SHIPPING E-BRIEF JANUARY 2019 - in any case...2 SHIPPING E-BRIEF JANUARY 2019 CONTENTS SHIPPING E-BRIEF Supreme Court considers burden of proof in cargo damage claims under Hague Rules

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SHIPPING E-BRIEFJANUARY 2019

2 SHIPPING E-BRIEFJANUARY 2019

CONTENTSSHIPPING E-BRIEF

Supreme Court considers burden of proof in cargo damage claims under Hague Rules 3

Court of Appeal confirms ship arrestor does not have to provide cross-undertaking in damages 5

Court construes termination clause in standard crew management agreement 7

BIMCO 2020 Sulphur Clauses: “A fair allocation of responsibilities and liabilities”? 10

Whether ships within a fleet count as separate 'establishments' in collective redundancy consultation 12

Dubai Cassation Court upholds insurers’ coverage defence to cargo claim 14

News & Events 16


SUPREME COURT CONSIDERS BURDEN OF

PROOF IN CARGO DAMAGE CLAIMS UNDER

HAGUE RULESVolcafe v. CSAV [2018] UKSC 61

This recent Supreme Court judgment deals with the

issue of whether the carrier or cargo interests bear

the burden of proof under the Hague Rules in

relation to claims for cargo loss and damage. In

particular, it considers the interplay between a

carrier’s obligations under Article III.2 of the Hague

Rules to properly and carefully load, carry and care

for the cargo and the inherent vice defence provided

under Article IV.2.(m).

THE BACKGROUND FACTS

The Claimants were the owners and bill of lading

holders for consignments of bagged coffee beans

transported by the Defendant container line from

Colombia to Northern Europe.

The cargo was loaded into 20 unventilated

containers lined with kraft paper. Upon unloading, it

was discovered that the bags in all but two of the

containers had suffered condensation damage. The

bills of lading incorporated the Hague Rules (the

“Rules”).

Coffee beans are a hygroscopic cargo, meaning that

they absorb, store and emit moisture and, when

carried in unventilated containers from a hot to a

warm climate, they inevitably emit moisture. It is

possible to mitigate the condensation damage

suffered in such a voyage by lining the container

with paper.

The Defendants argued that the condensation

damage was caused by an inherent vice of the cargo

(its hygroscopic nature) and that it was entitled to

rely on the defence provided by Article IV.2.(m) of

the Rules. The Claimants argued that the

Defendants failed to apply sufficient paper to the

walls of the containers and that they, therefore,

breached their obligations under Article III.2 of the

Rules.

THE DECISIONS OF THE LOWER COURTS

The Mercantile Court held the Defendants liable for

the damage to the cargo on the basis that the

burden fell on the carrier to establish that it had not

been negligent in performing its obligations under

Article III.2 of the Rules and that it had not been

able to establish on the evidence that it had done

so.

The Claimants appealed. The Court of Appeal

overturned most of the lower Court’s findings

holding that, once the Defendants (carrier) made out

the inherent vice defence under Article IV.2.(m) of

the Rules, the burden of proof then shifted onto the

Claimants (cargo owners) to prove that the

Defendants had not employed a sound method for

carrying the cargo.

The Defendants appealed.

THE SUPREME COURT DECISION

The Supreme Court was asked to identify which

party bore the burden of proving whether the cargo

was damaged by: (i) negligent preparation of the

containers; or (ii) inherent vice.

The Supreme Court first considered the position

under common law, noting that many of the leading

authorities had been handed down before the Rules

came into force. It was held that the carrier, as

bailee of the goods, is obliged to take reasonable

care of the goods whilst they are in his possession.

Importantly, the Supreme Court noted that it is the

bailee who bears the legal burden of proving that he

took reasonable care of the goods and was not

negligent in the event that a claim for damage to the

cargo is brought. Where the bailee received goods in

a good condition and delivered them in a damaged

condition, it may be said to be entirely logical that

the burden of proving that reasonable care was

taken and that the damage was not caused by

negligence would be on the party who had

possession of the goods. That position can of course

be altered by any applicable contractual terms.


