SHIPPING E-BRIEF

2007. Watch this space for further developments

and potentially far-reaching reforms.

charlotte.davies@incelaw.com
katy.carr@incelaw.com
Shipping E-Brief
New Partners at Ince & Co

We are pleased to announce the promotion of

seven solicitors to the partnership with effect from
1 May. This brings the number of partners in the
firm to 78.
Contents
Six of the new partners are based in London and
one is in Shanghai. Three have worked in the Shipping
maritime and insurance industries before deciding
to follow a career in the law; three have spent a Redelivery notices under time charters 2
significant amount of time working in the firm’s
Demurrage Claims and Supporting Documents 3
international offices; and all but one began their
legal careers at the firm. Planning to sell a vessel for scrap? 4
The seven new partners are:
Fraud does not override arbitration clauses 4
Iain Anderson – marine and non-marine insurance
and reinsurance, London “Anti-Suit Injunctions” and the Front Comor 6

Kevin Cooper – admiralty and dry shipping, Under consumption of bunkers 7

commercial disputes, Shanghai

SHIPPING E-BRIEF
Collision/salvage cases and the importance of making open offers 8
Christian Dwyer – dry shipping, international trade
and commercial contracts, London Cargo shortage claims in Yemen 9

May 2007
Johanna Ewen – marine insurance and reinsurance, Hong Kong and misdelivery of cargo under bills of lading 10
London
P&I Club Letters of Undertaking - always enforceable? 12
Michelle Linderman – shipping, reinsurance and
commercial disputes, London Precise style of disponent owner not important as to whether agreement
reached 12
Charles Lockwood – on- and offshore energy work,
marine energy insurance, London Carriage of steel and the need to install temporary dehumidifiers 14

Will Marshall – international trade, energy, LNG Political risk insurance for non-honouring of refund bank guarantees 15
and shipping, London.
The Golden Victory reaches the House of Lords 17

“Anti-Suit Injunctions” – arrest proceedings in another jurisdiction 17

Commercial Disputes
Part 36 - Changes to the rule 18

Other News
Companies Act 2006 - UK directors now under a duty to promote success 19
Ince & Co is an international commercial law firm which practises in six broad strands:
Changes in employment law legislation 20
AVIATION | BUSINESS & FINANCE | COMMERCIAL DISPUTES | ENERGY | INSURANCE & REINSURANCE | SHIPPING & TRADE

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Disclaimer: The information and commentary herein do not and are not intended to, amount to legal advice to any person on a specific matter. They are furnished for
information purposes only and free of charge. Every reasonable effort is made to make them accurate and up to date but no responsibility for their accuracy or correctness, nor
for any consequences of reliance on them, is assumed by the firm. Readers are firmly advised to obtain specific legal advice about any matter affecting them and are welcome
to speak to their usual contact at the firm.
©Ince & Co 2007

W W W. I N C E L AW. C O M
D U B A I | H A M B U R G | H O N G K O N G | L E H AV R E | L O N D O N | PA R I S | P I R A E U S | S H A N G H A I | S I N G A P O R E
 SHIPPING E-BRIEF
Shipping
London Arbitration 3/07 - Redelivery notices
under time charters
In London Arbitration 3/07 (2007) 713 LMLN
(14 March 2007) London arbitrators have held that
approximate and definite notices of redelivery
under time charters must be given in good faith
and on reasonable grounds, and that reasonable
grounds encompasses facts which ought to be
known by the charterers if they have made a
proper inquiry.
The thorny issue of redelivery notices given under
time charters has been examined again by a
London arbitration tribunal, in the context of
owners claiming damages for losses caused by
allegedly defective redelivery notices.
The subject vessel was time chartered on an
amended NYPE form for a period of “min 3 to
about 5 months where about means 10 days more
or less in Charterers option”. The charterparty also
provided that “Charterers to give Owners the
following notices: 30 days notice of probable
redelivery date and range, 15 days approximate
notice of redelivery date and port, 5 days definite
notice of redelivery date and port”. The vessel was
sub-chartered and ultimately sub-sub-chartered for
a time charter trip.
The last permissible date for redelivery of the
vessel was 19 December 2004. On 4 December
the sub-sub-charters sent a 15 day approximate
notice to the sub-charterers stating that the vessel
was expected to be redelivered on 19 December.
The sub-charterers did not pass that notice to the
head charterers until 6 December, and the head-
charterers forwarded the notice to owners on 7
December. The owners responded by asking for
the tender of a proper and realistic redelivery
notice. On 22 December sub-sub-charterers sent a
message direct to owners stating that they
expected to be able to redeliver the vessel on 28
December. On 5 January sub-sub-charterers gave a
redelivery notice for 6 January. In the event, the
vessel was not redelivered until 8 January.
The owners claimed damages for late redelivery,
and also damages for breach of the redelivery
notice obligations (quoted above). As to the latter
point, the owners contended that the last
permissible day for the charterers to give a valid 15
day notice was 4 December (i.e. 15 days before
the last permissible day for redelivery). The owners
2 19
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also argued that if a realistic 15 day notice had
been given on 4 December, the vessel’s next
employment would have been fixed in the week of
6 December 2004, instead of on 4 January 2005
by which time the market rate for the vessel had
fallen.
The charterers argued that the late redelivery was
caused by the sinking of another vessel in the main
channel at the discharge port on 26 November
2004, which delayed all berthing and discharging
at that port. However, at the time of giving the 15
day notice, the head charterers did not know of
the sunken vessel and therefore had made no
inquiry as to its effect on the date for redelivery.
The head charterers relied exclusively upon the
notice that they had received from the sub-
charterers.
Concerned about their ignorance of the events at
the discharge port, the head charterers contended
that their sole obligation was to give redelivery
notices in good faith, alternatively if such notices
had to be given on reasonable grounds then this
only embraced facts actually known to them. In
support of that proposition, they relied upon The
Lendoudis Evangelous II [1997] 1 Ll L R 404.
The tribunal held that the essence of the notice
obligation was the need to give a 15 day
approximate notice before the estimated date of
redelivery, whenever that date might be. The notice
obligation was not linked to any particular date
and varied depending upon when the redelivery
was estimated to be. Accordingly, the tribunal
rejected owners’ contention that 4 December was
the last permissible day for the charterers to give
the 15 day notice.
The tribunal also did not look favourably upon
charterers’ contention that their obligation was
limited to making an estimate in good faith. The
tribunal noted that redelivery notices are important
to owners in the context of fixing follow on
employment and that such notices need to be as
reliable as possible. Therefore appropriate
enquiries ought to be made by charterers, and it is
not sufficient simply to claim and to rely upon
ignorance.
The tribunal drew an analogy with the case law on
expected readiness dates. It is well established that
notices of expected readiness have to be given in
good faith and on reasonable grounds, and that
reasonableness encompasses facts which ought to
be known to the party giving the notice. The
tribunal considered that the same approach should
be applied to a charterers’ expectations when
 SHIPPING E-BRIEF SHIPPING E-BRIEF

We have noted in several of our earlier papers the
perceived conflicts between the laudable aims of
the new legislation, including the ability to make it
easier to run a company and to remove
unnecessary burdens on directors, and the
legislative provisions themselves. Given that most
companies in the UK are small and often complain
of being over-regulated we wonder how the vast
majority of these companies will deal with this
complex area of the law. Will they comply or
simply ignore it? Our initial thought is that
directors may become more risk-averse, and
perhaps make their companies less competitive.
A fuller version of this new area of the 2006 Act is
available on the Ince & Co website.
nick.gould@incelaw.com
sarah.pozner@incelaw.com
rebecca.axe@incelaw.com
Changes in employment law legislation
1. Maternity leave/Parental leave
Under the Work and Families Act 2006 which
came into force on 1 October 2006, all employees
expecting to give birth or adopt on or after 1 April
2007 will be entitled to statutory
maternity/adoption pay for 39 weeks and will be
entitled to work up to 10 “keeping in touch days”
during maternity leave.
2. The Equality Act 2006
The provisions in the Act which concern religion
or belief come into effect on 30 April 2007. These
include a new definition of religion or belief which
expressly includes the lack of a religion or belief.
The Act also provides that a single Commission for
Equality and Human Rights will be established in
October 2007 to assume the powers and functions
of the three current equality commissions, the
Commission for Racial Equality, the Equal
Opportunities Commission and the Disability
Rights Commission.
3. English Smoking Ban
From 1 July 2007 the Health Act 2006 will come
into force and enclosed public spaces and work
places will become smoke free, including offices,
factories, shops, pubs, restaurants, membership
clubs, public transport and work vehicles used by
more than one person. A notice stating “No
smoking. It is against the law to smoke in these
premises” at least A5 in size and displaying a
statutory no smoking symbol of at least 70
millimetres in diameter must be displayed in a
prominent position in the entrance to each smoke
free premises. There are slightly different
requirements for smoke free signs which must be
displayed in smoke free vehicles.
4. Annual leave entitlement
The Annual Leave (Amendment to Working Time
Legislation) Regulations 2007 comes into force on
1 October 2007. This will increase the statutory
minimum holiday entitlement from 4 to 4.8 weeks,
equating to 24 days for full time worker working 5
days a week.
5. Dispute Resolution Review Recommends
Change
The Department for Trade and Industry has
recently published an independent review of
employment dispute resolution procedures, which
calls for a radical overhaul of the current approach
to resolving workplace disputes. The aim of the
review was to identify options for simplifying and
improving all aspects of employment dispute
resolution to make the system work better for
employers and employees while preserving
existing employee rights. The central
recommendation of the report is that the
government should repeal the statutory dispute
resolution procedures set out in the Employment
Act 2002 (Dispute Resolution) Regulations 2004 SI
2004/752 and instead set out clear, simple, non-
prescriptive guidelines on grievances, discipline
and dismissal in the workplace for employers and
employees, ensuring that there are incentives to
comply with the new guidelines (such as costs
penalties).
Other methods of assisting in the resolution of
workplace disputes are also proposed, including
the introduction of a new simple process to settle
monetary disputes on issues such as wages,
redundancy and holiday pay without the need for
tribunal hearings; improvement in the quality of
advice to potential claimants and respondents
through an adequately resourced helpline and the
internet; the introduction of a free early dispute
resolution service and incentives to use early
resolution techniques. It is also proposed to make
the employment tribunal system simpler and
cheaper for users and government by simplifying
employment law and the tribunal forms and
certain of the tribunal procedures. The DTI is
seeking views on the review’s recommendations
through a consultation, due to close on 20 June
giving redelivery notices. The Lendoudis
Evangelous II was distinguished by the tribunal.
In that case, the Court held that the estimated
length of a time charter only had to be given in
good faith, but that was because the estimate
was expressly stated to have been given
“without guarantee”.
On the facts, the tribunal concluded that the 15
day estimate made by the sub-sub-charterers on
4 December for redelivery on 19 December was
not unrealistic in the circumstances that existed
at the time that estimate was made. Accordingly,
the charterers were not in breach of their
redelivery notice obligations.
As to the claim for damages for late redelivery,
the charterers successfully relied upon a mutual
exception clause that covered “all dangers and
accidents of the seas”. The owners sought to
circumvent the exception clause by contending
that charterers could have discharged the cargo
at another port, and that this could have been
done without re-issuing the bills of lading
because the delivery obligation in the bills
provided “the dangers of the seas only
excepted”. The tribunal did not accept that
delivery under the bills could be given at any
place other than the named discharge port. If
the dangers of the seas prevented delivery from
taking place at all, or within a non-frustrating
time, then the exception would excuse non­
delivery but it did not confer a right upon the
owners to deliver the cargo elsewhere. There are
liberty clauses that might allow this (see GH
Renton & Co Ltd v. Palmyra Trading Corp
[1956] 2 Ll L R 379), but the bills in the present
case contained no such clause.
Finally, if it had been necessary for the
charterers to do so, the tribunal held that they
could not have relied upon the mutual
exception clause in relation to the 15 day notice
obligation, since they did not know of the
sunken vessel at the time that they gave the 15
day notice, and on their own case that was not
a matter which they ought to have known
about. However, the charterers could have
relied upon the exception clause in relation to
the 5 day definite notice. By that time, the
charterers were aware of the sunken vessel and,
on the evidence, could not have given any such
notice in light of the uncertainties created by
the sunken vessel.
nick.shepherd@incelaw.com
Demurrage Claims and Supporting
Documents – is a “Laytime Statement”
also an “Invoice”?
In Lia Oil S.A. -v- ERG Petroli SpA the Court
held that an Owners’ laytime statement was also
an Owners’ invoice for the purposes of
providing supporting documents under a sale
contract demurrage claim. Secondly, that issuing
a “counter” demurrage statement did not
amount to an acknowledgment of liability that
recommenced the 6 year period for bringing the
demurrage claim. Thirdly, in relation to the
construction of a ‘one off’ agreement arising out
of off-spec cargo, the Court would not imply a
term that laytime began on berthing.
Lia Oil S.A. (“Lia”) sold fuel oil to ERG Petroli
S.A. (“ERG”) on a CIF/DES basis pursuant to a
‘Frame Contract’. The provisions as to
demurrage was as follows:
“14. Demurrage
Demurrages, if any, will be required by seller if
owners actually claim it pro rata quantity
loaded if part cargo, rata [i.e. rate] as per c/p…
any claim barred if not notified duly supported
by relevant documents (whereof copy of c/party
and copy of owners’ demurrage claim and
invoice) within 100 days from b/l date.”
In relation to one shipment, ERG denied it was
liable for demurrage because, in breach of
Clause 14 of the Frame Contract, Lia had only
provided an Owners’ laytime statement
covering both load and discharge ports, not an
Owners’ invoice. However, the Court noted
that the front page of the laytime statement set
out the total demurrage due and held that this
amounted to an Owners’ demurrage invoice for
the purposes of Clause 14. As a result of this
wide interpretation of “Owners’ invoice”, Lia
was able to show that it had complied with the
100 day time limit for providing supporting
documents.
Even though a party claiming demurrage has
complied with the time limit in the charter/sale
contract for lodging its demurrage claim (e.g. 90
days from discharge), if payment is not made it
is important to remember that contractual
claims under English law must be brought
within 6 years of the cause of action arising. In
this case when Lia eventually commenced
proceedings, more than 6 years had passed, so
on the face of it the claim was time barred.
However, approximately 5 years before the
court proceedings were started, ERG sent Lia its

