Category: Contract Law

Electronic trade documents: a bit more detail

At last. A couple of days ago the King signed the Electronic Trade Documents Act 2023, with the result that from 20 September we modernise and join jurisdictions such as Singapore and New York, in giving at least some computerised trade documents equivalent status to paper versions. Yesterday we gave you the heads-up: today we go into some details.

The new Act is in many ways an object lesson in how to legislate for commercial law. It is brief and to the point: aside from incidental powers to pass regulations and other boring stuff, it consists of just four sections. This is good regulation showing (to mix metaphors) both a broad brush and a light touch.

1. The Act and bills of lading

The main import of the new Act concerns bills of lading. The problems of paper bills are well-known. They are increasingly easy to forge. The need to present them in order to get goods, and the carrier’s equal and opposite duty not to release goods to someone who cannot present them, create headaches for carriers, banks and others which in practice cost big money. Also troublesome is the fact that, just as by the laws of physics nothing can move more rapidly than light, by the limitations of business no physical bill of lading can travel faster than DHL. This means that by the time a bill of lading has passed through the hands of a number of cargo owners and banks, it not infrequently arrives at the discharge port considerably after the ship carrying the cargo it relates to.

The statutory solution produced by the Act is neat. Section 2, summarised, provides that a computerised document can stand in for a paper one provided a reliable system is used aimed at ensuring that it can be identified, protected from unauthorised alteration or copying, and is susceptible to control by a single person to the exclusion of others, such that that power of control can be passed to another person who obtains a similar power. (See ss.2(2), 2(3).) The foundations thus laid, s.3 then states baldly (i) that an electronic document satisfying these criteria has the same effect as a written one (s.3(2)); (ii) that such a document can be possessed, endorsed and delivered (s.3(1)); and (iii) that anything done in relation to it has the same effect as the equivalent action as regards a paper document (s.3(3)).

You might say, why is this important? After all, two functions of the bill of lading are that of a contract of carriage and a receipt, and there has never been any difficulty about the enforceability of computerised contracts, or about the efficacy of electronic receipts. The answer is that it does matter, for three reasons.

First, we now know that once the Act is in force ss.2 and 3 of the Carriage of Goods by Sea Act 1992 will be effective to transfer contractual rights and duties under e-bills (which they probably were not before, the power under s.1(5) to extend them to such instruments having languished unexercised by governments with other, doubtless weightier, matters on their plate).

Secondly, there may have been some lingering uncertainty about whether the shipowner’s duty to hand over cargo only to a bill of lading holder, and his protection from liability to a true owner if in good faith he did so, necessarily applied to holders of e-bills. In commerce, such dubiety can be fatal to the adoption of new ways of doing things. The Act now puts this issue beyond doubt. This means that many of the reservations previously entertained by carriers and P&I interests about using e-bills outside closed contractual schemes such as BOLERO and essDocs can now be put aside.

Thirdly, the security provided by e-bills to banks is now greatly strengthened. At common law, it should be remembered, a valid pledge over goods requires a transfer of possession to the pledgee; and while there has never been any doubt that delivery of a paper bill of lading to a financier will suffice for this purpose, it was never very clear whether the same applied to an e-bill. It is now confirmed that it does. As a result, banks can rest assured that as a matter of English law possession of an e-bill gives them a full possessory security, and not some less satisfactory alternative such as a mere equitable charge.

Fourth, there is an intensely practical point. While e-bills will not eliminate the problem of slow transit of bills of lading (bureaucrats working for traders and banks in certain countries can be just as slow handling documents on a screen as they are when shuffling paper), they certainly reduce it. The possibility of transmission over cyberspace rather than by van or cargo plane may greatly reduce the incidence of documents arising after the cargo they represent. (Memo: perhaps this is the time to mull selling your shares in DHL and the banks that currently make large sums issuing bank guarantees allowing delivery to non-bill-of-lading-holders.)

No doubt, as a result of all this, we will see in the near future a flurry of announcements from P&I Clubs – who as the bodies that have to pick up the tab when things go wrong hold the whip hand here, in practice if not in law – that at least in principle they are prepared for their clients to operate with e-bills. We will await these with interest.

