J.M William Turner – The Shipwreck, 1805, London - Tate Britain

Shipwrecks and other disasters at sea were frequently painted during the Romance period.

Costa Concordia Salvage Operation

It is expected to be the biggest salvage operation ever attempted. As of September 2013 the salvage has cost over $800 million.

The Bulk Carrier Double Fortune

The Panama flagged bulk carrier Double Fortune was built in 2010. Gross tonnage and deadweight are 50617 t and 95790 t respectively.

Manoeuvring Container Operations

Containerisation and multimodal transport: the development of door-to-door transport.

Fire Onboard Vessel

Fire on board ship is one of the most dangerous risks for vessels and cargos. Electrical equipments, flammable liquid on board, engines and boilers often cause it.

Monday, 27 April 2015

China: new judicial interpretation on the arrest and judicial sale of ships

April 27, 2015.
On 28 February 2015, the Chinese Supreme People’s Court (“SPC”) enacted a new judicial interpretation (“the Interpretation”) on ship arrest and judicial sale of ships. This took effect as of 1 March 2015.


The Interpretation aims to clarify and streamline the rules and court practice on Chinese ship arrest and judicial sale of ships. This article highlights the main changes that may be of particular interest to owners, charterers (in particular bareboat charterers) and other interested parties whose ships may call at ports in China. 


Multiple arrests 

Previously, Chinese Civil Procedural Rules did not allow double or multiple attachments against the same property. This meant in practice that if a ship was already under arrest, a party other than the first arresting party had to wait until the first arrest was officially lifted by the Chinese Court before a second warrant of arrest could be served on the same ship.

Pursuant to the new Interpretation, multiple applicants are now able to arrest the same ship simultaneously as security for their respective claims. Further, if an applicant arrests a ship, but does not apply for a judicial sale, subsequent applicants are not prevented from applying for a judicial sale themselves. It is not, however, clear whether and how, in the event of multiple arrests, each applicant should provide the required counter-security, but a prudent view would be that the current provisions/requirements in respect of counter-security (discussed below) would equally apply to all applicants.

Judicial sale of bareboat chartered ships

Arrest for claims against a bareboat charterer was already permitted under Chinese law. However, it was not clear whether, in such circumstances, the arresting party could also apply for the sale of the ship if no security was offered. This often left parties who had arrested a ship for claims against the bareboat charterers with an asset against which they could not recover their claim, unless the owners put up security.

The Interpretation now clarifies that an applicant is entitled to apply for judicial sale of a bareboat chartered ship under arrest in order to satisfy a maritime claim for which the bareboat charterer is liable.   

As a result, innocent head-owners may find themselves in a vulnerable position if their ship is arrested for claims against the bareboat charterer. When entering into a bareboat charterparty, therefore, owners may wish to ask for sufficient security from the bareboat charterers and/or ensure that adequate insurance arrangements are in place to cover such risks. 

Provision of counter-security

One of the main hurdles associated with ship arrest in China is that the Chinese maritime courts almost invariably require counter-security to be posted by the applicant. This remains the case under the Interpretation. The purpose of counter-security is to secure any potential wrongful arrest claims. The level of the counter-security that must be given is within the Court’s discretion and must be confirmed with the Court before any arresting party can lodge a successful application. There has in the past been no standardised practice regarding counter-security amounts. The Interpretation still allows the Court a wide discretion but provides that the amount of counter-security should cover:

  • the maintenance costs of the ship during the arrest period;
  • the loss of use of the ship as a result of the arrest; and
  • the cost incurred by the respondent (i.e. the party against whom the ship was arrested) in relation to provision of security in exchange for release of the ship.

Furthermore, once counter-security has been provided, the owners of the arrested ship may apply for additional counter-security to be posted if they can demonstrate that the initial counter-security is insufficient to cover their likely losses in the event the arrest is subsequently held to be wrongful.

Return of counter-security 

The practice of the Chinese maritime courts relating to the return of counter-security has always been a concern for many arresting parties and quite often deters claimants looking to arrest in China. In some cases, counter-security could be held by the Court for up to two years following settlement of the relevant claims, partly due to concerns that the owners may subsequently bring a claim for wrongful arrest. Therefore, most parties make the prompt return of the counter-security an express term of their settlement.  

The Interpretation now provides that following conclusion of a claim, a claimant can apply for return of their counter-security. The respondent is notified of this and must bring any wrongful arrest claim within 30 days, failing which the counter-security will be returned to the claimant. Furthermore, the claimant may apply for their counter-security to be returned immediately in the following cases:

  • where the respondent agrees to this; or
  • where the claimant has obtained a judgment in its favour in the substantive proceedings and has been awarded an amount that is approximately equivalent to the amount of security provided by the respondent. 

