Convenient forum

Convenient forum
The "Kapitan Shvetsov"

THIS dispute before the Hong Kong Court of Appeal had its origins in a collision in Bangkok's Chao Phyra river between the Russian tanker Kapitan Shvetsov and the Singaporean containership Nanta Bhum. The Russian vessel and its cargo of molasses was declared a constructive total loss, but the Singaporean vessel was able to proceed to Singapore under its own steam and effect repairs before returning to its regular service.

Neither shipowner wanted proceedings to be brought in Bangkok. The Singaporean owner wanted the proceedings brought in Singapore, while the Russian owner and the owners of the cargo wanted the proceedings to be held in Hong Kong.

The Singaporean owners brought an action in rem in the Singapore courts, claiming damages against the Russian owner, while the Russian owner issued a writ in Hong Kong claiming damages against the Singaporean owner. The Russian owner applied for a stay of the Singapore action but its application was not granted. The Singapore owner reciprocated by applying to stay the Hong Kong action in favour of Singapore.

It was common ground that the Convention Relating to the Limitation of Liability of Owners of Sea-going Ships 1957 applied in Singapore, severely limiting the liability of the Singaporean owner in relation to claims by the Russian owner and cargo interests against the Nanta Bhum. In Hong Kong, meanwhile, the Convention on Limitation of Liability for Maritime Claims 1976, with its much higher limitation of liability, applied.

Mr Justice Waung granted the application of the Singaporean owner for a stay of the Russian owner's Hong Kong action on the ground that Singapore was the more convenient forum for the trial of the action for collision damages.

The Russian owner appealed, and the Court of Appeal in Hong Kong held that the Russian owner had properly invoked the jurisdiction of the Hong Kong court for the adjudication of its claim. It had a right to have its case determined by the Hong Kong court and, in principle, that right could not be lightly disturbed.

The appeal court found that the Singaporean owner had not brought proceedings in a forum which was natural to the action, i.e., the forum with which the action had the most real and substantial connection. Additionally, there was a considerable juridical disadvantage to the Russian owner if it was forced to prosecute its claim in Singapore. The interests of both parties and the ends of justice did not demand that it be driven from its chosen forum. The appeal was allowed.

(Lloyd's Law Reports (1998) Vol 1 - Part 2 - 199)

Enforceability of demise clause
The "Camfair"

THIS dispute before the Tokyo District Court, which had its origins in the sinking of the Camfair with a cargo of logs in 1988, dealt with the enforceability of demise clauses in bills of lading.

In December 1988, the Camfair left Papua, New Guinea after loading a cargo of round logs. On December 18, off the coast of the Philippines, the vessel was grounded and subsequently sank due to a breach of its hull in No 2 hold. The cargo was declared a total loss.

The cargo insurers paid out the consignees, or the bill of lading holders, and were subrogated for their rights of recovery in respect of the loss. Thereafter the insurers started litigation for recovery based on the carriage of goods by sea contract under the bill of lading and pursued damages against the time charterer, based on breach of contract and/or an action in tort.

Cargo claimants often file cargo claims with the bill of lading issuer as the contractual carrier. The bill of lading issuer then relies on the demise clause as a defence by stating that it is not the carrier but an agent of the carrier, and that it is therefore not a responsible party under the carriage of goods contract.

In the Camfair, the Tokyo District Court held that the demise clause was ineffective. This appears to contradict the same court's decision in the 1991 case of the Jasmin, and throws into doubt the enforceability of demise clauses or identity of carrier clauses in bills of lading.

(The JSE Bulletin - No 36)

Dangerous cargo
Effort Shipping Co Ltd v Linden Management SA and Others

THE House of Lords has held that cargo which does not cause direct physical danger to a vessel or to other cargo is nevertheless dangerous within the meaning of Article 1V Rules 6 of the Hague Rules, scheduled to the Carriage of Goods by Sea Act 1971, if it was liable to cause loss by making it necessary for all the cargo on the vessel to be dumped at sea. Their Lordships held that strict liability was imposed on shippers of dangerous goods and that they were not divested of that liability by Section 1 of the Bills of Lading Act 1855.

The dispute revolved around a cargo of groundnut extractions carried on board the Giannis NK which, unknown to all the parties, was infested with khapra beetles at the time of shipment in 1990 from Senegal to the Dominican Republic. The vessel proceeded to San Juan after being ordered to leave the Dominican Republic following two unsuccessful attempts at fumigation. In San Juan, following another failed attempt at fumigation, the US authorities ruled that the ship had to go back to its country of origin or else the whole of the cargo had to be dumped at sea.

