Marine Brief: latest decisions September 2019
In this briefing we consider some recent UK and overseas decisions addressing issues including: anti-suit injunctions and jurisdiction agreements; evidence required for freezing orders; conditions, warranties and innominate terms in a bareboat charter; stay of sale orders; punitive damages in an unseaworthy action; and the MV RENOS.
Construction and scope of jurisdiction agreements and the court’s jurisdiction to restrain proceedings in breach
Clearlake Singapore Pte Ltd and Gunvor Singapore Pte Ltd v Xiang Da Marine Pte Ltd [22.08.19]
The defendant owners chartered the M/T “Chang Hang Guang Rong” to Clearlake under a charter containing an exclusive jurisdiction clause in favour of the English courts extending to “any dispute which might arise out of this charter”. Gunvor sub-chartered the vessel from Clearlake and nominated it to perform a sale contract with Chinese buyers. Clearlake also issued a Letter of Indemnity (“LoI”) to the owners on terms requiring Clearlake to submit to the jurisdiction of the English courts at owners’ request. Disputes arose resulting in the cargo purchaser arresting the vessel and advancing claims against the Owners in Singapore. Owners sought to join Clearlake and Gunvor in those proceedings seeking and indemnity or contribution.
Clearlake and Gunvor applied without notice for, and each obtained, anti-suit injunctions restraining the Singapore proceedings. At the on notice hearing, the court upheld Clearlake’s injunction because the jurisdiction clauses in the LoI and charter had to be interpreted consistently as requiring all disputes – even those under the LoI, which in any event were “disputes arising out of the charter” - to be referred exclusively to the English court. The Gunvor injunction was also upheld because the tort claims against them amounted to a vexatious or oppressive circumvention of the exclusive jurisdiction agreement in the Clearlake Charter.
While accepting the principle that party A may in appropriate circumstances invoke an exclusive jurisdiction agreement with party B to restrain claims by B against C, the court declined to express any opinion as to whether grounds for such relief had been made out. The decision nevertheless represents an important contribution to the law in this area.
Evidence of a real risk of dissipation required for continuation of freezing order
Delta Kanaris Special Maritime Enterprise & Anor v Elemento Ltd [20.08.19]
The Commercial Court ordered the continuation of a worldwide freezing injunction against charterers which had an obligation to pay demurrage to two shipowners as there was a clear and real risk of asset dissipation.
The claimant owners owned two tankers which were chartered to carry cargo to ports in Venezuela. The vessels sat at Venezuela because they had not received the necessary cargo documents. Demurrage accrued at US$40,000 a day. Charterers paid demurrage until 18 June 2019 in the sum of €4.6 million. The charterers accepted the obligation to pay demurrage from that date, however said it could not do so due to cash flow difficulties. Owners were granted a worldwide freezing injunction, in the sum of US$3.4 million, which accounted for demurrage plus cleaning costs.
After reminding owners that freezing orders could not be used to stop a defendant from dealing with its assets in the normal course of its business, the court held that there was solid evidence of a real risk of dissipation in the misuse of corporate structures so that assets may no longer be available. The court also stated that the defendant charterers had been vague as to the reasons for non-payment and that there was evidence that the defendant's personnel had previously shown willingness to misuse company structures.
Contact: Jonathan Biggins
Classification obligations considered: condition, warranty or innominate term
Ark Shipping Company LLC V Silverburn Shipping (IoM) Ltd [10.07.19]
The MV ARTIC was chartered on a 15 year modified BARECON 89 Form containing a clause obliging the charterers to keep the vessel with unexpired classification of the class at all times. When disputes arose in relation to hire payment, the owners purported to terminate the charterparty on the basis that the vessel’s Classification Certificate had expired. Arbitrators ruled in favour of the charterers stating that the obligation was not absolute and therefore did not represent a condition. On appeal, the court reversed the tribunal’s award, holding that the classification obligation was both an absolute obligation requiring more than mere due diligence and a condition of the charterparty. Charterers appealed.
The Court of Appeal held that in the absence of a clear intention of the parties for the term to be a condition or a warranty, it was an innominate term. The charterparty also stated that the charterers were to keep the vessel insured against P&I risks but provided the charterers with a period of time to remedy any breach of this clause. The court considered that if actually leaving the vessel uninsured did not constitute a breach of a condition, then putting the vessel at risk of being uninsured could not be classified as a condition. The clause was therefore concluded to be an innominate term, and the owners were not entitled to terminate the charterparty.
Contact: Andrew Purssell
Stay of sale for investigation of yacht damaged whilst under arrest
Yacht Club Sopot SP ZOO V The Yacht “Monster Project” [05.07.19]
The “MONSTER PROJECT”, a 21-metre yacht that was intended to compete in the annual Australian Sydney to Hobart yacht race, was arrested on the eve of the race in December 2018.
The charterers (Yacht Club Sopot, the yacht’s Polish sailing crew) launched proceedings against owners in the Federal Court of Australia when it learned that the yacht was not fit to sail in the race as it did not have the proper insurances in place.
The charterers and the yacht’s mortgagee made repeated requests to owners to put up security for the release of the yacht, which owners failed to do. In April 2019, whilst still under arrest and the Admiralty Marshal’s custody, the yacht took on water and partially sank. The court subsequently gave orders for the Admiralty Marshal to sell the yacht in May 2019 by a closed-bid tender. Owners and one claiming mortgagee, wanting to investigate if they had any potential claims against the Admiralty Marshal for the damage to the yacht, sought a stay of the sale orders.
Given the time that had elapsed since the arrest, and that owners had still not put up security for the release of the yacht, the court found that there was no proper basis on which the interests of all the creditors with claims against the yacht would be protected if the sale was stayed. The yacht was therefore to be sold to the highest bidder.
Contact: Peter Craney
US Supreme Court rejects award of punitive damages in unseaworthy action
The Dutra Group v Batterton [24.06.19]
The US Supreme Court has ruled that punitive damages are not recoverable in a seafarer personal injury action alleging unseaworthiness. The court acknowledged punitive damages – intended to punish the wrongdoer rather than compensate the injured party for losses sustained – are recoverable in limited circumstances in a claim for failure to provide maintenance and cure, but concluded that there is no basis for an award of punitive damages for an unseaworthiness claim in the general maritime law.
Contact: John A Orzel
Supreme Court clarifies types of expenses to be taken into account in calculating a constructive total loss
Sveriges Angfartygs Assurans Foreing (The Swedish Club) and others (Appellants) v Connect Shipping Inc and another (Respondents) (the MV RENOS) [12.06.19]
The Supreme Court unanimously held that salvage and other costs incurred prior to tender of Notice of Abandonment should be taken into account for the purpose of assessing whether a vessel is a constructive total loss (CTL), but Special Compensation Protection and Indemnity Clause (SCOPIC) expenses should not.
Both assureds and insurers will be grateful for confirmation that past expense should count towards a CTL, as this reflects the predominant view in the market and should, therefore, avoid the need for potential amendments to standard hull wordings and to SCOPIC itself.