Maintaining class under a bareboat charter. Condition or innominate term?

 

This was the question before the Court of Appeal in Ark Shipping Company LLC v Silverburn Shipping (IOM) Ltd (The Arctic) [2019] EWCA Civ 1161. In October 2012 a tug was bareboat chartered for 15 years on Barecon 89 form. Clause 9(a) require the demise charterers to “….keep the Vessel with unexpired classification of the class indicated in Box 10 and with other required certificates in force at all times….”. The tug arrived at Astrakhan for repairs and maintenance on 31 October 2017, and the class certificates expired on 6 November 2017, before entering dry dock for repairs, some five years after her last special survey. The Court of Appeal held that the clause was an innominate term and not a condition and therefore did not give owners an automatic right to terminate the contract if it were breached.

Gross LJ gave various reasons for concluding that the term was not a condition. The term in question was not expressed to be a condition, it was not a time clause, and there was no interdependence of the parties’ obligations which weighed so heavily in Bunge v Tradax.           The term was found in the middle of cl. 9A headed “Maintenance and Operation” which set out the distinct but closely connected obligation on Charterers, as to maintaining both the physical condition of the vessel and its class status. The obligations as to the former were not conditions and the structure of cl. 9A, in an industry standard contract, strongly suggested that the term was not to be construed as a condition.

Although cl 9 (A) required Charterers to keep “…other required certificates in force at all times”, this could not be limited, as owners suggested, to the certificates required by class in order to issue the main classification certificate. Charterers’ obligation covered a range of matters, from the trivial to the those of serious consequence. A condition analysis would mean, for instance, that a 15 years’ charterparty could be terminated by Owners if Charterers committed any breach in respect of the certificates required under the BWM or AFS conventions. Breach of the term could result in trivial, minor or very grave consequences, so suggesting that the term was innominate rather than a condition. Although a time charter term that a vessel was in class at the date of delivery was likely to be a condition, per dicta of Rix LJ in The Seaflower, [2001] 1 Lloyd’s Rep. 341, that was not the position with an obligation to maintain class throughout the charter.

Brussels I Recast — not as long-arm as you feared

It’s not often that what is essentially a family law case causes commercial lawyers to sigh with relief, but one suspects this may be true of yesterday’s decision of Lavender J in Gray v Hurley [2019] EWHC 1972 (QB).

Under Art.4 of Brussels I Recast, readers will recall that a UK-domiciled defendant has a prima facie right not to be sued anywhere in the EU except in the UK, unless one of the exceptions in the Regulation applies. But what if he finds himself sued in some court outside the EU? Does Art.4 extend to give him a further right not to be sued anywhere in the world except here, and thereby justify the issue by the English courts of an anti-suit injunction to stop the foreign proceedings in their tracks?

In Gray, a supposedly beautiful extra-marital relationship broke up in tears, as is so often the way with such things. There was a good deal of wealth in a number of places to argue about. She being domiciled in England and he resident here, she sued him in the English courts. Meanwhile he sued her in New Zealand, where he had close connections. Having finally established the jurisdiction of the English courts to hear her case, she asked for an anti-suit injunction to stop the New Zealand proceedings, arguing that this was necessary to vindicate her Art.4 right to be sued here, and only here — and for good measure that her human right (to protection of her possessions) would be infringed unless the order went.

Lavender J was having none of it. Art.4 of Brussels I gave her no right analogous to that derived from an exclusive English jurisdiction clause that entitled her to the courts’ intervention in the absence of strong reasons to the contrary; and being sued abroad in respect of one’s assets in an action that had no guarantee of success could not be said to be an attack on one’s possessions sufficient to engage the pretensions of A1P1 of the European Convention on Human Rights. It followed that, like any other litigant, if she wanted an anti-suit injunction she had to show that England was clearly most appropriate forum and that there was no countervailing justification for him suing in New Zealand — which she could not.

