The Club enjoyed a very satisfactory 2007 Renewal. Interms of tonnage over the year as a whole, an additional3.76 million tons entered and 1.78 million tons left theClub (including 440,000 tons that was not offeredrenewal terms); a net increase of 1.98 million tons year onyear. We were pleased to welcome seventeen newMembers to the Club, who between them entered2.91million tons, while twenty two Members increasedthe proportion of their fleets entered with the Club. TheBoard had set a general increase of 9%. In the event anincrease of 8.6% (including change of terms) wasachieved. Given the market environment the Managersbelieve that this is a very encouraging response from themembership as a whole.

After the Board announced the general increase someMembers expressed surprise that it was at the higher endof the level of increases set by International Group Clubs.However, it was already clear that 2006-07 was a highclaims year mainly in the excess US$ 1 million layer andmore particularly for the claims in the International GroupPool. Although Steamship Mutual had one claim which isforecast to fall on the Pool, albeit not substantially, theclaims brought by other clubs were such that 2006-07was set to be a record breaking year. An extremely goodinvestment performance has ensured that the Club willmake an operating profit for the year notwithstandingthese claims, which will result in a pure underwriting lossfor the first time in four years. Nevertheless, it isimportant that the Club returns to a pure underwritingsurplus as soon as possible, preferably in the current year.To that end the 9% general increase is a vital contributorto the Club’s continuing strong financial position.

The Managers’ responsibility, as always, is to ensure thatnew tonnage joining the Club pays a reasonable rate. It isnot in the long term interests of any owner if the Clubjeopardises its financial base by accepting entries atunrealistic rates - even if all Members naturally seek toachieve the lowest possible rates for their vessels. As therecent renewal has demonstrated, however, the Club’sMembers also recognise that premium levels should fairlyreflect claims experience, keeping pace when claims rise.The Managers will endeavour to ensure that this policy isadhered to, throughout the year and at the next renewal.

Gary Rynsard

21st May 2007.

Introduction

“An extremely good

investment performance

has ensured that the

Club will make an

operating profit for

the year....”

Sea Venture newsletter Issue 8 3Sea Venture newsletter Issue 8

Introduction....................................3

“Clash of the Titans” - House ofLords v European Court of Justice 4

Steamship Mutual News ................4

Indian Law: Arrest for Security forForeign Arbitration Award..............5

Carrier Beware - Transfer of Risk Not Title ................5

Towage or Salvage?........................6

From Misdeclaration to Limitation - a Carrier's Problem ......8

Risks in Launching and Recovery of Lifeboats ....................................9

Without Prejudice or Not? - Lia Oil S.A. v ERG Petroli S.P.A. ..10

Clausing Bills of Lading byIncorporation of Survey Reports ..10

Michigan - Ballast Water Control Permits ............................11

A Blow for Certainty in Commercial Affairs? ....................12

Seafarers - Changes to the RaceRelations Act ................................14

Performance Warranties - The Whole Picture ........................15

Philippine Law - PermanentDisability Rule Part-Clarified..........16

Can Delay Make a Port Unsafe? ..16

Shipyard’s Delivery Option ............17

Market Volatility - Importance ofContractual Certainty ..................18

Disputes Arising “Under” or “Out of” a Charter ....................19

The Pitfalls of the Carriage of Coal ........................................20

Customs Fines in Belgium forUndeclared Cargo in FCL/FCLContainers....................................21

The Big One - an Overview ..........22

When Off-Hire is not Off-Hire? ....22

Ship Management and SHIPMAN 98 ................................23

Recent Publications ......................23

Contents

2

Editorial TeamNaomi Cohen Malcolm ShelmerdineSue Watkins

Sea Venture is available in electronic format. If you wouldlike to receive additional copies of this issue or futureissues in electronic format only please send your name andemail address to seaventure@simsl.com.

Feedback and suggestions for future topics should also besent to this address.

Sea Venture newsletter Issue 8 5

The High Court of Hong Kong recently decided a casewhere the defendant carrier was sued by an "FOB"seller of cargo for misdelivery as a consequence ofdelivering cargo to the buyer without production ofthe original bills of lading.

Three "To Order of Shipper" freight collect bills oflading were issued to the plaintiff seller but the buyerdid not pay the purchase price.

The carrier sought to defend the claim arguing:

1. That because property in the goods passed to thebuyer on shipment it followed that even withoutpresentation of the bills of lading the carrier wasbound to release the goods on demand, and

2. The claim was time barred on the basis of thenine month limitation period in the bill of lading.

The decision, and the arguments advanced by thecarrier, are discussed in an article on the SteamshipMutual website:

by Sam Tsui of Tsui & Co., Solicitors, Hong Kong.

CarrierBeware -Transfer ofRisk Not Title

www.simsl.com/StarLight0407.html

Sea Venture newsletter Issue 8

We are pleased to make the followingannouncements:

Mr Gary Field and Mr Rajeev Philip haveboth been appointed Directors of SteamshipInsurance Management Services Limited.

Mike McAleer and Tim Lection have bothbeen promoted to Syndicate Manager -Claims, respectively in the Americas andEastern Syndicates.

