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.

All change for financier assignees — second time lucky with anti-anti-assignment provisions?

The good times seem likely to end finally on 31 December this year for anti-assignment clauses. The Government has published the draft Business Contract Terms (Assignment of Receivables) Regulations 2018, which for SMEs essentially invalidate anti-assignment clauses affecting receivables — i.e. sums payable for goods or services supplied. A few pointers:

1. The prohibition is not limited to assignment to financiers: assignment to debt-collectors, etc, also seems to be protected.

2.  There are anti-avoidance provisions. Any attempt to put conditions on the assignability of receivables is outlawed. The blurb states that a set-off clause is not such a condition: this may be important where, for example, a contract allows set-offs that would not otherwise be pleadable against an assignee. On the other hand, there is some doubt about this: the Regulations do not contain any such provision, and the blurb, of course, is not part of them.

3. There are exceptions. These include financial services, swaps, energy futures, petroleum licences, public-private partnership projects and contracts with national security implications. Importantly there are also two other carve-outs. One is contracts where one or more parties is not acting in the course of a business. This means consumers can, if there is a suitable term, continue to refuse to deal with an assignee. Another is contracts which neither party entered into in the course of a business here: so genuine international contracts remain subject to the old freedom of contract rules. Perhaps suprisingly, rental contracts are also excluded, except when connected with certain forms of financial services.

All in all, these seem an improvement on last year’s regulations (not difficult). As to their effect we’ll have to wait and see.

Can an actual carrier rely on a circular indemnity clause in a multimodal bill of lading?


Yes, they can, in the US.

In Royal Smit Transformers BV v Onego Shipping & Chartering, and others Case 17-30543, the US Court of Appeals for the Fifth Circuit  on 2nd August 2018 held that actual carriers could rely on a circular indemnity provision in a ‘Himalaya’ clause in a through bill of lading as a complete defence to a claim brought against them by the shipper under that bill. Royal Smit contracted with Central Oceans USA to ship its transformers from the Netherland to Louisiana. The arrangement was established by a multimodal through bill of lading between the parties. Central Oceans made separate contracts with actual carriers for the three legs of the journey; the sea voyage to New Orleans; rail carriage to St Gabriel; truck carriage to the final destination. The actual carriers were not involved in the multimodal bill of lading and Royal Smit were not involved in the contracts made by Central Oceans with the actual carriers.

The bill of lading contained a ‘Himalaya’ clause which provided:

  1. Defenses and limits for [Central Oceans], Servants, etc.

. . . .

(b) [Royal] undertakes that no claim shall be made against any servant, agent, or other persons whose services [Central Oceans] has used in order to perform the Multimodal Transport Contract and if any claim should nevertheless be made, to indemnify [Central Oceans] against all consequences thereof.

(c) However, the provisions of this Contract apply whenever claims relating to the performance of the Multimodal Transport Contract are made against any servant, agent or other person whose services [Central Oceans] has used in order to perform the Multimodal Transport Contract, whether such claims are founded in contract or in tort. In entering into this Contract, [Central Oceans] . . . does so not only on his own behalf but also as agent or trustee for such persons.

The transformers were delivered to the final destination in January 2016, where an inspection revealed that the transformers had been damaged by “excessive vibration” somewhere along the journey. When Royal Smit sued the three actual carriers they relied on cl.15(b), the ‘circular indemnity’ provision, by way of complete defence. The District Court agreed. . Relying on two Supreme Court opinions, Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14 (2004) and Kawasaki Kisen Kaisha, Ltd. v. Regal-Beloit Corp., 561 U.S. 89 (2010), the court concluded that “actual carriers who fall within the scope of Himalaya Clauses can rely on those clauses to limit their liability.” This was the case with the particular Himalaya provision relied on by the actual carriers in the present case. The position was not affected by the separate contracts negotiated by the actual carriers with Central Oceans, such as the non-negotiable bill of lading issued by the sea carrier, Onego.

The Fifth Circuit has now upheld this decision. The clause did not fall foul of s.3(8) of  COGSA 46 U.S.C. § 30701.  A Himalaya Clause that protects downstream carriers from suit by a cargo owner did not, in and of itself, limit the cargo owner’s ability to receive the recovery to which it is entitled. Royal had agreed with Central Oceans to a COGSA-authorized damages limitation and the mere fact that it must recover its remedy only from Central Oceans did not prevent it from receiving the full measure of that bargain. Nothing in the Himalaya Clause precluded Central Oceans from suing the defendants to recoup its losses from Royal.