With respect this seems absolutely right. For one thing there is something odd about the idea of EU law justifying the granting of a peculiarly common-law remedy that fills most EU private international lawyers with horror, and indeed is banned entirely by EU law in the case of EU courts. Admittedly this has not stopped the English courts so holding in respect of the exclusive jurisdiction over employment contracts in what is now Art.22.1 (see Petter v EMC Europe [2015] EWCA Civ 828); but that case is itself controversial, and it is good to see its spread curbed.

More to the point, however, if this claim had succeeded, the effects on comity would have been considerable. Courts in countries outside the EU would not have been gratified to see the English courts issuing anti-suit injunctions almost as a matter of course telling litigants not to proceed there in commercial claims against English-based defendants for no better reason than that the EU, an organisation they were not a member of and owed no allegiance to , disapproved of the proceedings being brought there.

As we said before, we suspect much gentle relief in the commercial legal community, which can now be allowed to get on with business as usual.

How much longer can Europe afford to ignore cyber-enabled ‘trade secret theft’ as a form of IP Crime?

The latest report from the EUIPO and Europol on IP Crime threats assessment makes clear that such threats are viewed as limited to instances of piracy and counterfeiting. Important as these criminal activities may be to threaten the health of our economy such a limited approach is at odds with American jurisprudence where, ”the threat of trade secrets theft to U.S. corporations conducting business internationally is a well-recognized and extensively documented phenomenon”, and “top intellectual property priority” for investigation by the FBI. The United States Trade Representative’s Special 301 Report (2018) goes further by identifying a failure to adequately protect trade secrets by trading partners as a key area of concern, given U.S. government recognition that “trade secrets may constitute the most critical intellectual property assets” for U.S. corporations.

It was for this reason that the U.S. government reported it had been, “extremely active in Brussels in support of the EU trade secrets directive” (2016), using its co-chairmanship of the Transatlantic IPR Working Group to push ”this topic to the forefront on EU action on intellectual property matters”, albeit this legislative initiative was ultimately only limited to the civil law domain.

Work undertaken by the OECD in 2014 recognises that the U.S. leads the world in the legal protection of trade secrets, with the UK struggling to stay above the average – behind the legal jurisdictions of Canada, Lithuania, Spain, Japan, Netherlands, Ireland, Israel, New Zealand, Hong Kong (China), Singapore and Australia. A UN Conference on Trade and Development Report (2011) confirmed over 50% of global trade in services is now undertaken online, with a global fraud report (2010) recording incidents of data theft now surpassing that of physical theft. One area of primary concern highlighted by U.S. Secretary of State Hillary Rodham Clinton in 2012 was,”emerging powers are putting economics at the centre of their foreign policies” and making commercial cyber espionage a central part of their policy toolbox.

During his presidential campaign candidate Trump highlighted the blue-ribbon panel report into the Theft of American Intellectual Property, the updated version of which cites estimates of the value of trade secret theft as between 1% to 3% of GDP. It is sobering to note the Director of the European Centre for International Political Economy would point out, “there is no evidence or indication that cyber espionage against European firms is any lesser in scale than against other countries,” offering an estimation of “the cost of cyber espionage to Europe at 55 billion euros annually (and placing) 289,000 jobs at risk.”

Whereas the UK government would advocate that the solution lies with firms enhancing their own cybersecurity protection, such an approach is likely to become increasingly unrealistic as a holistic solution in the emerging 5G/Industry 4 era, where decades of R&D are susceptible to being ‘hacked’ at the click of the mouse.  Calls for parity of criminal law protection with SME counterparts in the U.S. can only be expected to grow within the UK.

With the UK providing notice to leave the EU and looking to build upon its current trading position with the U.S. a parity of criminal law protection against trade secret theft can only offer some reassurance to the U.S., with a trading partner which is currently said to offer better criminal law protection for the boardroom table than the theft of boardroom secrets (Alan Campbell QC 1967).