Clarifications/simplifications of judicial sale procedures

The Interpretation also contains several provisions aiming to streamline the practice of the judicial sale of ships. For example, any judicial sale will be organised by an official ship auction committee rather than by a third party. If an auction proves unsuccessful twice, the Court may sell the vessel by alternative means at a reduced price but the reduced price must not be less than 50% of its assessed value (although the price may subsequently be reduced further if still no sale takes place and if the majority of the creditors agree). Furthermore, creditors must register their claims within 60 days after the Court’s announcement of the first judicial auction, failing which they may lose the right to get paid from the sale proceeds.

Comment

China has not traditionally been considered as one of the most arrest-friendly jurisdictions in the world but, given the amount of ships trading in and out of China, the need to arrest and the risk of being arrested in China can arise.  Shipowners, charterers, cargo interests, insurers and indeed any party involved in the shipping industry and trading to China should, therefore, be aware of the Interpretation, which makes Chinese ship arrest rules and practice more predictable and transparent.   

Source: http://incelaw.com

A good claim can be invalidated by passing false information to the insurer

April 27, 2015.
In a 2014 judgment of considerable significance (Versloot Dredging BV v. HDI Gerling and others (DC Merwestone), the English Court of Appeal has for the first time authoritatively established a “bright line rule” that an assured who tells a lie or uses false evidence to support his otherwise valid claim will forfeit the claim. 

The decision serves as a strong warning to all assureds, whether commercial or private, not to act dishonestly when making claims under insurance policies.

It has been long established that an assured who fraudulently exaggerates his claim under an insurance policy forfeits any lesser claim he could otherwise have properly made. This rule, known as the “fraudulent claims” rule, has now been authoritatively extended by the Court of Appeal to apply to lies or dishonest conduct (“fraudulent devices”) in relation to otherwise entirely valid claims (and where there is no element of exaggeration). Although this judgment is in relation to commercial shipping, it is equally relevant to yacht and superyacht policies that are subject to English law.

The background facts

In January 2010, the DC Merwestone called at Klaipeda to load a cargo of steel. On sailing, the vessel’s bow thruster room flooded. The bow thruster room should have been watertight and a bilge alarm located there should have alerted the crew to the flooding. But the space was not watertight, the bilge alarm did not sound and the flooding extended into the engine room. The engine was destroyed in the flooding and the assured claimed the cost of replacing it.

In presenting the claim, the assured’s general manager stated that he had been told by the master that the forward bilge alarm had sounded at noon – long before the flooding was actually noticed – but that it had not been investigated, as the vessel had been rolling heavily. It later transpired that the general manager’s statement was untrue and the master had never told him that the forward bilge alarm had sounded at noon. Underwriters therefore argued that the general manager’s statement was a “fraudulent device”, and that the claim was forfeit. This argument was made on the basis of an earlier, but non-binding, Court of Appeal authority (The Aegeon). In that case, it was suggested that an assured will forfeit his claim if he tells a lie or puts forward false evidence in relation to the claim intending to improve his prospects of payment or settlement and if the dishonesty, viewed objectively, is capable of improving the assured’s prospects.

At the lower court hearing, the judge reluctantly applied The Aegeon and dismissed the assured’s insurance claim.  The assured appealed.

The Court of Appeal decision

Before the Court of Appeal, the assured argued that the fraudulent device doctrine breached the provision in the European Convention on Human Rights that protects against interference with a person’s possessions. The assured argued that forfeiture of an insurance claim is an “interference” with a “possession”.

In considering this issue, the court stated that it had to decide whether the interference was justifiable on the basis that it “pursue[s] a legitimate aim by means that are reasonably proportionate to the aim sought to be realised” and strikes “a fair balance […] between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights”.

It held that the fraudulent device rule has a legitimate aim, namely to deter fraud. It also found that it provides a proportionate means of securing that aim because the fraudulent device doctrine only applies to fraudulent devices that: (i) directly relate to the claim; (ii) are intended by the assured to promote his success; and (iii) are, objectively assessed, capable of doing so. One of the judges commented that “once it is accepted that deterrence is a legitimate aim, the fact that forfeiture is a harsh, in some circumstances very harsh, sanction does not mean that it is disproportionate”. It was also noted that “the rule is only applicable in cases of fraud, from which no insured should have any difficulty in abstaining”.

The Court of Appeal therefore upheld the lower court’s judgment, finding that the fraudulent device doctrine, as suggested in The Aegeon, should be applied as a legal rule. 

Comment

In this decision, the court placed much emphasis on deterring fraudulent claims and the case underscores the importance for assureds of presenting their claims honestly. As can be seen from this case, even what may seem to be a relatively insignificant untruth told to support an otherwise valid claim is capable of leading to the loss of the entire claim.

The assured has sought and obtained permission to appeal to the Supreme Court. We shall report on the Supreme Court judgment in due course.