20 3
 SHIPPING E-BRIEF
own demurrage calculation setting out the sum
that ERG thought was due and this allowed Lia to
argue that, pursuant to Section 29 (5) of the
Limitation Act 1980, the 6 year time limit
commenced afresh from that day. Unfortunately for
Lia, the Court rejected this argument on the basis
that the ERG worksheet and covering letter was
provided at/following a without prejudice meeting.
In addition, and irrespective of it being sent
“without prejudice”, the ERG worksheet did not
amount to the acknowledgment of indebtedness or
legal liability to pay that is required to make the six
year time limit start again.
The final issue related to another shipment where
the cargo was found to be off-spec at the load port,
thus entitling ERG to reject the cargo. The parties
reached an agreement (the “First Agreement”) that
the cargo would be retested at the discharge port
and if it was on-spec then ERG would take the
cargo, but laytime would only start on berthing.
The cargo was still off-spec at the discharge port,
but ERG agreed (the “Final Agreement”) to buy it at
a discount. Nothing was expressly agreed about
laytime, save that the new deal was otherwise as
per the terms of the Frame Contract.
Following the First Agreement, the vessel had to
wait about three days to berth and ERG argued that
laytime only started on berthing. The Court
rejected this argument on the basis that the First
Agreement only dealt with what would happen if
the cargo was on-spec, not if it was off-spec. The
Final Agreement was silent on the laytime point
and the Court rejected ERG’s argument (based on
the “officious bystander” test) that it was an
implied term that laytime would commence on
berthing. “The Court will only imply a term into
the contract in circumstances such as these if it is
necessary to do so to make the contract work...it is
no part of the Court’s function to rewrite the
parties’ bargain and, even if it were, I am far from
satisfied that the discount agreed together with the
obligation to pay demurrage was necessarily the
bad bargain which [ERG] sought to pay.”
ted.graham@incelaw.com
victoria.waite@incelaw.com
Scrapping - planning to sell a vessel for
scrap? A new regulatory regime is on the
horizon!
Ship recycling operations are subject to a number
of international and national rules related to the
safety and environmental management of
hazardous materials found in recycled ships. In
4 19
recent years, ship recycling has also been the
target of a number of highly publicised attacks by
NGOs which have targeted particular vessels
bound for recycling, and which has resulted in
expensive litigation in recycling states. The
International Maritime Organization (IMO) has
been working towards the conclusion of an
international agreement to govern many aspects of
ship recycling, which could be adopted as early as
2008-2009 and which would be a substantial
improvement on the current regime. There are,
however, a number of issues arising from the
present Draft which will be of interest and concern
to the shipping industry.
For an analysis of the Draft Convention,
highlighting particular areas of concern, please
contact:
michael.stockwood@incelaw.com
charlotte.breide@incelaw.com
Fraud does not override arbitration clauses
In Fiona Trust & Holding Corporation & Others v
Yuri Privalov & Others [2007] EWCA Civ 20 the
Court of Appeal has decided that a very wide
interpretation should be given to the jurisdiction of
arbitration clauses in international commercial
contracts. If a contract is alleged to be invalid as a
result of bribery, then unless that bribery relates
specifically to the arbitration clause, the clause
survives and the validity of the contract as a whole
must be determined by the arbitrators, rather than
the courts. The distinction, if any, between disputes
arising out of a contract and disputes arising under
a contract was considered, with the Court of
Appeal concluding that arbitration clauses in
international commercial contracts should be given
a liberal interpretation. The House of Lords has just
given leave to appeal and the definitive answer on
this topic is therefore still awaited.
This case arises out of complex litigation in which
the Claimants’ allege that individual defendants
were involved in a pattern of corrupt activity. In
particular, certain of the Claimants allege that the
chartering of eight vessels conferred significant
financial benefits on certain of the Defendants at
the expense of certain of the Claimants, and infer
that they were induced by bribes or other benefits
and that this ultimately formed part of a wider
dishonest conspiracy to injure the Claimants’
business by unlawful means.
The Claimants therefore rescinded the
charterparties. The Defendant Charterers’ position
was that the Claimants were not entitled to
SHIPPING E-BRIEF
judgment against the Defendant for the offered
amount if payment is not made by the
Defendant within 14 days. There are additional
consequences which will be best assessed on a
case by case basis with your usual advisor.
ben.ogden@incelaw.com
kate.rodgers@incelaw.com
Other News
Companies Act 2006 - UK directors now
under a duty to promote success
The Companies Act 2006 codifies, for the first
time, the duties of directors of UK companies.
This brief note deals with one important and
possibly contentious new duty, namely the duty
to promote success.
In addition to the existing duties of directors,
the 2006 Act sets out a new requirement.
Simply, it will be the duty of a director to act in
a way that he considers, in good faith, would be
most likely to promote the success of the
company and consequently for the benefit of its
members as a whole.
The 2006 Act sets out six specific factors to
which directors must have regard during the
decision making process to fulfil this particular
duty:
1. The interests of the company’s employees;
2. The need to foster the company’s business
relationships with suppliers, customers and
others;
3. The impact of the company’s operations on
the community and the environment;
4. The desirability of the company maintaining
a reputation for high standards of business
conduct;
5. The need to act fairly as between members
of the company; and
6. The likely consequences of any decision in
the long term.
This list of factors is not exhaustive. It is also
subject to the relevant existing law requiring
directors, in certain circumstances, for example
in a potential insolvency situation, to consider
or to act in the interests of the creditors of the
company.
In deciding whether a particular course of
action is in the best interests of the company the
directors must have regard to all six factors.
There is no priority between them but the
individual factors do not override the primary
obligation to promote the success of the
company. The aim is to “promote success” but
not to the detriment of the other fiduciary duties
when taking account of these considerations.
Our understanding of how this might work at
one extreme is, for example, that if a board is
faced with a decision which will result in a loss
of jobs and damage to the environment but is
likely to promote the success of the company,
then the first choice is the course they should
follow. Consider also the possible conflict when
on the one hand the board is trying to maximise
profitability – one way of measuring success –
but on the other hand in doing so seeks to
negotiate severe terms into its contracts with its
suppliers to obtain the best financial result for
the company. The 2006 Act gives no definition
of what is meant by “success” although the DTI
has stated that for commercial companies it will
normally mean “long term increase in value”.
The decision as to what will promote the
success of the company and what constitutes
such success, is one for a director’s judgment
acting in good faith. Strategy and tactics are for
the directors and should not be subject to
decisions by the courts, again subject to good
faith. In certain other common law jurisdictions
this is referred to as the “proper purpose” rule.
Directors must be able to prove that they have
paid due regard to the six listed factors. The
2006 Act does not specify how directors are to
do this but it is not likely to be sufficient for
them simply to tick a box for each factor, as
each one must be considered fully. The obvious
method directors can use to do this will be by
keeping detailed board minutes setting out their
considerations and how decisions were
reached.
According to the official explanatory notes to
the 2006 Act, the cumulative effect of the duties
means that where more than one duty applies, a
director must comply with each applicable duty,
and the duties must be read in this context. So,
for example, we believe the duty to promote the
success of the company will not authorise a
director to breach his duty to act within his
powers, even if he considers that he would be
most likely to promote the success of the
company by doing so.
 SHIPPING E-BRIEF
cargo interests from pursuing arrest proceedings in
Senegal. This was on the basis that those
proceedings had in fact been brought in order to
avoid or frustrate a London arbitration clause.
An English Court will not restrain a party from
applying to a foreign court for the arrest of a vessel
to secure a claim and it is for the arresting court to
determine the form and terms of security ordered.
Nonetheless, the Commercial Court in London
recently took a fairly robust approach towards a
party which it considered was seeking, through
arrest proceedings, to frustrate or circumvent a
London Arbitration Clause and which it considered
had behaved oppressively. The Court considered
that it could restrain that party by way of a
personal injunction, and that this was entirely
consistent with the terms of the Arrest Convention.
The Claimant was the Owner of the “Kallang” and
the Defendants were receivers / their cargo
insurers. A dispute arose out of an alleged short
delivery of cargo to receivers in Dakar. The cargo
had been shipped under bills of lading which
incorporated a charterparty containing an English
law/ London arbitration clause.
The Cargo Interests refused to accept a P&I Club
LOU containing a London arbitration clause as
security for their claim. The Cargo Interests instead
obtained an Order from the Dakar Court that the
vessel be arrested and that the Owner should put
up security by way of a bank guarantee. The Cargo
Interests subsequently insisted that security be put
up by a form of bank guarantee that effectively
provided for resolution of the cargo claim itself in
Senegal.
The Owners obtained an “anti-suit” injunction
from the Commercial Court (Cooke J) which
provided that the Cargo Interests should not
commence or continue any proceedings, including
the Dakar Court proceedings, otherwise than by
way of London Arbitration and that they should
discontinue the Dakar proceedings and procure
the release of the vessel.
The Cargo Interests applied to set aside Cooke J’s
Order on the basis that there was no breach of the
London Arbitration Clause because the
proceedings in Senegal were simply security
proceedings. The Cargo Interests further relied on
the fact that it was the Dakar Court which had
ordered what the particular form of security should
be, as the arresting court was entitled to do under
the Brussels Arrest Convention.
The Owners conceded that the actual order made
by the Court in Senegal was one for security only
and accepted that the Cargo Interests were not in
18
breach of the London Arbitration Clause merely by
making an application to the Dakar Court for the
purposes of obtaining security.
However, the Owners argued that the proceedings
brought in Senegal were actually bought by the
Cargo Interests for the purpose of obtaining
payment of the claim and to have the substantive
claims heard in Senegal. They argued that the
Cargo Interests were by their behaviour in breach
of the London arbitration clause irrespective of the
actual terms of the Dakar Court Order. The
insistence by the Cargo Interests on a Senegalese
Bank Guarantee and their refusal to accept
alternative security was oppressive behaviour
intended to force the Owners to submit to the
jurisdiction of the Senegalese Court rather than the
contractually agreed forum of London Arbitration.
Further, if this had happened, the Owners would
most likely not in fact have defended the case.
The Court agreed that on the evidence there was
an arguable case that the Cargo Interests had been
attempting to use the security proceedings in
Dakar and their requirement of a Senegalese bank
guarantee, as a means of avoiding or frustrating
London arbitration proceedings. A Club LOU
would in fact have been adequate security in the
circumstances. This conduct was in breach of the
arbitration clause and was also oppressive
behaviour and accordingly, Cooke J’s order would
not be discharged.
jamila.khan@incelaw.com
Commercial Disputes
Part 36 - Changes to the rule
Defendant offers to settle a case have, since the
introduction of the CPR, required the Defendant to
pay into Court the monetary value of the
settlement offer. The money then stays in Court
pending acceptance or Court order. That Rule is
now changed so that a Defendant, like a Claimant,
need only make its offer in writing, allowing the
Defendant access to its money while the
proceedings continue.
This change has consequences. Considering Part
36 Offers carefully has always been crucial and
remains important. A couple of obvious
consequences are (1) a Claimant will no longer
have the security of knowing that the money is in
Court to meet the Part 36 offer which may impact
on recovery and enforcement; and (2) a Defendant
should realise that when a Claimant accepts an
offer the Claimant will be entitled to enter
SHIPPING E-BRIEF
rescind, that this dispute must be resolved by
arbitration pursuant to the arbitration clauses in
the charterparties, and they purported to
commence arbitration proceedings. The
Claimants then, without prejudice to the
contention that they had already done so,
rescinded the agreements to arbitrate under the
charterparties and took no part in the arbitration
proceedings.
The Claimants sought to incorporate the time
charter claims into the main litigation which
included the following claims:
(1) damages for the tort of conspiracy;
(2) damages arising from the payment of bribes;
(3) a claim for dishonest assistance and breach
of fiduciary duty by the defendants in procuring
the charterparties by bribes; and
(4) that by reason of the bribes the charterparties
had been validly rescinded and for
consequential restitution.
The primary objection to the joinder of the time
charter claims in the main litigation was that all
of the charters were on the Shelltime form and
included an arbitration clause and should
therefore be decided by arbitration. The
Defendants argued that the time charter claims
should be stayed under section 9 of the
Arbitration Act 1996 (insofar as they concerned
the dispute as to the entitlement of the owners
to rescind the charters) or should be stayed
under the court’s case management powers,
pending determination by award in the
arbitration.
Clause 41 of the charterparties read as follows:
“(a) This charter shall be construed and the
relations between the parties determined with
the laws of England.
(b) Any dispute arising under this charter shall
be decided by the High Court in London to
whose jurisdiction the parties hereby agree.
(c) Notwithstanding the foregoing, but without
prejudice to any party’s right to arrest or
maintain the arrest of any maritime property,
either party may, by giving written notice of
election to the other party, elect to have any
such dispute referred…to arbitration in London,
one arbitrator to be nominated by Owners and
the other by Charterers, and in case the
arbitrators shall not agree to the decision of an
5
umpire, whose decision shall be final and
binding upon both parties. Arbitration shall take
place in London in accordance with the London
Maritime Association of Arbitrators, in
accordance with the provisions of the
Arbitration Act 1950, or any statutory
modification or re-enactment thereof for the
time being in force.
(i) A party shall lose its right to make an
election only if:
(a) it receives from the other party a written
notice of dispute which
(1) states expressly that a dispute has arisen
out of this charter;
(2) specifies the nature of the dispute; and
(3) refers expressly to this clause 41(c)
(b) it fails to give notice of election to have this
dispute referred to arbitration not later than 30
days from the date of receipt of such notice of
dispute.”
The Claimants alleged that the scope of
arbitration clause did not extend to a dispute as
to whether the charterparties were lawfully
rescinded for fraud and bribery and, in any
event, as a result of the rescission of the
charterparties the arbitration clause had fallen
away. The Defendants argued that the scope of
the clause was wide enough to include a
dispute concerning the entitlement of one party
to rescind the charter, and that in any event the
separability principle applies such that the
arbitration clause survived the rescission of the
contract as it represents a separate and distinct
bargain between the parties. The Defendants
further alleged that the Claimants had failed to
validly rescind the charterparties as restitutio in
integrum was not possible and the right to
rescind had been lost by delay, affirmation or
election.
At first instance, Mr Justice Morison held that
the Claimants’ argument of no true consent to
the contractual terms made the case no different
from one of non est factum (i.e. “it is not his
deed”) or mutual or unilateral mistake. The
bribery arguments, if sustainable, impeached
the whole contract. The Court had to approach
the question of construction by reference to the
mutual intentions of the parties. The question of
whether the owners ever made the contract
could not be said to be a dispute that arose out
of the contract, and certainly did not arise
 SHIPPING E-BRIEF
"under" the contract. Accordingly, the Court and
not the arbitrator had jurisdiction to decide the
instant issue.
Morison J held that the first three claims mentioned
above did not arise as a result of the charter and
although it was possible to argue that the fourth
claim is a claim "under" the charter, the claim for
restitution cannot be a claim under the contract
since it is predicated on the basis that there is no
contract because of bribery. Thus, there are no
claims that presupposed the existence of the
contract, or which are concerned with the terms of
the contract.
Further, Morison J held that even if the clause had
been apt to cover the rescission dispute, one trial
by the Court would be preferable in this case to an
arbitration followed by a re-hearing of the
evidence by the Court.
Regarding rescission, the similarity of the instant
case with one of non est factum and mistake going
to the root of the contract distinguished it from
other cases. It was not simply the fact that the
charterparties had been rescinded; it was the basis
on which they had been rescinded, and one could
not distinguish between their unenforceability
without necessarily impugning the validity of the
arbitration clauses. The Claimants in this case say
that they never truly agreed to enter into the
charterparties, or, if severable, the arbitration
agreements. Morrison J held that if rescission is an
available remedy then the whole contract,
arbitration clause and all, falls to the ground.
In reaching his decision, Morison J acknowledged
that legal problems may arise given that certain of
the charters had been fully performed and third
party legal rights may be affected but considered
the law to be flexible enough to permit rescission.
The Charterers appealed against the decision of
Morison J. The Court of Appeal (Tuckey LJ, Arden
LJ and Longmore LJ) decided that a dispute as to
whether the contract can be set aside or rescinded
for alleged bribery was a dispute arising "under" or
"out of" the contract, so that the arbitrators had
jurisdiction over this dispute. Longmore LJ, giving
the Judgment of the Court of Appeal, said, at
paragraph 18 of the Judgment:
"As it seems to us any jurisdiction or arbitration
clause in an international commercial contract
should be liberally construed... Although in the
past the words "arising under the contract" have
sometimes been given a narrower meaning, that
should no longer continue to be so".
The Court also distinguished the case from a
6 17
dispute "as to whether there was ever a contract at
all" in the "Mustill and Boyd sense”. As mentioned
above, Mr. Justice Morison held at first instance
that Owners' argument of no true consent to the
contractual terms (on the basis of bribery) made
the case no different from one of non est factum or
mutual or unilateral mistake, but this seems to
have been implicitly rejected by the Court of
Appeal.
The Court of Appeal also dealt with the separability
of arbitration agreements, on which they decided
that it is not enough to say that bribery impeaches
the whole contract including the arbitration clause;
it is necessary to identify bribery which goes
specifically to the agreement to arbitrate.
Their Lordships recognised that they were making
an extremely important Judgment in relation to the
construction and applicability of arbitration
clauses, but considered (at paragraph 17 of the
judgment);
"that the time has now come for a line of some sort
to be drawn and a fresh start made at any rate for
cases arising in an international commercial
context".
The House of Lords has just given leave to appeal
and the definitive answer on this topic is therefore
still awaited.
denys.hickey@incelaw.com
jane.fitzgerald@incelaw.com
“Anti-Suit Injunctions” - The House of Lords
supports the English Court’s powers to
enforce arbitration agreements
In West Tankers Inc v RAS Riunione Adriatica di
Sicurta SpA and Others (The Front Comor ) [2007]
UK HL 4, the House of Lords considered the
independence of arbitration from litigation and has
referred to the European Court the question
whether an anti-suit injunction is permissible to
restrain proceedings commenced, in breach of a
London arbitration clause, in another EC Member
State.
A dispute being handled by Ince & Co’s shipping
team has led to a hearing in the House of Lords
with significant implications for London arbitration.
Although the context was marine, the dispute, now
headed for the European Court of Justice, may
affect any commercial litigant choosing London
arbitration as their preferred dispute resolution
procedure with an EC entity. Not only shipowners
and charterers but also those in the insurance,
SHIPPING E-BRIEF
The Golden Victory reaches the house of
Lords
Are events that occur subsequent to a repudiatory
breach relevant in the assessment of damages?
In a significant decision with respect to the
assessment of damages following the
repudiation of a long term charter, the House of
Lords has recently upheld the decision of the
Court of Appeal in Golden Strait Corporation v
Nippon Yusen Kubishiki Kaisha [2007] UKHL 12
(“The Golden Victory”). The general rule in
contract law is that damages should be assessed
at the time the breach of contract occurred,
with events that occur subsequent to the breach
thought to be irrelevant. However, the House
of Lords agreed with the decision of the Court
of Appeal, that in certain circumstances an
event that occurred after the date of the breach
(in this case the Second Gulf War) could be
taken into account when assessing damages.
The Golden Victory was chartered for a period
of 7 years (one month more or less in
Charterers’ option). The charter contained a
war clause, which provided:
“If war or hostilities break out between any two
or more of the following countries: U.S.A.,
former U.S.S.R., P.R.C., U.K., Netherlands,
Liberia, Japan, Iran, Kuwait, Saudi Arabia, Qatar,
Iraq, both Owners and Charterers have the right
to cancel this charter”.
The earliest contractual date for re-delivery was
6 December 2005. However, the charterers
wrongfully repudiated the charter by purporting
to re-deliver on 14 December 2001. This
breach was accepted by owners as bringing the
charterparty to an end.
Owners claimed for the loss and damage that
they had suffered as a result of Charterers’
breach of charterparty. During the arbitration, it
was accepted that the normal measure of
damages was the difference between the hire
rate under the charter and the market rate for a
substitute long term charter for the balance of
the charter period – in this case a further 4
years. The Charterers, however, argued that the
normal measure of damages did no more than
fix the basic comparison of the rates over the
balance of the charter period and that, if it was
established that the original charter would not
have run the balance of its period, this must be
taken into account. The charterers asserted that
they would have exercised their right to cancel
the charterparty on the outbreak of the Second
Gulf War in March 2003 and damages should
therefore be assessed on the basis. This would
have limited Owners’ claim to about 15 months
as opposed to 4 years.
The owners, on the other hand, argued that
damages fell to be measured at or very shortly
after the date of breach and that subsequent
events were irrelevant, at least unless they could
be said to have been inevitable, or perhaps
probable, at the date of breach. Owners,
therefore, claimed to be entitled to damages
over the balance of the full charter period.
The arbitrator held in favour of the charterers
and the owners appealed. Both Langley J, at
first instance, and the Court of Appeal agreed
that the arbitrator’s approach was consistent
with the basic compensatory rule for the
assessment of damages.
The majority in the House of Lords agreed with
the judgment of Mance LJ in the Court of
Appeal, that the purpose of the market rule was
to fix a rate which then had to be compared
with the original charter rate in order to
notionally put the owners back in the same
position as they would have been under the
original charter. However, the aim was not to
eliminate from consideration in the assessment
of damages any of the original charter terms nor
any effect which they might have. Accordingly,
if an unexpected event occurred which meant
that the charterparty would not have run for the
full period, then that unexpected event had to
be taken into account when assessing damages.
The ruling is clearly significant in relation to the
assessment of damages in cases relating to the
repudiation of long term period charters or
other long term contracts where there is a right
of cancellation dependent on subsequent
events.
will.marshall@incelaw.com
carl.walker@incelaw.com
Anti-Suit Injunctions – the English Court
takes a tough stance to prevent arrest
proceedings in another jurisdiction
In the “Kallang”, [2006] EWHC 2825 Comm,
the Commercial Court (Mrs Justice Gloster)
upheld an anti-suit injunction which restrained
 SHIPPING E-BRIEF
the risk of default by a commercial guaranteeing
bank is also possible, though such a “credit risk” is
a less attractive proposition for underwriters
specialising in this sector.
Such policies, of course, have their terms and
conditions – ten or so pages, and under English
insurance law they are subject to the overriding
duty of “utmost good faith” which will be familiar
to those involved in insuring hulls and cargo (or
indeed builders’ risks) in the marine insurance
market. An “assured” prior to the time of
conclusion of its contract of insurance as
evidenced by the policy must disclose, and
disclose accurately, all facts and information which
are material to the risks to be insured. The express
terms will spell out preconditions for a claim. For
instance:
• the builder must be in default of its delivery
obligations to the insured buyer, and as a result
• the insured must have cancelled the contract
and demanded return of the advance payments it
has made
• there must be no dispute as to liability: either
the yard must have accepted its liability or that
liability must have been established under the
dispute resolution provisions of the shipbuilding
contract
• obviously, the builder must have failed to repay
some or all of the advance payments; and
• the insured must have called the RFBG, but the
bank has not responded.
In addition to these preconditions, there will then
be a number of fundamental obligations,
“warranties”, with which the insured buyer has to
comply to be able to make its claim. If it does not,
the insurers will be able to treat the insurance
contract as repudiated. For instance, the
shipbuilding contract needs to have been properly
executed and “in full force and effect”; entered
into with all the “necessary authorities”. The
insured must have complied with the law of both
the yard and its own country. The indebtedness
under the shipbuilding contract and the guarantee
has to be a “legally enforceable indebtedness”.
Further, the insured must not have agreed any
