Case Studies

555. Louis Dreyfus and Co. v Lauro (the “Verbania”) [1938] 60 Ll.L. Rep 94

Voyage charter party – vessel missing loading date – owners held liable for damages.

The Facts

On 7 October 1936, the vessel was chartered to load at 1 or 2 safe ports between Karachi and Mormugao, India. She was stated as being expected ready to load “about 15/18 November”. Continue reading “555. Louis Dreyfus and Co. v Lauro (the “Verbania”) [1938] 60 Ll.L. Rep 94”

520. Sino Channel Asia Ltd v Dana Shipping and Trading Pte Singapore [2016] EWHC 1118 (Comm); [2017] EWCA Civ 1703

Notice of arbitration served on employee of associated company – implied actual authority to accept service found on the facts.

 The Facts     

Charterers, a Hong Kong company, entered into an arrangement with a PRC Company, sellers, in terms of which contracts of purchase and sale of commodities would be entered into in the charterers’ name. Charterers’ would be remunerated at $1 per metric tonne. Sellers would be entitled to the profit on the sales. Charterers would be responsible for the negotiations while sellers would handle the operational side. Charterers effectively fronted for the sellers.

Pursuant to the arrangement, charterers entered into a Contract of Affreightment, providing for the carriage of about 275 000 mt of iron ore from Venezuela to China to be carried in five shipments from June to October 2013.

The COA provided for London arbitration. On receipt by one party of the notification of the appointment of an Arbitrator, it had 14 days to appoint its own Arbitrator, failing which the arbitration would continue under the first Arbitrator appointed.

Although the COA was negotiated by the parties’ respective brokers, an employee of sellers played a prominent role in negotiations. He was identified as the “charterers’ guy” by the seller’s brokers.

Notice of arbitration was sent by email to the employee who responded and gave the impression that he had the authority to represent the charterers.

Ship owners obtained an award from their appointee, Mr Christopher Moss, without opposition. The award was sent to Charterers’ registered address by the owners.

Charterers’ immediate reaction was to refer the award to the sellers who promised to take care of it, but never did.

Charterers sought to set aside the award under section 72 of the Arbitration Act, 1996.

Owners argued that the employee had actual implied authority, alternatively, ostensible authority to accept service of the arbitration notice.

Findings

Sir Bernard Eder set aside the award.

The Court of Appeal, Gross and Flaux LJJ, restored the arbitrator.

It was accepted by both courts that authority to accept service stood on a different footing to authority to conduct negotiations and authority to conduct the latter did not imply authority iro the former.

On the special facts of this case, the Court of Appeal considered that implied actual authority to accept service had been shown and, failing that, ostensible authority.

What was important to the Court of Appeal was the supine attitude displayed by the charterers. Everything, including the award, once it arrived, was simply referred to the sellers. Also, the specific contact employee of the sellers played a prominent role in the negotiations and execution of the Contract of Affreightment.

Commentary

To have found actual implied authority, even on these facts, was still a long shot. Actual implied authority is normally only found where the agent’s authority for completed jural acts is questioned. Here the agent did nothing and was the mere recipient of service. The finding of ostensible authority stands on firmer gorund.

554. CSSA Chartering and Shipping Services SA v Mitsui OSK Lines Ltd (the “Pacific Voyager”) [2017] EWHC 2579 (Comm)

Simultaneous voyage charter parties – risks remain separate – charterers entitled to damages for vessel missing laycan dates.

The Facts

The vessel was chartered on a Shellvoy 5 form dated 5 January 2015 for a voyage from Rotterdam to the Far East. The cancellation date was 23h59 on 4 February 2015.

At the time of the fixture, the vessel was laden with a cargo under a previous charter under which she was to discharge part of her cargo in Egypt and thereafter go to Alexandra to reload a part cargo and then proceed to Antifer, Le Havre for final discharge.

On 12 January 2015 while was the vessel was transiting the Suez Canal on the first charter, her hull was damaged by a submerged obstruction in the canal requiring dry dock repairs for an extended period.

