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Sea Venture newsletter Issue 6

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

Vasant Kumar Bhandari1925 - 2006 ......................................4

New Club Board Directors Appointed ........................................4

An Inspector Calls. AccidentInvestigation - What Masters and Managers Ought to Know ................5

Recognition of Arbitration Clauses - French Law..........................5

The Obligation to Exercise DueDiligence - Australian Law ................6

When Does Laytime Commence? ....6

Illegal Iraqi Oil Shipments ..................7

Indonesian Nickel Ore ........................8

Recent Developments in UK Industrial Disease Litigation..............10

Admitted Sums - When there is, or is not, a Dispute ..........................11

The Legal Status and Responsibilities of the Ship Manager under PRC Law ................12

War Risk and Terrorism ....................12

Filipino Crew Claims - Worrying Developments ................13

Carriage of Valuable Goods ............14

Frustrating Delays ............................16

Steamship Mutual News ................16

Bound by Conduct - ContractFormation, Waiver and Estoppel ....17

Frustrating Events and Liberty Clauses..................................18

New OPA Limits................................20

Sea Water Ingress and Seaworthiness ..........................21

Turkey - New Commercial Code......21

Steamship Mutual/Videotel TrainingProgramme Wins Award ................22

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

Articles Published on the Steamship Mutual Website..............23

Contents

2

Editorial TeamNaomi Cohen Malcolm Shelmerdine

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.

This time of year marks the end of the traditionally quietholiday period, when many companies pause to takestock and plan for the remainder of the year. Shipping is,though, a 24/7 business as vessels continue to ply theirtrade with consequent service demands on the Club. Animportant part of that service is the reporting,commentary and insight provided by Sea Venture ontopical shipping and legal issues that impact on the Club’smembership. We hope you find this issue to be helpfuland of interest.

In October 2005 the “Front Commander”, a disputedealing with the early commencement of laytime, wasdecided by the English High Court. The Court took anextremely technical view. The decision was widelycriticised. In siding with charterers the impression was thatthe English Courts were willing to allow the free use of avessel when a valid Notice of Readiness is tendered early.The charterers had instructed owners to tender notice ofreadiness early, berth and start loading prior to the firstday of the laycan but the Court decided the emailedinstructions did not amount to the express writtenconsent required by the Charterparty. In overturning thedecision the Court of Appeal has struck a further blow for“fair dealing” between owners and charterers, previouslyevidenced by the same court in the “Happy Day”. Thedecision is welcome and discussed in detail in this issue ofSea Venture.

Other articles cover a number of decisions of the EnglishCourts published between May and August, 2006. Ofparticular interest is the decision in “Exfin Shipping” whichaddresses the conundrum of what is a dispute andwhether to arbitrate or not. There is also a further reporton developing Chinese case law. On a less welcome noteis an article discussing the recent decision of the PhilippineCourts. The decision is subject to appeal but, if notoverturned, risks creating a new “permanent disability”category of claimant. Some commentators have predictedthe decision could cost the Philippines substantial sums inforeign earnings if shipowners decide to stop employingPhilippine crews.

There are also contributions from English, AustralianFrench, and Turkish lawyers discussing war risks, libertyclauses, frustration, seaworthiness obligations, recognitionof foreign arbitration clauses, and the new TurkishCommercial code.

Feedback or suggestions for future topics you would likeus to address are welcome. As ever, we would like tothank all contributors to Sea Venture.

Malcolm Shelmerdine

5th September 2006

Introduction

“The decision is subject

to appeal but,

if not over turned,

risks creating a new

“permanent disability”

category of claimant”

Sea Venture newsletter Issue 6 3

Sea Venture newsletter Issue 6

Vasant Kumar Bhandari1925 - 2006

4

On 22 MayVasant KumarBhandari diedpeacefully in his belovedKolkata at theage of 81. He representedClub Member'sinterests inIndia since he

joined Steamship Mutual's Indianrepresentatives, Crowe Boda & Co (Pvt)Limited, in 1965. He will be missed by allwho had the privilege of working withhim and had the benefit of his advice andexperience.

He was a key figure in the development of the Indian insurance industry andremained actively involved in the businessto the end of his life. He was an academic

by nature and his opinions on P&I matters,as well as a wide range of insurance andlegal issues, were always meticulouslyresearched and full of insight. In his laterlife he was much in demand as anarbitrator and committed himselfcompletely to his work well past hisretirement age such was the demand forhis often forthright views and decisions.Privately he was a generous host with anincisive wit coupled with great modestyand charm.

