Arbitrator had jurisdiction over all claims

Arbitrator had jurisdiction over all claims

THIS dispute arose out of the performance of a tanker voyage charter party between Halki Shipping Corporation, as owners of the tanker Halki, and Sopex Oils Ltd, as charterers. The charter covered the carriage of a cargo of palm and coconut oil from the Far East to Europe.

The owners maintained that the charterers had failed to load and discharge the vessel within the laytime provided in the charter party, and claimed demurrage of $517,473. The charter provided for any dispute to be referred to arbitration in London. The owners issued a writ, but the charterers sought a stay under Section 9 of the 1996 Arbitration Act, which provides that a party to an arbitration agreement against whom legal proceedings are brought in respect of a matter which, under the agreement, was to be referred to arbitration, could apply to the court to stay the proceedings.

The charterers submitted that the court had no jurisdiction to allow the action to continue but was bound to grant a stay under the 1996 act. The main question was whether the action was in respect of a matter which, under the charter party, was to be referred to arbitration, which depended on whether there was any relevant dispute between the parties.

When the dispute came before the court, Mr Justice Clarke said that an arbitration clause in an agreement governed by the 1996 act gave an arbitrator jurisdiction over all claims which either party refused to pay. Where an amount was due under an agreement subject to an arbitration clause and the amount was either disputed or simply not paid, there was a dispute as to the amount due even when no answer to the claim existed in law or in fact. That dispute had to go to arbitration and any proceedings brought in respect of it were bound to be stayed under Section 9(4) of the 1996 act. It was held that the charterers were entitled to a stay.

(The Times Law Reports)

Failure to load
Glencore Grain Rotterdam BV v Lebanese Organisation for International Commerce

THESE proceedings before the Court of Appeal in London concerned an appeal by Glencore Grain Rotterdam BV, the sellers of a cargo of wheat, against the decision of Mr Justice Longmore in favour of the buyers, the Lebanese Organisation for International Commerce.

The appeal raised two questions of law. Were the buyers, under an fob sale contract incorporating GAFTA form 64, entitled to open a letter of credit in favour of the sellers which was restricted to payment against freight-prepaid bills of lading. And, if they were not, could the sellers rely on that breach of contract to justify their own refusal and failure to ship the contract goods.

Mr Justice Longmore had ruled that the buyers were not entitled to open the restricted letter of credit, but that the sellers were precluded from relying on the buyers' breach.

When the case came before Lord Justices Nourse and Evans, and Sir Ralph Gibson in the Court of Appeal, it was held that, absent any special agreement, the sellers were entitled to see a conforming letter of credit in place before they began shipment of the goods, and then their obligation was to ship the contract goods on board the vessel provided by the buyers for carriage on whatever terms as to freight and otherwise the buyers had agreed with the shipowners. It was held that the sellers were expressly free of any obligation to pay freight, and that the buyers' contention that the letter of credit terms were in conformity with the contract was contrary both to the underlying concept of the fob contract and to the essential commercial purpose of the letter of credit.

The appeal court found that the freight-prepaid requirement was introduced by the buyers and immediately rejected by the sellers. Thereafter, the sellers did not act inconsistently with their refusal, and their silence could not be regarded as an acceptance of the buyers' demand. It was held that the buyers were not entitled to require the sellers to produce freight-prepaid bills in order to receive payment under the letter of credit opened by them. The buyers had failed to open a letter of credit conforming with the sale contract, and were therefore in breach of the contract.

The Court of Appeal said the sellers' refusal to perform the contract could not either extend the time for performance by the buyers or amount to a waiver of their rights to refuse performance if such a right existed. It was held that Mr Justice Longmore was wrong to hold that the sellers were unable to rely on the buyers' breach as a defence to a claim for damages for refusal and/or failure to load. The appeal was allowed.

(Lloyd's Law Reports 1997 Vol 2 - Part 4 - 386)

Road transport carrier's liability

IN an action filed before the Dubai courts, the Court of Cassation has held that, as a general rule, a road transport carrier will be responsible for taking reasonable care of cargo and delivering the same in good condition. But the carrier will not be expected to have technical knowledge of any specialised requirements of the cargo, unless it is specifically agreed otherwise.

A shipping company filed an action against a road transport company in Dubai. It claimed to have delivered to the road transport carrier a reefer container of frozen meat for transport from Dubai to Qatar. When the reefer was opened in Qatar the meat was found to be unfit for human consumption, and the shipping company claimed the replacement value of the meat.

The court of first instance in Dubai found in favour of the shipping company, but the appeal court reversed the judgment. The shipping company then appealed to the Court of Cassation. It argued that the road transport carrier was liable for the damage to the meat stored inside the reefer because it had been delivered to it in good condition and came complete with a cooling generator. In view of the frozen nature of the goods, it maintained, it was the road transport carrier's responsibility to see that they remained in a frozen state until delivered in Qatar.