Sarah Chase has been promoted toSyndicate Associate - Underwriting in theEuropean Syndicate. This follows Sarah’sdual achievements in being awarded theInsurance Institute of London’s Lloyd’s prizefor Marine Insurance underwriting, asreported in Sea Venture issue 6, and herrecent completion of the AdvancedDiploma in Insurance, for which she wasawarded the International UnderwritingAssociation Marine prize.

With effect from 20th May, there will be areorganisation of syndicate responsibilitieswith Stephen Martin becoming Head ofSyndicate and Gary Field Head ofUnderwriting in the Americas Syndicate,and Colin Williams becoming Head ofSyndicate and Jonathan Andrews Head ofUnderwriting in the Eastern Syndicate. Thestructure of the European Syndicate isunchanged.

Also with effect from 20th May, Mr EdwardLee has been appointed the ManagingDirector and Mr Rohan Bray has beenappointed a Director of Steamship MutualManagement (Hong Kong) Limited.

Steamship Mutual News

4

The House of Lords decision in the “Front Comor” has failed to resolve the question of whether an anti-suitinjunction should be granted in supportof arbitration proceedings where thecompeting proceedings are withinEurope. Whilst making their views veryplain, the Lords have referred to the ECJthe following question:

“Is it consistent with EC Regulation44/2001 for a court of a Member Stateto make an order to restrain a personfrom commencing or continuingproceedings in another Member State onthe ground that such proceedings are inbreach of an Arbitration Agreement?”

In an article on the Steamship Mutualwebsite:

Sian Morris (sian.morris@simsl.com)reviews the law on anti-suit injunctions, theimpact of EC Regulation 44/2001 as itcurrently stands and the implications of thereferral to the European Court of Justice.

“Clash of the Titans” - House of Lords v European Court of Justice

The recent judgement of a three member Bench of theBombay High Court in the case of J.S. Ocean Liner LLCv m.v. “Golden Progress” provides clear guidelines tothose who wish to secure their claim in foreignarbitration proceedings by the arrest of a vessel inIndian Waters. The case concerned a claim bycharterers in respect of alleged breach of the speedand consumption warranties in the charterparty.Charterers arrested the “Golden Progress” in India inorder to obtain security for their claim. Owners soughtan order for the parties to be directed to refer theirdisputes to arbitration in London, in accordance withthe charterparty, and for the Indian proceedings to beunconditionally stayed. After consideration of theauthorities and relevant domestic and internationallegal framework, it was held that the High Courtcould order the arrest of a vessel as security for aforeign arbitration award and that security would bedealt with in accordance with Article VII of the ArrestConvention 1999. This judgment is discussed in moredetail in an article by Raman Walawalkar of Bhatt &Saldanha on the Steamship Mutual website:

Indian Law:Arrest forSecurity forForeignArbitrationAward

www.simsl.com/GoldenProgress0407.html

www.simsl.com/FrontComor0407.html

Sea Venture newsletter Issue 8 7Sea Venture newsletter Issue 8

Towage or Salvage?

6

Salvage, although often determined by theprovisions of a contract, the Lloyds OpenForm (LOF) being an example, is a right inlaw to receive remuneration in exchangefor saving property at sea. In order toencourage salvage services, whether byprofessional salvors, or fellow seaman, orany party for that matter, the courts, orarbitrators in the case of the LOF, will lookfavourably on those providing salvageservices when determining the value of anaward, provided the award is proportionateto the value of the property saved.

For there to be a right of salvage four mainprerequisites need to exist. First, it must bea marine adventure that is at risk, that is aship, its apparel, cargo or freight. Theremust be danger which is real and not justa possibility, but that danger need not beimminent; a rudderless ship drifting inopen sea is in danger to the extent thatgiven time it will run aground on acoastline. The services provided are to beoffered voluntarily and there must be adegree of success. This latter point isimportant as a principle of salvage. Theremust be some benefit to the owner of thesalved property failing which there is noaward, hence ‘no cure - no pay’.

Applying these principles, the EnglishAdmiralty Court recently addressed thequestion of whether a service provided bya tug amounts to ordinary towage orsalvage in circumstances where thoseservices were rather modest in scope.

In the “Tramp” (2007) EWHC 31, the tug“Sea Tractor” responded to a call forassistance to a small coaster, the “Tramp”,that was encountering difficultiesmanoeuvring. The “Tramp”, in ballast, haddeparted its river berth with the intentionof turning downstream to exit the port,the master having decided not to use atug despite the pilot’s recommendation todo so. A strong wind combined with tideand the ship’s own light conditionprevented the ship from completing itsturn within the river, despite numerousattempts to do so. Eventually theassistance of a tug was called for and thelocal workboat/tug “Sea Tractor” (ofmodest power 340 hp) responded arriving15 minutes later. A line was taken fromthe ship, its head quickly turneddownstream, the tug released and the ship proceeded on its voyage.

The claimant tug owners brought a claimfor salvage. The defendant ship ownerdisagreed contending this was nothingmore than ordinary towage services to berecompensed at the tug owners’ normaltariff rates.

In deciding the case the Court rejected theclaimants’ contention that the ship wasalready aground, or nearly aground.Equally the Court rejected the defendants’contention that had they so wished theship could have chosen a number ofoptions open to it, such as to return to itsberth, anchor mid-stream, or simplycontinue to manoeuvre to maintain itsstation within the river waiting for slackwater or a change in the wind.