Welcome though such a legislative initiative might be for our vulnerable SMEs, Europol has already reported that national criminal legislation cannot of itself provide a unilateral solution. With TRIPS now nearing a quarter of a century of operation there are reassuring signs that the U.S., Japan and EU are starting to form a ‘coalition of the willing’ to work together on the margins of the TRIPS Council to elaborate upon the nature of the legal protection to be afforded under Article 39, with a special emphasis on SMEs (side event 9th November 2016).

Europe has been at the vanguard of developments for the legal protection of personal data, the question is whether the appetite now exists to extend the legal protection for valuable commercial data by using the criminal law.

Let’s  not be punitive. SCOTUS goes ‘wet’ on unseaworthiness.

 

American seamen have three avenues of recovery against a shipowner in respect of injuries sustained on board a ship: maintenance and cure; the Jones Act; a claim of unseaworthiness.

Punitive damages are available for the first of these, but not the second. The position as regards unseaworthiness was, until recently, unclear with a Circuit split on the issue. This has now been resolved by the Supreme Court’s decision in Dutra Group v Batterton ,588- U.S.. ____ (2019) , to the effect that punitive damages are not recoverable. The  overwhelming historical evidence was against such damages being available in an action for unseaworthiness. A  novel remedy could not be sanctioned unless it is re­quired to maintain uniformity with Congress’s clearly expressed poli­cies, particularly those in the Merchant Marine Act of 1920 (Jones Act), under which only compensatory damages were recoverable.

To allow punitive damages on unseaworthiness claims would create bizarre disparities in the law. First, a mariner could make a claim for punitive damages if he was injured onboard a ship, but his estate would lose the right to seek punitivedamages in a wrongful death action if he died from his injuries. Second, because unseaworthi­ness claims run against the owner of the vessel, the owner could be liable for punitive damages while the ship’s master or operator—who could be more culpable—would not be liable for such damages under the Jones Act. Third, allowing punitive damages would place Amer­ican shippers at a significant competitive disadvantage and discour­age foreign-owned vessels from employing American seamen

Iran’s Claim that the UK’s Seizure of a Vessel Suspected of Transporting Oil to Syria Constitutes “Piracy”: Mere Rhetoric?

In the early hours of 4 July 2019, a commercial oil tanker (Grace 1), flying the flag of Panama, was boarded and seized while passing through the Strait of Gibraltar by UK marines and the Gibraltar police. Connecting the Mediterranean Sea to the North Atlantic Ocean, the Strait of Gibraltar is one of the busiest shipping routes in the world.

The reason lying behind the seizure of the oil tanker by the UK was that the Grace 1 was suspected of transporting crude oil, which was loaded onto the vessel in an Iranian port, to Syria, in violation of EU sanctions. What might have drawn attention to the vessel, was its circuitous route. Starting at an Iranian port, the vessel first set sail south, to then follow the coastline around the entire African continent up until entering the Strait of Gibraltar, where it was intercepted. Its ultimate destination remains a subject of dispute, however.

The arrest of the vessel led to an outcry in Iran, protesting the lawfulness of the UK’s seizure on several bases. One contention that was raised by Iran, and which will be at the heart of this short blog post, is its condemnation that the UK’s seizure was an act of piracy.

But is there any validity to Iran’s piracy claim from the view of international law? Or, rather, must it be brushed off as rhetoric? The rhetorical force that the label of piracy carries is invariably strong, readily conjuring up vivid images of individuals pillaging and threatening security at sea.

Before delving into the question whether, away from its rhetorical force, Iran’s claim has legal merit, there is a preliminary issue that needs to be addressed: how was it that Iran took centre stage in condemning the UK’s action against the oil tanker? Surely, not in the role of flag State. Ownership, or whatever links a cargo may have to a particular State, is irrelevant from a legal point of view in determining the nationality of a vessel. Interestingly enough, Panama indicated that it had removed the Grace 1 from its registry at the end of May 2019, because of its link to terrorism financing. This does raise the issue – that will not be addressed here – whom the flag State of the Grace 1 is. Iran’s involvement seems to stem rather from that it perceives the seizure by the UK of the oil tanker, carrying Iranian oil, as a provocation, one that has to be read against the background of flaring tensions between the US and Iran that arose over the shooting down of a US drone, and the latter’s pulling out from the earlier agreed nuclear agreement.