The Court of Cassation held that the general rule relating to the responsibility of a road carrier does not apply to the transportation of equipment or goods which require special care. Furthermore, the carrier could always discharge its liability if it could prove that the damage was caused by force majeure or an act of god, or because of the unique nature of the goods shipped or because of fault on the part of the shipper or the consignee.

In this case it had been determined by the appeal court that it was the shipping company's responsibility to ensure that the reefer was in good condition and operating properly for the shipment of the goods. The Court of Cassation found that the goods were already stored inside the reefer when it was delivered to the road transport company, which was asked to transport it without any discussion of additional responsibility or liability.

It was held that neither the road transport carrier nor its driver was required by law to possess special technical knowledge or experience of the maintenance of required temperature in the reefer or of repairing generators should one break down. This knowledge was over and above that normally required for the transport of goods by road, unless specifically agreed otherwise by the parties to the transaction.

Accordingly, the Court of Cassation dismissed the shipping company's appeal and upheld the appeal court's judgment.

(Al Tamimi & Co)

Double jeopardy
The 'Indian Grace'

THE House of Lords has given judgment in favour of India Steamship, the owners of the Indian Grace, dismissing a £2.6 million claim on the basis that a defendant cannot be sued twice on the same cause of action. During six hearings, over a seven-year period, the Indian Grace claim has now been before a total of eighteen judges in England. On a final headcount the score is five maybes, one against, and twelve in favour of the shipowners. The claim has now been struck out.

The claim was brought against the owners by the Republic of India and by the Indian Ministry of Defence. It had its origins in a fire on board the Indian Grace in 1987 while the vessel was carrying a cargo of woodpulp and munitions from Sweden to India.

The fire was put out with water and the vessel put into Cherbourg, where it stayed for a month. The cargo was repacked under supervision of the cargo manufacturers, and 51 artillery shells and ten charges were jettisoned. The voyage then continued.

In December 1989 the Indian Ministry of Defence obtained a judgment in India against the owners for £7,200 in respect of short delivery based on the loss of the 51 shells and ten charges. The same plaintiffs also sought to bring an in rem action in England, issuing a writ in August 1989 against the Indian Grace and fifteen other vessels in the same ownership. This was the claim for £2.6 million, for alleged damage to the entire cargo of 12,000 shells, which the plaintiffs said were subjected to radiant heat by the fire and were consequently worthless.

The in rem writ was served on a sistership of the Indian Grace at a UK port in August 1990. India Steamship applied to strike out the English in rem action.

The decision of the House of Lords in this case in favour of the shipowners means that the decision of Hobhouse J in the Nordglimt (1988) has been overruled. In the Indian Grace, the Lords ruled that, at the date of its commencement, an action in rem is an action against the owners from the moment the admiralty court is seized with jurisdiction. The two sets of proceedings were thus between the same parties.

(Ince & Co)

Right to proceed for recovery of legal fees
Simpson Grierson v the 'Irina Zharkikh'

NEWS of recent proceedings in the High Court of New Zealand in Admiralty may warm the hearts of maritime lawyers everywhere, since they uphold the right of lawyers to proceed against a ship in rem for recovery of fees incurred.

The proceedings dealt with an application by the owners of the Russian-crewed, Honduran-flag factory freezer trawler Irina Zharkikh to set aside a writ of summons issued by Auckland law firm Simpson Grierson, which had not been paid its fees for springing the vessel from first a Mareva injunction and then a registrar's arrest in admiralty.

The issue for the decision of the court was whether the services rendered by the law firm fell within section 4(1) of the Admiralty Act 1973, on which the law firm relied as conferring a statutory right in rem under the admiralty jurisdiction of the high court.

The court noted that the legal services performed were for the benefit of the Irina Zharkikh, to secure the release of the vessel from arrest or from restraint which precluded its operation. It said that 'operation' in this regard included the vessel's use. The operation of the ship was not divorced from its trading function, and services which removed an impediment to that activity were within the relevant section of the act.

The court said, 'The restraint of a ship under the legal processes of arrest or injunction prevents its operation. Legal services to remove such restraint are supplied to the ship in its operation.' It followed that the court accepted that the claim for legal fees and disbursements fell within the jurisdiction conferred by the act, to the extent that such fees were incurred for the purpose of enabling the ship's continued use in the face of successive injunctive and arrest proceedings.

It was held that the law firm was entitled to maintain the writ of arrest for its fees.

(Simpson Grierson)

Pre-judgment interest
Reading & Bates Corporation (R&B) v All American Marine Slip (AAMS)

THE United States Court of Appeals for the Second Circuit has established new case law for marine insurance claims with its decision in this case. It has affirmed that a marine insurer is liable to an assured for pre-judgement interest, even if it exceeds the policy limit.