significant change to the original contract without
the insurers’ prior permission: in particular there
should be no rescheduling of delivery dates.
Less obviously, there will be a warranty of
confidentiality. The insured is bound not to reveal
the existence of the policy except as may be
necessary to its financiers and professional advisers
– or, possibly, an on-purchaser. This is to reduce
the risk of the builder or the guaranteeing bank
adopting a more cavalier attitude to performance
16
of their contracts in the knowledge that the buyer
can look elsewhere to recover any losses it might
suffer from their actions.
There will be other obligations for the insured
buyer to observe under the policy: the usual ones
about “exercising due diligence” in its dealings
under the construction contract and guarantee;
provisions with regard to co-operating with the
insurers in a claims situation; assigning the insurers
its rights when the claim is paid (“subrogation”).
There will be provisions as to how any policy
claim is to be calculated and when it becomes
payable – there will be a “waiting period”, perhaps
180 days or more, depending in part on the
shipbuilding country involved, to allow for
customary local delays, issues to be resolved or
simply to give the insurers the chance to review
the claim. There will be an express proper law
and jurisdiction clause, customarily London
arbitration, for the resolution of disputes.
As with all insurances, there will be exclusions.
Some are obvious, for instance “material default”
by the insured. There will be no claim where the
insured buyer is the author of its own misfortunes.
In the same vein, an insured cannot recover if
there is any outstanding dispute with the builder
which has led to the default. More generally,
insurance market convention dictates that any loss
caused by war between the “five great powers” is
excluded; there is no cover for insolvency or
financial default (except of course of the
guaranteeing bank); nor is there cover for losses
resulting from currency fluctuation or devaluation.
There will be other exclusions and general terms.
Nevertheless, despite this “conditionality”, since
their introduction some 20 years or so ago these
policies have proved their worth and merit
consideration when looking at ship construction in
new shipbuilding markets – and indeed some
established ones. The best illustration of their
value was in the events of the early 90s, when the
collapse of the Soviet Union led to the withdrawal
of financial support for the currencies and banks of
the then Eastern Bloc countries and the impact on
their shipbuilding industries: particularly Bulgaria,
Poland and Yugoslavia. Their yards found
themselves unable to afford to complete vessels
under construction and the countries’ state banks
could not meet their consequent RFBG obligations
when the builders were unable to deliver.
Underwriters – predominantly the Lloyd’s market –
paid out many millions of dollars under the
policies that insured these guarantees, or in some
cases financed the increased prices which had to
be paid by the buyers to obtain delivery of their
ships.
tony.george@incelaw.com
SHIPPING E-BRIEF
energy, shipbuilding and construction industries
should all watch the outcome of this matter
with care as it proceeds.
On this occasion, Ince’s client shipowners, West
Tankers Inc., chartered their VLCC Front Comor
to an Italian energy company, Erg. That contract
included a London arbitration clause. Front
Comor collided with an Erg jetty at Syracuse in
Sicily. Erg claimed in London arbitration for its
loss, including disruption to refining operations;
the owners counterclaimed for a declaration
they were not liable. That dispute remains to be
resolved. But Erg’s insurers, RAS Riunione
Adriatica and Generali, having paid Erg,
commenced court proceedings against the
tanker owners in Sicily seeking damages for the
same incident even though, as insurers
subrogated to Erg’s rights, they were bound by
the charterparty arbitration agreement.
In March 2005, Colman J in the Commercial
Court declared that under both English and
Italian law the dispute should be arbitrated, and
granted an injunction against Erg’s insurers from
continuing their Italian court action. Such “anti-
suit” injunctions have been a feature of English
law for many years.
EC Regulation 44 of 2001 sets out rules
governing the jurisdiction of the courts of EC
Member States. However Article 1(2)(d) of the
Regulation provides that it is not to apply to
arbitration. As Colman J. took the view that the
Court of Appeal had already positively ruled
that anti-suit injunctions to restrain a breach of
an arbitration clause are compatible with EC
Regulation 44 of 2001, he allowed a “leapfrog”
appeal to the House of Lords.
The Lords were faced with an argument from
Erg’s insurers that for the English Court to
restrain proceedings brought elsewhere in the
EC, in breach of an arbitration agreement, was
an indirect interference with the jurisdiction of
national courts under the Regulation. Their
Lordships preferred owners’ argument that the
Regulation does not regulate relations between
litigation and arbitration and, further, that the
exception for arbitration exists to protect the
right to arbitrate itself. Therefore the type of
supportive measures which English Courts have
traditionally taken to hold parties to their
contractual bargain to arbitrate, such as
enjoining court proceedings in other
jurisdictions brought in breach of the agreement
to arbitrate, ought to be upheld. The alternative
would be to force the party wishing to arbitrate
to apply to the court in that other jurisdiction to
7
stay its proceedings, thereby undermining the
whole purpose of agreeing to arbitrate in the
first place.
Emphasising this point, Lord Mance said this:
“It is in practice no or little comfort or use for a
person entitled to the benefit of a London
arbitration clause to be told that (where a
binding arbitration clause is being – however
clearly – disregarded) the only remedy is to
become engaged in the foreign litigation
pursued in disregard of the clause. Engagement
in the foreign litigation is precisely what the
person pursuing such litigation wishes to draw
the other party into, but is precisely what the
latter party aimed and bargained to avoid.”
The matter will, at the Lords’ direction, now be
considered by the European Court, assisted by a
very clear statement from their Lordships as to
why anti-suit injunctions are an essential
adjunct to commercial arbitration in
international business.
ian.chetwood@incelaw.com
London Arbitration 1/07 - The method to
be used when calculating a credit for
under consumption of bunkers
In London Arbitration 1/07 [2007] 710 LMLN 4
(7 February 2007) a tribunal considered the
proper method for calculating a credit to be
given for bunkers underconsumed as a result of
slow steaming of the vessel, and preferred the
owners’ position that the credit should be
calculated on the basis of minimum
performance, ie the warranted consumption
plus an ‘about’ allowance of 5%.
The service speed of the vessel was described in
the subject charter as follows:
“In good weather and smooth sea, it is
understood good weather means winds of
maximum Beaufort 4 and/or Douglas Sea State
3 about 14.0 knots (ballast) 13.5 knots (laden)
on about 32.5 mt IFO at sea …”
The charterers claimed damages for loss of time
caused by a breach of the performance
warranty, but accepted that the owners were
entitled to a credit for bunkers underconsumed
during the period of slow steaming.
The charterers contended that the credit should
be calculated by comparing the vessel’s actual
consumption with what her consumption would
 SHIPPING E-BRIEF
have been at 32.5 mts per day less 5%. The owners
argued that the relevant comparison was between
the actual consumption and the warranted
consumption of 32.5 mts plus 5%.
The tribunal noted that charterers, in practice,
usually complain about a vessel under performing
as to speed or over consuming bunkers. However,
it does not follow from this that the “about” margin
always applies only in one direction. That result
only could be achieved if the charterparty
contained terms that the vessel would sail at a
certain speed “minus 0.5 knots” and consume a
certain quantity of bunkers “plus 5%”. Therefore
the only way in which proper effect could be given
to the word “about” was by applying a margin on
the basis of “plus/minus”. Accordingly, the
warranty in the present case was that the vessel
would consume 32.5 mts IFO per day plus or
minus 5%.
Since the speed & performance claim was a claim
for damages, the charterers were only entitled to
be put in the same position as if the owners had
performed their minimum obligations. On that
basis, the tribunal preferred the owners’ contention
that the credit for bunkers underconsumed due to
the slow steaming should be calculated by
comparing the actual consumption with the
warranted consumption of 32.5mts plus a 5%
margin.
nick.shepherd@incelaw.com
Collision/salvage cases and the importance
of making open offers
In this day and age it is relatively rare to see the
traditional collision case proceed to a judgment in
the Admiralty court. Most collision cases are
settled unless there is some "gritty" point on the
construction of the collision avoidance rules. If,
however, the matter is going to proceed to trial,
one recent case underlines the importance of
making an early and sensible open offer in order to
ensure as large a recovery of legal costs as
possible.
Bulk Atalanta and Forest Pioneer
Following neatly from Ian Chetwood and Matt
Forbes' article in the last E-brief ("The Role of
Nautical Assessors and Experts at a Collision
Trial"), Mr Justice Clarke recently made full use of
nautical assessors to assist him before issuing his
judgment in the case of the collision between the
ships Bulk Atalanta and Forest Pioneer [2007]
8 15
EWHC 84 (Admiralty). This case is interesting for a
variety of reasons, not just the advice from the
assessors but also in the way it dealt with issues of
visibility, navigating in and around pilotage areas
and whether one vessel, by virtue of its
manoeuvres, can "force" another into having an
obligation to give way.
The collision took place in the approaches to
Gibraltar in the early hours of the morning of 27
November 2003 at approximately 0527. It was
dark with intermittent heavy rain showers reducing
visibility at times. There was a strong south
westerly wind.
The Bulk Atalanta is a capesize bulk carrier of
77,000 grt and 270 metres in length owned by
clients of Ince and Co. She was inbound from the
Mediterranean and came around Europa Point
altering onto a northerly heading into Gibraltar
Bay to take on a pilot for anchoring before taking
bunkers. She was in ballast and, on a large scale,
her radar image should have looked like a second
"Rock".
The Forest Pioneer is a smaller bulk carrier of
40,000 gt and 218 metres in length. She was
preparing to weigh anchor having stemmed
bunkers. Before departing, Forest Pioneer had been
warned about the incoming Bulk Atalanta. Forest
Pioneer weighed anchor and came round onto a
southerly course. The vessels were shaping up to
pass starboard to starboard (green to green).
As she approached the pilot station, Bulk Atalanta
slowed down to a minimum speed to maintain
steerage. She steadied on a course of roughly 315°
to afford a lee for the pilot boat.
At approximately 0515, Forest Pioneer made an
alteration of course to starboard and increased
speed to half a head. She settled briefly on a
course of 210° at approximately 0518 (C-9). It was
only then that she noticed for the first time the
inbound Bulk Atalanta which was now broad on
her port bow and on a collision course. Bulk
Atalanta continued to slow down whereas Forest
Pioneer made a number of speed and course
alterations steering hard to starboard, hard to port
and hard to starboard again in the last 9 minutes
leading up to the collision. The two vessels
collided at approximately 0527.
Forest Pioneer argued that, from around C-10 there
was a crossing situation and that she was the
stand-on vessel making the obligation on Bulk
Atalanta to keep clear under Rule 15 of the
Collision Regulations.
SHIPPING E-BRIEF
insufficiency of packing defence, and sought to
argue that cargo interests had failed to pack the
coils sufficiently to prevent the ingress of water,
whether in liquid or vapour form.
Justice Emmett had to decide whether the
carrier was entitled to assume that the
packaging of the coils was sufficient to prevent
the penetration of water in any form or whether
the cargo interests were entitled to assume that
there would not be sufficient water in any form,
either as liquid or vapour, in the holds of the
vessels for condensation to occur.
After balancing these competing interests, the
Judge considered that the coils were known to
be sensitive to moisture and it was known or
ought to have been foreseen by the carriers that
water might enter the holds during loading. In
finding for the cargo interests, he held that that
the corrosion was caused by the failure on the
part of the carriers to carry, keep and care for
the steel coils properly during the voyage in
circumstances where the vessels had neither
dehumidification systems nor heating systems
installed. Indeed, he considered that the vessels
were not seaworthy for the purposes of carrying
the steel coils on these particular voyages at that
time of the year and that the carrier should have
taken steps to ensure that water could not enter
the holds or, if that was not practicable, to
install a dehumidification system or heating
system to remove excess moisture from the
holds during the course of the voyage.
Decisions of the Australian Court are not
binding on English Courts/London arbitrators,
but they may be influential. This decision,
which is being appealed, shows that steel
carriers may have to exercise a greater degree of
due diligence in order to avoid liability for
condensation damage in Australia and
elsewhere. In some circumstances this may
extend to the installation of temporary
dehumidification systems onboard.
ted.graham@incelaw.com
james.marissen@incelaw.com
PRI FOR RFBGS IN EMC - Political risk
insurance for non-honouring of refund
bank guarantees
You are looking to buy a newbuilding to be
constructed or under construction in a yard
located in a country which does not have a
tradition of shipbuilding or is known to be
subject to political risk. The London insurance
market might provide you with some protection.
With the order-books of the traditional shipyards
full, prospective buyers of newbuildings are
having to look to buy their new vessels from
yards in countries without a track record of
construction of vessels of the type and size they
want and with limited facilities – the emerging
market countries, the EMC, particularly in the
Far East. Some of these countries are governed
by totalitarian regimes, and many are ones
where government intervention and even
contract repudiation are not unknown: they are
subject to a high degree of “political risk.”
Buyers of newbuildings customarily provide the
yards with stage payments for working capital,
so much on contract signature; so much on keel
laying; another payment at launch, etc..
Mindful of the credit risk it runs should the yard
not perform the contract and the need then to
pursue a recovery of its advance payments, a
buyer will have those payments secured in
advance by a refund bank guarantee (the
“RFBG” of the title), ideally provided by a state
bank. If that bank were then to renege on a
justified call under its guarantee, then that
would be a prime example of the sort of
political risk mentioned earlier.
This is where PRI – political risk insurance
comes in. It is possible for a prospective buyer
of a newbuilding to take out a policy in the
London insurance market against such an
eventuality. There are specialised brokers and
insurance underwriters who will in principle be
prepared to insure a prospective buyer against
the risk of the state bank refusing to honour its
guarantee, or indeed a commercial bank being
prevented by state intervention from allowing
the guarantee to respond. Not only will they
insure the buyer, but they may insure the
buyer’s financing bank for its interest. With the
booming market in shipbuilding in recent years,
it has been known for insurance to be extended
to cover any premium a buyer has to pay to
take a novation of the construction contract
from the original purchaser. Insurance against
 SHIPPING E-BRIEF
recap that the counter party would be Front Carrier
Inc. The reference to the head charterparty was
merely for its terms. It was clear to the Judge that
both parties intended to fix the vessel, and neither
intended to contract with a non-existent entity.
This case is an excellent example of the
Commercial Court’s ability and willingness to
adopt a commercial and practical approach to
deciding whether a contract had been concluded.
By accepting that the party to a charterparty can
be identified by its characteristics (in this case, the
disponent owner who is a member of the Golden
Ocean Group), the Court recognised the realities
of charterparty negotiations, and in particular that
often the key consideration which a broker,
shipowner or charterer has in mind when
negotiating is the identity and standing of the
group behind a company.
This decision should also give some comfort to
brokers (or anyone who is involved in drawing up
contracts) who may inadvertently make a mistake
in naming the parties to a commercial contract. In
some situations, it may be possible to identify the
correct party by its characteristics, and seek a
rectification of the contract if necessary.
This case also provides an example of how costs
can be saved in arbitral jurisdiction disputes. In
certain circumstances, it may be worthwhile
considering short-circuiting the prescribed route of
an application to the Tribunal under section 30 of
the Arbitration Act 1996, followed by (on
application of the unsuccessful party) an appeal to
the High Court under section 67, by proceeding
directly with an application to the High Court
under section 32. Such a route can save
considerable costs, especially if a full trial with
oral evidence is necessary to determine the issues.
Ince & Co acted for Front Carriers Limited.
paul.herring@incelaw.com
frederick.foo@incelaw.com
james.hickland@incelaw.com
Carriage of steel – vessel unseaworthy
because Owners of general cargo ship did
not install temporary dehumidifiers
In The Ankergracht [2005] FCA 1808, the Federal
Court of Australia held the carriers liable for
corrosion damage to steel coils caused by
condensation because water was allowed to enter
the holds during loading; she ventilated in the
14
tropics at inappropriate times; and the owners had
not installed a temporary dehumidification system
onboard.
These proceedings related to two consignments of
steel coils that were carried from Japan to Australia
on two separate general purpose cargo vessels
pursuant to bills of lading issued by the owners of
the vessels. Some of the steel coils were galvanised
and others were aluzinc coated but all were highly
susceptible to corrosion damage, in the form of
white rust, from contact with water either by direct
wetting or by condensation of vapour. The end
receiver required unchromated steel, so a
chromate coating to prevent corrosion could not
be used. Instead the coils were covered in a light
oil coating together with a single sheet of Kraft
paper. This packing was consistent with standard
practice, but it only provided a very limited period
of protection against corrosion and it did not
prevent the ingress of water vapour.
The steel coils were loaded in Yokohama during
the Japanese winter, carried across the equator and
discharged in Sydney in a rusted condition. The
Federal Court made findings of fact that the
corrosion was a result of condensation which was
present due to the Carriers loading other cargo that
was wet, in particular timber; the use of wet
dunnage; and ventilation whilst in the tropics.
The bills of lading were governed by the Australian
Carriage of Goods by Sea Act 1991 (Cth), being
the domestic enactment of the modified Hague-
Visby Rules in Australia. Cargo interests argued
that the carriers were in breach of:
1. Article 3 Rule 1 as they did not exercise due
diligence to make the vessels seaworthy and/or the
holds fit for the carriage of the coils. Specifically,
cargo interests sought to demonstrate that the
vessels were unseaworthy at the commencement
of the voyages as a result of water being in the
holds and/or for failing to have a dehumidification
system to remove excess moisture from the holds;
and
2. Article 3 Rule 2 as they did not carefully and
properly care for the coils during the voyage.
Specifically cargo interests argued that the carriers
had failed to properly ventilate the cargo during
the voyage.
The carriers relied upon the various defences
available under Article 4 Rule 2, particularly the
SHIPPING E-BRIEF
Mr Justice Clarke found that, although visibility
was intermittently restricted as a result of rain
squalls, this was not a restricted visibility case.
This may surprise some because Rule 19
specifically applies to vessels not insight of one
another when navigating in or near an area of
restricted visibility (our emphasis). Mr Justice
Clarke went on to conclude however that the
crossing rules did not apply and that
"fundamentally, as a matter of good seamanship,
Forest Pioneer should have taken timely action
to keep clear of another which was performing
an operation of dropping her pilot". In
particular, he found that Forest Pioneer could
not claim the status of a stand-on vessel when
she created the risk of collision which did not
exist beforehand by an alteration onto a
crossing path without regard to the presence of
the Bulk Atalanta. On this basis he found Forest
Pioneer 85% and Bulk Atalanta 15% to blame
for the collision.
The Forest Pioneer is seeking leave to appeal.
Interestingly, one of the grounds of appeal is the
fact that, Forest Pioneer claims, Mr Justice
Clarke failed to take heed of the comments
made by Forest Pioneer on the points put to the
nautical assessors and failed to ask the further
questions that they felt pertinent to the collision.
In relation to costs, the Owners of the Bulk
Atalanta had made an open offer to settle
liability at 80:20 in Bulk Atalanta's favour some
2 years before the trial. The Admiralty Court
does not follow the usual rules under part 36 of
the CPR when making cost orders in collision
cases. Indemnity costs are not given to a
Claimant who makes a successful offer. This is
because, in collision cases, the claims are dealt
with on a single liability basis and there is no
real difference between the Claimant and the
Defendant. The normal costs order on liability
issues in collision cases (absent a successful
open offer from one of the parties) would be to
award each party a percentage of their costs so
as to follow the Court’s finding on the division
of liability. The effect of the successful open
offer, however, was that Bulk Atalanta was
awarded 100% of her liability costs on a
standard basis from the date of the offer.
james.wilson@incelaw.com
jim.allsworth@incelaw.com
9
London Arbitration 3/07 - cargo shortage
claims in Yemen
In London Arbitration 3/07 (2007) 711 LMLN 3
(21 February 2007), arbitrators have considered
the application of special clauses in a period
time charter that sought to address the endemic
problem of alleged shortage claims following
discharge in the Yemen. The complicating factor
in the present case was that the cargo shortage
claim was overlaid by a cargo damage claim
caused by the shipowners’ breach.
The vessel was time chartered for a period of 12
- 14 months. Yemen was excluded from the
vessel’s trading, subject to the terms of an
addendum and an agreed LOI. The addendum
provided that:
“Rider Clause 46 – Cargo Claims, to be
amended to read as follows: All and any
shortage claims at Yemen, howsoever arising,
and even if caused by Owners’ fault or neglect,
to be 100% for Charterers’ account and
Charterers are to indemnify Owners against all
losses, damages, costs consequences arising
therefrom. It is agreed that this constitutes a
“material amendment” to the cargo
responsibility clauses in the Charterparty in
accordance with paragraph 4(b) of the NYPE
Interclub Agreement.”
The addendum also provided that cargo claims
were to be settled in accordance with the NYPE
Interclub Agreement “always subject to the
provisions of Rider Clause 46 above which
takes precedence.” The agreed LOI, in return for
which the owners agreed to call at Yemen,
provided for an indemnity in the owners’ favour
“in respect of any liability loss or damage of
whatsoever nature which you may sustain by
reason of your complying with this request”.
The vessel loaded a wheat cargo in the US for
discharge at Aden and Hodeidah. There was a
shortage claim of about 55 mts at Aden, and
about 120 mts at Hodeidah. In addition, about
160 mts of cargo outturned at Hodeidah in a
damaged condition, caused by defective rubber
seals on the hatchcovers of the no. 1 hold. The
vessel was delayed at Hodeidah for 2 days
whilst the owners negotiated a cash settlement
with the cargo receivers. The amount paid to the
receivers did not differentiate between the cargo
damage and cargo shortage aspects.
The owners claimed from the charterers the full
amount paid in settlement to the receivers, and
also hire for the period of delay. The charterers
 SHIPPING E-BRIEF
contended that the addendum dealt solely with
cargo shortage claims and had no bearing on
claims relating to cargo damage. Although the LOI
was more widely worded, the charterers argued
that it did not cover cargo damage claims arising
from the owners’ breach of their seaworthiness
obligations.
The tribunal acknowledged that the wording of the
LOI was wider than the addendum, and that the
LOI was not limited to shortage claims.
Notwithstanding this, the charterers were not
obliged to indemnify the owners’ for losses arising
from owners’ breaches of their seaworthiness
obligations. This followed from the wording of the
addendum and from the circumstances in which
the addendum and LOI were agreed to by the
parties.
The tribunal held that the amount paid to the
receivers should be apportioned between the
damage and shortage claims, and that the
charterers should indemnify the owners for the
shortage proportion of the receivers’ claim, with
the owners bearing themselves the damage
proportion.
The owners maintained that the breach of their
seaworthiness obligations, and the resultant cargo
damage claim, was not the cause of the delay to
the vessel. As the receivers were also advancing a
shortage claim, the owners argued that the vessel
would have been delayed in any event even
without the cargo damage claim. On this basis, it
was said by the owners that the shortage claim, for
which the charterers had agreed to indemnify the
owners, broke the chain of causation between the
owners’ breach and the detention of the vessel.
On the evidence, the tribunal concluded that the
cargo damage claim was the cause of the delay to
the vessel. Although cargo shortage claims were a
constant problem in the Yemen, the claim for
cargo damage had made the detention of the
vessel a virtual certainty in the present case.
Accordingly, the charterers were entitled to place
the vessel off-hire for the 2 day period during
which the settlement of the receivers’ claim was
negotiated.
nick.shepherd@incelaw.com
10
Hong Kong – Can a carrier justify delivering
cargo without production of the bills of
lading by reference to the underlying sale
contract?
In Starlight Exports Ltd. and Star Light Electronics
Co. Ltd. V. CTO (HK) Ltd the Court of First
Instance in Hong Kong has recently clarified the
position concerning the effect of the underlying
sale contract when considering the carrier’s duty
only to deliver cargo to the lawful holder of a bill
of lading. The court held that even though the
contractual carrier had mistakenly believed that on
a sale contract on FOB terms, the property in the
goods passed to the buyer upon shipment, they
were still liable for releasing cargo to a third party
without the presentation of the bills of lading,
which were contrary to the shipper’s instructions.
Facts
The Defendant contractual carriers issued three
Bills of Lading to the Plaintiffs for the shipment of
electronic goods from Hong Kong to Naples, Italy.
The bills were on the FIATA form and were all
marked ‘to the Order of the Shipper'. The 'Notify
Party' named in all the bills was Hilevel Consumer
Italia SpA ("Hilevel"), who had ordered the
electronic goods from the Claimants. The goods
shipped under the bills were sold to Hilevel on
‘Document against Payment at Sight’ terms, which
meant that the bills were only to be released to
Hilevel upon payment of the balance due for each
lot of goods shipped.
Although deposits were paid, Hilevel encountered
difficulties in paying for the balance for the goods