Charterers cancelled and claimed damages.

Findings

Popplewell J, referring to the Wythburn and the North Anglia, inter alia, held that the cancelling date was equivalent to an ETA and the vessel had an absolute obligation to proceed on the approach voyage at a time when it was reasonably possible to arrive on time.

Commentary

As with the cases referred to, the question was rather one of causation and did not require the elevation of the particular contractual terms upon which the Wythburn was based into a doctrine as the judgment of Popplewell J suggests.

553. Evera SA Comercial v North Shipping Company Ltd (the “North Anglia”) [1956]

Voyage charter party entered into while already engaged on another voyage charter party – risk of delay provided for in earlier voyage charter party not to be borne by new charterers.

The Facts

On 30 July 1953, the vessel left the United Kingdom for Fort Churchill, a port on the Hudson Bay, in ballast to load grain for a return voyage to the United Kingdom pursuant to a voyage charter party.

On 6 August 1953, before the vessel had reached Fort Churchill to load, the owners fixed her on a second charter from Fort Churchill to the United Kingdom, stating an expected time of arrival as 27 September 1953.

As matters turned out, the vessel was delayed at the UK discharge port of Leith by congestion with the effect that the vessel would only have been able to reach Canada by 20 October 1953, ie 3 weeks late.

On being informed of the delay at Leith, new charterers cancelled and claimed damages.

Findings

Devlin J, after setting out the ordinary rule in Samuel Sanday and Co v Keighley, Maxsted and Co, that missing a cancelling date for arrival at a load port does not give rise to a claim for damages, held that this does not apply where the owners miss the date by binding themselves to another charter.

The rationale which he provided for liability was that the owners were bound to commence the approach voyage of the charter when they could reasonably be expected to arrive in time.

Commentary

Devlin J’s rationale is but a different way of saying that the cause of the delay cannot reside in the owners’ further contract with a third party.

Devlin J referred to the Wythburn but accepted counsel’s argument that the case was decided on its own facts which happened to be materially identical.

552. Monroe Borthers Ltd v Ryan (the “Wythburn”) [1935] KB 28 (CA)

Breach of loading date caused by owners own deliberate act – not entitled to rely on exceptions in voyage charter party

The Facts

By a voyage charter party on the “Merseycon” form, owners, on 2 August 1933, agreed as follows:

  1. That the said steamer being tight, staunch, strong, and every way fitted for the voyage, shall with all convenience proceed to Hamburg … and there load from the said charterers a full and complete cargo of 330 tons of sugar and 140 tons of salt … and being so laden shall proceed with all convenience and speed to merchants quay, Kilrush, and Bally Longford, or so near there too as she may safely get. ..On 31 August 1933, the owners entered into a second charter party pursuant to which the vessel was sent to Porthoustock to a load a cargo of stone for carriage to Felixstowe.Because of the delay, charterers incurred demurrage for loading barges and lighterage.
  2. Owners attempted to rely on the “unavoidable accidents or hindrance” exception.
  3. Bad weather at Porthoustock delayed loading which caused the vessel to arrive in Hamburg on 14 September 1933.
  4. 10.     Charterers or owners not to incur liability for loss arising from frosts, floods, strikes, lock-outs of seamen, work people or other persons necessary for the performance of this charter party, disputes between masters and men, and other unavoidable accidents or hindrances of what kind so ever, beyond charterers’ or owners’ control.

Findings

Atkinson J held against the owners and awarded damages.

He was upheld by Greer, Maugham and Roche LJJ.

Commentary

The result was dictated by a proper analysis of causation of the loss. Although bad weather was a factor, the actual cause of the delay was the owners’ decision to interpose the later charter party.

551. MT Højgaard A/S v EON Climate and Renewables 2014 [EWHC] 1088 (TCC); 2015 [EWCA] Civ 407; 2017 [UKSC] 59

Design and build contract – minimum lifespan provision taking precedence over specific design requirements agreed upon

The Facts

The employer, EON, accepted the tender of the contractor, MTH, to design and build the generators for two adjacent windfarms in the Solway Firth.