The Court also rejected Royal’s arguments that it had never agreed to be bound by the Himalaya clause in the bill of lading. Royal had based its claim on the bill of lading and had therefore accepted the terms of the bill of lading including unnegotiated clauses (Mitsui & Co. (USA), Inc. v. Mira M/V, 111 F.3d 33, 36 (5th Cir. 1997)). Furthermore,  basic principles of maritime law governing the interpretation of contracts foreclosed Royal’s argument that the court should look to extrinsic evidence to discern an intent contrary to the plain text of the bill of lading. Only if the written language of the document was ambiguous, which was not the case here, could the court look beyond the written language to determine the parties’ intent.

The decision is good news for sub-contractors under multi-modal bills of lading involving carriage to the US. The position regarding such clauses under English law is somewhat different. First, the circular indemnity provision does not provide a defence to the actual carrier but provides a right to the carrier under the bill of lading to step in and prevent suit against its sub-carrier by the shipper/holder of the bill. Second, where an actual sea carrier is involved, art III(8) of the Hague Rules has been held to render null and void a ‘Himalaya’ clause giving the sub-contractor a complete exemption from liability (The Starsin  [2004] 1 AC 715 ) and the same is probably the case with a circular indemnity clause.


Bank references — undisclosed principals needn’t apply

Banks will, if you will forgive the pun, be laughing all the way to themselves today courtesy of the UK Supreme Court. In Banca Nazionale del Lavoro SpA v Playboy Club London Ltd [2018] UKSC 43  the question was whether a Hedley Byrne duty of care could be invoked by an undisclosed principal. The Playboy Club in London was approached by a Lebanese gentleman, a Mr Barakat, who wanted a cheque-cashing facility of £800,000 to gamble with. The Club, with its usual caution, required a banker’s reference for twice that amount. With Mr Barakat’s permission, and quite properly not wishing to divulge to the bank the reason for Mr Barakat’s desire, it got an associated company, Burlington Street Services, to make the necessary inquiries as its undisclosed agent. The bank gave a positive answer despite the fact that Mr Barakat had no substantial funds deposited with it. Over four days Mr Barakat  gratefully bought £1.25 million of chips with two cheques, won and drew a cool half-million, and then departed. He never came back. His cheques did. Playboy, relying on its position as Burlington’s undisclosed principal, sued the bank for its losses.

Upholding the Court of Appeal, the Supreme Court in short order held that an undisclosed principal, being someone whom ex hypothesi the person giving the advice knew nothing of, could not take advantage of a Hedley Byrne duty of care. Even though we might talk about a relationship akin to contract in connection with Hedley Byrne, said the majority, thise was no reason to extend the anomalous doctrine of the undisclosed principal beyond contract so as to allow the creation of a duty of care in favour of a given claimant when none would otherwise exist.

The Playboy Club will now no doubt either bite the bullet and write its own reference requests, or possibly investigate some more sophisticated device (an assignment by Burlington of its rights in favour of the Club might come to mind). But the decision may have further implications. Many professional negligence claims — for example, against insurance sub-brokers, specialists employed by professional advisers, consulting engineers employed by construction companies, or sub-agents generally — lie exclusively in tort under Hedley Byrne. It now seems that, while a direct client of a professional person may contract as undisclosed agent and give his principal the right to sue the professional in contract in the event of any blunder, the principal will have to be content with this. He will not be able to sue anyone further down the chain. Whether this can be got round by allowing the ostensible client to sue for some notional loss suffered by it is a question that will have to be left to another day: but that day, as a result of Playboy, may well come round sooner than you think.

Where is a debt?

In a case decided today, Hardy Exploration & Production (India) Inc v Government of India [2018] EWHC 1916 (Comm), IISTL member Peter Macdonald-Eggers QC in his judicial capacity faced a nice problem concerning the situs of a debt (vital for issues of third party debt orders, and also issues such as confiscation). We were always told that this was where the debtor was resident, that is, where the debt was recoverable (most recently in Taurus Petroleum Ltd v State Oil Marketing Co [2017] UKSC 64, noted here in this blog). But this can be ambiguous: what if the debtor resides in Ruritania and yet the debt, for example because of an exclusive jurisdiction clause, is recoverable only in Utopia? In this case the answer now seems to be Utopia.

In the Hardy case a claimant had the benefit of an arbitration award for $70 million or so against the Indian government. The government was for its part owed a tidy sum by an indirectly state-owned corporation incorporated in London and doing business there: but the contract creating the debt had what was effectively an Indian exclusive jurisdiction clause. Could a third party debt order be made against the corporation on the basis that the debt was situated in England? No: the debt fell to be regarded as situated in India and beyond the English court’s reach.

On the basis that this blog is for busy practitioners, we will leave it at that. For those interested, there is a great deal more in the judgment: a lot of scholarship, and also more about the third party debt order jurisdiction generally. Happy reading.

