Marine Brief: latest decisions September 2017
A round up of recent court decisions addressing issues including the applicability of jurisdiction clauses when considering recovery of allegedly fraudulent claim payment, the Third Parties (Rights Against Insurers) Act 2010 provisions, the crossing rule and the narrow channel rule in the Collision Regulations, demurrage rates, container package limitation and the powers under the Arbitration Act to order the sale of goods.
The Admiralty Court considers crossing rule and the narrow channel rule
Nautical Challenge Ltd v Evergreen Marine (UK) Ltd (The “Alexandra 1” and The “Ever Smart”) [13.03.2017]
Following a collision between the laden VLCC "Alexandra I" and the laden container vessel "Ever Smart" in a channel leading to Jebel Ali, the Admiralty Court considered whether the narrow channel rule or the crossing rule (Rules 9 and 15 of the Collision Regulations) applied.
It was held that where a vessel is waiting to enter a narrow channel, the narrow channel rule applies in place of the crossing rule. The Judge ruled that "Ever Smart" should bear 80% of the liability for the collision, with "Alexandra I" bearing 20%.
Electronic and witness evidence as well as VHF communications in collision avoidance were highlighted in the judgment as playing a vital role in apportioning collision liability.
Containers and package limitation
Kyokuyo Co Ltd v AP Møller-Maersk A/S trading as “Maersk Line” [29.03.2017]
The High Court considered package limitation for containerised cargoes under the Hague-Visby Rules (HVR), and the applicability of the HVR where waybills are issued instead of bills of lading.
The dispute arose out of the damage to three container loads of frozen bluefin tuna which was stuffed into the containers as individual items of cargo, without any wrapping, packaging, or consolidation. The claimant requested, and the defendant agreed, that the destination of two of the containers be altered. As no bill of lading had yet been issued for the containers and to avoid further delay in delivery, the claimant and defendant agreed to issue sea waybills instead. Upon receipt of the tuna, Kyokuyo as receivers, claimed the tuna was damaged.
It was held that the requirement that a contract of carriage had to be "covered by a bill of lading" for the HVR to apply was satisfied where the contract required a bill of lading to be issued, but where no bill of lading was in fact issued or where a waybill was issued instead. Further, the limit of liability per "package or unit" in the Hague Rules and the HVR focused on the cargo as it was actually transported.
The facts here were specific to circumstances where it was clearly contemplated that a bill of lading would be issued. However recent case law does depict a trend towards the compulsory application of the HVR where possible.
Collision limitation periods
Eleni Maritime Ltd v Heung-A Shipping Co Ltd and all other Persons Claiming and/or Being Entitled to Claim Damages in Respect of Alleged Loss and Damage Arising out of the Collision Between the Vessels “Eleni” and “Heung-A Dragon” [09.05.2017]
A collision occurred in Vietnam between “Eleni” and “Heung-A Dragon”. The owners of “Eleni” admitted liability and were granted a limitation decree and paid into court. The final deadline set for filing claims fell before the expiry of the two-year limitation period for claiming damages arising out of collision at sea under section 7(1) of the Merchant Shipping (Collision Damage Liability and Salvage) Ordinance.
No distribution of the fund had yet taken place and various cargo claimants who had not received notice of the time bar for claims against the limitation fund sought an extension for the same. The extension was granted. The two year limitation period was statutory and under section 7(3) the court had discretion to extend it. The deadline in the limitation decree for filing a claim was fixed by the court in the exercise of its case management powers and should not have the effect of overriding the limitation period fixed by law.
Improvised floating storage: demurrage rates
Hong Kong considers the Collision Regulations
Owners and/or Demise Charterers of the Ship or Vessel “MCC Jakarta” v Owners and/or Demise Charterers of the Ships of Vessel “Xin Nan Tai 77” [02.06.2017]
It is believed that this is only the second time a civil case involving collisions at sea has progressed to full liability trial in Hong Kong. Here, two almost simultaneous collisions took place involving three vessels. The first involved the “MCC Jakarta” and “Xin Nan Tai 77” and the second was between “MCC Jakarta” and “TS Singapore”. The Collision Regulations 15, 16 and 17 on crossing situations were also considered by the court.
The court decided that the “MCC Jakarta” was 20% and the “Xin Nan Tai 77” was 80% to blame for the first collision. With respect to the second collision, their collective liability was 95% and should be apportioned between them in the same (80/20) proportions. With regards to the Collision Regulations, it was decided that the give-way vessel has to take early and substantial action to keep clear. The stand-on vessel must keep her course and speed, but still must take action when a collision is unavoidable in a close quarter situation.
