SHIPPING E-BrIEf January 2013 E-BrIEf January 2013 CONTENTS SHIPPING When is a “clean bill” not clean? 2 Test for net loss of time under nyPE off-hire clause 3 Shipyard liable

SHIPPING E-BrIEfJanuary 2013

CONTENTS

SHIPPING

When is a “clean bill” not clean? 2

Test for net loss of time under nyPE off-hire clause 3

Shipyard liable for failing to obtain extension of refund guarantee within a reasonable time 5

no notice required before suspending performance under Supplytime 1989 6

Destruction by fire not a mechanical breakdown under laytime exclusion clause 7

no frustration of charterparty where cost of repairing vessel exceeded her market value 8

The Decurion: Hong Kong court rules on meaning of “control” in the context of a ship arrest 10

Second-hand ship must be of satisfactory quality pursuant to Sale of Goods act 11

Scope of LOI and LOu given to port for damaged vessel and containers 12

SHIPPING lItIGatIoN

Court lifts anti-suit injunction against unpaid bunker suppliers proceeding in uS 13

Litigation or arbitration in multiple contracts concerning the same subject matter: can you have your cake and eat it? 15

SHIPPING lEGISlatIoN

Maritime Labour Convention enters into force august 2013 16

NEwS

Ince corporate team advises on LPG shipping group merger 18

Two Ince & Co partners named in Lloyd’s List Top 100 18

novoship (part of Sovcomflot Group) obtains Commercial Court judgment of approximately uS$169 million 19

02 SHIPPINGe-brief

SHIPPING when is a “clean bill” not clean?

Breffka & Hehnke GmbH & Co KG and others v. Navire Shipping Co. Ltd and others (Saga Explorer) [2012] EWHC 3124 (Comm)

Cargo interests brought a claim under the bills of lading in relation to a heavily rusted cargo of steel pipes. The pipes were in fact rusty on shipment, but the bills of lading contained a standard form RETLA clause (named after the US case, Tokio Marine & Fire Insurance v. Retla Shipping), on which the owners sought to rely in order to defeat the claim. The RETLA clause sometimes appears on the face of a bill of lading where the carriage involves iron, steel, metal products or timber. The aim of the clause is to qualify the term “apparent good order and condition” by clarifying that, when the cargo was received for shipment, it was not necessarily free of visible rust or moisture, staining, chaffing etc. This means the carrier can issue clean bills of lading, even though the mate’s receipts have been claused. The decision of Mr Justice Simon in this case is the first time that the English courts have considered this clause. He disagreed with the reasoning behind the decision in Tokio Marine and held that the representation made in the bills as to the cargo’s apparent condition was false.

the background factsThe vessel loaded a cargo of steel pipes at Ulsan, for carriage to Los Angeles, San Francisco and Vancouver. The bills of lading contained a uS General Paramount Clause incorporating uS COGSa. They also contained the usual statement that the goods were shipped “in apparent good order and condition”. In addition, however, the bills included a RETLA clause, which provided in material terms as follows:

“If the goods as described by the Merchant are iron, steel [or] metal..., the phrase ‘apparent good order and condition’ set out in the preceding paragraph does not mean the Goods were received… free of visible rust or moisture... If the Merchant so requests, a substitute Bill of Lading will be issued omitting this definition and setting forth any notations which may appear on the mate’s or tally clerk’s receipt.”

A load port survey contained a number of comments relating to rust staining and surface oxidisation of the steel pipes and recommended clausing the bills and mate’s receipts. The mate’s receipts also included a rETLa clause and specified that the condition of the cargo was as per the surveyor’s report. The surveyor’s report was not, however, attached. The relevant booking note stated that bills were to be issued as per the mate’s receipt.

The owners did not, however, clause the bills. Instead, at the shippers’ request, they issued clean bills, containing the RETLA clause. They did this against a LOI from the shippers. When the cargo was discharged at each of the three discharge ports, it was found to be significantly rust damaged. The cargo interests sued the owners for their resulting losses.

the Commercial Court decisionThere was no suggestion that there had been significant deterioration in the condition of the cargo during the voyage, so the main issue was the nature of the representation as to the condition of the cargo made by the owners on shipment.

The owners relied on the RETLA clause and argued that the clause should be interpreted as meaning that all surface rust, of whatever degree and extent, was excluded from their representation as to the apparent good order and condition of the cargo. They cited the decision in Tokio Marine & Fire Insurance Company Ltd v. Retla Steamship Company [1970] 2 Lloyd’s rep 91 in support of their argument. In that case, the uS Court of appeals (ninth Circuit) took the view that the clause meant, reading the bill of lading as a whole, that there was no representation that the pipes loaded were free of rust or moisture.

The cargo interests contended that the rETLa clause qualified the representation as to apparent order and condition, but that the two provisions still had to be read together. They further argued that, since the clause sought to avoid liability, it ought to be read restrictively and should only be effective to exclude liability for surface rust likely to be found in any normal cargo and that would not detract from the cargo’s overall quality or merchantability.

The judge broadly agreed with the interpretation argued for by the cargo interests, taking the view that the rETLa clause had to be read together with the standard statement as to condition. He, therefore, concluded that it was, in effect, a qualification “directed to the superficial appearance [of the cargo]”.

The judge went on to set out two reasons for disagreeing with the owners’ interpretation:

1. it would rob the representation of apparent good condition of all effect; and

2. the reasoning in the US case on which the owners relied was flawed. The uS court placed great emphasis on the fact that the shippers had the right, if they so wished, to have substitute bills of lading issued, noting the actual condition of the cargo (in practice, referring to the surveyor’s report). In reality, a shipper would be very unlikely to do this, given the difficulties a seller will generally have in obtaining payment against a claused bill.

The judge concluded that the representation made by the owners in the bills was fundamentally false (deceitful in fact) and that that representation had been relied upon by the cargo interests, to their detriment. He, therefore, found in favour of the cargo interests.

CommentThis decision highlights the Master’s duty to record the cargo’s apparent order and condition accurately, based on his honest and reasonable opinion. There is therefore no real substitute for clausing the bills where the condition of the cargo at the time of

03SHIPPINGe-brief

shipment requires it. Failure to properly describe the condition of the cargo leaves the owners open to allegations of being party to a misrepresentation, particularly from third party purchasers of the cargo who have only contracted to do so based on a bill of lading and who have not been shown any pre-shipment survey by the sellers.

In English law at least, the incorporation of a RETLA clause in a bill of lading will not protect owners, except in cases where the cargo displays only superficial rust or moisture. a LOI from shippers, such as the one issued in this case, will provide no recourse for owners where they knew, through the Master, of the actual condition of the cargo at the time the clean bills were issued and the LOI given. In those circumstances, their actions will be deemed wrongful and the LOI will consequently be unenforceable.

ted GrahamPartner, [email protected]

ruaridh GuySolicitor, [email protected]

Test for net loss of time under NYPE off-hire clause

Minerva Navigation Inc v. Oceana Shipping AG (M/V Athena) [2012] EWHC 3608 (Comm)

The dispute in this case arose out of the vessel’s failure to proceed immediately to her new discharge port when ordered to do so by the charterers. The charterers claimed that the vessel was off-hire for the period she spent drifting rather than proceeding to the discharge port. An issue with the bills of lading meant that, even if the vessel had proceeded to port immediately upon the charterers’ orders, she would not have been able to commence discharging any sooner. The owners argued that there had therefore been no net loss of time in the performance of the charter service overall and that the vessel remained on-hire for the disputed period. The charterers contended that the test should be whether there had been a loss of time in performance of the services immediately required of the vessel; in this case, to proceed to the discharge port. The Commercial Court, allowing the owners’ appeal from the arbitration award, held that the correct test under clause 15 nyPE 1946 was whether there had been a net loss of time in the charter service overall. On the facts, this provided the owners with a defence to the claim.

the background factsMinerva navigation (“owners”) time chartered the vessel to Oceana Shipping aG, who in turn sub-chartered her to Transatlantica Commodities Sa (“charterers”). Save for the rate of hire, the charterparty and the sub-charterparty were on materially identical amended nyPE 1946 terms. The relevant part of the off-hire provision at clause 15 read:

“...in the event of loss of time from... default of master... or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost...”

The vessel loaded a cargo of wheat for carriage to Syria and bills of lading were issued showing discharge ports in Syria. The vessel sailed to Syria, but the cargo was rejected. The charterers gave instructions for the goods to be carried to a substitute port in Libya (Benghazi). under the terms of the charterparties, the change in discharge port obliged the charterers to return the original bills of lading in order for them to be reissued. This took some time to resolve, however, due to a difficulty with the original bills. In the meantime, the vessel departed Syria and entered international waters outside Libya.

