We wish all readers a happy and prosperous New Year and hope that the freight market reaches an improved level in all sectors in the very near future.

We also welcome Constantinos Bitounis as the new resident manager of our Piraeus office. Constantinos is dually qualified as a solicitor in England and as a lawyer in Greece. He worked with another maritime law firm in London for several years before joining a shipowning group in Piraeus and then establishing his own law office in Greece We are delighted that he is joining us.

Insurance payments for terrorist demands to become illegal

Inlinewithitspoliticalstancethatthereshallbenopayments made to terrorists the United Kingdom Government has introduced a Bill which will make it a criminal offence for insurers to make payments in response to terrorist demands. This will include reimbursement of payments made to terrorists by an insured.

Claim forfeit due to untrue statement in claim correspondence

The “DC MERWESTONE” was insured subject to the Institute Time Clauses – Hulls 1/10/83 and the Institute Additional Perils Clauses. The vessel's main engine was damaged beyond repair when the engine room flooded. It was replaced by a new engine and gearbox. The Owners claimed under the policy on the basis the damage was caused by a fortuitous ingress of seawater into the bowthruster room which was a peril of the seas.

Insurers denied liability and argued that the loss was not caused by an insured peril; the loss was caused by unseaworthiness and the claim was forfeit because the presentation of the claim was supported by fraudulent statements.

At first instance Mr Justice Popplewell found that seawater had entered the bowthruster room as a result of the crew's negligent failure to close the sea suction valve

and drain the emergency fire pump after using the pump to help open the hatch covers by clearing frozen ice at the loadport. The water froze in the system which as a result remained open to the sea. The vessel lost her watertight integrity, the pump cracked and the filter lid was displaced which allowed seawater to enter and fill the duct keel tunnel once it had entered the bowthruster room. From the duct keel tunnel the water was able to flow into the engine room.

The Judge went on to find that the engine crew noticed the ingress of water relatively early and there was still enough time for the pumping system to be deployed. The pump was capable of dealing with the rate of water ingress, but it failed. Thus the water ingress was a peril of the sea caused by the crew's negligence at the loadport and there was no want of due diligence by the Owners and Managers of the Vessel.

However, the Owners' claim failed because the Judge held that they had forfeited the claim by sending a fraudulent letter to the Insurers' solicitors intended to improve their prospects of settlement or success in the claim. The letter, written by the General Manager of the ship's managers, stated the crew had heard a bilge alarm on the day of the casualty but had not investigated this because they thought it had been set off by rolling of the vessel. In fact, the crew never heard any alarm.

The Court of Appeal considered whether the rule whereby a fraudulent claim deprived the insured of any right to recover anything applied also to the case of fraudulent devices – the expression used for the making of statements which were known by the insured to be untrue or which were made recklessly, not caring whether they were true or false, in support of a claim honestly believed by him to be good both as to liability and amount.

The Court of appeal dismissed the appeal and held that even though the Owners' claim was meritorious and they had not overvalued their claim, their agents' reckless telling of an untruth to the Insurers meant that the Owners could not recover no matter how disproportionate this consequence might be.

NSF and the Sale of Goods Act

We previously reported the decision in the “Union Power” where Mr Justice Flaux expressed the view that the phrase “as is where is” in an MOA did not exclude the Sale of Goods Act warranties of satisfactory quality and fitness for purpose.

A conflicting view has now been expressed by Mr Justice Leggatt in Michael Hirtenstein v Hill Dickinson LLP in a case where a luxury yacht suffered a major engine breakdown only one hour after delivery.

It seems the point is bound for determination by the Court of Appeal, not before time in our view.

Ransom Costs are substituted Expenses

In the “LONGCHAMP” the Commercial Court held that expenditure incurred by Owners during ransom negotiations with Somali pirates was recoverable in General Average from cargo interests as substituted expenses under Rule F of the York-Antwerp Rules 1974.

Owners incurred expenses of US$181,604.25 relating to media services, crew wages and high risk area bonuses, bunkers and telephone charges during ransom negotiations with pirates. The pirates had initially demanded US$6,000,000 to release the ship but the Owners managed to negotiate the release of the ship for US$1,850,000. It was not disputed that this amount properly formed part of the expenditure allowed within General Average. The cargo interests claimed that expenses of US$181,604.25 incurred by Owners were not reasonably incurred because if Owners had

paid the	full original	demand	then this	would
have been unreasonable and therefore				any
expenses	incurred to	reduce	the demand	were
not recoverable.