The groundnut cargo was eventually dumped, along with a cargo of wheat which was already on board when the groundnut cargo was loaded but which had not been infested. When the vessel returned to San Juan after dumping the cargo, more fumigation was required and there was a further delay of two and a half months before the vessel was cleared to load under its next charter. The shippers submitted that the loss should lie where if fell, but the owners argued that they were entitled to recover damages for the delay to the vessel and the cost of fumigation.

The House of Lords unanimously dismissed an appeal by the shippers against High Court and Court of Appeal rulings ordering them to pay the carrier $477,848 in damages.

(The Times Law Reports)

Limiting liability
The "Aegean Sea"

THE Admiralty Court in London has held that a charterer can limit liability only where a claim is brought directly against it, and not where it is brought by a shipowner seeking recourse or indemnity under a charter party.

The dispute had its origins in one of the biggest oil spills at sea in recent years. In December 1992 the Aegean Sea ran aground while approaching La Coruna in Spain to discharge about 80,000 tons of crude oil. Most of the cargo was either spilt into the sea or consumed by a fierce fire which broke out on board after the grounding. The spill led to claims totalling more than $150 million in respect of clean-up costs, property damage and economic loss.

The shipowner brought a claim at arbitration against the charterer, seeking damages for breach of the safe port warranty in the charter party. Ahead of the arbitration, the high court was asked to make a preliminary ruling on certain issues, including the question of whether any liability of the charterer to the owner would be capped by the London Convention on the Limitation of Liability for Maritime Claims (LLMC),which is part of English law. This is the first occasion on which the right of a charterer to limit liability under the convention has been considered by the courts.

Generally, it has been rare for claims against charterers to be big enough to reach the liability limit set by LLMC, but oil spills have provided notable exceptions. There have been some private and unreported cases in which similar charter party claims have been brought in London to recover pollution liabilities paid in the US under OPA90 involving sums well above the LLMC limit, but charterers have so far escaped these claims on other grounds, without their right of limitation being put to the test.

In the case of the Aegean Sea, the Civil Liability Convention 1969 (CLC) has placed a ceiling on the owner's liability for oil pollution, but the total of all losses claimed against the charterer, including the total loss of the ship, loss of freight and other items, comfortably exceeds the 1976 limit.

The proceedings in the high court brought to light the fact that the right of a charterer to limit its liability under LLMC is a subject on which there have been two opposite schools of thought, with adherents of each apparently unaware of the other. The convention accords the right of limitation to "shipowners and salvors", and it defines "shipowner" as meaning "the owner, charterer, manager and operator of a seagoing ship". It also provides that claims are subject to limitation "whatever the basis of liability may be", and "even if brought by way of recourse or for indemnity under a contract or otherwise".

The wording therefore appears to be sufficiently wide to encompass claims by a shipowner against a charterer. In many quarters, it has been taken for granted that the convention allows a charterer to limit liability irrespective of whether the claims are brought directly against it or indirectly in the form of a claim under the charter party after having been paid in the first instance by the shipowner. Others, however, have understood that the convention allows the charterer to rely on limitation only for liabilities of a kind normally incurred by shipowners.

In the Admiralty Court, Mr Justice Thomas has come down in favour of the latter view, laying emphasis on the fact that the charterer is identified in the convention as a breed of shipowner rather than as a party with its own independent right of limitation.

In particular, oil companies and traders may find the decision unexpected. They have sought to avoid exposure under OPA90 by transporting oil to the US in chartered tonnage rather than in their own ships. Moreover, they may not have anticipated the risk of incurring unlimited liability through the back door as the result of an arbitration in London under the charter party. Customary P&I cover of liability for oil pollution is subject to lower limits for charterers than for owners, and some traders may want to review their exposures in the light of this decision.

(Ince & Co)

Knowledge of goods

THE Dubai Court of Cassation has dismissed an action filed by a carrier against a shipper for damages caused to a vessel because of the nature of the goods shipped on board.

A shipping line filed for damages of $99,068 against a Dubai trading company, claiming that the company had agreed to provide it with an undertaking to indemnify it against any loss or damage suffered as a result of carrying a cargo of asphalt in barrels stored in a container.

On delivery of the goods, the carrier noted that the asphalt had leaked as a result of the barrels being rusty, thereby causing damage to the vessel.

