Round up of recent shipping cases Emma Burrage Elizabeth McArthur - - PowerPoint PPT Presentation

Round up of recent shipping cases

Emma Burrage Elizabeth McArthur Senior Associate Associate Norton Rose Fulbright LLP October 25, 2017

Round up of recent shipping cases

Contractual interpretation – the limits of commerciality

• Gard Shipping AS v Clearlake Shipping Pte Ltd [2017]

Performance warranties in charterparties

• Imperator I Maritime Company v Bunge SA (Coral

Seas) [2016]

Delivery orders and technological advances

• Mediterranean Shipping Company SA v Glencore

International AG [2017]

The meaning of “in light ballast condition”

• Regulus Ship Services Pte Ltd v (1) Lundin Services BV

(2) Ikdam Production SA [2016]

Rule against penalties

• Cavendish Square Holding BV v Talal El Makdessi;

ParkingEye Limited v Beavis [2015]

Round up of recent shipping cases: The Standard Club seminar 2

Contractual interpretation – judicial developments in recent years

Rainy Sky SA v Kookmin Bank [2011]

• Where parties have used

ambiguous language, the courts will adopt a commercial interpretation over a literal one

• The court is entitled to favour

the approach which is more consistent with business common sense

Arnold v Britton and

• thers [2015]

“the reliance placed in some cases on commercial common sense and surrounding circumstances … should not be invoked to undervalue the importance of the language of the provision which is to be construed”

Round up of recent shipping cases: The Standard Club seminar 3

Contractual interpretation – the limits of commerciality

Wood v Capita Insurances Limited [2017]

• No inconsistency between the approaches in Rainy Sky and Arnold v

Britton

• Court must balance the wording of the contract and the commercial

implications of competing constructions

• In doing so, the court will look at three factors:

– Quality of the drafting – One party might have signed up to a bad bargain – The drafting might be a negotiated compromise

Round up of recent shipping cases: The Standard Club seminar 4

Gard Shipping v Clearlake Shipping [2017]

Round up of recent shipping cases: The Standard Club seminar 5

Gard Shipping v Clearlake Shipping [2017] – agreed facts

Round up of recent shipping cases: The Standard Club seminar

30/12/2015 2300 Load Port, UST – Luga NOR served 26/01/2016 2250 Final Discharge Port Rotterdam NOR Served 31/03/2016 2020 Discharge instructions given Vessel fast at berth 01/04/2016 0345 Commence discharge 04/04/2016 0340 Discharge completed

64.708 days on demurrage

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Gard Shipping v Clearlake Shipping [2017] – relevant terms

• Standard demurrage rate US$ 32,500 PDPR
• Escalated rate – additional clause 11

“…Charterers shall have the liberty … of instructing the vessel to stop and wait for orders FOR MAX 3 DAYS at a safe place …Charterers shall be entitled to instruct the vessel not to tender NOR on arrival at or

• ff any port or place or to delay arriving at any port or place until

Charterers give the order to do so… AFTER FIRST 5 DAYS WAITING FOR ORDERS/DISCH INSTRUCTIONS AT SEA VESSEL TO BE CONSIDERED AS BEING USED FOR STORAGE, AND, UNLESS OTHERWISE AGREED, FOLLOWING INCREASE OF DEMURRAGE RATE TO APPLY – DAYS 6-15 DEMM RATE PLUS $5,000 – DAYS 16-25 DEMM RATE PLUS $10,000 – DAYS 26-35 DEMM RATE PLUS $15,000”

Round up of recent shipping cases: The Standard Club seminar 7

Gard Shipping v Clearlake Shipping [2017] – legal issues

Round up of recent shipping cases: The Standard Club seminar

Owners’ arguments:

• Charterers were not allowed to

instruct the vessel to stop and wait for orders for more than three days

• Charterers were not entitled to

use the vessel as floating storage

• The vessel was to be considered

as being used for floating storage if stopped for more than five days

• If used for floating storage,

charterers to pay demurrage at the escalated rates

Alternatively:

• Implied term stating "Whenever,

after first five days waiting for

• rders/disch instructions at sea
• r in port, for reasons not beyond

the Charterers' reasonable control..."

• Commercial purpose was to

make charterers liable for demurrage at escalating rates where they used the vessel as floating storage

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Gard Shipping v Clearlake Shipping [2017] – legal issues (cont.)

