Performance Warranties in Charterparties- “Good Weather” Qualification Again!  

Eastern Pacific Chartering inc v. Pola Maritime Ltd (The Divinegate) [2022] EWHC 2095 (Comm)

The Divinegate was trip chartered on an amended NYPE 1946 form with additional clauses for a carriage of pig iron from Riga via the Baltic Sea to the Mississippi River in the United States. Following discharge of the cargo, the owners sought unpaid hire, bunkers and expenses totalling US$ 99,982.79 and the charterers sought deductions from hire of US$ 93,074.55 for the failure to proceed with utmost despatch on the voyage and hull fouling. The charterers also made a counterclaim for US$ 72, 629.01 as damages in tort on grounds of the owners’ allegedly wrongful arrest of the vessel, The Polo Devora, of which charterers believed to be the beneficial owner. The wrongful arrest counterclaim failed and will not be discussed here.

The charterparty contained a performance warranty to the effect that “Speed and consumption basis no adverse currents and valid up and including Douglas Sea State 3/ Beaufort Force 4.”

The essence of the litigation was the assessment of the chartered vessel’s performance to determine whether there was, in fact, a failure to proceed with utmost despatch on the voyage. The owners contended that the performance of the vessel should be assessed in a conventional way, i.e. by reference to the vessel’s speed during “good weather”. The charterers, on the other hand, suggested that underperformance could be established by reference to the vessel’s measured RPM (revolution per minute) which reflects the engine speed maintained by the crew.   

The Judgment and Lessons for the Future          

Ms Clare Ambrose, sitting as a High Court Deputy Judge, made significant observations on the state of law in this area and reached interesting conclusions which are likely to inform the judges and arbitrators who are often called in to deal with performance related claims in the context of time (and trip) charters.

  1. It was stressed that traditional way of establishing breach and loss in performance claims is the “good weather” method and in instances where the parties have adopted such a formulation in their contracts (which was the case here) this will be the primary method of assessment used by the court.

2. The judge also appreciated that this is not the only available methodology for making calculations and there is no bar for alternative methods being used to measure vessel’s performance. However, any alternative method must be consistent with the express wording contained in the charterparty and must also be established as “reliable”. On the facts of this case, the RPM method was not found to be reliable in identifying loss of time as it made incorrect assumptions as to the resistance on the hull and made no allowance for weather conditions being a reason for a reduction in engine speed, as well as ignoring the fact that there were periods the vessel could not achieve the warranted speed due to other factors, e.g. currents.

Therefore, the judge left it open to parties to argue that alternative methods (especially in the light of emerging technologies) could be used to assess a chartered vessel’s performance but strongly hinted that so far no satisfactory method has been put forward to sway judges/arbitrators away from the traditional method and legal principles that have been developed for years. Referring to the “good weather” method, Ms Ambrose said (at [90]):

The approach adopted in the authorities reflects commercial practice in assessing performance and the specific wording chosen by the parties, rather than the court imposing legal methodologies.

3. An interesting debate in the case related to the impact of currents in the assessment of performance of the vessel. It was contended by the charterer that allowance should be made for the positive currents and positive currents should be, therefore, a factor in determining whether the vessel’s performance is at the warranted level. This argument found no support from the judge. It was held that in the absence of wording excluding the benefits of positive currents, such benefits should not be deducted in measuring the vessel’s speed for the purposes of the performance warranty. This provides a judicial clarity on the matter and is logical from a commercial perspective. A contrary solution would have meant that the owners would be penalised for its master finding a favourable current and ensuring that the vessel goes faster and burns less fuel (something that is economically beneficiary for both parties).

The judge applying the “good weather” method, reached the conclusion that the chartered vessel failed to meet the warranted speed so there was underperformance giving rise to a loss of time of 16 hours.

4. The judge also rejected the claim for hull fouling indicating that the use of good weather method for calculating loss from slow steaming would otherwise lead to double recovery.

The judgment is a reminder to the market that in the absence of clear and contrary wording it will be rather difficult to shift the traditional method of assessing a chartered vessel’s performance with reference to good weather method. However, especially in trip charters there remains a realistic possibility that it might not be possible to obtain good weather sample so as to be able to assess the performance of the vessel. In those instances, with the advances in technology, the courts and arbitrators might come under pressure to consider alternative assessment methods that could shed light on the performance of the chartered vessel.              

Insurable Interest in Cargo Insurance Context and First Late Payment of Claim Assertion in English Law


Quadra Commodities SA v. XL Insurance and others [2022] EWHC 431 (Comm)

The assured was a commodities trader who entered into various contracts with Agroinvest Group for the purchase of grain. On receipt of warehouse receipts confirming that the relevant quantities of grain were held in common bulk in stipulated warehouses or “Elevators”, the assured paid for the grain. However, it later transpired that Agrionvest Group and the warehouses were involved in a fraudulent scheme whereby the same parcel of grain or seeds may have been pledged and/or sold many times over to different traders. The fraud unravelled when buyers sought to execute physical deliveries against the warehouse receipts and it became clear that there was not enough grain to go around.


The assured sought to recover its losses under a marine cargo policy claiming that the insured goods were lost either because they had been misappropriated or because there was a loss by reason of the assured’s acceptance of fraudulent warehouse receipts. The relevant clauses in the policy stipulated as follows:

Misappropriation
This insurance contract covers all physical damage and/or losses, directly caused to the insured goods by misappropriation.

Fraudulent Documents

This policy covers physical loss of or damage to goods and/or merchandise insured hereunder through the acceptance by the Assured and/or their Agents and/or Shippers of fraudulent shipping documents, including but not limited to Bill(s) of Lading and/or Shipping Receipts and/or Messenger Receipt(s) and/or Warehouse Receipts and/or other shipping document(s).