Criteria that need to be satisfied for an act to be piracy are given in Article 101 of the 1982 Law of the Sea Convention (LOSC). This provision, reflecting customary international law, establishes what the crime of piracy consists of:

‘any illegal acts of violence or detention, committed for private ends by the crew or the passengers of a private ship or aircraft and directed … on the high seas (or in a place beyond the jurisdiction of any State) against another ship or aircraft, or against persons or property on board such ship or aircraft.’

From this provision, several requirements can be distilled. One being that a violent act must have been committed on the ‘high seas’ or ‘in a place beyond the jurisdiction of any State’. Were a violent act to be committed within the territorial sea, it cannot be included in the definition of piracy under Article 101 LOSC. Such an act would be considered armed robbery at sea.

But does the Strait of Gibraltar meet the description of  ‘high seas’ or ‘a place beyond the jurisdiction of any State’? To start with some background, the entire Strait of Gibraltar is composed of waters that are either part of coastal States’ their territorial seas or exclusive economic zones, thus being under their sovereignty or jurisdiction of the relevant coastal States respectively. Further complicating matters is that some of these waters are disputed, because of the ongoing sovereignty dispute between the UK and Spain over Gibraltar. However, even if disputed waters are underpinned by a sovereignty dispute, they cannot be considered high seas.

Nowadays, most scholars adhere to the view that the Gibraltar Strait can be considered a strait that falls within the scope of Part III LOSC. The implication of which would be there being a right of transit passage for vessels. However, Article 34 LOSC makes it clear that the coastal State’s sovereignty and jurisdiction within a strait is not affected. In this light, if a vessel passes through the territorial sea part of a strait, criminal jurisdiction pursuant to Article 27 LOSC might arguably still exist for the coastal State. So, to know the exact location of where the Grace 1 was boarded and arrested is critical in determining whether the geographical scope requirement laid down in Article 101 LOSC has been met.

As its first sentence makes clear, an illegal act “of violence or detention” has to be committed for ‘private ends’. Looking at the UK’s seizure of the oil tanker, a private end component is fundamentally lacking. By its very nature, the UK’s action was public; it occurred with the authorisation of a State. And there is a further difficulty for Iran’s piracy claim to succeed. For an act to fall within the scope of Article 101 LOSC, it must have been committed by the crew or passengers of a private ship against another ship.

And was the act at all violent? What only could be construed as a ‘violent’ act or ‘detention’ would be the boarding and arresting of the Grace 1. Rather, the UK response concerned law enforcement, which does not constitute a violent act in and of itself; that is, as long as it occurs in accordance with international law. The dividing line between what constitutes law enforcement and a threat of the use of force, may not always be easily drawn, as during lawful enforcement a measure of force may be involved, but this is permissible if it is necessary, unavoidable and proportional.

Given that the requirements for an act to be considered piracy under Article 101 LOSC are cumulative, Iran’s claim cannot be upheld, seemingly failing to meet a plethora of requirements. But at the same time, it is questionable whether Iran’s use of the word piracy, or a variation thereon, to condemn the seizure is meant to convey its legal position on the matter. It seemingly fits into a broader development, where it has become en vogue to refer to all violent acts that occur at sea as piracy, no matter whether it satisfies the legal definition thereof under international law (see more generally on this phenomenon J. Schechinger, ‘An incident of “piracy” off the coast of Suriname? The definition of piracy and the use (and misuse) of international law terminology’, MarSafeLaw Journal (forthcoming)).