On 19 January 2010, the charterers ordered the vessel to Benghazi port anchorage to await further instructions before berthing. Due to the difficulty with the original bills of lading, the vessel instead proceeded to a position about 50 miles off Libya where she began a period of drifting (the “drifting period”). The drifting period continued until 30 January when the difficulty with the bills of lading was resolved and the vessel proceeded to port as ordered. The vessel berthed on 3 February and thereafter commenced her discharge operation.

the arbitration awardThe claim that the vessel was off-hire for the drifting period was passed up the charterparty chain and went to arbitration.

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The arbitrators found that the failure of the vessel to proceed to port when ordered to do so on 19 January constituted a “default of master” (a cause falling within clause 15) and that this had resulted in a loss of time in performing the service immediately required of her. Relying on the Berge Sund [1993] 2 Lloyd’s rep. 453, the tribunal decided that this was sufficient for the off-hire claim to succeed. The fact that the same time would have been lost for other reasons (in this case, the difficulty with the bills of lading) even if the vessel had proceeded directly to Benghazi did not change the arbitrators’ view that the vessel was off-hire for the entire drifting period. The owners appealed.

the Commercial Court decisionThe question under appeal was formulated as follows:

“Whether under clause 15 of the NYPE charterparty (and of the present Charterparty) the Vessel is off-hire for a particular period merely because the Vessel is not efficient for the services then required during that period, or whether the Charterers have to further show a net loss of time resulting thereby.”

Mr Justice Walker began by identifying two prerequisites for clause 15 to come into play:

1. that a cause prevents the full working of the vessel (i.e. her ability to fully perform the service immediately required of her); and

2. that the cause in question is a prescribed cause (i.e. falling within the description in clause 15).

If these prerequisites are met, clause 15 is engaged. However, that is not enough for an off-hire claim to succeed; the court must then apply the wording of the clause to the facts to determine what consequences were intended to be brought about. Mr Justice Walker drew an important distinction here between the clause being engaged, on the one hand, and the consequences flowing from the wording of the clause, on the other. In this case, he found that the prerequisites above had been met and that clause 15 had therefore been engaged. as to the consequences, the essential question was whether “time thereby lost” applied to a period of time where, although the charterers could show that the service immediately required of the vessel was delayed due to a prescribed cause, they could not show that there had been a net loss of time in performing the chartered service overall.

The judge decided that the ordinary meaning of the words “time lost thereby” required there to be a net loss of time in performance of the charter service overall. In his view, there was good reason to suspend payment of hire only to the extent that there was a loss of time overall; otherwise, the charterers would gain a windfall. He found nothing in the relevant authorities to contradict this view. In particular, the Berge Sund was distinguished on the grounds that, in that case, the off-hire clause was not engaged at all; although the vessel could not commence loading until hold cleaning had been done, the service immediately required of her was held to be the hold cleaning itself, which she was efficient to carry out. Prerequisite (1) above had not been met and the Court of appeal in that case did not therefore need to consider the consequences that flowed from the wording of the clause.

In light of the arbitrators’ finding of fact that the bill of lading issue would have delayed discharge in any event, the judge concluded that there was no loss of time in the context of the chartered service overall. The consequences of clause 15 being engaged by default of master preventing the vessel from proceeding to port were therefore none in terms of “time thereby lost” and the judge allowed the owners’ appeal.

CommentThe decision in this case demonstrates that the court will give effect to “net loss of time” clauses such as the one at clause 15 of the nyPE 1946 form. The court endorsed the analysis of the authors of Wilford on Time Charters that the charterers must show both a “loss of a period of service” and concurrently that there has been “delay to the progress of the adventure”.

Daniel JonesPartner, [email protected]

alex Chisholm Solicitor, [email protected]

05SHIPPINGe-brief

Shipyard liable for failing to obtain extension of refund guarantee within a reasonable time

(1) Wuhan Ocean Economic & Technical Cooperation Company Ltd and (2) Nantong Huigang Shipbuilding Co Ltd v. Schiffahrts-Gesellschaft “Hansa Murcia” MBH & Co KG (Hansa Murcia) [2012] EWHC 3104 (Comm)

A shipyard’s failure to procure a renewal of a refund guarantee (two days before its expiry), was held to be a breach of an implied term of the shipbuilding contract that the shipyard must procure an extension within a reasonable time. However, this breach was not of itself repudiatory in nature. It was merely breach of an innominate term of the contract which did not deprive the innocent party (the buyers in this case) of “substantially the whole benefit of the contract”. As a result, Mr Justice Cooke, on appeal from an arbitration award, held that the buyers were wrong to terminate the shipbuilding contract when they did, two days before the actual expiry date of the refund guarantee.

the background factsThe buyers had entered into the shipbuilding contract with the shipyard on 8 January 2004, before the financial crisis. By an addendum to the shipbuilding contract dated 22 December 2009 (“addendum no. 4”), the parties agreed to a delayed delivery of the vessel. addendum no. 4 extended the delivery date until 31 October 2011 and required the shipyard to procure an extension of the refund guarantee until 31 May 2012 (the refund guarantee had been due to expire on 30 June 2010). Crucially, addendum no. 4 omitted to set a deadline for extension of the refund guarantee.

In the interim, the shipbuilding contract had become unprofitable and the buyers were looking to get out of it. On 23 april 2010, the buyers made their final enquiry of the shipyard as to when the extended refund guarantee would be provided. Two months later, on 28 June 2010, two days before the original refund guarantee was due to expire, the buyers alleged that the shipyard’s failure to obtain an extension of the refund guarantee was a repudiatory breach of the shipbuilding contract, which they purported to accept as a ground for terminating the contract. On 29 June 2010, the buyers commenced arbitration against the shipyard. Pursuant to the terms of the original refund guarantee, the commencement of arbitration by either party would automatically extend the validity of the guarantee to 60 days after the final arbitration award was issued.

Had the buyers made further enquiries of the shipyard, they would have discovered that efforts were being made to obtain the extension. On 29 June 2010, the day before the refund guarantee was due to expire and the same day the buyers commenced arbitration, the refund guarantee was extended by the bank.

the tribunal’s decisionThe arbitration tribunal held that it was necessary to imply a term into the shipbuilding contract that the shipyard should procure the refund guarantee within a reasonable time, as the contract was silent on this point and such a term was necessary to protect the buyers’ security. The tribunal further found, as a matter of fact, that the “reasonable time” for the shipyard’s performance ended on 16 June 2010, 14 days before the

refund guarantee was due to expire. after 16 June 2010, the shipyard was, in the tribunal’s view, in breach of the shipbuilding contract. The tribunal concluded that this was a continuing breach and, by 23 June 2010 (seven days before expiry of the refund guarantee), it had become so serious as to go to the root of the shipbuilding contract and constitute a repudiatory breach that entitled the buyers to accept that repudiation and terminate the contract when they did on 28 June 2010. The shipyard appealed.

the Commercial Court decisionThe judge agreed with the tribunal that a term should be implied into the contract that the shipyard must procure the extension of the refund guarantee within a reasonable time. He further stated that he could not disturb the tribunal’s finding of fact that 16 June 2010, 14 days before the expiry of the guarantee, constituted a “reasonable time” and that the shipyard was in breach of the contract on that date.

The judge disagreed with the tribunal, however, that this continuing breach became repudiatory when the shipyard failed to procure the extension by 23 June 2010. In his view, the breach was not sufficiently serious so as to deprive the buyers of substantially the whole benefit of the shipbuilding contract. This was because, as the tribunal had found, the refund guarantee would automatically be extended if the buyers commenced arbitration against the shipyard (as they had done). The buyers could even have waited until the expiry of the refund guarantee before commencing arbitration against the shipyard for its breach of the implied term, thereby automatically extending the buyers’ security. On that basis, Mr Justice Cooke held that the buyers’ security was not “imperilled”.

The judge concluded that there was a breach of contract, for which the buyers could be adequately compensated in damages, but not a repudiatory breach that entitled the buyers to terminate the shipbuilding contract when they purported to do so.

