Take it to the limit. The UK gets there at last.

 

 

The revised limits under the 1996 Protocol to the 1976 Convention on Limitation of Liability for Maritime Claims entered into force on 8 June 2015 – but not in the UK. They will now enter into force under the requisite statutory instrument – The Merchant Shipping Act 1995 (Amendment) Order 2016 SI 2016 No. 1061 – which is due to come into force on Wednesday 30 November. The new limits will apply to incidents occurring after that date. There will be no increase in the limits for vessels of less than 300 gt as the limits for such vessels have already been expressly amended by section 5 of Part II of Schedule 7 of the Merchant Shipping Act 1995 and are 500,000 SDRs for property claims and double that for loss of life and personal injury claims. Future increases adopted by the IMO will not require domestic legislation to bring them into force.

OW Bunkers — picking up the pieces

The result of the OW Bunkers litigation in the UK Supreme Court, PST Energy 7 Shipping LLC v OW Bunker Malta Ltd [2016] UKSC 23; [2016] A.C. 1034 (noted here in this blog) is that shipowners having taken bunkers from bankrupt suppliers OW may still potentially face the prospect of being made to pay twice — once to OW because they supplied them, and once to the original sellers to OW because at the relevant time they still owned them. The argument that the original sellers somehow gave up their rights by consenting to onsale by OW is attractive but not cast-iron. The important issue now, however, is how to avoid a similar debacle in the future. Steamship Mutual have advised a change in the terms of contracts. They say: “We recommend Owners review their existing contract wordings to make clear that should their direct counterpart become insolvent, in the bunker supply context or otherwise, that payment to the party down the chain (e.g. the physical supplier) shall be permitted and discharge the debt to the insolvent party.”

With respect, we have some doubts as to whether this will necessarily work. Such an arrangement might well fall foul of the anti-deprivation principle in English insolvency law, which says that where there is an accrued debt owed to an insolvent, any provision depriving the insolvent of the right to collect that debt in the event of subsequent insolvency is presumptively ineffective: see the summary by Lord Collins in Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd [2011] UKSC 38, [2012] 1 A.C. 383 at [100].

A more effective strategy might be an acknowledgment in the contract of sale that in so far as the bunkers sold are not at the time of delivery owned by the seller, then any right of action is held on trust for the actual owner. Such a provision, not being triggered on insolvency, seems to us more likely to survive scrutiny. But only time will tell.

Notice of Lecture: Lord Clarke on Ethics

The Institute of International Shipping and Trade Law in the College of Law and Criminology at Swansea University has the pleasure of hosting a talk by Lord Clarke of the Supreme Court. 

 

When: Thursday 1st December 2016 from  6.30pm

Where: Richard Price Lecture Theatre, Richard Price Building, Swansea University

Speaker: Lord Clarke, Justice of the Supreme Court of the United Kingdom

Subject: “Ethics”

 

This lecture is free of charge and open to the public.

Tea/coffee will be served prior to the lecture in the Foyer of Richard Price Building from 6.00pm onwards.

Temporal Scope of the Hague Rules Confirmed

Volcafe Ltd v Compania Sud Americana de Vapores SA (“CSAV”) [2016] EWCA Civ 1103.

This case involves condensation damage to nine consignments of coffee, which were transported in unventilated containers from Colombia to Germany. The bills of lading provided for the carrier’s liability throughout the transportation from the port of loading to the port of discharge, as well as for the applicability of the Hague Rules to carriage by sea.  Moreover, the carriage was agreed on LCL terms and therefore, the carrier provided and filled in the containers with the coffee bags.

At first instance, Donaldson QC considered inter alia whether the  loading of the coffee bags inland by the carrier into its containers fell outside the scope of the Hague Rules. If the answer were in affirmative, then the carrier would have been entitled to rely on the exemptions included in the bill of lading. The trial judge held that the initial stuffing of the coffee bags into the carrier’s containers and the subsequent loading of the container onto the vessel were to be regarded as part of a single loading process. Alternatively, he ruled that the parties had anyway exercised their freedom to agree on an extended scope of loading for the purposes of art.1(e) (relying on Pyrene v Scindia  [1954] 2 QB 402). In other words, the carrier’s undertaking to stuff its own containers were to be interpreted as an agreement that the initial stuffing of coffee bags into the carrier’s containers formed part of loading of the cargo under the contract of carriage by sea.

The CA (Gloster and King LJJ and Flaux J, sitting in the Court of Appeal) allowed the carrier’s appeal in respect of his defences of inherent vice but confirmed the trial judge’s decision of the temporal scope of the Hague Rules.