RANIA TADROS

MANAGING PARTNER, DUBAI

[email protected]

SHERIDAN STEIGER

SENIOR ASSOCIATE, DUBAI

[email protected]

The Supreme Court considered that the issue on the

burden of proof arose at two stages of the analysis.

The first was under Article III.2 of the Rules, which

provides that the carrier must, “properly and

carefully load, handle, stow, carry, keep, care for

and discharge the goods”. It held that the carrier

bears the burden of proving that the damage to the

cargo was not caused by its breach of Article III.2

when a cargo is shipped in apparent good order and

condition, but is discharged damaged.

The Supreme Court then considered who bears the

burden of proof under Article IV.2, which sets out a

list of causes of cargo loss/damage in respect of

which the carrier is exempted from liability. It was

accepted that the burden of proof is on the carrier to

prove that the loss or damage results from the

excepted cause. For the “inherent vice” exception

under Article IV.2(m), it was held that this burden

extends to proving that the damage could not have

been avoided by the carrier exercising reasonable

care. To rely on the exception, the carrier must,

therefore, prove that he took reasonable care of the

cargo, but that the damage occurred nonetheless; or

that, whatever reasonable steps might have been

taken, the damage would have occurred in any

event because of the cargo’s inherent

characteristics.

The Supreme Court highlighted that a trial judge’s

findings of fact should not be overturned lightly. This

should only be done where the judge was plainly

wrong. In this case, the Court of Appeal should not

have overturned the judge’s two material factual

findings.

The Supreme Court concluded by allowing the

appeal on the basis that the Defendants had failed

to evidence that they had discharged their obligation

under Article III.2 of the Rules.

COMMENT

As acknowledged by the Supreme Court, the case

involved a relatively rare example of liability being

determined on the burden of proof due to the

absence of persuasive evidence from either party. In

practical terms, it is a reminder to carriers of the

importance of maintaining appropriate records to

evidence compliance with their obligations under

Article III.2 and, in the event of any cargo loss or

damage occurring, ensuring that all relevant

evidence is gathered and preserved.


COURT OF APPEAL CONFIRMS SHIP

ARRESTOR DOES NOT HAVE TO PROVIDE

CROSS-UNDERTAKING IN DAMAGESStallion Eight Shipping Co SA v. NatWest Markets

PLC (MV Alkyon) [2018] EWCA 2760

The Court of Appeal has upheld the Admiralty

Court’s decision not to order an arresting party to

provide a cross-undertaking in damages. In doing so,

both the first instance and appellate courts have

confirmed the traditional position under English law,

which is that there is no right to damages in

circumstances in which an arresting party acts in

good faith and without gross negligence, but is later

unsuccessful in pursuing the claim.


In brief, a mortgagee bank had arrested the MV

Alkyon in Newcastle on the basis that there was an

alleged event of default under the loan agreement

that provided the Owners with the money to

purchase the vessel. The Owners disputed that there

was any event of default and were unable to provide

alternative security that would allow the vessel to be

released from arrest. They sought an order from the

Court that the vessel should be released from arrest

absent a cross-undertaking in damages from the

Bank. The form of the cross-undertaking was

intended to be similar to that normally offered in the

case of freezing orders and would, if granted, allow

the Owners to subsequently recover damages for

any losses sustained as a result of the arrest without

having to show wrongful arrest.

THE ADMIRALTY COURT DECISION

The Admiralty Court declined to make the order.

Provided that the Court had in rem jurisdiction and

the arresting party had complied with the procedural

rules, it could obtain a warrant of arrest “as of right”

and there was no requirement that the arresting

party must provide a cross-undertaking in damages.

Damages could only be awarded against the

arresting party where it was guilty of acting in bad

faith or (effectively) gross negligence. Furthermore,

the normal practice of the Court was to order

release of the arrested vessel only when security

had been provided to cover the claim, interest and

costs on the arresting party’s reasonably arguable

best case. In this case, such security had not been

provided.

The Owners appealed.

