charter party 53 - 104 - standard club · *hqfrq irup doorzv 125 wr eh whqghuhg ³dw ru rii wkh...

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CHARTER PARTY DISPUTES /CARGO CLAIMS ROUNDTABLE

Safe port / safe berth: warranty / due diligence / The Athos I decision / right to refuse orders

1 Both English and US law apply the test announced in The Eastern City, [1958] 2 Lloyd’s Rep. 127 in determining whether a port or berth is safe: “a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use, and return from it, without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship”.

2 The United States Court of Appeals for the Third Circuit reaffirmed this test in its decision in In re Petition of Frescati Shipping Company (The Athos I). In 2013, the court held that the charterer breached the charter party warranty of a safe berth when the ship struck a partially submerged, unmarked anchor. The court, however, remanded to the district court to determine the ship’s draft. On remand, the district court determined that the draft of the ship was within the warranty. On appeal from the second trial court decision, the Third Circuit affirmed the finding that the safe berth warranty was breached and the ship was not negligently navigated.

3 In the Shelltime 4 form, however, the charterer warrants only that it will exercise due diligence to provide a safe port /safe berth. Under a due diligence test, the owner in The Athos I would not have prevailed, as no one knew the anchor was there. It was a $64 million question. Words matter!

4 Usually, the question is one of physical safety of the ship, but a port may be unsafe because of danger created by a political situation or an existing state of war. This has arisen recently in connection with calls at Yemen and Venezuela In The Kanchenjunga,[1987] 2 Lloyd’s Rep 509, the court allowed that an owner is not obliged to obey an order to a port so unsafe that it is, in effect, “uncontractual” , i.e., outside the limits within which the owner has agreed the ship should be employed. Obviously, such situations will be rare. We will discuss the issues in light of the latest events in Venezuela and Yemen.

Enclosures to Tab 4: none

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Abandoned/overboard cargoes: what’s an owner to do?

1 Cover for abandoned cargo is available in accordance with club rule 3.13.1 which provides cover for “other responsibilities” in respect of cargo that is intended to be or actually carried on the ship. In particular rule 3.13.2(2) sets out the parameters for cover where cargo has been abandoned (recovery allowed to the extent the costs “exceed the proceeds of the sale of the cargo” and no recourse against another party).

2 Determining when a cargo has been rejected is not always easy. Each case must be considered on its own facts, the terms of the bill of lading, and the law of the jurisdiction.

3 Bill of lading should provide for a lien on the cargo if freight is not paid or cargo is not collected.

4 Enclosure created by the club’s Cargo Go To team sets forth club cover for cargo claims.

5 Enclosure showing claims allowed / disallowed in a case of abandoned cement.

6 Different, but related, what if a container of cargo goes overboard? Cover in principle provided under 3.11.4 (“Liabilities for or incidental to the raising removal, destruction or disposal of the cargo or any property which is being, or has been carried on the ship”.

Enclosures to Tab 5:

Cargo Go To Team chartTable of allowed / disallowed claims in connection with abandoned cement cargo

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Description of goods in bills of lading—preserve your right to limit!

All members have a mutual interest in and incentive to preserve their rights to limit their liability in each and every context in which the law allows it. It is a cornerstone of mutualitythat no one member purposefully takes advantage of the other members. If a member does not wish, or for commercial reasons is unable, to limit its liability as allowed by law, the member should purchase contractual extension cover which will cover liabilities in excess of the legal limitation amount and which are therefore not within poolable, mutual cover.

1. COGSA provides: “Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package . . . or in case of goods not shipped in packages, per customary freight unit . . . unless the nature of and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading”.

2. To determine whether the goods are shipped in packages and/or to what the $500 limitation applies, US courts will look to the language in the bill of lading and to the description of the goods in the bill of lading:

a. US courts will rarely find that the container itself is the “package”.b. If the shipper shrink wraps 100 cartons to each pallet and there are 10 such

pallets, US courts will generally find that the pallets are the relevant package.c. If the shipper stuffs a container with goods described as 1000 cartons, with no

mention of the pallets, US courts will likely find that each carton is the relevant package.

d. If the bill of lading does not reveal how the goods inside are packaged, some courts will allow evidence about how the goods are packaged; other courts will not allow such extrinsic evidence.

e. Interesting results occur in case of large items such as yachts, construction equipment, vehicles, generators, etc. which are often carried on the basis of a lumpsum freight —courts routinely limit the liability of the carrier to $500.

f. Bulk cargoes – liquid or dry – are goods “not shipped in packages”, and US courts will look to the bill of lading to determine the “customary freight unit”. Typically, this will be the ton unit. So, if 500 tons are damaged or lost, the carrier may be entitled to limit its liability to 500 times $500, or $250,000.