• Court adopted a literal interpretation
• Storage clause had been deleted
• Fundamental issue was whether or not an order

was given

• Specific trigger required for each demurrage regime
• Charterers had tendered NOR – ordinary

demurrage regime applied

• No implied term:

– There was no commercial necessity for the implication

• f such term

– The implication of the term was inconsistent with the charterparty properly construed

Round up of recent shipping cases: The Standard Club seminar 9

Gard Shipping v Clearlake Shipping [2017] – take home points

• Arguments that it must be "obvious" how the

contract was meant to work will not always succeed

• Court will be reluctant to imply meaning where the

contractual terms are clear

• Clear drafting important - particularly when relying
• n a fixture recap and previously drafted terms
• Where notices are required to trigger entitlement to

payment – ensure the contractually required steps have been followed

• At the outset – assess precisely what the contract

requires

• How would a tribunal interpret the wording?
• Strategise accordingly

Round up of recent shipping cases: The Standard Club seminar 10

Performance warranties in charterparties

Imperator I Maritime Company v Bunge SA (Coral Seas) [2016]

Round up of recent shipping cases: The Standard Club seminar 11

Facts

• Owners chartered the vessel to Bunge

SA (head-charterers)

• Bunge sub-chartered to C Transport

Panamax

• The vessel remained in tropical waters

for four weeks at Guaiba Island

Imperator I Maritime Company v Bunge SA (Coral Seas) [2016]

Round up of recent shipping cases: The Standard Club seminar 12

Facts

• The vessel was notably slower on departure from Guaiba
• The fall in performance resulted in her taking on emergency bunkers at Jakarta

before arriving at Singapore

• An underwater inspection revealed heavy fouling of the propeller by barnacles

and light fouling on the bottom of the vessel

Round up of recent shipping cases: The Standard Club seminar

Imperator I Maritime Company v Bunge SA (Coral Seas) [2016] (cont.)

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Imperator I Maritime Company v Bunge SA (Coral Seas) [2016] (cont.)

Facts

• Charterers deducted $ 389,379.51 from hire for the

underperformance, asserting that Owners had breached the speed warranty in the charterparty

• Owners claimed $ 280,720.69 and charterers and

sub-charterers each counterclaimed $ 32,825.56

• The claims were referred to LMAA arbitration

Round up of recent shipping cases: The Standard Club seminar 14

Imperator I Maritime Company v Bunge SA (Coral Seas) [2016] (cont.)

Charterparty performance warranty NYPE 1946 form with additional rider clauses Clause 29 (b) Speed Clause Throughout the currency of this Charter, Owners warrant that the vessel shall be capable of maintaining and shall maintain on all sea passages, from sea buoy to sea buoy, an average speed and consumption as stipulated in clause 29(a) above, under fair weather condition not exceeding Beaufort force four and Douglas sea state three and not against adverse current.

Round up of recent shipping cases: The Standard Club seminar 15

Imperator I Maritime Company v Bunge SA (Coral Seas) [2016] (cont.)

Clause 29 (a) Vessel’s description … D Speed/consumption (expected as a new building) About 14.5 knots ballast/about 14 knots laden on about 33.5 mts ISO 8217:2005 (E)RMG 380 plus about 0.1 mts ISO8217:2005 (e) DMA in good weather condition up to Beaufort scale four and Douglas sea state three and calm sea without adverse current…Plus: Daily Generator Consumption about 2.5 mt at sea/about 2.0 mt (at sea/idle) ISO 8217:2005 (E)RMG 380… All details about All details are given in good faith as per shipbuilders’ plans and as a new building vessel can be described.

Round up of recent shipping cases: The Standard Club seminar 16

LMAA Arbitration

• The vessel did not maintain the warranted speed
• The voyage had been extended by 90.245 hours
• This was caused by underwater fouling during the stay at Guaiba

Island

• Such marine growth was fair wear and tear

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Imperator I Maritime Company v Bunge SA (Coral Seas) [2016] (cont.)

Round up of recent shipping cases: The Standard Club seminar

Arbitrators’ decision

• The speed warranty in clause 29(b) applied to all sea voyages
• Owners assume the risk of underperformance due to fouling
• Owners claim for hire was dismissed and sums were due to the

charterers

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Imperator I Maritime Company v Bunge SA (Coral Seas) [2016] (cont.)

Round up of recent shipping cases: The Standard Club seminar

Commercial Court

• Owners appealed on the following question of law:

Is it a defence for the owner to prove that its under-performance of the speed warranty resulted from compliance with the charterer’s orders?

• Owners referred to Time Charters 7th ed (2014) paragraph 3.75:

“Where the owners give a continuing undertaking as to performance of the ship, and the ship has in fact underperformed, it is a defence for the owners to prove that the under-performance resulted from their compliance with the charterers' orders: see The Pamphilos [2002] 2 Lloyd's Rep 681 , 690, per Colman J. In that case, the ship's failure to achieve the promised performance resulted from marine fouling, which was in turn the result of the owners' complying with the charterers' order to wait for 21 days at a tropical port.”