THE COURT OF APPEAL DECISION

The Court of Appeal dismissed the appeal. The

availability of arrest was the unique feature of a

claim in rem and the courts needed to exercise

caution before restricting or hindering access to this

right. Furthermore, there was nothing unusual about

the circumstances of this case. If the Owners

succeeded in their arguments, this would result in

cross-undertakings being given routinely in ship

arrest cases. The costs of arresting would increase

and this would deter the use or threatened use of

the right of arrest, even in apparently meritorious

cases. The Court added that arrest, or the threat of

it, was an efficient way of obtaining security from a

ship-owner. This could be discerned from the

relatively small number of arrests that occurred. In

addition, the current system allowed for the

provision of security in most cases. Where security

was not provided, it was often the case that the

potentially high costs of arrest were often borne by

ship-owners who were, or were soon to be, insolvent.

In such cases, it was the claimant's interests that

were most in need of protection.

In the Court of Appeal’s view, ship arrests and

freezing orders were not analogous. A ship arrest

was asset-specific; it did not "freeze" or paralyse the

entirety of the ship-owner's business in the same

manner as a freezing order might do and the English

courts had not in the past been sufficiently

compelled by the comparison to suggest that a

cross-undertaking should be required in the context

of maritime arrest.


CHRISTIAN DWYER

GLOBAL HEAD OF ADMIRALTY, LONDON

[email protected]

THEO HALL

ASSOCIATE, LONDON

[email protected]

The Court of Appeal found that the case against an

"overnight" change to the settled law and practice

was overwhelming. Moreover, the Judge’s decision

was a discretionary one and was made on

completely standard facts and in circumstances in

which the Judge had followed the usual practice. On

that basis, the Court of Appeal saw no reason to

interfere with his discretionary decision.

COMMENT

The Court of Appeal was inclined to the view that the

law has remained as it is because there has been no

significant pressure from the maritime industry for a

change in the balance struck for so long between

ship-owners and potential maritime claimants. It

suggested that, so far as the maritime industry and

the court procedural rules were concerned, there

were already satisfactory arrangements and systems

(such as the provision of security by P & I clubs) in

place. Furthermore, while the Court of Appeal did

not agree with the Admiralty Judge that any change

to the current law required the intervention of

Parliament or the Rules Committee, it stated that

the courts would need a clear understanding of the

industry implications before reconsidering the

position on cross-undertakings.


COURT CONSTRUES TERMINATION CLAUSE

IN STANDARD CREW MANAGEMENT

AGREEMENTUniteam Marine Shipping GMBH v. MS “United

Tenorio” Schifffahrtsgesellschaft mbH (United

Tenorio) [2018] EWHC 1593 (Comm)

The Court has recently overturned an arbitration

award that dealt with the construction of a

termination clause in a crew management

agreement. The Court found that the objective

meaning of the clause based on the language used

was sufficiently clear and the wider commercial

considerations did not require a different result.


The Owners of three vessels entered into standard

form BIMCO Crewman B (lump sum) crew

management agreements. The clauses in question

stipulated as follows:

“14. Duration of the Agreement.

This Agreement shall come into effect on the

day and year stated in Box 4 and shall

continue until the date stated in Box 5.

Thereafter, unless notice of termination is

given three (3) months prior to the date

stated in Box 5, the Agreement shall continue

until terminated by either party giving to the

other notice in writing, in which event it shall

terminate upon expiration of a period of three

(3) months from the date upon which such

notice was given.

After expiration of the termination period

according to this Clause 14, Owners will be

charged with a rateably lump sum, which to

be reduced accordingly as crew members

leave the vessel and until arrival at their

place of domicile.

Crew managers to arrange for

disembarkation of total crew immediately

after the expiration of the termination period

save where the crew is required by port state

control or equivalent to stay on board the

vessel in which case Owners to arrange for

replacement crew to arrive without undue

delay.”…

“15.1 Owners’ Default…

…

15.3 Extraordinary termination. This

Agreement shall be deemed to be terminated

in the case of the sale of the Vessel or if the

Vessel becomes a total loss or is declared as

a constructive or compromised or arranged

total loss or is requisitioned or has been

declared missing.

15.4 For the purpose of sub-clause 15.3

hereof:

(i) The date on which the Vessel is to be

treated as having been sold or otherwise

disposed of shall be the date upon which the

Owners cease to be registered as Owners of

the Vessel…

…

15.6 In the event of this Agreement being

terminated by either party in accordance with

sub-clauses 15.1 or 15.3 the lump sum shall

continue to be payable from the date on

which the Crew leave the Vessel for the

number of months stated in Box 4 [i.e. 2

months].”