3. In the container trade, the club’s directors and its managers appreciate that the member’s customers and freight forwarders are loading the containers, preparing the bills of lading, and presenting sealed containers to the member for transportation. Nevertheless, members are encouraged to push back against sloppily drafted bills of lading and insist that the packaging of the goods inside be accurately described on the bills. It will save the member money and also save one’s fellow members money.


Contractual extension cover

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Recent English cases – “always accessible”/ bulk cargoes-limitation of liability/”within port limits”/who is your agent?

1. Aconcagua Bay [2018] EWHC 654 (Comm)) (always accessible)

Is the way up the same as the way down?

Clause 10 of the charter contained a warranty for “1 good safe berth always afloat always accessible”. A bridge and lock were damaged while loading. As a result, the ship could not leave for 14 days after loading was completed. The arbitrator (an umpire – apparently the two party appointed arbitrators could not agree) held that the warranty applied only to entering the berth. The court granted leave to appeal. The court stated that the parties’ intentions were to be determined by determining what a reasonable person having all the background knowledge that would have been available to the parties would have understood them to be using the language in the contract to mean". The court noted that the tribunal had not taken into account the provisions of Baltic Code 2003, 2007, and 2014 which provided: “Where the charterer undertakes that the berth will be 'always accessible', he additionally undertakes that vessel will be able to depart safely from the berth without delay or at any time during or on completion of loading or discharge".

The court therefore held for the owner and that the berth had to be “always accessible” to leave as well as to enter.

2. The Aqasia [2016] EWHC 2514 (bulk cargoes/limitation)

The court had to interpret the text in the original Hague Rules limiting a carrier’s liability to £100 per “package or unit” with respect to a bulk cargo which the parties had adopted in their charter. The court held that “unit” did not apply to bulk cargoes.

The decision would be different in the US. US COGSA changed the wording of the Hague Rules to allow the carrier to limit liability to $500 per package or “for goods not shipped in packages, per customary freight unit”, which is typically a ton.

Similarly, the issue does not arise if Hague-Visby is incorporated which provides for limitation “per package or unit or per kilogram of gross weight”.

Still a trap for the unwary (and greedy) who might have believed £100 was better than $500 and chose the Hague Rules.

3. The Arundel Castle [2017] EWHC 116 (Comm) (tender of NOR “within port limits”)

The charter provided that NOR could be tendered “on vessel’s arrival at load/discharge ports within port limits.” The ship arrived off Krishnapatnam, India. Due to congestion, the port authority directed the vessel to anchor outside the port limits and wait. Clause 6(c) of the

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Gencon form allows NOR to be tendered “at or off the port,” and the definition in Laytime Definitions for Charterparties includes “places outside the legal, fiscal or administrative area where vessels are ordered to wait for their turn no matter the distance from that area.” The London arbitrators had to decide whether “within port limits” took the case outside the holding in The Johanna Oldendorff, where the court emphasized that “the port” included wherever the local port authority exercised its authority. Here, based on an apparently sparse record made by the parties, the arbitrators interpreted “within port limits” literally and denied the owner’s claim. The court agreed and dismissed the appeal.

A good reminder to mean what you say and say what you mean!

4. The Global Santosh [2016] UKSC 20 (arrest by party down the chain: off:hire?)

Time charter provided:

49. Should the vessel be captured or seizure (sic) or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended until the time of her release, unless such capture or seizure or detention or arrest is occasioned by any personal act or omission or default of the Charterers or their agents. Any extra expenses incurred by and/or during the above capture or seizure or detention or arrest shall be for Owners' account.

The subcharterer arrested cargo aboard the ship off Nigeria for security for its demurrage claim against buyer/consignee under sales contract. Arrest order mistakenly named the ship. Owner contended the ship remained on hire since ship was arrested by “Charterers or their agents”.

Arbitrators disagreed: the subcharterer is not “agent” of charterer within the meaning of Clause 49. High Court reversed, finding a subcharterer is an “agent” of the charterer. Court of Appeal reached the same conclusion, but on different reasoning, and agreed with the High Court that the ship was not on hire. Supreme Court, however, reversed and agreed with the arbitrators in a 4-1 decision.

