Marine Brief: latest decisions December 2017

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12/12/2017

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A round up of recent UK and overseas court decisions addressing issues including recoverable expenses in GA, jurisdiction over misrepresentation claims, ‘subject to review’ clauses, invalid service of arbitration notices, expenses incurred during piracy negotiations, the applicability of the no set-off against freight rule to air carriage contracts, enforcement of a potentially biased Russian arbitration award, unseaworthiness in a general average claim and excessive security demands in Australia.

General average expense not recoverable for owners’ actionable fault and burden of proof on reasonableness of expenses.

MT "Cape Bonny" Tankschiffahrts GMBH & Co KG v Ping An Property And Casualty Insurance Co Of China Ltd, Beijing Branch (The “Cape Bonny”) [04.12.17]

The tanker Cape Bonny had an engine breakdown on a laden voyage and was towed to Korea for a ship-to-ship transfer of the cargo, having been refused entry to ports in Japan and China. Cargo interests resisted owners’ claim for a contribution in general average of some US$2.1 million. The Commercial Court held, on the facts, that the cause of the breakdown was a failure of a crankshaft main bearing as a result of progressive wear due to the failure of faulty lubricating oil filters to remove metal particulates from the oil. In light of crankshaft deflection readings, bearing clearance measurements should have been taken. Had this been done, abnormal wear on the bearing would have been revealed requiring repair before the voyage commenced. This was a failure to exercise due diligence and was causative of the subsequent engine breakdown. The general average expenditure incurred by the owners was due to an actionable fault in failing to make the vessel seaworthy and cargo interests were not liable to make any contribution. 

It was not strictly necessary for the court to do so, but the court confirmed that the effect of the Rule Paramount was that the burden of proving that the expenditure was reasonably incurred lies upon the person seeking the contribution (in this case owners). There is no automatic presumption of reasonableness. There will however be circumstances, such as where a prompt decision on a course of action is required, where the benefit of the doubt is given to the master, owners or managers and hindsight is to be ignored, and there is then an evidential burden upon the cargo owner to show that those actions judged objectively were unreasonable.

Contact: David McKie

Jurisdiction over claims for damages for misrepresentation in relation to claims settlement agreement

Aspen Underwriting Ltd & Ors v Credit Europe Bank NV [01.12.17]

In our previous Brief, we reported on the attempts by hull underwriters to recover payments made to the mortgagee bank in the Atlantik Confidence case. The Commercial Court has recently held that it has jurisdiction under the Recast Brussels Regulation to determine the hull underwriters’ alleged claims under the 1967 Act for damages for misrepresentation in relation to the settlement agreement of the claim under the hull policy, on the basis that the claim for damages under the Act is to be classed as a claim in tort (Dunhill v Diffusion Internationale [2002]) and the harmful event occurred in England. The court has however given the mortgagee bank permission to appeal on this issue and the issues decided in the previous judgment.

Related item: Marine Brief: latest decisions September 2017

Contact: David McKie

Offer and acceptance, uncertainty and essential terms

Toptip Holding Pte Ltd v Mercuria Energy Trading Pte Ltd [23.11.17]

The Singapore Court held that a voyage charterparty had been concluded despite owners' offer email stating this was “subject to review” of the charterers’ pro forma charterparty “with logical amendments”. Looked at as a whole the actual language used by both parties, including both owners' “offer firm basis” and charterers' “we confirm the acceptance of your offer" indicated a common intention by the parties to be immediately bound, even if subsequent discussion of boilerplate terms was required.

Related item: “Subject to Review” clauses – time for a careful review

Contact: Joseph Tan

Be sure to serve arbitration notice on the right person

Glencore Agriculture BV v Conqueror Holdings Ltd (The “Amity”) [16.11.17]

Disputes arose under a charterparty which was subject to arbitration. Conqueror sent a notice of arbitration to the email address of the individual at Glencore who had sent messages regarding the operation of the charter party. No response was received. An award was later published by the tribunal in favour of Conqueror.

Glencore applied to have the award set aside, claiming that the arbitration had not been properly commenced. The Commercial Court held that there was a distinction to be made between service to a generic chartering email address and a personal business address. There was no indication, implied or express, that the individual at Glencore had any authority to accept service of proceedings and take any requisite action. Accordingly, the court found that Glencore was not effectively served.