The development of the Club's marketleading position in India since hisinvolvement with the Club will be onlyone legacy of VKB's career. The Managersconvey their deepest sympathies to hisfamily and friends on his death on behalfof all those who had the good fortune tohave had the benefit of VKB's thoughtfuladvice and friendship.

New Club Board Directors Appointed

The Managers are pleased to announcethat Mr G. Golparvar, of Islamic Republicof Iran Shipping Lines, and Mr C.S. Kim,of Korea Line Corporation, have recentlybeen appointed to the Board of the

Bermuda Association. These mostwelcome appointments will strengthenthe representation on the Board of twoof the Club’s most important andlongstanding markets.

Port and flag states(especially port states) arebecoming increasinglyactive in their investigationof marine accidents. Therationale for theseinvestigations varies;Sometimes they are madepurely to promote thesafety of life and propertyat sea. However, with thedeveloping trend towardscriminalisation, the aim ofan inspection may also be

to apportion blame. Against this background, andwith methods varying from state to state,investigations raise particular difficulties for mastersand managers.

In an article prepared for the Steamship Mutualwebsite, Eamon Moloney of Eversheds LLP givesguidance for masters and crew on the procedures tofollow and pitfalls to avoid when a vessel is subject toaccident investigation. His article can be found at:

Sea Venture newsletter Issue 6 5

www.simsl.com/Articles/Investigation0906.asp

www.simsl.com/Articles/FranceCode0906.asp

An InspectorCalls.AccidentInvestigation- WhatMasters andManagersOught toKnow

The French Courts have proved a useful forum forcargo claimants determined to pursue cargo claimsnotwithstanding arbitration agreements incorporatedinto bills of lading providing that disputes should bearbitrated in some other jurisdiction. Article 1458 ofthe New Code of Civil Procedure had been interpretedbroadly so that where there is no evidence that anarbitration clause incorporated into a bill of lading hadbeen made known and accepted by a consignee at orbefore the completion of delivery the arbitration clausewas not enforceable as against the third party holderof the bill of lading. However, as a consequence ofrecent decisions of both the Civil and CommercialChambers of the Cour de Cassation, the French courtsmay now be less likely to accept jurisdiction for cargoclaims brought in breach of an arbitration clauseunless that clause is manifestly null and inapplicable.Further, if an arbitration clause incorporated into a billof lading does not fall foul of this test the same Articleallows the arbitration tribunal to decide on jurisdiction.

The recent French decisions, as well as their impact forcarriers under bills of lading, are discussed in an articleby Andre Jebrayel, Advocat at the Bar of Marseilles inan article on the Steamship Mutual website at:

Recognition of ArbitrationClauses -French Law

Sea Venture newsletter Issue 6

The decision in the appeal against theunsatisfactory High Court decision in the“Front Commander”, discussed in SeaVenture issue 4, was recently handeddown. In determining the point fromwhich laytime starts to count under anAsbatankvoy charterparty incorporating“The Vitol Voyage Chartering Terms”, theEnglish Court of Appeal once againdemonstrated its appreciation of the needfor “fair dealing”, previously evinced bythe judgment in the “Happy Day”.

The High Court judgment, which wassubject to considerable criticism, wasoverturned. Lord Justice Rix, who gavethe lead judgment, acknowledged that“if a charterer uses a vessel, known to beready at the time of use, which has been

tendered to him by a valid notice ofreadiness, or by an invalid notice whoseinvalidity is known, he must expect timeto run against him, allowing for anyrelevant notice time, and subject to anyexpress contrary agreement”. He wenton to state that the construction of thecharter put forward by the charterers was “unrealistic and uncommercial and a trap for the unwary master or owners’ agent”.

The case is discussed by Sarah McGuire(sarah.mcguire@simsl.com) in an articleon the Steamship Mutual website at:

When Does Laytime Commence?

6

www.simsl.com/Articles/FrontCommander0906.asp

A decision of Federal Court of Australia,which has recently been heard on appealby the Full Federal Court of Australia, hasprompted a discussion on the Hague–Visby obligation both to exercise duediligence and properly care for cargo inthe carrier’s custody.