Source: http://incelaw.com
             http://regulus.org.pl

Thursday, 16 April 2015

Termination clauses and repudiatory breach – court finds payment of charter hire is not a condition: Astra not followed

April 16, 2015.
Spar Shipping AS v. Grand China Logistics Holding (Group) Co. Ltd [2015] EWHC 718 (Comm)

Readers may recall our report in July 2014 on The Astra and visitors to our Smart seminars will have heard us speak about the case and its discussion of repudiatory breach. In a decision handed down on 18 March 2015, another Commercial Court judge has declined to follow Flaux J’s decision in The Astra and has concluded that payment of hire by the Charterers was not a condition of the charterparty. Mr Justice Popplewell reached his decision following a careful consideration of the authorities on this issue, including those on repudiatory breach.


Why does this matter?

It is relevant to all who draft and negotiate termination clauses. If a right to terminate is granted in your contract, in the event that payment is not made within a certain period, is that right to terminate all you get? Or can you claim for the loss of the remaining contract period, in other words back log. If the obligation to pay within that period was, properly construed, a condition of the contract the answer is you can claim back log (subject to any exclusions). If it was simply an innominate term, then that will not automatically be the case. You would need to show that the failure to pay had deprived you of substantially the whole benefit of the contract or that there had been a repudiation of the contract in some other respect, entitling you to terminate and claim damages.

In The Astra Flaux J. considered an NYPE charterparty form and concluded that the payment of hire was a condition of the contract and therefore that the failure to pay a single hire payment entitled the Owners to withdraw the vessel and claim loss of profit for the remaining charter period. He suggested that the granting of the right to terminate for non-payment was itself evidence that punctual payment was intended to be a condition of the contract.

In Spar Shipping, Popplewell J. disagreed. He found that the right to terminate/withdraw the vessel was just that: a contractually agreed right. It did not of itself mean that the payment term was intended to be a condition. In fact he noted that time for payment was not generally “of the essence” in commercial contracts, in other words it was not generally considered to be a condition. In other words mere breach of the payment term and a consequent termination did not entitle the Owners to loss of future hire.

In this instance Owners were entitled to claim in respect of the balance of the charters, but only on the basis that the conduct of the Charterers, objectively assessed, evinced an intention not to perform the charters in a way which deprived the Owners of substantially the whole benefit of the charters.

Conclusion

This case, pending any appeal, restores the position as it was generally, pre-Astra, understood to be. It does mean however, that Contractors who are presently not being paid should exercise great care before exercising any termination rights they may have if they wish to be able to claim their back log. Only a repudiatory breach will enable them to do so. Those who are negotiating contracts and wish to ensure that a claim for back log survives termination for breach of a payment term should ensure it is clear in the contract that the time for payment is intended to be a condition of the contract.

Source: http://incelaw.com
           

New CIETAC arbitration rules

April 16, 2015.
On 4 November 2014, the China International Economic and Trade Arbitration Commission (CIETAC) adopted its new Arbitration Rules, which apply to all domestic and international arbitration references commenced on or after 1 January 2015. In this article, we set out a brief introduction to the key changes.

Chapter VI contains special provisions for the new Hong Kong Arbitration Center in the Hong Kong SAR. Article 74 makes it clear that arbitrations administered by the CIETAC Hong Kong Arbitration Center are Hong Kong awards, that the seat of the arbitration is Hong Kong and that the arbitration law of Hong Kong is the applicable governing law unless the parties agree otherwise. In the ordinary course, Hong Kong judgments are enforceable in mainland China under reciprocal agreement legislation.

The 2015 Rules contain new procedures for arbitrations concerning multiple contracts. Article 14 now allows a claimant to start a single arbitration for disputes arising out of or in connection with multiple contracts, provided that the contracts satisfy certain criteria. This is an important development. In the past, parties with multiple disputes arising out of the same set of facts but under separate contracts had to commence a separate arbitration for each contract. That involved the risk that different tribunals would reach inconsistent conclusions. This risk can now be avoided. In addition, Article 19 now expands on the old rules on consolidation of arbitrations, previously set out at Article 17. Whereas before, CIETAC required the consent of all parties before consolidating two or more arbitrations, Article 19.1 potentially gives CIETAC the power to consolidate at the request of just one party, provided certain conditions are met. In deciding to consolidate, CIETAC must take into account the opinions of all parties. This of course raises the question of whether claimants in multiple arbitrations against non-responsive respondents might use the new provisions at Article 19 to get those arbitrations consolidated.