Comment This decision highlights the need for buyers to exercise extreme caution when agreeing extensions to delivery dates by addenda to shipbuilding contracts. Buyers should consider making an extension of the refund guarantee a condition precedent to the continued existence of the shipbuilding contract or making time of the essence and, in each case, stipulating the exact consequence of failing to obtain an extension. In this case, the Commercial Court was persuaded that, on the particular wording of the refund guarantee in question, commencement of arbitration would extend the refund guarantee automatically. This will not, however, be the effect of every refund guarantee and buyers should be cautious not to assume that they will always have this protection.

wai Yue lohPartner, [email protected]

Kirsty CattanachSolicitor, [email protected]

06 SHIPPINGe-brief

No notice required before suspending performance under Supplytime 1989

Greatship India Ltd v. Oceanographia SA de CV (Greatship Dhriti) [2012] EWHC 3468 (Comm)

The Commercial Court has recently determined a question of law arising under the Supplytime 1989 charterparty form. The dispute arose in connection with clause 10(e) of the form which provides for a right, where there has been a failure to pay hire, to withdraw the vessel and/or to suspend performance under the contract.

the background factsDue to the non-payment of hire, the owners suspended the provision of the vessel’s services under the charterparty. The owners submitted in arbitration that there was no obligation under the Supplytime 1989 form to give notice before exercising that right. The relevant part of clause 10(e) of the Supplytime 1989 form reads as follows:

“While payment remains due Owners shall be entitled to suspend the performance of any and all of their obligations hereunder...”

By contrast, the charterers submitted that there was an express or implied requirement that the owners would give five banking days’ notice before suspending performance. Amongst other arguments, the charterers relied upon an earlier part of clause 10(e) which, in relation to the right to withdraw, reads as follows:

“In default of payment as herein specified, Owners may require Charterers to make a payment of the amount due within 5 banking days of receipt of notification from Owners; failing which Owners shall have the right to withdraw the vessel...”

the arbitrators’ decisionThe arbitrators noted that clause 10(e) appeared to give the owners an unfettered right to suspend performance of the vessel without giving any notice. However, they determined that the right to suspend was not a stand-alone provision and could not be separated from the context of the remainder of clause 10(e). The arbitrators therefore determined that there was an express requirement that five banking days’ notice be given before the owners could suspend performance. To support this conclusion, the arbitrators found that the words “while payment remains due” did not refer to the failure to pay hire on the due date but rather to the period of time after the owners have given their five day notice that they intended to withdraw the vessel. The owners appealed.

the Commercial Court decisionMrs Justice Gloster agreed with the owners that there was no qualification to the right to suspend performance requiring them to give five banking days’ notice of a suspension. The charterers had argued that theirs was the most commercial construction on the basis that any suspension of services under a Supplytime charter, which may be used in connection with complicated offshore activities, could have a very severe effect on the charterer. Whilst not accepting that this was the most commercial construction of the relevant provision, the judge

agreed with the owners that, as per the principle stated by the Supreme Court in Rainy Sky v. Kookmin SA [2011] uKSC 50, the court should give effect to clear, unambiguous and unfettered language. The court found that the words “while payment remains due” clearly and unambiguously mean that the owners are entitled to suspend performance at any time after payment has become due and whilst it remains unpaid. Mrs Justice Gloster saw no justification for an implied notice period as one was not required to make the contract workable.

Finally, the judge noted that the Supplytime 2005 form contains modified wording in respect of suspension and withdrawal but expressed no view as to whether, under the revised form, suspension could only take place after notification has been given.

CommentThis is perhaps an unsurprising result given that the relevant wording makes no reference to a notice period. The Commercial Court made it clear that the Rainy Sky principle of applying a “business common sense” construction is only relevant where there are two possible constructions of the same wording. In this case, it was held that there was only one logical construction of the wording and the arbitrators’ decision was overturned.

Nick BurgessPartner, [email protected]

David richardsSolicitor, [email protected]

07SHIPPINGe-brief

Destruction by fire not a mechanical breakdown under laytime exclusion clause

E.D. & F. Man Sugar Ltd v. Unicargo Transportgesellschaft mbH (Ladytramp) [2012] EWHC 2879 (Comm)

The Commercial Court has in this case applied a narrow construction to a laytime exclusion clause in respect of time lost at the load port. The delays were due to a fire that had completely destroyed the conveyor belt system linking the terminal normally used by the charterers to the warehouse where the sugar cargo was stored. Nonetheless, the court upheld the owners’ claim for demurrage because it found that the destruction by fire was not a “mechanical breakdown”, nor were the subsequent actions of the port authority “government interferences” under the relevant clause.

the background factsThe owners originally commenced arbitration against the charterers under a charterparty based on the Sugar Charter Party 1999 Form, claiming demurrage for a period of waiting at the load port at Paranagua, Brazil.

The charterparty provided for the vessel to “proceed to 1-2 safe berth(s), 1 safe port (intention Santos)...”. Clause 28 was an exceptions clause, stating that time was not to count as laytime in certain specified circumstances:

“Clause 28: In the event that whilst at or off the loading place... the loading... of the vessel is prevented or delayed by any of the following occurrences: strikes, riots, civil commotions, lock outs of men, accidents and/or breakdowns on railways, stoppages on railway and/or river and/or canal by ice or frost mechanical breakdowns at mechanical loading plants, government interferences, vessel being inoperative or rendered inoperative due to the terms and conditions of appointment of the Officers and crew time so lost shall not count as laytime.”

The charterers declared Paranagua as the load port at the time of the fixture. Prior to the vessel’s arrival, however, there was a fire at the terminal normally used by the charterers. The fire destroyed the conveyor belt system linking the terminal to the warehouse where the sugar was kept. as a result, the charterers had to use a different terminal, although the berth they used was in any event one of the three which they would have used even if the fire had not happened. The charterers sought to rely on clause 28 to avoid the owners’ claim for demurrage in relation to the delays in loading.

the Commercial Court decisionIssue 1 – Should the charterers have nominated an alternative safe berth?

Mr Justice Eder held that the charterers did not need to nominate an alternative berth in order to rely upon the exceptions in clause 28. He disagreed with the tribunal’s finding that the charterers had an obligation to nominate a berth where the cargo could be loaded and that the fire and its effects did not make it impossible for the charterers to do so. There were a number of alternative berths at which the vessel could have loaded and, in the arbitrators’ opinion, the charterers could not

therefore invoke clause 28 because loading was only prevented or delayed in the sense that it became impossible to load at the berth originally intended.

The judge, however, said that the case was not about berth nomination but about whether there was prevention or delay in loading caused by a relevant excepted peril. There could be prevention or delay in loading prior to any valid nomination of a berth and delays consequential on the operation of an excepted peril may be covered by exceptions clauses. The charterers would have been entitled to require the vessel to wait until the original terminal was again usable, and the only question would have been whether there was “prevention or delay” during that period. The fact that the charterers could have made alternative arrangements and redirected the vessel did not mean that an excepted peril under clause 28 could not apply.

The difference in opinion between the tribunal and the judge on this issue proved to be irrelevant, however, as the judge then went on to agree with the tribunal that the wording of clause 28 did not cover the events in question.

Issue 2 – Did the destruction of the conveyor belt system by fire fall within the words “mechanical breakdowns at mechanical loading plants”?

The tribunal and the judge both agreed that the destruction of the conveyor belt system by fire was not a “mechanical breakdown”. Clause 28 made no mention of fire as an excepted peril. The question therefore arose as to whether the phrase “mechanical breakdowns at mechanical loading plants” in clause 28 could apply to the damage in this case. It was held that it did not so apply, since the inoperability of the conveyor belt was a result of physical damage due to the fire rather than mechanical breakdown. The destruction of the conveyor belt system did not qualify as a “mechanical breakdown at mechanical loading plants”, since destruction or even partial destruction is not within the term “breakdown”.

Mr Justice Eder distinguished both The Afrapearl and The Thanassis A, where the relevant exceptions clauses covered “breakdown of machinery or equipment”. The present clause lacked the words “and equipment” and that pointed in favour of a narrower meaning. Furthermore, in the present case, the nature of the malfunction had to be “mechanical”, which restricted the scope of the “breakdown” that must be established. Additionally, given that the exceptions clause made no mention of fire, the judge concluded that fire was not intended to be an exception to the running of laytime pursuant to clause 28.

The judge did, however, reject the owners’ alternative argument that the exceptions clause only applied when the vessel became an arrived ship and the laytime clock started to run. rather, he said, there was no requirement that the excepted event must occur (i.e. commence) while the vessel was “at or off the loading place” (the words used in clause 28).

Issue 3 – Did the decision of the port authority or other responsible body to reschedule loading/discharging at Paranagua in the light of the fire fall within the words “government interferences”?