The Court came to the conclusion that theship was sufficiently impeded in its abilityto manoeuvre that it was to all intents andpurposes immobilised and this constitutedsufficient danger to found a salvage claim.The act of calling the tug itself wasevidence of the financial and physical risksfaced by the ship.

The salvage service provided, althoughmodest in scope, was quickly executed andsuccessful in extracting the ship from adifficult predicament. The Court consideredthat the “Tramp” was unable to do soitself. Following the principle ofencouraging mariners to provide salvageservices the Court awarded claimants£12,500 against what otherwise wouldhave been a tariff service of £625.

Article by Ian Freeman(ian.freeman@simsl.com)

Accidents involving the launching and recovery oflifeboats which result in loss of life and serious injurycontinue to occur, despite industry-wide efforts toaddress the problem.

Industry studies and accident investigations over the pastdecade recorded an unacceptably high number ofaccidents and identified common contributory factors.Ironically, there was a common consensus that manyaccidents occurred during routine drills and maintenanceactivities at the human/mechanical interface.

SOLAS chapter III and the International Life-SavingAppliance (LSA) Code provide the statutoryrequirements for lifeboats, as adopted by flag states.The IMO has progressively introduced a number ofamendments to the regulations. On 1 July, 2006 thelatest recommendatory guidelines approved by theIMO’s Maritime Safety Committee (MSC) came intoforce, designed to assist in preventing accidents duringdrills and inspections. The IMO MSC Circular 1206seeks to address many of the concerns as to howlifeboats should be maintained, operated and theircrews trained. MSC Circular 1206 can be accessed viathe Steamship Mutual website at:

It is anticipated that once fully adopted by flag states,the revised procedures will lead to an amelioration of the high number of lifeboat accidents. In the meantime,the industry is coming to terms with some of the issuesraised following implementation, including infrastructurefor lifeboat servicing, operational practicalities for testlowering and re-hoisting unmanned lifeboats and thescope for re-design of on-load release systems. Theseissues are discussed in more detail by Paul Amos(paul.amos@simsl.com) on the Steamship Mutualwebsite at:

The Club has also produced a number of training DVDson this topic as part of its loss prevention programme.Details of DVDs available can be found at:

Risks inLaunchingand Recoveryof Lifeboats

Sea Venture newsletter Issue 8 9

Cargo misdeclaration is a problem. It is aparticularly acute problem for operators ofcontainer vessels. It impacts on freightrevenue, it puts at risk personnel, containerhandling equipment and stowage integrity.At its most extreme, misdeclaration ofdangerous cargo has been alleged to be thecause of the serious fires/explosions on the"Aconcagua", "CMA Djakarta", "HanjinPennsylvania" and "Hyundai Fortune", toname a few, each resulting in lossesestimated at well over US$ 75 million.

Given the nature of containerisation andthe ever increasing size of container vessels,container carriers are peculiarly exposed tothe consequences of misdeclareddangerous cargo. In catastrophicfire/explosion incidents, carriers can oftendeploy the “fire defence” under Article IV,Rule 2(b) of the Hague/Hague-Visby Rules.However, carriers should be mindful of thedevelopments in the United States andelsewhere in relation to container/cargo

screening. The defeat in the United StatesSenate in March 2007 of an amendment tothe Improving America's Security Act,which proposed that 100% of containersentering the United States be screened forweapons of mass destruction, is a warningshot to carriers that the political climateand level of “due diligence” that might berequired of them under the Hague/Hague-Visby Rules might be advancing.

These issues, together with the limitationregimes available to carriers are discussed inan article on the Steamship Mutual websiteby Richard Neylon of Holman Fenwick &Willan Solicitors.

From Misdeclaration to Limitation - a Carrier's Problem

Sea Venture newsletter Issue 88

www.simsl.com/Misdeclaration0407.html

www.simsl.com/dvds-videos-and-cds.html

www.simsl.com/Articles/Lifeboats0606.asp

www.simsl.com/Lifeboats0407.asp

“...many accidents

occurred during routine

drills and maintenance

activities at the human/

mechanical interface.”

Michigan -Ballast WaterControlPermits

Sea Venture newsletter Issue 8 11Sea Venture newsletter Issue 810

In July 2005 an article on the Steamship Mutualwebsite alerted Members to new state legislationintroduced in Michigan to address Ballast WaterManagement issues:

The permit system implemented by the legislationcame into force on 1 January 2007. All oceangoingvessels must apply for a permit from the MichiganDepartment of Environmental Quality before beingallowed to use Michigan ports. To qualify for a permitvessels must prove either that they will not dischargeballast water or that they are equipped to preventdischarge of aquatic nuisance species.

Ballast water exchange is not considered to be aneffective treatment method for the purposes of theMichigan legislation. The following methods areconsidered to be “environmentally sound andeffective” in the treatment of ballast water andcomply with the legislation:

• Hypochlorite treatment

• Chlorine Dioxide treatment

• Ultra Violet radiation treatment proceeded by suspended solids removal

• Deoxygenation treatment

Further information about the ballast water controlpermit system can be found on the MichiganDepartment of Environmental Quality website at:

Article by Naomi Cohen (naomi.cohen@simsl.com)

Can a re-sent without prejudicecommunication amount to anacknowledgement of indebtedness or legal liability for the purpose of s29(5)Limitation Act 1980, in order to re-startthe time limit for a claim?