On 30 January 2015, the Owners issued notice of

termination pursuant to clause 14, under which the

contracts were to end on 30 April 2015.

However, the Owners also sold the vessels, which

were delivered to the buyers throughout March and

April 2015 (i.e. before the expiry of the notice

period). The crew managers invoiced the Owners

pursuant to 15.6 for the payment of two months’

lump sum and this was paid by the Owners.

Subsequently, the Owners claimed the payments

had been made by mistake and commenced

arbitration when the crew managers declined to

repay the amount.


The Tribunal found that the crew managers were not

entitled to retain the sums. In brief, its reasoning

was that clause 15.3 had no application or role in

bringing the agreements to an end (on sale of the

vessels), where they had already been contractually

terminated by virtue of clause 14. The Tribunal

stated that there was no need to terminate a

contract that had already been terminated. The crew

managers appealed.

THE COMMERCIAL COURT DECISION

The crew managers submitted that the central

question was whether they were entitled to the lump

sum payment under clause 15.6. This, they argued,

was in turn dependent on whether the contracts

were terminated under clause 15, or under clause

14 as the Tribunal had found. It was common

ground that the contracts could not be terminated

under both clauses.

The crew managers argued that the contracts were

alive and fully in force during the three month notice

period, including at the time of sale. Therefore, it

was only when the vessels were sold that

termination occurred pursuant to clause 15.3. They

contended that the Tribunal’s concern about a

potential windfall was misguided as the contracts

contained a scheme for allocating costs, expenses

and losses arising out of the way that they ended.

Furthermore, the termination provisions needed to

be read according to the clear and plain language

used in them.

The Owners argued that commercial common sense

dictated that clause 15.3 had no application where

the clause 14 termination mechanism had already

been engaged. Once notice to terminate was given

under clause 14, it was irreversible, as there was no

provision granting the right to withdraw such a

notice. The Owners contended that this was

consistent with commercial common sense as it

allowed the parties to start taking the necessary

steps to wind down the agreements and thus

provided certainty as to the end date and financial

exposure over that period. In addition, the Owners

contended that if, after service of a clause 14

notice, the contracts could then still be terminated

under clause 15.3, it could lead to capricious

financial consequences and unwarranted

restrictions on the Owners’ freedom in dealing with

their assets. In particular, the Owners were

concerned that the alleged 15.3 termination had

occurred at a time when the payment probably

represented a windfall.

The Commercial Court disagreed with the Owners. It

found that the Tribunal’s focus was too narrow and

had led to an incorrect result. The wording of the two

clauses was clear. Clause 14 indicated the date of

termination as being three months from the date of

the notice, which meant that the contract was not

terminated until the three months had expired. The

contract, therefore, remained on foot. Clause 14

dealt with the duration of the agreement and clause

15 dealt with termination. Therefore, the clauses

could be read together and clause 15.3 could

terminate the contract prior to the expiry of the

clause 14 notice period. The Court relied on the fact

that clause 15 did not in its terms refer back to

clause 14 as it could have done.

The Court stated that an objective reading of the

contractual language was paramount. Commercial

considerations only came into play after the wording

of the relevant clause had been considered

objectively. In this case, there was nothing in the

commercial context that led to a different result than

that based on the clear wording of the contract.


COMMENT

This decision highlights the potential tension

between giving effect to the express wording of

contractual provisions as drafted and taking into

account the wider commercial context. Ultimately in

this case, the wording used was considered to be

sufficiently clear and the commercial context did not

detract from this conclusion.

JAMILA KHAN

PARTNER, PIRAEUS

[email protected]

ELEANOR SCUDDER

ASSOCIATE, PIRAEUS

[email protected]


BIMCO 2020 SULPHUR CLAUSES:

“A FAIR ALLOCATION OF RESPONSIBILITIES

AND LIABILITIES”?

The implementation date for the MARPOL Annex VI

Regulation 14 sulphur cap is fast approaching.

There are two key dates to keep firmly in mind.