The contract contained a provision regulating the hierarchy of documents, with the contract provisions placed first and the employer’s requirements, including its technical requirements, placed fourth.

The employer’s technical requirements required the contractor to prepare a detailed design of the foundations in accordance with the prevailing industry standard (“J101”) formulated by Det Norske Veritas (DNV), an independent classification and certification agency.

The same clause provided:

The design of the foundations shall ensure a life time of 20 years in every aspect without planned replacement. The choice of structure, materials, corrosion protection system operation and inspection program shall be made accordingly.”

A further provision stated: “All parts of the works, except wear parts and consumables shall be designed for a minimum service life of 20 years.”

The contractor designed the foundations: steel piles driven into the seabed with steel sleaves placed over them. The space between the outer sleave and the pile was filled with grout.

Shortly after construction, the foundations failed with the sleaves slipping down over the piles.

It was discovered that a component of the J101 specification was erroneous which led to the under design of the foundations.

The parties agreed to carry out remedial works to the value of approximately €26m and to refer the question of liability to the court.

Findings

After an 8 day trial, Edwards-Stuart J in the Technology and Construction Court, found in favour of the employer.

Relying on a passage in the 8th edition of Hudson (repeated in the current, 12th edition) and Canadian cases, he held that the contractor had warranted a minimum lifespan. This was not inconsistent with the specified design regimen (J101) because J101 was only a minimum requirement.

The Court of Appeal, per Jackson LJ (Patten and Underhill LJJ concurring), thought otherwise.

In a convincing analysis, Jackson LJ pointed out that the contractor had employed the design standard expressly required by the contract. There was therefore a conflict between this obligation and the undertaking to provide a design with a minimum life of 20 years.

He quoted Lord Collins in Re Sigma Corp (UKSC) 2009:

In complex documents of the kind in issue, there are bound to be ambiguities, infelicities and inconsistencies. An over-literal interpretation of one provision without regard to the whole may distort or frustrate commercial purpose.”

An illuminating passage in Jackson LJ’s judgment is:

In essence, a court seeking to construe the contract between EON and MTH must postulate a reasonable person (X) having all the knowledge available to those two parties. The Court must consider what (X) would have understood [by the specific provisions]. This is an iterative process, which involves checking each of the rival meanings against the other contractual provisions and investigating its commercial consequences. The Court must accept that there are likely to be ambiguities and inconstencies within the documents [my emphasis]. It must not allow itself to be led astray by those ambiguities and inconsistencies. Approaching matters in that way the Court must determine whether or not clause 8.1 of the contract conditions in conjunction with TR paragraph 3.2.2.2 (2) required MTH not only to comply with J101 but also to achieve a result, namely, foundations with a service life of 20 years.”

Jackson LJ concluded as follows:

A reasonable person in the position of EON and MTH would know that the normal standard required in the construction of offshore windfarms was compliance with J101 and that such compliance was expected by not absolutely guaranteed, to produce a life of 20 years. If one adopts an iterative approach to the construction of TR paragraphs 3.2.2.2 (2) and 3b 5(1) it does not make sense to regard them as overriding all over provisions of the contract and converting it into one with a guarantee of 20 years life. Put another way, there is an inconsistency between TR paragraph 3.2.2.2 (2) and 3b 5 (1) on the one hand and all the other contractual provisions on the other hand. The Court must not be led astray by that inconsistency.”

The UKSC, Lord Neuberger (Lords Mance, Clarke, Sumption and Hodge concurring) preferred and restored the judge at first instance.

Commentary

At one level, the outcome in the Court of Appeal is more realistic. It recognizes that there are inconsistencies in complex, multi authored contracts such as this. The default position where there is no fault on either side is that a loss lies where it falls. In a case such as this, there was no sound reason to prefer one of the conflicting provisions over the other.

On another level, the case illustrates the hazards of litigation: among the finest judges in the world there was stark disagreement and the outcome in the Court of Appeal could easily have been the last word on the dispute.