The sellers under a sale contractcommenced arbitration in December 2005,despite the fact that discharge had beencompleted in June 1999, on the basis thatthe buyers had on their own calculationsacknowledged as due part of thedemurrage claimed in a message of May2000. The buyers disagreed. Their laytimecalculations were first produced at awithout prejudice meeting and, theyargued, the calculations retained thischaracter when subsequently re-submittedin May 2000, despite the fact that therewas no without prejudice heading.

The Court concluded that it would notalways be the case that a document whichis first produced on a without prejudicebasis would retain this status when

provided at a later date. However, in thecircumstances of this case, neither thelaytime calculation that had beenproduced at the without prejudicemeeting, nor the re-submitted calculation,which had been sent without anyaccompanying statement that couldamount to an acknowledgement,constituted an acknowledgement of thebuyers' indebtedness or legal liability andtherefore, the claim was time barred.

This case has important implications in the context of charterparty demurrageclaims and the application of contractualor statutory time limits. A full discussion of this case by Laura Woodhead(laura.woodhead@simsl.com) can be found on the Steamship Mutualwebsite at:

Without Prejudice or Not? - Lia Oil S.A. v ERG Petroli S.P.A.

www.simsl.com/LiaOil0407.html

An increasingly common practice inshipping is the endorsing of mate’s receiptsby attaching copies of a pre-loading surveyor a summary of the findings of a pre-loading survey. This is particularly commonin the carriage of steel cargoes, which havealways presented problems of notation inrespect of cargoes that are partly rusted.

However, if a mate’s receipt merely refers toa pre-loading survey report, and a bill oflading is issued in strict conformity with thatreceipt will that be sufficient to protect thecarrier against claims by the cargo receiverfor pre-shipment damage that was recordedin the pre-load survey report? If not, will thecarrier have the protection of the pre-loadsurvey report only if it is attached to the billof lading, or will it be necessary to clause

the face of the bill of lading with the pre-load surveyor’s observations? These issues,and best practice, are discussed in an articleby Dominic McAleer of MFB solicitors onthe Steamship Mutual website at:

Clausing Bills of Lading byIncorporation of Survey Reports

www.simsl.com/PreLoad0407.html

http:www.michigan.gov/deq/o,1607,7-135-3313_3682-153446--,00.html

www.simsl.com/Articles/Michigan_Ballast0705.asp

Sea Venture newsletter Issue 8 13Sea Venture newsletter Issue 812

Golden Strait Corporation v NipponYusen Kubishiki Kaisha [2007] UKHL 12

The Court of Appeal decision in this casewas discussed in Sea Venture issue 4 andon the Steamship Mutual website:

The matter was referred to the House ofLords and the decision handed down onthe 28th March 2007.

The issue between the parties - at whatdate the quantification of damages is to be made - has divided practitioners and scholars alike. Most recentlyProfessor Sir Guenter Treitel QC in hisarticle “Assessment of Damages ForWrongful Repudiation” (2007) 123 LQR,commented on the Court of Appealjudgment. Amongst other observationshe considered the issue of certainty incommercial affairs - best elaborated onby Robert Goff LJ (as he then was) in“The Scaptrade” [1983] QB 529:

“the English Courts have time and again asserted the need for certainty incommercial transactions - for the simplereason that the parties to such transactionsare entitled to know where they stand and to act accordingly.”

In his article, Treitel, reflecting on the Courtof Appeal judgment makes the followingobservation:

“The Golden Victory” seems to impair suchcertainty..: the shipowners, as it turned out,could not “know where they [stood]” whentheir right to damages accrued; the valueof that right fluctuated in the light of laterevents for which they were not responsibleand which when the right accrued, were“merely a possibility” and not “inevitable orprobable”. In this respect certainty wassubordinated to the greater importance ofthe compensatory principle…”

In their judgment of 28th March theHouse of Lords upheld the decision of theCourt of Appeal by a majority of 3:2.Interestingly the two dissenting judgments

came from Lords Bingham and Walker -the only members of the AppellateCommittee with “commercial”backgrounds.

The Lords all began from the samestarting point; (i) repudiation by one partyto a contract, if accepted by the other,brings a contract to an end, (ii) that theinnocent party is thereafter entitled todamages to compensate him for that lossand he is to be placed by those damagesin the position he would have been hadthe contract been performed - thecompensatory principle, (iii) as a general,although not invariable, rule damages areto be assessed at the date of breach and(iv) so far as repudiation of a charterpartyis concerned, where there is an availablemarket, the basic rule is that loss is to bemeasured at the date of acceptance ofthe repudiation.

Ultimately the majority preferred thegeneral compensatory principle primarilyjustified by reference to Bwllfa andMerthyr Dare Steam Collieries (1891)Limited v Pontypridd WaterworksCompany [1093] AC 426; where a Courtis assessing damages and has knowledgeof what actually happened, it need notspeculate but rather base itself on knownfacts. In the words of Lord Brown, “But not history; the Court need not shut its mind to that.”