Firstly, on 1 January 2020, the limit for the sulphur

content of fuel used on board a vessel operating

outside one of the four Emission Control Areas

(“ECAs”) decreases from 3.5% mm to 0.5% mm.

In addition, from this date vessels will be required

to:

• produce a bunker delivery note stating the

sulphur content of any fuel oil stemmed;

• carry an IAPP Certificate;

• have onboard a written procedure for fuel oil

changeover when entering/leaving an ECA; and

• maintain a log (as prescribed by their flag state)

recording adherence to the changeover

procedure.

Secondly, from 1 March 2020, the carriage of non-

compliant fuel for combustion or propulsion

purposes will be prohibited unless scrubbers are

fitted on the vessel.

To assist owners and charterers in addressing the

legal issues arising under any time charterparties

that will span the 1 January 2020 implementation

date (or end shortly before), BIMCO has published

two bunker clauses (available on the BIMCO

website):

• The 2020 Marine Fuel Sulphur Content Clause

for Time Charter Parties, which replaces the

BIMCO Fuel Sulphur Content Clause 2005. This

requires charterers to provide fuel that complies

with the applicable sulphur cap; and

• The 2020 Fuel Transition Clause for Time Charter

Parties, which deals with the one-off event of

removing, if necessary, all non-compliant fuel

from the vessel.

A third clause dealing with scrubbers is expected to

be published by BIMCO in early 2019. This is likely to

propose a regime under which the costs of installing

scrubbers are allocated between owners and

charterers.

The clauses are to be welcomed by the market as

they provide a very helpful starting point for owners

and charterers in amending their charterparties to

address the different issues arising out of the

sulphur cap. However the BIMCO clauses have

generally been drafted with a view to providing what

the BIMCO drafting committee considered to be a

“fair allocation of responsibilities and liabilities” in

line with existing default charterparty contracting

positions. Whether individual owners or charterers

consider them to be fair, or even want them to be

fair, when considering their own operational

arrangements is a different matter.

Operators would be well advised not to simply insert

the new provisions into their charters. It is probable

that they will want to amend the standard wording

depending on how they wish to allocate risk and

cost. Moreover, owners and charterers must ensure

that the new clauses complement, rather than

contradict, the other terms of the charter in

question. Changes will almost certainly be needed to

existing charterparty clauses to avoid disputes

arising. For example, the clauses dealing with delay

or deviation may need to be amended to address

the risk of shortages in low sulphur fuel in particular

ports or regions, force majeure events may need

redefining and the responsibility for payment of any

penalties or fines imposed by flag and coastal states

for breach of the regulations must be clarified.


RORY MACFARLANE

PARTNER, LONDON

[email protected]

GERALDINE KOON

SENIOR ASSOCIATE, LONDON

[email protected]

There will undoubtedly be a period of operational

disruption and freight/hire rate volatility in the early

part of 2020 as the market gets to grips with the

new provisions. We recommend that owners set an

‘internal’ soft deadline in advance of 1 January

2020 for the amendment of their charters and the

implementation of the protocols and procedures

necessary to comply with the new cap. This pro-

active approach should help to iron out any teething

problems and place owners in a prime position to

take those opportunities that will inevitably arise in

times of uncertainty, disruption and market

volatility.

We are currently working with clients on drafting

bespoke provisions to suit their particular needs. If

you require any assistance in this regard, please do

not hesitate to contact the authors of this article or

your usual Ince contact.


WHETHER SHIPS WITHIN A FLEET COUNT

AS SEPARATE 'ESTABLISHMENTS' IN

COLLECTIVE REDUNDANCY CONSULTATIONSeahorse Maritime Ltd v. Nautilus International

[2018] EWCA Civ 2789

The Court of Appeal has recently held that individual

ships chartered to clients all over the world, rather

than the fleet of ships itself, were separate

“establishments” for the purposes of collective

consultation obligations. This decision has

significant consequences in terms of the number of

employees that could be made redundant on any

one ship.