The Court held the media response expenses and telephone costs were recoverable under Rule A of the York-Antwerp Rules on the basis that they were extraordinary expenses incurred for the purpose of preserving the property in the common adventure from peril. The expenses relating to bunkers and crew wages were recoverable under Rule F as expenses incurred in place of another expense (i.e. the reduction in the ransom payment) which would have been allowable as General Average. The Owners were therefore entitled to recover the full amount of these expenses as General Average.

LOU Arbitration Clause displaces Bill of Lading arbitration clauses

In the “QUEST” the Court considered whether the arbitration provision in a Club Letter of Undertaking (“LOU”) had replaced the arbitration clauses in the Bills of Lading.

A shipment of bagged rice from Thailand to Nigeria was covered by 4 Bills of Lading on the Congenbill 1994 form which incorporated the Law and Arbitration Clause of the “Charterparty, dated as overleaf”, but the charterparty was not identified.

There were three Charterparties. The head timecharter and the sub timecharter both provided for LMAA arbitration in London with provision for the LMAA Small Claims Procedure (SCP) to apply to claims up to US$100,000. The sub-sub (voyage) charter provided for Singapore arbitration and no provision for SCP. All three Charterparties provided for English law to apply.

Upon discharge of the cargo in Nigeria, the Cargo Interests claimed there was cargo damage and sought security from the Owners. The Owners' P&I Club provided a standard Club form of LOU which provided for any disputes to be referred to LMAA arbitration in London before three arbitrators with English law to apply.

The Cargo Interests commenced arbitration in accordance with the arbitration provision contained in the LOU but the Owners challenged the jurisdiction of the arbitrators. The Owners claimed the Cargo Interests should have commenced four separate arbitrations in accordance with the SCP and thus the arbitrators already appointed had no jurisdiction to hear the claim and the Cargo Interests' claims were timebarred. The Owners argued this on the basistheLOUamendedthearbitrationprovisioncontained in the Bills of Lading only in limited respects, i.e. the seat of the arbitrations to be in London, but the SCP provision contained in the head charter, which Owners claimed was the provision incorporated in the Bills of Lading, still survived.

Cargo Interests argued the arbitration clause in the LOU displaced all the Bills' of Lading arbitration clauses.

The Tribunal held, by a majority, that they had jurisdiction to hear claims for more than US$100,000 but not any claims for a lesser sum. One arbitrator disagreed with the rest of the Tribunal and held that they did have jurisdiction to hear all disputes under the one reference, in line with

the Cargo Interests' argument. The question was referred to the High Court.

Mr Justice Males agreed with the Cargo Interests' argument and the reasoning of the minority arbitrator. The Judge held the LOU arbitration provision operated as a new freestanding agreement which was comprehensive within the natural meaning of the arbitration provision. It dealt with:

(a)the seat of the arbitration: London;

(b)the terms: LMAA;

(c)the number of arbitrators: three;

(d)the time for appointing an arbitrator: 14 days; and

(e)the governing law: English law.

Considering the above, there was no reason why the parties intended their arbitration agreement to be contained in more than one document. Furthermore, the parties knew the amounts of the claims and if they wished to arbitrate within the SCP then this should and would have been reflected in the wording of the LOU. If the Owners' argument were to apply, it was arguable that the arbitration clause contained in the voyage charter was applicable rather than that of the head charter which did not refer to SCP and this would remove any dispute whatsoever.

No New Evidence at

Arbitration Appeal

A claim was made by cargo interests against the Owners of the “KALISTI” for loss of and damage to a cargo of bagged rice shipped from Thailand and discharged at Nigerian ports. The Tribunal dismissed the claim on the basis the Claimant had not become the lawful holder of the Bills of Lading. Furthermore, the Tribunal indicated it was inclined to reach this decision because the Claimant failed to comply with the Tribunal's Peremptory Order for full disclosure to be accompanied by amended Reply Submissions.

The Claimant sought to challenge the Tribunal's award under Section 67 of the Arbitration Act 1996 which allows a party to challenge any award of an arbitral tribunal because it lacks substantive jurisdiction. In its application to the High Court, the Claimant adduced new evidence and the Court had to decide whether it should exercise its discretion to admit that new evidence.

Mr Justice Males held that under Section 67 the Court does not have an unfettered discretion to exclude new evidence simply because it would cause prejudice to the

other party, but it may refuse to allow evidence which does not comply with the Court's rules for ensuring that evidence is presented in a fair manner.

After reading the new evidence adduced by the Claimant and the arbitration documents, the Judge held that the Claimant had deliberately failed to comply with the Tribunal's peremptory order as to disclosure. The Claimant's explanation for failing to produce the further disclosure ordered by the Tribunal was that it believed that the evidence already adduced was sufficient to satisfy its burden of proof in the arbitration and that “it could not have predicted that the Tribunal would fail to appreciate the significance of certain important evidence” it had already produced.