The majority declined to accept that thefinding of Megaw LJ in “The MihalisAngelos” [1971] 1 QB 164, that reliancecould only be placed on subsequent eventswhen it could be shown such events werecertain to occur at the time of therepudiation, was meant to operate as ageneral rule limiting consideration ofsubsequent events to only thosepredestined at the date of repudiation.

And as for certainty, Lord Scott said “there is, in my opinion, no such principle.Certainty is a desideratum and a veryimportant one, particularly in commercialcontracts. But it is not a principle andmust give way to principle.”

He took the view that certainty incommercial contracts is best achieved bysettled principles of contract law and notby framing principles that can beemployed by litigants as delaying tactics.In supporting this approach Lord Carswelltook the view that Courts and Arbitratorsare able to prevent such abuse if asked toproceed with dispatch.

The majority view is concisely summed upby Lord Brown in his assertion that theowners’ case, that they were entitled todamages assessed on the full term of thecharterparty, sought to extend theavailable market rule at the expense of thefundamental principle that the purpose ofdamages is to restore the innocent party tothe same position he would have been butfor the breach, not to improve upon thatposition by asking the Court to ignoresubsequent events.

In stark contrast to the majority view Lord Bingham comments at the outset: “A majority of my noble and learned friendsalso agree with that [Court of Appeal]decision. I have the misfortune to differ. I give my reasons for doing so,unauthoritative though they must be, sincein my respectful opinion the existing decisionundermines the quality of certainty which isa traditional strength and major selling pointof English commercial law, and involves anunfortunate departure from principle.”

Whilst accepting the “Bwllfa principle” LordBingham distinguishes this on the basis thatnone of the cases in which this principle -that when assessing damages, if a Courthas knowledge of what actually happenedit need not speculate and may base it’sdecision on known facts - concerned theaccepted repudiation of a commercialcontract where there is an available market.He also distinguished those cases where thecompensatory principle gives way to thedate of breach principle, such as personalinjury claims, or those cases where it wasreasonable for a party to defer steps tomitigate loss and so reasonable to deferassessment of damages.

Further, and in considering those casesinvolving repudiation of commercialcontracts, Lord Bingham clearly finds thatthe date of breach rule has been upheld ineach of those decisions, notwithstandingany appearance to the contrary at first blush.

So far as “The Mihalis Angelos” isconcerned, the Court of Appeal may seemto have looked to a subsequent event butin Lord Bingham’s reading have viewed thecase from the date of breach rule and, infact, did not take account of later eventsbut rather recognised that the value ofwhat owners had lost was nil. The charterwas bound to be cancelled lawfully onlysome three days after repudiation. AsMegaw LJ put it:

“…and if it can be shown that thoseevents were, at the date of acceptance of the repudiation, predestined tohappen, then in my view the damageswhich he can recover are not more thanthe true value, if any, of the rights whichhe has lost, having regard to thosepredestined events.”

This decision was followed by “The Wave”[1981] 1 Ll. R 521 in which Mustill Jdeclined to look to whether charter ratesat a later date than repudiation wouldhave had any bearing on the exercise of a“three months more or less option” as tothe period of the charter. And by “TheNoel Bay” [1989] 1 Ll. LR 361 when theCourt of Appeal expressly approvedMegaw LJ, as quoted above.

As for “The Seaflower”, which Mr Gaisford felt constrained him to findin charterers’ favour, Lord Bingham felt (i)early termination was “clearly predictableon the date when the repudiation wasaccepted”, (ii) that Walker J had onlyrelied on later events to fortify hisconclusion, and (iii) a different decisionwould not have been reached hadevidence of those later events not beenbefore Walker J.

In concluding, Lord Bingham has scantregard for charterers’ contention thatowners would have been over-compensated if damages had beenawarded for the remaining four years ofthe charter. Contracts are made to beperformed not broken, he opines, and hadcharterers promptly honoured theirobligations to pay damages an assessmentwould have been disposed of long beforethe second Gulf War took place.

Ultimately, Lord Bingham has realconcern about the effect this judgmentwill have on the issue of certainty incommercial contracts.

A Blow for Certainty in Commercial Affairs?

www.simsl.com/GoldenStrait0507.html

Sea Venture newsletter Issue 8 15Sea Venture newsletter Issue 814

In the Court of Appeal decision in thismatter, Lord Mance, as he now is, held

“Certainty, finality and ease of settlementare all of course important generalconsiderations. But the element ofuncertainty, resulting from the war clause,meant that the owners were never entitledto absolute confidence that the charterwould run for its full seven-yearperiod…There is no reason why thetransmutation of their claims toperformance of the charter into claims fordamages for non-performance of thecharter should improve their position inthis respect.”

And to that Lord Bingham responds

“I cannot, with respect, accept thisreasoning. The importance of certainty andpredictability in commercial transactionshas been a constant theme of Englishcommercial law….Professor Sir GuenterTreitel QC read the Court of Appeal’sjudgment as appearing to impair thisquality of certainty…and I respectfullyshare his concern.”

Article by Sian Morris(sian.morris@simsl.com)

A Blow for Certainty in Commercial Affairs? - continued

In an article written for the SteamshipMutual website Laurence Rees andMichael Smith of Reed Smith RichardsButler LLP examine the UK Government'sproposals to change the law whichcurrently permits shipowners todiscriminate against foreign nationals whoapply for or are engaged to work outsideGreat Britain on British registered ships.Such discrimination is only permissible onthe grounds of nationality and then onlyin relation to pay.

