Shipping e-brief OctOber 2018

Shipping e-brief OctOber 2018

2 Ince & coShipping E-briEf, OctObEr 2018

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shipping Court concludes delivery made in accordance with terms of Lois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5

Deviation and the right to rely on contractual time bars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-8

beat the clock! practical considerations in dealing with last minute claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-11

hague rules time limit applies to misdelivery claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12-13

financing bank liable for demurrage as intermediate holder of bills of lading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14-15

What constitutes a “similar amendment” under the interclub Agreement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16-17

Court finds different charterparty arbitration provisions did not conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-19

the Seatrade verdict: has scrapping just got a lot more onerous? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20-21

Court of Appeal confirms: privilege rules! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22-24

Singapore Court agrees: make up your mind when choosing law and jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25-26

news & events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27


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Court concludes delivery made in accordance with terms of Lois Navig8 Chemical Pool v. Songa Chemicals AS (Songa Winds) [2018] eWcA 1901 (civ)

In this case, the commercial court found that letters of indemnity (LOIs) issued by the parties to a sale contract chain were valid and enforceable. consequently, if the bank that financed the trade was ultimately successful in its misdelivery claim against the shipowner, it would be indemnified under the LOIs. the subsequent appeal was limited to whether a time bar clause in the voyage charterparty between two parties in the charterparty chain was incorporated into the relevant LOI with the effect of barring a claim made under that LOI. the court of Appeal found that it was not and that the claim was not time-barred.

The background factsSonga time-chartered their vessel to Navig8, who voyage-chartered the vessel to Glencore to carry a cargo of crude sunflower seed oil from Ukraine to India.

Glencore had entered into a sale contract to sell the goods to Aavanti who, in turn, had on-sold to Agritrading. the bills of lading were consigned to order and named ruchi, an affiliated company of Agritrading, as the notify party. Aavanti’s purchase of the consignment was financed by SocGen.

the cargo was delivered to ruchi at the Indian ports without presentation of the original bills, but as against LOIs issued under the sale contract and up the charterparty chain. the LOIs issued by Aavanti to Glencore were for delivery to ruchi, or to such party as Glencore believed to be, to represent, or to be acting on behalf of ruchi. In contrast, the LOIs from Glencore to Navig8 and from Navig8 to Songa requested delivery to be made to Aavanti, or to such party as the beneficiary believed to be, to represent, or to be acting on behalf of Aavanti.

Although Aavanti paid Glencore for the cargo, neither Aavanti nor SocGen were apparently paid for the quantities discharged. In arbitration, SocGen claimed for misdelivery as the lawful holder of the bills. Songa sought to rely on the Navig8 LOI and Navig8 sought to rely on the Glencore LOI. Glencore denied that the LOI it had issued was engaged. Songa and Navig8 applied to the court, seeking a final declaration by way of summary judgment that the relevant LOIs were triggered by the deliveries to ruchi.


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the Commercial Court decisionthe court considered whether ruchi, in taking delivery, was “representing or acting on behalf of” Aavanti, in accordance with the following wording in the Glencore LOI:

We, Glencore Grain B.V, hereby request you to deliver the said cargo to "Aavanti” or to such party as you believe to be or to represent “Aavanti” or to be acting on behalf of Aavanti".

On the facts of this case, the court concluded that ruchi were representing Aavanti and that, therefore, delivery had been effected as in fact intended by Aavanti and Glencore in the LOIs. As the LOI indemnity provisions were triggered, the court did not need to consider the further issue of whether Songa “believed” that ruchi represented or were acting on behalf of Aavanti.

the court also commented on the scope of clause 4 of the IG standard form LOI wording, which was incorporated into the LOIs, and which provides as follows:

If the place at which we have asked you to make delivery is a bulk liquid or gas terminal or facility...then delivery to such terminal, [or] facility... shall

be deemed to be delivery to the party to whom we have requested you to make such delivery.

the LOIs had named “the port of New Mangalore or Kakinada, India” as the place of delivery. they did not request delivery at a specific bulk liquid terminal or facility. the court stated that any greater specificity as to the place of discharge came outside the scope of the LOIs and was only relevant to a claim under the charterparties, which would be dealt with in arbitration. consequently, the pumping of the liquid cargo into bulk terminals at the named ports would not have been sufficient to invoke paragraph 4 and activate the LOIs, had indemnification in this case depended on it.

the court also found that Navig8’s claim against Glencore was not time-barred under clause 38 of the charterparty, which was ambiguously drafted but which specified that the “period of validity” of any LOI would be three months from the date of issue, renewable on owners’ request. the LOIs did not incorporate the language of clause 38 and, even if they had done so, the court thought that clause 38 was aimed at deliveries that did not take place within three months of issue, rather than instances where claims were brought after three months from delivery (as in this case). Had Glencore intended a different result, they could have specifically provided for it in the LOI.

The Court of Appeal decisionthe appeal was limited to the time bar point. the court of Appeal dismissed Glencore’s argument that clause 38 was incorporated into the Glencore LOI and that it barred Navig8’s claim. Firstly, clause 5 of the LOIs already covered the expiry of the LOIs (on the presentation of the original bills) and, in doing so, did not reference any terms, either from the relevant charterparty or elsewhere. this was not consistent with an intention to rely on clause 38.

Secondly, in the court of Appeal’s view, the charterparty and LOIs were distinct agreements with separate obligations and contrasting dispute resolution clauses. clause 38 could not, therefore, be treated as ‘carved out’ of the voyage charter and construed as part of the LOIs. Glencore could have expressly incorporated clause 38 but chose not to, which was unsurprising in circumstances where there was no time limit in respect of their own obligations to Aavanti.

the court of Appeal also highlighted that, in some circumstances, a third party might rely on a LOI, e.g. a head owner against a sub-charterer, but would not be privy to the relevant charterparty (e.g. between charterers and sub-charterers) as it would neither be party to that contract, nor aware of its terms. If


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those terms were subsequently implied into a LOI, this would lead to the unacceptable situation whereby the beneficiary’s right of recovery under the LOI might be limited in a way that it could not have been aware of.

Finally, while it did not strictly need to decide the point, the court of Appeal found that clause 38 did bar claims brought more than three months from the date of the letter of indemnity.

Commentthis decision highlights a number of potential risks that can arise when delivering cargo against a LOI without presentation of original bills. Parties to LOIs should draft them carefully and ensure that their terms are strictly complied with so that they can be enforced.

When parties deliver cargo against LOIs, there is generally no P & I cover for any liabilities, costs or expenses that might arise as a result. therefore, in such instances, parties should carefully consider their exposure and whether to purchase alternative insurance cover.

The authors of this article acted successfully for Navig8 in the Commercial Court and Court of Appeal.