2. The Act and other documents relating to good

The Act does not only apply to bills of lading: it alaso applies to ship’s delivery orders, warehouse receipts, mate’s receipts, marine insurance policies, and cargo insurance certificates. Indeed this list is not exhaustive: on principle the statute affects any commercial document used in connection with trade or finance, provided its possession is “required as a matter of law or commercial custom, usage or practice for a person to claim performance of an obligation.”

On first sight, one might wonder why the list of documents was as wide as this. The difficulties with e-bills largely stemmed fromquestions about whether the bill of lading’s function as a document of title extended beyond paper instruments. But none of therse extra documents was ever a document of title anyway: so why bother?

The answer here is varied. With mate’s receipts it is difficult to see that the Act changes anything much. Save very exceptionally these are not only not documents of title, but entirely untransferable instruments relevant largely as evidence of the state and quantity of goods loaded: whether they are embodied on paper or in computer code seems beside the point.

With ship’s delivery orders and warehouse receipts there are two issues of possible significance. First, ship’s delivery orders are covered under the Carriage of Goods by Sea Act 1992, and are often as a matter of practice if not strict law presented to obtain goods: it is thus reassuring to have confirmation that they work as well in electronic form as they do on paper. Secondly, both ship’s delivery orders and warehouse receipts in paper form are regarded as documents of title within ss.24, 25 and 47 of the Sale of Goods Act 1979 such that their delivery can in certain cases of goods in transit or storage defeat the rules of nemo dat and a seller’s lien or right of stoppage. Again, it is reassuring to know that from September on electronic versions will equall;y fir this particular bill.

The extension of the operation of the Act to insurance policies and insurance certificates also looks odd. But it may be worth noting for two purposes. First, s.22 of the Marine Insurance Act 1906 still theoretically requires a contract of marine insurance to be embodied in a “policy;” a term that some, especially international traders not over-familiar with the detailed workings of English law, might think required a paper policy. True, this section is almost entirely a dead letter in practice: but it remains helpful to have an assurance that an e-policy will now indubitably fit the bill. Secondly, documentary sales, especially on a cif basis, very frequently require the provision by the seller of an insurance policy or certificate; althgough this matter can of course in theory be dealt with by specific agreement, there is something to be said for a default rule that a seller under such a contract will satisfy his obligations by providing an e-policy or e-certificate.

3. Other documents

Although the main thrust of the Act concerns carriage and related documents, note that it also applies to bills of exchange and promissory notes. This is a more specialised area, which we do not go into detail about here. Suffice it to say that the burgeoning finance trade, in particular the forfaiting industry, finds it more convenient to deal with electronic than paper negotiable instruments, and that for this reason it very successfully promoted the idea of creating a regime receptive to e-bills of exchange and e-promissory-notes.

4. The future.

Excellent marks to the Law Commission: this is a workmanlike and well-drafted Act, which will solve most of the difficulties over e-documents. Most: but not all. One big shadow hangs over the whole thing, however: conflict of laws, something crucial in transnational trade. Two issues arise in this connection.

First, does the Act apply to claims under bills of lading not governed by English (or Scots or Northern Irish) law? We do not know; but the likely result is that it does not. If parties choose to incorporate a Ruritanian choice-of-law clause, and Ruritanian law does not recognise the validity of bills in other than paper form, it would be to say the least presumptuous for an English court to hold that in English litigation the Act applies willy-nilly, and the betting must be that it would not do so. Similarly if an e-bill is governed by the law of, say, Singapore, which does recognise e-bills, then it would still seem to make sense that claims should be governed not by the 2023 Act, but rather by the Singapore Bills of Lading Act 1992 as amended to incorporate the UNCITRAL Model Law on Electronic Transferable Records in so far as this yields a different result.

Second, while English law will clearly govern contractual claims arising out of e-bills with an English choice-of-law clause (i.e. the majority of claims in practice), what of non-contractual matters such as title conflicts? Imagine an e-bill governed by English law is indorsed to a bank in Utopia which has issued (or confirmed) a letter of credit on behalf of a now-bankrupt buyer B, and the law of Utopia does not recognise that the bank has a valid security. Unless we say that because an e-bill of lading is a disembodied pattern of electrons rather than anything touchable its situs is deemed to be that of the jurisdiction by whose law it is governed, it is hard to avoid the conclusion that the law of Utopia as the lex situs applies to questions of proprietary interests in it. If so, then were litigation to arise in England between the bank and the creditors of B, a court or arbitrator might well be driven to hold that the bank’s security was ineffective despite s.3(3) of the 2023 Act.

