Piercing the corporate veil

Piercing the corporate veil
Northern Tankers (Cyprus) Ltd v Backstrom

IN this dispute before the US District Court, the shipowner had obtained an arbitration award against the charterer for damages arising from its repudiation of a five-year time charter. The award was confirmed by the court and judgement was entered against the charterer. But the charterer was insolvent and couldn’t satisfy the judgment. To enforce the judgment, therefore, the owner started an action against two individuals who were alleged to be the alter egos of the charterer as well as numerous affiliated entities.

The charterer was a Liberian corporation whose parent was Starlux, another Liberian corporation which also owned a large number of one-ship companies. Starlux, in turn, was owned by Atlantic Brands, yet another Liberian company. The shares of Atlantic Brands were owned or controlled by two individuals who also owned numerous real estate companies which owned their personal residences. All were named as defendants.

Following a lengthy bench trial, the district court ruled that the individuals were the alter egos of the charterer and were personally liable for its debts to the owner. The court also pierced the corporate veil of the various corporate defendants. In so holding, the district court set out a lengthy analysis of the law which governs veil-piercing claims in maritime cases.

Because the owner’s claim arose from a charter party, the court held that federal maritime law, rather than state law, applied. The court concluded that, "In order to pierce the corporate veil in federal maritime law, an individual defendant must have used his or her corporation to perpetrate a fraud, or have so dominated and disregarded its corporate form that it primarily transacted the individual’s personal business rather than its own corporate business".

The test applied by the court has two separate prongs, and a plaintiff who can satisfy either one will succeed. Thus, the corporate veil will be disregarded based on either a showing of fraud or a showing of domination. The court found that it was unnecessary as a matter of law for the owner to prove fraud or inequity if it met its burden of proving the domination of the charterer by the two individuals.

The court noted that the test applied under maritime law was not the same as that under New York state law, under which a showing of fraud or inequity appears to be required in addition to proof of domination.

Any other cause
Andre & Cie Sa v Orient Shipping (Rotterdam) Bv (‘The Laconian Confidence’) [1997] 1 Lloyds Report 139

THIS decision of Rix J contributes to the continuing debate on the meaning of "... any other cause preventing the full working of the vessel" in Clause 15 of the NYPE form. It exemplifies the continuing importance of the ejusdem generis rule of construction when considering the scope of offhire clauses in a time charter.

In this case, a residue of sweepings had been left on board the vessel after discharge of a cargo of bagged rice at Bangladesh. Rather surprisingly, the Bangladesh authorities refused to allow the vessel to sail because of the presence of the sweepings, and it was only after a delay of eighteen days that they agreed to allow the sweepings to be dumped at sea.

The charterers contended that the vessel was offhire during this period for two reasons: first, that the action of the authorities constituted detention by average accident to cargo within the named offhire events of Clause 15, and second, that if it did not, the vessel was offhire as a result of another cause preventing the full working of the vessel.

Rix J, like the arbitrators, rejected both arguments. In relation to average accident to cargo, he accepted that the arbitrators were entitled to conclude that average damage to cargo required a degree of fortuity and that the presence of the sweepings was not fortuitous. He also pointed out that in the light of the arbitrators’ findings the cause of the loss of time was not the presence of sweepings but the port authorities’ unusual reaction to them.

On the more general question of the scope of the closing words of Clause 15, Rix J, having considered the authorities, declined to adopt the approach taken by Webster J in The Roachbank ( [1987] 2 Lloyds Report 498), even though the Court of Appeal had refused leave to appeal from Webster J’s decision ( [1988] 2 Lloyd’s Report 337). Webster J had suggested that the words were taken to mean that the vessel was offhire if it was not fully efficient and capable in itself of performing the service immediately required by the charterers.

In Rix J’s view, there is no requirement that the vessel must be inefficient in itself: a vessel’s working may be prevented by legal as well as physical means and by outside as well as internal causes. Having arrived at the point that an inability to work the vessel as a result of an instruction by the port authorities was capable of falling within the closing words of Clause 15, the question of whether or not it did so depended on the meaning of the phrase ‘or any other cause’. In the absence of the word ‘whatsoever’, this phase was to be construed ejusdem generis with what went before. The preceding list of offhire events all relate to the physical condition or efficiency of the vessel, its crew or its cargo.

"In such circumstances it is to my mind natural to conclude that the unamended words ‘any other cause’ do not cover an entirely extraneous cause like the boom in Court Line or the interference of the authorities unjustified by the condition (or reasonably suspected condition) of ship or cargo."

(Source: Ince & Co, London)

Non-residential jurisdiction
Having a shipping agent in Dubai is not sufficient to give jurisdiction to local courts

IN an action filed before the Dubai courts, the court of cassation held that having a shipping agent located in Dubai is not sufficient to give the Dubai court jurisdiction to hear an action filed against non-resident owners of a vessel.

An action was filed by a shipping agent in Dubai against the owners of a vessel claiming an amount of $75,000 for services rendered while the vessel was in port in Sudan. The owners failed to pay for the services. The agent obtained an attachment order against the vessel and filed the main action against the owners before the Dubai court, requesting the court to order the owners to pay the full amount claimed, plus costs, and to uphold the attachment order. The owners argued that the Dubai court had no jurisdiction to hear the matter and that the case should therefore be dismissed.