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Both the tribunal and the judge agreed that the phrase “government interferences” referred to an embargo or export ban, rather than administrative decisions such as re-scheduling. The tribunal had not found, as a matter of fact, that the port authority at Paranagua was a government entity, which would have been a requirement for the charterers to rely upon this clause. The court also agreed that the words “government interferences” were not intended to encompass a port authority performing its administrative functions. What was required was an act by a port authority, which was also a government entity, which amounted to a sovereign function and which differed from an ordinary administrative act of which any port or berth authority would be capable in the day-to-day management of a berth.

CommentThis case highlights that the English courts will analyse the precise wording of laytime exclusion clauses very carefully and that the outcome will depend to a great extent on the individual wording of the clause in question. The overriding principle for construing limitation or exclusion clauses under English law remains, however, that, in the case of any ambiguity, they will be construed against the party relying upon them.

Jamila KhanPartner, [email protected]

David GoldsmithSolicitor, [email protected]

No frustration of charterparty where cost of repairing vessel exceeded her market value

Bunge S.A. v. Kyla Shipping Company Limited (Kyla) [2012] EWHC 3522 (Comm)

The principal issue in this case was whether a time charterparty was frustrated after the vessel was involved in a collision and the costs of repairing the vessel exceeded her market value. The particular feature distinguishing this case from previous case-law on the issue was that the charterparty contained an express continuing warranty by the owners to maintain the vessel’s hull and machinery insurance up to a specified amount throughout the charterparty. Mr Justice Flaux in the Commercial Court said there was an absence of any authority directly on the point and, reversing the decision of the arbitrator, he held that the presence of this clause in the charterparty meant that the owners could not argue that repairing the vessel and continuing with the charterparty was, at the time of the collision, commercially impossible or that the vessel was a commercial loss. Rather, the clause in question meant that there was an assumption of risk and responsibility by the owners to repair any hull damage up to the insured amount. In this case, the insured amount exceeded the costs of repair and the judge concluded, therefore, that the charterparty was not frustrated.

the background factsThe vessel was chartered on an amended nyPE 1946 form for a period of 12 to 15 months in the charterers’ option. It contained the following clause:

“41.1 Owners warrant that throughout the currency of this Charterparty the vessel shall be fully covered by leading insurance companies/International P&I Clubs acceptable to the Charterers against Hull and Machinery, War and Protection and Indemnity Risk. Cost of such cover to be at the sole expense of the Owners with the exception of extra insurance cost that may be incurred as per clause 35 – Trading.

[41.2...]

41.3 Insurance full style and value

Hull and Machinery: US$16,000,000 London, Norway and USA Markets

[...]”

Ten weeks into the charter, the vessel was involved in a collision through no fault of the owners. Two months later, the owners notified their hull and machinery underwriters that they were abandoning the vessel as a constructive total loss and also informed the charterers that they considered the charterparty to be frustrated. The basis for the owners’ approach was that the likely cost of repairing the vessel would be uS$9 million, considerably higher than the sound market value of uS$5.75 million at the relevant time. The underwriters originally rejected the notice of abandonment, denying that the vessel was a constructive total loss, although they later settled with the owners after the owners commenced US court proceedings against the underwriters.

09SHIPPINGe-brief

The principal remaining dispute was whether the charterparty was indeed frustrated. The owners argued that the vessel was a commercial total loss and relied on an alleged general principle peculiar to charterparties that a charterparty will usually be frustrated where the vessel is damaged such that the costs of repair exceed the value of the vessel. The charterers contended that, irrespective of any such alleged general principle where there was no warranty as to the level of hull insurance, clause 41 of this charterparty obliged the owners to repair the vessel up to the insured value of uS$16 million (i.e. far more than the costs of repair). The charterers submitted that this meant that the owners could not rely on the fact that the costs of repair exceeded the vessel’s market value to declare the charterparty frustrated.

The dispute went to arbitration. The arbitrator agreed with the owners that there was a general principle that a charterparty will usually be frustrated where the vessel is damaged such that the costs of repair exceed the value of the vessel and that only a very clear provision, which clause 41 in his opinion was not, would oblige an owner to repair in those circumstances. He, therefore, held that the charterparty had been frustrated on the date of the collision. The charterers appealed.

the Commercial Court decisionMr Justice Flaux stated that the correct approach in cases of frustration was to ask, in each case, whether on its true construction, the contract under consideration provided for the event or contingency which had occurred or allocated the risk of that event or contingency to one or other of the parties. Among other cases, he cited The Sea Angel [2007] EWCa Civ 547, where the Court of appeal confirmed that the contractual allocation of risk was a primary factor in deciding whether or not a charterparty was frustrated.

The judge was not persuaded that there was any general rule that a charterparty was discharged where the costs of repair exceeded the value of the vessel. Even had there been such a general rule, however, he was of the view that it did not apply in cases where the charterparty contained an express continuing warranty concerning hull insurance. Clause 41 in this case required the owners to keep in place full hull and machinery cover throughout the charterparty up to the amount of uS$16 million. It followed that, unless the underwriters refused to pay out, there would be an expectation on the part of the charterers that the hull and machinery insurance would be available to cover the costs of repair up to the insured value.

In the judge’s opinion, clause 41 made it impossible for the owners to argue successfully that the costs of repair, which were several million dollars less than the insured value, were something “radically different” from what was contemplated and provided for in the charterparty. In other words, by virtue of the continuing warranty in clause 41, the charterparty allocated to the owners the risk that, if a casualty occurred and the vessel required repair, she should be repaired where the costs of repair were within the insured value.

The judge also found that the principle that the court will disregard the fact that a party has insurance available, for example when assessing whether that party has suffered a loss, did not apply in this case. In the context of contractual disputes,

that principle meant that where there was no mention of specific insurance in the contract, it was disregarded and played no part in the allocation of risk. However, the principle did not apply where one party had expressly undertaken and warranted that particular insurance to a particular value would be taken out and maintained throughout the charterparty.

The judge commented that there was no injustice in holding the owners in this case to their bargain. In fact, it was clear that the underwriters had been content for the vessel to be repaired. In the judge’s view, far from the charterparty being frustrated, there seemed to be an element of “self-induced” frustration in the sense that the real reason the charterparty was terminated was that the owners elected not to repair the vessel. He concluded that the charterparty was not frustrated and allowed the appeal.

CommentArguments of frustration of contract do not routinely succeed before the English court, which will incline to the view that the risk for most eventualities will have been allocated in the contract and will fall on one or other party. In this case, the judge relied on the charterparty warranty regarding hull insurance to dismiss the argument of frustration. It remains to be seen which way the court goes in the future where the costs of repairing a vessel exceed the market value and there is no such warranty in the charterparty.

Bob DeeringPartner, [email protected]

Polly DaviesSolicitor, [email protected]

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The Decurion: Hong Kong court rules on meaning of “control” in the context of a ship arrest

Chimbusco Pan Nation Petro-Chemical Co Ltd v. The Owners and/or Demise Charterers of the Ship or Vessel “Decurion” (The Decurion) [2012] HKCFI 630; HCaJ141/2010 (4 May 2012)

This case arose out of the common scenario where a supplier delivers bunkers to a “fleet” of ships it believes are under common control and extends credit terms to its customer. If the customer fails to pay, the supplier will try to arrest one or more ships in the fleet to settle its invoices. as the supplier in this case found, there can often be considerable difficulties enforcing in this way.

the background factsThe bunker supplier, Chimbusco Pan nation Petro-Chemical Co Ltd (“Chimbusco”) had supplied bunkers to the vessel, Decurion, for which it had not been paid. This vessel was owned by Maruba SCa, which was part of the Maruba Group. The claim for these unpaid bunkers amounted to about uS$85,000.

Chimbusco had also supplied bunkers to ten other vessels through bunker supply contracts with Maruba SCa. It had not been paid for the provision of these bunkers either; a claim in excess of uS$4.1 million.

Maruba SCA did not, however, own any of those other vessels. They were chartered by Clan SA, another company within the Maruba Group. Maruba SCa supplied those vessels with bunkers when they were in Hong Kong through another Maruba Group company and pursuant to a separate Services agreement between the Maruba Group companies.

The Decurion called in Hong Kong and was arrested by Chimbusco. Chimbusco claimed against the Decurion the outstanding sums for the provision of bunkers for all eleven vessels, not just the bunkers supplied to the Decurion.

Maruba SCA accepted that Chimbusco had a claim against the Decurion for bunkers supplied to the Decurion. Maruba SCA denied, however, that Chimbusco could claim against the Decurion for the unpaid bunkers in relation to the other ten vessels. It sought to have this element of Chimbusco’s claim struck out.

the legal backgroundThe Admiralty Jurisdiction in Hong Kong is governed by the High Court Ordinance (“HCO”). under the HCO, a bunker supplier can arrest a ship in respect of claims for bunkers which are sold to the owners and supplied to that ship for her operation.