On this we will have to wait. But there is at least some relief round the corner: the Law Commission is now hard at work on precisely these questions, and we are promised a consultation paper later this year. Meanwhile, you have two months to bone up on the existing proposals and be ready for at least something of an Big E-bang in September.

Voyage charter. Liability of disponent owner for delays caused by arrests of bunkers on board pursuant to arbitrations unconnected with the vessel.

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).

The ‘Ever Given’ salvage claim. Contract, or Salvage under 1989 Convention and/or common law?

Two years ago the ‘Ever Given’ threatened to become the ‘Ever Stuck’ in the Suez Canal. By the time ‘Ever Given’ refloated, SMIT had a team on board (with onshore support from Holland), and two chartered tugs, ALP Guard and Carlo Magno, contributing to the salvage effort. Whether SMIT concluded a contract with the owners for their services was the preliminary issue that came before Andrew Baker J in Smit Salvage B.V v Luster Maritime S.A.. [2023] EWHC 697 (Admlty). If the answer was ‘yes’, no salvage claim would lie, only a claim under the contract. If the answer was ‘no’ Smit would be able to claim salvage under the terms of the International Convention on Salvage 1989 and/or at common law.

The owners’ case was that the following exchange of emails on 26 March 2021 resulted in the conclusion of a contract in that consensus ad idem as to all essential terms was created, with a mutual intention, notwithstanding a mutual intention to agree (and sign) more detailed terms, by the following exchange of emails that morning (UTC):

Email (i)

At 11:35 UTC, from Captain Saumitr Sen on behalf of WK Webster & Co Ltd (‘WKW’), a claims manager acting as agent appointed by owners, to Mr Richard Janssen (Managing Director of SMIT) and Mr Jody Sheilds (also of SMIT), copied to various others, stating:

“We refer to our telephone conversation subsequent to my previous email and my further conversation with Japan. As agreed over phone, I am please to confirm as below on behalf of Owners of Ever Given.

Owners agree to the following :

The tugs, dredgers, equipment engaged by SCA and their subsequent salvage claim are separate to the Smit’s offer of assistance.

a) SMIT personnel and equipment to be paid on Scopic 2020 rates

b) Any hired personnel and equipment, out of pocket expenses of SMIT to be paid on scopic 2020 rate + 15% uplift

c) Refloatation Bonus of 35% of Gross invoice value irrespective of the type of assistance rendered.

ci) Refloatation bonus not to be calculated on amounts chargeable for quarantine or isolation waiting period.

cii) Refloatation bonus to SMIT will be applicable if refloatation attempt by SCA on 26 March 2021 is unsuccessful.

We look forward to your confirmation. We can then start ironing out the wreck hire draft agreement so that the same can be signed at the earliest.”

Email (ii)

At 11:40 UTC, from Mr Janssen to Capt Sen, cc. Mr Sheilds and the others, in

reply, stating:

“Thank you Captain and confirmed which is very much appreciated. I shall inform our teams accordingly and we shall follow up with the drafting of the contract upon receipt of your/your client’s feedback to our draft as sent last night.”

Andrew Baker J found that there would be a contract between the parties if and only if they so communicated with each other as to make it appear, judged objectively, that they had reached agreement upon terms sufficient in law to constitute a contract and that they intended to be bound by those terms whether or not they agreed any more detailed set of contract terms. So long as the parties have agreed enough to be capable of constituting a contract, there was no rule of law that if terms of economic or other significance have not been finalised, the parties cannot have intended to be bound

The contract formation issue was whether there was an intention to be bound. The parties did not state in terms whether the intention was to be bound there and then, or only upon agreeing (if they did) a detailed set of contract terms, or only upon signing a written contract having first agreed such terms. Therefore, contractual intent fell to be determined by considering what was reasonably conveyed by the parties to each other about that, by the way they expressed themselves and by their conduct visible to the other, considered as a whole, at least up to and including the moment at which it is alleged that a contract was concluded. An intention to be bound cannot be found where it is not the only reasonable connotation of the parties’ exchanges and conduct, taken as a whole. Exchanges and conduct not consistent only with an intention to be bound are ambiguous, and a contract can only be found in and constructed from unambiguous communication