Insurable Interest Issue

The insurers denied cover on the basis that the assured did not have insurable interest in any of the goods which were lost and/or there was no physical loss of the property, only pure financial loss, which was not insured. The basis of the insurers’ case on insurable interest was that this was not an insurance on property but instead an insurance of an adventure, including the success of storage operations. The judge (Butcher, J) was quick to dismiss this submission by referring to various terms in the contract pointing strongly to the direction that this was indeed an insurance on the property (grain) which the assured was purchasing from the buyers. The alternative argument of the insurers was interesting and raised issues whether the assured had insurable interest in the goods. It was essentially argued that even if the insurance was on the cargo purchased, the assured had no insurable interest in the present case as the cargo in question never existed. With this argument the insurers were primarily encouraging the court to adopt a strict approach to insurable interest following the spirit of the reasoning of Lord Eldon in Lucena v. Craufurd (1806) 2 & P.N.R. 269 which suggested that only those who stand in a “legal and equitable relationship to the property” have insurable interest in the context of property insurance.
The judge was able to dismiss insurers’ argument by holding that the assured was successful, on a balance of probabilities, in showing that goods corresponding in quantity and description to the cargoes were physically present at the time the Warehouse Receipts were issued. This meant that this was not an insurance policy on goods that never existed and accordingly the assured had insurable interest on the grounds that:

• The assured had made payment for goods under purchase contracts, and such payment for unascertained goods of the relevant description was valid ground for establishing an insurable interest irrespective of whether there were competing interests in the grain. The assured, therefore, stood in a “legal or equitable relation” to the property by virtue of the payment.

• The assured was able to show on the balance of probabilities that it had an immediate right to possession of the grain and this coupled with its economic interest in the grain can give rise to an insurable interest.

This outcome in the case is in line with authorities on the subject and is not too controversial. However, the curious point is whether the court would have reached the same conclusion on insurable interest, had it decided that on balance of probability the assured failed to show that goods corresponding in quantity and description to the cargoes were physically present. There is authority to the effect that an assured has no insurable interest in insuring property that it does not own although it might have a factual expectation of loss related to that property (Macaura v. Northern Assurance Co Ltd [1925] AC 619). However, a different stance has taken on the matter in other common law jurisdictions (in particular by the Supreme Court of Canada in Constitution Insurance Company of Canada v Ksmopoulos [1987] 1 SCR 2). Also, there is a marked shift in attitude of English courts towards a more flexible approach to insurable interest (especially in cases like National Oilwell Ltd v Davy Offshore (UI) Ltd [1993] 2 Lloyd’s Rep 582 and The Moonacre [1992] 2 Lloyd’s Rep 501). It should be at least arguable that a person who is led to believe by a fraudster to purchase goods (that never existed) and paid for them under a sale contract, should have an insurable interest if s/he enters into a contract of insurance to protect his/her interest against the risk of not getting what s/he paid for.

Late Payment Issue

The Insurance Act (IA) 2015 implies a term into insurance contracts to the effect that the insurer must pay any sums due in respect of a claim within a “reasonable time” (s. 13A of the IA 2015). However, by virtue of s. 13A(4) the insurer is not in breach of this implied term if it shows that there were reasonable grounds for disputing the claim merely by failing to pay while the dispute is continuing. The assured in the present case contended that the insurers’ conduct of the claim was “wholly unreasonable, and its investigations either unnecessary or unreasonably slow” and resulted the assured suffering losses by reference to the return on shareholders’ equity. Conversely, the insurers argued that a reasonable time was “a considerable time” and extended beyond the time by which proceedings were commenced. In any event, the insurers argued that by virtue of s. 13A(4) there was no breach of this implied term as they had reasonable grounds to dispute the claim.

Given that this was the first case on the matter, in considering whether there was any breach of the implied term, the judge apart from the guidance provided by s. 13A(2) of the Insurance Act, also turned to the Law Commissions’ Report and the Explanatory Notes to the legislation before ultimately deciding that there was no breach of the implied term. In reaching this conclusion, the judge made reference to a number of factors:


i) That although the case was relating to a dispute that arose in relation to a property insurance cover (which according to the Explanatory Notes such claims usually take less time to value than, for example, business interruption claims), the cover in question applied to transport and storage operations of different types and involving or potentially involving many different countries and locations, and claims under such a cover, could involve very various factual patterns and differing difficulties of investigation);
ii) The size of the claim was substantial;
iii) The fraud, uncertainty as to what happened, the destruction of documents, existence of legal proceedings in Ukraine and the fact that the assured elected to swap from French law to English law during the investigation were all significant complicating factors; and
iv) Relevant factors outside insurers’ control, included the destruction and unavailability of evidence and the legal proceedings in Ukraine.

On the point raised by the insurer, s. 13A(4) of the IA 2015, it was held that the insurer bears the burden of proof but here they had reasonable grounds for disputing the claim stressing that although the grounds for rejecting the claim were wrong, this did not mean that they were unreasonable. Although the judge considered elements of the insurers’ investigations were delayed, the investigations occurred in what was considered to be a reasonable time and they were part of the reasonable grounds for disputing the claim that existed throughout.

This is the first judgment on s. 13A of the IA 2015. When first introduced, there was some concern especially among insurers that this section might fuel US type of bad-faith litigation against insures. However, the parameters for such a claim are well-defined in s. 13(A) and guidance is provided to courts as to how they should judge whether a claim is paid/assessed within a reasonable time. The manner in which the trial judge made use of such guidance in this case is a clear indication that late payment claims will not go down the path that has been taken by some US courts and in England & Wales an assertion of late payment of an insurance claim will only be successful in some extreme cases. There is no doubt that insurers will take some comfort from the judgment given that it is clear now that an insurer’s decision to refuse payment for a claim will not automatically amount to breach of this implied term even if it is found that the grounds for disputing the claim are wrong.