Other changes include the provision at Article 2 for an Arbitration Court to handle references, rather than a Secretariat. It remains to be seen what this will mean in practical terms for the administration of cases. The Arbitration Court enjoys new powers, including the power under Article 45.1 to suspend an arbitration at the request of just one party. Perhaps most significantly, the Arbitration Court can grant emergency relief under the CIETAC Emergency Arbitrator Procedures at Appendix III of the 2015 Rules. In suitable cases, the Arbitration Court will appoint an Emergency Arbitrator within one day of receiving a party’s application for an Emergency Arbitrator and its advance on costs. The Emergency Arbitrator must make his decision within just 15 days of his acceptance of appointment.

The rules try to address the difficulties caused by the schism between CIETAC Beijing and the Shanghai and South China (Shenzhen) sub-commissions. Article 2 provides that, where a CIETAC sub-commission no longer exists or its authorisation has been terminated, the case will be administered by the Arbitration Court. Article 2 also tries to reserve CIETAC’s right to decide these jurisdictional questions. Current thinking is that these rules are not binding on the PRC courts. As a result, the risk of inconsistent judicial decisions remains. Caution is still needed when drafting arbitration clauses, to make sure that the clause is effective and to avoid expensive satellite litigation.

Source: http://incelaw.com

Friday, 10 April 2015

What is Karadeniz Powership?

April 10, 2015.
A Powership is an exceptional marine vessel – a floating power house resource, with an electrical generating station installed on it. In 2009, the Karadeniz Powership – an auxiliary branch of the Turkey based Karadeniz Energy Group, took the initiative of designing and developing its own “Power ships” to accomplish the mission of establishing the world’s first Powership fleet.
To begin with, 4 bulk-carrier converted Powerships, namely – Doğan Bey, Rauf Bey, Kaya Bey and Ali Can Bey were all set sail as a part of the global expansion strategy that worth more than billions of dollars. In 2010 – 2011, these ships commenced their duties in Iraq and Pakistan to have the population meet the power needs there. A fifth ship, Irem Sultan joined the pack in 2012, followed by Fatmagül Sultan in 2013.

What are the benefits of Power Ships?

The proposed, designed and developed Karadeniz Powerships are expected to fulfill the urgent electricity requirements across the countries of the Middle East, Asia and Africa. The current fleet has the capacity of producing more than 750 MW of electricity and with the additional ships scheduled for completion soon; the total fleet capacity is anticipated to surpass 2,000 MW. The operation area of these power ships will be mapped across 15 countries, mostly in the Middle East and South Asia and in North Africa as well.
Powerships are no ordinary vessels but are built using special technology. They can be operated both on liquid fuels (HFO/RFO) and natural gas with an option of duel fuel. Even at various high voltage levels, these Powerships can provide uninterrupted electricity as per the requirements of the involving countries.

Karadeniz Powerships are delivered to the client countries as a fully operational floating power plant, following a rental contract or a Power Purchase Agreement (PPA). Their capacities vary from 45-500 MW and the delivery time takes around 60-180 days to supply medium-term solutions through contracts of 2-5 years. Karadeniz Energy Group will be in full charge of their powerships’ operation and maintenance during the contract period.

Following the shutting down of numerous nuclear reactors with forged or un-certified parts, all over the world, the Karadeniz powerships can become the most eligible successor to tackle power shortages.

Powerships Iraq

Karadeniz Powership Doğan Bey is considered to be one of the first power ships of the company’s Powership fleet. Since May of the year of 2010, the Karadeniz Powership Doğan Bey has been occupied with producing around 144 MW worth of electric capacity for a region known as Basra, situated in the Republic of Iraq. According to records, the Karadeniz Powership Rauf Bey had been included in this project within three months of its commencement. The Karadeniz Powership Rauf Bey is declared as the second Powership of the fleet. The Karadeniz Powership Rauf Bey has helped the project to generate an additional count of 200 MW.

The third power ship, the Karadeniz Powership Irem Sultan joined the Basra project towards the end of the year of 2011 with a generous contribution of 110 MW worth of electricity production. In fact the active collaboration of the three Powerships has led to an incredible total of 450 MW and even more. The installed electric capacity in the Basra region is also connected to three locations with the help of substations that run on high voltage.

Even unfavorable and rough weather like sudden sand storms, sweltering heat or could not disrupt the continuous generation of electric power and has functioned as a base load production. This has been of great significance to the Basra region and has displayed commendable work ethics. It has also aided the national grid of electricity with its uninterrupted donations of electric power. This project is of huge importance to the reputation of the company as Basra serves as the gateway of Iraq and connects it with the world. Thus, energizing Basra and providing it with electricity has been useful to the Iraq government, for the overall progress of the nation.
Powerships Pakistan

Two ships from the Powership fleet, namely the Kaya Bey and the Ali Can Bey had been employed to generate a huge amount of electric energy to provide for the five million Pakistani citizens, every single year. The Karadeniz Powership Kaya Bey is declared to be the biggest Powership in the whole world and is endowed with excellent machinery and energy sustenance. In a joint collaboration with the Karadeniz Powership Ali Can Bey, the production of electricity was expected to rise up to an incredible count of around 330 MW and it was much more of energy generated by any power plant, based on the land.