We do need a marine insurance drugs clause

Another item for the agenda at the LMA (and elsewhere where they do insurance).  If someone tries to use your ship without your knowledge for drug-smuggling and the vessel gets seized, the Supreme Court has now confirmed in Navigators Insurance Co Ltd & Ors v Atlasnavios-Navegação Lda [2018] UKSC 26 that your insurance may well not respond, with your underwriters politely but regretfully telling you that you are on your own.

While an elderly  bulker, the B Atlantic, was loading a cargo of coal in Maracaibo, Venezuela, enterprising drug smugglers strapped nearly 300 lb of cocaine to her hull with a view to retrieving it later. The drugs were found, and the vessel seized and condemned by the Venezuelan authorities. Her owners’ H&M insurance included the Institute War & Strikes Clause, which gave cover for capture, seizure and arrest; against persons acting maliciously; and against confiscation and expropriation. But specifically excluded under Clause 4.1.5 was detainment, confiscation or expropriation by reason of infringement of customs or trading regulations. The underwriters declined to pay. Flaux J decided for the owners; the smugglers’ acts were those of “persons acting maliciously”, and Clause 4.1.5 did not apply because the substantial cause of their loss was the acts of the smugglers and not the resulting infringement of the Venezuelan customs code. The Court of Appeal disagreed: the exclusion of infringement of customs or trading regulations should not be limited in this way, and in the circumstances excluded liability.

The Supremes, led by Lord Mance, agreed with the Court of Appeal, but went further. Not only did the events fall fair and square within the exclusion of confiscation for breach of customs or trading regulations, but there had been no cover in the first place. “Persons acting maliciously” meant persons deliberately out to injure the interests of the owners. Unlike terrorists, bombers or garden-variety vandals, drug-smugglers did not fall in this category: they were criminals, true, and knew that what they did might have consequences for the owners, but this was not enough.

This is, if one may say so, a sensible and convincing decision on the facts and the wording. But it does leave owners high and dry when faced with a risk against which they can quite legitimately desire protection. A specific clause protecting against seizure for drug-smuggling committed without the knowledge or connivance of the owner or the crew now seems a high priority. As we said, it’s over to you at the LMA.



Of sales, bills of exchange and arbitration

Picken J today revisited an old chestnut in arbitration law. Suppose you sell goods or services and draw on the buyer for the price (yes, some people still do this), and have a standard arbitration clause referring to “all disputes arising out of or in connection with this Contract”. Does the arbitration clause cover a claim on the bill of exchange, as against one on the underlying contract of sale? Just this happened in Uttam Galva Steels Ltd v Gunvor Singapore Pte Ltd [2018] EWHC 1098 (Comm), where the buyer made a s.67 application challenging an LME arbitration tribunal that had said yes and had then given judgment against it on the bill. In fact the buyer had introduced the point out of time, so the point was a non-starter.  But even without that it would, said Picken J, have failed. On the basis of modern arbitration practice as evidenced in Fiona Trust v Privalov [2007] UKHL 40; [2007] 4 All E.R. 951 parties should not lightly be taken to have agreed to bifurcated dispute resolution according to whether the action was being brought on the bill or on the contract. Dicta in Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 1 WLR 713, 731 and the Singapore decision in Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza SpA [2016] SGCA 53 failed to convince him otherwise.

On balance it is suggested that his Lordship was right. It is true (as he admitted) that the result is that those who sell under bills of exchange may inadvertently give up the right they would otherwise have to summary judgment on the bill with few if any questions asked under the ‘pay now, sue later’ principle. But summary judgment is equally available under the underlying contract, and the fact that this may be precluded by an arbitration clause never seems to have unduly worried anyone.

If the claim is brought on the bill by an indorsee who is a holder in due course, then presumably the result will be different: the holder here can hardly be bound by any arbitration clause — as indeed was held in Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza SpA [2016] SGCA 53, where the claimant was the indorsee of a promissory note. But this need not detain us.

Meanwhile, the sensible reaction for a commercial lawyer is a simple one: say what you want. Where payment is or may be made by a bill of exchange, it is hardly rocket science to draft the arbitration clause to as to embrace “all disputes arising out of or in connection with this Contract, including cases where the claim is brought under a bill of exchange or promissory note”, or (if you prefer) “all disputes arising out of or in connection with this Contract, save for cases where the claim is brought under a bill of exchange, promissory note or similar instrument”. You may do students of commercial law out of a bit of technical learning, but you sure will save your clients a good deal of heartache and very possibly money.

Settlement: not as easily inferred as you might think.