The shipping line applied to the court of first instance for damages, but the court dismissed the action, relying primarily on the shipping line's knowledge of the cargo and of its nature prior to shipment. A subsequent appeal was then dismissed.

On further appeal by the shipping line, the Court of Cassation held that the appeal court's decision to dismiss the case on the grounds that the carrier had actually stored the barrels in the container and had thus assumed responsibility for any subsequent damage caused by the storage of the containers was incorrect. It was found that it was evident from the expert's report that the said damage resulted from the poor condition of the barrels as opposed to the way they were stored.

It was also held that the appeal court should not have disregarded the undertaking entered into by the parties prior to shipment which stipulated the trading company's agreement and obligation to provide the shipping line with an indemnity against any loss or damage caused by the barrels.

But the Court of Cassation found that, although a carrier may have a recourse action against a shipper for compensation against any damage caused to the carrier by goods shipped, the existence of such a right would only materialise if the carrier had no knowledge of the nature of the goods shipped.

The court noted that the carrier had entered into an agreement to ship goods whose nature it was aware of, and which subsequently caused damage to the vessel. It could not therefore be indemnified for such loss or damage. In such cases, the carrier had to assume responsibility for any damage so caused.

It was held that the carrier had no legal right to claim for damages notwithstanding the existence of an undertaking to indemnify the carrier against any damage caused by the goods shipped. The action was therefore dismissed and the carrier was ordered to bear costs and expenses on the basis of its knowledge regarding the bad condition of the goods shipped.

(Al Tamimi & Co)

Faxed readiness
Galaxy Energy International Ltd v Novorossiysk Shipping Co

THE Court of Appeal has held in a reserved judgment that the tender of a notice of readiness by telex or fax, stating that a vessel had arrived and was ready to load/discharge, outside the hours specified for tender in a voyage charter party but when in fact the vessel was ready to load and discharge, was not invalid and rendered a nullity, since the notice would be "tendered" when those hours began.

In so holding, the appeal court dismissed an appeal from the charterers against the ruling of Mr Justice Longmore dismissing an appeal against an arbitration award upholding the shipowner's claim for demurrage. The issue concerned the commencement of laytime under a voyage charter party.

In the Court of Appeal, Lord Justice Evans said that the telex message to the charterer's office was sent out of the hours specified (0600hrs to 1700hrs) in the knowledge that it would remain on the receiver's machine until the following day, when it would be available for office staff to deal with when they began work at or after 0600hrs. This was a clear case of "tender" at that time.

It was held that notices tendered outside the permitted hours could not be relied on as having contractual effect at the time of tender, but in the present case the tender was at 0600hrs whether or not there was previously a tender at the time the telex was sent.

(The Times Law Reports)

Exclusive jurisdiction clause
Hough v P&O Containers Ltd, Blohm + Voss Holding AG and others, third parties

THE Admiralty Court of the Queen's Bench Division has held that, where a contract contains an exclusive jurisdiction clause governing a dispute between the parties, by Article 17 of the Brussels Convention 1968 the defendant to those proceedings is entitled by the mandatory terms of Article 17 to be sued in the courts agreed between the parties.

The plaintiff, a New Zealand electrician named David Hough, brought an action in England against his employer, P&O Containers Ltd, for injuries suffered while his ship was in drydock in Germany. The defendant claimed that the accident was the fault of the German shipyard where the vessel was under repair, and issued third party proceedings claiming a contribution up to a full indemnity against the three German companies which were successors to the original contract party - Blohm + Voss Holding AG, Blohm + Voss GmbH, and Blohm + Voss Industrie GmbH.

Blohm issued a summons to set aside the third party notice on the ground that Blohm was domiciled in Germany for the purposes of the Brussels Convention in Schedule 1 to the Civil Jurisdiction and Judgments Act 1982.

Blohm relied inter alia on Article 17 since Clause 9 of the contract between P&O and Blohm contained an exclusive Hamburg jurisdiction clause.

Article 6 of the Brussels Convention provides, "A person domiciled in a contracting state may also be sued...(2)As a third party in an action...in any...third party proceedings, in the court seised of the original proceedings, unless these were instituted solely with the object of removing him from the jurisdiction of the court which would be competent in his case".

Article 17 provides, "If the parties, one or more of whom is domiciled in a contracting state, have agreed that...the courts of a contracting state are to have jurisdiction to settle any disputes which...may arise in connection with a particular legal relationship...those courts shall have exclusive jurisdiction..."