THE STATUTORY POSITION

Section 188(1) of the Trade Union and Labour

Relations (Consolidation) Act 199 (“TULR”) provides:

"Where an employer is proposing to dismiss

as redundant 20 or more employees at one

establishment within a period of 90 days or

less, the employer shall consult about the

dismissals all the persons who are

appropriate representatives of any of the

employees who may be affected by the

proposed dismissals or may be affected by

measures taken in connection with those

dismissals.”


Sealion Shipping Ltd (“Sealion”), a UK incorporated

company, operates a fleet of support vessels

chartered to businesses all over the world. At the

time of the dispute, it operated 25 ships registered

under the flags of various nations on different

arrangements. These vessels were typically

stationed outside Great Britain.

Seahorse Maritime Ltd (“Seahorse”), a company

incorporated in Guernsey, supplied employees to

work on Sealion’s vessels. Nautilus International

(“Nautilus”) is Seahorse’s recognised trade union for

collective bargaining purposes.

In 2015, the decision was taken to lay up (i.e. make

idle) some of the ships in the fleet, which was liable

to lead to redundancies in the workforce. Nautilus

brought proceedings against Seahorse, claiming that

it was in breach of its obligations under the TULR.

There were two preliminary issues for the

Employment Tribunal to decide:

a. whether, by virtue of a connection with Great

Britain, it had jurisdiction to determine the claim

(“the territorial jurisdiction issue”); and

b. whether the ships in the fleet on which

employees of Seahorse were employed were to

be considered as one “establishment”, or

whether each ship was a separate

establishment (“the establishment issue”).

The importance of the establishment issue was that

if each ship were a separate establishment, it was

very unlikely that at least 20 Seahorse employees

would be liable to be made redundant on any one

ship.

An employment judge held that the Employment

Tribunal did have jurisdiction to entertain the claim

and that each ship did not constitute a separate

establishment. The Employment Appeal Tribunal

(“EAT”) upheld the employment judge's decision on

both points. Seahorse appealed to the Court of

Appeal.

THE COURT OF APPEAL DECISION

The establishment issue

The Court of Appeal held that the term

“establishment”, as defined by EU law, must mean

the unit to which the workers made redundant were

assigned to carry out their duties. Specifically, the

Court of Appeal found that it was not essential for

the unit in question to have legal, economic,

financial, administrative or technological autonomy

nor management functions, in order for there to be

the necessary “establishment”.


However, an “establishment” did require a certain

degree of permanence and stability, had to be

assigned to perform one or more given tasks and

had to have a workforce, technical means and a

certain organisational structure allowing for the

accomplishment of those tasks. The Court of Appeal

stated that the focus ought to be on whether the

“establishment” is a unit and whether it is a single

“place”, and noted that it was not material whether

the owner/operator of the unit was also the

employer of some or all of the workforce.

On this basis, the Court of Appeal concluded that

each ship as a self-contained operating unit was

clearly an establishment. Furthermore, since the

Seahorse crew were typically assigned to particular

ships, these establishments could also be said to

have workforces assigned to them.

The Court of Appeal stressed that this reasoning was

specific to the present issue and the circumstances

of the present case. Indeed, a self-contained team

moving from location to location on a short-term

basis, and employed by a different person than the

owner or operator of a unit, was given as an example

of a unit that would not be regarded as an

establishment for these purposes.

Since the Court of Appeal was unable to determine

to which establishments unassigned crewmen were

assigned, it went on to consider territorial

jurisdiction.

Territorial jurisdiction

The Court of Appeal held that the question of

whether there was a sufficient connection with Great

Britain fell to be answered by reference to the

establishment - that is, the individual ships - and not

to the individual employees assigned to them.

Indeed, the Court considered that it could not have

been the intention of Parliament, or the makers of

the EU Directive from which the TULR is derived, that

employers should be obliged by British or EU law to

consult about the making of redundancies at

establishments on the other side of the world, even

if some of the workforce are UK nationals and/or

live in Great Britain.

The vessels’ only connections with Great Britain

were that some of Seahorse’s functions were

performed through the UK-based agent. This, and

the fact that the employer was based in the UK, was

not sufficient to overcome the territorial pull of the

place of work. It followed that the Tribunal did not in

any event have jurisdiction to hear Nautilus' claim.

COMMENT

This decision mirrors that in USDAW and another v.