Andrew Baker J rejected the argument put forward by Mr Jacobs KC, based on previous salvage decisions in The Athena [2023] EWHC 697 (Admlty) and The Kurnia Dewi  [2023] EWHC 697 (Admlty) “that it is common practice in the salvage industry for main terms (remuneration/type of contract) to be agreed and then for a broader contract on WRECKHIRE or other terms to be agreed. The latter contract supersedes the previous contract, which is entered into at a time of urgency and when there is no time for a full agreement to be reached.” They were simply decisions on their own facts, applying to those facts the basic principle stated as to whether there had been an intention to be bound.

The email exchange on 26 March 2021 read objectively and in context, showed that Capt Sen and Mr Janssen did not purport to conclude a contract between SMIT, or any of the other claimants, and the defendants or either of them. The exchange showed an agreement reached on the remuneration terms for a contract that was being negotiated. But the parties made it clear to each other that they were still negotiating, indeed the detailed work of negotiating the contract terms by which they would be bound. They did not communicate to each other an intention to be bound in the absence of completing that work of negotiating and agreeing a detailed set of contract terms. That further work was not completed, as a counter-proposal on detailed terms later sent by Capt Sen put the parties some considerable distance apart, and that gap was never closed.

Therefore, no contract was concluded between SMIT and the owners.

Caught up in the sanctions web? Not quite: a lucky escape.

The trouble with sanctions, especially with shipping, is that they can hit innocent third parties almost as hard as sanctionees themselves. Full marks, therefore, to Foxton J in Gravelor Shipping Ltd v GTLK Asia M5 [2023] EWHC 131 (Comm) for finding a way to rescue a shipowner caught in the cross-fire when its Russian financiers were fingered by the UK, the EU and the US.

Cypriot owners Gravelor had financed a couple of their small to medium bulkers by a bareboat arrangement with Russian lenders GTLK. These finance charters required hire payments into a Hong Kong account or any subsequently nominated account; they bound Gravelor to purchase the ships at expiry, but also by Clause 19 gave it an option to buy during the charter on three months’ notice on payment of all sums owing plus a “termination amount”. In the event of default, the lenders themselves had a right under Clause 18 to cancel the charter and insist on a sale to Gravelor against payment of all sums due, with a right to sell elsewhere if Gravelor would or could not come up with the money.

Following the 2022 Ukraine debacle, GTLK was sanctioned by the US, the UK and the EU. (It made a half-hearted and decidedly fishy bid to avoid the sanctions by a supposed sale of the business, but we can ignore this here.) At that point the vessels’ insurers and P&I club backed out, and it became illegal for Gravelor to credit the Hong Kong account stipulated in the charter or in any other way to make cash available to GTLK.

To protect its rights, Gravelor immediately gave notice exercising its option to purchase; it paid no more sums in Hong Kong but offered to pay to a blocked account elsewhere. GTLK declared Gravelor in default, gave notice cancelling the charter and rejected Gravelor’s notice exercising the option. It also put in a formal demand for payment under Clause 18; it did disingenuously offer to transfer the vessels against payment to a Russian Gazprom account nominated by it, no doubt hoping that if Gravelor could not do so, this might enable it to get the vessels into its own hands.

Gravelor now sought specific performance of the purchase agreement, arguing either that GTLK had exercised its option to sell under Clause 18 and thereby given them the right to buy, or (which was more advantageous to them) that they themselves had validly exercised their option under Clause 19. Accepting that the latter claim raised triable issues, in the present proceedings they concentrated on the former and sought an immediate interim order for transfer of the vessel.

Despite what might look like serious obstacles, they were largely successful. Foxton J accepted that there was no objection to such an interim order (rightly so: see The Messiniaki Tolmi (No 2) [1982] Q.B. 1248, esp at 1265-1269), if necessary on the basis of paying the higher of the sums due under Clause 18 or 19. By cancelling the charter under Clause 18 the owners had implicitly given notice to Gravelor requiring it to buy the vessels, thus creating a contractual obligation to transfer them, and their demanding payment of sums due had had the same effect.