Liability insurance - insurers can be joined to proceedings under Third Parties (Rights Against Insurers) Act 2010 despite coverage dispute
BAE Systems Pension Funds Trustees Ltd v Royal & Sun Alliance Insurance plc [14.07.2017]
Pursuant to the Third Parties (Rights against Insurers) Act 2010 (the Act), the court ordered that liability insurers should be joined to proceedings, notwithstanding their argument that the policy did not cover the insured's potential liability in the underlying dispute.
O'Farrell J considered that section 2(1) of the Act was engaged, even where there was a coverage dispute. The wording of section 2(1) only required a third party to "claim to have rights" under a contract of insurance; section 2(2) provided the mechanism for the third party to establish such rights. However, the judge stayed part of the proceedings against insurers under section 2(2)(b) of the Act on the basis that the policy coverage dispute was subject either to an exclusive jurisdiction clause (in favour of the French courts) or to arbitration.
The decision confirms, as expected, that a coverage dispute will not prevent a liability insurer being joined to proceedings under the Act – it is not necessary to establish the liability of the insurer before commencing proceedings against them. However, a third party will still be bound by the dispute resolution provisions in the contract of insurance when it comes to determination of the coverage dispute.
Liability insurance - guidance on transitional provisions of Third Parties (Rights Against Insurers) Act 2010
Redman v Zurich Insurance plc and another [26.07.2017]
The High Court struck out a personal injury claim against the defendant employers’ liability insurers under the Third Parties (Rights Against Insurers) Act 2010 (the Act). On the proper construction of the transitional provisions, the Act did not apply to the claim, because the insured had both incurred the alleged liability and become insolvent before 1 August 2016, when the Act came into force.
The decision clarifies that the Act does not apply retrospectively so as to run in parallel with the Third Parties (Rights Against Insurers) Act 1930 (the 1930 Act). If the 1930 Act applies, the 2010 Act does not. The procedures under the 2010 Act are more advantageous to claimants, so establishing which Act applies is important.
The case is also an important reminder that the insured’s liability to the third party for the purpose of determining whether the 1930 Act or the 2010 Act applies, is established when the cause of action is complete and not when the claimant establishes the right to compensation from the insured, by judgment or otherwise.
Hull insurance – jurisdiction – recovery of allegedly fraudulent claim payment
Aspen Underwriting Ltd and others v Kairos Shipping Ltd and others (the Atlantik Confidence) [27.07.2017]
The Commercial Court has held that a claim by hull underwriters against a vessel's mortgagee for recovery of insurance proceeds allegedly wrongfully paid is a matter relating to insurance within the meaning of Article 10 of the Recast Brussels Regulation. However, the special jurisdiction rules for insurance matters under Article 14 did not apply because no party could be regarded as the weaker party, so the insurers were not obliged to sue in the Netherlands where the mortgagee bank was domiciled.
The hull underwriters of the Atlantik Confidence had, following a settlement reached with the vessel’s owners, paid to the vessel’s mortgagee as loss payee the insured value of US$22 million after the vessel sank in the Gulf of Aden. It was subsequently held in a claim brought by owners of cargo on board that the vessel had been deliberately sunk. Hull underwriters sought recovery of the insurance proceeds from the mortgagee bank, which disputed the jurisdiction of the English courts to determine the underwriters’ claims.
The court decided that the bank was not bound by English jurisdiction clauses in the insurance policy, or the agreement to settle the claim. Since the insurance provisions of the Recast Brussels Regulation did not apply, the insurers' tortious misrepresentation claims could be brought in England, which was where the harmful event occurred (where the misrepresentations were made and the proceeds paid out). However, the insurers' restitution claim was not a matter relating to tort and would have to be pursued in the Netherlands.
Arbitration – Court’s power to order sale of cargo following failure to pay time-charter hire
Dainford Navigation Inc v PDVSA Petroleo S.A. (the “Moscow Stars”) [02.08.2017]
The court ordered that it had the power pursuant to section 44(2)(d) of the Arbitration Act 1996 (the Act) to order the sale of a crude oil cargo loaded on board the “Moscow Stars” pursuant to a time charter between the claimant owner and defendant charterer following the defendant’s failure to pay hire.
The claimant commenced arbitral proceedings in respect of its claim for hire and applied to the Commercial Court for an order pursuant to the Act that the cargo was “the subject of the proceedings” in the arbitration with an order for sale. Males J found that there was sufficient nexus between the cargo and the arbitral proceedings in circumstances where a contractual lien was being exercised over the defendant’s goods as security for a claim being advanced in litigation.
The decision confirms that the Act provides the court with a limited power to order a sale where the goods are “the subject of the proceedings”, and not a free-standing order for sale as a form of independent relief.
Contact: Craig Boyle-Smith