Jeremy biggs partner, [email protected]

guy fountaine Associate, [email protected]


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Deviation and the right to rely on contractual time barsDera Commercial Estate v. Derya Inc (MV Sur) [2018] eWHc 1673 (comm)

the english court has recently handed down a judgment considering whether parties are able to rely on contractual time bars, such as Article III rule 6 of the Hague rules, in circumstances where owners have ordered the vessel to deviate without the agreement of charterers.

the judgment also gives useful guidance on the principles applicable to s. 41(3) of the Arbitration Act 1996 (the “Act”) and the power conferred on an arbitral tribunal to dismiss a claim (or counterclaim) for

“inordinate” or “inexcusable” delay.

The background factsDera purchased a cargo of Indian maize to be carried from ports in India to be discharged in Aqaba, Jordan. the cargo was loaded on board the vessel and bills of lading were issued, incorporating the Hague rules and providing for disputes to be settled in accordance with english law and London arbitration.

the vessel arrived at Aqaba in August 2011 and the Jordanian customs authorities took samples for analysis. Following the analysis, the Jordanian customs authorities issued a letter, in September 2011, indicating

that the cargo was damaged, would not be permitted to enter Jordan and must be returned to its country of origin.

Accordingly, Dera commenced proceedings against the Owners in Jordan claiming US$8 million for cargo damage and Derya (the “Owners”), in turn, commenced LMAA arbitration in London by appointing an arbitrator. the Owners’ P & I club put up a letter of undertaking (the “LOU”) in connection with all disputes and differences arising under the bills of lading for the sum of US$9 million.

the Owners focused on arranging for the cargo to be re-exported and urgent applications were made to the Jordanian court for an order obliging Dera and the Jordanian customs authorities to grant the permissions necessary for the Vessel to sail from Aqaba to another port to discharge the cargo. Notwithstanding that the application had been dismissed and applications made for the appropriate authorities to reconsider the decision, the Owners instructed the vessel to sail from Aqaba to turkey without first obtaining the Jordanian customs authorities’, or Dera’s, permission to leave the port. the Vessel sailed on 8 November 2011.


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No formal procedural steps were taken in the arbitration by either side until March 2015, when the Owners served particulars of their claim seeking, among other things, a declaration of non-liability for the cargo claim and an order that the LOU be released. Accordingly, a period of three and a half years had been allowed to pass between the Owners appointing an arbitrator and serving particulars of claim.

A further three months passed until Dera served particulars of its cargo claim in June 2015, meaning that a period of three years and eight months had been allowed to pass between the appointment of Dera’s arbitrator and the service of their particulars of claim.

In January 2016, the Owners asked the tribunal to consider a preliminary issue, namely whether Dera’s claim should be struck out for want of prosecution pursuant to section 41(3) of the Act. the tribunal found that it should. Dera appealed.

the Commercial Court decisionFirstly, the court held that a claim that is particularised within the six-year limitation period applicable to contractual claims may be struck out for inordinate delay in the event that the parties have contracted for

a shorter period, such as the one-year time bar under Article III rule 6 that applied in this case. However, the relevant limitation period was not “the” yardstick against which the delay should be assessed, but, rather, “a” yardstick. Whether or not delay was inordinate would always be a fact-sensitive exercise in each case.

Secondly, the court confirmed that a geographical deviation precluded a carrier from relying on the one-year time bar created by Article III rule 6. It was bound to follow the 1936 House of Lords decision in Hain Steamship v. Tate & Lyle, which made it clear that the effect of a geographical deviation, without the express agreement of the other party, allowed the innocent party, upon discovering that deviation, to declare itself retrospectively no longer bound by any of the contractual terms.

the court undertook a thorough review of english case-law on geographical deviation, noting that the common law had developed in such a way as to deprive a ship-owner of the benefit of any limitation or exemption in the contract of carriage in the event of geographical deviation. Decisions subsequent to Hain Steamship indicated that the applicability of an exclusion or limitation of liability clause in the event of a

breach of contract should be determined as a matter of construction, rather than on the basis of “fundamental breach”, whereby a party could not rely on an exemption clause where it was guilty of breaching a fundamental term of the contract. the court in this case thought that this approach should apply equally to geographical deviation cases. However, it considered itself bound by the decision in Hain Steamship, which appeared to be based on fundamental breach but which had not been subsequently overruled. Otherwise, the court stated that it would have decided this point differently, as the tribunal had done.

thirdly, the court considered whether, where the one-year time bar applies, the period between a) the time that the cause of action arises; and b) the expiry of the contractual time limit is to be taken into account when assessing whether the delay is ‘inordinate’ for the purpose of s.41(3). It held that it is normally appropriate for periods of delay to be assessed separately and distinctly, allowing for a cumulative period of delay to be identified. However, on the facts of this case, it was not appropriate to take this cumulative approach, as there had been no substantive procedural activity in the arbitration. the tribunal had not, therefore, erred in its approach.


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Finally, the court confirmed that the legal burden of proof lies at all times on the applicant on a section 41(3) application to show that there was both an inordinate, but also an inexcusable, delay.

the appeal was dismissed.

Commentthe court made clear its view that the decision in Hain Steamship and the proper approach to geographical deviation cases merit consideration by the Supreme court in an appropriate case. In the meantime, owners will need to be aware that they may well lose the benefit of the shorter contractual time bar protection should they deviate without the express agreement of the charterers.

this may, in turn, have an impact on how P&I clubs administer their files. If clubs currently rely on the one-year limitation period when closing their cargo claim files, they should note that there is now a risk that cargo claimants will seek to allege geographical deviation almost six years after the cause of action arose in order to pursue a legal claim. P & I clubs may, therefore, need to consider their position with regard to placing reserves on such claims.

On the procedural side, this is the second recent case in which the court has upheld a tribunal’s decision to strike out a claim for inordinate delay. Parties to disputes should remain alert to the importance of getting on with the proceedings or, alternatively, agreeing a stay.

rania Tadros Managing partner, [email protected]

sheridan steiger senior Associate, [email protected]


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beat the clock! practical considerations in dealing with last minute claims P v. Q (Capetan Giorgis) [2018] eWHc 1399 (comm)the commercial court has recently issued helpful guidance on how parties can protect themselves from last minute incoming claims if they are in a back-to-back charter chain. Among other things, the court considered how to ensure that any claims can still be passed up or down the charter chain and what to do if a contractual time bar is missed in those circumstances.

The background factsThe charterparty chainthe parties entered the following chain of back-to-back voyage charters based on the Norgrain 1973 form:

the charters were subject to english law and London arbitration, and all contained the following time bar clause:

“Any claim other than the demurrage claim under this contract shall be notified in writing to the other party and claimant’s arbitrator appointed within thirteen (13) months of the final discharge of the cargo and where this provision is not complied with, the claim shall be deemed to be waived and absolutely barred.”

The timeline of eventsthe events surrounding the claims were as follows:

16 October 2015 the vessel completes discharge at Nansha, china.

9 September 2016Without any prior indication, a cargo claim is commenced against the Head Owners in Xiamen Maritime court.