Mr Justice Rix allowed the appeal of Blohm against the dismissal of its summons to set aside for lack of jurisdiction in the English courts the third party notice issued by the defendant. He held that Article 17 took precedence over the merely permissive terms of Article 6(2). And that, even where a multiplicity of proceedings in different jurisdictions resulted, Article 17 prevailed.

Recognising the irreconcilable differences between the plaintiff's right to sue P&O in England, and Blohm's right to be sued by P&O in Hamburg, the court held that Blohm's challenge to the jurisdiction of the English courts over P&O's third party claims should succeed.

(The Times Law Reports)

Discretion to decide route
Whistler International Ltd v Kawasaki Kisen Kaisha v Tokai Shipping Co Ltd

ORDERS given as to the route a vessel was to take to reach a particular destination were orders as to navigation, not employment. As such it was for the master to decide on behalf of the owners, not for the charterer.

So held Mr Justice Clarke in the Admiralty Court of the Queen's Bench Division, giving judgment for the disponent owner and increasing awards to the owner on appeals heard together from two arbitration awards, both involving the vessel Hill Harmony.

The vessel was time-chartered to Whistler for 11/13 months. During the charter it was sub-time-chartered by Whistler as disponent owner to Kawasaki for 7/9 months on an amended New York Produce Exchange form. Kawasaki sub-sub-time-chartered the vessel to Tokai Shipping for 30/35 days for a transpacific voyage from Vancouver to Shiogama, also on an amended NYPE form.

On two transpacific voyages the master refused to take the northern great circle route, as instructed by the charterer, and on which he had sustained vessel damage during bad weather on a previous voyage, but insisted on the southerly rhumb line route, which was longer. The first voyage consequently covered an additional 1,311 miles, and the second an extra 866 miles.

Kawasaki deducted hire in respect of the additional days at sea and claimed the cost of extra bunkers consumed. London arbitrators, by a majority, made an award in favour of the disponent owner but refused to award further sums for the hire deducted on account of the longer route taken by the master. The disponent owner appealed against that decision.

Mr Justice Clarke held that the routeing orders were as to the navigation of the vessel and, insofar as the arbitrators had held that the disponent owner was in breach of the charter because of the master's failure to comply with the charterer's orders, they were wrong as a matter of law to do so.

(The Times Law Reports)

New damages concept

IN giving judgment for Humber Oil Terminals Trustee Ltd (HOTT) in a dispute with a tanker owner, the Court of Appeal has recognised that a damages concept derived from personal injury cases can apply equally to property damage claims.

The case involved a ship's collision with HOTT's discharge berth, causing millions of dollars' worth of damage. HOTT put the repair contract out to tender while pursuing the shipowner for damages.

The shipowner settled much of the claim readily but, during the course of the repair contract, a second serious accident occurred which led to extra expense. A long-running dispute ensued with the repair contractor. This was resolved by the Court of Appeal, which held that the repair contractor could recover that extra expense because the second accident had resulted from an unforeseeable subsoil condition, beside the berth.

HOTT then sought to recover that extra expense from the shipowner which, relying on the unforeseeable nature of the second accident, declined to settle. The claim for extra expense was allowed by the Commercial Court, whose decision has now been upheld by the Court of Appeal. The appeal court recognised that this was a "thin skull" case, i.e., one where the plaintiff's physical characteristics have the effect of increasing the scale or extent of the physical damage caused by the negligence. On the facts, the unforeseeable subsoil condition could be equated with an accident victim's unforeseeable allergic reaction to a morphine injection administered by an ambulance crew.

This is believed to be the first occasion on which the English courts have resorted to this concept in a property damage case.

(Ince & Co)

Vacating arbitration awards
Yusef Ahmed Alghanim & Sons v Toys R Us Inc

THE US Court of Appeals for the Second Circuit has recently addressed, in a non-maritime case, the proper grounds on which to base a motion to vacate an arbitration award which is subject to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The issue is significant because the Federal Arbitration Act affords several implied grounds for setting aside an award, including a finding that the arbitrator's award is in manifest disregard of the terms of the parties' agreement and/or is in manifest disregard of the law.

The court held that the convention applied to the award because at least one non-US party was involved and the subject matter of the dispute involved conduct and contract performance in the Middle East. It also held that the convention does not provide for vacatur of an award but merely permits a court to refuse confirmation for the specific reasons appearing in the convention. Seven such reasons are set forth, including that the award "has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made".

The court said that no other grounds for refusal could be read into the convention by implication, and that US courts were permitted to apply the Arbitration Act to awards rendered in the US which are otherwise subject to the convention.