WW Realisation 1 Ltd (in liquidation), Ethel Austin

Ltd and another (C-80/14) (the ‘Woolworths’ case),

in which it was held that each retail store was a

separate establishment. It is, however, a welcome

decision because it considers the application of the

TULR outside Great Britain and clarifies that it is the

“establishment” (each ship in this case) that must

have the connection with Great Britain, rather than

individual employees.

REBECCA THORNLEY-GIBSON

PARTNER, LONDON

rebeccathornley-

[email protected]

FRANCESCA JUS-BURKE

ASSOCIATE, LONDON

francescajus-

[email protected]


DUBAI CASSATION COURT UPHOLDS

INSURERS’ COVERAGE DEFENCE TO CARGO

CLAIM

In a recent judgment, the Dubai Court of Cassation

upheld multiple defences raised by insurers against

coverage of a cargo claim following partial loss to a

cargo of direct reduced iron.


Insurers issued a marine insurance cargo policy for a

cargo of 30,000 MT of direct reduced iron (“DRI”) to

be carried from Iran to China. The policy stated that

it was in respect of cargo carried from Shahid

Rajaee port or Bandar Abbas, Iran to Shanghai,

China. The insured value was around AED 53m. The

policy incorporated the Institute Cargo Clauses A.

The vessel sailed from Bandar Abbas on 16 June

2011 and arrived at Zhangjiagang port, China, on 23

July 2011, commencing discharge operations.

Zhangjiagang port is approximately 150km north of

Shanghai port and no notice of the change of

discharge port was given to insurers prior to the

vessel arriving in Chinese waters.

Discharge of the DRI was completed late on 28 July

2011 and heavy rainfall was recorded in the early

hours of that day. The contemporaneous evidence

showed that although the vessel’s covers were

closed during this downpour, nonetheless a

significant quantity of the DRI was exposed to the

rain. The DRI was also loaded on to truck beds that

had become damp following the rainfall. In certain

conditions, DRI can oxidise at such a rate that an

exothermic reaction (i.e. one that gives off heat)

occurs and hydrogen is produced. In certain

instances, it is possible for this reaction to produce a

highly explosive mix. The rain in this instance led to

such explosive conditions and the DRI was

damaged. The receiver took no steps to segregate

the damaged cargo from the sound cargo and a

significant quantity of DRI was stored in an open

storage yard. The insured brought a claim under the

policy for damage to 80% of the DRI (value AED

36m).

THE COURT DECISION

Clause 10 of the Institute Cargo Clauses provides for

cargo to be held covered at an additional premium

when the destination of a voyage is changed,

subject to insurers being given prompt notice.

Article 380(2) of the UAE Maritime Code effectively

provides that where the insured changes the insured

voyage without notice to insurers, insurers are not

liable for any losses that occur outside of the agreed

voyage.

The insured asserted that the policy provided cover

from the time the DRI left the warehouse in Bandar

Abbas until it was delivered to the final warehouse in

China, and that the insured peril operated before the

DRI was delivered to the final warehouse. The

insured contended that it was not the charterer of

the vessel and that, accordingly, it had no

knowledge of the change of discharge port. The

upshot of this, it was said, prevented the insured

from giving notice to the insurers of the change of

voyage.

The insurers asserted that the insured’s failure to

give “prompt notice” of the change of port allowed

them to deny cover and avoid liability for the claim.

The insurers also argued that the charterers of the

vessel were the insured and/or their agents, that the

loss occurred in Zhangjiagang port (a river port

which has very different characteristics to Shanghai

port), such that pursuant to Article 380 of the

Maritime Code, the insurers were not liable for any

loss that occurred in Zhangjiagang port. The insurers

further argued that the insured/receivers materially

contributed to the loss in failing to handle and store

the DRI in accordance with industry standards.


BRIAN BOAHENE

PARTNER, DUBAI

[email protected]

KHALID HAMED

PARTNER, DUBAI

[email protected]

After a visit by the court-appointed expert to the

relevant locations in China, the final expert report at

the Court of Appeal stage concluded that the insured

had given the order for the vessel to deviate from

Shanghai to Zhangjiagang, that insufficient steps

had been taken to protect the DRI from damage and

that once damaged, the insured/receivers materially

contributed to the loss in failing to dry the damp DRI,

properly store all the DRI, and to segregate the

sound DRI from the damaged cargo. The Court of

Appeal endorsed the expert report and found in

favour of insurers, with that decision being upheld by

the Court of Cassation.