16 November 2016 (last day of the time limit in each charter)

the Head Owners give notice of a claim and commence arbitration against Sinochart. Sinochart send a similar notice to P and commence arbitration. the notification and commencement of arbitration are sent after P’s business hours.

The time limits under all charters expire17 November 2016P becomes aware of the claim for the first time. P informs Q of the claim it has received, but does not commence arbitration as its operations department gathers more information. Q informs r of the claim and commences arbitration against r.

23 November 2016P’s operations department informs its legal department of the incoming Sinochart claim for the first time, six days after first receiving the notice. P becomes aware of the terms of the time bar clause.

china National chartering co Ltd (Sinochart)Norgrain 1973

PNorgrain 1973

QNorgrain 1973

RNorgrain 1973

S


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25 November 2016P commences arbitration against Q, eight days after first receiving the incoming claim against it.

30 November 2016Following a dispute between Q and r about the validity of the service of Q’s notice of arbitration, Q serves a fresh notice on r without prejudice to its 17 November 2016 notice.

1 December 2016r serves notice on S of its claim and commences arbitration.

The disputethe claimants P, Q and r, all applied for declarations that:

1. their claims had been brought in time, notwithstanding the wording of clause 67 (“the construction Issue”);

2. In the alternative, the claimants applied for an order under section 12 of the Arbitration Act 1996 (“the Act”) extending the time for commencing arbitration (“the Section 12 Application Issue”).

the charterers opposed both applications.

the Commercial Court decisionThe Construction Issuethe court wholly rejected the claimants’ arguments. It interpreted clause 67 literally and found as follows:

i) the wording of the clause was clear and unambiguous;

ii) commercial sense favoured a literal construction: at the end of the limitation period, the parties would know where they stood and avoid the uncertainty of unexpected claims. this benefited all parties; and

iii) the parties agreed to take the risk that they might not be able to pass on validly received claims after expiration of the limitation period.

the court also held that the fact that the charterparties were part of a chain did not affect the interpretation of the time bar clause in each charter.

The Section 12 Application IssueSection 12 allows a party, in certain circumstances, to apply to the court to extend a contractual time limit. It is a relatively difficult test to meet: the starting point is always that the parties intended the time bar to apply.

the relevant part of section 12(3) provides that the court shall make an order only if satisfied that:

a. the circumstances were outside the reasonable contemplation of the parties when they agreed the time limit, and

b. it would be just to extend time.

In assessing whether the first limb of this test had been met, the court in this case was satisfied that:

i) the circumstances (i.e. a party in the charter chain receiving entirely unanticipated claims after business hours on the final day of the limitation period) were “relatively exceptional” as opposed to

“not unlikely”, “not unusual” or “prone to occur”;

ii) had the parties contemplated the circumstances when contracting, they would also have contemplated that the time bar might not apply; and

iii) the circumstances caused or significantly contributed to the claimants’ failure to comply with the time bar.

Accordingly, the first limb of the test was satisfied.


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In considering the second limb of the test, the court ruled that it would only be just to extend time if the applicant had acted expeditiously and in a commercially appropriate fashion. In assessing this issue, the court looked at the behaviour of the parties in passing on the claims:

the court granted relief only to Q who, upon notification that a claim had been made against P, was able to notify r and commence arbitration on the same day. Neither P nor r acted expeditiously and so were not entitled to relief under s.12.

In assessing the behaviour of the parties, the court also provided helpful guidance on what it thought would be expeditious behaviour in these circumstances. It found that a party had three days (weekends and holidays included) to pass on notice of the claim and commence arbitration if it wanted to rely on s.12.

how to manage the risk of last minute claimsthere is clearly risk involved in any chain of back to back charters with a fixed time limit. In terms of managing the risk of last minute claims, parties should consider the following:

> Is it better to agree a time bar clause that allows for late indemnity claims (for example, one modelled on Art III r6 bis of the Hague-Visby rules)? this decreases the risk, but perhaps also the certainty that a fixed time bar provides;

> Where there is any possibility of a claim:

– agree appropriate extensions of time; or

– commence arbitration as a protective measure.

> If presented with an unanticipated last minute claim, comply with the time bar deadline if at all possible

– that way, the problem never arises. In the present case, Sinochart were able to respond quickly and avoid being caught up in the time bar argument;

> If impossible to meet the time limit, s.12 means that there may be some hope to still pass on the claims, but it is important to act quickly. contrast the position of Q (who was able to react quickly) and P (who was not). In particular, P’s operations team only passed the claim notice to its legal department after six days – already too late to protect its position.

Commentthis judgment reaffirms the english courts’ literal approach to the interpretation of time bar clauses and gives helpful guidance to parties who find themselves on the receiving end of last minute claims.

It also highlights the importance for parties of having good internal communications and reporting systems in place, both between their commercial and their legal teams, as well as with their P&I clubs.

William blagbrough partner, [email protected]

Lida Logotheti Associate, [email protected]

party Time taken to pass on claim and commence arbitration

relief under s.12 granted

P 8 days NoQ Same day YesR 14 days No


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hague rules time limit applies to misdelivery claims Deep Sea Maritime Ltd v Monjasa A/S (The Alhani) [2018] eWHc 1495 (comm)

the court has held that a ship-owner, who had delivered the shipper’s cargo to a third party without production of the relevant bill of lading, could nonetheless rely on the one-year time limit in Article III rule 6 of the Hague rules to defeat the shipper’s claim for misdelivery.

The background factsthe dispute arose in relation to a shipment of bunker fuel oil on board the Owners’ oil product tanker from Lome, togo and destined for cotonou, benin. the bill of lading incorporated an exclusive english law and jurisdiction clause from the relevant charterparty, as well as the Hague rules, which took effect as a matter of contract.

In the event, the cargo was discharged via ship-to-ship transfer off-shore Lome. the cargo was delivered, but without production of the bill of lading, to the buyer under the sale contract. the seller/shipper subsequently contended that it had not received payment for the bunker fuel and that it remained the owner of the cargo. It sought to claim against the Owners for non-delivery of the cargo.

the shipper commenced a number of proceedings in different jurisdictions, including arresting the vessel in tunisia and subsequently commencing substantive proceedings there in order to determine the merits of the claims. those proceedings were later dismissed, but remained subject to appeal. the tunisian proceedings were commenced within 12 months of the misdelivery.

the Owners commenced english proceedings, seeking summary judgment and/or a declaration of non-liability in respect of the shipper’s claims on the ground that these were time-barred pursuant to Article III rule 6 of the Hague rules. this provides that:

“In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.”

the Commercial Court decisionthe court found in favour of the Owners. It considered that the words used in Article III rule 6 (“in any event” and “all liability”) were wide enough to encompass

any breach of a ship-owner’s obligations under the bill of lading, including liability for delivering the goods to someone not entitled to take delivery of them. the object of finality (allowing a ship-owner to close its books) that the time bar was intended to achieve would be undermined if it did not apply to misdelivery claims.


