it is not really satisfactory for either the charterers or the shipowners.
It does not meet the charterers’ needs since it provides the shipowners with a very wide defence for cargo claims. In a nutshell, the Owners are not liable unless there is personal negligence on the part of the higher management of the company [1]. Equally, it does not satisfy the shipowners because protection is limited to claims for physical loss or damage to the goods or for delay in delivering the goods, and the clause provides no defence for other claims relating to purely financial loss, such as a failure to load a full cargo or for delay in arriving at the loadport [2].
These deficiencies have been recognised for many years and the industry has tended to adopt a rough and ready solution by simply replacing Clause 2 with a Paramount Clause that is perceived to introduce greater balance in the form of the Hague or Hague-Visby Rules. However, the weakness of this “broad brush” solution has been repeatedly recognised by the English courts. For example, it has been said that:
“The courts have not found it easy to make sense of the Hague Rules in the context of a charter-party since clearly these rules were not designed to be incorporated in such a contract.”[3]
Consequently, the BIMCO sub-committee concluded that the insertion of a Paramount Clause was really no more than a “sticking plaster” solution in that it papered over some of the fault but failed to provide a satisfactory balanced solution.
A Paramount Clause clearly improves the charterers’ chances of making a recovery from the shipowners but makes the shipowners’ duty to exercise due diligence to make the ship seaworthy a continuing one that could potentially extend to all time “before” the commencement of the voyage[5], and which could, therefore, cover a very substantial time before the arrival of the ship at the loadport. It is also unclear whether the Rules provide the owners with protection in all jurisdictions against purely financial loss such as delay either in arriving at the loadport or in performing the laden voyage.
Therefore, the more balanced remedy favoured by the sub-committee was for the new clause 2 of Gencon 2022 to mirror the general approach of the Hague-Visby Rules and
(1) firstly, place on the shipowners duties that are the equivalent of the non-delegable ones that apply under the Hague-Visby Rules to exercise due diligence to provide a seaworthy ship and to properly and carefully care for the cargo, but to restrict the applicability of the seaworthiness obligation to the two points in time that matter for the charterers, namely, the loading of the cargo and the commencement of the laden voyage; and
(2) secondly, enable the shipowners to rely on all those rights, defences, immunities, time bars and limitations of liability that are available to a “Carrier” under the Hague-Visby Rules and to make such protection applicable to claims for loss, damage, delay or failure in performance of whatsoever nature. As is the case under the Hague-Visby Rules, these various rights, defences, immunities, time bars and limitations of liability fall into two categories: those that are applicable in any event regardless of breach, such as the time limit for claims under Art III Rule 6, and those that are available only if the shipowner has satisfied his obligations as to seaworthiness, such as those listed under Art IV Rule 2.
Because this new approach is substantially different from that which has been adopted in prior versions of Gencon, the sub-committee thought it prudent to circulate its proposals to the shipping industry before proceeding to a conclusion and received a more or less unanimous approval of its proposals. It is also noteworthy that the International Group of P&I Clubs has confirmed that the new clause 2 should not prejudice Club cover.
Finally, since one of the criticisms of Gencon 1994 is that, unlike many other charters, it does not include an exception clause that protects the rights of charterers, the sub-committee recommended that the new charter should include such a clause. There was some discussion as to whether the charter should include the new BIMCO Force Majeure Clause 2022. However, the sub-committee concluded that such clause was more suited to a time charter than a voyage charter and the industry consultation process supported that view. Consequently, it was decided to include a General Exception Clause of the type that is commonly seen in other voyage charters, and such a clause is now found in Clause 18 of Gencon 2022 thereby ensuring that it is a more balanced charter party.
[1] See, for example, the “Brabant” (1965) 2 Lloyd’s Rep. 546
[2] See, for example, the “Dominator” (1959) 1 Lloyd’s Rep 125 and the discussion in para 11.68 of Voyage Charters (3rd ed)
[3] Per Saville J in the “Standard Ardour” (1988) 2 Lloyd’s Rep 159
[4] Per Devlin J in the “Saxon Star” (1957) 2 Lloyd’s Rep 271
[5] See Art III Rule of the Hague/Hague-Visby Rules
Representing the Institute of International Shipping and Trade Law, Professor Richard Williams was a member of the BIMCO Sub-committee that has produced the new Gencon 2022.