GTLK then fell back on payment arguments. First, they said that once they had demanded payment into the Gazprom account, this was what was required under the charter, and if for what ever reason Gravelor could not make it (which they clearly could not), then any right of theirs to a transfer of the ship disappeared. Foxton J neatly disposed of this by pointing to clause 8.10, saying that if the owner was sanctioned and payment as stipulated could not be processed as a result, the parties would negotiate another means of payment. This, he said, applied to (in effect) any impossibility of payment, whether by Gravelor or to GTLK. Furthermore, the fact that payment might have to be in Euros rather than dollars did not affect the matter (a point previously decided in the slightly similar case of MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm).

Secondly, GTLK then argued that if the only payment open to Gravelor was to a blocked account (which in EU law was the case), this could not amount to payment triggering a right to the vessel. Despite cases like The Brimnes [1973] 1 WLR 386 holding that payment was not payment unless immediately cashable by the payee, his Lordship rejected this too: payment meant payment that would be available to a payee in normal circumstances, even if this particular one had been sanctioned.

GTLK’s last line of defence was that specific performance was inappropriate and damages more appropriate, but this too was quickly disposed of. A distinct line of authority held that if damages might be difficult to extract from a defendant, that itself might make them an inadequate remedy: the judge applied that here, pointing out that quite apart from any credit risk encashing a money judgment against a sanctioned entity would be fraught with difficulty under the sanctions legislation.

Subject to a minor matter of no real importance here, he therefore said in effect that the order should go.

The news is therefore good for Gravelor. But there is an element of luck here. Had the provisions as to payment, or possibly the options to sell or purchase, been different, there might not have been the same result in the Commercial Court. There is something to be said for some general rules about the effects of sanctions on contracts, for example dealing with the effect of payment to a blocked account on contractual rights. But that is a medium to long-term idea.

Meanwhile, both vessels, presumably still manned by Gravelor crews, seem at the time of writing to have been on the high seas in the Baltic, a comfortable distance from the nearest Russian territory (at Kaliningrad). So not only does Gravelor now have an English judgment: it might even have its ships back.

Under pressure. Duress and non-contractual waiver.

In London Arbitration 33/22 a shipyard claimed in London arbitration for the balance under a final repair invoice and the shipowners claimed for breach of contract and delay in completion of the repairs.  A principal issue was whether the shipowners were entitled to make such claims due to the fact that their agent had signed a final agreed invoice in the sum of US$1,712,222 which contained the following waiver:

“Owners are accepting this invoice unconditionally and in full and final settlement of the repairs of [the vessel] in [the yard]. It is expressly stated that repairs carried out and completed to fill (sic) satisfaction of Owners/Representatives/Their and no (sic) any claim/losses can be raised. The warranty as per article 12 from the contract remains in full.”

Article 12 of the ship repair agreement provided that the yard “guarantees the quality of the performed repair works and of the materials and equipment used for the repairs, for a period of 3 (three) months counting as from the date of the completion of the repairs and re-delivery of the vessel” and went on to provide “In any event, the SHIPYARD’S liability for all and any guarantee repairs shall not exceed 10 % of the price of the repairs under this Agreement.” Article 13.4 provided “The yard shall in no case be held responsible for any indirect damages, incl. due to loss of charter or loss of earnings of the vessel.”

Owners paid the first instalment of the invoice and the vessel left the yard the following day, but did not pay the second and third instalments which came due one month and two months later.

At the hearing one of owners’ witnesses, one of the owners’ witnesses, the technical manager at the vessel’s managers, gave evidence that in final negotiations the yard had agreed to a 10 per cent discount but he was then presented with a settlement agreement which included the waiver in dispute. He was told that if he did not sign the vessel would not be permitted to sail and could be delayed for months and was given one hour to decided. He concluded that there was no alternative but to sign. The tribunal accepted his evidence. He had been given authority to agree the final invoice without a waiver, but the yard’s insistence on including a non-contractual waiver in the final invoice was unlawful, and therefore amounted to illegitimate pressure, as was the threat to refuse to allow the ship to sail by exercising a non-contractual lien with no common law basis. It was not realistic for the owners to have been expected to make an urgent application to the Commercial Court for an order to release the vessel, or commence arbitration proceeding for an expedited order.