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the court’s view was that the time bar was not limited to breaches of the Hague rules, but would apply to any breach of the contract of carriage, including misdelivery, where that breach occurred during the Hague rules period of responsibility and where it had a sufficient connection with the cargo that was carried or to be carried. the court added that the misdelivery claim could in any event have been pleaded as a breach of the Hague rules because it amounted to a failure to properly and carefully load, stow, carry, keep, care for and discharge the cargo under Article III rule 2. the court also rejected the argument that there was any settled understanding that the time bar did not apply to misdelivery claims.

the court then considered whether the tunisian proceedings were effective to interrupt time running for the purposes of the one-year time bar. It decided that they did not. In circumstances where the tunisian proceedings were brought in breach of the parties’ contractual agreement to bring their claims in the english courts, the tunisian proceedings did not constitute proceedings before a competent court that satisfied the requirements of Article III rule 6. It would

require exceptional circumstances, which were not present here, for foreign proceedings brought in breach of an exclusive english jurisdiction clause to constitute the bringing of suit for the purposes of Article III rule 6. Among other considerations highlighted by the court, the shipper was aware that there was a charterparty to which the Owners were party, and the bill of lading referred to it. therefore, had the shipper asked for a copy of the charterparty, it would have known about the exclusive jurisdiction clause. It could not, therefore, rely on any argument that it was unaware of that clause.

In conclusion, therefore, the shipper’s claim for misdelivery was time-barred.

Commentthis decision provides important and welcome clarification on the application of the Hague rules time limit to misdelivery claims. Further, given that the wording of the time bar under the Hague-Visby rules is even wider in ambit (“all liability whatsoever...”), it is to be expected that the position would be the same under those rules.

the shipper is appealing this decision.

fionna gavin partner, London [email protected]

eleanor Dickens Associate, London [email protected]


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financing bank liable for demurrage as intermediate holder of bills of ladingSea Master Shipping Inc v. Arab Bank (Switzerland) Limited (Sea Master) [2018] eWHc 1902

In a recent decision that will be of interest to ship-owners and trade finance banks alike, the court has held that a bank, which becomes the lawful holder of bills of lading to protect its security interest in the cargo, becomes subject to the rights and obligations contained in those bills, including the arbitration clause.

The background factsthe underlying claim was an action for demurrage brought by the Owners against the bank that had financed the charterers’ purchase of a cargo of soyabeanmeal. During the course of the voyage, the charterers lost their initial buyer and they, therefore, sought to re-direct the cargo to an alternative discharge port for delivery to a new buyer. the Owners agreed to issue a ‘switch’ bill to this effect and the bank replaced the original bills with new bills at its counters, which were consigned to the order of the bank.

the new switch bill incorporated the charterparty arbitration clause. the original bills were marked cancelled by the bank at the same time and returned to the Owners’ agent. the switch bill was accepted under the cIF contract and the cargo delivered.

the bank subsequently commenced arbitration against the Owners for claims under bills of lading relating to other cargo on board the vessel. the Owners counterclaimed for demurrage and/or damages for detention under the switch bill, as the charterers were not good for the money.

the tribunal held that it did not have jurisdiction to determine the Owners’ counterclaim against the bank, since the bank was not a party to the agreement to switch the bills of lading, had not become party to the bill of lading contracts and had not demanded delivery or made a claim under the contract of carriage so as to incur liabilities under section 3 of the carriage of Goods by Sea Act 1992 (“cOGSA”).

the Owners appealed, arguing that the bank was the original party to the switch bill of lading due to the circumstances in which it was issued and the bank’s involvement in issuing it at their counters. It followed, therefore, that the bank owed liabilities under the contract contained in the switch bill and was a party to the arbitration clause that gave the tribunal jurisdiction over the claim.


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the bank argued that it was not the original party to the switch bill, but that the charterers were. the bank accepted that it became the lawful holder of the switch bill to protect its security interest, but that it did so solely because the switch bill was consigned to its order. this brought the bank within section 5(2)(a) of cOGSA, with the result that the bank had rights of suit vested in it. However, because it had not performed any of the acts triggering liability under section 3 of cOGSA (for example, it had not demanded delivery under the switch bill), it had not assumed liabilities under the switch bill and was not, therefore, subject to the arbitration clause contained in it.

the Commercial Court decisionthe court allowed the appeal and remitted the substantive dispute to the tribunal to decide. the court did not accept that the intended effect of sections 2 and 3 of cOGSA was to bifurcate the arbitration clause incorporated into the switch bills so as to confer arbitration rights under section 2 and impose arbitration obligations under section 3.

On its true construction, the operation of section 2 involved the lawful holder of a bill of lading becoming a party to the arbitration clause contained therein, because that party is treated as if it had been a party to the bill of lading, with all the consequences that flow from that, including the mutual obligation to have any dispute falling within the scope of the arbitration clause

determined in arbitration. this is the case irrespective of whether that party owes any substantive obligations under the bill of lading.

the court rejected the bank’s argument that it had not become subject to an obligation to arbitrate because it had not performed any of the acts that trigger the transfer of liabilities under section 3. rather, the issue of whether the lawful holder of a bill of lading has assumed obligations under section 3 is an arbitral issue and, if the effect of section 2 of the Act is to entitle the lawful holder of the bill to arbitrate that dispute, its effect must also be to require it to do so.

the court emphasised that the rights and obligations in an arbitration agreement are mutual, commenting that

“it would be contrary to the very nature of an agreement to refer disputes to arbitration if one party were entitled to litigate an arbitral dispute but the other entitled and bound to arbitrate it” .

this conclusion was said to accord with the reasonable expectations of businessmen, which the court considered would require that, when a contract of carriage includes a widely drafted arbitration agreement providing for disputes “arising out of or in connection with” the contract of carriage, then the position should be that all disputes in relation to the maritime venture, including all questions of who has rights of suit and liabilities under the contract of carriage, will be subject to the single defined dispute resolution mechanism.

Commentthis decision confirms that financing banks that receive bills of lading to protect their security interest in the cargo can become subject to the rights and liabilities contained in those bills of lading. this includes the obligation to have any disputes arising in relation to the bills of lading referred to arbitration, if the bills include an arbitration clause.

this will be of interest to ship-owners who are unable to recover sums due to them from their charterers under the relevant contract of carriage. In this case, the charterers did not have the means to satisfy the sums owed, but it was open to the Owners to pursue a claim for these sums from the bank, who assumed liability solely as a result of becoming the lawful holders of the bill of lading in order to protect their security interest in the cargo.

Carl Walker partner, [email protected]

guy fountaine Associate, [email protected]


Shipping

What constitutes a “similar amendment” under the interclub Agreement?Agile Holdings Corporation v. Essar Shipping Ltd (M/V Maria) [2018] eWHc 1055 (comm)

On appeal from an arbitration award, the court has construed the scope of the words “similar amendment” in the Interclub Agreement (“the IcA”) and found that, in this case, there was no such amendment making the Master responsible for cargo handling and restricting the charterers’ liability to a 50% indemnity for a cargo claim.