The Department for Transport has beguna public consultation on the proposedchanges to the law following a complaintmade to the European Commission that inthis respect the UK legislation infringes EU

law. The options considered in theconsultation paper are: (1) to maintain thecurrent position (thus exposing the UK toheavy fines for infringing EU law); (2)amending the law so that discriminationwould be permitted only against seafarersnot from the EEA and other designatedcountries; or (3) repeal the law so that nodiscrimination at all would be permitted.

The article, which examines these optionsfor reform and considers the impact thosevarious options are likely to have on shipowners of British registered ships, can befound at:

Seafarers - Changes to the RaceRelations Act

London Arbitration 1/07 (2007) 710 LMLN 4

An interesting decision from the LMAA on the subjectof performance claims and under-consumed bunkersand something for charterers to bear in mind.

The charter performance warranty read as follows:

“In good weather and smooth sea,… about 14.0 knots(ballast) 13.5 knots (laden) on about 32.5mt IFO at sea…”

The charterers sought damages for breach of the speedwarranty but accepted that owners must conversely becredited for bunkers under-consumed due to the slowsteaming. Both parties worked on the assumption thata margin of 5% had to be applied to the warrantedbunker consumption as a result of its qualification bythe word “about”. The question was how to calculatethat credit. The charterers contending for 32.5 mts less5% and the owners arguing for 32.5 mts plus 5%.

The Tribunal held that whilst performance warrantiesusually involve a charterer complaining about under-performance in terms of speed and over-consumption interms of bunkers, the only way in which to give propereffect to a performance warranty and “about” was toapply it in both directions, in other words as plus/minus.

As the claim by charterers was one for damages, theywere only entitled to be put in the same position as ifowners had performed their minimum obligations. Thevessel had consumed 629.6 mts. If one applied aconsumption of 32.5 mts plus 5% over the entirevoyage of 519.7 hours, the vessel could have consumed738.95 mts and still been within warranty. The vesselonly consumed 629.6 mts and so owners were entitledto a credit in respect of 109.35 mts.

Article by Sian Morris (sian.morris@simsl.com).

PerformanceWarranties -the WholePicture!

www.simsl.com/SeafarerDiscrimination0407.html

The law on unsafe port claims is relativelysettled. However, a recent appeal from anarbitration award to the High Court raisedan interesting issue when the owners ofthe vessel claimed damages for breach ofthe charterers’ safe port warranty, not as aconsequence of any physical damage totheir vessel but for a delay of about fourdays caused when two other vesselsgrounded at the port of Beira blocking thechannel to the port. Charterers sought torely on the Court of Appeal decision in the“Hermine” that any delay caused by a

temporary obstacle must be unreasonableand sufficient to frustrate the charter as awhole in order to render a port unsafe.

The High Court upheld the decision of theTribunal that the port was unsafe. Thereasons for the decision in the “Count” arediscussed in more detail by Sue Watkins(sue.watkins@simsl.com)

in an article on the Steamship Mutualwebsite:

Can Delay Make a Port Unsafe?

Sea Venture newsletter Issue 8 17Sea Venture newsletter Issue 816

In Ravennavi Spa v New Century ShipbuildingCompany Limited [2007] EWCA Civ 58 the Court ofAppeal upheld a decision in 2006 from Gloster J in theEnglish Commercial Court (2006 EWHC 733) to theeffect that a shipyard's obligation under an optionagreement to make available an earlier delivery datefor a vessel should one become available was notintended to be a continuing obligation; the shipyardwas only obliged to offer the purchaser an earlierdelivery date if one became available prior to theexercise of the option.

The purchaser, an Italian shipowner, had ordered 8product tankers from a Chinese yard, with an optionto purchase the last 2 vessels for delivery by particulardates. The purchaser exercised the option andseparate shipbuilding contracts automatically cameinto effect with particular delivery dates. Havingexercised the option the purchaser subsequentlydiscovered that the yard was offering earlier deliverydates to other shipowners. The Judge's decision wasbased on a clause in the shipbuilding contract whichextinguished all the parties’ obligations under theoption agreement when the shipbuilding contractcame into force. This is an important decision giventhe high level of current activity in the new buildingmarket, particularly in the Far East.

Article by Duncan Howard(duncan.howard@simsl.com).

Shipyard’sDeliveryOption

The Philippine Supreme Court hasrecently clarified it’s controversial rulingon the "120 days issue".

The Supreme Court had held in CrystalShipping that on Philippine Labour lawprinciples a seafarer unable to performcustomary work for more than 120 daysis permanently disabled. The Court haddeclined to consider the POEA standardemployment contract. As a consequencea seafarer unable to work for 120 dayswas entitled to a contractual disabilitypayment of US$60,000. (This decisionwas reported in Sea Venture issue 6. SeeSteamship Mutual website at:

The decision had caused considerableconcern, not least because of theconsequent costs of employing crew fromthe Philippines. Various manningorganisations intervened in thesubsequent Remigio case to stress theimportance of the issue to the industry.