COPYRIGHT IN THE POST BREXIT WORLD – WAVING GOODBYE TO THE AQUIS?

The UK exited the EU on 31 January 2020, with the transition period ending on 31 December 2020. Given the teething problems of the early years of Brexit, one can only imagine how troubled the adolescence will prove to be and IP is no exception. Prior to Brexit, the UK adhered to the Civil Enforcement Directive 2004/48/EC which was implemented to address the disparities between EC Member States for the enforcement of IP rights. Subsequent attempts to harmonise criminal sanctions across the Member States by way of the proposed Criminal Enforcement Directive (IPRED2) failed, due in part, to the lack of EU aquis communautaire and the fact that the use of criminal sanctions and remedies for IP infringement remains very controversial. The UK was the only European State to have called the aquis into question and it is now about to embark on a creating a pyre of otiose law. However, the Trade and Cooperation Agreement, which came into effect in 2021 (TCA) appears to transpose at least the spirit of the Civil Enforcement Directive and some of the provisions appear to be more prescriptive. The September 2021 Blog considered the effect of Brexit on civil IP damages. This Blog considers the aquis in that context.

It is worth briefly considering the nature of the EU aquis, described as ‘seeming to live a dull and uninteresting life between periods of EU enlargement and it always seems to be one of those immensely important concepts that always finds its way into the headlines of newspapers, magazines, journals and news bulletins, when enlargement is on the agenda’. Joseph Weiller describes the aquis thus: ‘The holiest cow of all has been the preservation of the aquis communautaire and within the aquis, the Holy of Holiest is the Constitutional Framework of the Community.’ The aquis or Community Patrimony, is the body of common rights and obligations which bind all Member States together within the EU. It is a very concrete social structure which automatically confronts new Members of the EU and is something that they have to accept and adapt to. Brexit was the result of the UK having been confronted with the aquis, but never having accepted, or adapted to it. During David Cameron’s tenure as Prime Minister, he wrote an article for the Daily Telegraph, published on 15 March 2014, in which he postulated that ‘I completely understand and share people’s concern about the EU. Our businesses value the Single Market, but find the degree of European interference in our everyday life, excessive. People are worried that Britain is being sucked into a United States of Europe.’ 

In 2017, the academics Richard Arnold and Lionel Bentley et al considered the legal consequences of Brexit for IP law before the TCA was finalised. They rightly identified that the UK would have to comply with some of the EU aquis since every EU FTA with the rest of the world, comes with a detailed IP chapter, which obliges the other party to comply with some features of EU law even if it secures trade agreements only with third parties, such as Australia or New Zealand, beyond Europe, as third countries are often themselves, bound by bilateral agreements with the EU. Copyright law is harmonised in the EU by nine Directives, which were of direct effect in the UK, prior to Brexit and therefore implemented in the Copyright, Designs and Patents Act 1988 (CDPA 1988). These remained in force until modification, the most urgent, being the references to Member States and another EEA State. The Intellectual Property (Copyright and Related Rights) (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/605), passed under the powers of the European Union (Withdrawal) Act 2018, coming into force on 1 January 2021, removed all references to the EU, EEA or Member States in UK copyright legislation and preserved the effect of UK law where possible. Arnold and Bently were right to recommend that if the UK starts to unravel the copyright EU aquis, it would in any case, be wise to revamp the CDPA 1988, now a long and over complicated instrument, a fact noted in my previous September Blog.

The TCA has set out the general principles governing copyright, such as agreement by the parties to affirm their commitment to comply with international treaties such as the TRIPS Agreement, National Treatment, the rights of authors and performers and terms of protection, but given the emergency amendments set out in the 2018 Regulations and the incorporation into the TCA of the provisions of the Enforcement Directive 2004/48/EC, there is scope for confusion relating to the applicable principles of IP protection. 

In relation to the enforcement of IP rights, little will change in practice, as the UK and the EU are parties to international IP treaties, such as the TRIPS Agreement. The value and legacy of the case law of the CJEU, which has a defining role in shaping the EU copyright framework, will need to be considered. The legal value of the CJEU case law issued before and after Brexit, will have to be addressed, as it likely that the court will refer to decisions as a  guiding principle at least, even if they are not directly applicable to future legal decisions. The case law decided pre-Brexit, may carry greater weight than post Brexit case law, given that it was applicable in the UK, prior to 31 December 2020. Further, as EU Directives have been implemented in the UK via national legislation, the content of those Directives have been analysed through UK case law, embedding it within the common law system.

Whilst he was the Brexit Minister, Lord David Frost delivered a statement to the House of Lords on 16 September 2021, on the future of retained law. He stated that he was going to conduct a review of so called ‘Retained EU Law’, legislation that remained on the UK statute books through the 2018 Withdrawal Act. This was intended to remove the special status of retained EU law, so that it was not a distinct category domestic law, but normalised within the national law, with clear legislative status, so that EU law does not attract undue precedence and the UK courts will be able to fully depart from it. A new, Standing Commission is to be set up, in order to receive ideas from any British citizen on how to repeal or improve regulation. The challenge here, is to redraft the CDPA 1988, so that European IP law is replaced with legislation that remains compatible with the TCA. However, the very fact that such legislation has to demonstrate such compatibility, shows that the UK is yet again confronted by the aquis, must adapt to it and continue to accept it. We will not be waving it goodbye anytime soon.