The background factsthe Owners of the vessel “Maria” time-chartered her to the charterers under a modified NYPe 1946 form. During loading operations in trinidad, the cargo of direct reduced iron was observed to be on fire. Loading was paused and the appointed supercargo inspected the holds. concluding that the fire was extinguished, he ordered that loading recommence. In fact, the cargo remained on fire throughout the voyage and, upon discharge, the cargo Interests brought a claim against the Owners.

the Owners commenced arbitration against the charterers, seeking a declaration that the charterers would indemnify the Owners against any liability to the cargo Interests. they relied on clause 8(b) of the IcA to argue that the charterers were liable to provide the

Owners with a 100% indemnity. clause 8(b) provides as follows:

Claims in fact arising out of the loading, stowage, lashing, discharge, storage or other handling of cargo:

100% Charterers

unless the words "and responsibility" are added in clause 8 [of the NYPE 1946 form] or there is a similar amendment making the Master responsible for cargo handling in which case:

50% Charterers 50% Owners (...)

the words “and responsibility” had not been added to clause 8. Instead, clause 49 of the charterparty provided as follows:

Stevedore DamageThe Stevedores although appointed and paid by Charterers/Shippers/Receivers and or their Agents, to remain under the direction of the Master who will be responsible for proper stowage and seaworthiness and safety of the vessel (...)

the charterers argued that this constituted a “similar amendment” under clause 8(b) of the IcA, making the Master responsible for cargo handling and that the charterers were only liable to provide a 50% indemnity. In arbitration, the tribunal agreed with the charterers. the Owners appealed.

the Commercial Court decisionthe court agreed with the Owners that clause 49 was not a “similar amendment” that made the Master responsible for cargo handling. rather, the word

“similar” suggested an amendment that was of the same kind or effect as the words “and responsibility” .

the court also agreed that a “similar amendment” was an amendment that required a total transfer of responsibility for cargo handling to owners and not merely a transfer of some of the cargo handling responsibility. that was in line with the drafting of the IcA, which was designed to apply a simple mechanism for apportioning liability.

It was then common ground between the parties that the transfer of responsibility set out in clause 49 did not transfer full responsibility for cargo handling to the


Shipping

Owners, but only involved a “partial transfer of cargo handling responsibilities” back to them.

the court also dismissed the charterers’ attempt to argue at the appeal hearing that the tribunal had not been asked to determine the question of “similar amendment” in the first place and, therefore, no appeal could be brought on this point. the judge, who had granted leave to appeal on a point of law under s.69 of the Arbitration Act 1996, had done so after hearing full oral submissions. the court would be very reluctant to overturn such a ruling and there were strong policy reasons for not allowing threshold issues to be reargued at the appeal hearing stage.

Commentthis decision sets out what will constitute a “similar amendment” to an NYPe 1946 charterparty in order to displace the usual owner-friendly position under the IcA. this clarification is to be welcomed, as it reduces the scope for uncertainty and the expensive legal disputes that can arise as a result.

the case also serves as a reminder that respondents to an application for leave to appeal an arbitration award should make their arguments comprehensively at the application stage, as they are unlikely to be able to make (or remake) threshold arguments at the appeal hearing itself.

ian fisher partner, [email protected]

ruth Monahan Managing Associate, [email protected]


Shipping

Court finds different charterparty arbitration provisions did not conflictA v. B [2018] eWHc 1370 (comm)

this case involved a charterparty with two different, and potentially conflicting, arbitration provisions. the court held that the arbitral tribunal should not have concluded that it lacked jurisdiction over the dispute. In doing so, the court helpfully set out how it will construe ambiguous and potentially conflicting contractual clauses. Where possible, such clauses should be read together and in context to avoid any potential conflict.

The background facts the original dispute arose under a voyage charterparty on the Asbatankvoy form with amendments. the charterparty was in two parts, with an express provision that if there was a conflict between Part I and Part II, Part I would take precedence.

Part I, clause J, contained an arbitration provision in russian. the literal translation of this clause was as follows:

“Arbitration proceedings – London international arbitration court, in accordance with the laws of Great Britain ...”

Part II, clause 24, however, also contained an arbitration provision, as follows:

“Arbitration. Any disagreements and disputes ... arising out of the C/P are to be resolved by arbitration in New York or London, according to which of these places is provided for in Part I ... by a tribunal of three people, one appointed by the owners, one by the charterers, and one appointed by the two arbitrators elected in such a way.”

After Party A commenced arbitration, both parties appointed arbitrators. the arbitrators accepted their appointments on LMAA terms 2012. Party b then made an application, challenging the jurisdiction of the arbitrators.

After considering the two arbitration clauses, the tribunal found that the provisions were in direct conflict with each other. the arbitrators decided that: (1) the intention of clause J was to refer disputes to the London court of International Arbitration (LcIA); and (2) clause 24 was not compatible with the referral of disputes to the LcIA, as it placed the responsibility for making arbitral appointments on the parties (whereas the LcIA rules provide that the LcIA itself will appoint the arbitrators).

In circumstances in which the two clauses were thought to conflict, the tribunal held that clause J must prevail as it was in Part I of the charterparty and, therefore, took precedence. the tribunal concluded that it lacked jurisdiction, having accepted appointment under LMAA rules.


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Party A appealed, arguing that the tribunal had been wrong to determine the construction of clause J in isolation and that it should have looked at the proper, purposive construction of clause J in the light of the contract as a whole.

the Commercial Court decisionthe court summarised the principles applicable to contractual construction as follows:

1. the proper approach, when considering the interpretation of contractual clauses, is to look at the provisions of the contract as a whole in construing their meaning.

2. In determining whether there is a conflict between contractual provisions, the first step must be to construe the clauses. this meant looking at both clauses together, rather than examining each clause individually.

3. Where there is an additional factor that might affect the construction of a clause (as in this case, where the court was asked to construe a clause in a foreign language and there were doubts as to the proper translation), the court would need to apply a combined process, namely assessing the evidence regarding the accuracy of the translation, together with the usual tools of construction.

Applying these principles to the facts of this case, the court held that the tribunal should not have ignored clause 24 in determining the proper meaning of clause J. Despite the ambiguity, it was possible to read the two clauses together. When considering the two clauses together: (1) clause J did not clearly indicate a choice for the LcIA; and (2) clause 24 was more applicable to an ad hoc arbitration.

the court concluded that, on the balance of probabilities, the parties’ intention was to refer their disputes to an ad hoc arbitration in London. the tribunal, therefore, had jurisdiction over the substantive dispute.