These two Karadeniz Powerships acting in Pakistan are considered to be the biggest investment by Turkey and they display fine examples of topnotch engineering. The Karadeniz Powerships in Pakistan, were positioned almost 300 meters from the main shore and were placed adjacent to each other. Thus, they were completely cut off from the land and acted as one mighty, independent power island. The Powerships were connected to the land using only high voltage lines for transmission and they had the required fuel delivered to them by few special tankers.

However, the early anticipation by the Karadeniz Energy Group and the Pakistan Federal Ministry for Water and Power has grown into violation of contract as the two Powerships have arguably failed to meet the target capacity of electricity production, since their operational commencement in 2011. The breach of terms has led to the end of contract and seizure of Kaya Bey and Ali Can Bey. If a settlement deal does not work out with the National Accountability Bureau, the Karadeniz Group would be suing Pakistan at a US arbitration court, to compensate for their loss and the release of the two Powerships, which now reside in the government’s custody.

Source: http://www.marineinsight.com

Thursday, 2 April 2015

Assessing measure of damages in early redelivery case

April 2, 2015. 
Maestro Bulk Limited v. Cosco Bulk Carrier Co Ltd (Great Creation) [2014] EWHC 3978 (Comm)

The most significant shipping decision in 2008 was undoubtedly the Achilleas, in which the House of Lords overturned a decision by London arbitrators to award damages representing the loss of a follow on fixture due to late redelivery of the vessel. The House of Lords confirmed the orthodox view that damages are limited to losses suffered during the overrun period only. Similar issues were explored in a recent judgment from the Commercial Court in the Great Creation, which concerned an early redelivery.


The background facts

The Great Creation was chartered for a period of 4-5 months on the NYPE form.  Upon redelivery, the Charterers were required to give 20/15/10/7 days’ approximate notice and 5/3/2/1 days’ definite notice. On 13 April 2010, the Charterers gave a 20 day notice of redelivery but then actually redelivered the ship six days later on 19 April. As a result, the Charterers redelivered the vessel early in breach of contract, not in the sense of redelivery prior to the minimum charter period but rather redelivery before the proper redelivery notice period had expired.

The Owners managed to refix the vessel on the best terms possible given the short notice of redelivery, but for earnings below what they could have achieved if they had the benefit of the full redelivery notice period.  

The Owners sought to claim damages for the losses they had incurred on the follow on fixture. They argued that the correct approach to their calculation of damages was to deduct the proper notice period of 20 days from the date of actual redelivery in order to arrive at the date on which the Charterers should have given notice of redelivery, i.e. 31 March. The Owners then sought to show that, if the Charterers had given notice of redelivery on 31 March, they would have been able to fix a more profitable follow on fixture. On that basis, their damages should be calculated as the difference between the earnings on that notional profitable voyage and the actual earnings.  

By contrast, the Charterers argued they were only liable to pay damages according to the usual test in cases of early redelivery, i.e. hire for the redelivery notice period running from 13 April, less any sums earned by the Owners in mitigation during that period.

The arbitration award

The arbitrators agreed with the Owners’ claim on quantum. As happened in the Achilleas, the Tribunal awarded damages based on the loss of a more profitable potential follow on fixture. The Charterers appealed that decision to the Commercial Court.

The Commercial Court decision

When assessing damages under English law, a court or tribunal compares what actually happened to what should have happened if the defaulting party had properly performed its obligations (termed by the Judge in the Great Creation as the “non breach situation”).

The key question for the Judge was the correct approach to assessing that non breach situation.

The Judge disagreed with the Owners’ method for calculating damages because their arguments relied upon an assumption that the Charterers should have given a non-contractual notice of redelivery on 31 March. The Judge concluded that any notice of redelivery on 31 March would have been uncontractual because it would not have been honest or based on reasonable grounds. It was contrary to principle, the Judge thought, to assume a non breach situation which itself involved a different breach of contract.

The Judge assessed damages based on a non breach situation where the Charterers redelivered after the correct period had expired upon giving 20 days’ notice of redelivery on 13 April. As a result, the Charterers were required to pay hire in full during that period, less the actual earnings in mitigation which, on the facts of the case, were nil as the vessel had to reposition for the next voyage in ballast.

Comment

Whilst the details of the assessment of damages in the Achilleas and the Great Creation are different, the result in both cases involved a confirmation that, in situations involving early redelivery or late redelivery, losses are payable for the actual underlap or overlap period in the orthodox way, as opposed to damages for the loss of a follow on fixture.

Source: http://incelaw.com/

Liquidated damages - no need to mitigate, but unlikely to continue indefinitely

April 2, 2015. 