Consignments of cold rolled steel coilswere carried from Japan to Australiapursuant to a contract of affreightmenton two vessels. Many coils weredamaged as a result of corrosion causedby contact with water. The plaintiffssued the carriers, alleging breach of thebill of lading contracts under which thesteel was carried. The Court found thecause of the damage on both voyageswas condensation occurring during thevoyages, and the carrier liable becausethere were failures to:

(a) Exercise due diligence; neither vesselwas seaworthy for the purpose ofcarrying the steel coils on a voyageat the relevant time of year as a

consequence of the failure to installa dehumidification system toremove excess water from theholds,

(b) Properly and carefully, carry, keepand care for the coils; by ventilatingthe cargo during the course of thevoyage water vapour had beenintroduced into the holds.

The decision of the Full Federal Court hasbeen reserved but the impact of the firstinstance decision so far as cargo claimslitigated in Australia are concerned, andwhether the decision merits the concernraised by some commentators, isdiscussed in an article by Peter McQueenand Professor Martin Davies of BlakeDawson Waldron, Sydney, on theSteamship Mutual website at:

The Obligation to Exercise DueDiligence - Australian Law

www.simsl.com/Articles/Stemcor0906.asp

A number of innocent shipowners were caught up inthe now infamous illegal oil shipments from SaddamHussein's Iraq a few years ago. These contravened theprevailing UN Sanctions with resultant significantpenalties. Particularly unfortunate were the owners ofthe "Greek Fighter", whose vessel was first detainedon suspicion of carrying illegal Iraqi oil, ultimatelyconfiscated by the UAE authorities and sold by public auction.

The owners claimed damages in excess of US$ 6 millionfrom the charterers, alleging breach of a number ofprovisions of the Shelltime 4. Further, the ownerssought to rely on the implied indemnity recognised bythe Court of Appeal in The “Island Archon".

In a lengthy judgment which addressed a number ofissues arising under the Shelltime 4 and timecharterparties generally, including Clause 4 (withregard to lawful cargoes), Clause 13 (liabilities arisingas a result of complying with charterers' orders),Clauses 8 & 20 (the obligation to pay hire), the effectof an express safe port warranty on the qualified safeport warranty in the Shelltime 4 and the impliedindemnity, Mr Justice Colman held that the chartererswere liable for the full amount claimed by the owners.

A detailed analysis of Mr. Justice Colman's findingscan be found on Steamship Mutual website in anarticle by Rajeev Philip (rajeev.philip@simsl.com).

Illegal IraqiOil Shipments

Sea Venture newsletter Issue 6 7

“ ..confiscation and sale

of the vessel and its

cargo were said by the

UAE authorities to be

justified by the fact the

vessel had onboard oil

of Iraqi origin ..”

www.simsl.com/Articles/GreekFighter0906.asp

The current trend of high minerals priceshas made viable some trades which wouldotherwise be uneconomic. One suchtrade is the shipment of unprocessednickel ore from Indonesia and thePhilippines on long ocean voyages. Theseores have relatively low nickel content andhave been shipped on shorter voyages toAustralia and Japan for many years.

The ore is simply dug out of the ground,sorted for size, stored in stockpiles andthen shipped. No further processing otherthan “solar drying”, which is questionablein its efficacy, is involved. There are manyislands in Indonesia from which thismaterial is being shipped, mostly in veryremote locations.

Nickel ore is not found in a homogeneousform. Much of the material is very fineclay-like particles but there are also largerrock-like particles, some of which can bevery large indeed. The material also has arelatively large moisture content of up to30-40% by mass.

As with many minerals of a finelyparticulate nature, including mineral oreconcentrates, these ores have the propertythat they can liquefy and shift if theirinherent moisture level is too great.Serious problems have been experiencedin the last few months with oceantransport of these cargoes.

Due to the way these materials are mined,the composition and physical behaviour

can differ greatly from mine to mine,

between different shipments from the

same mine, and even within a single

cargo. Moisture content on its own is not

a reliable indicator of the potential hazard;

some cargoes may be of very dry, even

dusty appearance and unlikely to liquefy

whereas another cargo with the same

moisture content from a different loadport

may be of muddy wet appearance and

may present a serious shifting hazard.

Carriage of materials liable to liquefy is

governed by the IMO Bulk Code, where

they are listed as “Group A” commodities.