Commentthis case highlights the continuing trend of the english courts to take a purposive and commercial approach to the construction of contracts when approaching clauses with disputed or ambiguous wording. Whilst these cases will always turn on their particular facts, this decision confirms that the court will endeavour to give effect to parties' (presumed) intentions by selecting the interpretation that makes the most commercial sense. to avoid such disputes, however, parties drafting contracts should seek to ensure that, insofar as possible, their provisions are unambiguous and do not conflict.

rory Macfarlane partner, [email protected]

rachel bernie Managing Associate, [email protected]


Shipping

the Seatrade verdict: has scrapping just got a lot more onerous?

the judgment of the District court of rotterdam in the Seatrade case in March 2018, in which a company and its two directors were found guilty of violating eU regulation No. 1013/2006 of 14 June 2006 on shipments of waste (“eWSr”), has potentially wide-reaching implications for ship-owners based in europe and beyond who are considering scrapping their vessels.

The background facts In 2012, Seatrade sold four reefer vessels for scrapping. the vessels sailed from the ports of rotterdam and Hamburg to India, bangladesh and turkey, where they were beached then scrapped. three out of the four ships carried cargo en route to their destinations.

the Dutch public prosecutor charged the directors of Seatrade with violations of eWSr.

Seatrade defended the charges on the following grounds (amongst others):

> that eWSr does not apply to the recycling of operational ships;

> alternatively, that ships cannot be classified as waste under eWSr;

> alternatively, if ships can be classified as waste in principle, certain factors should go into this decision, which were not present in this case; and

> that there was no hazardous waste.

The rotterdam District Court decisionthe court examined the internal email exchanges, as well as exchanges between the accused and the shipbrokers prior to and during the last voyages of the ships, which established that it had been the intention from the very beginning to sell the vessels for scrap. the court rejected the argument that an operational ship could not be regarded as waste and found that “waste” is defined in the eU legislation as

“any substance or object which the holder discards or intends or is required to discard.” the court further found that all the circumstances of the case must be taken into account when assessing whether the holder of an object actually intended to discard it (which, in this case, it did) and that the term “discard” cannot be interpreted restrictively.

In the court’s view, at the time that the ships left the ports of rotterdam and Hamburg, they were within the meaning of waste under the eWSr. the court emphasised that the fact that three of the ships were still in commercial service and carried a cargo during part of the voyage to their final destination did not affect this conclusion.

the court also found that eWSr applies to ships as follows from eWSr’s recital 35, which states the need to ensure safe and environmentally friendly ship dismantling. Furthermore, having examined the exceptions to the scope of eWSr found in Article 1, the court concluded that none of these exceptions applied in this case. the court concluded that the ships were a combination of non-hazardous and hazardous waste and must, therefore, be regarded as hazardous waste.

the decision highlighted the interaction between eWSr and the eU regulation No. 1257/2013 on ship recycling (“recycling regulation”). the recycling regulation clarifies that transboundary movement for the purpose of recycling ships is regulated


Shipping

by the basel convention on the control of the transboundary Movements of Hazardous Wastes and their Disposal and the eWSr, except for ships falling under the scope of the recycling regulation as defined in Article 2 of that regulation.

CommentIn accordance with the recycling regulation, as of 31 December 2018 seagoing vessels flying the flag of an eU member state must be recycled at a recycling facility that meets the requirements set out in the regulation. In December 2016, the eU adopted the list of approved ship recycling facilities, which was updated on 4 May 2018. As at September 2018, the list does not include any non-european yards. the eWSr will continue to apply to non-eU flagged vessels.

the Seatrade case demonstrates that the practice of selling vessels to buyers who then re-flag the vessels and scrap them may not help ship-owners avoid liability. there is reason to believe that law enforcement authorities across the eU may take a similar approach to that of the rotterdam court to the enforcement of the recycling regulation and the eWSr.

the case raises further interesting questions about the amount of due diligence that ship-owners will be expected to conduct when selling their vessels for scrap. Article 6(2) of the recycling regulation states that “ship owners shall ensure that ships destined to be recycled ... are only recycled at ship recycling facilities that are included in the European List”, which arguably places the onus on ship-owners to ensure compliance with the regulation. Ship-owners may, therefore, find themselves with extra due diligence obligations of establishing whether the buyer intends to scrap the vessel at one of the approved yards. It is unlikely that turning a blind eye would constitute a successful defence to liability.

the court here took into account the fact that the scrapping of ships on the beaches of India, bangladesh and turkey is a common practice and that this is the first prosecution of its kind for scrapping ships in violation of eWSr. As a result, the court did not impose a prison sentence on the directors in this case. However, it may well be that this could happen in future. Ship-owners should, therefore, bear in mind their obligations in this regard and should implement proper procedures for scrapping their vessels.

We have already seen the impact of the Seatrade case working its way into second-hand sale and purchase contracts, where sellers include substantial restrictions (and warranties) on resale scrapping. No doubt this area of law will develop further as the recycling regulation comes into force.

David galea partner, [email protected]

Anna fomina practice Development Lawyer senior Associate, [email protected]


Shipping

Court of Appeal confirms: privilege rules!Director of the Serious Fraud Office v. Eurasian Natural Resources Corporation Ltd and the Law Society [2018] eWcA civ 2006

In a much anticipated decision, the court of Appeal has held that a multinational corporation that came under investigation by the Serious Fraud Office (“SFO”) was entitled to assert litigation privilege over various categories of documents that had been generated as part of its internal investigation into a whistle-blower’s allegations of corruption within its organization. In doing so, the court of Appeal rejected the High court’s more restrictive approach to litigation privilege.

this was a case that was primarily about litigation privilege. However, the court of Appeal did indicate that, had it needed to decide the point, it did not consider that the corporation could have claimed legal advice privilege over the documents in question. It was bound by past court of Appeal authority, which established that legal advice privilege only applies to communications between lawyers and those individuals at a corporation who are responsible for seeking and receiving legal advice. Any change to the law on this issue would require a ruling from the Supreme court.

the importance of the issues that arose in this case to the legal community and its clients is highlighted by

the fact that the Law Society was an intervener in the proceedings. While the context was an investigation by a regulatory body that could result in a criminal prosecution, the court of Appeal’s findings on privilege will be equally relevant to civil proceedings.

The law of privilegeLitigation privilege applies to communications between parties or their solicitors and third parties for the purpose of obtaining information or advice connected to existing or contemplated litigation. At the time of the communication in question: litigation must be in progress or reasonably in contemplation; the communication must have been made with the sole or dominant purpose of conducting that litigation; and the litigation must be adversarial, not investigative or inquisitorial.

Legal advice privilege covers communications between a client and its lawyers for the purpose of giving and receiving legal advice. Litigation does not have to be in contemplation. However, the english courts have taken a narrow view of who is the client for these purposes. In 2003, the court of Appeal in Three Rivers (No. 5) held that legal advice privilege only attaches to communications between

the lawyers and employees or other individuals who are authorised to obtain legal advice on the corporation’s behalf.


Shipping

the Three Rivers (No. 5) decision has proved controversial, but the courts have considered themselves bound by it. In 2016, for example, the court in the RBS Rights Issue Litigation distinguished between those authorised to seek and receive legal advice on behalf of a corporation (privileged) from persons with no such authority, but who performed the preparatory work of compiling information that allowed the authorised officers of the corporation to subsequently obtain legal advice (not privileged).