and as a result they requested the Claimants to ask
the Defendant to issue new bills of lading. This
was done so as to enable Hilevel to obtain further
financing from the bank to pay for the balance of
the goods. The differences between the old and the
new bills were the issue date and the deletion of
the shipped on board date. However, despite the
creation of new bills, no financial support was
given by the bank and Hilevel did not pay for the
outstanding balance of the goods. In light of the
circumstances, the Claimants ordered the
Defendant to return the goods to them in Hong
Kong.
However, the Defendant had, without requiring
the sight of the old or the new bills, already
delivered the goods to Hilevel. The Claimants
issued proceedings against the Defendant for
wrongful delivery of the electronic goods, claiming
the principal sum of USD$859,275.00, which
represented the purchase price plus interest.
SHIPPING E-BRIEF
time on 7 March 2005. Later on 4 March 2005,
a recap was sent to Mr. Lee which detailed the
terms agreed and stated that the fixture was for
“Acct Atlantic and Orient of Nevis”. The
disponent owner was not identified. The
charterparty was to be “otherwise sub minor
review as per owners B-T-B C-P”. Attached to
the recap was a draft of the proforma
charterparty between FCL and Dieulemar, in
which proforma FCL was mistakenly referred to
as “Front Carrier Inc.” rather than “Front Carrier
Limited”.
Mr Lee duly reverted within the stipulated time,
saying “Ok take it and subj lifted.”
Following receipt of this acceptance, SSY
recapped the fixture for a second time using the
words “Plsd to confirm having fully fixed with
CP DD 7th March 2005”. The recap ended:
“otherwise as per frontcarrier inc/dieulemar cp
16th Feb 2005 with logical amendment only as
per m-t agreement”.
Later on 7 March, Golden Ocean spotted the
mistake as to FCL’s style in the draft head
charterpaty with Dieulemar and informed SSY.
SSY duly passed this message on to Mr Lee,
with the heading “Imabari NB/Front Carriers Ltd
cp dd 16 Feb 2005”, asking him to “please note
Charterers style is Front Carriers Ltd”. Mr Lee
did not raise any objection to the clarification of
this mistake nor as to FCL as disponent owners.
Some months later, with the market having
weakened significantly, on 12 July 2005 Mr Lee
sent an email to SSY stating that he did not have
authority to conclude the fixture with FCL as he
“was no longer the employee of A&O since
07th Feb 2005” (despite all his emails having
originated from an A&O domain and copied to
the chartering team at A&O Singapore).
Naturally, both FCL and SSY sought clarification
of the meaning of this email. A flurry of
correspondence followed, with Mr Lee
attempting to distance himself from A&O Nevis
by hiding behind the corporate identity of
another related company, Amstec Shipping Pte
Ltd. A&O Nevis itself remained uncontactable.
Shortly thereafter a new argument was raised by
Amstec, and adopted by the Defendant, that
A&O Nevis only intended to contract with a
company named Front Carriers Inc., a
Bermudan company alleged to be wholly
owned by Golden Ocean Group Limited. They
did not intend to contract with Front Carriers
Limited, of Monrovia, Liberia, nothwithstanding
that FCI did not in fact exist and FCL was in fact
13
wholly owned by the Golden Ocean Group.
Amstec went on to say that A&O considered
this change to be a counter offer, which counter
offer they had not accepted. Faced with this,
FCL accepted A&O Nevis’ conduct as a
repudiatory breach of the fixture and terminated
the contract.
FCL commenced arbitration in London, but
A&O Nevis disputed the jurisdiction of the
Arbitration Tribunal to determine the dispute, on
the grounds that as there was no agreed fixture,
there was also no agreement to arbitrate. As any
determination on jurisdiction by the Arbitration
Tribunal could have been appealed as of right
to the High Court, and in order to save the costs
of repeated trials on jurisdictions, FCL applied
to have the issue determined by the High Court
directly pursuant to section 32(2)(b) of the
Arbitration Act 1996. The permission of the
Arbitration Tribunal and the High Court for this
application was obtained.
The initial argument as to authority was not
pursued by A&O Nevis at trial, meaning that the
matter rested upon whether a contract had been
concluded with a company called Front Carriers
Inc., which did not exist, or with the actual
disponent owner, whichever company that may
have been, within the Golden Ocean Group.
At the trial, Mr Wilgus for A&O Nevis stated in
his witness statement that the change of style
after A&O Nevis had lifted subjects, from Front
Carrier Inc., which he allegedly believed to be a
Bermudan company, to FCL, was material as he
was extremely reluctant to contract with
Liberian companies and therefore did not agree
to the “counter offer”.
Langley J found that a contract had been
concluded between A&O Nevis and the
disponent owner, a company within the Golden
Ocean Group and that the notification of the
correct name of FCL, if a change at all, was not
one which was commercially significant. In his
view, the evidence was overwhelming to the
effect that as at 7 March 2005, both parties
intended to fix the vessel and had a common
understanding that they had done so. The
obvious concern of both parties was that the
fixture should be made with the disponent
owner. The exact identity of the disponent
owner was unimportant, provided it fulfilled
A&O’s concern that it was indeed a member of
the Golden Ocean Group. Langley J further
found that, when viewed objectively, the
attachment by SSY of the draft head charterparty
to the recap of 4 March, referring to Front
Carrier Inc, did not constitute a term of the
 SHIPPING E-BRIEF
P&I Club Letters of Undertaking - always
enforceable?
In The Tutova [2006] EWHC 2223 (Comm), Judge
Mackie QC held that a P&I Club had to pay out
under its LOU and it was no defence to argue that
the claimants had failed to keep them informed of
developments in the underlying proceedings.
The Tutova was the subject of a claim arising from
delay in the delivery of cargo. The Claimant
applied to the Court in Ravenna for her arrest. To
avoid the arrest of the ship, her Club issued a
Letter of Undertaking to the Claimant on behalf of
her owners. Subsequently, the proceedings about
the claim progressed very slowly and, a little
under four years after the initial petition for the
arrest of the ship, the Club sought the return of its
LOU on the ground that the limitation period had
expired. The Claimant disputed this assertion and
the LOU was not returned.
The proceedings continued to progress very slowly
and over two years later judgment in favour of the
Claimant was given. The Club resisted making
payment under the LOU, relying on various
grounds, one of which was that the Claimant was
in breach of an implied term that it would keep
the Club informed of the initiation and progress of
the proceedings and of the judgment.
It was held by the Court that there was no
justification for the existence of such an implied
term. The LOU had been negotiated by lawyers
who had the opportunity to consider carefully
what the document should say, was in
conventional form and its terms were explicit. If
the Club had wanted the kind of protection it now
sought to introduce through the implied term, it
could, the Court said, have negotiated an express
term to this effect. As it stood, it would not have
been obvious to the parties that it was intended
that notice would be given to the Club or its
lawyers of proceedings being taken against the
owners. Furthermore, the claim was not time-
barred. Under Italian law the running of time
could be interrupted by sending an appropriate
notice or letter of claim to a defendant, which the
claimant had done in this case.
It was also a relevant consideration that Club
LOUs are used internationally and relied on by
persons who use English as a second language.
This being the case, the Court was more reluctant
to imply a term than it might have been in a
wholly domestic context. While the conduct of the
Italian lawyers may not have been acceptable in
the context of English litigation, they had not
contravened their relevant professional code, and
12
their conduct did not therefore offer any assistance
to the argument by the Club.
james.wilson@incelaw.com
pavlo.samothrakis@incelaw.com
Precise style of disponent owner not
important as to whether agreement reached
The recent Commercial Court decision in the case
of Front Carriers Limited –v- Atlantic and Oriental
Shipping Corporation (“The Double Happiness”)
[2007] EWHC 421 (Comm) demonstrates the
robust attitude taken by the Commercial Court in
cutting through unmeritorious technical arguments
to give effect to the true intentions of parties when
making commercial agreements.
The issue was whether the Claimant, disponent
owners (“FCL”), had entered into a binding
charterparty with the Defendant (“A&O Nevis”) as
charterers.
FCL is a company incorporated in Liberia, and is
wholly owned by Golden Ocean Group Ltd of
Bermuda (“Golden Ocean”). Golden Ocean
demerged from Frontline Ltd in December 2004.
In February 2005, FCL took a vessel then under
construction at Imabari Shipyard, later named
Double Happiness, on a 24-26 month time
charterparty, on an amended NYPE 1946 Form
from disponent owners Dieulemar Compagnia di
Navigazione SPA (“Dieulemar”), with delivery
between 1 June and 30 September 2005. Shortly
thereafter, brokers were instructed to fix the vessel
out on back-to-back terms.
On 23 February 2005, FCL’s broker, SSY, offered
the vessel to Mr Juan Lee of Atlantic & Orient
Shipping Pte Ltd (“A&O Singapore”), acting on
behalf of the Defendant. This proposal set out the
relevant terms and stated “otherwise as per owns
BTB head C/P dated 17th Feb 2005 logically
mended (sic) as per main terms”. Shortly thereafter,
Mr. Wilgus, the Managing Director of A&O
Singapore telephoned SSY and asked who the
owner of the vessel was. SSY replied that it was a
Golden Ocean vessel, but did not make any
reference to the name of FCL. Mr. Wilgus did not
enquire as to which particular company within the
Golden Ocean Group was the disponent owner of
the vessel. Mr Lee was also aware that the
disponent owners were a company within the
Golden Ocean Group,.
On 4 March 2005, agreement was reached on the
terms of a fixture between the disponent owners
(un-named) and A&O Nevis, subject to the
Charterers’ re-confirmation by 1000hrs London
SHIPPING E-BRIEF
Defendant’s Submissions
The Defendant advanced a number of
submissions in rejecting liability including the
following:
1) The electronic goods were sold Free On
Board (“FOB”) and so property in the goods
passed upon shipment. The Defendant was,
therefore, bound to deliver and release the
goods to Hilevel regardless of the need for the
presentation of the bills.
2) As the old bills were cancelled and the new
bills were void (due to the false dates), the
Defendant was permitted to release the
electronic goods to Hilevel without the need for
the presentation of the bills.
3) The Plaintiffs’ claim was time-barred under
clause 17 of the Standard Conditions of the
bills, which provided the Plaintiffs were only
permitted to commence proceedings ‘ … within
9 months after the delivery of the goods, or the
date when the goods should have been
delivered ...'.
The Decision
The Court rejected all of the Defendant's
submissions and found in favour of the
Claimants awarding them the full claim plus
interest.
As regards the passing of property point, the
Court found that the FOB term did not literally
mean that property passes when the goods pass
the ship’s rail. In situations where the goods are
sold on credit, more often than not sellers will
have reserved their right to the disposal of the
goods. The FOB terms, in such cases, means
that the risk of loss or damage to the goods
passes to the buyer once the goods pass the
ship’s rail (as detailed in Incoterms 2000, which
was incorporated into this particular contract).
The Court held that:
“… FOB in Incoterms 2000 is couched in terms
of the passage of risk, rather than of property.
[It] does not support [the Defendant’s] argument
that the FOB term implies that property (as
opposed to risk alone) passed to Hilevel upon
shipment of the goods from Hong Kong.”
As regards the operative bills of lading point,
both the old and new bills made it expressly
clear that the electronic goods were to the order
of the shipper, therefore the Defendant must
have known that they were only permitted to
release the goods upon the Claimants’
instructions. The Claimants’ request for the issue
11
of new bills could not have reasonably led the
Defendant to the conclusion that they were
authorised to deliver the goods to Hilevel
without production of the bills of lading. The
Court stated that:
‘Even if one assumes … that the old and new
[bills] were wholly inoperative for one reason or
another, it does not logically follow that CTO
was free to release .. the goods to Hilevel.
...Ignorance of law … does not excuse acting in
breach of the terms of a contract …’.
As regards the time bar point, the Court held
that the clause 17 time bar did not apply here
as i) the Claimants, at the material time, had no
knowledge of the misdelivery and that ii)
delivery must mean the correct delivery of the
goods in accordance with the bill of lading.
Time did not begin to run until the Claimants
instructed the Defendant to return the goods to
them.
Comments
Points to note are:
1. The person/company named in the ‘Notify
Party’ box of a bill of lading is not a party to the
bill and does not have the right to the
possession of the goods.
2. The general rule is that a carrier who delivers
goods without the presentation of the relevant
bill of lading will do so at his own risk.
3. Should the carrier do so he will be in breach
of contract. The carrier may also be liable in
conversion.
4. Should the ultimate buyer insist on claiming
the goods in the absence of the production of a
bill of lading and the carrier agrees to it, the
carrier should request an indemnity from the
person claiming the goods against all
consequences. The effect of this should put the
risk of mis-delivery on the ultimate buyers who
are claiming the goods. The indemnity is,
however, only as good as the financial standing
of the person giving it and in taking this route a
carrier will not have P&I cover.
5. Be wary when considering issuing new bills
of lading, as doing so often gives rise to
problems.
max.cross@incelaw.com
lansee.man@incelaw.com
(Both at Ince & Co’s Hong Kong office)
 SHIPPING E-BRIEF
P&I Club Letters of Undertaking - always
enforceable?
In The Tutova [2006] EWHC 2223 (Comm), Judge
Mackie QC held that a P&I Club had to pay out
under its LOU and it was no defence to argue that
the claimants had failed to keep them informed of
developments in the underlying proceedings.
The Tutova was the subject of a claim arising from
delay in the delivery of cargo. The Claimant
applied to the Court in Ravenna for her arrest. To
avoid the arrest of the ship, her Club issued a
Letter of Undertaking to the Claimant on behalf of
her owners. Subsequently, the proceedings about
the claim progressed very slowly and, a little
under four years after the initial petition for the
arrest of the ship, the Club sought the return of its
LOU on the ground that the limitation period had
expired. The Claimant disputed this assertion and
the LOU was not returned.
The proceedings continued to progress very slowly
and over two years later judgment in favour of the
Claimant was given. The Club resisted making
payment under the LOU, relying on various
grounds, one of which was that the Claimant was
in breach of an implied term that it would keep
the Club informed of the initiation and progress of
the proceedings and of the judgment.
It was held by the Court that there was no
justification for the existence of such an implied
term. The LOU had been negotiated by lawyers
who had the opportunity to consider carefully
what the document should say, was in
conventional form and its terms were explicit. If
the Club had wanted the kind of protection it now
sought to introduce through the implied term, it
could, the Court said, have negotiated an express
term to this effect. As it stood, it would not have
been obvious to the parties that it was intended
that notice would be given to the Club or its
lawyers of proceedings being taken against the
owners. Furthermore, the claim was not time-
barred. Under Italian law the running of time
could be interrupted by sending an appropriate
notice or letter of claim to a defendant, which the
claimant had done in this case.
It was also a relevant consideration that Club
LOUs are used internationally and relied on by
persons who use English as a second language.
This being the case, the Court was more reluctant
to imply a term than it might have been in a
wholly domestic context. While the conduct of the
Italian lawyers may not have been acceptable in
the context of English litigation, they had not
contravened their relevant professional code, and
12
their conduct did not therefore offer any assistance
to the argument by the Club.
james.wilson@incelaw.com
pavlo.samothrakis@incelaw.com
Precise style of disponent owner not
important as to whether agreement reached
The recent Commercial Court decision in the case
of Front Carriers Limited –v- Atlantic and Oriental
Shipping Corporation (“The Double Happiness”)
[2007] EWHC 421 (Comm) demonstrates the
robust attitude taken by the Commercial Court in
cutting through unmeritorious technical arguments
to give effect to the true intentions of parties when
making commercial agreements.
The issue was whether the Claimant, disponent
owners (“FCL”), had entered into a binding
charterparty with the Defendant (“A&O Nevis”) as
charterers.
FCL is a company incorporated in Liberia, and is
wholly owned by Golden Ocean Group Ltd of
Bermuda (“Golden Ocean”). Golden Ocean
demerged from Frontline Ltd in December 2004.
In February 2005, FCL took a vessel then under
construction at Imabari Shipyard, later named
Double Happiness, on a 24-26 month time
charterparty, on an amended NYPE 1946 Form
from disponent owners Dieulemar Compagnia di
Navigazione SPA (“Dieulemar”), with delivery
between 1 June and 30 September 2005. Shortly
thereafter, brokers were instructed to fix the vessel
out on back-to-back terms.
On 23 February 2005, FCL’s broker, SSY, offered
the vessel to Mr Juan Lee of Atlantic & Orient
Shipping Pte Ltd (“A&O Singapore”), acting on
behalf of the Defendant. This proposal set out the
relevant terms and stated “otherwise as per owns
BTB head C/P dated 17th Feb 2005 logically
mended (sic) as per main terms”. Shortly thereafter,
Mr. Wilgus, the Managing Director of A&O
Singapore telephoned SSY and asked who the
owner of the vessel was. SSY replied that it was a
Golden Ocean vessel, but did not make any
reference to the name of FCL. Mr. Wilgus did not
enquire as to which particular company within the
Golden Ocean Group was the disponent owner of
the vessel. Mr Lee was also aware that the
disponent owners were a company within the
Golden Ocean Group,.
On 4 March 2005, agreement was reached on the
terms of a fixture between the disponent owners
(un-named) and A&O Nevis, subject to the
Charterers’ re-confirmation by 1000hrs London
SHIPPING E-BRIEF
Defendant’s Submissions
The Defendant advanced a number of
submissions in rejecting liability including the
following:
1) The electronic goods were sold Free On
Board (“FOB”) and so property in the goods
passed upon shipment. The Defendant was,
therefore, bound to deliver and release the
goods to Hilevel regardless of the need for the
presentation of the bills.
2) As the old bills were cancelled and the new
bills were void (due to the false dates), the
Defendant was permitted to release the
electronic goods to Hilevel without the need for
the presentation of the bills.
3) The Plaintiffs’ claim was time-barred under
clause 17 of the Standard Conditions of the
bills, which provided the Plaintiffs were only
permitted to commence proceedings ‘ … within
9 months after the delivery of the goods, or the
date when the goods should have been
delivered ...'.
The Decision
The Court rejected all of the Defendant's
submissions and found in favour of the
Claimants awarding them the full claim plus
interest.
As regards the passing of property point, the
Court found that the FOB term did not literally
mean that property passes when the goods pass
the ship’s rail. In situations where the goods are
sold on credit, more often than not sellers will
have reserved their right to the disposal of the
goods. The FOB terms, in such cases, means
that the risk of loss or damage to the goods
passes to the buyer once the goods pass the
ship’s rail (as detailed in Incoterms 2000, which
was incorporated into this particular contract).
The Court held that:
“… FOB in Incoterms 2000 is couched in terms
of the passage of risk, rather than of property.
[It] does not support [the Defendant’s] argument
that the FOB term implies that property (as
opposed to risk alone) passed to Hilevel upon
shipment of the goods from Hong Kong.”
As regards the operative bills of lading point,
both the old and new bills made it expressly
clear that the electronic goods were to the order
of the shipper, therefore the Defendant must
have known that they were only permitted to
release the goods upon the Claimants’
instructions. The Claimants’ request for the issue
11
of new bills could not have reasonably led the
Defendant to the conclusion that they were
authorised to deliver the goods to Hilevel
without production of the bills of lading. The
Court stated that:
‘Even if one assumes … that the old and new
[bills] were wholly inoperative for one reason or
another, it does not logically follow that CTO
was free to release .. the goods to Hilevel.
...Ignorance of law … does not excuse acting in
breach of the terms of a contract …’.
As regards the time bar point, the Court held
that the clause 17 time bar did not apply here
as i) the Claimants, at the material time, had no
knowledge of the misdelivery and that ii)
delivery must mean the correct delivery of the
goods in accordance with the bill of lading.
Time did not begin to run until the Claimants
instructed the Defendant to return the goods to
them.
Comments
Points to note are:
1. The person/company named in the ‘Notify
Party’ box of a bill of lading is not a party to the
bill and does not have the right to the
possession of the goods.
2. The general rule is that a carrier who delivers
goods without the presentation of the relevant
bill of lading will do so at his own risk.
3. Should the carrier do so he will be in breach
of contract. The carrier may also be liable in
conversion.
4. Should the ultimate buyer insist on claiming
the goods in the absence of the production of a
bill of lading and the carrier agrees to it, the
carrier should request an indemnity from the
person claiming the goods against all
consequences. The effect of this should put the
risk of mis-delivery on the ultimate buyers who
are claiming the goods. The indemnity is,
however, only as good as the financial standing
of the person giving it and in taking this route a
carrier will not have P&I cover.
5. Be wary when considering issuing new bills
of lading, as doing so often gives rise to
problems.
max.cross@incelaw.com
lansee.man@incelaw.com
(Both at Ince & Co’s Hong Kong office)
 SHIPPING E-BRIEF
contended that the addendum dealt solely with
cargo shortage claims and had no bearing on
claims relating to cargo damage. Although the LOI
was more widely worded, the charterers argued
that it did not cover cargo damage claims arising
from the owners’ breach of their seaworthiness
obligations.
The tribunal acknowledged that the wording of the
LOI was wider than the addendum, and that the
LOI was not limited to shortage claims.
Notwithstanding this, the charterers were not
obliged to indemnify the owners’ for losses arising
from owners’ breaches of their seaworthiness
obligations. This followed from the wording of the
addendum and from the circumstances in which
the addendum and LOI were agreed to by the
parties.
The tribunal held that the amount paid to the
receivers should be apportioned between the
damage and shortage claims, and that the
charterers should indemnify the owners for the
shortage proportion of the receivers’ claim, with
the owners bearing themselves the damage
proportion.
The owners maintained that the breach of their
seaworthiness obligations, and the resultant cargo
damage claim, was not the cause of the delay to
the vessel. As the receivers were also advancing a
shortage claim, the owners argued that the vessel
would have been delayed in any event even
without the cargo damage claim. On this basis, it
was said by the owners that the shortage claim, for
which the charterers had agreed to indemnify the
owners, broke the chain of causation between the
owners’ breach and the detention of the vessel.
On the evidence, the tribunal concluded that the
cargo damage claim was the cause of the delay to
the vessel. Although cargo shortage claims were a
constant problem in the Yemen, the claim for
cargo damage had made the detention of the
vessel a virtual certainty in the present case.
Accordingly, the charterers were entitled to place
the vessel off-hire for the 2 day period during
which the settlement of the receivers’ claim was
negotiated.
nick.shepherd@incelaw.com
10
Hong Kong – Can a carrier justify delivering
cargo without production of the bills of
lading by reference to the underlying sale
contract?
In Starlight Exports Ltd. and Star Light Electronics
Co. Ltd. V. CTO (HK) Ltd the Court of First
Instance in Hong Kong has recently clarified the
position concerning the effect of the underlying
sale contract when considering the carrier’s duty
only to deliver cargo to the lawful holder of a bill
of lading. The court held that even though the
contractual carrier had mistakenly believed that on
a sale contract on FOB terms, the property in the
goods passed to the buyer upon shipment, they
were still liable for releasing cargo to a third party
without the presentation of the bills of lading,
which were contrary to the shipper’s instructions.
Facts
The Defendant contractual carriers issued three
Bills of Lading to the Plaintiffs for the shipment of
electronic goods from Hong Kong to Naples, Italy.
The bills were on the FIATA form and were all
marked ‘to the Order of the Shipper'. The 'Notify
Party' named in all the bills was Hilevel Consumer
Italia SpA ("Hilevel"), who had ordered the
electronic goods from the Claimants. The goods
shipped under the bills were sold to Hilevel on
‘Document against Payment at Sight’ terms, which
meant that the bills were only to be released to
Hilevel upon payment of the balance due for each
lot of goods shipped.
Although deposits were paid, Hilevel encountered
difficulties in paying for the balance for the goods
and as a result they requested the Claimants to ask
the Defendant to issue new bills of lading. This
was done so as to enable Hilevel to obtain further
financing from the bank to pay for the balance of
the goods. The differences between the old and the
new bills were the issue date and the deletion of
the shipped on board date. However, despite the
creation of new bills, no financial support was
given by the bank and Hilevel did not pay for the
outstanding balance of the goods. In light of the
circumstances, the Claimants ordered the
Defendant to return the goods to them in Hong
Kong.
However, the Defendant had, without requiring
the sight of the old or the new bills, already
delivered the goods to Hilevel. The Claimants
issued proceedings against the Defendant for
wrongful delivery of the electronic goods, claiming
the principal sum of USD$859,275.00, which
represented the purchase price plus interest.
SHIPPING E-BRIEF
time on 7 March 2005. Later on 4 March 2005,
a recap was sent to Mr. Lee which detailed the
terms agreed and stated that the fixture was for
“Acct Atlantic and Orient of Nevis”. The
disponent owner was not identified. The
charterparty was to be “otherwise sub minor
review as per owners B-T-B C-P”. Attached to
the recap was a draft of the proforma
charterparty between FCL and Dieulemar, in
which proforma FCL was mistakenly referred to
as “Front Carrier Inc.” rather than “Front Carrier
Limited”.
Mr Lee duly reverted within the stipulated time,
saying “Ok take it and subj lifted.”
Following receipt of this acceptance, SSY
recapped the fixture for a second time using the
words “Plsd to confirm having fully fixed with
CP DD 7th March 2005”. The recap ended:
“otherwise as per frontcarrier inc/dieulemar cp
16th Feb 2005 with logical amendment only as
per m-t agreement”.
Later on 7 March, Golden Ocean spotted the
mistake as to FCL’s style in the draft head
charterpaty with Dieulemar and informed SSY.
SSY duly passed this message on to Mr Lee,
with the heading “Imabari NB/Front Carriers Ltd
cp dd 16 Feb 2005”, asking him to “please note
Charterers style is Front Carriers Ltd”. Mr Lee