The Code specifies that for safe shipment,

two important parameters must be

evaluated by shippers: The first is the

actual moisture content of the cargo to be

shipped. The second is the Transportable

Moisture Limit (TML) of the cargo. If the

actual moisture content is below the TML,

then the material is deemed safe for

carriage. TML is calculated as 90% of the

Flow Moisture Point (FMP) which is the

moisture level at which that particular

cargo type will flow when tested. A

certificate stating the actual moisture

content and the TML of the cargo

proposed for shipment must be issued.

The main test for FMP which is used in

Indonesia is the flow table test. This is a

standard test which works well for

materials such as mineral ore

concentrates. Unfortunately the flow

Sea Venture newsletter Issue 6

Indonesian Nickel Ore

8

table test does not give well definedresults on this type of nickel ore; in arecent case different laboratories obtainedwidely varying results on samplessupposedly representing the same cargo.There are also problems at the load portsof rainwater wetting of unprotectedstockpiles of cargo prior to shipment.

The situation at present is unresolved andunsatisfactory. There are alternative testsdescribed in the IMO Bulk Code which maybe more appropriate for these nickel orecargoes, but the reliability of thesealternative tests for this type of cargo hasnot yet been evaluated. The Bulk Code alsodescribes a shipboard method for checkingwhether a cargo may be suitable forshipment. This involves filling a small canwith the material and repeatedly banging it

on a hard surface. The appearance of thematerial at the end of the test can be usedto shed light on the suitability of thematerial for shipment. This test is alsodifficult to interpret and should not be asubstitute for proper laboratory testingusing an appropriate methodology.

Members involved in this trade shouldtreat the material with caution and in the event of uncertainty contact theManagers London representatives foradvice and assistance.

With thanks to Dr Martin Jonas ofBrookes Bell for preparing this article.

Sea Venture newsletter Issue 6 9

Sea Venture newsletter Issue 6

The House of Lords recently held in Barkerv Corus (UK) PLC that damages payable bya Defendant in a mesothelioma case mustbe apportioned to take into account theextent to which a defendant’s breach ofduty contributed towards the overall riskthat a claimant would develop thecondition. This contrasts with an earliercase, Fairchild v Glenhaven FuneralServices, also involving a mesotheliomaclaim against several defendants, wherethe House of Lords had held that eachindividual defendant was liable forcontributing to the risk of the injurywith the result that each defendant wasliable to pay damages in full (with theright to seek contribution from the other defendants).

The apportionment envisaged by Barker involves only causation, that is,contribution to risk. The extent of eachdefendant’s contribution is determined by the trial judge and is based on theduration of exposure and, if relevant, theintensity and type of exposure comparedwith claimant’s total exposure to asbestosdust. Therefore, if a defendant exposed

the claimant to asbestos dust for one yearand other employers exposed the claimant,in similar circumstances, for nine years, thedefendant would only be responsible for10% of claimant’s damages.

The decision in Barker is reviewed further byRichard Allen (richard.allen@simsl.com) ina case report prepared for the SteamshipMutual website at:

Recent Developments in UK IndustrialDisease Litigation

10

www.simsl.com/Articles/Barker0906.asp

AdmittedSums - Whenthere is, or isnot, a Dispute

Sea Venture newsletter Issue 6 11

Prior to the Arbitration Act 1996 it was common for“indisputable” or admitted claims to be pursuedbefore the court by summary judgment because therewas not, in fact, any “dispute” to be referred toarbitration. In “The Halki” the majority of the Court ofAppeal firmly decided that the wording of section 9 ofthe 1996 Act precluded summary judgment beinggranted where a claim was indisputable or there wasno arguable defence to it. Swinton Thomas LJ tookthe view that there was a dispute between the partiesuntil the defendant admits the sum claimed is due andpayable. The Court did not though decide whetherjudgment could be granted where the claim had beenadmitted but the defendant refused to pay.

The view that there is no dispute to be referred toarbitration where a claim is admitted has also beensupported by authorities from before the 1996 Actcame into force; for example, “The M Eregli” - “anadmission would in effect amount to an agreement topay …and there would then clearly be no basis forreferring it to arbitration”(Kerr J). In contrast, inGlencore Grain Ltd v Agros Trading Co Clarke LJ said “I do not accept that a dispute cannot continue to bea dispute once the claim has been admitted”.