PROTECTING YOUR MARITIME TRADE SECRETS & COMMERCIAL REPUTATION (PART TWO)

In October of last year I wrote a blog about the case of Salt Ship Design AS v Prysmian Powerlink SRL [2021] EWHC 2633 and the insight it offered into the operation of the Trade Secrets (Enforcement etc.) Regulations 2018 [TSR].

Mr Justice Jacobs notes that, “[F]ollowing judgment on the liability issues in this case a large number of issues arose for determination at a hearing of “consequential” matters arising from the judgment…[T]his (latest) judgment concerns an application by the Claimant (“Salt”) for a publicity order pursuant to the Trade Secrets (Enforcement, etc) Regulations 2018, SI 2018/597.”

Jacobs was of the view that paragraph (3) (a) – (c) of Regulation 18 should be at the forefront of the court’s analysis, which provides:

(3) In deciding whether to order a measure under paragraph (1) and when assessing whether such measure is proportionate, the court must take into account where appropriate—
(a)the value of the trade secret,
(b)the conduct of the infringer in acquiring, using or disclosing the trade secret,
(c)the impact of the unlawful use or disclosure of the trade secret,

Rejecting the need for a more stringent test of “necessity” before the court exercised its discretion [18], Jacobs considered it “appropriate” that the court should grant the publicity order sought by Salt. However, he found it would not be appropriate to require Prysmian to put a Notice on the home page of their website, rather the principal web page publicising the Leonardo da Vinci. Accepting case-law makes clear that a publicity order is not intended to be punitive Jacobs recognised that to ensure such a measure remained proportionate required wording advising web users that the court has not granted any relief which prevents Prysmian from trading the Leonardo da Vinci. Jacobs therefore determined:

“The Defendant shall display the following notice to all persons accessing the following Leonardo da Vinci page on the Prysmian Group website (https://www.prysmiangroup.com/en/new-vessel-leonardo-da-vinci) from an internet protocol (IP) address identifying the United Kingdom, until 30 June 2022, such notice to be in no smaller than 12-point type:

“On 30 September 2021 the High Court of Justice of England and Wales ruled that Prysmian Powerlink SRL had misused Salt Ship Design AS’s confidential information in relation to the design of Prysmian Powerlink SRL’s Leonardo da Vinci cable laying vessel. A copy of the full judgment of the High Court is available on the following link [link given]. On * December 2021, the High Court of Justice of England and Wales made further rulings in the case. A copy of the further judgment is available on the following link [link given]. The court has not granted any order which prevents Prysmian from trading the Leonardo da Vinci.”

This six month notice period being “appropriate” to the anticipated date of the official launching ceremony for the Leonardo da Vinci, although at the time of writing the Notice stills remains to be inserted into the web page.

Keeping Confidential Information confidential during IP litigation

In a second instalment to Anan Kasei Co Ltd and another v Neo Chemicals & Oxides (Europe) Ltd and others [2021] EWHC 3295 (Pat) Mr Justice Mellor addressed the list of ‘important points’ identified by Lord Justice Floyd when looking to the protection of confidential information during IP litigation:-

i)   In managing the disclosure of highly confidential information in intellectual property litigation, the court must balance the interests of the receiving party in having the fullest possible access to relevant documents against the interests of the disclosing party, or third parties, in the preservation of their confidential commercial and technical information. 

ii)   An arrangement under which an officer or employee of the receiving party gains no access at all to documents of importance at trial will be exceptionally rare, if indeed it can happen at all.

iii)   There is no universal form of order suitable for use in every case, or even at every stage of the same case.

iv)   The court must be alert to the fact that restricting disclosure to external eyes only [EEO club] at any stage is exceptional.

v)   If an external eyes only tier is created for initial disclosure, the court should remember that the onus remains on the disclosing party throughout to justify that designation for the documents so designated.

vi)   Different types of information may require different degrees of protection, according to their value and potential for misuse. The protection to be afforded to a secret process may be greater than the protection to be afforded to commercial licences where the potential for misuse is less obvious.

vii)   Difficulties of policing misuse are also relevant.

viii)   The extent to which a party may be expected to contribute to the case based on a document is relevant.

ix)   The role which the documents will play in the action is also a material consideration.

x)   The structure and organisation of the receiving party is a factor which feeds into the way the confidential information has to be handled. [Oneplus v Mitsubishi [2020] EWCA Civ 1562 at 39-40]

In so doing Mr Justice Mellor reached the conclusion that this summary primarily, “points to the need for the Court to strike an appropriate balance” [at 25]. In his judgement of 6th December 2021 Mr Justice Mellor also addressed Regulation 10 of The Trade Secrets (Enforcement, etc.) Regulations 2018, in particular subsections 4, 5, 6 and 7, concluding “[I]n my view, these regulations reflect the existing position on the authorities and do not support a hardline view” [at 29]. Given the particulars of the present case Mr Justice Mellor nevertheless reached the decision that the, “EEO materials required more protection than Mr Morris (Neo) was prepared to offer… [and] that the circumstances in this case require an exceptional solution” [at 76] be reached.

One obligation, one remedy. Now it’s Eternal Bliss for charterers.


In K Line PTE Ltd v Priminds Shipping (HK) Co, Ltd (The Eternal Bliss) [2020] EWHC 2373 (Comm) the vessel was kept at the anchorage at Longkou in China for some 31 days due to port congestion and lack of storage space ashore for the cargo. In consequence when the cargo of soyabeans was discharged it exhibited substantial mould and caking. This led the receivers bringing a cargo claim against owners which they then, reasonably, settled and then sought to recover from voyage charterers by way of damages for breach of their obligation to discharge within the laydays. Charterers responded by saying that demurrage was the exclusive remedy for this breach.