did not raise any objection to the clarification of
this mistake nor as to FCL as disponent owners.
Some months later, with the market having
weakened significantly, on 12 July 2005 Mr Lee
sent an email to SSY stating that he did not have
authority to conclude the fixture with FCL as he
“was no longer the employee of A&O since
07th Feb 2005” (despite all his emails having
originated from an A&O domain and copied to
the chartering team at A&O Singapore).
Naturally, both FCL and SSY sought clarification
of the meaning of this email. A flurry of
correspondence followed, with Mr Lee
attempting to distance himself from A&O Nevis
by hiding behind the corporate identity of
another related company, Amstec Shipping Pte
Ltd. A&O Nevis itself remained uncontactable.
Shortly thereafter a new argument was raised by
Amstec, and adopted by the Defendant, that
A&O Nevis only intended to contract with a
company named Front Carriers Inc., a
Bermudan company alleged to be wholly
owned by Golden Ocean Group Limited. They
did not intend to contract with Front Carriers
Limited, of Monrovia, Liberia, nothwithstanding
that FCI did not in fact exist and FCL was in fact
13
wholly owned by the Golden Ocean Group.
Amstec went on to say that A&O considered
this change to be a counter offer, which counter
offer they had not accepted. Faced with this,
FCL accepted A&O Nevis’ conduct as a
repudiatory breach of the fixture and terminated
the contract.
FCL commenced arbitration in London, but
A&O Nevis disputed the jurisdiction of the
Arbitration Tribunal to determine the dispute, on
the grounds that as there was no agreed fixture,
there was also no agreement to arbitrate. As any
determination on jurisdiction by the Arbitration
Tribunal could have been appealed as of right
to the High Court, and in order to save the costs
of repeated trials on jurisdictions, FCL applied
to have the issue determined by the High Court
directly pursuant to section 32(2)(b) of the
Arbitration Act 1996. The permission of the
Arbitration Tribunal and the High Court for this
application was obtained.
The initial argument as to authority was not
pursued by A&O Nevis at trial, meaning that the
matter rested upon whether a contract had been
concluded with a company called Front Carriers
Inc., which did not exist, or with the actual
disponent owner, whichever company that may
have been, within the Golden Ocean Group.
At the trial, Mr Wilgus for A&O Nevis stated in
his witness statement that the change of style
after A&O Nevis had lifted subjects, from Front
Carrier Inc., which he allegedly believed to be a
Bermudan company, to FCL, was material as he
was extremely reluctant to contract with
Liberian companies and therefore did not agree
to the “counter offer”.
Langley J found that a contract had been
concluded between A&O Nevis and the
disponent owner, a company within the Golden
Ocean Group and that the notification of the
correct name of FCL, if a change at all, was not
one which was commercially significant. In his
view, the evidence was overwhelming to the
effect that as at 7 March 2005, both parties
intended to fix the vessel and had a common
understanding that they had done so. The
obvious concern of both parties was that the
fixture should be made with the disponent
owner. The exact identity of the disponent
owner was unimportant, provided it fulfilled
A&O’s concern that it was indeed a member of
the Golden Ocean Group. Langley J further
found that, when viewed objectively, the
attachment by SSY of the draft head charterparty
to the recap of 4 March, referring to Front
Carrier Inc, did not constitute a term of the
 SHIPPING E-BRIEF
recap that the counter party would be Front Carrier
Inc. The reference to the head charterparty was
merely for its terms. It was clear to the Judge that
both parties intended to fix the vessel, and neither
intended to contract with a non-existent entity.
This case is an excellent example of the
Commercial Court’s ability and willingness to
adopt a commercial and practical approach to
deciding whether a contract had been concluded.
By accepting that the party to a charterparty can
be identified by its characteristics (in this case, the
disponent owner who is a member of the Golden
Ocean Group), the Court recognised the realities
of charterparty negotiations, and in particular that
often the key consideration which a broker,
shipowner or charterer has in mind when
negotiating is the identity and standing of the
group behind a company.
This decision should also give some comfort to
brokers (or anyone who is involved in drawing up
contracts) who may inadvertently make a mistake
in naming the parties to a commercial contract. In
some situations, it may be possible to identify the
correct party by its characteristics, and seek a
rectification of the contract if necessary.
This case also provides an example of how costs
can be saved in arbitral jurisdiction disputes. In
certain circumstances, it may be worthwhile
considering short-circuiting the prescribed route of
an application to the Tribunal under section 30 of
the Arbitration Act 1996, followed by (on
application of the unsuccessful party) an appeal to
the High Court under section 67, by proceeding
directly with an application to the High Court
under section 32. Such a route can save
considerable costs, especially if a full trial with
oral evidence is necessary to determine the issues.
Ince & Co acted for Front Carriers Limited.
paul.herring@incelaw.com
frederick.foo@incelaw.com
james.hickland@incelaw.com
Carriage of steel – vessel unseaworthy
because Owners of general cargo ship did
not install temporary dehumidifiers
In The Ankergracht [2005] FCA 1808, the Federal
Court of Australia held the carriers liable for
corrosion damage to steel coils caused by
condensation because water was allowed to enter
the holds during loading; she ventilated in the
14
tropics at inappropriate times; and the owners had
not installed a temporary dehumidification system
onboard.
These proceedings related to two consignments of
steel coils that were carried from Japan to Australia
on two separate general purpose cargo vessels
pursuant to bills of lading issued by the owners of
the vessels. Some of the steel coils were galvanised
and others were aluzinc coated but all were highly
susceptible to corrosion damage, in the form of
white rust, from contact with water either by direct
wetting or by condensation of vapour. The end
receiver required unchromated steel, so a
chromate coating to prevent corrosion could not
be used. Instead the coils were covered in a light
oil coating together with a single sheet of Kraft
paper. This packing was consistent with standard
practice, but it only provided a very limited period
of protection against corrosion and it did not
prevent the ingress of water vapour.
The steel coils were loaded in Yokohama during
the Japanese winter, carried across the equator and
discharged in Sydney in a rusted condition. The
Federal Court made findings of fact that the
corrosion was a result of condensation which was
present due to the Carriers loading other cargo that
was wet, in particular timber; the use of wet
dunnage; and ventilation whilst in the tropics.
The bills of lading were governed by the Australian
Carriage of Goods by Sea Act 1991 (Cth), being
the domestic enactment of the modified Hague-
Visby Rules in Australia. Cargo interests argued
that the carriers were in breach of:
1. Article 3 Rule 1 as they did not exercise due
diligence to make the vessels seaworthy and/or the
holds fit for the carriage of the coils. Specifically,
cargo interests sought to demonstrate that the
vessels were unseaworthy at the commencement
of the voyages as a result of water being in the
holds and/or for failing to have a dehumidification
system to remove excess moisture from the holds;
and
2. Article 3 Rule 2 as they did not carefully and
properly care for the coils during the voyage.
Specifically cargo interests argued that the carriers
had failed to properly ventilate the cargo during
the voyage.
The carriers relied upon the various defences
available under Article 4 Rule 2, particularly the
SHIPPING E-BRIEF
Mr Justice Clarke found that, although visibility
was intermittently restricted as a result of rain
squalls, this was not a restricted visibility case.
This may surprise some because Rule 19
specifically applies to vessels not insight of one
another when navigating in or near an area of
restricted visibility (our emphasis). Mr Justice
Clarke went on to conclude however that the
crossing rules did not apply and that
"fundamentally, as a matter of good seamanship,
Forest Pioneer should have taken timely action
to keep clear of another which was performing
an operation of dropping her pilot". In
particular, he found that Forest Pioneer could
not claim the status of a stand-on vessel when
she created the risk of collision which did not
exist beforehand by an alteration onto a
crossing path without regard to the presence of
the Bulk Atalanta. On this basis he found Forest
Pioneer 85% and Bulk Atalanta 15% to blame
for the collision.
The Forest Pioneer is seeking leave to appeal.
Interestingly, one of the grounds of appeal is the
fact that, Forest Pioneer claims, Mr Justice
Clarke failed to take heed of the comments
made by Forest Pioneer on the points put to the
nautical assessors and failed to ask the further
questions that they felt pertinent to the collision.
In relation to costs, the Owners of the Bulk
Atalanta had made an open offer to settle
liability at 80:20 in Bulk Atalanta's favour some
2 years before the trial. The Admiralty Court
does not follow the usual rules under part 36 of
the CPR when making cost orders in collision
cases. Indemnity costs are not given to a
Claimant who makes a successful offer. This is
because, in collision cases, the claims are dealt
with on a single liability basis and there is no
real difference between the Claimant and the
Defendant. The normal costs order on liability
issues in collision cases (absent a successful
open offer from one of the parties) would be to
award each party a percentage of their costs so
as to follow the Court’s finding on the division
of liability. The effect of the successful open
offer, however, was that Bulk Atalanta was
awarded 100% of her liability costs on a
standard basis from the date of the offer.
james.wilson@incelaw.com
jim.allsworth@incelaw.com
9
London Arbitration 3/07 - cargo shortage
claims in Yemen
In London Arbitration 3/07 (2007) 711 LMLN 3
(21 February 2007), arbitrators have considered
the application of special clauses in a period
time charter that sought to address the endemic
problem of alleged shortage claims following
discharge in the Yemen. The complicating factor
in the present case was that the cargo shortage
claim was overlaid by a cargo damage claim
caused by the shipowners’ breach.
The vessel was time chartered for a period of 12
- 14 months. Yemen was excluded from the
vessel’s trading, subject to the terms of an
addendum and an agreed LOI. The addendum
provided that:
“Rider Clause 46 – Cargo Claims, to be
amended to read as follows: All and any
shortage claims at Yemen, howsoever arising,
and even if caused by Owners’ fault or neglect,
to be 100% for Charterers’ account and
Charterers are to indemnify Owners against all
losses, damages, costs consequences arising
therefrom. It is agreed that this constitutes a
“material amendment” to the cargo
responsibility clauses in the Charterparty in
accordance with paragraph 4(b) of the NYPE
Interclub Agreement.”
The addendum also provided that cargo claims
were to be settled in accordance with the NYPE
Interclub Agreement “always subject to the
provisions of Rider Clause 46 above which
takes precedence.” The agreed LOI, in return for
which the owners agreed to call at Yemen,
provided for an indemnity in the owners’ favour
“in respect of any liability loss or damage of
whatsoever nature which you may sustain by
reason of your complying with this request”.
The vessel loaded a wheat cargo in the US for
discharge at Aden and Hodeidah. There was a
shortage claim of about 55 mts at Aden, and
about 120 mts at Hodeidah. In addition, about
160 mts of cargo outturned at Hodeidah in a
damaged condition, caused by defective rubber
seals on the hatchcovers of the no. 1 hold. The
vessel was delayed at Hodeidah for 2 days
whilst the owners negotiated a cash settlement
with the cargo receivers. The amount paid to the
receivers did not differentiate between the cargo
damage and cargo shortage aspects.
The owners claimed from the charterers the full
amount paid in settlement to the receivers, and
also hire for the period of delay. The charterers
 SHIPPING E-BRIEF
have been at 32.5 mts per day less 5%. The owners
argued that the relevant comparison was between
the actual consumption and the warranted
consumption of 32.5 mts plus 5%.
The tribunal noted that charterers, in practice,
usually complain about a vessel under performing
as to speed or over consuming bunkers. However,
it does not follow from this that the “about” margin
always applies only in one direction. That result
only could be achieved if the charterparty
contained terms that the vessel would sail at a
certain speed “minus 0.5 knots” and consume a
certain quantity of bunkers “plus 5%”. Therefore
the only way in which proper effect could be given
to the word “about” was by applying a margin on
the basis of “plus/minus”. Accordingly, the
warranty in the present case was that the vessel
would consume 32.5 mts IFO per day plus or
minus 5%.
Since the speed & performance claim was a claim
for damages, the charterers were only entitled to
be put in the same position as if the owners had
performed their minimum obligations. On that
basis, the tribunal preferred the owners’ contention
that the credit for bunkers underconsumed due to
the slow steaming should be calculated by
comparing the actual consumption with the
warranted consumption of 32.5mts plus a 5%
margin.
nick.shepherd@incelaw.com
Collision/salvage cases and the importance
of making open offers
In this day and age it is relatively rare to see the
traditional collision case proceed to a judgment in
the Admiralty court. Most collision cases are
settled unless there is some "gritty" point on the
construction of the collision avoidance rules. If,
however, the matter is going to proceed to trial,
one recent case underlines the importance of
making an early and sensible open offer in order to
ensure as large a recovery of legal costs as
possible.
Bulk Atalanta and Forest Pioneer
Following neatly from Ian Chetwood and Matt
Forbes' article in the last E-brief ("The Role of
Nautical Assessors and Experts at a Collision
Trial"), Mr Justice Clarke recently made full use of
nautical assessors to assist him before issuing his
judgment in the case of the collision between the
ships Bulk Atalanta and Forest Pioneer [2007]
8 15
EWHC 84 (Admiralty). This case is interesting for a
variety of reasons, not just the advice from the
assessors but also in the way it dealt with issues of
visibility, navigating in and around pilotage areas
and whether one vessel, by virtue of its
manoeuvres, can "force" another into having an
obligation to give way.
The collision took place in the approaches to
Gibraltar in the early hours of the morning of 27
November 2003 at approximately 0527. It was
dark with intermittent heavy rain showers reducing
visibility at times. There was a strong south
westerly wind.
The Bulk Atalanta is a capesize bulk carrier of
77,000 grt and 270 metres in length owned by
clients of Ince and Co. She was inbound from the
Mediterranean and came around Europa Point
altering onto a northerly heading into Gibraltar
Bay to take on a pilot for anchoring before taking
bunkers. She was in ballast and, on a large scale,
her radar image should have looked like a second
"Rock".
The Forest Pioneer is a smaller bulk carrier of
40,000 gt and 218 metres in length. She was
preparing to weigh anchor having stemmed
bunkers. Before departing, Forest Pioneer had been
warned about the incoming Bulk Atalanta. Forest
Pioneer weighed anchor and came round onto a
southerly course. The vessels were shaping up to
pass starboard to starboard (green to green).
As she approached the pilot station, Bulk Atalanta
slowed down to a minimum speed to maintain
steerage. She steadied on a course of roughly 315°
to afford a lee for the pilot boat.
At approximately 0515, Forest Pioneer made an
alteration of course to starboard and increased
speed to half a head. She settled briefly on a
course of 210° at approximately 0518 (C-9). It was
only then that she noticed for the first time the
inbound Bulk Atalanta which was now broad on
her port bow and on a collision course. Bulk
Atalanta continued to slow down whereas Forest
Pioneer made a number of speed and course
alterations steering hard to starboard, hard to port
and hard to starboard again in the last 9 minutes
leading up to the collision. The two vessels
collided at approximately 0527.
Forest Pioneer argued that, from around C-10 there
was a crossing situation and that she was the
stand-on vessel making the obligation on Bulk
Atalanta to keep clear under Rule 15 of the
Collision Regulations.
SHIPPING E-BRIEF
insufficiency of packing defence, and sought to
argue that cargo interests had failed to pack the
coils sufficiently to prevent the ingress of water,
whether in liquid or vapour form.
Justice Emmett had to decide whether the
carrier was entitled to assume that the
packaging of the coils was sufficient to prevent
the penetration of water in any form or whether
the cargo interests were entitled to assume that
there would not be sufficient water in any form,
either as liquid or vapour, in the holds of the
vessels for condensation to occur.
After balancing these competing interests, the
Judge considered that the coils were known to
be sensitive to moisture and it was known or
ought to have been foreseen by the carriers that
water might enter the holds during loading. In
finding for the cargo interests, he held that that
the corrosion was caused by the failure on the
part of the carriers to carry, keep and care for
the steel coils properly during the voyage in
circumstances where the vessels had neither
dehumidification systems nor heating systems
installed. Indeed, he considered that the vessels
were not seaworthy for the purposes of carrying
the steel coils on these particular voyages at that
time of the year and that the carrier should have
taken steps to ensure that water could not enter
the holds or, if that was not practicable, to
install a dehumidification system or heating
system to remove excess moisture from the
holds during the course of the voyage.
Decisions of the Australian Court are not
binding on English Courts/London arbitrators,
but they may be influential. This decision,
which is being appealed, shows that steel
carriers may have to exercise a greater degree of
due diligence in order to avoid liability for
condensation damage in Australia and
elsewhere. In some circumstances this may
extend to the installation of temporary
dehumidification systems onboard.
ted.graham@incelaw.com
james.marissen@incelaw.com
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located in a country which does not have a
tradition of shipbuilding or is known to be
subject to political risk. The London insurance
market might provide you with some protection.
With the order-books of the traditional shipyards
full, prospective buyers of newbuildings are
having to look to buy their new vessels from
yards in countries without a track record of
construction of vessels of the type and size they
want and with limited facilities – the emerging
market countries, the EMC, particularly in the
Far East. Some of these countries are governed
by totalitarian regimes, and many are ones
where government intervention and even
contract repudiation are not unknown: they are
subject to a high degree of “political risk.”
Buyers of newbuildings customarily provide the
yards with stage payments for working capital,
so much on contract signature; so much on keel
laying; another payment at launch, etc..
Mindful of the credit risk it runs should the yard
not perform the contract and the need then to
pursue a recovery of its advance payments, a
buyer will have those payments secured in
advance by a refund bank guarantee (the
“RFBG” of the title), ideally provided by a state
bank. If that bank were then to renege on a
justified call under its guarantee, then that
would be a prime example of the sort of
political risk mentioned earlier.
This is where PRI – political risk insurance
comes in. It is possible for a prospective buyer
of a newbuilding to take out a policy in the
London insurance market against such an
eventuality. There are specialised brokers and
insurance underwriters who will in principle be
prepared to insure a prospective buyer against
the risk of the state bank refusing to honour its
guarantee, or indeed a commercial bank being
prevented by state intervention from allowing
the guarantee to respond. Not only will they
insure the buyer, but they may insure the
buyer’s financing bank for its interest. With the
booming market in shipbuilding in recent years,
it has been known for insurance to be extended
to cover any premium a buyer has to pay to
take a novation of the construction contract
from the original purchaser. Insurance against
 SHIPPING E-BRIEF
the risk of default by a commercial guaranteeing
bank is also possible, though such a “credit risk” is
a less attractive proposition for underwriters
specialising in this sector.
Such policies, of course, have their terms and
conditions – ten or so pages, and under English
insurance law they are subject to the overriding
duty of “utmost good faith” which will be familiar
to those involved in insuring hulls and cargo (or
indeed builders’ risks) in the marine insurance
market. An “assured” prior to the time of
conclusion of its contract of insurance as
evidenced by the policy must disclose, and
disclose accurately, all facts and information which
are material to the risks to be insured. The express
terms will spell out preconditions for a claim. For
instance:
• the builder must be in default of its delivery
obligations to the insured buyer, and as a result
• the insured must have cancelled the contract
and demanded return of the advance payments it
has made
• there must be no dispute as to liability: either
the yard must have accepted its liability or that
liability must have been established under the
dispute resolution provisions of the shipbuilding
contract
• obviously, the builder must have failed to repay
some or all of the advance payments; and
• the insured must have called the RFBG, but the
bank has not responded.
In addition to these preconditions, there will then
be a number of fundamental obligations,
“warranties”, with which the insured buyer has to
comply to be able to make its claim. If it does not,
the insurers will be able to treat the insurance
contract as repudiated. For instance, the
shipbuilding contract needs to have been properly
executed and “in full force and effect”; entered
into with all the “necessary authorities”. The
insured must have complied with the law of both
the yard and its own country. The indebtedness
under the shipbuilding contract and the guarantee
has to be a “legally enforceable indebtedness”.
Further, the insured must not have agreed any
significant change to the original contract without
the insurers’ prior permission: in particular there
should be no rescheduling of delivery dates.
Less obviously, there will be a warranty of
confidentiality. The insured is bound not to reveal
the existence of the policy except as may be
necessary to its financiers and professional advisers
– or, possibly, an on-purchaser. This is to reduce
the risk of the builder or the guaranteeing bank
adopting a more cavalier attitude to performance
16
of their contracts in the knowledge that the buyer
can look elsewhere to recover any losses it might
suffer from their actions.
There will be other obligations for the insured
buyer to observe under the policy: the usual ones
about “exercising due diligence” in its dealings
under the construction contract and guarantee;
provisions with regard to co-operating with the
insurers in a claims situation; assigning the insurers
its rights when the claim is paid (“subrogation”).
There will be provisions as to how any policy
claim is to be calculated and when it becomes
payable – there will be a “waiting period”, perhaps
180 days or more, depending in part on the
shipbuilding country involved, to allow for
customary local delays, issues to be resolved or
simply to give the insurers the chance to review
the claim. There will be an express proper law
and jurisdiction clause, customarily London
arbitration, for the resolution of disputes.
As with all insurances, there will be exclusions.
Some are obvious, for instance “material default”
by the insured. There will be no claim where the
insured buyer is the author of its own misfortunes.
In the same vein, an insured cannot recover if
there is any outstanding dispute with the builder
which has led to the default. More generally,
insurance market convention dictates that any loss
caused by war between the “five great powers” is
excluded; there is no cover for insolvency or
financial default (except of course of the
guaranteeing bank); nor is there cover for losses
resulting from currency fluctuation or devaluation.
There will be other exclusions and general terms.
Nevertheless, despite this “conditionality”, since
their introduction some 20 years or so ago these
policies have proved their worth and merit
consideration when looking at ship construction in
new shipbuilding markets – and indeed some
established ones. The best illustration of their
value was in the events of the early 90s, when the
collapse of the Soviet Union led to the withdrawal
of financial support for the currencies and banks of
the then Eastern Bloc countries and the impact on
their shipbuilding industries: particularly Bulgaria,
Poland and Yugoslavia. Their yards found
themselves unable to afford to complete vessels
under construction and the countries’ state banks
could not meet their consequent RFBG obligations
when the builders were unable to deliver.
Underwriters – predominantly the Lloyd’s market –
paid out many millions of dollars under the
policies that insured these guarantees, or in some
cases financed the increased prices which had to
be paid by the buyers to obtain delivery of their
ships.
tony.george@incelaw.com
SHIPPING E-BRIEF
energy, shipbuilding and construction industries
should all watch the outcome of this matter
with care as it proceeds.
On this occasion, Ince’s client shipowners, West
Tankers Inc., chartered their VLCC Front Comor
to an Italian energy company, Erg. That contract
included a London arbitration clause. Front
Comor collided with an Erg jetty at Syracuse in
Sicily. Erg claimed in London arbitration for its
loss, including disruption to refining operations;
the owners counterclaimed for a declaration
they were not liable. That dispute remains to be
resolved. But Erg’s insurers, RAS Riunione
Adriatica and Generali, having paid Erg,
commenced court proceedings against the
tanker owners in Sicily seeking damages for the
same incident even though, as insurers
subrogated to Erg’s rights, they were bound by
the charterparty arbitration agreement.
In March 2005, Colman J in the Commercial
Court declared that under both English and
Italian law the dispute should be arbitrated, and
granted an injunction against Erg’s insurers from
continuing their Italian court action. Such “anti-
suit” injunctions have been a feature of English
law for many years.
EC Regulation 44 of 2001 sets out rules
governing the jurisdiction of the courts of EC
Member States. However Article 1(2)(d) of the
Regulation provides that it is not to apply to
arbitration. As Colman J. took the view that the
Court of Appeal had already positively ruled
that anti-suit injunctions to restrain a breach of
an arbitration clause are compatible with EC
Regulation 44 of 2001, he allowed a “leapfrog”
appeal to the House of Lords.
The Lords were faced with an argument from
Erg’s insurers that for the English Court to
restrain proceedings brought elsewhere in the
EC, in breach of an arbitration agreement, was
an indirect interference with the jurisdiction of
national courts under the Regulation. Their
Lordships preferred owners’ argument that the
Regulation does not regulate relations between
litigation and arbitration and, further, that the
exception for arbitration exists to protect the
right to arbitrate itself. Therefore the type of
supportive measures which English Courts have
traditionally taken to hold parties to their
contractual bargain to arbitrate, such as
enjoining court proceedings in other
jurisdictions brought in breach of the agreement
to arbitrate, ought to be upheld. The alternative
would be to force the party wishing to arbitrate
to apply to the court in that other jurisdiction to
7
stay its proceedings, thereby undermining the
