WATERSON HICKS

•

SOLICITORS

•

IBEX HOUSE

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42-47 MINORIES

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LONDON EC3N 1DY

Telephone: 020 7929 6060 Fax: 020 7929 3748 E-Mail: law@watersonhicks.com www.watersonhicks.com

AND 43 Tsamadou Street, Piraeus 185 32, Greece. Telephone (30) 210 429 4300

We are delighted to announce that the firm has been

joined by Julian Morgan, a very experienced solicitor

who has run his own firm for many years and brings

with him his commodities, energy and shipping practice.

BUILDER NOT LIABLE FOR CONSEQUENTIAL LOSS

In the “STAR POLARIS” the claimant Buyer contracted

with the defendant Builder for a new Capesize bulk carrier.

After delivery the vessel suffered a serious engine failure

and was towed to a repair yard. The Claimant sought

(i) damages for the cost of repairs to the vessel

(ii) towage costs and other costs associated with the

engine failure and (iii) the diminution in value of the vessel.

Article IX.4 of the contract limited the Defendant’s liability

to the obligations set out expressly in that article, which

included a guarantee that the vessel was free from

defects for 12 months. The article also purported to

exclude the Builder’s liability for any ‘consequential or

special losses, damages or expenses’.

The Court rejected the Buyer’s argument that

‘consequential loss’ should be interpreted in the context

of the second limb of Hadley v Baxendale (which covers

losses within the reasonable contemplation of the parties

at the time the contract was entered into). The Court

agreed with the Arbitration Tribunal that the proper

interpretation of Article IX.4 was wider than this. Taken

as a whole, the article was understood to exclude liability

for all damages other than those directly resulting from

defective materials or workmanship. This meant that

financial losses caused by defects other than the cost

of repair of physical damage were excluded.

INTERCLUB AGREEMENT, INHERENT VICE AND DELAY

In Transgrain Shipping v Yangtze Navigation, there was a

dispute under a charterparty incorporating the Inter-Club

Agreement 1996 (the ICA). Clause 8 of the ICA provided:

“(8) Cargo claims shall be apportioned as follows:

(d) All other cargo claims whatsoever (including claims for

delay to cargo):

50% Charterers

50% Owners

Unless there is clear and irrefutable evidence that the

claim arose out of the act or neglect of the one or

the other (including their servants or sub-contractors)

in which case that party shall then bear 100% of the claim”

The Charterers had ordered the ship to wait off the

discharge port for over four months whilst awaiting

payment for cargo. When the cargo was eventually

discharged, damage was found and a claim against

the vessel was settled for €2,654,238. The Owners claimed

that amount together with hire from the Charterers.

The Tribunal found that the cause of damage was

inherent vice of the cargo and the prolonged period of

being anchored off the discharge port. The Tribunal

held that the damage was due to the act of the

Charterers, despite the fact that they were not in

breach or at fault for loading the cargo. Therefore, the

Charterers should bear the full cost of the claim.

The Court rejected the Charterers’ appeal. Clause 8

should be given its ordinary, natural meaning and did

not raise issues of fault. The reference in clause 8 to

‘neglect’ was used to cover claims arising out of a party’s

failure to act and did not import a requirement of fault.

INHERENT VICE AND INEVITABILITY OF DAMAGE

In Volcafe Ltd v CSAV, the Court of Appeal considered

a claim by cargo interests in respect of condensation

damage suffered by consignments of coffee beans carried

in dry, unventilated containers from Columbia to Northern

Germany. The Claimants’ case was that the carrier failed to

deliver them in the same good order and condition as upon

shipment. Alternatively they argued that loss and damage

had been caused by the carrier’s failure to carry and care

for the cargoes. In particular, because the kraft paper

used to line the internal metal surfaces of the containers

was inadequate. The expert evidence was that a degree

of damage by condensation was usual for such cargoes.

Issue 1 2017

WATERSON HICKS

•

SOLICITORS

•

IBEX HOUSE

•

42-47 MINORIES

•

LONDON EC3N 1DY

Telephone: 020 7929 6060 Fax: 020 7929 3748 E-Mail: law@watersonhicks.com www.watersonhicks.com

AND 43 Tsamadou Street, Piraeus 185 32, Greece. Telephone (30) 210 429 4300

The Court of Appeal found that where goods were

loaded in apparent good order and condition, the cargo

claimant bears the burden of establishing they were lost

or delivered in a damaged condition. If this burden is

met an inference is drawn that the carrier was in breach

of its obligation to properly and carefully carry and care

for the goods. If the carrier wishes to raise an exception

to liability, it has the burden of establishing such but the

carrier is not required to prove the damage occurred

without its negligence. Rather, the burden is on the

cargo claimant to negate the operation of the relevant

exception by establishing negligence or want of care.