What constitutes a dispute can have seriousconsequences for the claimant if, in error, the claimantstarts proceedings to recover an admitted sum whenthe claim should have been arbitrated. These issueswere highlighted in the recent decision in ExfinShipping, and are discussed in an article by BengiLjubisavljevic (bengi.ljubisavljevic@simsl.com) in a case report written for the Steamship MutualWebsite at:

www.simsl.com/Articles/Exfin0906.asp

Under current PRC Law, the ship owner,the contractual carrier and the actualcarrier are all parties who potentially maybe held jointly and severally liable for anycargo damage under a contract of carriageof goods by sea.

In an interesting decision of the ShanghaiMaritime Court it was held that shipmanagers who cannot provide evidence ofthe specific management responsibilitiesthey undertake and the division of labourin managing the vessel betweenthemselves and the ship owners may beregarded as an actual carrier for the

purposes of PRC Law and, accordingly, beheld liable for cargo damage in the samemanner as an owner or contractual carrier.

The court in PICC Shanghai Branch vGrand Fleet Navigation Ltd also consideredthe issue of due diligence, as well as theposition of the charterer under the PRCMaritime Code. A review of the case byConnie Lee (connie.lee@simsl.com) canbe found at:

War risk clauses entitle owners to refuse toembark or continue to a destination whichis considered to be the subject ofwar/warlike activities. Instead owners areentitled to proceed to an alternative portto disembark cargo, or additionalinsurance has to be paid to continue to theoriginal intended destination (see earlierSteamship Mutual website article “Iraq –Legal Implications of War” at:

In order to avoid potentially hugeexpenses, insurers often exclude liability forwar risks.

It then becomes very important tounderstand what is included within a warrisk clause. War has been defined by caselaw to exclude terrorist activities. In linewith recent world events, this no longersuits present day realities, and war risksclauses have been extended to coverterrorist activities. However there is noconsistent definition of terrorism.

These matters are discussed in greaterdetail in an article by Frances Hamilton andAlex Andrews of Richards Butler which canbe found on the Steamship Mutualwebsite at:

The Legal Status and Responsibilitiesof the Ship Manager under PRC Law

Sea Venture newsletter Issue 612

www.simsl.com/Articles/GrandFleet0906.asp

War Risk and Terrorism

www.simsl.com/Articles/Lebanon0806.asp

www.simsl.com/Articles/Iraq_RBWarRisk0303.asp

Sea Venture newsletter Issue 6 13

There have been a number of recent developments in thePhilippines’ jurisprudence which are adverse to ownerswho employ Filipino crew and need to be consideredwhen dealing with Filipino crew claims.

Garnishment

The first area of concern is the practice of garnishment;The Philippines National Labour Relations Court (NLRC)has recently been allowing claimants to draw down on abond despite the fact that an appeal is pending before theSupreme Court. The bond is a prerequisite of an appeal. Itis security which must be provided by an owner wishingto appeal a first instance decision. The bond is posted by alocal bonding agent on the back of a Club letter ofundertaking. Crewmembers are frequently given leave bythe Court to cash in the first instance judgement againstthe bond with the caveat that if the owner's appeal issuccessful the monies will be returned. Needless to say it isvirtually impossible to recover the funds even if the firstinstance decision is overturned.

Deemed Permanent Disability

Of perhaps greater concern are recent seminal decisionswhich have found that a crewmember is judged to bepermanently disabled (and hence entitled to a contractualdisability payment of US$ 60,000) once he has beenunable to work for 120 days. In reaching this decision theSupreme Court has cited Article 192 of the Labour Code.While the State Insurance Fund clause in the Labour Codeof the Philippines does state that a disability should berendered permanent when lasting longer than the notedperiod, the Supreme Court has erred in that the LabourCode only applies to disability benefit claims under theSocial Security System. Crew claims are filed under thePOEA (Philippines Overseas Employment Administration)contract which governs the employer/employeerelationship and do not fall under the Labour Code. Thereis no equivalent provision under the POEA standard termsand conditions which dictates that temporary totaldisability shall be deemed total and permanent.

These clearly erroneous decisions carry with them seriousrepercussions and a string of permanent disabilityadjudications in the favour of seaman who have sufferedrelatively minor injuries.