London Arbitration 31/22 is another reminder that once laytime starts it runs continuously unless interrupted by a laytime exception or a laytime definition or through delay due to the fault of the ship owner.
The vessel was chartered on an amended Gencon 94 form to carry wheat from Russia to Turkey. On Friday 17 September the vessel tendered NOR and was ordered by the harbour master to remain at anchor pending authorisation being given for cargo samples to be taken and analysed. The charterers’ agent then told owners’ operations manager not to send cargo documents to the discharge port agents and not to allow sampling, berthing and discharging as the receiver had not yet paid for the cargo. Eventually charterers permitted sampling and discharge on 29 September and discharge completed on 2 October.
As well as the laytime provisions, under which time would have started to run on 20 September, the voyage charter in question had two separate provisions dealing with time lost, and the question was which applied in the circumstances attending the vessel’s delay at the discharge port.
These two provisions were:
“TIME LOST WAITING FOR CARGO ANALYSES AND/OR LABORATORY TESTING AND/OR IMPORT AND/OR EXPORT FORMALITIES IF ANY TO COUNT AS LAYTIME OR TIME ON DEMURRAGE W/O WEATHER INTERRUPTIONS AND/OR ANY EXCEPTIONS.” (Provision 1.)
“TIME LOST DUE TO CHARTERERS’ INSTRUCTIONS AND/OR FAULT TO BE REIMBURSED BY CHARTERERS AS DAMAGES FOR DETENTION.” (Provision 2.)
The owners claimed damages for detention at the demurrage rate under Provision 2 for the period from tender of NOR on 17 September until 29 September when the charterers authorised the taking of samples. The tribunal held that this claim must fail because the time lost waiting for cargo sampling clearly fell under the express terms of Provision 1. The arbitrator found that time lost on arrival was due to the failure by the charterers to authorise/arrange for cargo samples to be taken, a problem that was caused by lack of payment for the cargo which fell within Provision 1. Provisions 1 and 2 appeared consecutively in the fixture recap and the parties could not have intended there to be any overlap between them, and time lost for reasons covered in Provision 1 could not come within the time lost in Provision 2.
Had the arbitrator found that Provision 2 applied, he would have been inclined to accept charterers’ argument that laytime would have started on 29 September and demurrage would have been unlikely to have accrued. Therefore, the arbitrator might have accepted that, given the evidence of lower demurrage rates in similar charters, damages for detention up to 29 September would have been assessed at a rate lower than the charter demurrage rate.
The owners also presented two alternative laytime statements and the arbitrator held that their second was correct. Under this laytime began at 08.00 on Monday 20 September and the vessel went on demurrage from 13.30 on 23 September until discharging was completed at 17.00 on Saturday 2 October.
The charterers argued that “cargo analyses and laboratory testing” did not include “cargo sampling” but the arbitrator considered that the wording in Provision 1 covered any delay in the import formalities after arrival at the discharge port, including the charterers authorising the taking of samples, analysis, communication of the results and allocation of a berth.
The arbitrator also rejected charterers’ claims that time did not count during ‘port congestion’ nor for ‘weather interruption’, alternatively was suspended by duty pilot due to bad weather. Time lost on arrival was due to the failure by the charterers to authorise/arrange for cargo samples to be taken, a problem that was caused by lack of payment for the cargo which came within Provision 1 and the charterers were wrong to argue that congestion was a circumstance obstructing the sampling/berthing/discharging, which was beyond their control. Once a valid NOR was tendered and took effect, laytime ran continuously against the laytime allowed. Congestion was therefore a charterers’ risk.
In London Arbitration 30/22, the vessel was chartered on amended Asbatankvoy in which Clause 6 of the charterparty provides that the master was to give NOR “by letter, telegraph, wireless or telephone”. The master tendered NOR by email. Charterers argued that the tender was bad, relying on The Port Russel [2013] 2 Lloyd’s Rep 57 where an email tender was held to be not permitted under a charter on BPVOY3 which provided for NOR to be given by “by letter, facsimile transmission, telegram, telex, radio or telephone”. Unlike cl.6 of Asbatankvoy the clause did not refer to tender by ‘wireless’. The tribunal accepted owners’ arguments that the reference to tender by “wireless” covered the email which was transmitted wirelessly using the vessel’s communication safety system. Owners also produced evidence, from Wikipedia, that email was around in the 1960s and early 1970s and so was in existence in 1977 the year of the Asbatankvoy form.