“But you weren’t going to perform anyway!”: A new hurdle when invoking Force Majeure

Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102

Simon Rainey QC and Andrew Leung

Is it necessary when a party seeks to rely on a force majeure or exceptions clause to show that it would have performed “but for” the force majeure or excepted event? And if the party is liable for failing to perform, but performance would have been impossible in any event, is the innocent party entitled to damages?

These important questions were considered by the Court of Appeal in Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102. The judgment, which is the sequel to the first instance decision discussed here, clarifies that:

  1. Contrary to what textbooks such as Chitty and Treitel on Frustration and Force Majeure suggest, there is no general principle that it is not necessary to show “but for” causation in order to invoke a force majeure or exceptions clause.
  • The innocent party is entitled to substantial damages even if it would never have received performance in any event.

The dam burst and the COA

The litigation was fuelled by the Samarco dam burst on 5 November 2015. The charterer under a COA, Limbungan, claimed it was prevented from supplying cargoes for shipment as a result and was excused from having to perform under Clause 32 of the COA, which provided in material part:

“Neither the Vessel, her Master or Owners, nor the Charterers, Shippers or Receivers shall be responsible for…failure to supply, load…cargo resulting from: Act of God…floods…landslips…accidents at mine or production facility…or any other causes beyond the Owners’, Charterers’, Shippers’ or Receivers’ control; always provided that such events directly affect the performance of either party under this Charter Party.”

The first instance decision

At first instance, Teare J held that though the dam burst had rendered performance impossible, Limbungan could not rely on Clause 32 as it required the charterer to prove that it would have performed but for the collapse of the dam, and Limbungan would have defaulted anyway. However, the owner, Classic, was only entitled to nominal damages. Even if Limbungan had been able and willing to perform, the dam burst would inevitably have prevented performance. The compensatory principle would be breached if Classic was awarded substantial damages when it would never have received freight in any event.

The Court of Appeal’s decision

The Court of Appeal upheld Teare J’s decision that Clause 32 required Limbungan to prove but for causation and reversed his decision in relation to damages.

Limbungan had submitted that the House of Lords decision in Bremer Handelgesellschaft v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep 109 laid down the general principle that a party relying on force majeure need not show it would have performed but for the force majeure event.

However, the Court of Appeal, like Teare J, treated Bremer v Vanden as a case concerning a “contractual frustration” clause (Clause 21 of the GAFTA 100 form), i.e. a clause which automatically discharged the parties from an obligation to perform in the future, much like the common law doctrine of frustration. The automatic cancellation effected by Clause 21 meant it was not necessary to meet the test of but for causation.

Starting from first principles, it was open to the parties to agree a clause which only excused non-performance if that test was met. The Court of Appeal considered that Clause 32 was just such a clause. Unlike the “contractual frustration” clause in Bremer v Vanden, it was an exemption clause which relieved a party of liability for a past breach. It was hard to see why the dam burst should make any difference to Limbungan’s liability when it was never going to perform anyway.

On the issue of damages, what Teare J thought was an orthodox application of the compensatory principle the Court of Appeal viewed as a “sleight of hand”. When assessing Classic’s loss, the Judge should have compared the freights Classic would have earned with the actual position it was in due to Limbungan’s breach. Teare J had instead drawn a comparison between Classic’s actual position and its position if Limbungan had been ready and willing to perform.

The Court of Appeal distinguished the present case from two cases in which events occurring after a breach of contract were taken into account:

  1. In The Golden Victory [2007] 2 A.C. 353, the House of Lords held that the owners could not recover hire for the full-term of a charterparty prematurely cancelled by the charterers. The charterparty would not have run its full course anyway as the charterers would have lawfully cancelled due to the Second Gulf War.
  • In Bunge v Nidera [2015] 3 All E.R. 1082, the Supreme Court held that a buyer had suffered no loss despite the repudiation of a sale contract by the seller. A subsequent embargo would however have prevented the sale from taking place in any event.

Both cases were however concerned with assessing damages for an anticipatory breach. Contrastingly, the present case was concerned with an actual breach. Since Clause 32 gave Limbungan no defence to liability, Limbungan had to pay damages for failing to perform.