While it is hoped that representations by industry groupsto the local Philippine authorities may bring pressure tobear to change the situation, in the meantime ownersshould be mindful of these developments when dealingwith Filipino crew claims. In an article written for theSteamship Mutual website, Gary Field(gary.field@simsl.com) gives guidance on the manyways in which Members can mitigate their exposuredespite these adverse decisions:

Filipino CrewClaims -WorryingDevelopments

“These clearly erroneous

decisions carry with them

serious repercussions...”

www.simsl.com/Articles/Filipino0906.asp

The Club was recently approached foradvice by a Member that had contracted tocarry a cargo of ancient Egyptian artworksfrom Alexandria to Europe. The memberwas keen to know whether liability for lossor damage to such cargo was covered bythe Club.

The short answer to the question is yes,subject always to a Member’s terms of entrywith the Club. In this respect, in addition tothe Club’s Rules in relation to loss of ordamage to cargo, the specific Rules are 25xiii (iv) and (v).These deal with valuablecargo and ad valorem bills of lading.

The former provides there shall be norecovery from the Club in relation to loss ordamage to valuable cargo, for examplespecie, bullion, or other objects of a rare orprecious nature, "unless the contract ofcarriage relating thereto and the spaces,apparatus and means in which the same areto be carried and the instructions given withregard to the safe custody thereof havebeen approved in writing by the Managerson such terms as they may require."

The latter limits the Club’s cover to US$ 2,500 in respect of cargo carriedunder an ad valorem bill of lading unlessthe contract has been approved by the Managers.

Amongst the factors that the Managers willconsider in such cases are the following:

• The contracts; the carriage may be theresponsibility of the charterers of thevessel but it will still be necessary toestablish the extent of the vesselowners contractual duties andobligations owed to cargo, whetherunder the charterparty and/or bill oflading or otherwise.

• Some countries restrict the export of ancient artefacts; shippers orcharterers will need to ensure that any relevant regulations arecomplied with and ideally shouldprovide confirmation that they havedone so, so that the goods can beshipped or exported legally, even on a temporary basis.

• Valuable goods may be delicate orfragile and liable to damage; shippersor charterers will need to ensure thatsuch goods are adequately securedand protected within their containers.Dependent on the actual goods it maybe sensible to seek confirmation fromthe shippers or charterers that theyhave employed specialist stowagecontractors and are satisfied that thegoods are properly and securely

Sea Venture newsletter Issue 6

Carriage of Valuable Goods

14

stowed within the containers. If so,clausing the bill of lading to reflectthat the shipper was responsible forthe packing and sealing of thecontainer and that the carrier will notbe liable for loss or damage caused bymatters beyond the carrier’s controlshould assist the carrier to defendconsequent claims for loss or damage

• Other prudent considerations includethe position of the container in thestow. It may be the case that thegoods are temperature-sensitive andtherefore, should not be stowed nearheated bunker tanks or other heatsources. The goods may also bevulnerable to excessive vibration orvessel motion.

• Subject to stability and port rotationrequirements, it may be prudent tostow the containers where they arenot easily accessible, so they areprotected from potential theft, and subject to limited containermovements. The same will apply toany shore side storage when thecarrier may still be deemed to beresponsible for the containers.

In the event of uncertainty and if advice andassistance is required Members’ are alwayswelcome to seek guidance from theManagers’ representatives.

Article by Neil Gibbons(neil.gibbons@simsl.com).

Sea Venture newsletter Issue 6 15

http://www.simsl.com/Articles/ValuableGoods0906.asp

'There can be no frustration if the delayin question is within the commercial risksundertaken by the parties' - Mr. JusticeGross quoting Chitty on Contracts in hisrecent judgment in The "Sea Angel"

In National Carriers v Panalpina, LordSimon of Glaisdale observed thatfrustration of a contract takes placewhen "there supervenes an event(without default of either party and forwhich the contract makes no sufficientprovision) which so significantly changesthe nature (not merely the expense oronerousness) of the outstandingcontractual rights and/or obligations fromwhat the parties could reasonably havecontemplated at the time of its executionthat it would be unjust to hold them tothe literal sense of its stipulations in thenew circumstances......".