whole purpose of agreeing to arbitrate in the
first place.
Emphasising this point, Lord Mance said this:
“It is in practice no or little comfort or use for a
person entitled to the benefit of a London
arbitration clause to be told that (where a
binding arbitration clause is being – however
clearly – disregarded) the only remedy is to
become engaged in the foreign litigation
pursued in disregard of the clause. Engagement
in the foreign litigation is precisely what the
person pursuing such litigation wishes to draw
the other party into, but is precisely what the
latter party aimed and bargained to avoid.”
The matter will, at the Lords’ direction, now be
considered by the European Court, assisted by a
very clear statement from their Lordships as to
why anti-suit injunctions are an essential
adjunct to commercial arbitration in
international business.
ian.chetwood@incelaw.com
London Arbitration 1/07 - The method to
be used when calculating a credit for
under consumption of bunkers
In London Arbitration 1/07 [2007] 710 LMLN 4
(7 February 2007) a tribunal considered the
proper method for calculating a credit to be
given for bunkers underconsumed as a result of
slow steaming of the vessel, and preferred the
owners’ position that the credit should be
calculated on the basis of minimum
performance, ie the warranted consumption
plus an ‘about’ allowance of 5%.
The service speed of the vessel was described in
the subject charter as follows:
“In good weather and smooth sea, it is
understood good weather means winds of
maximum Beaufort 4 and/or Douglas Sea State
3 about 14.0 knots (ballast) 13.5 knots (laden)
on about 32.5 mt IFO at sea …”
The charterers claimed damages for loss of time
caused by a breach of the performance
warranty, but accepted that the owners were
entitled to a credit for bunkers underconsumed
during the period of slow steaming.
The charterers contended that the credit should
be calculated by comparing the vessel’s actual
consumption with what her consumption would
 SHIPPING E-BRIEF
"under" the contract. Accordingly, the Court and
not the arbitrator had jurisdiction to decide the
instant issue.
Morison J held that the first three claims mentioned
above did not arise as a result of the charter and
although it was possible to argue that the fourth
claim is a claim "under" the charter, the claim for
restitution cannot be a claim under the contract
since it is predicated on the basis that there is no
contract because of bribery. Thus, there are no
claims that presupposed the existence of the
contract, or which are concerned with the terms of
the contract.
Further, Morison J held that even if the clause had
been apt to cover the rescission dispute, one trial
by the Court would be preferable in this case to an
arbitration followed by a re-hearing of the
evidence by the Court.
Regarding rescission, the similarity of the instant
case with one of non est factum and mistake going
to the root of the contract distinguished it from
other cases. It was not simply the fact that the
charterparties had been rescinded; it was the basis
on which they had been rescinded, and one could
not distinguish between their unenforceability
without necessarily impugning the validity of the
arbitration clauses. The Claimants in this case say
that they never truly agreed to enter into the
charterparties, or, if severable, the arbitration
agreements. Morrison J held that if rescission is an
available remedy then the whole contract,
arbitration clause and all, falls to the ground.
In reaching his decision, Morison J acknowledged
that legal problems may arise given that certain of
the charters had been fully performed and third
party legal rights may be affected but considered
the law to be flexible enough to permit rescission.
The Charterers appealed against the decision of
Morison J. The Court of Appeal (Tuckey LJ, Arden
LJ and Longmore LJ) decided that a dispute as to
whether the contract can be set aside or rescinded
for alleged bribery was a dispute arising "under" or
"out of" the contract, so that the arbitrators had
jurisdiction over this dispute. Longmore LJ, giving
the Judgment of the Court of Appeal, said, at
paragraph 18 of the Judgment:
"As it seems to us any jurisdiction or arbitration
clause in an international commercial contract
should be liberally construed... Although in the
past the words "arising under the contract" have
sometimes been given a narrower meaning, that
should no longer continue to be so".
The Court also distinguished the case from a
6 17
dispute "as to whether there was ever a contract at
all" in the "Mustill and Boyd sense”. As mentioned
above, Mr. Justice Morison held at first instance
that Owners' argument of no true consent to the
contractual terms (on the basis of bribery) made
the case no different from one of non est factum or
mutual or unilateral mistake, but this seems to
have been implicitly rejected by the Court of
Appeal.
The Court of Appeal also dealt with the separability
of arbitration agreements, on which they decided
that it is not enough to say that bribery impeaches
the whole contract including the arbitration clause;
it is necessary to identify bribery which goes
specifically to the agreement to arbitrate.
Their Lordships recognised that they were making
an extremely important Judgment in relation to the
construction and applicability of arbitration
clauses, but considered (at paragraph 17 of the
judgment);
"that the time has now come for a line of some sort
to be drawn and a fresh start made at any rate for
cases arising in an international commercial
context".
The House of Lords has just given leave to appeal
and the definitive answer on this topic is therefore
still awaited.
denys.hickey@incelaw.com
jane.fitzgerald@incelaw.com
“Anti-Suit Injunctions” - The House of Lords
supports the English Court’s powers to
enforce arbitration agreements
In West Tankers Inc v RAS Riunione Adriatica di
Sicurta SpA and Others (The Front Comor ) [2007]
UK HL 4, the House of Lords considered the
independence of arbitration from litigation and has
referred to the European Court the question
whether an anti-suit injunction is permissible to
restrain proceedings commenced, in breach of a
London arbitration clause, in another EC Member
State.
A dispute being handled by Ince & Co’s shipping
team has led to a hearing in the House of Lords
with significant implications for London arbitration.
Although the context was marine, the dispute, now
headed for the European Court of Justice, may
affect any commercial litigant choosing London
arbitration as their preferred dispute resolution
procedure with an EC entity. Not only shipowners
and charterers but also those in the insurance,
SHIPPING E-BRIEF
The Golden Victory reaches the house of
Lords
Are events that occur subsequent to a repudiatory
breach relevant in the assessment of damages?
In a significant decision with respect to the
assessment of damages following the
repudiation of a long term charter, the House of
Lords has recently upheld the decision of the
Court of Appeal in Golden Strait Corporation v
Nippon Yusen Kubishiki Kaisha [2007] UKHL 12
(“The Golden Victory”). The general rule in
contract law is that damages should be assessed
at the time the breach of contract occurred,
with events that occur subsequent to the breach
thought to be irrelevant. However, the House
of Lords agreed with the decision of the Court
of Appeal, that in certain circumstances an
event that occurred after the date of the breach
(in this case the Second Gulf War) could be
taken into account when assessing damages.
The Golden Victory was chartered for a period
of 7 years (one month more or less in
Charterers’ option). The charter contained a
war clause, which provided:
“If war or hostilities break out between any two
or more of the following countries: U.S.A.,
former U.S.S.R., P.R.C., U.K., Netherlands,
Liberia, Japan, Iran, Kuwait, Saudi Arabia, Qatar,
Iraq, both Owners and Charterers have the right
to cancel this charter”.
The earliest contractual date for re-delivery was
6 December 2005. However, the charterers
wrongfully repudiated the charter by purporting
to re-deliver on 14 December 2001. This
breach was accepted by owners as bringing the
charterparty to an end.
Owners claimed for the loss and damage that
they had suffered as a result of Charterers’
breach of charterparty. During the arbitration, it
was accepted that the normal measure of
damages was the difference between the hire
rate under the charter and the market rate for a
substitute long term charter for the balance of
the charter period – in this case a further 4
years. The Charterers, however, argued that the
normal measure of damages did no more than
fix the basic comparison of the rates over the
balance of the charter period and that, if it was
established that the original charter would not
have run the balance of its period, this must be
taken into account. The charterers asserted that
they would have exercised their right to cancel
the charterparty on the outbreak of the Second
Gulf War in March 2003 and damages should
therefore be assessed on the basis. This would
have limited Owners’ claim to about 15 months
as opposed to 4 years.
The owners, on the other hand, argued that
damages fell to be measured at or very shortly
after the date of breach and that subsequent
events were irrelevant, at least unless they could
be said to have been inevitable, or perhaps
probable, at the date of breach. Owners,
therefore, claimed to be entitled to damages
over the balance of the full charter period.
The arbitrator held in favour of the charterers
and the owners appealed. Both Langley J, at
first instance, and the Court of Appeal agreed
that the arbitrator’s approach was consistent
with the basic compensatory rule for the
assessment of damages.
The majority in the House of Lords agreed with
the judgment of Mance LJ in the Court of
Appeal, that the purpose of the market rule was
to fix a rate which then had to be compared
with the original charter rate in order to
notionally put the owners back in the same
position as they would have been under the
original charter. However, the aim was not to
eliminate from consideration in the assessment
of damages any of the original charter terms nor
any effect which they might have. Accordingly,
if an unexpected event occurred which meant
that the charterparty would not have run for the
full period, then that unexpected event had to
be taken into account when assessing damages.
The ruling is clearly significant in relation to the
assessment of damages in cases relating to the
repudiation of long term period charters or
other long term contracts where there is a right
of cancellation dependent on subsequent
events.
will.marshall@incelaw.com
carl.walker@incelaw.com
Anti-Suit Injunctions – the English Court
takes a tough stance to prevent arrest
proceedings in another jurisdiction
In the “Kallang”, [2006] EWHC 2825 Comm,
the Commercial Court (Mrs Justice Gloster)
upheld an anti-suit injunction which restrained
 SHIPPING E-BRIEF
cargo interests from pursuing arrest proceedings in
Senegal. This was on the basis that those
proceedings had in fact been brought in order to
avoid or frustrate a London arbitration clause.
An English Court will not restrain a party from
applying to a foreign court for the arrest of a vessel
to secure a claim and it is for the arresting court to
determine the form and terms of security ordered.
Nonetheless, the Commercial Court in London
recently took a fairly robust approach towards a
party which it considered was seeking, through
arrest proceedings, to frustrate or circumvent a
London Arbitration Clause and which it considered
had behaved oppressively. The Court considered
that it could restrain that party by way of a
personal injunction, and that this was entirely
consistent with the terms of the Arrest Convention.
The Claimant was the Owner of the “Kallang” and
the Defendants were receivers / their cargo
insurers. A dispute arose out of an alleged short
delivery of cargo to receivers in Dakar. The cargo
had been shipped under bills of lading which
incorporated a charterparty containing an English
law/ London arbitration clause.
The Cargo Interests refused to accept a P&I Club
LOU containing a London arbitration clause as
security for their claim. The Cargo Interests instead
obtained an Order from the Dakar Court that the
vessel be arrested and that the Owner should put
up security by way of a bank guarantee. The Cargo
Interests subsequently insisted that security be put
up by a form of bank guarantee that effectively
provided for resolution of the cargo claim itself in
Senegal.
The Owners obtained an “anti-suit” injunction
from the Commercial Court (Cooke J) which
provided that the Cargo Interests should not
commence or continue any proceedings, including
the Dakar Court proceedings, otherwise than by
way of London Arbitration and that they should
discontinue the Dakar proceedings and procure
the release of the vessel.
The Cargo Interests applied to set aside Cooke J’s
Order on the basis that there was no breach of the
London Arbitration Clause because the
proceedings in Senegal were simply security
proceedings. The Cargo Interests further relied on
the fact that it was the Dakar Court which had
ordered what the particular form of security should
be, as the arresting court was entitled to do under
the Brussels Arrest Convention.
The Owners conceded that the actual order made
by the Court in Senegal was one for security only
and accepted that the Cargo Interests were not in
18
breach of the London Arbitration Clause merely by
making an application to the Dakar Court for the
purposes of obtaining security.
However, the Owners argued that the proceedings
brought in Senegal were actually bought by the
Cargo Interests for the purpose of obtaining
payment of the claim and to have the substantive
claims heard in Senegal. They argued that the
Cargo Interests were by their behaviour in breach
of the London arbitration clause irrespective of the
actual terms of the Dakar Court Order. The
insistence by the Cargo Interests on a Senegalese
Bank Guarantee and their refusal to accept
alternative security was oppressive behaviour
intended to force the Owners to submit to the
jurisdiction of the Senegalese Court rather than the
contractually agreed forum of London Arbitration.
Further, if this had happened, the Owners would
most likely not in fact have defended the case.
The Court agreed that on the evidence there was
an arguable case that the Cargo Interests had been
attempting to use the security proceedings in
Dakar and their requirement of a Senegalese bank
guarantee, as a means of avoiding or frustrating
London arbitration proceedings. A Club LOU
would in fact have been adequate security in the
circumstances. This conduct was in breach of the
arbitration clause and was also oppressive
behaviour and accordingly, Cooke J’s order would
not be discharged.
jamila.khan@incelaw.com
Commercial Disputes
Part 36 - Changes to the rule
Defendant offers to settle a case have, since the
introduction of the CPR, required the Defendant to
pay into Court the monetary value of the
settlement offer. The money then stays in Court
pending acceptance or Court order. That Rule is
now changed so that a Defendant, like a Claimant,
need only make its offer in writing, allowing the
Defendant access to its money while the
proceedings continue.
This change has consequences. Considering Part
36 Offers carefully has always been crucial and
remains important. A couple of obvious
consequences are (1) a Claimant will no longer
have the security of knowing that the money is in
Court to meet the Part 36 offer which may impact
on recovery and enforcement; and (2) a Defendant
should realise that when a Claimant accepts an
offer the Claimant will be entitled to enter
SHIPPING E-BRIEF
rescind, that this dispute must be resolved by
arbitration pursuant to the arbitration clauses in
the charterparties, and they purported to
commence arbitration proceedings. The
Claimants then, without prejudice to the
contention that they had already done so,
rescinded the agreements to arbitrate under the
charterparties and took no part in the arbitration
proceedings.
The Claimants sought to incorporate the time
charter claims into the main litigation which
included the following claims:
(1) damages for the tort of conspiracy;
(2) damages arising from the payment of bribes;
(3) a claim for dishonest assistance and breach
of fiduciary duty by the defendants in procuring
the charterparties by bribes; and
(4) that by reason of the bribes the charterparties
had been validly rescinded and for
consequential restitution.
The primary objection to the joinder of the time
charter claims in the main litigation was that all
of the charters were on the Shelltime form and
included an arbitration clause and should
therefore be decided by arbitration. The
Defendants argued that the time charter claims
should be stayed under section 9 of the
Arbitration Act 1996 (insofar as they concerned
the dispute as to the entitlement of the owners
to rescind the charters) or should be stayed
under the court’s case management powers,
pending determination by award in the
arbitration.
Clause 41 of the charterparties read as follows:
“(a) This charter shall be construed and the
relations between the parties determined with
the laws of England.
(b) Any dispute arising under this charter shall
be decided by the High Court in London to
whose jurisdiction the parties hereby agree.
(c) Notwithstanding the foregoing, but without
prejudice to any party’s right to arrest or
maintain the arrest of any maritime property,
either party may, by giving written notice of
election to the other party, elect to have any
such dispute referred…to arbitration in London,
one arbitrator to be nominated by Owners and
the other by Charterers, and in case the
arbitrators shall not agree to the decision of an
5
umpire, whose decision shall be final and
binding upon both parties. Arbitration shall take
place in London in accordance with the London
Maritime Association of Arbitrators, in
accordance with the provisions of the
Arbitration Act 1950, or any statutory
modification or re-enactment thereof for the
time being in force.
(i) A party shall lose its right to make an
election only if:
(a) it receives from the other party a written
notice of dispute which
(1) states expressly that a dispute has arisen
out of this charter;
(2) specifies the nature of the dispute; and
(3) refers expressly to this clause 41(c)
(b) it fails to give notice of election to have this
dispute referred to arbitration not later than 30
days from the date of receipt of such notice of
dispute.”
The Claimants alleged that the scope of
arbitration clause did not extend to a dispute as
to whether the charterparties were lawfully
rescinded for fraud and bribery and, in any
event, as a result of the rescission of the
charterparties the arbitration clause had fallen
away. The Defendants argued that the scope of
the clause was wide enough to include a
dispute concerning the entitlement of one party
to rescind the charter, and that in any event the
separability principle applies such that the
arbitration clause survived the rescission of the
contract as it represents a separate and distinct
bargain between the parties. The Defendants
further alleged that the Claimants had failed to
validly rescind the charterparties as restitutio in
integrum was not possible and the right to
rescind had been lost by delay, affirmation or
election.
At first instance, Mr Justice Morison held that
the Claimants’ argument of no true consent to
the contractual terms made the case no different
from one of non est factum (i.e. “it is not his
deed”) or mutual or unilateral mistake. The
bribery arguments, if sustainable, impeached
the whole contract. The Court had to approach
the question of construction by reference to the
mutual intentions of the parties. The question of
whether the owners ever made the contract
could not be said to be a dispute that arose out
of the contract, and certainly did not arise
 SHIPPING E-BRIEF
own demurrage calculation setting out the sum
that ERG thought was due and this allowed Lia to
argue that, pursuant to Section 29 (5) of the
Limitation Act 1980, the 6 year time limit
commenced afresh from that day. Unfortunately for
Lia, the Court rejected this argument on the basis
that the ERG worksheet and covering letter was
provided at/following a without prejudice meeting.
In addition, and irrespective of it being sent
“without prejudice”, the ERG worksheet did not
amount to the acknowledgment of indebtedness or
legal liability to pay that is required to make the six
year time limit start again.
The final issue related to another shipment where
the cargo was found to be off-spec at the load port,
thus entitling ERG to reject the cargo. The parties
reached an agreement (the “First Agreement”) that
the cargo would be retested at the discharge port
and if it was on-spec then ERG would take the
cargo, but laytime would only start on berthing.
The cargo was still off-spec at the discharge port,
but ERG agreed (the “Final Agreement”) to buy it at
a discount. Nothing was expressly agreed about
laytime, save that the new deal was otherwise as
per the terms of the Frame Contract.
Following the First Agreement, the vessel had to
wait about three days to berth and ERG argued that
laytime only started on berthing. The Court
rejected this argument on the basis that the First
Agreement only dealt with what would happen if
the cargo was on-spec, not if it was off-spec. The
Final Agreement was silent on the laytime point
and the Court rejected ERG’s argument (based on
the “officious bystander” test) that it was an
implied term that laytime would commence on
berthing. “The Court will only imply a term into
the contract in circumstances such as these if it is
necessary to do so to make the contract work...it is
no part of the Court’s function to rewrite the
parties’ bargain and, even if it were, I am far from
satisfied that the discount agreed together with the
obligation to pay demurrage was necessarily the
bad bargain which [ERG] sought to pay.”
ted.graham@incelaw.com
victoria.waite@incelaw.com
Scrapping - planning to sell a vessel for
scrap? A new regulatory regime is on the
horizon!
Ship recycling operations are subject to a number
of international and national rules related to the
safety and environmental management of
hazardous materials found in recycled ships. In
4 19
recent years, ship recycling has also been the
target of a number of highly publicised attacks by
NGOs which have targeted particular vessels
bound for recycling, and which has resulted in
expensive litigation in recycling states. The
International Maritime Organization (IMO) has
been working towards the conclusion of an
international agreement to govern many aspects of
ship recycling, which could be adopted as early as
2008-2009 and which would be a substantial
improvement on the current regime. There are,
however, a number of issues arising from the
present Draft which will be of interest and concern
to the shipping industry.
For an analysis of the Draft Convention,
highlighting particular areas of concern, please
contact:
michael.stockwood@incelaw.com
charlotte.breide@incelaw.com
Fraud does not override arbitration clauses
In Fiona Trust & Holding Corporation & Others v
Yuri Privalov & Others [2007] EWCA Civ 20 the
Court of Appeal has decided that a very wide
interpretation should be given to the jurisdiction of
arbitration clauses in international commercial
contracts. If a contract is alleged to be invalid as a
result of bribery, then unless that bribery relates
specifically to the arbitration clause, the clause
survives and the validity of the contract as a whole
must be determined by the arbitrators, rather than
the courts. The distinction, if any, between disputes
arising out of a contract and disputes arising under
a contract was considered, with the Court of
Appeal concluding that arbitration clauses in
international commercial contracts should be given
a liberal interpretation. The House of Lords has just
given leave to appeal and the definitive answer on
this topic is therefore still awaited.
This case arises out of complex litigation in which
the Claimants’ allege that individual defendants
were involved in a pattern of corrupt activity. In
particular, certain of the Claimants allege that the
chartering of eight vessels conferred significant
financial benefits on certain of the Defendants at
the expense of certain of the Claimants, and infer
that they were induced by bribes or other benefits
and that this ultimately formed part of a wider
dishonest conspiracy to injure the Claimants’
business by unlawful means.
The Claimants therefore rescinded the
charterparties. The Defendant Charterers’ position
was that the Claimants were not entitled to
SHIPPING E-BRIEF
judgment against the Defendant for the offered
amount if payment is not made by the
Defendant within 14 days. There are additional
consequences which will be best assessed on a
case by case basis with your usual advisor.
ben.ogden@incelaw.com
kate.rodgers@incelaw.com
Other News
Companies Act 2006 - UK directors now
under a duty to promote success
The Companies Act 2006 codifies, for the first
time, the duties of directors of UK companies.
This brief note deals with one important and
possibly contentious new duty, namely the duty
to promote success.
In addition to the existing duties of directors,
the 2006 Act sets out a new requirement.
Simply, it will be the duty of a director to act in
a way that he considers, in good faith, would be
most likely to promote the success of the
company and consequently for the benefit of its
members as a whole.
The 2006 Act sets out six specific factors to
which directors must have regard during the
decision making process to fulfil this particular
duty:
1. The interests of the company’s employees;
2. The need to foster the company’s business
relationships with suppliers, customers and
others;
3. The impact of the company’s operations on
the community and the environment;
4. The desirability of the company maintaining
a reputation for high standards of business
conduct;
5. The need to act fairly as between members
of the company; and
6. The likely consequences of any decision in
the long term.
This list of factors is not exhaustive. It is also
subject to the relevant existing law requiring
directors, in certain circumstances, for example
in a potential insolvency situation, to consider
or to act in the interests of the creditors of the
company.
In deciding whether a particular course of
action is in the best interests of the company the
directors must have regard to all six factors.
There is no priority between them but the
individual factors do not override the primary
obligation to promote the success of the
company. The aim is to “promote success” but
not to the detriment of the other fiduciary duties
when taking account of these considerations.
Our understanding of how this might work at
one extreme is, for example, that if a board is
faced with a decision which will result in a loss
of jobs and damage to the environment but is
likely to promote the success of the company,
then the first choice is the course they should
follow. Consider also the possible conflict when
on the one hand the board is trying to maximise
profitability – one way of measuring success –
but on the other hand in doing so seeks to
negotiate severe terms into its contracts with its
suppliers to obtain the best financial result for
the company. The 2006 Act gives no definition
of what is meant by “success” although the DTI
has stated that for commercial companies it will
normally mean “long term increase in value”.
The decision as to what will promote the
success of the company and what constitutes
such success, is one for a director’s judgment
acting in good faith. Strategy and tactics are for
the directors and should not be subject to
decisions by the courts, again subject to good
faith. In certain other common law jurisdictions
this is referred to as the “proper purpose” rule.
Directors must be able to prove that they have
paid due regard to the six listed factors. The
2006 Act does not specify how directors are to
do this but it is not likely to be sufficient for
them simply to tick a box for each factor, as
each one must be considered fully. The obvious
method directors can use to do this will be by
keeping detailed board minutes setting out their
considerations and how decisions were
reached.
According to the official explanatory notes to
the 2006 Act, the cumulative effect of the duties
means that where more than one duty applies, a
director must comply with each applicable duty,
and the duties must be read in this context. So,
for example, we believe the duty to promote the
success of the company will not authorise a
director to breach his duty to act within his
powers, even if he considers that he would be
most likely to promote the success of the
company by doing so.
 SHIPPING E-BRIEF SHIPPING E-BRIEF

