Guaranteed sale

Guaranteed sale

THIS dispute involved a number of claims made under a written guarantee by the buyers against the sellers of three ships, and turned upon the interpretation of Clause 9 of the Norwegian Sale Form.

The vessels Al Karim, Al Mutawakil and Rita were sold for $1m, $1.5m, and $1.8m respectively. All the sale agreements were on the Norwegian Sale Form, Clause 9 of which provides, "The sellers warrant that the vessel, at the time of delivery, is free from all encumbrances, mortgages and maritime liens or any other debts whatsoever. Should any claims which have been incurred prior to the time of delivery be made against the vessel, the seller hereby undertakes to indemnify the buyers against all consequences of such claims."

The sellers gave a written guarantee to the buyers to pay on demand for any loss, expenses or damages which might be sustained arising out of or in connection with any claim "incurred prior to the time of delivery ... made against and in respect of any of the vessels."

The buyers made a large number of claims under the guarantee. Disputes arose, and the issues for the determination of the court, on the construction of Clause 9 of the NSF, included:

(1) What was the meaning of the words 'should any claims which have been incurred prior to the time of delivery be made"?

(2) What was the meaning of the words 'claims against' a vessel?

When the case came before the Queen's Bench Division (Commercial Court) it was held by Mr Justice Toulson that the words 'should any claims which have been incurred prior to time of delivery be made' should be read as meaning 'should any claims in respect of liabilities which had been incurred prior to the time of delivery be made'. It was held that, if it had been intended that the indemnity should extend not only to claim resulting from liabilities which had been incurred prior to the time of delivery but, where such liabilities had not been incurred, to claims that had, clear words would have been required to provide such right of indemnity.

The court said that, when construing and applying Clause 9, one had to look at the substance of the matter and not merely the form. A claim in its ordinary meaning did not require the institution of proceedings but must involve a demand. A claim against a vessel must involve a demand which carried with it a threat of seizure of the vessel, and that threat must be real and present but it did not as a matter of construction or good sense need there to have been proceedings or an order of arrest before there could be said to be a claim against the vessel.

The buyers appealed, and the sellers cross-appealed. It was held by Lord Justices Kennedy, Thorpe and Mance that the judge had taken too limited a view of the scope of the second sentence of Clause 9. That sentence, it was held, addressed claims made, the exposure to which stemmed from pre-delivery events, whether the liability asserted by such claims might prove to exist or not. The buyers were entitled under Clause 9 to be indemnified against all consequences of such claims and under the guarantee to recover for any loss, expenses or damages sustained arising out of or in connection with such claims.

The appeal court found that the word 'claims' in the phrase 'claims ... made against the vessel' in the second sentence of Clause 9 referred to demands or assertions of rights. The demand or assertion had to be made against the vessel, but that did not indicate that the vessel must actually have been arrested, or that an arrest order must have been obtained. A demand or assertion or claim could be made against the vessel even if neither of these stages had been reached.

The appeal court said that, for a claim to be made against the vessel, there had to be a demand which carried with it "a real and present threat of seizure..." Clause 9 was intended to respond to ordinary situations of commercial life and to their ordinary consequences for the buyers. Buyers would have to respond as much to a claim or demand arising from pre-delivery events and involving a real and present threat of vessel seizure as they would to more procedural formal steps. If, in responding, they sustained adverse consequences, there was no reason in logic why they should not be indemnified under Clause 9.

The appeal was allowed, and the cross-appeal dismissed.
(Lloyd's Law Reports (2000) - Vol 1, Part 7 - 403)

Deck cargo exclusion clauses

THIS was an appeal from a decision of the trial division of the Canadian maritime courts. The case involved the loss of a part-cargo of lumber carried on deck from Canada to Europe.

The bills of lading were claused 'on deck at shipper's risk', and Clause 8 of the bill of lading was a liberty clause which specifically allowed the carrier to stow goods on deck. It provided that, "Goods stowed on deck shall be at all times and in every respect at the risk of the shipper/consignees. The carrier shall in no circumstances whatsoever be under any liability for loss of or damage to deck cargo, howsoever the same may be caused...".

The plaintiff argued, inter alia, that this clause did not protect the carrier as it did not include an express reference to negligence. The trial judge agreed with the plaintiff and further noted that the express references to negligence in the Both to Blame and Transhipment clauses of the bill of lading implied that negligence was not excluded in Clause 8.

On appeal (1999, 175 DLR (4th) 449, (FCA), the federal court of appeal agreed with the trial judge that negligence was not excluded. The federal court of appeal held that the liability of a carrier of goods by sea is not confined to acts of negligence. Such a carrier is liable for failing to deliver the goods safely and for breach of the implied warranty of seaworthiness, as well as for negligence.

Because of the existence of these other heads of liability, the failure to include an express reference to negligence in the exclusion clause was fatal. The federal court of appeal expressly distinguished the case of Mackay v Scott Packing and Warehousing Co (1996, 2 FC 36 (CA), in which a similarly worded clause was held to be sufficient to exclude liability for negligence. In doing so, the court noted that the defendants in the Mackay case were freight forwarders who did not have the common law liabilities of a carrier by sea.
(Source: The admiraltylaw.com website of Vancouver-based barrister and solicitor Giaschi & Margolis)

Steamer hits streamer

THE high court in Singapore recently delivered judgment in what is believed to be only the second ship collision case to proceed to a full hearing in that jurisdiction, and the first in which a written judgment has been delivered.

The case involved the Chinese containership Tai He and the seismic data ship Nordic Explorer. The Tai He was found to be at greater fault, and liability was apportioned by the court at 60:40 in favour of the Nordic Explorer.

Justice G P Selvam said, "This was an uncommon case of collision at sea." The contact was not between the two vessels as such, but between the Tai He and the seven seismic streamers being towed by the Nordic Explorer. The court found that the Tai He was navigated in such a negligent manner that it severed the streamers.

Justice Selvam, noting that weather conditions resulting in poor visibility were a feature of the case, stressed that commonsense rules of caution had to be adopted in such circumstances, and reiterated the requirements of the collision regulations. "Having stated the rules," he concluded, "I hold that the defendant's servants were incompetent and non-diligent in the navigation of the Tai He."

• The first major ship collision trial to go to court in Singapore was the Ming Galaxy/Hercei Novi case, in 1998. (Joseph Tan Jude Benny, Singapore)

Limitation of liability

IN an action brought by an insurance company claiming the value of cargo which had been lost during shipment by a courier in Dubai, the Dubai Court of Cassation awarded the insurance company the full value of the consignment shipped and refused to apply the limitation of liability listed in the United Arab Emirates Commercial Transaction Law and the Warsaw Convention, on the grounds that no reference was made to the relevant articles of either the UAE law or the Warsaw Convention in the airway bill of lading.

The Dubai Court of Cassation held that, in order for the carrier to limit its liability, specific reference had to be made to the fact that the carriage was being effected in accordance with the Warsaw Convention, or the particular article of the UAE Commercial Transaction law. As no reference had been made to those articles in the airway bill of lading, the carrier had to pay the full value of the claim.