550. MSC Depots (Pty) Ltd v WK Construction (Pty) Ltd, Wynford’s Civil and Development CC 2011 (2) SA 417 (ECP); [2011] ZA SCA 115

Contractor cannot be in breach of clause 15.3 of the JBCC on grounds of defective performance where it is not given the opportunity to remedy such defective performance.

The Facts

The Plaintiff shipping company contracted the Defendant paving contractor to provide paving for a container depot.

The contract was on an unidentified version of the JBCC 2000 Principal Building Contract.

In issue was the effect of clause 15.3 which provided as follows: “On being given possession of the site, the contractor shall commence the works within the period stated in the schedule and proceed with due skill, diligence, regularity and expedition and bring the works to … [final completion in terms of 26.0 (15.3.4)]

When the works had reached an advanced state of completion, deflections in the paving appeared.

Both the employer and contractor engaged independent structural engineers who provided reports identifying defects in the design.

Notwithstanding this, the employer caused an instruction to be given by the principal agent to desist from continuing remedial work which had begun.

Also, the employer failed to pay the latest payment certificate.

The contractor issued a notice of cancellation based on four grounds, including failure to pay and preventing the principal agent from exercising his independent judgment, the latter ground provided for in clause 38.1.7.

The employer claimed that the notice of cancellation was repudiatory and cancelled itself based on a breach of clause 15.3.

Findings

Judge Dayalin Chetty gave absolution from the instance on the employer’s claim for damages based on two grounds: it had failed to provide sufficient evidence of defective performance and it was precluded from relying on clause 15.3 where the contractor was not given the opportunity of remedy in defects.

He held that clause 15.3 had to be read with clause 17 giving the principal agent the power to issue instructions to remedy defects.

The judge’s decision was confirmed by the SCA (per in Mpati P, Brand, Lewis, Snyders and Majiedt JJA, concurring).

Commentary

This is an important case, defining as it does the scope of clause 15.3.

The clause appears to be designed to deal with two situations: firstly, where the contractor simply stops working, and secondly, where it has demonstrated incompetence or incapacity to carry out the works with due diligence and skill.

549. Gard Shipping AS v Clearlake Shipping PTE LTD (the MT “Zaliv Baikal”) [2017] EWHC 1091 (Comm)

Voyage charterparty – construction of lay time provisions.

The Facts

The vessel was chartered for one voyage from one safe port Ust-Luga to one or two safe port(s) “UK Cont North Spain – Hamburg Range”.

The charterparty was later revised to include a second voyage from Ust-Luga or St Petersburg to the same discharge range as the first voyage.

The charterparty contained the following clause:

AC11. Notwithstanding any term of this charter to the contrary, charterers shall have the liberty, at any stage of the voyage, of instructing the vessel to stop and wait for orders for max 3 days at a safe place within the range as agreed. In particular and without prejudice to the generality of the aforegoing, charterers shall be entitled to instruct the vessel not to tender NOR on arrival at or off any port or place or to delay arriving at any port or place until charterers give the order to do so. Time to count as used lay time or time on demurrage, if vessel is on demurrage. And all bunkers consumed to be for charterers account.

After first 5 days waiting for orders / discharge instructions at sea vessel to be considered as being used for storage, and, unless otherwise agreed, following increase of demurrage rate to apply.

Days 6 – 15 DEMM rate plus $5,000.

Days 16 – 26 DEMM rate plus $10,000.

Days 26 – 35 DEMM rate plus $15,000.

Prior to expiration of 35 days period charterers to inform owners if they require more time to use vessel as storage, and new rates to be mutually agreed.

Latest on 35th day of such waiting. Such a waiting time to be compensated at rates agreed above and payable together with freight against owners separate invoice.

Charterers option to order ship to wait at an offshore position provided they give final destination and expected cargo delivery window, in which case the above increase in rates not to apply.

In case where final destination or cargo delivery window changes, then increase of rates to apply as per this clause.