The question when and in whatcircumstances a charterparty can befrustrated as a result of delay were recentlyaddressed in The “Sea Angel” by the English

High Court. The charterers of the “SeaAngel” were salvors involved in the “TasmanSpirit” casualty, and had chartered the vesselfor around 20 days on an amendedShelltime 4 charterparty to tranship cargofrom the “Tasman Spirit”.

In deciding that the delay in question did not frustrate the contract, Mr. Justice Grossconsidered the impact of risks expressly dealtwith by the Charterparty and risks associatedwith the salvage operation generally, as wellas the conduct of the parties. Whilst theparticular circumstances of this case wereunusual, the decision provides helpfulguidance when there is delayedperformance in any number of charterpartyand other contractual situations.

The decision is discussed in an article by Shiladitya Bose(shiladitya.bose@simsl.com) on the Steamship Mutual website at:

Sea Venture newsletter Issue 6

Frustrating Delays

16

www.simsl.com/Articles/SeaAngel0906.asp

We are pleased to acknowledge theachievement of Sarah Chase who won the Insurance Institute of London’s Lloyd’s prize for Marine InsuranceUnderwriting as part of the ACIIexaminations. Sarah was also awarded fourdistinctions in the ten subjects covered.

Steamship entered a team in theCargill/British & International SailorsSociety (“BISS”) Three PeaksChallenge. The team of MalcolmAllinson, Sarah Chase and Dan Thomaswere required to climb three of thehighest peaks in England, Scotland andWales within 24 hours. Not only did theevent raise £512,000 for BISS but our

team also completed the course in 12hours. BISS is a national and internationalcharity that operates in over 90 portsacross the world to provide practical helpand support to the world’s 1.5 millionseafarers. In addition, Sacha Patel raisedover £3,000 for BISS and the Cutty SarkTrust by running The London Marathon.He was also a member of Steamship’s 20-strong team in the JPMorgan ChaseCorporate Challenge which is predictedto raise in excess of $500,000 for charitiesand organizations around the world.

http://www.biss.org.uk/

Steamship Mutual News

Three Peaks Team

JPMorgan Chase Corporate Challenge Team

In Oceanografia SA De CV v DSND Subsea AS it washeld that notwithstanding an express requirement forthe signature of both parties for there to be a bindingcontract, a party could be deemed to have waived therequirement of a formal signature.

The (Disponent) owners of the vessel, M/s DSND, withwhom Oceanografia SA De CV (charterers) hadentered into negotiations for the provision of an off-shore supply vessel, commenced arbitrationproceedings in London for unpaid sums under apurported charterparty dated 28 August 2001. Thecharterers challenged the jurisdiction of the arbitrationpanel. They contended that there was never a bindingcontract and relied on the terms of their offer; 'offersubject to the signing of mutually agreeable contractterms and conditions'; this had not been fulfilled. Theowners’ position was that all of the terms had beenagreed, and that if signature was a pre-condition, thenthe charterers had waived that condition by words andconduct, and were estopped by convention fromdenying the existence of a binding charterparty.

In reaching his decision Mr. Justice Aikens focused on what he described as the charterers’ "outwardmanifestation of its position" which was moreimportant than any "private reservations" the charterersmay have had. He held that the charterers, throughtheir conduct, had elected not to insist on the need forsignature, and had elected to go ahead with thecharterparty without signature. Their conduct amountedto estoppel by convention, which prevented thecharterers from denying the existence of the contract.

A full discussion of this case and it’s implications(laura.woodhead@simsl.com), can be found in anarticle by Laura Woodhead on the Steamship Mutualwebsite at:

Bound byConduct -ContractFormation,Waiver andEstoppel

Sea Venture newsletter Issue 6 17

www.simsl.com/Articles/Oceanografia0906.asp

Sea Venture newsletter Issue 618

On 30 January 2003 “the Florida” waschartered on a Vegoilvoy standard formcharterparty to carry vegetable oil fromDumai and/or Kuala Tanjun to Lagos,Nigeria. On 1 March however, before thecargo was presented for loading, theNigerian authorities banned theimportation of vegetable oil. The charterersattempted to cancel on the basis that thevoyage was frustrated but owners refused,relying on the liberty clause in thecharterparty. No cargo was ever madeavailable for loading and eventually ownerscommenced arbitration proceedings againstcharterers in respect of their failure toperform.