Owners were therefore entitled to bring their counterclaims which mostly succeeded albeit at lower amounts. However, their claim that because of the delay of 62 days in completion of the repair works, they lost the opportunity to trade the vessel in a rising market was rejected. The parties did not intend to include loss of hire or loss of earnings as a consequential loss. The owners had included a penalty of US$12,000 per day in Article 12 which covered their direct losses because of delay. If loss of earnings was covered under clause 13.4, there would be no need to include a penalty for delay.

The yard was awarded the sum of US$852,222.22 (the balance under the final invoice) less US$396,449.21 on account of owners’ counterclaim, giving a sum due of US$455,773.01.

The yard claimed interest under Article 10 of the repair contract which provided for interest at 0.1 per cent per day, effectively 36.5 per cent per annum and owners argued that it should be struck out as penal.

Although the tribunal accepted that the general commercial practice was for interest rates to be at least 10 per cent above the national base rate, the rate of 0.1 per cent per day was excessive and should not be applied to any sum due to the yard.

Exercising its discretion under s.49 of the Arbitration Act 1996, section 49, the tribunal awarded interest at the rate of 4.5 per cent per annum compounded at three-monthly intervals upon the sum of US$455,773.01 due under the final invoice after deduction of owners’ counterclaims, from 30 days after the date of the final invoice until final payment.

Charters, subjects and arbitrators’ jurisdiction

Hopeless appeals sometimes clear the air. One such was today’s appeal by the claimants in the arbitration decision of The Newcastle Express [2022] EWCA Civ 1555.

Owners of a largish bulker fixed her for a voyage carrying coal from Australia to China. The charter was on the terms of an accepted proforma containing a London arbitration clause, and subject to Rightship approval. The recap, however, contained the words SUB SHIPPER/RECEIVERS APPROVAL, and no sub was ever lifted. The charterers declined to accept the vessel, alleging that Rightship approval had not been obtained on time; the owners alleged wrongful repudiation, and claimed arbitration.

The charterers argued that because the necessary approvals had not been forthcoming no agreement of any kind had been concluded, and politely sat out the owners’ proceedings. The arbitration tribunal decided that there had been a concluded contract; that it therefore had jurisdiction; and that the owners were entitled to something over $280,000 in damages. On an appeal under ss.67 and 69 of the Arbitration Act Jacobs J allowed the charterers’ s.67 appeal, holding that there had never been either a contract or an agreement to arbitrate anything; hence neither the charter nor the arbitration bound the charterers. For good measure he also said that he would have allowed a s.69 appeal on the law.

The owners unsuccessfully appealed to the Court of Appeal. They argued first, one suspects without much enthusiasm, that the “sub shipper/receivers approval” term was not a precondition of there being any contract, but instead acknowledged the presence of an agreement and merely qualified the duty to perform it. The Court of Appeal had little difficulty sweeping this point aside. Terms fairly clearly giving a person the right to disapprove a transaction on commercial grounds, as here, were fairly consistently construed in the same way as other “subject to contract” terms: and this one was clearly intended to allow either party to walk away without penalty.

This left the separability point: why not invoke the “one-stop-shop” preference adumbrated in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40, [2007] 4 All ER 951 and engage in a bit of constructive interpretation, so as to treat the parties as having agreed that even if the main agreement hadn’t been concluded they had agreed on any dispute, including whether the agreement was enforceable, being decided by arbitrators? To this, however, there was a simple answer. Harbour Assurance v Kansa Insurance Co [1993] QB 701 before the 1996 Act, and the post-1996 Fiona Trust case itself, showed that this chicken wouldn’t fight. It was all very well to separate out the arbitration agreement in cases where the parties had seemingly agreed but there was some alleged vitiating factor, such as mistake or duress, in their agreement. But here the very point at issue was whether there had been agreement on anything in the first place: if there had not, any arbitration provision fell with the agreement itself. Game set and match, therefore, to the charterers.

This must all be right. Admittedly it does leave claimants in a quandary when faced with defendants who, like the charterers in this case, deny that parties ever reached agreement and refuse to arbitrate. Do they have to go to the expense of an arbitration in the full knowledge that they may then have to traverse the same ground again in a court to prove that the arbitrator had jurisdiction to decide in their favour?