The vessel was charted for a single voyage (from Bilbao to Paulsboro on the Delaware River) pursuant to the terms of an amended Shellvoy 6 form. A period of 72 hours was allocated as laytime in the charterparty for loading and discharge and 68 hours and 54 minutes of the laytime had been used at the loading port (Bilbao).
The water depth at the intended discharge berth at Paulsboro was 12.19m. The vessel draft was 12.15m but the tide was expected to vary by 1.6m. Accordingly, in line with charterparty provisions, the master submitted a risk assessment and sought a waiver from the technical operators of the under keel clearance policy as stipulated in the charter form. The technical operators granted the waiver for the transit from anchorage and for the berthing. The waiver was issued on the assumption that the vessel’s draft was equal to or less than the draft of the river/berth at high water. The master was also asked to ensure that prompt commencement of discharge was discussed with the terminal officers.
The chartered vessel arrived at the discharge berth on 31 March 2019. The terminal informed the master that unloading needed to be conducted at a reduced rate initially. This could, in master’s calculations, mean that the discharge rate would be less than the rate necessary to maintain a safe under keel clearance. On that basis, the master took the decision to leave the berth (a short while berthing) and return to anchorage.
Another berth became available on 1 April and the master prepared a fresh under keel clearance calculation, and risk assessment and sought another waiver from the technical operators. The technical operators refused to give waiver on this occasion stating that the safety for margin was too small and there were not sufficient controls in place to mitigate the risk of the vessel touching bottom.
The vessel managed to berth only after a portion of the cargo was lightened on 4 April 2019. This caused a further delay and laytime ended on 6 April (10.24). By that time, a further 154.63 hours were used at Paulsboro, bringing the total time used to 226.63 hours. The owners sought demurrage in the sum of US$ 143,153.64. The charterers raised objection to the demurrage claim arguing:
Two incidents (the owner’s decision to leave the discharge terminal within 12 minutes of berthing on 31 March 2019 and the owner’s refusal to comply with the charterer’s request to return to berth at 21.00 on 1 April) had the effect of suspending the running of laytime;
The notice of readiness (NOR) given by the owner upon arrival at Paulsboro was not valid because “free pratique” certificate had not been granted.
His Honour Judge Bird found on both of these points in favour of the owners:
The running of the laytime is suspended only when time is lost due to “default on the owner’s part, or on the part of those for whom they are responsible” (The Fontevivo [1975] 1 Lloyd’s Rep 339). This was not the case here as the owner acted in a way permitted and required by the relevant charterparty (the need to operate the vessel safely was explicitly specified in the charter and the contract made clear that under keel clearance was binding and not to be breached without consent). It was also noted that the power to grant or refuse a waiver of the policy was not limited in any way in the charterparty.
The evidence indicated that there was no formal mechanism for the grant of “free pratique” at the discharge port and the port appeared to have operated a free pratique by default system, with decisions communicated if there was disease on board. Accordingly, the NOR had been valid.
Comment
The running of laytime can only be suspended by express terms of the contract or if there is a “fault” on the part of the owners preventing the loading or discharging operations. It is clear that the “fault” does not need to be an actionable breach of the charterparty, but the present decision (in line with earlier authorities) also makes clear that no fault can be established in cases where the master takes steps that cause delay for safety reasons and such decisions are deemed to be “entirely justifiable” in the circumstances. In the present context, a “capricious refusal” to grant a waiver of keel clearance policy by the operators, for example, could have amounted to a “fault” capable of suspending the running of the clock but that was not the case.
The obtaining of a “free pratique” certificate was a mere formality prior to the commencement of the global pandemic and the finding in this case reflects that position. The matter might be rather different now especially given that some countries have introduced strict quarantining and/or testing requirements for Covid. It is very unlikely that in today’s commercial world we could easily assume that any port operates on a “free pratique” default system. And, in those instances lack of “free pratique“ certificate could prevent the chartered vessel from being regarded as an “arrived ship” which is vital for the commencement of the laytime period.