In May 1992, R&B insured the offshore drilling unit Jack Bates with AAMS for loss and damage and loss of hire. The rig was damaged by Hurricane Andrew in August 1992. R&B submitted two claims, one of which was paid and one of which was disputed. The disputed claim, for loss of hire, went to arbitration, and the panel found in favour of R&B, with payment of interest.

R&B then submitted a claim for damages for the amount of the difference between the policy limit and the arbitration award. AAMS, however, maintained that the policy limit had been reached with the total pay-out, including pre- and post-judgment interest.

The district court found that pre- and post-judgment interest could be awarded above and beyond the policy limits. The appeals court has now affirmed that decision.

(Ledyard & Milburn)

Enjoining cargo damage proceedings
Farrell Lines Inc v Columbus Cello-Poly Corp

IN this case, a New York court took the unusual step of enjoining a law suit in Italy over cargo damage claims properly litigated in the US.

Southern district judge Michael Mukasey followed the lead of appellate courts in the first and fifth circuits in rejecting the 'ancient rule that courts sitting in admiralty cannot issue injunctions'. Although such injunctions should be issued 'sparingly', the court found it appropriate in this case because the Italian suit, filed by four insurers against Farrell, was a 'bad faith' attempt to evade agreed liability and forum selection terms.

The ruling stopped the Italian action and granted almost everything sought by Farrell. The court found that US law and the $500 per package COGSA limit governed the dispute, which involved damage to a printing press carried on Farrell's vessel, the Export Freedom, from Italy to Norfolk, Virginia in 1994.

The damage, which occurred during unloading, was estimated at about $800,000, but the bill of lading indicated that cargo claims would be subject to the COGSA package limitation and that US law governed all disputes.

Farrell filed suit in New York for declaratory and injunctive relief, following which the insurers filed in Italy for recovery of damages in respect of the cargo. Judge Mukasey granted the relief sought by Farrell, enjoining the Italian litigation and declaring that Farrell's liability was limited in accordance with COGSA. He noted that the insurers had 'acted in bad faith by bringing suit in Italy to evade COGSA and the bill of lading's forum selection clause'. The insurers were enjoined from maintaining their Italian law suit or from filing any other law suit concerning damage to the cargo'.

(New York Law Journal)

Agreement to arbitrate
PEP Shipping (Scandinavia) APS v Noramco Shipping Corp

THIS action before the US District Court, Eastern District of Louisiana, was brought by PEP Shipping (Scandinavia) to stay litigation pending arbitration in its dispute with charterer Noramco Shipping Corp. The dispute turned on PEP's assertion that Noramco had breached its contractual obligations in negotiations pursuant to the fixture of the Christina C for a voyage from New York to Haiti.

In granting PEP's motion, the court said that a binding fixture is accomplished by the exchange of messages agreeing to a pro-forma charter and to its main terms, leaving details to be further negotiated, and when the pro-forma charter's arbitration clause is referred to in the exchange by agreement on the locale of arbitration, it is binding, and when the parties then fail to agree on certain details their dispute about them is subject to the arbitration clause.

(American Maritime Cases 1997)

Sham sale
The 'Tjaskemolen'

THESE proceedings before Mr Justice Clarke in the Queen's Bench Division (Admiralty Court) had their origins in a charter party covering the carriage of a cargo of steel scrap from Rotterdam to Korea on board the Tjaskemolen.

Bayland Navigation chartered the vessel to Profer AG for the voyage, but when the vessel tendered notice of readiness Profer claimed that there had been a breach of the charter in that there were no classification certificates on board. Profer maintained that it suffered a loss because it was unable to perform the contract for the sale of the steel. It arrested the vessel in Rotterdam. Bayland re-offered the vessel but this was rejected on the ground that the buyer of the cargo had cancelled the contract of sale as a result of Bayland's breach of the charter.

The court in Rotterdam subsequently ordered the release of the vessel, and the parties appointed arbitrators. Profer then issued a writ and the vessel was arrested, the purpose being to provide security for its claim at arbitration. Security was subsequently provided in order to procure the release of the vessel.

Bayland then applied to discharge or reduce the amount of security provided on the grounds that the affidavit in support of the application failed to state the nature of the claim, and because Bayland was not the owner of the vessel at the time the writ was issued, having sold it to another company in the group of companies to which it belonged.

Profer submitted that the alleged sale agreement covering the vessel was a sham and not apt to pass the beneficial ownership of the vessel to the alleged buyers.

The court denied Bayland's argument that the affidavit in support of the application to arrest failed to state the nature of the claim, pointing out that Bayland could not have been in any doubt as to what the nature of the claim was. The affidavit identified the charter party and said the claim was for unsatisfied damages for breach of that charter party.

The court also found that the express purpose of the sale agreement was to ensure that Profer could not arrest the vessel, and that the vessel would not be available for the enforcement of any arbitration award. It was held that the memorandum of agreement covering the alleged sale of the vessel was a sham or facade. And it did not have the effect of divesting Bayland of beneficial ownership.