The solution suggested by Males LJ at [86], an agreement ad hoc to arbitrate the jurisdiction point, is certainly useful, though it requires agreement from the other party. A further possibility might be to amend s.32 of the Act. Currently this allows an application to the court to determine jurisdiction, but only with the agreement either of both parties or of the tribunal and the court. There is something to be said for relaxing this requirement where one party refuses to take part in the proceedings at all, and saying that in such a case either party can demand a court determination as of right. Ironically the threat to force on the other party a quick trip to the Commercial Court, with the extra costs that involves, might act as a wholesome encouragement to agree to the one-stop-shop businesspeople are always said to want and which Males LJ advocates.

The Law Commission, as it providentially happens, is currently looking at s.67 and s.32, and has a consultation paper out (in which it tentatively suggests, among other things, that a s.67 appeal should not be a rehearing except where the other party plays no part in the arbitration). This is perhaps another idea that could be discreetly fed to it. You have till 15 December, when the consultation closes, to get any proposals together.

Brexit, the endgame. The Retained EU Law (Revocation and Reform) Bill 2022.

On 22 Sept 2022 the UK Government introduced The Retained EU Law (Revocation and Reform) Bill 2022 which provides for two sunset dates for existing retained EU law. On 31st December 2023, all retained EU law will expire, unless otherwise preserved. Any retained EU law that remains in force after this date will be assimilated in the domestic statute book, by the removal of the special EU law features previously attached to it. The Bill provides a second sunset date by including an extension mechanism for delaying the expiry of specified pieces of retained EU law until 2026. The Bill will also reinstate domestic law as the highest form of law on the UK statute book. In case of conflict with retained EU law domestic law will prevail.

There is very little by way of retained EU law that is relevant to the maritime practitioner. The Brussels Regulation and Lugano Convention both ceased to have effect as at the end of the implementation period. The Port Services Regulation survived but is currently on death row and is the subject of a government consultation as to its repeal.

What does remain, however, are the two conflicts of law regulations, Rome I for contracts and Rome II for tort/delict, both now suitably domesticated as UK law, and also the Rome Convention 1980 which was brought into UK law by the Contracts Applicable Law Act 1990, now amended so that it will continue to apply to existing contracts entered into between 1 April 1991 (the date on which the Rome Convention came into force) and 16 December 2009 (after which Rome 1 replaced the Convention in the relevant EU Member States). 

It is likely that these three pieces of retained law will either be specifically retained, or their expiry delayed until the end of 2026, but who knows? Should they disappear into the sunset, conflicts of law will return to the common law rules for contracts made after the sunset date and the rules in Part III of the Private International Law (Miscellaneous Provisions) Act 1995 for torts committed after the sunset date.

PAPERLESS TRADE: ANOTHER STEP FURTHER

Charles Darwin had a point. It was not, he said, the strongest of the species that survived, nor the most intelligent, but that most adaptable to change.  So too with law and digital transformation. The government recognises this well. As G7 President, the UK has been actively leading the process to achieve the legal environment for the full digitisation of trade documents. It has now put its money where its mouth is, with its swift introduction in the Lords (on 12 October, only five months after it appeared) of the Law Commission’s draft Electronic Trade Documents Bill.  

The Bill is the outcome of consultations and a later report on how to achieve the digitisation of trade documents and thereby enhance paperless commerce. It aims to cement the legal recognition of electronic trade documents, including most importantly bills of lading, mate’s receipts, ship’s delivery orders, warehouse receipts, marine insurance policies and cargo insurance certificates. (It also includes provisions dealing with commercial paper such as bills of exchange and promissory notes, though these today are a good deal less important.)

Quite right too. Digitisation is an inevitable part of today’s global economy, with big data and cloud-based computing the driving force of industry and its supply chains and the smooth running of trade dependent not only on commercial operations but also to a great extent on the instantaneous turnaround and exchange of the relevant documents. Yet a huge number of the underlying processes and operations still rely “on practices developed by merchants hundreds of years ago.” This matters for us: under the latest statistics from the Department of Trade, international trade is worth around £1.266 trillion annually to the UK.