Flaux J., who delivered the leading judgement of the CA, relied on the relevant passage in the judgment of Devlin J in Pyrene v Scindia  [1954] 2 QB 402, 417-8, as approved by the House of Lords in Renton v Palmyra [1957] A.C. 149, to conclude that, having exercised their freedom to define the scope of the acts that fall within the scope of “loading”, for which the carrier assumes responsibility, the parties had agreed that the loading services included lining and stuffing the containers. Thus, these operations were governed by the Hague Rules and the carrier was under an obligation to perform those services “properly and carefully” under art. III, r. 2.

Flaux J. also rejected the argument brought forward by the carrier that  such an interpretation would result in a conflict of two international transport conventions, namely the Hague Rules and the CMR, if for example, the stuffing of the containers were followed by road carriage. He found that the CMR does not apply whilst the containers were being dressed and stuffed, since they were stuffed at the container terminal and not on board a vehicle. Furthermore, he held that the better view would seem to be that the CMR ceases to apply as soon as “loading” within the Hague Rules begins: see Clarke: International Carriage of Goods by Road (6th edition 2014) at pp 40-42.

Inherent Vice: Who proves what and how?

Volcafe Ltd v Compania Sud Americana de Vapores SA (“CSAV”) [2016] EWCA Civ 1103.

It’s indeed a good day for carriers as the CA has now restored the balance between carriers’ and cargo owners’ interests by reversing the controversial first instance judgement in Volcafe Ltd  v CSAV [2015] EWHC 516 (Comm).

This case arose out of condensate damage to nine consignments of coffee, which were carried in unventilated containers from Buanaventura in Colombia to destinations in North Germany. The High Court (Mr David Donaldson) rendered a judgement in favour of the cargo owners on the basis that, although the cargo damage was attributed to inherent vice of the goods carried, the carrier had not disproved his negligence. The carrier had failed to establish that he had adopted a sound system as underpinned by a theoretical calculation or empirical study.

The CA (Lady Justice Gloster, Lady Justice King and Mr Justice Flaux, sitting in the Court of Appeal) allowed the carrier’s appeal in respect of his defences of inherent vice.

Flaux J, who delivered the leading judgement, ruled that that once the carrier had established the inherent vice exception, the burden of proof shifted to the cargo owners to show that there had been negligence on the part of the carrier. He further held that such an approach is consistent with the weight of the authorities, which have applied the principles enunciated in The Glendarroch, even where the contract of carriage is governed by the Hague Rules, as well as with the principle that “he who alleges must prove”. In addition, he found that the adopted approach is supported by the wording of the “catch all exception” which is the only excepted peril that expressly requires the carrier to disprove his negligence before relying on this exception.

In addition, Flaux J rejected trial judge’s analysis of ‘complete circularity’ between Hague Rules, art. III, r.2 and art. IV, r. 2(m) because this approach deprives the exception in paragraph (m) of its force and that it has been long recognised as an excepted peril. Furthermore, he rejected trial judge’s approach to a “sound system” and in particular his requirement for a scientific calculation or empirical study. He held that such an interpretation imposes a standard beyond what the law requires. He also reiterated the well-established position that one of the indicia of a sound system is that it is in accordance with general industry practice.

The CA decision in Volcafe is welcome not only because it strikes a fair balance between carriers’ and cargo owners’ competing interests but also because it promotes the uniform application of the Hague and in turn the Hague-Visby Rules. In particular, the CA decision brings English case law in line with authorities in the United States and New Zealand who have held that, in case of inherent vice or other excepted perils (excluding the q defence), it is the shipper who bears the burden of showing that the damage resulted from negligence or fault caused by the carrier (See for example, Quaker Oats Co. v. M/V TORVANGER, 734 F.2d 238, 1984 AMC 2943 (5th Cir. 1984), U.S. v. Ocean Bulk Ships, Inc. 248 F.3d 331 (5th Cir. 2001), Terman Foods, Inc.v. Omega Lines 707 F.2d 1225 (11th Cir. 1983) and Shaw Savill & Albion Company Ltd v Powley & Co [1949] N.Z.L.R. 668).

As a final remark, one should not underestimate the impact of Volcafe on the approach to the burden of proof in all of the defences (except from the “catchall exception”) enumerated in Hague and Hague-Visby Rules, art. IV, r.2. Flaux J found the wording of the “catchall exception” as supporting the analysis that, in the case of all other exceptions, the carrier’s reliance on any excepted peril is not dependent upon the carrier disproving his negligence.

US Death on the High Seas Act.

 In In the Matter of The Complaint v. Sea Star Line, LLC 2016 WL 6609219 the U.S. District Court for the Middle District of Florida has held where death or fatal injury occurs on the high seas, the Death on the High Seas Act (“DOHSA”) provides the exclusive means of recovery and that claims may not be brought for negligence under general maritime law.