The final leg of the second voyage was from Kalundborg to Rotterdam.

The vessel completed her passage to Rotterdam at 22h30 on 26 January 2016. NOR was tendered at 22h50 on 26 January 2016.

Charterers did not give any discharge instructions until the afternoon of 31 March 2016 which meant that the vessel waited at Rotterdam for a total of 64.7083 days.

Owners claimed $976,731 for escalated demurrage and bunkers consumed.

Findings

Owners argued that, on these facts, where charterers allowed notice or readiness to be given but withheld discharge instructions for their own commercial purposes, they were hit by clause AC11 which provided for escalated demurrage.

Sir Jeremy Cooke held that they were not so hit but were liable for ordinary demurrage. This was the plain meaning of the provisions of AC11 read in the context of the entire charterparty and no term could be implied to contradict such meaning.

Commentary

The judge’s conclusion is not self-evidently right.

As the charterers were given the right to order the Master not to tender notice of readiness by clause AC11, a strong argument could be made out that the parties impliedly agreed that, in every case, charterers would make use of such right where they intended to use the vessel for storage. Allowing notice of readiness to be given and withholding discharge orders are practically contradictory positions.

398. Gard Marine & Energy Ltd v China National Chartering Co Ltd & others (the “Ocean Victory”) [2013] EWHC 2199 (Comm) ;[2015] EWCA Civ 16; [2017] UKSC 35

Safe port warranty – port of Kashima affected simultaneously with long waves and a force 9 gale – running aground and breaking up – charterers not in breach of safe port warranty

The Facts

The vessel, a Capesize Bulk Carrier, was ordered on a time charter trip on an amended NYPE form to carry iron ore from Saldahna Bay to Kashima.

The vessel was on demise charter for 10 years which provided that the vessel was to be deployed only between “good and safe ports”. A time charter followed for a minimum of 5 months, maximum 7 months via “safe anchorage(s), safe berth(s), safe port(s) on an amended NYPE form.  Last in the chain was the time charter trip via safe port(s), safe anchorage(s) South Africa, mentioned above.

During the course of discharge at the Raw Materials Quay at Kashima, cargo operations were stopped by heavy rain. The weather reports warned of high seas, heavy rain, gales and storm surge.

At the same time there were “long” waves (waves with long amplitude) moving in from the Pacific causing swell and the danger of collision against the quay. To make allowance for this, additional mooring lines were ordered for the vessel.

Another Capesize Bulk Carrier was berthed at the same quay. The possibility was considered that both vessels might leave their berths to seek shelter in the open sea.

Leaving for the open sea entailed sailing north along 2 intersecting fairways and passing in close proximity to a breakwater. This subjected vessels to the danger of being swept towards the breakwater by the prevailing head wind.

In the rolling and pitching, 2 mooring lines broke. The other mooring lines were chafing on the side of the vessel.  The Master had the lines reset, greased the side of the vessel and ordered 2 tugs to hold the vessel against the berth. Faced with the Scylla of the swell and the Charybdis of negotiating the dangerous passage out to open sea, the Master’s preference was to remain in port.

A misunderstanding then arose between the Port Authorities and the Master. The Port Authorities mistakenly thought that the Master had requested the services of a pilot to navigate the vessel out to sea (pilotage was optional).  When the pilot arrived on board, the Master mistakenly thought that his presence signified an order from the Port Authorities to leave.

The vessel left the berth accompanied by 4 tugs which were released at various stages along the passage of the 2 fairways. The pilot on board disembarked onto the last remaining tug at the southern end of the breakwater.  The Master was now on his own, tasked with sailing his vessel along the length of the 2-mile breakwater out into the open sea.

In negotiating the passage, the vessel lost steerage and went aground against the breakwater. The crew was airlifted to safety.

The Proceedings

The P&I Club of the owners and demise charterers brought an action for damages against the time charterers who joined the hybrid voyage/time charterer, last in line, as a third party.

The main issue in a trial which lasted 17 days was the safety of the port.