Overruling the first instance judge, the Court of Appeal

found that adequate lining paper had been employed,

that the carrier had applied a sound system of carriage

and that because of the high inherent level of condensation

in the cargo as shipped damage was inevitable. The

Owners were not liable for the damage.

CHANGES TO LIMITATION OF SHIPOWNER’S LIABILITY

On 30

November 2016 the limits of liability for maritime

claims under the Convention on Limitation of Liability

for Maritime Claims 1976 and its 1996 Protocol were

increased under English Law. The limits for both physical

damage and physical injury have been increased by 51%

for all categories of vessel tonnage with the exception of

vessels less than 300GT where there will be no increase.

The new limits will only apply to incidents on or after

November 2016.

DELIBERATE SCUTTLING – NO LIMITATION

In the “ATLANTIK CONFIDENCE”, following the sinking

of a bulk carrier on a laden voyage from Ukraine to

Oman, the Owners issued proceedings seeking a

limitation decree pursuant to the Limitation Convention

1976. This was opposed by the insurers of one of the

cargoes who contended that the vessel was deliberately

scuttled. They argued that, pursuant to article 4 of the

Convention, the Owners were barred from claiming

limitation because the loss resulted from their personal

act or omission and they intended to cause that loss.

It was held that the insurers had to prove their case on

the balance of probabilities. This is the same standard of

proof applied to whether a hull underwriter has shown on

the balance of probabilities that a vessel has been scuttled.

The evidence in the case was sufficient to conclude a

fire was deliberately started onboard the vessel and that

the vessel was deliberately sunk by the Master and Chief

Engineer. The Court found it difficult to accept that three

improbable events had occurred in quick succession,

namely an accidental fire, an accidental flooding of the

engine room and an accidental flooding of two double

bottom tanks. There was also other evidence such as an

earlier change of the vessel’s course into deeper water and

an unscheduled abandon ship drill conducted in an odd

manner. The Master initially sought to conceal the change

of course and then attempted to explain it by reference to

a risk of piracy when there was no such risk. Looked at

cumulatively, this evidence justified the Court’s finding.

The subsequent question was whether the vessel was

sunk on the request of Mr A, the sole shareholder and

director of the Owners. There was no evidence suggesting

the Master and Chief Engineer had a motive to sink the

vessel personally. Also, some evidence suggested the

involvement of senior employees of the Owners. For

example, the Owners failed to inform salvors that they

had dispatched another of their vessels to the casualty,

with the intention of their superintendents boarding the

vessel before it was boarded by salvors. Further, Mr A

had lied about the destination of hull insurance proceeds,

suggesting an attempt to mask a benefit received from

the vessel sinking.

The Court concluded the vessel was deliberately sunk by

the Master and Chief Engineer at the request of Mr A. In

those circumstances, the loss of the cargo was a natural

consequence of his act and must have been anticipated.

The Owners’ claim for a limitation decree was dismissed.

BE CAREFUL UPON WHOM YOU SERVE

Sino Channel Asia Ltd v Dana Shipping and Trading

highlights the care that must be taken when serving

a Notice of Arbitration, in particular where an opponent

is unresponsive.

Dana Shipping and Trading Pte Ltd, Singapore (Owners),

entered into a Contract of Affreightment (COA) with

Sino Channel Asia Ltd, Hong Kong (Charterers). The

fixture negotiations were carried out via separate

independent brokers acting on behalf of each of the

parties. Subsequently, during the performance of the

COA, Dana communicated with Sino Channel via Mr C,

who was an employee of Beijing XCty Trading Limited,

a company registered in the Peoples Republic of China.

Issue 1 2017

WATERSON HICKS

•

SOLICITORS

•

IBEX HOUSE

•

42-47 MINORIES

•

LONDON EC3N 1DY

Telephone: 020 7929 6060 Fax: 020 7929 3748 E-Mail: law@watersonhicks.com www.watersonhicks.com

AND 43 Tsamadou Street, Piraeus 185 32, Greece. Telephone (30) 210 429 4300

On certain occasions Mr C represented himself to Dana

as acting for Sino Channel and on other occasions as

acting for Beijing XCty. Dana was not aware of the precise

relationship between Sino Channel and Beijing XCty.