The Court held that in arresting the ship, the subcharterer was not exercising rights derived from Cargill’s obligations under the time charter. As a result, the ship was not on hire during the period of the arrest.

What does such a case say about “predictability” of results under English law?

Enclosures to Tab 7: none


Recent FD&D matters in the New York office

The New York office often considers and provides advice on interesting issues of charter party interpretation which, however, due to the low value or commercial pressures are not arbitrated. Here are some we dealt with in recent years.

1 Pilotage in the Magellan Straits. The charter provided that charterers were to pay for “any pilotage”. Pilotage in the Magellan Straits is not compulsory. As it is a dangerous passage and pilots are available, owner engaged a pilot. Time charterer refused to pay, contending that the owner took the pilot for its own purposes and should have had a competent master who could navigate the ship through the straits.

2 Redelivery notices. These can become tricky, especially in longer term time charters. Charterer was obliged to give 30/10/7 “approximate” notices then 5/3/1 “firm” notices. The first “firm” notice was 2 days. See October Defence Bulletin enclosed with this tab.

3 Deductions from hire. Always tricky, too. Several charters between the same owner and the same charterer came up for redelivery within a period of a few months. Charterer deducted amounts it contended were due on prior redelivered ships on the last hire due on the last ship to be redelivered.

4 Arab boycott clause. The Arab League boycott of Israel was intended to hamper / restrict trade with Israel. If a company traded with Israel, Arab League states would boycott that company. Arab League states required a company to state affirmatively that it did not do business with Israel. The US punched back and passed laws that imposed fines on any company that observed the Arab League boycott. Large US charterers began to include “US Anti-Boycott Clauses” in their charters, making it clear that neither party had to comply with any requirement which would cause either party to be penalized under US law. Over time, the boycott failed. Today, only Lebanon, Syria, and Iran purport to observe it. The issue can arise in a seeming innocuous operational context, e.g., a harbour master may require the owner or the charterer to state that the ship has not called Israel. Even if the owner or charterer can truthfully answer the question, no, it should not answer it. The US authorities may deem doing so complying with the Arab boycott. Indeed, US law may even require you to report that the request was made.


Excerpt from October 2015 Defence Bulletin

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The Both to Blame Collision Clause: what’s that about?

Charter party clauses and marine insurance clauses, once born and accepted into commerce, are incredibly hardy and long-lived. The Both to Blame Collision Clause is a good example. Every recap includes it. What’s it about?

The clause applies in a collision between two cargo carrying ships and provides:

If the Vessel comes into collision with another ship as a result of the negligence of the other ship and any act, neglect or default of the Master, Mariner, Pilot or the servants of the Carrier in the navigation or in the management of the Vessel, the owners of the cargo carried hereunder will indemnify the Carrier against all loss or liability to the other or non- carrying ship or her Owners in so far as such loss or liability represents loss of, or damage to, or any claim whatsoever of the owners of said cargo, paid or payable by the other or non-carrying ship or her Owners to the owners of said cargo and set-off, recouped or recovered by the other or non-carrying ship or her Owners as part of their claim against the carrying Vessel or Carrier. The foregoing provisions shall also apply where the Owners, operators or those in charge of any ship or ships or objects other than, or in addition to, the colliding ships or objects are at fault in respect of a collision or contact.

Under US law, the carrying ship may limit its liability under the bills of lading and COGSA.

The non-carrying ship, however, is liable to the cargo on the other ship without benefit of the COGSA limitation.

The non-carrying ship may recover from the carrying ship based on its proportion of fault. This may mean that the carrying ship is in fact liable to the cargo on board its ship in excess of the limitation amount.

The both to blame collision clause gives the carrying ship the right to recover the excess from the cargo on its ship.

However, US courts have held the clause is invalid where COGSA applies by law because it is a lessening of the liability of the carrier under COGSA, but have upheld it in a contract in which COGSA was incorporated by contract. And that returns us to the issue in Tab 3, whether, in a charter party not subject to COGSA by law, a clause paramount incorporating COGSA by contract nullifies a clause which lessens the liability of the carrier under COGSA, here, the both to blame collision clause.

And, therefore, the hardy and long-lived both to blame collision clause survives.


Excerpts from Time Charters 34.44 and 34A.22 – 34A.28

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charter party 53 - 104 - standard club · *hqfrq irup doorzv 125 wr eh whqghuhg ³dw ru rii wkh...

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