Comment

The Court of Appeal has underlined the fact that, whatever the current understanding of Bremer v Vanden in the textbooks,there is no default position whereby it is unnecessary to prove but for causation in order to rely on a force majeure or exceptions clause. The specific Force Majeure remedy afforded by Clause 21 of GAFTA 100 was held to be the reason that clause did not import a requirement of but for causation. Why this remedy should determine the test for causation is not entirely clear, when the effect of contractual cancellation and an exemption from liability is for practical purposes the same: the non-performing party cannot be successfully sued.

In other respects, this case presents a number of novelties:

  1. The Court of Appeal held that Clause 32 was not even a force majeure clause, but an exemption clause. It was not previously clear that these categories were mutually exclusive (see e.g. Lewison, Interpretation of Contracts, 13.02).
  • Both Treitel and Lewison suggest in the light of the authorities that a clause which makes provision for the consequences of supervening events which occur without the fault of either party and are beyond their control (i.e. Clause 32) defines the parties’ obligations rather than operating as an exemption clause. This now needs to be reconsidered.
  • The Court of Appeal’s take on The Golden Victory and Bunge v Nidera is that subsequent events and their potential effect on the parties’ rights and obligations are only relevant when assessing damages caused by an anticipatory breach accepted as terminating the contract. They are not relevant in the case of an actual breach. This is arguably a new development and suggests there is not one compensatory principle, but two.

Permission to appeal was refused by the Court of Appeal but an application for permission to appeal is being made to the Supreme Court. The authors are Counsel for Limbungan and appeared below and in the Court of Appeal.

Cybersecurity recognised as an urgent global legal challenge

Delighted to see cybersecurity identified as one of the urgent global legal challenges to be addressed under the Hillary Rodham Clinton Scholarship programme just launched by Sky and Swansea University (see below).

No understanding of innovation is complete without an understanding of intellectual property law and as Alec Ross, Senior Advisor for Innovation to Hillary Clinton when Secretary of State, states in his work The Industries of the Future (2016), “We all want the liberty that comes with a vibrant online life, but liberty without security is fragile, and security without liberty is oppressive. The years ahead will force us to balance these two as we have not had to before.”

_____________________________________________________________________________

Sky and Swansea University today announced the first ever global Hillary Rodham Clinton Scholarship programme.

The scholarships will support the next generation of leaders committed to addressing urgent global challenges, including the rights and protection of children online, the climate crisis and cybersecurity.  

Each of the scholars will be selected over the summer and granted a fully-funded, postgraduate, one-year scholarship at Swansea University, starting in the autumn.

Launching the Hillary Rodham Clinton Global Challenges Scholarship, Secretary Clinton said: “I’m delighted that this partnership between Sky and the School of Law at Swansea will be able to achieve something truly unique, with an urgency that the challenges we face today demand. The programme is a modern, flexible approach which combines the rigour of academic excellence with practical, real world impact. These scholars will embody our shared values of working together across disciplines and geographic boundaries to improve conditions and opportunities for all, and especially for women, children, the marginalised and the disenfranchised.”

Sky Chief Executive, Jeremy Darroch said: “We are honoured to be the inaugural partner for the Hillary Rodham Clinton Global Challenges Scholarship and are immensely proud to support a programme so committed to building a better tomorrow.

“As a society we face a number of global challenges and as a responsible business we recognise the importance of using our reach and voice to make a difference in addressing these, making an impact in the wider world, and helping others do the same. I look forward to welcoming the scholars to the Sky family and exploring the good we can do together.”

Dean of the Hillary Rodham Clinton School of Law at Swansea University, Professor Elwen Evans QC, said: “This is a wonderfully exciting initiative and we are delighted to be working with Sky. These scholarships will support the delivery of a transformational programme and we hope that our students will be outward-looking in addressing the big issues. If we are to tackle the major challenges, such as climate, security, protecting children online, and inequality, we require innovative thinking and leadership, and a sustained commitment to transnational cooperation and collaboration. 