The Supreme Court has just granted shipowners permission to appeal in K Line PTE Ltd v Priminds Shipping (HK) Co, Ltd (The Eternal Bliss). At first instance, [2020] EWHC 2373 (Comm)] Andrew Baker J held, on a preliminary point of law on assumed facts, that demurrage was not the sole remedy for charterer’s breach of the obligation to discharge within the laydays. Demurrage only liquidated the shipowner’s loss of use claim resulting from delay after expiry of the laydays and different types of losses flowing from such a breach, such as the cargo claim shipowners settled with Chinese receivers in the instant case, could be recovered as unliquidated damages.
Towards the end of 2021 the Court of Appeal reversed the decision, [EWCA/Civ/2021/1712], and held that demurrage was the exclusive remedy for breach of this obligation.
The case will now proceed to the Supreme Court for a definitive determination of this important legal question. The shipowners are represented by IISTL member, Simon Rainey KC, and Tom Bird.
As any shipping lawyer will tell you, the law is not at its tidiest when a bill of lading ends up in the hands of a voyage charterer. Yesterday’s decision in Unicredit AG v Euronav NV [2022] EWHC 957 (Comm) adds a further chapter to the saga, which may be more tendentious than it looks.
The case arose out of the insolvency and suspected fraud of Indian oil trader GP (Gulf Petrochem FZC, now a restructured GP Global, not to be confused with oil major Gulf Oil). BP chartered the 150,000-ton Suezmax Sienna from her owners Euronav and agreed to sell her cargo to GP. GP financed the deal through Unicredit, under an arrangement whereby Gulf agreed to pledge and assign to Unicredit all rights in cargoes and rights arising under bills of lading, and agreed that it would resell the cargo to buyers who would pay Unicredit direct.
A bill of lading was issued by Euronav to BP. On the sale, Unicredit paid BP on GP’s behalf; but instead of the bill of lading being endorsed to GP, the charter itself was novated, BP dropping out and being supplanted by GP. BP retained the bill of lading, still made out in its favour.
In April 2020, GP sweet-talked Unicredit into condoning a series of STS transfers of the cargo to what seem to have been connected entities, despite the fact that the bill of lading was still in the hands of BP. The sub-buyers never paid Unicredit; at the same time GP showed worrying signs of financial strain. Unicredit now realised that something had gone badly wrong with the deal, with their security and with GP as a whole. It swiftly got BP to endorse the bill of lading to it and tried to salvage the situation by suing Euronav for delivering the cargo without its production.
The claim was unsuccessful. And rightly so. On the evidence it was clear that Unicredit had actually condoned the STS transfers in the knowledge that the bill of lading would not available, and therefore had only itself to blame. With this we have no argument.
But the claim also failed for another reason, which we are less sure about: namely, that the bill of lading in fact never governed the liabilities of Euronav in any case. The reason was this. When the bill was issued to BP, it was uncontroversial that it did not form the contract between the parties, since there was also a charter in force between BP and Euronav, and as between the two the charter prevailed (see Rodocanachi v Milburn (1887) 18 Q.B.D. 67). True, at the time of the STS transfers there was no longer a charter between BP and Euronav because GP had been substituted for BP. But this (it was said) made no difference. Although the bill of lading would have been the governing document had BP endorsed it to GP (Leduc v Ward (1888) 20 Q.B.D. 475), this did not apply where there had been no such transfer. In the present case there was no reason to infer that at that time the document’s status in BP’s hands had been intended to change from that of mere receipt to full contractual document; it therefore remained in the former category.
With respect, it is not entirely clear why this should be the case. For one thing, if a carrier issues a bill of lading to a charterer, arguably the reason why the bill of lading does not form the contract between the parties is simply that one has to choose between two inconsistent contracts, and that the obvious choice is the charter. If so, once the charter drops away as between those parties, there is no reason not to go back to the bill of lading. This seems, if one may say so, rather more convincing than the idea that the carrier is implicitly agreeing that the bill of lading gains contractual force if, and only if, endorsed by the charterer to someone else so as to cause a new contract to spring up. (In this connection it is worth remembering that it is equally possible for a bill of lading that once did have contractual force to cease to have it as a result of transfer to a charterer – see for instance The Dunelmia [1970] 1 Q.B. 289 – despite the fact that in such a case there can be no question of any new contract springing up.)
Put another way, it seems odd that entirely different results should follow according to whether a charterer transfers the bill of lading and retains the charter, or transfers the charter and retains the bill of lading.