Where bunkers are supplied to ship a for her operation, a bunker supplier may also arrest ship B for claims for bunkers supplied to ship A only if two conditions are met. Those conditions are specified in the HCO and are as follows:

1. that when the cause of action arose, the defendant to the claim was the “owner, charterer of, or in possession or control” of ship a; and

2. that, at the time the action was brought (i.e. when the writ was issued), the defendant was the beneficial owner of ship B.

In this instance, it was clear that Maruba SCA owned the Decurion at the time the writ was issued, so point (2) was not in issue. Maruba SCA were, however, neither the registered owners nor the charterers of the other ten vessels. The issue before the court was, therefore, the interpretation of the words “in possession or control,” as contained in the HCO.

the court’s decision: the meaning of “control”The court looked at the limited cases relating to “control” that had been heard previously in other common law jurisdictions. It found that there may be control of a ship without possession of it, and that the term “control” in such circumstances must mean something else other than the kind of control that comes with possession. The most obvious example of that kind of control would be the ability to tell the person in possession of the ship what to do with the ship.

In this instance, the court found that this ability lay with the charterers, Clan SA, by virtue of the employment clauses contained in the charterparties which it had entered into with the various ships’ registered owners.

Chimbusco pointed to many factors that it said meant Maruba SCa effectively controlled Clan Sa and, therefore, the other ten ships. The court, however, refused to look beyond the charterers in determining who exercised control of the ships:

“[e]ven if (say) Maruba SCA might be treated as the parent of Clan or the individual companies owning the 10 vessels at the relevant times, there is no basis for piercing the corporate veil.”

accordingly, Chimbusco’s claim in relation to the bunkers which it had supplied to the other ten ships was struck out.

CommentBy adopting the analysis above, the court in this case set out a clear and rigorous test for the meaning of “control” under the HCO. Control of a ship rests with the person who is able to tell the person in possession of the ship what to do with that ship. For a ship under time charter, control will normally rest with the time charterer.

The court refused to widen the circumstances in which a ship may be arrested in Hong Kong, which has helped to preserve certainty. It does, however, reinforce the need for bunker suppliers, if they are going to extend credit terms to owners, to have a properly drafted contract which would at least allow for the arrest of the vessel supplied if payment is not made on time. Equally, managers who decide to extend credit to a whole fleet should be aware that recovering payment may still require a series of separate arrests.

Max CrossPartner, Hong [email protected]

William BlagbroughSolicitor, Hong [email protected]

Second-hand ship must be of satisfactory quality pursuant to Sale of Goods act

Dalmare SpA v. Union Maritime Ltd and Valor Shipping Limited (Union Power) [2012] EWHC 3537 (Comm)

The Commercial Court, on appeal from an arbitration award, has decided that a term that a second-hand ship be of “satisfactory quality” was implied into a second-hand ship sale and purchase contract. The contract, a Memorandum of agreement (“MOa”), was based on the norwegian Sale Form 1993 (“nSF 93”), and the term as to satisfactory quality was implied by virtue of s.14(2) of the Sale of Goods act 1979 (“SGa”).

The new norwegian Sale Form 2012 expressly excludes all implied terms at clause 18, with the words “Any terms implied into this Agreement by any applicable statute or law are hereby excluded to the extent that such exclusion can legally be made”. Nonetheless, the present decision has important implications for ship-owners who may have sold or bought second-hand ships on the nSF 93. The judgment also has wider contractual implications extending beyond ship sale and purchase because the judge expressed a provisional view on the scope of the words “as is where is”, which appear frequently in contracts for the sale and purchase of goods generally.

the background factsThe buyers purchased the ship from the sellers pursuant to an MOa based on the nSF 1993 dated 4 September 2009. Clause 11 of the nSF 93 provided that she was sold “as she was at the time of inspection, fair wear and tear excepted”. The buyers inspected the ship on 18 august 2009 and also inspected the class records. The ship was delivered to the buyers on 1 October 2009. In early november of that year, the ship’s main engine broke down during a ballast voyage. The arbitration tribunal found that the breakdown was due to a defect in a crankpin in the main engine. The buyers commenced arbitration proceedings, alleging among other things that there had been a breach of the term as to satisfactory quality implied into the MOa by virtue of s.14(2) of the SGa. The sellers denied that any SGa terms were to be implied into the MOa and argued that the terms of clause 11 were inconsistent with the SGa implied terms in that the ship was sold “as she was” and thus excluded by s.55 of the SGa. The tribunal found in favour of the buyers. The sellers appealed.

the Commercial Court decisionThe primary issues for the court were whether:

1. the words “as she was” had the same meaning as “as is” or “as is where is” or similar phrases appearing in other cases relating to the sale of ships or other goods (the sellers argued that such phrases meant that the buyers took the goods as they found them with no warranty or condition as to quality or fitness for purpose); and

2. whether such words were inconsistent with the SGa, so that the implied term as to satisfactory quality was excluded.

Noting that there was no previous decision directly on the point, Mr Justice Flaux held that the words “as she was” did not exclude the implied term as to satisfactory quality under the SGa. Implied terms are conditions and clear words are needed to exclude them (see the Court of Appeal decision in The Mercini Lady [2011] 1 Lloyd’s rep 442), whereas the words “as

she was” were capable of more than one interpretation, and so they could not operate as an exclusion clause.

So the answer to (1) was no. The words “as she was”, in their context in clause 11 of the nSF 93, did not in the judge’s view have the same meaning as the free-standing words “as is where is” in a sale contract. Rather, the expression “as she was” in clause 11 was part of a provision recording the obligation to deliver the vessel in the same condition as she was when inspected. Those words did not however have any bearing on what the sellers’ obligations were, either on inspection or on delivery, as regards the quality of the vessel. They did not therefore exclude the s.14(2) SGa implied term as to satisfactory quality.

Given his finding on (1), the judge did not need to express a concluded view on (2), namely whether “as is” provisions would effectively exclude the SGa implied terms. However, the judge indicated that he would have decided that the effect of the expressions “as is” or “as is where is” was not to exclude the right to claim damages for breach of implied terms, but only to exclude the right to reject the ship.

CommentSome may consider this decision to be surprising and contrary to market expectation. nonetheless, the decision is not subject to appeal. Therefore, ship-owners who sell second-hand ships in the future should consider using the nSF 2012, which contains a clause 11 similar to that in the nSF 1993 but which additionally expressly excludes all implied terms at clause 18.

In addition, the relevance of this decision extends beyond ship sale and purchase to the exclusion of the SGa terms in all contracts for the sale and purchase of goods generally. If parties wish to exclude the SGa terms, very clear and unequivocal exclusion clauses are required.

Ince & Co acted for the sellers in this case. In the event of any query regarding this article or ship sale and purchase generally, please contact Paul Herring, Jamila Khan or your usual contact at Ince & Co.

Paul HerringPartner, [email protected]

Jamila KhanPartner, [email protected]

David GoldsmithSolicitor, [email protected]

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Scope of loI and loU given to port for damaged vessel and containers

Yilport Konteyner Terminali Ve Liman Isletmeleri AS v. Buxcliff KG and others (CMA CGM Verlaine) [2012] EWHC 3289 (Comm)

The dispute in this case arose following a collision that caused damage to a vessel and a number of its containers while it was en route to Turkey. The vessel interests were required to give, and gave, a letter of undertaking (“LOu”) and a letter of indemnity (”LOI”) to the Turkish discharge port authorities in view of the condition of the vessel and containers, but the parties subsequently disagreed as to the scope of both the LOI and the LOu. Given the frequency with which LOus and LOIs are given in a shipping context and the tight timeframe within which they are normally negotiated and issued, this decision highlights the importance of giving careful consideration to the wording used to ensure that it achieves the effect intended by the parties and that it does not expose the party giving the LOI or LOU to any greater liability than originally expected.

the background factsThe original Turkish discharge port would not allow the vessel to discharge its containers there without the vessel interests agreeing to what was effectively a penalty payment. agreement was therefore reached with an alternative Turkish port to discharge the containers destined for Turkey there, together with any damaged deck cargo. at a meeting between representatives for both sides, there was no discussion as to the port’s costs for discharging the vessel, although it was agreed that the time charterers and vessel managers would provide a LOU, and the vessel’s Club would provide a LOI, in view of the fact that the port might have to take additional precautions and safety measures.