Assignment without recourse and anti-assignment clauses

What happens if you purport to assign a debt for ready cash without recourse, but agree to reimburse the assignee in the event that the assignment turns out to have been invalid? One would have thought that the answer was clear. And indeed it is; but only after oil major BP, with a cool $68 million at stake, chose unsuccessfully to take the matter to the Commercial Court on a pettifogger’s technicality in National Bank of Abu Dhabi PJSC v BP Oil International Ltd [2016] EWHC 2892 (Comm).

BP sold a parcel of oil on credit to Samir, a Moroccan refiner, and then assigned 95% of the debt to the NBAD for cash. The assignment was explicitly without recourse, but BP warranted that there was no legal impediment to the debt being assigned and agreed that if there was it would reimburse NBAD $68 million-odd. Samir went into insolvency leaving NBAD unpaid. It then transpired that the supposedly assigned debt was indeed unassignable without consent (ironically as a result of a provision in BP’s own boilerplate). NBAD sued BP on its warranty claiming its $68 million. BP argued that nothing was owing because even if the clause made the debt unassignable, the purported assignment had given NBAD rights that were just as good as an assignment, namely an equitable right to any proceeds in BP’s hands.

Carr J had no difficulty in rejecting BP’s argument. The debt was clearly unassignable; BP was in breach of warranty; the clause meant what it said; the amount recoverable under it was not in issue; and the result was therefore clear. The fact that the breach of warranty might be regarded as technical was beside the point.

This seems logical. Essentially what BP were trying to do was to argue that even if they had been in breach of warranty NBAD had suffered no loss as a result of their breach. But while this might have been relevant if NBAD’s claim had been a garden variety claim in damages, it was clearly irrelevant if, as here, the contract itself laid down the measure of recovery. Quite rightly, her Ladyship declined to subvert this result by holding that an express warranty to provide a valid assignment can be satisfied by providing the next best thing, however good a substitute others might think it was.

Note: this particular issue will become moot as regards debts governed by English law as and when the Government overcomes its lethargy and gets around to implementing subordinate legislation under s.1 of the Small Business, Enterprise and Employment Act 2015 (useful details here) to outlaw blanket anti-assignment clauses of this kind.

The meaning of “consequential damages” – as always, it depends on the context

Further evidence that English courts are taking a thoroughly pragmatic line with commercial exemption clauses comes from Sir Jeremy Cooke’s decision a few days ago in the shipbuilding case of Star Polaris LLC v HHIC-PHIL Inc [2016] EWHC 2941 (Comm). A new-built vessel still under guarantee suffered engine failure, found to be partly due to construction defects which were the yard’s responsibility. In the light of this finding the yard’s liability for the cost of rectification was not in issue, this being expressly allowed under the terms of its builder’s guarantee. What was disputed was a further claim by the buyers for a residual diminution in value of the vessel allegedly caused by the construction problems. The building was under the venerable SAJ form, which had it been left unaltered would under Art.IX have answered the question unequivocally in the yard’s favour (“The guarantee contained as hereinabove … replaces and excludes any other liability, guarantee, warranty and/or condition imposed or implied by the law …”). But, for reasons unclear, this clause did not appear. The yard, therefore, was thrown back on another provision in Art.IX, excluding liability for “consequential or special losses, damages or expenses”. The yard said that the alleged diminution in value was clearly consequential on the damage directly suffered and was therefore still excluded.

The buyers riposted with a mention of a number of other cases in a non-shipbuilding context, which had construed references to consequential losses as covering merely damages not immediately foreseeable and thus outside the first limb of Hadley v Baxendale (1854) 9 Ex 341. Since in the present case diminution in value had been eminently foreseeable (their argument went), it followed that there was no objection to the present claim.

The arbitrators were not impressed, and neither was the judge. Even with the stripped-down version of the SAJ that the parties had chosen to use, and even accepting the potential applicability of the contra proferentem rule in the context of commercial contracts, the context of the contract made it clear that the guarantee provision was intended to provide a complete code for the determination of the parties’ rights and liabilities, and thus that any further liabilities were to be excluded. And quite rightly too, in our respectful submission. The intention evident in a contract as a whole, rather than any minute interpretation of the words the parties chose to include or exclude, still less any mechanical exercise in substitution of words, ought to govern where interpretation is in issue.

Coming soon. Insurance obligations of shipowners under the 2006 Maritime Labour Convention.

 

 

As from 18 January 2017 ships subject to the 2006 Maritime Labour Convention will have to display certificates required confirming insurance or other financial security is in place for: the cost and expense of crew repatriation; up to four months contractually entitled arrears of wages and entitlements following abandonment; a further certificate covering contractual liabilities to seafarers for personal injury, disability or death.