In it’s recent resolution on a Motion forClarification in Crystal Shipping the Courthas now stated "admittedly POEAMemorandum Circular No. 55, series of1996 does not measure disability in termsof number of days but by gradings only".

Therefore, the latest ruling in CrystalShipping provides room to argue thatdisability cannot be measured in terms ofthe number of days during which theseafarer is ill or injured or is unable towork but should be assessed dependenton the views of a doctor and based onthe POEA Schedule of Disability.

At present the Remigio case is stillpending resolution. However, taking acue from the new resolution in CrystalShipping, it is to be hoped that the Courtwill take the opportunity of the Remigiocase to address fully the "120 days issue"and to apply the grading approach to theassessment of claims for disability.

We are grateful to Ruben Del Rosario ofDel Rosario and Del Rosario for this article.

Philippine Law - Permanent DisabilityRule Part-Clarified

www.simsl.com/Articles/Filipino0906.asp

www.simsl.com/Count0407.html

Recent volatility in the freight markets,and in particular the Bulker market, hasresulted in dramatic shifts in the stancestaken by parties to charter negotiations.In the event of a sharp turn in themarket, where one party stands to suffersubstantial losses they would naturallyseek to withdraw from negotiations.Sometimes, however, it is too late to doso as a binding agreement has alreadybeen reached. At that point, alternativeapproaches have to be considered and inrecent months the Club's Defenceadjusters have had to advise Members onhow to deal with a variety of argumentsused by counterparties looking to get outof (or bind) agreements. These argumentsrange from the highly technical to themore "imaginative" and speculative.

An example of the tactics parties maydeploy to extricate themselves from a badbargain can be found in a very recentEnglish High Court judgment. In FrontCarriers Ltd. v Atlantic & Orient (the“Double Happiness”) the vessel, which wasdue to be delivered in September 2005,was fixed by charterers for two years. Thefixture was made on 7 March 2005 with aUS$ 31,500 daily rate of hire. By the end of

March the market had gone up to US$39,000 a day. In early April, the marketbegan to fall, and by August, the markethad fallen to US$ 10,000 per day - apotential US$ 15m loss for the charterers.

In mid-July the charterers sought to arguethat no valid contract had been agreed onthe basis that the individual negotiating ontheir behalf did not have authority to do soand then, subsequently, that there was nobinding agreement because the partynamed in the recap as owners did not exist(the recap referred to Front Carriers Inc.rather than Front Carriers Ltd.).

At the hearing in the High Court theauthority point was not pursued and theCourt, in dismissing the argument regardingthe identity of the owners, concluded thatthere was a binding agreement.

A detailed discussion of this case and itsimplications can be found on theSteamship Mutual website at:

by Rajeev Philip(Rajeev.philip@simsl.com)

Market Volatility - Importance ofContractual Certainty

www.simsl.com/DoubleHappiness0407.html

If a party rescinds a contract that they claim theywere induced to enter by bribery, and that contractprovides for disputes (i) "arising under this charter" tobe decided by the English Courts, and (ii) gives eitherparty the right to elect to arbitrate disputes that"have arisen out of this charter", should a dispute asto right to rescind in these circumstances be referredto the Court or Arbitrated?

Fiona Trust & Holdings Corp. v Yuri Privalov involvedintricate and complex litigation pursued by a number ofclaimants seeking damages for the tort of deceit as wellrestitution as a result of the payment of bribes,compensation for breach of fiduciary duty and claimsthat eight charterparties had been validly rescinded.

The charters sought to enforce their rights by way ofarbitration but owners applied to restrain the arbitrationbecause they had rescinded the charters and that, inany event, the arbitration clause did not apply to adispute about rescission.

In the High Court owners succeeded but the Court ofAppeal agreed with charterers. The issue will now beheard by the House of Lords when a final view shouldbe handed down. The questions whether rescissionmeant the agreement to arbitrate had fallen away sothat arbitration was not contractually possible, or if notwhether the words “arisen out of” were sufficientlywide in scope to cover disputes as to rescission forfraud or bribery are discussed in an article by MalcolmShelmerdine (malcolm.shelmerdine@simsl.com) onthe Steamship Mutual website at:

DisputesArising“Under” or“Out of” aCharter

www.simsl.com/Fiona0407.html

Sea Venture newsletter Issue 8 19Sea Venture newsletter Issue 818

The Club was recently involved in a case where ashipowner carried a 20’ container “said to contain”433 bags of rice from the Persian Gulf to Antwerp. It was later found that, in fact, the container onlycontained 286 bags of rice and behind these bagswere a total of 1,800,000 cigarettes.

The Antwerp Customs Authority commenced criminalproceedings against, inter alia, the vessel’s agents, theshippers and the consignees for importing a containerof cigarettes contrary to Article 202 of the EuropeanCommunity Customs Code.

It was the owner’s position that their agent, acting on theowner’s behalf, had no reasonable means of checking thecontents of the container either prior to or followingloading and that they should not be held liable.

Although the Court of first instance agreed with theowner’s position, the Antwerp Criminal Appeal Courthas overturned this judgment. The Court stated thatthe carriers had not exercised due diligence in verifyingthe contents of each and every container carried onboard which, in their opinion, would be expected of aprudent agent.