Under the LOU, in consideration of allowing the vessel to berth and discharge some of its containers, the port would be paid:

“...all inward and outward charges including but not limited to tuggage, pilotage, port dues, berth dues, stevedoring, cranage and all other charges levied in accordance with the terms and conditions of Yilport.”

under the LOI, the Club undertook to indemnify the port as follows:

“...in respect of any and all consequences, liability, loss or damage that you may incur and which may arise, including but not limited to, damage to the port or its personnel and facilities, oil pollution, wreck removal and loss and damage to any cargo, its containers and from handling the damaged cargo and its containers including any delays, penalties or fines caused by or raised by the customs authorities and all reasonably and properly incurred legal costs and expenses.”

The time charterers and vessel managers subsequently refused to pay part of the discharge costs claimed by the port on the grounds that they exceeded what the port was entitled to charge under the LOU and were unreasonable. The Club denied liability on the basis that all claims put forward by the port fell outside the scope of the LOI.

the Commercial Court decisionthe loUThe LOu did not specifically provide for the port to charge an uplift on the standard tariff provided for in its terms and conditions. Those terms and conditions did, however, provide for an additional percentage (which was not specified) to be charged over the standard rates for containers with dangerous cargo, and also for the tariff for damaged containers and/or vessels to be determined by the port depending on the type of operations required.

The judge held that it was commercially unrealistic that a standard basic tariff applicable to undamaged vessels and containers should apply to this particular discharge. It was also not commercially surprising, in his view, that the parties had adopted a “wait and see” approach to charging for the job in circumstances where they had not initially had a clear idea as to the severity of the damage to the vessel, or its containers, or what difficulties such damage might pose to the process of discharging the vessel.

He did, however, agree with the defendants that there was an implied term that the port charges would be reasonable. What was reasonable would depend on the circumstances of each case. This did not mean, however, that the port had to prove and vouch in detail each item of extra work that it sought to charge. That was not a reasonable expectation in an emergency situation such as this, dealt with on very short notice, where the port could not assess the scope of its task properly until after the ship had arrived and where the nature of the task changed fundamentally during the course of the operation.

The judge therefore found in favour of the port and allowed it to recover a substantial part of its outstanding claim.

the loIThe judge rejected the argument that the LOI operated, in effect, as a guarantee by the Club of the time charterers’/vessel managers’ payment of the port’s charges. Had that been intended, the Club could have been made a party to the LOU, or there could have been some cross-reference in the LOI to the LOU, or the LOI could have used the language of the LOU, in particular the words “all charges, dues and expenses”.

The judge also agreed with the Club that the LOI did not impose on it a direct liability for the port’s charges. Rather, the indemnity given by the LOI was in respect of fortuitous consequences, liability, loss or damage that the port might incur or that might arise as a result of the discharge, rather than the cost of discharge itself. as the judge put it, in circumstances where the parties well knew that there would have to be a charge for what the port was doing, “the silence of the LOI on that aspect is a deafening one”.

The judge dismissed the argument that to construe the LOI as not covering the port’s bill would be uncommercial as, had there been an arrest of the vessel for non-payment of the port’s bill, the Club would have put up security so that the vessel could trade. He commented that it was not for him to rewrite the parties’ bargain and, on its wording, the LOI in this case could only apply to the port’s charges in respect of damage to its equipment and installations.

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CommentThis case underlines the importance of careful drafting in the wording of documents creating obligations, such as letters of undertaking or indemnities. The Club in this case was sufficiently protected by the wording of the LOI. On the other hand, the time charterers and vessel interests were potentially exposed to significant liabilities under the LOu, although admittedly the court did imply a term of reasonableness to what the port sought to charge. More certainty might have been achieved, however, had reference been made in the LOU to some external standard by which the uplift on the standard tariff could be measured or if a certain percentage of uplift had been agreed upfront (admittedly this is difficult where the scope of the task is uncertain at the outset).

Kevin CooperPartner, [email protected]

reema ShourProfessional support lawyer, [email protected]

Joshua williamsTrainee solicitor, [email protected]

SHIPPING lItIGatIoNCourt lifts anti-suit injunction against unpaid bunker suppliers proceeding in US

Jewel Owner Ltd and Another v. Sagaan Developments Trading Ltd (MD Gemini) [2012] EWHC 2850 (Comm)

In recent years, the English courts have been more reluctant to issue anti-suit injunctions preventing a party from bringing or pursuing foreign court proceedings, due to the concern that they conflict with the principle of comity between states and interfere with the foreign court’s jurisdiction. This case concerned the continuation of an anti-suit injunction granted on an ex parte basis in relation to ongoing proceedings in Florida brought by unpaid bunker suppliers. The Commercial Court held that the English jurisdiction clause in the bunker supply contract was “non-exclusive” and, given the substantive involvement of the claimants in the foreign proceedings and the delay in seeking injunctive relief, it would not be appropriate to continue the injunction.

the background factsThe claimants in the English proceedings were the owners and technical managers of the MD Gemini, a passenger vessel which had been time chartered on usual terms whereby the time charterers agreed to provide and pay for all fuel oil. The defendant bunker suppliers provided bunkers to the vessel, which were consumed but not paid for by the time charterers, who suspended operations and advised the bunker suppliers that they could not pay.

The bunker supply contract incorporated the bunker suppliers’ standard terms and conditions, which contained the following law and jurisdiction clause:

“Governing law: Save that the seller may take such action or actions as it shall in its absolute discretion consider necessary to enforce, safeguard or secure its rights hereunder in any court or tribunal or any state or country, the provisions hereof shall be governed by the law of England and the jurisdiction of the English courts.”

The bunker suppliers brought proceedings in Florida, the owners’ place of business, against the owners, technical managers and time charterers. They then commenced proceedings against both the vessel and the owners in the Marshall Islands, where the owners were incorporated.

For their part, the owners successfully applied to have the Marshall Islands proceedings stayed on the basis that Florida was the more appropriate jurisdiction and the uS action was a more complete action because it included the time charterers. The owners also continued to participate in the Florida court proceedings, albeit without prejudice to their contention that the English court had jurisdiction over the dispute and that they were not a party to any contract with the bunker suppliers and that the time charterers were solely liable for the unpaid bunkers. almost eight months after the Florida proceedings had been commenced, the owners applied to the English court for an anti-suit injunction in order to restrain the bunker suppliers from continuing proceedings outside of England. They did so on

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David McInnesPartner, [email protected]

Heloise CliffordSolicitor, [email protected]

only two hours’ notice, the bunker suppliers were unrepresented and an interim anti-suit injunction granted. a few weeks later, the matter came back before Mr Justice Popplewell in the Commercial Court, who refused to continue the injunction.

the Commercial Court decisionThe judge ruled that the owners’ argument that they were not party to the bunker supply contract should not prevent them from relying on the English jurisdiction clause in that contract to challenge a foreign court’s jurisdiction. Having considered the wording of the jurisdiction clause in this case, however, he decided that it was not exclusive and that the bunker suppliers had not agreed not to take proceedings outside England to enforce their claims. The English courts will generally enforce an exclusive jurisdiction clause unless there are strong reasons not to do so. However, where the jurisdiction clause is not exclusive, the judge clarified that the court should consider whether the foreign proceedings would be oppressive or vexatious on the grounds that England was the more appropriate or natural forum and justice required the claimant in the foreign court to be restrained from proceeding there. He added that, even where England was the natural forum, the English court retained a discretion as to whether to grant an anti-suit injunction:

“the stronger the connections of the foreign court with the parties and the subject matter of the dispute, the stronger the argument against intervention”.

In this case, the judge decided that it would not be appropriate to continue the anti-suit injunction. First, whilst the English court was a convenient forum for the proceedings, he did not consider that it was the natural forum and, in his view, the Miami court was capable of applying English law to the dispute, if English law was found to be the proper law of the contract. Second, he rejected the owners’ argument that the bunker suppliers’ actions in commencing parallel proceedings in Florida and the Marshall Islands had been oppressive and, in any event, the Marshall Islands proceedings had been stayed. Third, the claimants had delayed in applying for the anti-suit injunction; the appropriate time to apply for an injunction was shortly after the proceedings in Florida and the Marshall Islands had been commenced. Fourth, the owners had not sought to argue before the Miami court that the Florida action should be stayed or dismissed on the grounds that the court did not have jurisdiction. rather, the owners had positively promoted Florida as the appropriate forum when seeking to have the Marshall Islands proceedings stayed and they had actively participated in the proceedings in Florida.

The judge concluded that, as the parties had been envisaging for eight months that the substantive proceedings would take place in Florida, it would be inequitable to prevent those proceedings by continuing the anti-suit injunction.