We have noted in several of our earlier papers the
perceived conflicts between the laudable aims of
the new legislation, including the ability to make it
easier to run a company and to remove
unnecessary burdens on directors, and the
legislative provisions themselves. Given that most
companies in the UK are small and often complain
of being over-regulated we wonder how the vast
majority of these companies will deal with this
complex area of the law. Will they comply or
simply ignore it? Our initial thought is that
directors may become more risk-averse, and
perhaps make their companies less competitive.
A fuller version of this new area of the 2006 Act is
available on the Ince & Co website.
nick.gould@incelaw.com
sarah.pozner@incelaw.com
rebecca.axe@incelaw.com
Changes in employment law legislation
1. Maternity leave/Parental leave
Under the Work and Families Act 2006 which
came into force on 1 October 2006, all employees
expecting to give birth or adopt on or after 1 April
2007 will be entitled to statutory
maternity/adoption pay for 39 weeks and will be
entitled to work up to 10 “keeping in touch days”
during maternity leave.
2. The Equality Act 2006
The provisions in the Act which concern religion
or belief come into effect on 30 April 2007. These
include a new definition of religion or belief which
expressly includes the lack of a religion or belief.
The Act also provides that a single Commission for
Equality and Human Rights will be established in
October 2007 to assume the powers and functions
of the three current equality commissions, the
Commission for Racial Equality, the Equal
Opportunities Commission and the Disability
Rights Commission.
3. English Smoking Ban
From 1 July 2007 the Health Act 2006 will come
into force and enclosed public spaces and work
places will become smoke free, including offices,
factories, shops, pubs, restaurants, membership
clubs, public transport and work vehicles used by
more than one person. A notice stating “No
smoking. It is against the law to smoke in these
premises” at least A5 in size and displaying a
statutory no smoking symbol of at least 70
millimetres in diameter must be displayed in a
prominent position in the entrance to each smoke
free premises. There are slightly different
requirements for smoke free signs which must be
displayed in smoke free vehicles.
4. Annual leave entitlement
The Annual Leave (Amendment to Working Time
Legislation) Regulations 2007 comes into force on
1 October 2007. This will increase the statutory
minimum holiday entitlement from 4 to 4.8 weeks,
equating to 24 days for full time worker working 5
days a week.
5. Dispute Resolution Review Recommends
Change
The Department for Trade and Industry has
recently published an independent review of
employment dispute resolution procedures, which
calls for a radical overhaul of the current approach
to resolving workplace disputes. The aim of the
review was to identify options for simplifying and
improving all aspects of employment dispute
resolution to make the system work better for
employers and employees while preserving
existing employee rights. The central
recommendation of the report is that the
government should repeal the statutory dispute
resolution procedures set out in the Employment
Act 2002 (Dispute Resolution) Regulations 2004 SI
2004/752 and instead set out clear, simple, non-
prescriptive guidelines on grievances, discipline
and dismissal in the workplace for employers and
employees, ensuring that there are incentives to
comply with the new guidelines (such as costs
penalties).
Other methods of assisting in the resolution of
workplace disputes are also proposed, including
the introduction of a new simple process to settle
monetary disputes on issues such as wages,
redundancy and holiday pay without the need for
tribunal hearings; improvement in the quality of
advice to potential claimants and respondents
through an adequately resourced helpline and the
internet; the introduction of a free early dispute
resolution service and incentives to use early
resolution techniques. It is also proposed to make
the employment tribunal system simpler and
cheaper for users and government by simplifying
employment law and the tribunal forms and
certain of the tribunal procedures. The DTI is
seeking views on the review’s recommendations
through a consultation, due to close on 20 June
giving redelivery notices. The Lendoudis
Evangelous II was distinguished by the tribunal.
In that case, the Court held that the estimated
length of a time charter only had to be given in
good faith, but that was because the estimate
was expressly stated to have been given
“without guarantee”.
On the facts, the tribunal concluded that the 15
day estimate made by the sub-sub-charterers on
4 December for redelivery on 19 December was
not unrealistic in the circumstances that existed
at the time that estimate was made. Accordingly,
the charterers were not in breach of their
redelivery notice obligations.
As to the claim for damages for late redelivery,
the charterers successfully relied upon a mutual
exception clause that covered “all dangers and
accidents of the seas”. The owners sought to
circumvent the exception clause by contending
that charterers could have discharged the cargo
at another port, and that this could have been
done without re-issuing the bills of lading
because the delivery obligation in the bills
provided “the dangers of the seas only
excepted”. The tribunal did not accept that
delivery under the bills could be given at any
place other than the named discharge port. If
the dangers of the seas prevented delivery from
taking place at all, or within a non-frustrating
time, then the exception would excuse non-
delivery but it did not confer a right upon the
owners to deliver the cargo elsewhere. There are
liberty clauses that might allow this (see GH
Renton & Co Ltd v. Palmyra Trading Corp
[1956] 2 Ll L R 379), but the bills in the present
case contained no such clause.
Finally, if it had been necessary for the
charterers to do so, the tribunal held that they
could not have relied upon the mutual
exception clause in relation to the 15 day notice
obligation, since they did not know of the
sunken vessel at the time that they gave the 15
day notice, and on their own case that was not
a matter which they ought to have known
about. However, the charterers could have
relied upon the exception clause in relation to
the 5 day definite notice. By that time, the
charterers were aware of the sunken vessel and,
on the evidence, could not have given any such
notice in light of the uncertainties created by
the sunken vessel.
nick.shepherd@incelaw.com
Demurrage Claims and Supporting
Documents – is a “Laytime Statement”
also an “Invoice”?
In Lia Oil S.A. -v- ERG Petroli SpA the Court
held that an Owners’ laytime statement was also
an Owners’ invoice for the purposes of
providing supporting documents under a sale
contract demurrage claim. Secondly, that issuing
a “counter” demurrage statement did not
amount to an acknowledgment of liability that
recommenced the 6 year period for bringing the
demurrage claim. Thirdly, in relation to the
construction of a ‘one off’ agreement arising out
of off-spec cargo, the Court would not imply a
term that laytime began on berthing.
Lia Oil S.A. (“Lia”) sold fuel oil to ERG Petroli
S.A. (“ERG”) on a CIF/DES basis pursuant to a
‘Frame Contract’. The provisions as to
demurrage was as follows:
“14. Demurrage
Demurrages, if any, will be required by seller if
owners actually claim it pro rata quantity
loaded if part cargo, rata [i.e. rate] as per c/p…
any claim barred if not notified duly supported
by relevant documents (whereof copy of c/party
and copy of owners’ demurrage claim and
invoice) within 100 days from b/l date.”
In relation to one shipment, ERG denied it was
liable for demurrage because, in breach of
Clause 14 of the Frame Contract, Lia had only
provided an Owners’ laytime statement
covering both load and discharge ports, not an
Owners’ invoice. However, the Court noted
that the front page of the laytime statement set
out the total demurrage due and held that this
amounted to an Owners’ demurrage invoice for
the purposes of Clause 14. As a result of this
wide interpretation of “Owners’ invoice”, Lia
was able to show that it had complied with the
100 day time limit for providing supporting
documents.
Even though a party claiming demurrage has
complied with the time limit in the charter/sale
contract for lodging its demurrage claim (e.g. 90
days from discharge), if payment is not made it
is important to remember that contractual
claims under English law must be brought
within 6 years of the cause of action arising. In
this case when Lia eventually commenced
proceedings, more than 6 years had passed, so
on the face of it the claim was time barred.
However, approximately 5 years before the
court proceedings were started, ERG sent Lia its