“This programme capitalises on the considerable research expertise within the Hillary Rodham Clinton School of Law in order to provide students with an incredible opportunity to undertake study into areas of global challenge, and to be equipped with the skills to undertake legal research and to effectively advocate for transformational change to law, policy and practice.”

Apply for a Hillary Rodham Clinton Global Challenges Scholarship.

Of damages and counterfactuals — again

It’s not often that we can say “You read it first on the IISTL blog.” But it seems we may be able to, following the decision of the Court of Appeal (Males, Rose and Haddon-Cave L.JJ.) in Classic Maritime Inc v Limbungan Makmur Sdn Bhd [2019] EWCA Civ 1102.

The facts briefly recap thus. A charterer signed a CoA promising to come up with vast cargoes of Brazilian iron ore that would have netted the shipowner profits of something like $20 million. It didn’t, and in hindsight it was abundantly clear that it it never could have. The contract was subject to a force majeure clause including floods preventing performance. Floods duly materialised; but (as was held both at first instance and on appeal) the charterer couldn’t invoke the clause, since if it had never had any cargoes in the first place the floods hadn’t prevented it doing anything. Nevertheless Teare J held at first instance that even though there was breach the damages were not $20 million, but zilch (or rather nominal). His argument was that, hindsight having shown that the shipowner wouldn’t have had a right to performance even if the cargoes had been there, the value of the lost rights was zero.

We raised an eyebrow here at the idea that a defendant who hadn’t, and never could have, performed should be able to cut damages from $20 million to zero by pointing to a force majeure clause that might have protected him but in fact didn’t. The Court of Appeal has now made it clear that it thinks the same way, and substituted an award of $20 million. If (it was said) a claimant showed that a defendant had failed to perform and the defendant could not invoke any exculpatory provision, there was no reason why damages should not be substantial. The reasons behind the non-performance were irrelevant, as was the fact that had the defendant been able to perform in the first place he would have had an excuse.

In our view, despite the beguiling advocacy of the Institute’s own Simon Rainey QC, this is sensible and logical. Males LJ hit the nail on the head at [89] when he pithily pointed out that the breach was not inability or unwillingness to supply cargoes, but the simple fact that the cargoes, for whatever reason, were not there. Put that way, everything neatly falls into place. If you don’t perform your contract and can’t point to any excuse, you are liable for substantial damages. End of story.

Targets, targets, targets. Climate change hots up.

 

Last year we reported on two judicial review challenges to government policy on climate change, one in the Netherlands, the other in the UK.

The Netherlands challenge brought by Urgenda resulted in an order that that the Netherlands State be ordered to achieve a reduction so that the cumulative volume of Netherlands greenhouse gas emissions would be reduced at least by 25%, by the end of 2020, relative to 1990 levels. The Netherlands State appealed against the order and the Dutch Supreme Court heard the case on 24 May 2019 and a judgment is expected over the summer.

The UK challenge was brought by Plan B and sought judicial review of the UK government’s decision not to amend the 2050 target in the Climate Change Act 2008 in the light of article 2(1) (a) the 2015 Paris Agreement on Climate Change, which the UK has ratified, the parties commit to: “Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognising that this would significantly reduce the risks and impacts of climate change.” The challenge failed and leave to appeal was rejected earlier this year.

Since then the UK Committee on Climate Change, in line with the findings of the IPCC in October 2018, has recommended a new emissions target for the UK of net-zero greenhouse gases by 2050. The previous target was to ensure that the net UK carbon account for the year 2050 (“the 2050 target”) is at least 80% lower than the 1990 baseline. This week a statutory instrument, the Climate Change Act 2008 (2050 Target Amendment) Order 2019, was laid amending the Climate Change Act 2008 so that ‘80%’ is replaced by ‘100%’.