Following a dispute regarding the COA, Dana appointed

an arbitrator and e-mailed a Notice of Arbitration to Mr C

directly. Mr C responded on three occasions, including a

request for a time extension. Nevertheless, Sino Channel

did not appoint an arbitrator and so Dana appointed their

arbitrator as sole arbitrator. Eventually an award was issued

by the sole arbitrator in favour of Dana which was served

on Sino Channel in Hong Kong. Sino Channel alleged this

was the first time they had become aware of the arbitration

proceedings. They argued that Mr C had no authority to

accept service of process on their behalf and that therefore

the arbitration was ineffective. Sino Channel commenced

proceedings in the English High Court for a Declaration

that the Tribunal had not been properly constituted.

It emerged in the subsequent Court proceedings that

Sino Channel and Beijing XCty were in business together,

but were independent companies. Beijing XCty found

and arranged various back-to-back sale and purchase

contracts in which Sino Channel would appear as the

named party. In line with this arrangement, the relevant

COA was signed by Sino Channel’s director and bore

Sino Channel’s stamp, however it was Beijing XCty that

concerned itself with the performance of the contract.

The Court held that while Beijing XCty may have had a wide

general authority to communicate and act on behalf of Sino

Channel for the fixing and performance of the COA, such

authority did not (without more) include the authority to

accept service of the Notice of Arbitration. The Court did

not find evidence that specific authority had been given by

Sino Channel and so rejected Dana’s argument that Beijing

XCty had actual implied authority to accept the service.

The Court also rejected Dana’s argument that Beijing XCty

had ostensible authority to accept service. There was no

express representation made by Sino Channel to this effect

and representations made by the intermediaries did not

suffice. Whilst the Court accepted in some cases it may

be possible to infer the existence of a representation by

looking at the conduct of the principal, on the present facts

there was insufficient evidence to merit such a conclusion.

Finally, the Court held there was no ratification by Sino

Channel. Failing to participate in an arbitration which was

improperly constituted did not amount to ratification or

acceptance of the process. Nor did a 4 month period of

inactivity after being served with the award. Accordingly,

the Court granted the Declaration sought by Sino Channel.

This case may come as a surprise to the shipping

community which is accustomed to sending arbitration

notices via broking channels and insurers. When faced

with an uncooperative or silent opponent it is advisable

to spend time ensuring notice is served correctly and

in a manner that cannot be subsequently challenged.

EU SERVICE REGULATION

In the “PATRICIA SCHULTE”, Cargo interests loaded

containers of rape seed cake on the Owners’ vessel.

Similar cargoes loaded on another of the Owners’ vessels

self-ignited on passage. As a result of this, the Owners

discharged the present Claimants’ containers at an

intermediate port on the grounds that they contained an

undeclared dangerous cargo.

One day before expiry of the one year limitation period, the

cargo interests issued a Claim Form in the Admiralty Court

against the Owners. As the Owners declined to appoint

solicitors for service in England, service needed to be

effected under EU Service Regulation EC No. 1393/2007.

The cargo interests’ English solicitor flew to Copenhagen

and purported to serve the claim form by handing it to

an in-house lawyer at the Owners’ offices in Denmark.

The effectiveness of such service was challenged.

The Court held that service of an English Claim Form

by an English solicitor directly on the Owners in Denmark

was not permitted by the Service Regulation as applicable

under Danish law. Article 15 of the Regulation allows

service of judicial documents directly through “judicial

officers, officials or other competent persons of the

Members State addressed”. However, an English solicitor

is not a judicial officer, official or other competent person

of Denmark. Accordingly there was no valid service of the

Claim Form by such method. The Court also held that the

attempted service was not merely a minor procedural error

which could be remedied (for example, an incomplete or

missing translation in circumstances where the recipient

was fluent in the language of the original documents). The

defect could not be remedied because there was no valid

service whatsoever under article 15. Accordingly the Court

had no jurisdiction to try the cargo interests’ claim.