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Imperator I Maritime Company v Bunge SA (Coral Seas) [2016] (cont.)

Round up of recent shipping cases: The Standard Club seminar

Owners’ arguments

• The speed warranty was given on the basis of a clean hull and

propeller

• Where fouling leads to a fall in performance, owners are responsible

for cleaning the vessel

• It is contrary to business common sense to hold owners liable for the

consequences of marine fouling which they could not know about

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Imperator I Maritime Company v Bunge SA (Coral Seas) [2016] (cont.)

Round up of recent shipping cases: The Standard Club seminar

Court judgment

• Owners assume the risk of a fall in performance due to marine fouling
• Marine growth “is simply a natural consequence of the ship remaining in

service” (Cosmos Bulk Transport Incorporated v China National Foreign Trade Transportation Corpn [1978])

• The implied indemnity that an owner usually has against the charterer for the

consequences of complying with the charterers’ orders does not apply to marine fouling

• Owners are not entitled to an indemnity for something which they are being

remunerated for by the payment of hire

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Imperator I Maritime Company v Bunge SA (Coral Seas) [2016] (cont.)

Round up of recent shipping cases: The Standard Club seminar

Court judgment

• The warranty was not confined to the vessel’s capacity as newly built
• The parties could have excluded the warranty for voyages after the vessel

had stayed in warm waters

• The language of the warranty is clear and unambiguous
• The parties failed to expressly exclude the performance warranty for voyages

after prolonged stays in warm waters

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Imperator I Maritime Company v Bunge SA (Coral Seas) [2016] (cont.)

Round up of recent shipping cases: The Standard Club seminar

1 If the vessel “remains at or shifts within a place, anchorage and/or berth for an aggregated period” exceeding 15 days in tropical or non- tropical waters (or such other period as may be agreed), her performance warranties are discontinued pending an underwater inspection. 2 The underwater inspection can be required by either party and will be arranged jointly – but at charterers' risk, cost and time. 3 After the inspection, if either party requires underwater cleaning, this must be done by charterers at their risk, cost and time – in consultation with owners, under the master's supervision and in accordance with the hull paint manufacturers' guidelines.

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BIMCO 2013 Hull Fouling Clause for Time Charterparties

Round up of recent shipping cases: The Standard Club seminar

4 If the cleaning is not permitted or is not possible where the inspection took place, or if charterers postpone the cleaning, the vessel's performance warranties will remain suspended until the cleaning takes

• place. If owners refuse to allow the cleaning despite the availability of

suitable facilities and equipment, the vessel's performance warranties will be reinstated. 5 The cleaning must take place before redelivery. If, however, charterers are prevented from doing so, the parties will agree a lump sum in respect of the cost to owners of doing so. 6 If charterers show that the vessel is performing as warranted despite the prolonged stay referred to in 1 above, her performance warranties will be reinstated and charterers' inspection/cleaning obligations will no longer apply.

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BIMCO 2013 Hull Fouling Clause for Time Charterparties (cont.)

Round up of recent shipping cases: The Standard Club seminar

MSC Mediterranean Shipping Company S.A. v Glencore International AG [2017] – MSC Eugenia

Round up of recent shipping cases: The Standard Club seminar 25

The meaning of “in light ballast condition”

Regulus Ship Services Pte Ltd v (1) Lundin Services BV (2) Ikdam Production SA [2016]

Round up of recent shipping cases: The Standard Club seminar 26

Rule against penalties

Round up of recent shipping cases: The Standard Club seminar

Previous rule against penalties (1915) Dunlop Pneumatic Tyre Co Ltd v New Garage [1915]

• Genuine pre-

estimate of loss?

• “Extravagance”?
• Unreasonableness?
• Deterrence

UK Supreme Court rulings (November 2015) Makdessi v Cavendish [2015] ParkingEye Ltd v Beavis [2015] New recast test New test

• Whether the clause is a secondary
• bligation which imposes a detriment on

the contract breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary

• bligation
• “Legitimate interests”?
• “Whether the sum or remedy stipulated as

a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract”

• Higher threshold

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Questions

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Round up of recent shipping cases: The Standard Club seminar

Contact us

Round up of recent shipping cases: The Standard Club seminar

Elizabeth McArthur

Associate London +44 20 7444 5239 elizabeth.mcarthur@nortonrosefulbright.com

Emma Burrage

Senior Associate London +44 20 7444 3076 emma.burrage@nortonrosefulbright.com

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