At first instance, [2020] EWHC 2373 (Comm), Andrew Baker J heard a preliminary point of law on assumed facts as to whether demurrage was the sole remedy for this breach of the obligation to discharge within the laydays. He found that it was not. It was the remedy only where what owners were claiming was detention loss. Other consequences of the breach, in this case the sum owners paid to settle the receivers’ claim, were recoverable as unliquidated damages. In doing so he declined to follow the only clear decision on this issue, that of Potter J in The Bonde [1991] 1 Lloyd’s Rep 136 who had held that demurrage is liquidated damages for all the consequences of the charterer’s failure to load or unload within the laytime. Andrew Baker J also found that if demurrage was liquidated damages for all the consequences of the charterer’s delay at the discharge port, an indemnity would not be implied rendering the charterer liable for one of those consequences. Charterers appealed the finding on the extent of the demurrage remedy. Owners did not challenge the indemnity finding on appeal.

The Court of Appeal, EWCA/Civ/2021/1712, for whom Males LJ delivered the judgment of the Court, has today reversed that decision and concluded that in the absence of any contrary indication in a particular charterparty, demurrage liquidates the whole of the damages arising from a charterer’s breach of charter in failing to complete cargo operations within the laytime and not merely some of them. Accordingly, if a shipowner seeks to recover damages in addition to demurrage arising from delay, it must prove a breach of a separate obligation. The Court noted that The Bonde was the only clear decision on this point and that both the academic texts and judicial dicta were divided.

The Court of Appeal gave the following six reasons for its decision.

 “First, while it is possible for contracting parties to agree that a liquidated damages clause should liquidate only some of the damages arising from a particular breach, that strikes us as an unusual and surprising agreement for commercial people to make which, if intended, ought to be clearly stated. Such an agreement forfeits many of the benefits of a liquidated damages clause which, in general, provides valuable certainty and avoids dispute.” [53]

”Secondly, we accept that statements can be found in the case law to the effect that demurrage is intended to compensate a shipowner for the loss of prospective freight earnings suffered as a result of the charterer’s delay in completing cargo operations… No doubt this is the loss which is primarily contemplated and, in most cases, will be the only loss occurring. But that does not mean that this is all that demurrage is intended to do. The statements cited were made in cases where the present issue was not being considered.” [54]

Thirdly, if demurrage quantifies “the owner’s loss of use of the ship to earn freight by further employment in respect of delay to the ship after the expiry of laytime, nothing more”, as the judge held at [61] and again at [88], and does not apply to a different “type of loss” (as he put it at [45]), there will inevitably be disputes as to whether particular losses are of the “type” or “kind” covered by the demurrage clause.”[55]

“Fourthly, as Lord Justice Newey pointed out in argument, the cost of insurance is one of the normal running expenses which the shipowner has to bear. A standard expense for a shipowner is the cost of P&I cover which is intended to protect it against precisely the loss suffered in this case, that is to say liability to cargo claims, whether justified or not. Thus a shipowner will typically have insurance against cargo claims, while a charterer will not typically have insurance against liability for unliquidated damages resulting solely from a failure to complete cargo operations within the laytime. Rather, the charterer has protected itself from liability for failing to complete cargo operations within the laytime by stipulating for liquidated damages in the form of demurrage. Accordingly the consequence of the shipowner’s construction is to transfer the risk of unliquidated liability for cargo claims from the shipowner who has insured against it to the charterer who has not. That seems to us to disturb the balance of risk inherent in the parties’ contract.”[56]

“Fifthly, The Bonde has now stood for some 30 years, apparently without causing any dissatisfaction in the market.” [57]

“Sixthly, that reason would have less force if we agreed with the judge (at [127]) that the reasoning in The Bonde “is clearly faulty” or that the judgment “is explicable only if a non sequitur lies at its heart”. With respect, however, we do not accept the judge’s criticisms of The Bonde.” [58]

The Court of Appeal then noted that allowing the appeal would produce clarity and certainty, while leaving it open to individual parties or to industry bodies to stipulate for a different result if they wished to do so.

It will be interesting to see if owners now try to draft clauses stating expressly that demurrage only covers certain stated categories of loss – and whether charterers accept that.

It will also be interesting to see whether the case eventually ends up before the Supreme Court.

It is now a question of when not whether the case ends up in the Supreme Court, as leave to appeal was granted on 5 September 2022.

Confidential information v trade secrets

Image by Aymanejed from Pixabay

Richard Baker Harrison Ltd v Brooks and others – [2021] All ER (D) 94 (Oct) offered the opportunity for a further exploration of the new legal relationship between trade secrets and confidential information, yet ultimately the case demonstrates how the legal community remains comfortable addressing trade secrets through the prism of confidentiality.

Richard Baker Harrison Limited (“RBH”) is a leading distributor of minerals and chemical raw materials which it supplies to manufacturers worldwide. Whilst not in itself a manufacturer it occupies a key position within the plastic, rubber, coating, adhesive and sealant, composite, ceramic and polishing sectors. In this case RBH sought to enforce obligations of non-competition, confidentiality, and post-termination restrictions against two former employees – Mr Brooks and Mr Sambrook – who had left RHB to establish SBS Sourcing Limited (a mineral sourcing and supply services business).

It was not in dispute that Brooks and Sambrook owed express obligations to protect RBH’s confidential information under their contract of employment but both defendants accepted that their contracts of employment also included the implied term of good faith and fidelity. Deputy High Court Judge Margaret Obi noted, “[T]his abstract concept includes an obligation to refrain from conduct which would be regarded as unacceptable by reasonable and honest people. In essence, it is no more than an obligation to loyally carry out the role of an employee. However, unlike a fiduciary duty, it does not require the employee to act solely in the interests of the employer … and mere preparations to set up a competing business after the termination of the employment are not necessarily a breach of contract.”