MSC Mediterranean Shipping Company SA v. Cottonex Anstalt [2015] EWHC 283 (Comm)

A carrier, whose containers had been detained for a long time and seemed to be unlikely to be returned, was found not to have the right to daily liquidated damages for an open ended period. Whilst an innocent party has the option whether to accept a repudiatory breach of contract, terminate the contract and claim damages at large, or instead to keep the contract alive and claim contractual debts or damages, it is not without restriction when exercising its choice. If the damages accrued under a contractual liquidated damages regime become wholly unreflective of the innocent party's loss after time, then the innocent party's right to keep a contract alive in the face of a repudiatory breach is not absolute.  


The background facts

The defendant shipper ("the Shipper") shipped cotton in 35 containers provided by the claimant carrier ("the Carrier") from Middle Eastern ports to Chittagong, Bangladesh, with the containers being discharged in May and June 2011.

The Consignee/Buyer of the cotton has never collected it. Following a fall in the market price, the Consignee tried to extract itself from its contract with the Shipper. In June 2011, the Consignee obtained an interim injunction from the Bangladeshi Court restraining payment by the issuing bank under its letter of credit, but that payment had already been made.

The containers have remained at Chittagong ever since. The Carrier's position was that it is for the Shipper or the Consignee to collect the goods and then return the containers. The Shipper's position was that only the Consignee had the power to do so. The Consignee made no attempt to do so, however, and the Bangladeshi customs authorities apparently refused to allow anyone to remove the containers without a court order.

The Carrier claimed demurrage from the Shipper in respect of each container pursuant to its standard terms of carriage which were printed on the back of the bills of lading. Those terms provided that after 14 days of "free time" following discharge, demurrage charges would be US$10 per container per day (escalating over time to US$24). By 1 January 2015, the demurrage was over US$ 1 million.

The replacement cost of the 35 containers was agreed to be US$114,172, or US$3,262 per container. 

The Shipper claimed that the Carrier had failed to take reasonable steps to mitigate its loss by either unpacking the containers or buying replacements, and that this limited the period for which the Carrier could claim demurrage. 

The Commercial Court decision

The Court found that it was reasonable to expect that the Carrier would have bought additional containers in order to mitigate its loss. However, because the purpose of a liquidated damages clause is to make proof of the Claimant's actual loss unnecessary and irrelevant, the Court also found that its entitlement to claim demurrage cannot depend on whether it should reasonably have mitigated its actual loss.

The Court noted that, in charterparty cases, delay by the charterer will amount to repudiatory breach of the contract when it becomes so prolonged as to frustrate the commercial purpose of the venture, and that impossibility of performance before the delay will amount to anticipatory breach of a repudiatory nature. The Court found that because the Shipper could not compel the Consignee to collect the goods, this was impossibility of performance, and that the Shipper therefore was in repudiatory breach of the bill of lading contract by September 2011.

In the face of a repudiatory breach, the innocent party has a choice whether to accept that breach, thereby bringing the contract to an end, or to keep the contract alive. In the leading case in this area of White & Carter Ltd v. McGregor, the House of Lords commented that the freedom of choice in such circumstances could be limited by considerations of equity or public policy, and suggested that a party may not be entitled to keep a contract alive unless he has a legitimate interest (financial or otherwise) in doing so.

In the Aquafaith in 2012, it was found that an innocent party can only be said to have no legitimate interest in keeping the contract alive if (a) damages are an adequate remedy; and (b) maintaining the contract would be "wholly unreasonable".

Here, the Court noted that it is an established rule that in the absence of clear language to the contrary, a contractual discretion must be exercised in good faith for the purpose for which it was conferred, and must not be exercised arbitrarily, capriciously or unreasonably.

So the Court held that, once it was clear that the Shipper was in repudiatory breach of its obligations to procure collection of the goods and redelivery of the containers (due to impossibility), the Carrier no longer had any reason to keep the contracts alive in the hope of future performance.

The Court also concluded that whilst it would be proper for the Carrier to keep the bill of lading contracts alive to claim demurrage after the Shipper's repudiatory breach if the inability to use its containers was causing it ongoing financial loss, there appeared to be no such financial loss to the Carrier here from September 2011 onwards. Accordingly, the Court found that the Carrier had no legitimate interest in keeping the contracts alive to claim demurrage after that date. As a result, the Carrier's claim for container demurrage was limited to the period to September 2011.

Comment

The findings in this case as to the lack of a mitigation obligation where there are liquidated damages, and the circumstances in which there is a legitimate interest in keeping a repudiated contract alive, are of general importance, both to shipping contracts other than bills of lading and to contracts generally in any industry.