Issue 1 2017

WATERSON HICKS

•

SOLICITORS

•

IBEX HOUSE

•

42-47 MINORIES

•

LONDON EC3N 1DY

Telephone: 020 7929 6060 Fax: 020 7929 3748 E-Mail: law@watersonhicks.com www.watersonhicks.com

AND 43 Tsamadou Street, Piraeus 185 32, Greece. Telephone (30) 210 429 4300

OBLIGATION TO PROVIDE VESSEL IN ‘LIGHT BALLAST

CONDITIONS’ - VOYAGE SPEED

In Regulus Ship Services v Lundin Services, under an

ocean towage contract on BIMCO terms, Regulus agreed

to tow a Floating Production Storage and Offloading

vessel (IKDAM) using its tug (HARMONY 1) between

Sousse, Tunisia and Labuan, Malaysia. Following a

number of disputes, Regulus diverted the voyage to

Singapore in order to exercise a lien over the tow. Lundin

completed the voyage by entering a new towage contract.

Regulus subsequently commenced proceedings.

Firstly, Regulus claimed that the Defendants had breached

an express term that IKDAM would be provided in ‘light

ballast conditions’. The Claimants argued that due to

receiving the vessel in heavy ballast conditions, they

had incurred excess fuel costs, demurrage charges and

other expenses.

It was held that ‘light ballast conditions’ should be

interpreted as carrying the minimum ballast that would

enable the vessel to proceed safely and in a seaworthy

condition on her voyage. The Court rejected Lundin’s

argument that the condition of the tow had to be legally

fit for the voyage and satisfy the requirements of a marine

warranty surveyor. The test was one of minimum ballast

for physical safety and seaworthiness and was not

transformed into one based on the wishes of a third

party. Despite this, Regulus did not show that the breach

caused any delay to the voyage. Accordingly they

were entitled only to nominal damages.

Secondly, Regulus claimed it was entitled to delay

payments on the grounds that IKDAM was incapable

of being towed at the speed originally contemplated.

Clause 17 of the contract stipulated that if the tug

slow steamed because the tugowner or tugmaster

reasonably considered the tow was incapable of being

towed at the original speed contemplated, the tugowner

was entitled to receive additional compensation at a

delay payment rate. The Court rejected the Claimants’

argument: the tugowner did not show that they had

made a decision to steam slowly or intended to do so

and there was no evidence that IKDAM was incapable

of being towed at the intended speed, just that the tug

could not average that speed using only two engines.

The Court also rejected Lundin’s counterclaim that

there was a collateral agreement the convoy would

average a speed of 4.5 knots. The evidence relied upon

by Lundin was part of contractual negotiations and was

based on anticipated fuel consumption, rather than a

guarantee of speed.

The Court held that Regulus repudiated the contract by

sending an email giving notice of cancellation. Lundin

had accepted the repudiation and was entitled to recover

as damages the cost of an alternative tug to complete

the voyage. Lundin was required to give credit for the

US$ 100,000 which would have been due had

HARMONY 1 completed the voyage.

LITIGATION FUNDING

Excalibur Ventures LLC v Texas Keystone Inc concerned

an appeal by litigation funders in a claim regarding an

interest in oilfields in Iraq. Lord Justice Tomlinson approved

the trial judge’s description of the underlying claim as

“speculative and opportunistic” with “no sound foundation

in fact or law”. The claim failed on every point and the

manner in which it was conducted was heavily criticised. It

was ordered that the Claimant should pay the Defendant’s

costs on an indemnity basis. A complex and varied funding

arrangement underpinned the claim. A number of parties

provided a total of £31.75 million, £14.25 million of which

was the Claimant’s legal costs to bring the claim and £17.5

million in security for costs.

The Court of Appeal upheld the order of the trial judge

that the litigation funders were liable for the Defendants’

costs on an indemnity basis. The Court was not moved

by the absence of discreditable conduct by the funders

themselves. The conduct of a party was but one factor to

be considered in the broad discretion to make costs orders.

It was not necessary for the funder to know the egregious

feature of the litigation which gave rise to indemnity costs.

A feature of the appeal concerned whether the money

advanced as security of costs should count towards the

“Arkin” cap (this cap limits the funders’ liability to the

amount that it invested in the litigation). It was submitted

that contributions towards security of costs should not be

added to the amount invested in solicitors’ costs when

setting this cap. The Court of Appeal rejected this and held

that funds paid for security of costs should not be treated

any differently from other litigation costs.

Issue 1 2017

The above are only intended to be short summaries.

If you require any further information please feel free to contact us.