20 3
 SHIPPING E-BRIEF

2007. Watch this space for further developments

and potentially far-reaching reforms.

charlotte.davies@incelaw.com
katy.carr@incelaw.com
Shipping E-Brief
New Partners at Ince & Co

We are pleased to announce the promotion of

seven solicitors to the partnership with effect from
1 May. This brings the number of partners in the
firm to 78.
Contents
Six of the new partners are based in London and
one is in Shanghai. Three have worked in the Shipping
maritime and insurance industries before deciding
to follow a career in the law; three have spent a Redelivery notices under time charters 2
significant amount of time working in the firm’s
Demurrage Claims and Supporting Documents 3
international offices; and all but one began their
legal careers at the firm. Planning to sell a vessel for scrap? 4
The seven new partners are:
Fraud does not override arbitration clauses 4
Iain Anderson – marine and non-marine insurance
and reinsurance, London “Anti-Suit Injunctions” and the Front Comor 6

Kevin Cooper – admiralty and dry shipping, Under consumption of bunkers 7

commercial disputes, Shanghai

SHIPPING E-BRIEF
Collision/salvage cases and the importance of making open offers 8
Christian Dwyer – dry shipping, international trade
and commercial contracts, London Cargo shortage claims in Yemen 9

May 2007
Johanna Ewen – marine insurance and reinsurance, Hong Kong and misdelivery of cargo under bills of lading 10
London
P&I Club Letters of Undertaking - always enforceable? 12
Michelle Linderman – shipping, reinsurance and
commercial disputes, London Precise style of disponent owner not important as to whether agreement
reached 12
Charles Lockwood – on- and offshore energy work,
marine energy insurance, London Carriage of steel and the need to install temporary dehumidifiers 14

Will Marshall – international trade, energy, LNG Political risk insurance for non-honouring of refund bank guarantees 15
and shipping, London.
The Golden Victory reaches the House of Lords 17

“Anti-Suit Injunctions” – arrest proceedings in another jurisdiction 17

Commercial Disputes
Part 36 - Changes to the rule 18

Other News
Companies Act 2006 - UK directors now under a duty to promote success 19

Changes in employment law legislation 20

New Partners at Ince & Co 21

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