The background factseNrc is a multinational corporation operating in the mining and natural resources sector. In 2010, it became aware of allegations by a whistle-blower regarding alleged corruption by a foreign subsidiary. It launched an internal investigation and instructed external lawyers, who conducted many interviews with employees, ex-employees and others in relation to these allegations. It subsequently also instructed forensic accountants to conduct a books and records review to check whether it was exposed to any liability under bribery and corruption legislation, but also for general compliance purposes.

In 2011, the SFO became aware of the allegations and contacted eNrc. there then followed a period of discussions, with eNrc indicating that it intended in due course to cooperate fully with the SFO and to make full and frank disclosure regarding the

outcome of its investigations. In 2012, eNrc took the point that it was in the process of self-reporting, the benefit of which was that this could in suitable cases lead to the matter being settled in civil, rather than criminal, proceedings. However, the SFO did not agree, but decided to take a more pro-active approach to prosecuting cases of bribery and corruption. Ultimately, no settlement was reached and the SFO launched proceedings against eNrc, seeking disclosure of various documents, including the lawyers’ notes of the various interviews that they had conducted. eNrc claimed litigation and/or legal advice privilege over all the documents in question.

the High court judge found in favour of the SFO. In summary, the judge held that litigation privilege did not apply because, at the time the documents were generated, litigation was not in reasonable contemplation. When eNrc launched its internal investigation, it was unclear whether the allegations were well-founded and there was no certainty that any proceedings would ever be brought against it. In the judge’s view, this was the position throughout eNrc’s initial discussions with the SFO that were aimed at achieving amicable settlement: the relationship was collaborative, not adversarial. the judge added that even if she was wrong on this point, the documents did not pass the “dominant purpose” test. In her view, litigation privilege did not extend to

third party documents created in order to obtain legal advice as to how best to avoid contemplated litigation, rather than to defend it. the judge also found that certain documents had been created with the intention of disclosing them to the SFO and could not, therefore, attract privilege. On legal advice privilege, she found she was bound by Three Rivers (No. 5), with which she agreed.

eNrc appealed.

The Court of Appeal decisionthe court of Appeal disagreed with the judge’s analysis and found that the documents attracted litigation privilege. the whole sub-text of the relationship between eNrc and the SFO was the possibility, if not the likelihood, of prosecution if the self-reporting process did not result in a civil settlement. Furthermore, the documents and evidence pointed clearly towards the contemplation of a criminal prosecution if the self-reporting process did not succeed in averting it. the judge was, therefore, wrong to conclude that a criminal prosecution was not reasonably in prospect when the SFO first contacted eNrc. While each case would depend on its own facts, there was no general principle that litigation privilege could not attach until either a defendant knew the full details of what was likely to be unearthed or a decision to prosecute had been taken. the fact that a formal investigation had not


Shipping

commenced would be one part of the factual matrix, but would not necessarily be determinative.

As to dominant purpose, the court of Appeal held that, in both the civil and the criminal context, legal advice given to head off, avoid or even settle reasonably contemplated litigation was as much protected by litigation privilege as advice given for the purpose of resisting or defending such contemplated proceedings. Further, while eNrc might have wished to be ethical in meeting its compliance and governance requirements, the main reason it launched its internal investigation and instructed lawyers and forensic accountants was because it was concerned that it might be exposed to liability and prosecution down the line.

the court of Appeal also disagreed with the finding that certain documents had been created for the specific purpose of being shown to the SFO. It said that, while eNrc might have promised full and frank disclosure, it never actually agreed to disclose the materials it created in the course of its investigation to the SFO and had not done so.

However, on legal advice privilege, the court of Appeal upheld the judge’s finding. It considered itself bound by Three Rivers (No. 5), but did indicate that it may well have departed from that decision if it

had been able to do so. the court of Appeal voiced the concern that the current position puts larger, multi-national corporations at a disadvantage. With individuals and small businesses, the information on which legal advice was sought would be obtained by the lawyer from the individual or the board members of the small business. However, in the case of large corporations, that information was unlikely to be in the hands of the main board or those it appointed to seek and receive legal advice. If a large corporation could not ask its lawyers to obtain the information it needed from its employees with first-hand knowledge under the protection of legal advice privilege, it was placed at a disadvantage. the court of Appeal also noted that some common law jurisdictions have not followed Three Rivers (No. 5), but nonetheless considered that any change to the law was a matter for the Supreme court.

Commentthe court of Appeal has reasserted a broader interpretation of litigation privilege and confirmed the importance of lawyer/client confidentiality in the context of civil (and criminal) litigation. However, who is a client for the purposes of legal advice privilege, particularly in the context of a large corporate client, remains less clear. While it is helpful that the court of

Appeal has expressed a view on this, ultimately it will be for the Supreme court to make a definitive ruling.

As at the time of writing, it was not clear whether this decision would be appealed to the Supreme court.

Michael Volikas partner, [email protected]

reema Shour professional Support Lawyer, [email protected]


Shipping

Singapore Court agrees: make up your mind when choosing law and jurisdiction Shanghai Turbo Enterprises v. Liu Ming [2018] SGHc 172

Parties should not contract on a “floating” governing law clause – i.e. a clause that provides for two or more governing laws and leaves the exercise of the choice until a later stage. the english courts have traditionally found that such clauses are unenforceable. In this recent decision, the Singapore High court accepted that Singapore law adopts a similar position to english law. Having struck down the governing law clause, the court ruled further that an inextricably linked “floating” jurisdiction clause was also unenforceable. Parties to international contracts should carefully consider and expressly set out their choice of law and forum at the outset. Losing an enforceable law and jurisdiction clause can result in ceding serious tactical advantages in litigation.

What is floating choice of law and jurisdiction?this case concerned a company director’s terms of service entered into between a Prc chinese resident and a Singapore listed company, which included the following law and jurisdiction clause:

“This Agreement shall be governed by the laws of Singapore/or People’s Republic of China and each of the parties hereto submits to the non-exclusive jurisdiction of the Courts of Singapore/or People’s Republic of China.”

the clause can be broken down into two limbs. the first limb before the word “and” (emphasis above) provides for a choice between Prc and Singapore law as the governing law. the latter part of the clause then provides for a choice between the Prc and Singapore courts to assume jurisdiction.

the Singapore High court held that this clause was unenforceable in its entirety.

first limb – floating choice of law clauses are generally unenforceableAs far as the first limb (the floating law clause) was concerned, the Singapore High court accepted a longstanding english law rule – that floating choice of law clauses are unenforceable. the reasoning behind this rule is a compelling one. Any contractual clause derives its meaning and effect from the governing law. the corollary is that there must be certainty in the governing law clause; failing which, parties to a contract will not know from which perspective to interpret a clause or perform their obligations.

It should also be kept in mind that a floating governing law clause does not become enforceable just because it provides for a mechanism for making the choice. In past cases, the english courts have struck down

clauses allowing one party to choose a governing law out of a named few.