In light of this judgment, a party claiming liquidated damages for a potentially lengthy period would be well advised to review its position periodically, to determine whether it continues to suffer actual financial loss and, if so, whether steps may be taken to bring that loss to an end. The questions of whether something is a repudiatory breach, and of whether a party should accept that breach are often difficult ones however, even for lawyers practising in this area, and large sums often turn on fine distinctions. Caution is therefore required.

The actions required in pursuance of an obligation to mitigate (even though no such obligation was said to exist here) and acceptance of repudiation would probably have been similar in this case, i.e. "abandon" the containers in Chittagong, buy replacement containers, and claim actual loss. This means that the legal distinction between the two issues perhaps is not very wide as a matter of fact. 

The Carrier was put in a difficult position here through no fault of its own. It was the only party which endeavoured to take positive steps to try to overcome the difficulties in Chittagong and get its containers back, but it was nevertheless found to have acted unreasonably. This judgment does not seem to take account of the fact that carriers may be charged storage charges by the owner of the port at which containers are detained due to matters outside their control (perhaps because no such charges applied here), such that the carrier would incur an additional loss every day that a container was detained. It might be that carriers are deemed to have a legitimate interest in keeping a contract alive in circumstance where such charges applied. 

Source: http://incelaw.com
             http://library.dbs.ie

Wednesday, 1 April 2015

The GAFTA prohibition clause revisited

Apri 2, 2015.

Public Company Rise v. Nibulon S.A. [2015] EWHC 684 (Comm)

This was an appeal from a GAFTA Appeal Board which concerned the relationship between the obligation on the seller to obtain export licences and the standard form GAFTA prohibition clause. Whilst the Court was asked to determine three separate issues, the core issue was whether the GAFTA prohibition clause qualified in any way the seller’s absolute obligation to obtain export licences. Hamblen J, in the Commercial Court, concluded that it did.


The background facts

The dispute between the parties arose out of three contracts relating to the sale by Public Company Rise (“the Sellers”) of 158,000 mt of Ukrainian feed corn to Nibulon S.A. (“the Buyers”). The contracts were on CPT terms (carriage paid to) and were for delivery to the Buyers’ transhipment terminal. The contracts were on the GAFTA 78 form.  Each contract provided as follows

Clause 11.3 - “Seller is obliged to obtain at his own risk and expenses any export license or any other official document and to perform where it is required, all customs formalities for export of the goods”

Clause 12 – “All other terms, conditions and rules, not in contradiction with the above contained in Form 78 of GAFTA…”

Clause 17 of GAFTA 78 - “PROHIBITION - In case of prohibition of export, blockade or hostilities or in case of any executive or legislative act done by or on behalf of the government of the country of origin or of the territory where the station(s) or private siding(s) of loading named herein is/are situate, restricting export, whether partially or otherwise, any such restriction shall be deemed by both parties to apply to this contract and to the extent of such total or partial restriction to prevent fulfilment whether by shipment or by any other means whatsoever and to that extent this contract or any unfulfilled portion thereof shall be cancelled. Sellers shall advise Buyers without delay with the reasons therefore and, if required, Sellers must produce proof to justify the cancellation."

The Ukrainian Government introduced Grain Export Quota Restrictions in October 2010 as the result of a poor harvest. These imposed a limit on the total quantity of grain which could be licensed for export during the relevant delivery period. The Appeal Board concluded that despite their best endeavours, the Sellers were not granted the necessary export licences. As a result, the Sellers cancelled the contracts pursuant to the prohibition clause. The Buyers treated this is as a repudiation and held the Sellers in default. 

The Appeal Board found for the Buyers and held that they were entitled to damages in excess of US$17 million. In reaching their conclusion, the Appeal Board made the following findings:-
the obligation to obtain export licence(s) was an absolute one and overrode the prohibition clause except in the situation of a total ban on export;
there was, during the relevant period, no total ban on exports; and
in any event, the Sellers could not rely on the prohibition clause as they were not “prevented” but merely “restricted” in making shipment to the Buyers.
The issues for the Commercial Court 

The three questions that were put to the Commercial Court on appeal from the GAFTA Appeal Board award were as follows:-
Does the obligation to procure an export licence override the prohibition clause or does the prohibition clause operate as a qualification on the obligation to obtain an export licence?
Does the prohibition clause only relieve the Sellers of an obligation to obtain an export licence in circumstances where the prohibition amounts to a “total ban”?
Are the Sellers not able to rely on the prohibition clause when they are not “prevented” but merely “restricted” from making shipments?

The Commercial Court Decision

The Commercial Court answered the above questions as follows.