In reaching its conclusion, the Court of Cassation

agreed that the decision to sail to Zhangjiagang was

a voluntary one taken by the insured, and that the

failure to give notice of the change of the discharge

port meant that the insurer was not liable for any

losses which occurred outside the original voyage,

as stated in the policy.

COMMENT

This is a recent example of a judgment handed down

by the Dubai Court of Cassation in which an insurer

has been able to decline cover on the basis of a

breach of an incorporated set of standard terms and

conditions. It is encouraging that, in this case, the

Court moved away from a position where a claim is

accepted without scrutiny, or in ignorance of policy

terms.

Whilst there is no legal principle of precedent in the

UAE, this judgment is an encouraging development

and it is hoped that it will have persuasive value in

similar cases heard in the UAE local courts.

This article first appeared in Marasi News.

SHERIDAN STEIGER

SENIOR ASSOCIATE, DUBAI

[email protected]


NEWS &EVENTS

FIRM NEWS

INCE GORDON DADDS AUGMENTS MARINE INSURANCE

OFFERING WITH DOUBLE PARTNER PROMOTION

On 1 November 2018, the firm promoted Carrie Radford

and Elle Young to the partnership. As part of their

promotion, they will co-lead the firm’s marine insurance

practice in London, an area of specialism for both Carrie

and Elle.

Click here for more information.

INCE GORDON DADDS PROMOTES FOUR MARITIME AND

ENERGY SPECIALISTS TO THE PARTNERSHIP

On 1 December 2018, the firm promoted maritime

specialists Jonas Adolfsson and Antonia Jackson, and

energy experts Phillippa Hook and Anna Macdonald to the

partnership in London.

Click here for more information.

EVENTS

LONDON INTERNATIONAL SHIPPING WEEK

Ince Gordon Dadds is proud to be a sponsor of

London International Shipping Week taking place

9 to 13 September 2019.

https://www.incegdlaw.com/en/news-and-events/news/ince-and-co-augments-marine-insurance-offering-with-double-partner-promotion

https://www.incegdlaw.com/en/news-and-events/news/ince-and-co-promotes-four-maritime-and-energy-specialists-to-the-partnership

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incegdlaw.com l 24 Hour International Emergency Response Tel: + 44 (0) 20 7283 6999

Ince Gordon Dadds LLP is a limited liability partnership registered in England & Wales (registered number: OC383616) authorised and regulated by the Solicitors Regulation Authority (number: 596729). A list of members of the LLP, and of those non-members designated as

partners, is displayed at our registered office: Aldgate Tower, 2 Leman St, London E1 8QN. The term ‘partner’ used in relation to the LLP, refers to a member of the LLP or an employee or consultant of the LLP or any affiliated firm of equivalent standing. Ince Gordon Dadds LLP

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GLOBALCONTACTS

LONDON

MICHAEL VOLIKAS, PARTNER

[email protected]

+44 (0) 20 7481 0010

HAMBURG/COLOGNE

JAN HUNGAR, PARTNER

[email protected]

+49 (0) 40 380 860

PIRAEUS

PAUL HERRING, PARTNER

[email protected]

+30 210 455 1000

DUBAI

RANIA TADROS, PARTNER

[email protected]

+971 4 307 6000

BEIJING

WAI YUE LOH, PARTNER

[email protected]

+86 (0) 10 5706 9588

SHANGHAI

PAUL HO, PARTNER

[email protected]

+86 (0) 21 6157 1212

HONG KONG

DAVID BEAVES, PARTNER

[email protected]

+852 2877 3221

SINGAPORE

HARRY HIRST, PARTNER

[email protected]

+65 6305 9080

SHIPPING E-BRIEF JANUARY 2019 - in any case...2 SHIPPING E-BRIEF JANUARY 2019 CONTENTS SHIPPING E-BRIEF Supreme Court considers burden of proof in cargo damage claims under Hague Rules

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