Mr Brooks admitted that he was under a duty, whilst employed, to maintain the confidentiality of RBH’s trade secrets and/or confidential information, and not to use any information obtained in confidence as a consequence of his employment to the detriment of RBH. However, he denied that there were any equitable duties in relation to trade secrets and/or confidential information that were not covered by the express terms or applicable implied terms of the contract. Accepting this submission Judge Obi denied the existence of any equitable duty relating to misuse of trade secrets.

Finding it to be “trite law that during the currency of the employment relationship the employer is entitled to protect confidential information whether it amounts to a trade secret or not”, Judge Obi was satisfied that RBH’s “customer/supplier connections, the stability of its workforce and the protection of its confidential information are all legitimate business interests requiring protection”.

PROTECTING YOUR MARITIME TRADE SECRETS & COMMERCIAL REPUTATION

Image by Erich Westendarp from Pixabay

Salt Ship Design AS v Prysmian Powerlink SRL [2021] EWHC 2633 is the latest case to offer us a valuable insight into the operation of the Trade Secrets (Enforcement etc.) Regulations 2018 [TSR]. Heard before Justice Jacobs in the Queen’s Bench Division (Commercial Court) the case concerns the design of a Cable Laying Vessel to become named The Leonardo Da Vinci – a specialist vessel used to lay undersea cable for power transmission, telecommunications etc. – owned by the Prysmian Group.

In 2017 Prysmian held a competitive tender process to appoint a designer for the new vessel, which was won by Salt (an independent Norwegian ship design company), who were appointed as the “exclusive designer” for the Project under a Short Form Agreement (SFA) dated 13th July 2017.

In due course it was the Vard Group AS (part of the Fincantieri Group) which entered into a ship building contract for the vessel with Prysmian in April 2018, from which point Salt played no effective further part in the design of the vessel, as Vard Group AS used a wholly owned subsidiary, Vard Design AS, for future design work (despite Vard Design AS having been an unsuccessful competitor to Salt in the 2017 tender process).

Salt brought legal proceedings against Prysmian on two grounds, breach of contract and misuse of confidential information and it is the latter which is now our focus.

Jacob J notes Salt’s case is Prysmian (together with the Vard group of companies) wrongly used Salt’s confidential information to develop an alternative design for the vessel. Salt relies upon the speed at which Vard purported to develop an alternative design for the vessel between 21st December 2017 and 3rd January 2018, and described this at trial as “the Christmas miracle”. Salt also relies upon what it alleges to be striking similarities between aspects of this alternative design and Salt’s. It is therefore alleged that Salt’s design work was wrongly used as a springboard, with Vard piggy-backing on it, and being encouraged to do so by Prysmian, so as to win the design work and cut out Salt. [8]

Salt sought a determination of the applicability of TSR, relying upon these Regulations for remedial purposes, specifically the appropriate dissemination and publication of the judgement at Prysmian’s expense, given the “allegedly damaging effects of Prysmian’s conduct on Salt’s reputation in the market.” [448]

Referring to relevant case law Jacob J concluded that Prysmian had acted in breach of both clause 6.4 of the SFA and its equitable obligations of confidence. In so doing he felt entirely satisfied that the requirements of Regulations 2 & 3 of TSR had been fully satisfied. [474-475]

Whereas Regulation 14 of TSR provided for injunctive or similar relief for Salt, Regulation 16 provides for compensation instead of an order under Regulation 14, as follows:

“(1) A person liable to the imposition of an order under regulation 14 may apply for, and a court may make, an order for compensation to be paid to the injured party instead of an order under regulation 14 – a) if at the time of use or disclosure the person neither knew nor ought, under the circumstances, to have known that the trade secret was obtained from another person who was using or disclosing the trade secret unlawfully,

b) if the execution of the measures in question would cause disproportionate harm to the person liable to the measures, and

c) if it appears reasonably satisfactory to pay compensation to the injured party.”

Prysmian submitted that compensation should not be available under Regulation 16, because any infringement was not made with the knowledge that unlawful acquisition, use or disclosure of a trade secret was being engaged in. Nor ought it to have known that it was, given the assurances it had received from Vard, a well-respected and reputable shipbuilder. This argument was, however, rejected on the facts by Jacob J. who regarded this, “as a bad case of breach of confidence…Prysmian did engage in blatant misuse of confidential information to facilitate an outcome where it could obtain a ship built by Vard with the benefit of the Salt design, but at a significantly lower cost.” [470]

Prysmian went on to advance two further arguments to Jacob J in relation to TSR:-

“First, it contended that they do not apply outside the UK, [because] all the alleged infringements took place in Norway, Italy and/or Singapore. Salt submitted, and I agree, that that the Regulations apply in the present case because Prysmian is subject to the in personam jurisdiction of this court and English law is the applicable law for the claims made.