There is also a practical point. Suppose that in the Unicredit case the unpaid party had not been Unicredit, but BP. BP might have thought that they were safe in allowing the charter to be novated in favour of GP provided they kept hold of the bill of lading and with it the assurance that the cargo could not reach GP’s hands without their consent. One suspects they would have been somewhat surprised to be told in such a case that the bill of lading was, and remained, of no effect despite the fact that they were no longer charterers of the vessel.
There clearly won’t be an appeal in this case, given the consent of Unicredit to what would otherwise have been a misdelivery. But the bill of lading point will no doubt give academics and others plenty to speculate about in the next editions of Scrutton, Aikens and other works. We await the results with interest.
MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm) raises the question of whether the effect of financial sanctions obliges a contractual party to accept payment in a currency other than that specified in the contract. Mur Shipping BV (“the Owners” or “MUR”) concluded a Contract of Affreightment (“COA”) with RTI Ltd (“the Charterers” or “RTI”) in June 2016. Under the COA, the Charterers contracted to ship, and the Owners contracted to carry, approximately 280,000 metric tons per month of bauxite, in consignments of 30,000 – 40,000 metric tons, from Conakry in Guinea to Dneprobugsky in Ukraine. On 6 April 2018, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) applied sanctions (“the sanctions”) to RTI’s parent company, adding them to the Specially Designated Nationals and Blocked Persons List. This led to the Owners invoking a force majeure clause in the COA by sending a force majeure notice (“FM Notice”) on 10 April 2018 in which the Owners said that it would be a breach of sanctions for the Owners to continue with the performance of the COA and noted that the “sanctions will prevent dollar payments, which are required under the COA”.
The force majeure clause provided for the suspension of the obligation of each party to perform the Charter Party while such Force Majeure Event is in operation. The clause provided that
“36.3. A Force Majeure Event is an event or state of affairs which meets all of the following criteria:
a) It is outside the immediate control of the Party giving the Force Majeure Notice;
b) It prevents or delays the loading of the cargo at the loading port and/or the discharge of the cargo at the discharging port;
c) It is caused by one or more of acts of God, extreme weather conditions, war, lockout, strikes or other labour disturbances, explosions, fire, invasion, insurrection, blockade, embargo, riot, flood, earthquake, including all accidents to piers, shiploaders, and/or mills, factories, barges, or machinery, railway and canal stoppage by ice or frost, any rules or regulations of governments or any interference or acts or directions of governments, the restraint of princes, restrictions on monetary transfers and exchanges;
d) It cannot be overcome by reasonable endeavors from the Party affected.”
The claim arose from the fact that RTI had chartered in 7 vessels when MUR, alleging force majeure, suspended performance of the COA in April 2018, and was based on the difference between the COA and chartered in rates for these 7 vessels.
The tribunal accepted that the effect of both “primary” and “secondary” sanctions was drastic. Thus, normal commercial counterparties would be frightened of trading with the party that has been sanctioned, bank finance was likely to be frozen, and underwriters would be reluctant to insure normal trading activities. The tribunal also held that sanctions had an impact on the ability of the Charterers to make US dollar payments to the Owners. The tribunal held that, but for one point, the Owners’ case on force majeure succeeded. The point on which it failed was that, applying the terms of the force majeure clause, it could have been “overcome by reasonable endeavours from the Party affected.” This was because the tribunal considered that the exercise of reasonable endeavours required the Owners to accept a proposal made by the Charterers to make payment in €. The tribunal described this as a “completely realistic alternative” to the payment obligation in the COA, which was to pay in US dollars.
Jacobs J held that the Tribunal had erred in their finding that “reasonable endeavours” required the Owners to accept the Charterers’ proposal to make payment in a non-contractual currency. A party does not have to perform the contract otherwise than in accordance with the contract in order to avoid a force majeure event. There was no reason to construe the force majeure clause as being concerned only with contractual obligations directly concerned with loading and discharging: the force majeure event may have an impact on other contractual obligations which then have the causative impact required by clause 36.3 (b). Jacobs J noted “Clause 36.3 (b) is an important part of the force majeure clause: it identifies the necessary consequence, as a matter of causation, of the “event or state of affairs” described in other parts of the clause. However, it is clear from clause 36.3 (c) that there may be a wide range of different matters which bring about the consequence that loading or discharge is delayed or prevented. Those matters include “restrictions on monetary transfers and exchanges”.