Related item: Considerations around the service of arbitration notices

Contact: Jonathan Biggins

Operating expenses incurred during piracy negotiation period allowable in general average under York-Antwerp Rules

Mitsui & Co Ltd and Others v Beteiligungsgesellschaft LPG Tankerflotte MBH & Co KG and another (The “Longchamp”) [25.10.17]

The Supreme Court was asked to consider whether, following the seizure of The Longchamp by Somali pirates, daily operating expenses, including bunkers and crew wages, incurred during the period of 51 days in which the pirates’ ransom demands were reduced from US$6 million to US$1.85 million, were allowable in general average.

The Supreme Court held (4:1) that the expenses were recoverable. As the Supreme Court recognised, the decision goes against what many adjusters considered to be the proper application of Rule F. It is likely to lead to significant factual disputes in future cases. It will be interesting to see whether amendments to Rule F will be proposed in light of the decision.

Contact: David McKie

Set-off against freight rule from shipping law equally applicable to carriage by air

Schenker Ltd v Negocios Europa Ltd [6.10.17]

The parties entered into a contract for the carriage by air of chia seeds. The consignee refused to pay the contractual charges for carriage claiming it was setting off against this sum the loss of had suffered as a result of alleged late delivery of the cargo. The carrier relied on either BIFA terms or on the well-established common law ‘freight rule’ arguing that the rule that prevented set-off against freight in sea carriage was also applicable also to airfreight.

It was noted that the freight rule, which has been established for more than 100 years in carriage of goods by sea, has also been extended to domestic and international road haulage. Although the rule may appear to be an anomaly when contrasted with other contracts for the supply of goods and services, and despite the significant difference between the time and cost of transportation by air and sea, the court held there was no logical distinction to be made between different forms of transport. It was therefore held that the common law rule establishing that there can be no set-off against freight did in fact extend to carriage by air.

Arbitration award enforced despite concerns over potential for bias

Nikolay Viktorovich Maximov v Open Joint Stock Company "Novolipetsky Metallurgichesky Kombinat" [27.07.17]

The Commercial Court heard an application to enforce an award of the International Commercial Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation (“ICAC”) in a dispute over the payment of the purchase price of the claimant’s holding in a Russian business. The peculiarity in this case was that the award had been set aside by the Moscow Arbitrazh Court, a decision which was said to be perverse and to demonstrate bias against the claimant.

The Commercial Court court considered that there was no evidence of actual bias in the Moscow Arbitrazh Court’s judgment. The test was whether the Russian courts’ decision was so extreme or obviously incorrect as not to be open to a Russian court acting in good faith. It was held that enforcement of the award should be denied. Notwithstanding “severe criticism” of the failure of the Moscow Arbitrazh Court to put the public policy defences and alleged non-arbitrability grounds to the parties, the court was not persuaded that the decision was so extreme and perverse that it could only be ascribed to bias against the claimant.

Defence of unseaworthiness in a general average claim – burden of proof

Cosco Bulk Carrier Co Ltd v Tianjin General Nice Coke and Chemicals Co Ltd and Another (the “Jia Li Hai”) [27.07.17]

Following a collision, owners sought a contribution from cargo interests in general average. Cargo interests claimed the vessel was unseaworthy, relying upon references to negligence and failures in the report of the relevant Chinese Maritime Safety Authority. Owners applied for summary judgment on this aspect of the claim. The court awarded summary judgment on this part of the case to the claimant.

The burden of proving unseaworthiness lay on cargo interests. They could perhaps show that systems were breached on this occasion, but could not show inadequate systems or inadequate arrangements for implementation of those systems, and therefore the defence had no real prospect of success. Waiting for disclosure was not a proper reason to allow this part of the case to proceed to trial.

Australia – damages for excessive security demand

Delaware North Marine Experience Pty Ltd v The Ship "Eye-Spy" [23.06.17]

Bareboat charterers arrested a vessel following a stern tube failure. Their demand for security for the release of the vessel from arrest was approximately 10 times higher than the final judgment sum. It was held that the cause of the machinery failure was due to a latent defect and that the assertions made in the affidavit in support of arrest and the security subsequently obtained were unreasonable and without good cause. Specifically, the arrest was held to be unjustified under section 37 of the Australian Admiralty Act 1988. Damages were awarded to take into account the interest paid on the borrowings for the security payment.

Read other items in the Marine Brief - December 2017