The problem arises in particular with the paper documentation traditionally used for proving shipment of the goods and their quality, and for their handover while in transit. Pre-eminent among these are bills of lading which not only act as receipts and furnish parties with  significant data about the goods, but also serve as documents of title. The problem is a big one: the Digital Container Shipping Association has estimated that ocean carriers issued 16 million original bills of lading in 2020, more than 99% in paper form, quite apart from the myriad other documents that accompany goods in transit. The exercise in paper-shuffling that this involves is mind-blowing; its threat to the smooth operation of commerce was thrown into stark relief by COVID-19 lockdowns that forced the paper-shufflers to be sent home.  No wonder this accelerated digitisation across the world. As the Law Commission observed, it was partly in response to the complexities brought by the pandemic that the International Chamber of Commerce asked governments to take immediate steps remove legal requirements for hard-copy trade documentation, and to consider longer-term plans for establishing legal frameworks applicable to electronic documents.

The Bill is commendably brief, consisting of only seven clauses. It starts (cl.1) with definitions of “paper trade document” and “qualifying electronic document” before presenting a non-exhaustive list of trade documents affected by it (excluding some more exotic instruments subject to the Uncertificated Securities Regulations 2001, and curiosities such as bearer bonds). Further provisions relate to what is to be regarded as possession, transfer and indorsement of electronic documents (cl.3), and deal with the change of a paper form to an electronic one or vice versa (cl.4).

The nub of the problem is, of course, possession: in English law you cannot in any real sense “possess” a mere stream of electrons. Therefore, in order for an electronic trade document to have similar effects and functionality as its paper equivalent, the Bill in cl.2 lays down gateway criteria. These consist of content requirements, and stipulations about the reliability of the underlying digital system, the “integrity” of an electronic trade document as regards originality and authenticity, the possibility of exclusive control, divestibility of that control, and the reliable identification of the persons in control of a document at any time.

The Commission were rightly aware of the possible impact of the latest innovations and emergent technologies brought by the fourth industrial revolution. In Appendix 6 to its report, it assessed the use of distributed ledger technology (“DLT”) to support trade documents in electronic form. Indeed, it points out that DLT, involving distribution of data among nodes accessible only by secured keys in order to render it effectively tamper-proof, offers very significant possibilities for the acceptance, validity, and functionality of electronic documents in international trade equivalent to that accorded to their paper counterparts. 

These reforms can only be welcomed. If passed, the Bill will undoubtedly facilitate cross-border commerce by cutting unnecessary costs and reducing processing times and delays. Digitising documentation also contributes to sustainability, eco-efficiency, and environmental values by mitigating harmful carbon emissions, quite apart from boost the UK’s reputation as a global centre for international commerce and trade.

If there is a criticism of the Bill, it is its lack of detail. It does not contain any provisions on the procedural aspects of digitisation of documents, the use and exploitation of digitised documentation, or the mechanics of changing its form. In addition, the effectiveness of the gateway criteria might be achieved only upon the adoption of the specific protocols regarding the digital systems, their control mechanisms, and accreditation standards. One suspects in practice that if the bill becomes law, a detailed commentary will become essential for its practical application. This matters: unless such matters are satisfactorily sorted out, an electronic trade document that is effective in one jurisdiction might not be treated in the same way in another. 

Moreover, while trade documents are being transferred across borders, cross-border disputes are at least to some extent inevitable. This means that we will need to give attention to the private international law rules specific to such documents: even if they contain an English choice-of-law clause, this will not necessarily ensure the application of English law to all their aspects. The Law Commission, to its credit, has recognised this. It has already launched a follow-up project on the Conflict of laws and emerging technology to ensure the rules of applicable law and jurisdiction in an increasingly digitised world. This issue is still at the pre-consultation stage – this might mean that unless private international law rules applicable to the related matters are achieved, the current Bill might not be operable or practically effective.

Some other tidying up may also be necessary. There may be a need, for example, to clarify matters by a few further amendments to the Carriage of Goods by Sea Act 1992 and the Bills of Exchange Act 1882 over and above those in cl.6 of the Bill. which are not in line with the latest technological and legal developments and in particular, the new Bill. But even if there is some way to go the Bill is a very important development. We, for one, welcome it.

Professor Andrew Tettenborn

Dr Aygun Mammadzada