Secondly, Prysmian contended that the regulations only came into force on 9th June 2019, after Vard’s design work … and… the conclusion of the shipbuilding contract. I agree with Salt that this is irrelevant. Regulation 19 provides that they apply to proceedings brought before a court after the coming into force of the Regulations, in respect of a claim for unlawful acquisition use or disclosure of a trade secret. In the present case, the claim form was issued on 12th July 2018 and the relevant temporal requirement is met.” [480 & 481]

DAMAGE LIMITATION: TAKING BACK CONTROL OF IP DAMAGES POST BREXIT

By Jane Foulser McFarlane

The civil enforcement of intellectual property (IP) rights, was altered fundamentally when the Civil Enforcement Directive 2004/48/EC or IPRED, came into force. It was implemented to address the disparities between EU Member States for the enforcement of IP rights. The objective was to approximate legislative systems, so as to ensure a high equivalent and homogenous level of protection in the internal market. The Directive contains detailed obligations concerning final sanctions, preliminary measures and the disclosure and preservation of evidence, but the greatest effect upon UK IP law has been in relation to awards of damages and injunctive relief. However, since the UK exited the EU, with Brexit finally taking effect on 31 December 2020, it is wrong to assume that the remedies of the Enforcement Directive may no longer apply, as the civil enforcement regime for IP is now contained within the Post Brexit Trade and Co-operation Agreement (TCA), a 1246 page document, with the IP provisions set out at Title V and which came into effect on 1 January 2021, although the general principles of EU law now no longer apply to the UK, with EU regulations only continuing to apply in domestic law by virtue of the European Union (Withdrawal) Act 2018, which repealed the European Communities Act 1972, to the extent that they are not modified or revoked by regulations under that Act.

The object of Brexit was to ‘Take Back Control’, but the UK will still have to comply with some aspects of the EU aquis communautaire, since every EU Free Trade Agreement with other non EU countries, such as Australia or New Zealand, has a detailed IP Chapter and these countries are bound by bi-lateral agreements with the EU.If the UK wants to take back control of its IP laws it should redraft the Copyright, Designs and Patents Act 1988 (CDPA 1988). Brexit has made the need for a new Act more pressing, not less so.

Under the CDPA 1988, damages are awarded for infringement under section 97(2). There is no provision for an award of damages under section 97(1) where the infringer did not know and had no reason to believe, that copyright subsisted in the work to which the infringement action relates. However, without prejudice to any other remedy, section 97(2) allows the court to make an award of additional damages, after having regard to all the circumstances and in particular, to the flagrancy of the infringement and any benefit accruing to the defendant by reason of the infringement, thereby creating an implied punitive, or at least deterrent basis for a further award. Section 97 was not the most lucid legislative provision prior to 2004 and it was further complicated by the application of Article 13(1) of the Enforcement Directive. Under Article 13(1), the IP right holder can apply to the court for damages against an infringer who has the requisite knowledge that they were engaging in an infringing activity. The basis for such awards are compensatory, in that the damages must be appropriate to the actual prejudice suffered as a result of the infringing activity.

Under Article 13(1), the court has two alternative options for assessing the level of damages where the requisite knowledge is present. The first alternative under Article 13(1)(a), directs the court to take into account, all appropriate aspects, which include the negative economic consequences, including lost profits, which the right holder has suffered, unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as moral prejudice. The second alternative under Article 13(1)(b), allows the court, in appropriate cases, to set the damages as a lump sum on the basis of elements such as, at least the amount of royalties or fees which would have been due if the infringer had requested authorisation to use the IP right in question. Where the infringer did not have the requisite knowledge, Article 13(2) gives the court the discretion to order the recovery of profits or the payment of damages which may be pre-established. Recital 26 of the Directive expands on Article 13, by stating that the aim is not to introduce an obligation to provide for punitive damages, but to allow compensation based upon an objective criterion, while taking account of the expenses incurred by the right holder, such as the cost of identification and research. 

Section 97(1) of the CDPA 1988 does not explicitly refer to the compensatory principle where damages can be awarded for infringement with knowledge, although like Article 13, the court may order damages which are arguably implicitly punitive in nature, even though there is an absence of requisite knowledge. The courts are now grappling with the contrasting provisions of section 97 and Article 13, when there is a recognised need to compensate the right holder based upon the infringer’s lack of respect for the law and also as a dissuasion to the infringer in question, as well as to other potential infringers, to prevent them from committing such acts of infringement in the future.

Several cases have illustrated the interpretation and interplay between section 97 and Article 13. The first case is Absolute Lofts South West London Limited v Artisan Home Improvements Limited, [2015] EWHC 2608 (IPEC), a case in which the dispute was about the quantum of damages for the defendant’s infringement of the Claimant’s copyright in 21 photographs of loft conversions undertaken by Absolute in the course of their business as providers of home improvements. There was no dispute that Artisan had used the photographs on their website, infringing the copyright held by Absolute. The issue for the court was the level of compensatory damages due to Absolute and whether they were also entitled to additional damages in accordance with section 97(2) of the CDPA 1988, the level of those damages, or whether the Absolute was entitled to a claim under Article 13 of the Enforcement Directive.

The parties had agreed the ‘user principle’ for the basis of calculating the compensatory damages, being the licence fee of £300.00 that Artisan subsequently paid for the use of the photographs. The court, with Hacon J sitting, went on to determine the issue of additional damages, which creates difficulties, as both regimes, under section 97(2) and Article 13 fall to be considered. Section 97(2) requires the court to assess whether the infringement is flagrant and the Article 13 criteria for assessment is the right holders lost profits, the infringer’s unfair profits and any moral prejudice caused to the right holder. The court accepted that the Director of Artisan had the requisite knowledge for the infringement and found that his ‘couldn’t care less’ attitude was sufficient to merit an award under section 97(2). However, the court’s conundrum did not end there, as Hacon J had to assess whether in fact, section 97(2) still applied, or whether Article 13 took precedence. In doing so, he referred back to his own decision in the case of Jodie Aysha Henderson v All Around the World Recordings Limited [2014] EWHC 3087 (IPEC), a case involving performers rights and liability for additional damages under section 191J(2) of the CDPA 1988 which is equivalent in all material respects to section 97(2). In that case, Hacon J had questioned whether the CDPA 1988 provisions continued to apply, but he had not been required to decide the point, whereas in Absolute v Artisan, the continuing applicability of section 97(2) was unambiguously in issue and had to be determined.