As clear from the above, whether under Singapore law or english law, a choice of law clause would only be enforceable if a definite and singular choice is made from the outset.

Second limb – floating choice of jurisdiction clauses are unenforceable too if inextricably linked to a floating choice of law clauseMoving onto the second limb, the english courts generally adopt a more permissive attitude towards floating jurisdiction clauses as compared to floating choice of law clauses. reference is more often made to “non-exclusive jurisdiction clauses”, rather than to “floating jurisdiction clauses”. Such clauses are frequently adopted and are not generally struck down by the courts, even where the parties name more than one jurisdiction on a non-exclusive basis. the point to note is that, in all such cases, the choice of law needs to be a definite one.

this more “relaxed” attitude is underpinned by a set of rules that quite readily determines the proper forum to hear a case. the law also assumes that the courts can generally administer or determine


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questions arising under foreign law. Accordingly, the scope of the parties’ rights and obligations can still be ascertained, in the first instance, with certainty by reference to a definite governing law.

However, the position differs if the floating jurisdiction clause is tied to a floating law clause. In this case, the Singapore court held that, where the floating jurisdiction clause is too inextricably linked with the floating law clause, the former could not survive alone without the latter. the court interpreted the entire clause as meaning that the parties will go before a chinese court if they so choose chinese law, and vice versa for Singapore law and jurisdiction. the court reasoned further that, without the first limb, the contract provided no mechanism to choose between the two jurisdictions. to read the second limb as meaning that the parties submitted to the jurisdiction of both china and Singapore was inconsistent with the plain wording adopted in the clause (“the Courts of Singapore/or People’s Republic of China”) .

practical significance the strategic advantage of litigating in a jurisdiction of choice is clear to those familiar with cross-border dispute resolution. In this case, having declined to assume jurisdiction over the matter, the Singapore court consequently set aside a range of powerful interim orders that the Plaintiff had initially obtained, including Mareva injunctions on assets, and prohibitory injunctions on the exercise of rights attached to shares.

Comment In the shipping context, it is not uncommon to encounter back-to-back claims in a charterparty or sale contract chain. enforceable and definitive choice of law and jurisdiction clauses are key to the smooth passing of claims through the chain. care must also be taken to examine the bills of lading, which often incorporate governing law and jurisdiction clauses by reference to the charterparty which may or may not be readily available.

A floating choice of law clause and an associated floating jurisdiction clause are more likely than not to be unenforceable before the english courts and Singapore courts alike. to ensure certainty and prevent unnecessarily time-consuming and costly litigation, parties should avoid incorporating “floating” governing law and jurisdiction clauses in their contracts.

nicholas Lum partner, [email protected]

peter huang Associate, Singapore

[email protected]


neWs & events

firm news

Office modernisation at Ince & Co continues apace, with Shanghai relocation the firm announced recently that its Shanghai office will be relocating to a brand new office space on the 38th floor of the Sinar Mas centre in Shanghai on 31 August, 2018. the Grade-A office tower, completed in 2017, is the tallest building located in Puxi side and reaches an impressive 320 metres in height. It is also located in the heart of the business district of Puxi and benefits from excellent access to transport links and intelligent and green technologies.

Click here for more information.

Ince & Co Global Head of Yachts relocates to Monacothe firm announced in July that Andrew charlier, Global Head of Yachts and Superyachts, has relocated to its Monaco office with immediate effect.

Click here for more information.

recent articles

Fading lines in logistics ton van den bosch, Global Head of ports & terminals in our Singapore office, comments on the emerging trends in logistics, intermodal and supply chain sectors for Seatrade Maritime News.

Click here to read the article.

Ince & Co contributes to International Comparative Legal Guide to Shipping Law 2018We are pleased to announce that Ince & co contributed the UAe chapter to the recently published International comparative Legal Guide (IcLG) to Shipping Law 2018.

the chapter can be viewed online here or, if you would like to receive a free copy of the chapter in PDF, please send an email to [email protected]

events

Shipping briefing – 11 October Click here to RSVP

inceSight – 24 October Our InceSight events are aimed at bringing together the finest young lawyers and claims handlers in the market. the event is designed to provide short and sharp updates on important topics in the industry but with an emphasis on providing practical tips and pointers which are relevant and useful for your day to day work.

Click here to RSVP

Donald O’May lecture – 8 novemberWe are proud to sponsor this event at which Ince & co partner, Ian chetwood, will give the vote of thanks.

to register your interest please click here.

https://www.incelaw.com/en/news-and-events/news/office-modernisation-at-ince-and-co-continues-apace-with-shanghai-relocation

https://www.incelaw.com/en/news-and-events/news/ince-and-co-global-head-of-yachts-relocates-to-monaco

http://www.seatrade-maritime.com/news/asia/fading-lines-in-logistics.html

https://ince.co/ShippingBriefing

https://ince.co/InceSight

https://www.southampton.ac.uk/iml/news/events/2018/11/08-donaldomay.page

OUr OffiCe LOCATiOnS

LonDonMichael Volikas, Partner [email protected] +44 (0) 20 7481 0010

pAriS/Le hAVre/MArSeiLLeJerome de sentenac, Partner [email protected] Paris: +33 (0) 1 53 76 91 00 Le Havre: +33 (0) 2 35 22 18 88

MonACoian Cranston, Partner [email protected] +377 93 25 85 80

hAMbUrg/COLOgneJan hungar, Partner [email protected] +49 (0) 40 380 860

pirAeUSpaul herring, Partner [email protected] +30 210 455 1000

DUbAirania Tadros, Partner [email protected] +971 4 307 6000

hong KongDavid beaves, Partner [email protected] +852 2877 3221

shAnghAipaul ho, Partner [email protected] +86 (0) 21 6157 1212

beiJingWai Yue Loh, Partner [email protected] +86 (0) 10 5706 9588

SingApOreJohn Simpson, Partner [email protected] +65 6538 6660

Key gLObAL COnTACTS

ince & Co is a network of affiliated commercial law firms with offices in beijing, Cologne, Dubai, hamburg, hong Kong, Le havre, London, Marseille, Monaco, paris, piraeus, Shanghai and Singapore.

e: [email protected] incelaw.com

24 hour international emergency response Tel: + 44 (0)20 7283 6999

LegAL ADViCe TO bUSineSSeS gLObALLy fOr OVer 140 yeArSthe information and commentary herein do not and are not intended to amount to legal advice to any person on a specific matter. they are furnished for information purposes only and free of charge. every reasonable effort is made to make them accurate and up-to-date but no responsibility for their accuracy or correctness, nor for any consequences of reliance on them, is assumed by the firm. readers are firmly advised to obtain specific legal advice about any matter affecting them and are welcome to speak to their usual contact.

© 2018 Ince & co International LLP, a limited liability partnership registered in england and Wales with number Oc361890. registered office and principal place of business: Aldgate tower, 2 Leman Street, London e1 8QN.

Shipping e-brief OctOber 2018

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