This is a ‘net’ figure, which allows for the ability to use international carbon credits to offset emissions within an appropriate monitoring, reporting and verification framework. In addition, under s.30(1) of the Act emissions from international aviation and shipping do not count as emissions from sources in the UK. The Government have said that they will review the ‘net zero’ target within 5 years to check that other countries are following suit, and, if not, reserve the right to revert to the original 80% target.

To stabilise at 1.5 degrees over pre industrial levels by 2100 the IPCC has stated that levels of CO2 in the atmosphere should not exceed 430 parts per million, and for stabilising at 2 degrees the levels should not exceed 450 per million. Last month a reading at a weather station in Hawaii recorded 415 parts per million of CO2 in the atmosphere. The current annual rate of increase is in the order of 3 parts per million.

Supreme Court Clarifies the Law on CTL Calculation in Marine Insurance

The Swedish Club v Connect Shipping (The MV Renos) [2019] UKSC 29

Under s. 60(2)(ii) of the Marine Insurance Act (MIA) 1906, there is constructive total loss (CTL) when the insured ship is damaged by a peril it’s insured against and the cost of repairing said damage would exceed the insured value of the ship when repaired. In estimating the cost of repairs for the purposes of this provision, it has been held by Knowles, J, [2016] EWHC 1580 (Comm) that i) the costs incurred prior to the date of notice of abandonment and ii) the costs of salvage operations performed before the notice of abandonment, including sums payable under the SCOPIC clause, should be taken into account.

The underwriters’ appeal to the Court of Appeal on these points was rejected unanimously [2018] EWCA Civ 230 (per Hamblen, LJ, with whom Simon, LJ and Sir Geoffrey Vos C agreed). In a previous case note, the author was critical of the Court of Appeal’s reasoning, especially with regard to the second point, i.e. taking into account SCOPIC expenses incurred before the notice of abandonment in estimating the cost of repairs.

The Supreme Court (composed of Lords Sumption, Reed, Hodge, Kitchin and Lloyd Jones) allowed the appeal on this ground holding that SCOPIC charges cannot be considered as part of the “cost of repairing the damage” under s. 60(2)(ii) of the MIA 1906 (or the “cost of recovery and/or repair” under clause 19.2 of the Institute Hull Clauses). The Supreme Court stressed that the primary purpose of SCOPIC expenditure is to protect owners’ potential liability for environmental pollution not to enable the ship to be repaired. Hence, such expenditure is not connected with the damage to the hull or its hypothetical reinstatement and the mere fact that a prudent uninsured owner would have contracted with the same contractors for both prevention of environmental pollution and protection of the property does not make them indivisible. The author believes that the Supreme Court’s decision on this issue is intuitive and makes sense.   

On the issue of whether expenses incurred prior to the notice of abandonment should count towards the calculation of a CTL under s. 60(2)(ii) of the MIA 1906, the Supreme Court rejecting the submission of the underwriters, affirmed the findings of the lower courts. The Supreme Court approached the matter with reference to basic principles of insurance law indicating that several older judgements on the matter (in particular Hall v. Hayman (1912) 17 Comm Cases 81 and The Medina Princess [1965] 1 Lloyd’s Rep 361) lacked reasoning and legal argument. Taking into account the objective character of the factual enquiry of whether a vessel is a CTL and the fact that in marine insurance context the loss is suffered at the time of the casualty, the Supreme Court was adamant that the reference to “damage” in s. 60(2)(ii) was in fact reference to the entire damage arising from the casualty from the moment that it happened. Therefore, it cannot make any difference when costs are incurred, i.e. pre or post notice of abandonment. On that premise, the Supreme Court evaluated whether this principle might be affected by the legal requirement for a notice of abandonment but reached the conclusion that it is not.                   

At the commencement of litigation, it was agreed by the parties that, to be declared a CTL under s. 60 of the MIA 1906, the repair costs needed to be in excess of US$ 8 million. The matter in the light of the Supreme Court judgment will be remitted to the trial judge to determine whether the vessel had been a CTL and what financial consequences would follow from that.