The complexity required in the court’s assessment of this issue cannot be understated and can only be briefly summarised here. Regulation 3(3) of the UK Intellectual Property (Enforcement etc) Regulations 2006, provide that this Regulation does not affect the operation of any enactment or rule of law relating to remedies for the infringement of intellectual property rights except to the extent that it is inconsistent with its provisions. The court found that this suggested that existing national law with regard to knowing infringement is preserved unless it is inconsistent with Regulation 3. Hacon J dismissed the proposition that either national law is consistent with Regulation 3 of the 2006 Regulations and therefore must be taken to have the same effect as Article 13(1) of the Directive and so to apply it in parallel is pointless, or it is contrary to the Regulations and should not be applied, with the implication that any national provision that falls short or goes beyond the relief contained within the Directive, is contrary to EU law. The court found that Article 2(1) of the Enforcement Directive preserves national legislation that provides for more favourable remedies than the Directive, which went no further than setting out a minimum level of EU wide remedies, it remained the position that a successful right holder can rely on either section 97(2) or Article 13(1), whichever provides the higher level of damages.

The court considered the distinction between punitive and compensatory damages, as English law is compensatory in nature, putting the Claimant back into the position they would have been in, but for the wrongful act. However, it was held that it would be wrong to limit the award of damages to a purely compensatory level under Article 13(1), as that provision allows the concept of unfair profits to be awarded. These can be indirect, as well as direct. In the case of Absolute and Artisan, Artisan suffered reduced profits leading to liquidation after it was forced to remove the infringing photographs from its website. The court implied that the company may have been liquidated sooner had it not relied upon the photographs and to that extent they had profited from the infringement on the back of Absolute’s intellectual creativity, whilst Absolute had not lost profits in the true sense. The strictly compensatory award of £300.00 would therefore lack the dissuasive element required by Article 3(2) of the Enforcement Directive and an award of £6,000 was made. A second assessment based on flagrancy was then made under section 97(2) and the same figure of £6,000 was awarded, but not on a cumulative basis, the total award being £6,300.

Hacon J revisited the the relationship between section 97(2) and Article 13 again, in the case of Phonographic Performance Limited v Raymond Hagan [2016] EWHC 3076 (IPEC) (PPL v Hagan). PPL brought a claim against Hagan for additional damages under section 97(2) to include a claim for unfair profits under Article 13(1), the issue of compensation having been dealt with at an earlier hearing. Both provisions require requisite knowledge, but whilst this is explicit under Article 13(1), it is not under section 97(2), where the court has to take flagrancy into account, which implied knowledge. Hacon J considered that it would be difficult to imagine circumstances in which additional damages would be appropriate without that knowledge. This case made the important point, in that it identified as an important factor, the extent to which an award of damages is likely to be dissuasive, the dissuasive element being to deter the infringer from infringing again and that other, potential infringers should be dissuaded from engaging in infringing activities.

It would have been reasonable to assume, having considered the inherent complexities involved when the courts award damages for IP infringement and the stated need to dissuade infringement, that greater consideration would have been given to the IP provisions of the TCA. IP Article 47 of that Agreement is materially the same as Article 13 and the UK has failed to take back control of its ability to determine how damages for IP infringement shall be awarded, with both regimes still  requiring consideration and assessment.

The time has now come, when the CDPA 1988 is torn up and placed in the legislative shredder and the remedies for IP infringement are clarified and simplified. For example, there should be two elements to an award of damages, with compensation determined first and a dissuasive element second. The requisite knowledge and issues such as flagrancy and unfair profits should go to the assessment of the level of the award and any new legislation should reflect the basis of Article 13 or Article IP 47 of the TCA in the new Act, thereby negating the need to balance one provision against the other, as the courts are currently having to do. Only then, will we go some way to taking back control of our IP and exercise some damage limitation.

Jane Foulser McFarlane ©
September 2021

Breach of the new Trade Secret law strengthens a claim to the application of the Rome II Convention

In his latest judgement in Fetch.ai v Persons Unknown & Others [2021] EWHC 2254 (Comm) His Honour Judge Pelling QC makes clear that not all claims in equity under Breach of Confidence will fall within the scope of the Rome II Convention, “[S]ome will where they involve unfair competition and acts restricting free competition, but many others will not.”[para.12]

Image by VIN JD from Pixabay

The case relates to confidential information in the form of an access key code, allowing an operator to trade in assets nominally credited to a cryptocurrencies Exchange Account. This confidential information had been acquired by persons unknown and used to perpetrate alleged fraud against the account holder, generating losses in excess of $2.6m.

It was contended that the decision of the Court of Appeal in Shenzhen Senior Technology Material Company Limited v Celgard, LLC [2020] EWCA (Civ) 1293; [2021] FSR 1 would lead one to the conclusion that all breach of confidence actions come within the scope of Rome II, Chapter II, Article 4.1., because the principles in Article 6 apply. Judge Pelling noted, however, what Article 6 is concerned with is anti-competitive practices and anti-competitive conduct, “Celgard had sought to restrain the defendant from placing its rival lithium-ion battery separators on the market in the UK or importing them into the UK on the basis that the defendant had obtained access to the claimant’s intellectual property in relation to its product; and, thus, what the defendant in that case was seeking to do was not merely a breach of confidence in equity, but was also contrary to reg.3.1 of The Trade Secrets (Enforcement, etc) Regulations 2018.” [para.11]

Applying the Rome II Convention in this instance allowed Judge Pelling to provide injunctive relief and various orders for disclosure in favour of the account holder.