The Judge observed he was not bound by the Tribunal's Order for disclosure, nonetheless the Claimants' failure to comply with that Order might be a highly relevant consideration.

The new documents produced by the Claimant were still incomplete and selective and they produced only documents which would assist their case rather than prejudice it and they failed to produce other documents which may have been highly relevant. The Judge held that it would be unjust to permit the Claimant to rely in the High Court proceedings on a selection of documents without giving the full disclosure which it was ordered to give in the arbitration.

Thus, the Claimant was not entitled to use the new evidence and documents in the Section 67 challenge, but was limited to the material used in the arbitration proceedings.

Don't Say Interim Award: say Partial Award

The “OCEAN GLORY” was chartered on a Gencon voyage charterparty. A demurrage dispute arose; Owners commenced arbitration proceedings. In their Claim Submissions the Owners sought an Interim Award for demurrage and asked the Tribunal to reserve its jurisdiction for cargo related or other claims which Owners anticipated would arise at a later date. The Tribunal subsequently issued a “Final Arbitration Award” in which it awarded the demurrage claimed to the Owners but refused to reserve jurisdiction in respect of the additional claims referred to in Owners' Claim Submissions with the effect that any such claims against Charterers were shut out.

The Owners challenged the Award on the basis of serious irregularity under section 68 of the Arbitration Act 1996. The Tribunal's Award had unwittingly precluded Owners from presenting indemnity claims against Charterers for the additional cargo claims Owners anticipated would arise. The main thrust of Owners' argument was that neither party had asked the Tribunal to issue an Award in these terms nor were the parties afforded the opportunity to address the Tribunal on its decision in respect of the additional claims.

Mr Justice Eder held that Owners had incorrectly asked the Tribunal to issue an “Interim Award” for demurrage. The term “Interim Award” has no basis in the Arbitration Act and should not be used. Correctly stated Owners' claim should have been presented as one for a Partial Award under section 47 of the Arbitration Act. However, the Judge agreed with the Owners that the Tribunal had erred in issuing an Award that precluded Owners from seeking an indemnity from Charterers for any additional claims without allowing the parties to make submissions in respect of that issue. The Tribunal's approach meant that Owners' potential claims against Charterers were shut out without the Tribunal having decided on the merits of such claims.

The Trials of Life

In Cruz City		v Unitech the Claimant		obtained
Awards	for	US$300,000,000	against		the
Defendants,	an	Indian company,	which	did	not

pay the Awards even in part and sought to thwart enforcement by the Claimant placing every possible obstacle in the Claimant's way. The High Court accepted an application by the Claimant for the appointment of Receivers over the Defendants.

The Claimant obtained a worldwide freezing order against the Defendants and sought to freeze assets belonging to third parties which were all incorporated outside English jurisdiction and had no assets or presence here. Mr Justice Males held that service out of the jurisdiction of an Arbitration Claim Form could only be ordered against the Debtor itself post- award. There is no power to grant an injunctive remedy against a non-party.

The case continues.

Arbitration means Court (Charterparty prevails over Bill of Lading)

The “CHANNEL RANGER” was chartered for a trip time charter to carry coal in bulk. The Charterers subchartered the vessel under a voyage charter which included the dispute resolution clause stating that any disputes should be “submitted to the exclusive jurisdiction of the High Court of Justice of England and Wales”. After the cargo was loaded the relevant Bill of Lading was issued stating that freight was payable as per the terms of the sub-charter. On the reverse of the Bill of Lading clause 1 provided that all the terms of the sub-charter including the “law and arbitration clause” were incorporated into the Bill of Lading.

Following discharge at Morocco the cargo was found to be damaged and the Owners commenced proceedings in England in June 2011 for a declaration that they were not liable for the damage to the cargo. Subsequently the cargo insurers commenced proceedings in Morocco against the Owners and issued an application in England challenging the jurisdiction of the English High Court. They contended that the reference in the Bill of Lading to the “law and arbitration clause” in the charterparty did not suffice to incorporate the law and English High Court jurisdiction clause as the High Court is outside the scope of arbitration.

The Court of Appeal held that the charterparty law and English High Court jurisdiction clause was incorporated into the Bill of Lading. As a matter of construction the Court had to consider what the parties meant by the words “law and arbitration clause” and in the Court's view the only clause in the charterparty to which the parties could have intended to refer to was the law and jurisdiction clause providing for English High Court jurisdiction.

CORRECTION

In the last edition of this Newsletter we included an article about Chinese freight tax and stated that it was introduced on 1 August 2004. This should have read 1 August 2014. Our apologies for the typo.