CommentParties who wish to give the English courts exclusive jurisdiction over their disputes should ensure that the jurisdiction clause in their contract is carefully drafted to achieve the right result. Where foreign court proceedings are commenced notwithstanding an English jurisdiction clause in

the contract (whether exclusive or non-exclusive), any application to the English court for an anti-suit injunction should be made as early as possible and the party wishing to challenge the foreign court’s jurisdiction should consider taking whatever steps are available before the foreign court to challenge its jurisdiction. Finally, a party who wishes to challenge a foreign court action should tread warily in terms of the procedural steps it takes in the foreign proceedings to avoid any impression that it has submitted to that court’s jurisdiction. Local law advice on this potentially tricky issue may be advisable.

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litigation or arbitration in multiple contracts concerning the same subject matter: can you have your cake and eat it?

Deutsche Bank Ag v. Tongkah Harbour Public Co Ltd and another [2011] EWHC 2251 (QB)

Deutsche Bank entered into a financing transaction for a gold mine, part of which involved a gold export contract and a parent company guarantee. Following political unrest in Thailand, the defendants were unable to honour the various contracts, which contained an option to resolve disputes in LCIA arbitration or in the London High Court. The two branches of Deutsche Bank involved each exercised the option, the financing arm opting for High Court litigation and the commodities arm opting for LCIA arbitration. The defendants challenged this under section 9 of the arbitration act 1996 and/or under the court’s inherent jurisdiction or case management powers to stay two actions brought against them concerning the same subject matter in different forums. The court held that the main action arose from the same circumstances and therefore stayed the court proceedings in favour of arbitration. However, the proceedings under an associated parent company guarantee were allowed to continue in court as they did not involve the same defendants.

the background factsIn 2006, against a background of rising gold prices, Deutsche Bank (Bangkok) (“DB”) entered into an unusual financing structure with Tungkum Ltd (“Tungkum”), a company licensed to carry out gold exploration and mining in northeast Thailand, and its parent company, Tongkah Harbour Public Co Ltd (“Tongkah”), a long established Thai company. The structure was such that Tungkum entered into a facility agreement dated 18 april 2008 by which DB agreed to advance it uS$35 million. Tungkum simultaneously entered into an export contract. There was also a parent company guarantee dated 18 april 2008 under which Tongkah agreed to guarantee Tungkum’s liability.

The key agreements in this matter were therefore as follows:

1. The facility agreement. The parties to this agreement were Tungkum as the borrower, DB Bangkok as the lender, DB Singapore as the arranger and DB Amsterdam as the agent and security trustee. The agreement was for a loan facility of uS$35 million and gave the English courts non-exclusive jurisdiction over disputes, whilst giving the DB parties alone the option to refer disputes to LCIa arbitration;

2. The export contract. This contract was between Tungkum as supplier and DB London as off-taker. The commercial purpose of the export contract was to allow Tungkum to repay the facility agreement in monthly instalments by selling gold to DB London at a formula-calculated price. The dispute resolution clause was materially similar to that of the facility agreement; and

3. The guarantee. This agreement was between Tongkah as guarantor and DB amsterdam as security trustee. unlike the above agreements, jurisdiction over disputes was granted to the English courts and there was no option to arbitrate.

In May 2010, a state of emergency rule was declared in Thailand and Tungkum was unable to meet its obligations under the export contract. DB initially granted Tungkum a series of written waivers, whereby it agreed to temporarily waive its right to rely on the failure as an event of default. a “holiday period” letter agreement followed in August of that year, which provided for a suspension on payments and deliveries until november 2010, when revised documents were intended to be executed.

around the end of 2010, Tungkum concluded that the above structure was in breach of Thai law and banking regulations and it refused to execute the revised documents. DB treated this as an event of default under the principal agreements and issued the requisite notice of cancellation of the loan, including a call for the outstanding sums. On the same day, DB also sent a termination letter under the export contract to Tungkum, followed later by a notice of early termination amount under the same contract, calling for payment of the early termination amount.

In February 2011, DB commenced proceedings in the Commercial Court in London seeking payment of the outstanding balance under the facility agreement and, from Tongkah, of the sums allegedly due under the guarantee. Later the same day, DB commenced LCIA arbitration proceedings against Tungkum for payment of the early termination amount allegedly due under the export contract. Tongkah applied for a stay of the proceedings before the court in favour of the arbitration proceedings.

the Commercial Court decisionThe court summarised the issue for decision as, essentially, the scope of what was referred to arbitration by DB in February 2011.

Mr Justice Blair commented that, in construing an arbitration clause, the assumption is that the parties are likely to have intended any dispute arising out of the relationship into which they entered to be decided by the same tribunal. Similarly, where there are multiple related agreements, the assumption is that the parties do not generally intend a dispute to be heard in two different forums. Where the dispute resolution provisions differ, the allocation of jurisdiction is fundamentally one of construction.

As a starting point, the court disagreed with DB’s argument that the different divisions of the bank were entitled to choose their own methods of dispute resolution. DB was held to be a single contracting party and this situation was held not to be analogous to one where branches of banks are treated as separate entities.

The court also disagreed with DB’s argument that the three claims were each discrete issues which were likely to require discrete defences. It held that not only were the facility agreement and export contract closely connected, but also that the claims under both these agreements were based on the same events of default. It followed that it was unlikely that the defence to either claim would be different. Whilst the claims in

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court and before the tribunal were for different sums of money, both claims arose out of the same breach of the same contractual arrangements and, as such, were aspects of the same matter. The court also rejected the implication that a stay would interfere with DB’s right of access to the court. The bank had the option to choose between the court and arbitration and, having referred essentially the same claim to two different forums, it would not be depriving DB of a right to stay the proceedings in one forum. It was also held to be of little significance that, as presently constituted, the claim in arbitration was restricted to a claim for the early termination amount under the export contract.

With regard to the claim under the guarantee, Tongkah argued that, as its liability under the guarantee was of a secondary nature, the court should stay the proceedings pending resolution of liability issues in relation to the claims under the other agreements. The court rejected this submission, holding that, whilst a claim under a guarantee may raise similar or even identical issues as the claim against the principal debtor, regardless of a substantial overlap between the claims, the covenant to pay is given by a different party. as such, in this matter, DB was entitled to enforce the guarantee if it could establish its claim, regardless of the claim against the principal debtor. In reaching this conclusion, the court referenced Dicey and Morris on The Conflict of Laws, stating that it is possible and commercially rational to allow the claim to proceed even though this may result in a degree of fragmentation in the resolution of the overall dispute.

accordingly, a stay of the court proceedings against Tongkah was granted.

CommentParties will often seek the flexibility of a floating choice of forum in their documents, particularly banks involved in ship finance and/or trade finance transactions. Where they seek that flexibility, however, they need to make sure that the various internal departments or individuals involved keep in close contact with each other when a dispute arises. A tactical decision about which forum is best for each department involved needs to be taken at an early stage and the various departments and individuals involved need to stand by that decision.

John SimpsonPartner, [email protected]

anushka KarunaratneSolicitor, [email protected]

SHIPPING lEGISlatIoNMaritime Labour Convention enters into force August 2013

In our Shipping E-Brief October 2011, we provided a preliminary review of the Maritime Labour Convention 2006 (“MLC 2006”) and indicated that its entry into force was imminent.

On 20 august 2012, the International Labour Organisation announced that, with the Philippines having become the 30th country to ratify the MLC 2006, the threshold requirements for its entry into force had been reached. Accordingly, the MLC 2006 will enter into force internationally 12 months from that date, on 20 august 2013.

The Maritime & Coastguard agency (“MCa”) is the uK government agency responsible for implementing maritime safety policy in the UK and for the form of the UK legislation enacting the MLC 2006. The uK has yet to ratify the MLC 2006 but our understanding, from discussions with the MCA, is that it is fully committed to doing so and that the domestic legislation will be in force from 20 august 2013 at the latest.

This article provides a timely reminder of the aims of the MLC 2006 and sets out how enforcement of the obligations under the Convention is intended to be achieved.

About the MLC 2006The aim of the MLC 2006 is to ensure seafarers’ rights to decent conditions of employment at sea and ensure that they have better information in respect of their rights and the benefits of an enhanced compliance regime. The MLC 2006 consolidates 68 existing maritime labour instruments into a single text. It will be the “fourth pillar” of the international regulatory regime for quality shipping, alongside key conventions of the International Maritime Organisation such as the International Convention for the Safety of Life at Sea (“SOLaS”), the International Convention on Standards of Training, Certification and Watchkeeping (“STCW”), and the International Convention for the Prevention of Pollution from Ships (“MarPOL”).