It must be noted that this decision is only relevant tosmuggling cases and should not have any bearing oncarrier’s liability for other claims made under the billsof lading.

This case is discussed in further detail in an article byNeil Watson (neil.watson@simsl.com) which appearson the Steamship Mutual website at:

CustomsFines inBelgium forUndeclaredCargo inFCL/FCLContainers

Sea Venture newsletter Issue 8 21Sea Venture newsletter Issue 8

The inherent dangers in shipping coal arewell documented and should be known toship owners engaged in the carriage of thistype of cargo. The main dangers to whichowners should be alert are the emission ofmethane and self-heating. Coal carried inbulk can emit methane, which is aflammable gas when mixed with air. Self-heating of coal cargoes may lead tospontaneous combustion. It is importantthat owners are aware of the maincharacteristics of a particular type of coaland its propensity to emit methane or self-heat in advance of loading. In an articleproduced for the Steamship Mutualwebsite Richard Sheridan(Richard.sheridan@simsl.com) andRohan Bray (rohan.bray@simsl.com)discuss some of the important steps whichought to be taken by owners duringloading and throughout the voyage tomonitor and protect coal cargoes (and thevessel) against the consequences ofmethane emission and self-heating.

The article also discusses some of the legalissues which may arise following incidentsinvolving this type of cargo. Charterpartyprovisions governing loading operations,dangerous cargoes and the impliedindemnity given by a time charterer willoften operate to render charterers liable forthe consequences of damage caused bycoal cargoes. However, owners shouldremain cautious that if the necessaryprecautions pertaining to the carriage ofcoal, including those detailed in this article,are not observed they may find themselvesexposed to claims that the vessel was notcargoworthy (and by extension notseaworthy) or that they failed to properlycare for the cargo in accordance with theHague/Hague-Visby Rules. Such argumentsmay also be raised in defence of owners’claims for vessel damage:

20

The Pitfalls of the Carriage of Coal

www.simsl.com/BelgiumCustoms0407.html

www.simsl.com/Coal0407.html

Modern day container casualties give riseto large claims and complex disputes.The issues often include most of the legaldisputes that arise in the ordinary courseof commerce. Thus owners will findthemselves having to pay salvage, dealwith off-hire periods, defend claims frombill of lading holders, consider indemnityclaims against them and those that theycan make, all at the same time asmanaging the casualty and dealing withlocal and statutory enquiries andpersonnel issues, whilst not losing sightof the end game. An overview isimportant because a wrong step can leadto consequences, often in unlikely places.

In an article written for the SteamshipMutual website Richard Gunn of ReedSmith Richards Butler examines the mainclaims and the usual areas of dispute.

Theses include the steps to take toensure that owners (and others) aresuitably protected and the issue ofsecurity and counter-security so that pro-active and early consideration can begiven to ways forward, therebypreventing delay and retaining thecommercial relationship betweenshipowner, time charterer, slot chartererand cargo interests.

The Big One - an Overview

www.simsl.com/CasualtyOverview0407.html

Sea Venture newsletter Issue 8 23Sea Venture newsletter Issue 822

In an interesting appeal to the CommercialCourt Morison J. was asked by the timecharterers of a vessel to decide if they hadbeen entitled to cancel the charterpartybecause the vessel had been off-hire formore than 30 days. They had agreed togive the vessel back to the head ownersfor a period of 15 days that immediatelypreceded the vessels dry docking with theconsequence that the vessel was notavailable to the charterers for a period in

excess of 30 days. The charterparty gavethe charterers liberty to cancel if the vesselwas off-hire for more than 30 days.

This decision is discussed in a SteamshipMutual website article:

by Sian Morris (sian.morris@simsl.com).

When Off-Hire is not Off-Hire?

Circulars

• Blue Card - Gas Carriers

Circular B.454 of February 2007 reported on a growingtrend of Blue Cards being requested for gas carriers andthe practice of some International Group clubs to providethese. For the purposes of CLC 92 gas carriers are not“ships” and Blue Cards should not be issued for them.

www.simsl.com/Circulars-Bermuda/B454.pdf

Website Articles

• Port of Colombo - Restricted Zones

www.simsl.com/colombo-restricted-zones.html

• Turkey - New Regulation Relating to EnvironmentalOffences and Fines

www.simsl.com/TurkeyPollutionNewReg0407.html

RecentPublications

In PICC Shanghai Branch v Grand Fleet Navigation Ltd.And Others reported in Sea Venture issue 6 and on theSteamship Mutual website at:

www.simsl.com/Articles/GrandFleet0906.asp

the issue of whether a ship manager could be heldliable as "carrier" for cargo damage was considered.

The contractual relationship between owners andmanagers and apportionment of liabilities is consideredin an article written for the Steamship Mutual websiteby Ana Pestana of BIMCO. The article focuses on theBIMCO SHIPMAN contract and explains its origins,scope and features:

www.simsl.com/Shipman98.html

ShipManagementandSHIPMAN 98

www.simsl.com/HamburgBulk0407.html

For further information please contact:

Steamship Insurance Management Services LimitedAquatical House,39 Bell Lane, London E1 7LU. Telephone: +44 (0)20 7247 5490 and +44 (0)20 7895 8490 Email: seaventure@simsl.com

Website: www.simsl.com