The Dubai court of first instance dismissed the action on the ground that the Dubai court, as the owners argued, had no jurisdiction over the matter. The agent appealed to the Dubai Court of Appeal.

Before the Court of Appeal, the agent argued that the owners had a local shipping agent in Dubai and because it carried out business and activities in Dubai through this agent, the Dubai court should have jurisdiction. The Dubai Court of Appeal, however, dismissed the appeal and upheld the judgement delivered by the court of first instance. The agent appealed further to the Dubai Court of Cassation.

Before the Court of Cassation the agent argued as before the Court of Appeal. It argued that the owners had a general manager sitting at its shipping agent’s office in Dubai, which was there to represent the owners’ commercial activities in the UAE. The owners were using all telephone, telex and postal box facilities of the agent as their own.

Furthermore, the agent argued that it had a priority debt over the owners’ vessel and that it had a right to exercise its lien in Dubai, where the vessel was arrested. The UAE, therefore, would have jurisdiction according to the meaning of Article 122 of the UAE Maritime Code.

The Dubai Court of Cassation held that, according to Article 21 of the UAE Civil Procedure Law (the CPL’), UAE courts do not have jurisdiction in an action filed against a foreign entity unless certain pre-conditions established in Article 21 are satisfied. In brief, defendants must have a place of domicile, place of business or chosen address or location in Dubai, or in the action must relate to assets situated in Dubai or to an obligation which has been established or executed in the emirate.

The Court of Cassation also referred to Article 85 of the CPL and held that, to decide whether someone has used the UAE as a place of domicile or place of business, plaintiffs must present evidence that defendants had actually meant to establish a business and intended to continue to carry out business on a permanent basis in the UAE. This evidence and related facts will be assessed by the Judge who first hears the case.

The court also held that, according to Article 122 of the Maritime Code, the court will have jurisdiction to hear a matter if the arrest was granted in Dubai, only under certain conditions, none of which applied to this particular case.

The court reviewed the documents, the invoices rendered by the agent, and the correspondence, and noted that the owners had no place of domicile or business in the UAE. As well as this, it was not open to the agent to argue that the owners had nominated their shipping agent in Dubai as their place of domicile, as such a nomination must be in writing and supported by evidence. There was no evidence before the court to show that the shipping agent was authorised to accept service or to represent the owners in litigation.

Accordingly, the agent’s appeal was dismissed and the judgement delivered by the lower courts was upheld.

(Source: Al Tamimi & Company, Dubai)

Subrogation rights
Elf Caledonia Ltd v London Bridge Engineering Ltd & Others

THIS was an interesting Scottish decision arising out of the Piper Alpha casualty. Among the people who were killed or injured as a result of the disaster were a number who were employed not by the platform’s operators but by subcontractors who were performing services for the operators.

The operators settled the claims of their own employees as well as the claims that were made on behalf of the subcontractors’ employees. The subcontracts, however, contained clauses which provided for the subcontractors to indemnify the operators in respect of any liability they might have to the subcontractors’ employees.

The operators of the Piper Alpha brought this action to recover the payments made to the subcontractors’ employees. The payments had been partly funded by the operators and partly by their liability underwriters.

The judge held that although the facts of the casualty were sufficient to trigger the indemnity clauses, the liability underwriters were not subrogated to the operators’ claims under the indemnity clauses. In his view, both the liability insurers and the subcontractors were equally liable to indemnify the operator. This resulted in the payment by the insurers extinguishing the operators’ right to claim from the subcontractors. Therefore, there was no claim to which the insurers could be subrogated.

The only right which the insurers had was to seek a contribution in their own name to the payment which they had made.

This is rather a surprising decision and, if correct, undermines many of the assumptions on which the risk allocation in offshore contracts is based. This means that these contracts and liability policies for offshore operators would need to be revised. It is likely that there will be an appeal to the Inner House of the Court of Session.

Liability on packets not boxes

THE Court of Appeal in London has held that, where a bill of lading listed a number of containers said to contain a specified number of separately packed items, the carrier’s liability under the Hague Rules in the event of loss was limited by reference to the number of separately packed items rather than by the number of containers. The bill of lading was not conclusive of the contents of the containers.

The River Gurara suffered an engine breakdown and sunk off the coast of Portugal with total loss of cargo. Some of the cargo was in containers. That cargo was described in the bill of lading as a number of "bales" or "parcels" or "bags" or "bundles" or "crates" or "cartons" or "pallets". The issue of whether the liability limited under the Hague Rules was to be calculated on the containers or on the individual items within them has been decided in many jurisdictions, but not in England.

The appeal court found, by a majority decision, that the Hague Rules limit of liability fell to be calculated by reference to the particulars of the cargo and its packaging as it was proved to have been on loading, not by reference to the description in the bill of lading. The court said the position was inconvenient and could lead to uncertainty, which decisions in the United States avoided, but that could not justify an interpretation that the rules could not bear.

(The Times Law Reports)

Timely insurance
Callaghan v Dominion Insurance Company Ltd

THIS decision of Sir Peter Webster sitting in the Queen’s Bench Division establishes that the time at which the cause of action for breach of a contract of insurance by the insurer accumulates, namely the date of the casualty, is the same for both property and marine insurances.

In the judge’s view, an indemnity insurance is an agreement by the insurer to grant the insured a contractual right - which comes into existence immediately the loss is suffered through the happening of an event insured against - to be put in the same position in which the insured would have been had the event not occurred.

(Ince & Co, London)