As to question (1) the Buyers’ essential argument was that there was a conflict between the absolute obligation to obtain an export licence and the prohibition clause. They said that this was so since the contracts expressly provided that the terms and conditions in GAFTA Form 78 only applied when not in contradiction with the terms of the contract and here there was a contradiction. Hamblen J. referred to the decision in Pagnan v. Tradax [1987] 2 Lloyds’ Rep 342, which was concerned with the very same issue of the relationship between an obligation to obtain an export licence and the GAFTA prohibition clause. He quoted Bingham LJ in that case, where he said “It is not enough if one term qualifies or modifies the effect of another; to be inconsistent a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses.”  As in the Pagnan case, Hamblen J. concluded that the obligation on the seller to obtain export licences at his own risk and expense is to be read subject to any other terms of the contract which may be invoked by the seller in the event of a contingency such as prohibition. In other words, if there is a provision, such as a prohibition clause, which excuses the seller from delivering the goods concerned, it will not have an obligation to obtain an export licence.

As to question (2), Hamblen J. dealt with this point fairly swiftly. He pointed out that the prohibition clause expressly applies to prohibition restricting export “whether partially or otherwise” and that to the extent of “such total or partial restriction“, the contract or any unfulfilled portion shall be cancelled. He found that “in accordance with its wording, the clause plainly applies to a qualifying event ‘partially restricting’ export. As such it applies to a partial prohibition or other qualifying event which has a like effect.”

Lastly, as to question (3), Hamblen J. pointed out that the prohibition clause requires proof of a qualifying event which is (a) a “prohibition of export” or “blockade” or “hostilities” or an “executive or legislative act done by or on behalf of the (relevant) Government” which has the effect of (b) “restricting export, whether partially or otherwise”.  In order to be able to rely upon the clause, it is necessary to prove that the qualifying event caused a relevant inability to perform. On the specific question addressed to the Court, the Judge said that: “Insofar as the Appeal Board are…saying that it is necessary to establish a qualifying event which prevents export that is not correct. What needs to be established is a qualifying event which restricts export. The word ‘prevent’ appears as part of the deeming provision in the clause. It is not part of the definition of the relevant qualifying event. However, if the Appeal Board are saying that it is necessary to show that the qualifying event prevented performance in the sense that it caused inability to perform then that would be a correct approach.”

The Judge then considers whether the Appeal Board had reached any definite conclusions as to whether the restriction on export in fact restricted export of the goods concerned.  In that respect, the Judge concluded that the Board of Appeal had not specifically addressed that question nor could he confidently conclude what the answer to that question was on the basis of the findings in the Award. As a result, he remitted the matter to the Appeal Board for further consideration.

Comment

In terms of the question of the relationship between the Sellers’ obligation to obtain export licences and the GAFTA prohibition clause, this decision speaks for itself.  However, on a more general level, the case illustrates how the courts will endeavour to give effect to all contractual provisions unless it is simply impossible to do so.  This is of particular significance in construing together clauses imposing absolute obligations on a party on the one hand and clauses which, on the other hand, excuse a party from performing.

Source: http://incelaw.com

UNITED KINGDOM: NEW COURT FEES IN THE LONDON HIGH COURT

April 2, 2015.

The development

As from Monday 9 March 2015 the fees that the courts of England and Wales will charge for the issuing of a "money claim" have increased very substantially. The previous fee structure banded claims by value and allocated fees accordingly up to a maximum of GBP1,720 (approximately USD$ 2,540 as at 20 March 2015).

For money claims exceeding GBP10,000 in value including interest (approximately US$14,760) the fee payable at the time of issuing the claim form is now five percent (5%) of the value of the claim.

The claim form issuance fee will be capped at GBP10,000 meaning that this fee will be payable on any claim with a value of £200,000 (approximately US$295,200) or more. This maximum fee will also be payable on any money claim where the amount of the claim has not been specified.

This fee is payable at the time that the claim form is issued and a claim form cannot be issued by the court without the relevant fee having been paid.

It appears that the fee for issuing "non-money claims" (e.g. arbitration claims or claims for a declaration) will not be affected.

The Law Society of England and Wales has begun the first stages of asking the Administrative Court to judicially review the increase in fees but this process may take some time and any decision to overturn the new fee structure by the courts would be subject to a number of factors.

Litigation management

Besides the obvious impact that these new fees will have on the overall cost of litigating in the English courts, members should give particular consideration to the impact that this will have on issuing proceedings simply for the purposes of protecting time under a time bar provision (especially if the claim is for an unspecified amount).

In addition, consideration should be given to the choice of dispute resolution forum where the parties may elect between arbitration and high court proceedings under, for example, the Shelltime 4 form. A full comparison of the different aspects of arbitration or high court proceedings is beyond the scope of this advisory, but certainly for lower value claims there is reason to give this some thought.

Court costs can vary across jurisdictions, and it is worth to always consider the full scope of possible costs (and their possible recovery) before commencing proceedings.

If members are considering legal proceedings for any matter that concerns their covered entries, or where members would like further guidance on whether their cover is involved, it is recommended that the Association be contacted in advance.

Source: http://www.skuld.com