It’s a fact of life that most cases settle. But establishing a settlement isn’t as straightforward as it looks, as Males J’s judgment in Goodwood Investments Holdings Inc v Thyssenkrupp Industrial Solutions AG (The M/Y Palladium) [2018] EWHC 1056 (Comm) shows. Goodwood appeared as purchaser of the Palladium, a futuristic 300-foot superyacht built by ThyssenKrupp for Russian billionaire Mikhail Prokhorov. The paint proved troublesome, and arbitration commenced.

Following settlement attempts, ThyssenKrupp wrote:

Offer in Full and Final Settlement

In view of the foregoing, the Builder’s offer is as follows: 1. The Replacement Works; and 2. Costs – €… Accordingly, the total net payment to be made by the Builder, in addition to performing the Replacement Works at its own cost will be €…

Additional Settlement Terms

The conclusion of a final settlement will remain subject to the following terms: 1. A full release of any existing or future (known or unknown) claims arising out of or in connection with the SBC, whether against the Builder, B+V, or any other sub-contractor ….  3. Return and cancellation of all outstanding guarantees. 4. Conclusion of a formal settlement agreement to include, prior to signature, formal approval of the settlement by the competent corporate body of the Builder.

A couple of days later Goodwood replied:

… the Further Offer is accepted by the Purchaser, subject only to the following points of clarification that are needed for logistical reasons:
1. The Further Offer does not say at which yard the work will be carried out. Can you please state which yard the Builder proposes to use? For the avoidance of doubt, the Purchaser would be prepared for that to be Blohm + Voss, or its new owner, Lurssen, or another European yard of comparable standing and quality.
2. The Further Offer is unclear about a start date for the work. For your information, the Purchaser’s preferred start date is about October 2018, after the next summer cruising season. We suggest, therefore, that the parties liaise about an exact date convenient to both parties.
3. Whilst the Purchaser is content for the work to be overseen by Wrede, the Purchaser must have the right to send its own consultants to assist Wrede, and receive reports and updates from Wrede, as it is in the interests of both the Purchaser and the Builder that any further dispute be avoided.
4. We understand that the settlement requires approval from the Builder’s board. Whilst that is understood by the Purchaser, your and Mr Bracker’s recommendation ought, we assume, [sc. to] ensure it is forthcoming. Regarding the arbitration hearing, our view is that it should be adjourned sine die pending formal board approval.
5. The Further Offer, taking account of the foregoing points, should be set out in a formal short settlement agreement to be executed by both the Purchaser and the Builder (once board consent is obtained) and that settlement agreement must expressly provide it is in full and final settlement of all disputes and differences arising out of or in connection with the subject matter of the Arbitration, and all the further matters that you mention in your Further Offer. It must be common ground that neither party is ‘buying litigation’ in order to end this long running paint dispute.”

ThyssenKrupp sought to continue the arbitration: Goodwood argued that the claim had been compromised. Males J had no doubt that ThyssenKrupp were right. Paragraph 4 of their Additional Settlement Terms put two obstacles in the way of there being an immediately binding offer to settle: a need for a formal agreement, and for the approval of ThyssenKrupp’s management. Furthermore, although expressed to be for ‘clarification’ the extra points in Goodwood’s response prevented this from being an unequivocal acceptance.

One further point. Goodwood argued, one suspects in some desperation, that an offer to settle subject to management approval, once accepted, gave rise to a concluded contract with a duty to use best endeavours to get that approval. Males J without hesitation rejected this argument: such an obligation, even if intended (a point that he did not have to decide), was an unenforceable agreement to agree.

In short, copy and paste the wording from this offer by ThyssenKrupp and you can be fairly safe in suggesting settlement with virtually no danger of inadvertently giving up your client’s case. Useful to know.


Jurisdiction in EU multimodal transport cases

Goods are carried multimodally from Finland to England by an English carrier, and stolen in England. If the owner wants to sue the carrier, where is the contract performed within Art.7(1) of Brussels I Recast: England, Finland or both? The Advocate-General has just given an opinion in Zurich Insurance v ALS Ltd (area of freedom, security and justice) [2018] EUECJ C-88/17: it is the place of loading or discharge, at the claimant’s election. Hence the claimant there had the right, whatever the English defendant said, to sue in Finland.

This must be right. It has always been accepted that the place of discharge is competent. In Rehder v Air Baltic Corp (C‑204/08) [2009] E.C.R. I-6073; [2009] I.L.Pr. 44 and flightright GmbH v Air Nostrum (C-274/16) [2018] EUECJ 274/16 this was held to be the position as regards transport of passengers; and understandably the view was expressed that there was no reason to regard the transport of things any differently.

Good, but not surprising, news for cargo owners and insurers. Still, it’s nice to know.