The scope of the MLC 2006 is very wide. It aims to achieve protection for all seafarers (of which there are estimated to be 1.2 million worldwide). This is reflected in the broad definition of “seafarer” as “any person who is employed or engaged or works in any capacity on board a ship to which this Convention applies.” The principal intention is to cover all persons employed or working on board a ship, in any capacity whatsoever, including the self-employed and, crucially, those employed by third parties.

The obligations under the MLC 2006 fall squarely on the shoulders of the “ship-owner”. This is defined to mean the owner of the ship or another organisation or person to whom the owner has entrusted responsibility for her operation such as a ship manager, manning agent or bareboat charterer.

The MLC 2006 describes standards which are mandatory and guidelines which are not. However, manning agents may find that, in the particular jurisdiction in which they operate, a

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guideline is in fact given mandatory status, placing additional obligations on them. For example, that the manning agent must verify that labour conditions on ships for which it supplies seafarers are in conformity with applicable collective bargaining agreements, or that the manning agent may only supply seafarers to ship-owners who offer terms and conditions of employment that comply with applicable laws, regulations or collective agreements.

EnforcementEnforcement is to be through a combination of “compliance awareness” at all levels, flag state control and port state control. In particular:

1. from the individual seafarer’s perspective, his terms of employment will be required to be contained in a single document (the “Seafarer’s Employment Agreement” or “SEA”) between himself and the ship-owner, he must be properly informed of his rights and the remedies available to him in the event of non-compliance with the MLC 2006, and he has the right to make complaints (onboard and onshore). SEas replace previous crew agreements and are akin to onshore employment contracts. Model clauses are already being provided by many flag states within the red Ensign Group;

2. in addition, ships are required to have onboard procedures for the fair, effective and expeditious handling of seafarers’ complaints alleging breaches of the requirements of the MLC 2006 (including seafarers’ rights). These procedures shall include the right of the seafarer to be accompanied or represented during the complaints procedures, as well as his benefiting from safeguards against the possibility of being victimised for filing complaints in the first place;

3. the ship-owner will be required to implement measures that ensure compliance with the domestic regulations enacting the MLC 2006;

4. the ship’s master will be responsible for carrying out the owner’s measures and for keeping records evidencing implementation of the measures;

5. the flag state must review the ship-owner’s measures and verify and certify implementation. The certificate is valid for five years, subject to periodic inspections by the flag state;

6. where the ship is of 500 gross tonnage or above and is engaged in international voyages or voyages between foreign ports, she will be required to carry a Maritime Labour Certificate onboard. This, complemented by a Declaration of Maritime Labour Compliance, will constitute prima facie evidence that the ship has been duly inspected for compliance by the flag state and that, to the extent certified, the requirements of the MLC 2006 in relation to working and living conditions have been met;

7. flag states must also ensure that domestic regulations implementing the MLC 2006 are applied to smaller ships that are not covered by the certification system. although not mandatory, it may be in the interests of owners of ships of under 500 gross tonnage to obtain the certificates in order to avoid what may otherwise be a more extensive port inspection; and

8. the concept of “no more favourable treatment” for ships of non-ratifying countries, applied through port state control, means that ships of all countries (irrespective of ratification) will be subject to inspection in the port of any state that has ratified and may be detained in port if they do not meet the minimum standards of the MLC 2006.

CommentNow is clearly the time to prepare for compliance with the MLC 2006. If you require further information or detailed advice in this regard, please contact your usual Ince & Co contact or the authors of this article.

Charlotte DaviesPartner, [email protected]

Nick wilcoxSenior associate, [email protected]

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NEwSInce corporate team advises on lPG shipping group merger

In December 2012, Ince & Co represented the Epic Shipping Group, a Singapore based LPG owner and operator, on its merger with the Pantheon Shipping Group (a Greek Ship owner).

London corporate partners Stephen Jarvis and Tanya Nash led the team that advised on this complex, multi-jurisdictional transaction involving advisors and parties in Greece, the BVI, Marshall Islands, Singapore, the UK and USA. The transaction involved a group reorganisation, multi-layered joint venture arrangements, corporate sales and the simultaneous refinancing of the entire group. Substantial new equity financing was provided by Jefferies Capital Partners, Shipping and Intermodal Investment Management (the shipping fund of DVB Bank), Chris Buttery and other backers of the Epic Shipping Group and the backers of the Pantheon group. Due to the various interests of the parties, this transaction was completed within a very short timescale.

Mike Dean, Finance Director of Epic Shipping comments:

“This was an extremely complex transaction, executed in a very compact timeframe, but yet again Ince rose to the occasion and surpassed expectations. Their in-depth understanding of the shipping sector and our commercial needs coupled with their willingness to go the extra mile is what sets them apart from their peers.”

The new JV entity, Epic Pantheon International Gas Shipping Ltd., operates a fleet of 22 modern 3,200 cbm to 7,200 cbm fully-pressurized gas carriers with complete in-house technical and commercial management capabilities.

Stephen JarvisPartner, [email protected]

Tanya NashPartner, [email protected]

Two Ince & Co partners named in Lloyd’s List Top 100

Lloyd’s List Top 100 2012 named Colin de la rue and Stephen askins in its Top 10 personalities in Law for the third consecutive year, which was published last month.

The Top 100 list is an annual review of the most influential people in shipping and Ince partners have been listed in the Top 10 since the inaugural Top 100 list in 2010, when Colin together with Hong Kong-based partner rosita Lau were recognised as leading maritime lawyers in their respective areas of expertise. Ince is also the only law firm to have two of its lawyers featured.

Colin was ranked at number four and recognised as an authority on all environmental aspects of shipping, and for being increasingly involved in the implications of pollution from offshore installations. Stephen was ranked at number eight and recognised as an authority in acting for owners and their insurers in the aftermath of maritime incidents including salvage, wreck removal, collisions and piracy.

Paul Herring, the firm’s Global Head of Shipping said:

“We are very pleased that the industry has recognised two of our shipping partners in this year’s Top 10 in law. Colin and Stephen both have in-depth knowledge and expertise of their subject areas and are rightly regarded as leaders in their fields”.

Richard Meade, editor of Lloyd’s List comments:

“The Lloyd’s List Top 100 this year are united by their ability to look beyond the current challenges. They are the innovators and the visionaries, and for this reason our Top 100 can be considered a roll call of the figures who will likely guide us into a new era of shipping.”

Colin de la ruePartner, [email protected]

Stephen askinsPartner, [email protected]

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Novoship (part of Sovcomflot Group) obtains Commercial Court judgment of approximately US$169 million

Ince & Co’s clients novoship (uK) Limited and other members of the novoship group (part of the Sovcomflot group) achieved an important victory in the Commercial Court in London on December 14 2012.

Mr Justice Christopher Clarke, sitting in the Commercial Court in London, gave judgment in the case of Novoship (UK) Limited and Others v. Vladimir Mikhaylyuk and Others. Included amongst the other defendants were Venezuelan businessman, Wilmer ruperti and russian businessman, yuri nikitin and his company Henriot Finance.

The claimants, who were represented by Ince & Co, claimed that all the defendants had, by various means, defrauded the claimants in the context of various chartering contracts. As far as yuri nikitin was concerned, the claimants claimed that he had dishonestly assisted Mr Mikhaylyuk, an ex-employee of novoship uK, to breach the fiduciary duties he owed to the owners of vessels in the novoship fleet which had been chartered to Henriot Finance and which had made profits in excess of uS$100 million from chartering those ships. amongst other things, the claimants claimed that Henriot Finance should account to them in respect of those profits. Similar allegations were made in relation to Mr Ruperti’s relationship with Mr Mikhaylyuk and profits of approximately uS$57 million were claimed as a consequence.

In a judgment extending to 146 pages, the judge accepted the claimants’ claims against all the defendants giving judgment in favour of the claimants in a total sum of approximately uS$169 million plus interest. In doing so, he observed that:

“the English Courts have steadfastly set their face against bribery and corruption, whose prevalence in cases coming before this Court shows no sign of reducing, and have, for that purpose, fashioned draconian remedies whose intended effect is to deprive those who are party to bribery, whether as briber or beneficiary of the bribe, of any profit from transactions which its taint pollutes...”

The Ince team representing the claimants included Michelle Linderman, Ben Ogden, Stuart Shepherd and Rebecca Axe.

Michelle lindermanPartner, [email protected]

Ben OgdenPartner, [email protected]

Stuart ShepherdPartner, [email protected]

rebecca AxePartner, [email protected]

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