Marine Brief: latest decisions June 2018

In this briefing we consider some recent UK and overseas court decisions addressing issues including: appointing arbitrators out of time; whether an arbitrator had acted ‘fairly’; claims dismissed for inordinate or inexcusable delay; the scope of a charterparty lien in Singapore; the application of war risks insurance; what ‘management of the ship’ includes; and apportionment of liability between owners and charterers.

Applications to extend time for the appointment of arbitrators under Section 12 Arbitration Act 1996 – string arbitrations

P v Q [11.06.2018]

The parties were owners and charterers under a series of back-to-back voyage charters based on the Norgrain 1973 form occupying the middle of a charterparty chain, providing for arbitration in London, and including a time bar in the following form: “Any claim other than the demurrage claim under this contract must be notified in writing to the other party and claimant's arbitrator appointed within thirteen (13) months of the final discharge of the cargo and where this provision is not complied with, the claim shall be deemed to be waived and absolutely barred”.

Head owners served notice of arbitration on head charterers on the last day of the 13-month period which meant that appointments of arbitrators and notifications for claims down the chain were made after the period had expired; as such, the claims would potentially be time-barred.

The affected parties sought declarations that the appointments/notifications were timely despite being outside the 13-month period, alternatively extensions of time for the appointments. The court refused the declarations but allowed the applications for an extension of time for the appointment of an arbitrator where the appointments and applications had been made promptly - but refused similar applications where there had been unreasonable delay.

Contact: David McKie

No irregularity by LOF Appeal Arbitrator

Navigator Spirit SA v Five Oceans Salvage SA [15.05.2018]

A Lloyd’s Open Form (LOF) arbitrator’s salvage award had been substantially increased by the LOF Appeal Arbitrator. He considered that neither party had presented the correct hypothetical scenario against which the dangers facing the casualty were to be assessed. In reaching his award he therefore considered an alternative scenario which had not been presented by either party in the arbitration nor set out in the grounds of appeal.

Owners applied to the court to set aside the Appeal Arbitrator’s award for serious irregularity and procedural unfairness.

The court, after reviewing contemporaneous notes from the hearing and the Appeal Arbitrator’s own evidence, decided that the Owners had been given sufficient opportunity to address the dangers in the arbitrator’s alternative hypothetical scenario. The Appeal Arbitrator had clearly sought to act “fairly” in accordance with s33 of the Arbitration Act 1996. There had been no serious irregularity and the application was dismissed.

Contacts: David McKie and Freddie Mehlig

High Court upholds arbitration tribunal dismissal of claim for inordinate and inexcusable delay

Grindrod Shipping Pte Ltd v Hyundai Merchant Marine Co Ltd (The K-Amber) [24.05.2018]

Time-charterers commenced arbitration proceedings in July 2011 following disputes arising out of the master’s refusal to comply with voyage orders because of piracy concerns. The reference proceeded at a snail’s pace and in January 2017 Hyundai applied to have the claim dismissed on the grounds of inordinate and inexcusable delay (s41(3) Arbitration Act 1996).

The tribunal found three periods of inordinate or inexcusable delay totalling around four years had caused serious prejudice to Hyundai, which had been forced to provide substantial security in order to negate the threat of arrest of one of its vessels whilst negotiating a period of financial restructuring.

Blair J dismissed the claimants’ challenge of the award for serious irregularity under s68 of the Arbitration Act 1996 finding that the serious prejudice that resulted from the security bond had been raised as an issue by Hyundai, and the claimant had had fair and sufficient opportunity to address the arguments.

Contact: Craig Boyle-Smith

Singapore Court of Appeal considers whether a charterparty lien on sub-freight is a registerable charge

Diablo Fortune Inc v Duncan, Cameron Lindsay and another [21.05.2018]

The Singapore Court of Appeal has affirmed the earlier High Court’s decision that, under Singapore law, a charterparty lien on sub-freight is a floating charge that is registrable under the Companies Act. Accordingly, such lien is void and unenforceable against a charterer in liquidation if it is not registered and owners will stand as unsecured creditor for sums due to it from the insolvent charterer under the charterparty. However, it is anticipated that the Act may be amended in the future to relieve owners of this somewhat impractical requirement.

Related item: Singapore Court of Appeal considers whether a charterparty lien on sub-freight is a registerable charge

Contacts: Karnan Thirupathy and Li Tang Chong

Claim for loss of vessel following discovery of drugs on board was not covered under standard war risks insurance

Navigators Insurance Co Ltd & Ors v Atlasnavios-Navegacao LDA (“THE B ATLANTIC”) [22.05.2018]

The Supreme Court has unanimously rejected the shipowners’ appeal, confirming that the constructive total loss of a vessel detained by customs authorities in Venezuela after drugs were found strapped to its hull was not covered under standard war risks policy terms because the detainment by reason of infringement of customs regulation exclusion clause applied.

A welcome judgment for insurers and a welcome application of common sense both to issues of proximate cause and policy construction.

Related item: Claim for loss of vessel following discovery of drugs on board was not covered under standard war risks insurance

Contact: David McKie

Scope of Hague Rules Article IV, Rule 2 ‘management of the ship’ exclusion considered

Clearlake Shipping Ptd Ltd v Privocean Shipping Ltd [15.05.2018]

Even if the master of a vessel causes a charterer to unnecessarily incur expenditure by refusing to accept a stowage plan, the shipowner is entitled to exemption from liability for such expense under Section 4.2 US COGSA (which enacts the Hague Rules) provided that the master’s primary purpose in intervening was for the safety and stability of the vessel.

The master had refused to load a soyabean cargo insisting on additional strapping being provided. Charterers produced expert evidence that the strapping had been unnecessary and that adequate stability could have been achieved by other means. Whilst the Tribunal agreed, finding the master negligent, Owners’ liability for the costs and delay was excluded because the neglect of the master was "in the management of the ship" under Section 4.2 US COGSA which was incorporated into the contract of carriage. Charterers’ appeal was dismissed by the court upholding the tribunal’s reasoning.

Contact: Jack Cornick

Straightforward approach to apportionment of liability under Clause 8(b) of the Inter-Club Agreement (ICA) reaffirmed in recent arbitration appeal

Agile Holdings Corporation v Essar Shipping Ltd, (The Maria) [11.05.2018]

Waksman J granted owners’ appeal of the arbitration award, finding that only a total transfer of responsibility to the master for the handling of cargo is sufficient to allow an apportionment claims liability between owners and charterers on a 50/50 basis when considering whether (for the purposes of Clause 8(b) of the ICA) there has been a ‘similar amendment’ to adding ‘and responsibility’ to Clause 8 of the NYPE charterparty.

Clauses that have the result of only effecting a partial transfer of cargo handling responsibilities (e.g. for stowage) will not result in a 50/50 apportionment of liability. This decision reaffirms the straightforward approach to cargo claims liability apportionment envisaged under the ICA. Charterers need to draft much clearer clauses which transfer all responsibility back to the owners/master to get the benefit of the 50/50 apportionment.

Contact: Craig Boyle-Smith

Meaning of unit for Hague-Visby Rules package limits confirmed

Kyokuyo Co Ltd v A.P. Møller-Maersk A/S (The Maersk Tangier) [17.04.2018]

Court of Appeal confirms that a unit for the purpose of the Hague-Visby Rules package limits is any unpackaged item of cargo, and that the Hague-Visby Rules can apply compulsorily even where a waybill is issued.

Related item: Package limitation under Hague Visby Rules confirmed

Contact: David McKie

Read other items in the Marine Brief - June 2018