Findings

After reviewing all the leading safe port authorities, Teare J concluded that the port was unsafe because it had no early warning system in respect of the onset of long waves. An early warning system was in place to warn vessels to leave for the open sea in the event of a typhoon.

He found that the Master was negligent in the choice of navigational aids deployed in leaving the port (the Master had used a GPS instead of the accepted parallel indexing method). This, however, did not lead to situational unawareness and was not causative of the casualty.

Teare J accepted the evidence of the owners’ navigation expert that ordinary seamanship and navigation could not ensure a safe exit from the port in the prevailing weather conditions.

He found that the coincidence of long waves and a northerly gale, though rare, was not unforeseeable and did not therefore qualify as an abnormal circumstance.

In the appeal which was heard before Longmore, Gloster and Underhill LJJ, the judge’s finding that it was unsafe for the vessel to remain in port was accepted.

In a combined judgment handed down by Longmore LJ, it was found that the judge had incorrectly rejected the meteorological evidence led by the charterers that the storm in question was of unprecedented intensity.

Also the evidence reflected that the combination of long waves making it necessary for the vessel to leave port for the open sea and the presence of a northerly gale which made it unsafe for a Capesize vessel to leave the port, was so unusual as to qualify as an abnormal circumstance saving the port from a finding of unsafety.

The Court of Appeal also decided two side issues, unnecessary in view of the main finding: the effect of having joint insurance on the question of liability inter se, and whether charterers responsible for damage to the vessel itself, were entitled to the benefit of limitation under international convention.

Following the Evia 2 they held that it was nonsensical that the demise charterers should remain liable to the owners for breach of the safe port warranty having been placed under the obligation to insure the vessel for the joint benefit of the owners and the charterers.

The UKSC confirmed the CA on the safe port issue for the reasons given by Longmore LJ.

Longmore LJ had also held, following the CMA Djakarta, that, in any event, charterers who were responsible for damage to the vessel itself were not entitled to the benefits of the 1976 Convention on Limitation of Liability for Maritime Claims. The UKSC agreed.

They split however on the other academic question, whether demise charterers who took out joint insurance with head owners could be liable to head owners for damage caused by time charterers for which demise charterers would, in the ordinary course, be liable to head owners.

Following Longmore LJ, Lords Mance, Toulson and Hodge agreed that it would be nonsensical to hold demise charterers liable in principle to head owners where they had agreed to take out joint insurance. Lords Clarke and Sumption thought otherwise. Their reasoning was based partly on the wording of the Barecon 89 charter itself and the notion that insurance was traditionally considered res inter alios acta in determining the wrongdoer’s liability. They also thought the possibility that the insurance might fail, should play a role in the interpretation of the contract.

Commentary

The test in the Eastern City (A port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship…) was formulated on facts where foreseeable weather conditions led to the casualty and a finding that the port in question was unsafe.

The UKSC, following the lead of Lord Roskill in the Evia 2, has effectively adopted reasonable foreseeability (as opposed to foreseeability per se) as the rationale for holding charterers liable for breach of the safe port warranty.

This suggests that those cases which held the charterers liable for hidden temporary dangers involving physical aspects of the port, Houston City, Carnival and even the Mary Lou, were wrongly decided.

548. Albacora SRL v Westcott & Laurance Line Ltd (the “Maltasian”) [1966] 2 Lloyd’s Rep 53

Hague rules – parties agree to ship fish on an unrefrigerated vessel – ship-owner not liable.

The Facts

Fresh salted fish was shipped from Glasgow to Genoa.

On outturn, the fish was found to be damaged simply because it was too hot at the time of the year chosen. Neither the shipper nor the vessel realized this.

Cargo sought to hold the vessel liable under Article III r2: “The carrier shall properly and carefully load, handle, stow, carry, keep, care for and discharge the goods carried”.

Findings

A unanimous House of Lords found no breach of duty on the part of the vessel.

Further, because the parties had agreed to use an unrefrigerated vessel, the cargo was damaged by inherent vice within the meaning of Article IV r2(m).