The question before the Court in SelectCommodities Ltd v Valdo SA (2006)EWHC 1137 was; can a liberty clause in acharterparty preclude charterers fromrelying on the doctrine of frustration?

The clause relied on by owners set out anumber of liberties against various eventsand, so far as relevant, provided:

“In any situation whatsoever andwheresoever occurring and whetherexisting or anticipated beforecommencement of or during the voyage,which in the judgment of the owner orMaster is likely to …make it unsafe,imprudent, or unlawful for any reason tocommence or proceed on or continue thevoyage or to enter or discharge the cargo

at the port of discharge, or to give rise todelay or difficulty in arriving, dischargingat or leaving the port of discharge or theusual place of discharge in such port, [1]the owner may before loading or beforethe commencement of the voyage,require the shipper or other personentitled thereto to take delivery of thecargo at port of shipment and upon theirfailure to do so, may warehouse the cargoat the risk and expense of the cargo;…,When the cargo is discharged from theVessel, as herein provided, it shall be at itsown risk and expense; such dischargeshall constitute complete delivery andperformance under this contract and theowner shall be freed from any furtherresponsibility. For any service rendered tothe cargo as herein provided the ownershall be entitled to a reasonable extracompensation”.

The Tribunal found that, but for the libertyclause, the charterparty would have beenfrustrated by reason of the Nigerianimport ban. In this case, however, thecharterers were precluded from relying onthe doctrine of frustration because theliberty clause dealt with the situationwhere no cargo had yet been loaded. Thecharterers appealed.

On appeal Mr. Justice Tomlinson held thatthe key question was whether or not theliberty clause provided sufficiently for an

Frustrating Events and Liberty Clauses

Sea Venture newsletter Issue 6 19

event which, even before a cargo hadbeen designated and brought forward forloading, made discharge at thecontractual destination impossible. If it didthen there was authority that, in suchcircumstances, the doctrine of frustrationwould be inapplicable. He referred to“The Safeer” (1994) 1 LLR 63, a case inwhich a war risk clause dealt with whatotherwise would have been a frustratingevent. The vessel had loaded a cargo ofbagged rice for discharge at Kuwait andhad arrived and started discharge the daybefore the Iraqi invasion of Kuwait inAugust 1990. After a significant delaydischarge was resumed but under theorders of the Iraqi Military. The charterersargued that the Charterparty had beenfrustrated whereas the owners positionwas that the charter provided liberty tocomply with the directions of a belligerentstate to deliver cargo. Rix J (as he thenwas) said:

“If the vessel has liberty to comply with adirection to discharge or deliver the goodsto a party not entitled to them, whyshould the contract be frustrated whilethat liberty is being carried out”

In Select Commodities Ltd the Court’sview was that the liberty clause did notmake full and complete provision for allthe effects of the Nigerian ban onvegetable oil importation. The clause was

designed to deal with the practicaldisposition of cargo. No provision wasmade within the clause to deal with thesituation, as in the present case, whereperformance was rendered impossiblebefore a cargo was even designated andbrought forward for loading. Indeed, theCourt held that the purpose of the clausewas not to permit owners to earn freightin the event of frustration, but simply toapportion responsibility and liability insuch circumstances where a cargo hadalready been loaded, or at least had beenbrought forward for loading, when thefrustrating event occurred.

As such, Mr. Justice Tomlinson allowed theappeal in charterers’ favour. The Nigerianban on vegetable oil imports was afrustrating event. The liberty clause didnot deal with or make full provision forthe effect of a frustrating event incircumstances where there was no cargoto load. Therefore the charterparty wasfrustrated and owners were not entitled todamages for breach of contract.

So, to answer our question, a libertyclause potentially will preclude charterersfrom relying on the doctrine of frustration,but only if the liberty clause deals fully andcompletely with the effects of thefrustrating event.

We are grateful to Christian Dyer of Ince& Co for contributing this article.

Following the “Athos I” oil spill in the Delaware River in November 2004, the U.S.authorities considered the compensation limits provided for under OPA ’90 to beinsufficient. Accordingly, the Coast Guard and Maritime Transportation Act of 2006,signed by President Bush on 11 July 2006, includes the following changes to theliability limits provided for under OPA ’90:

The amended limits are effective in respect of an oil discharge or substantial threat ofdischarge as follows:

• For any tank vessels, on or after 9 October 2006.

• For any other vessel, on or after 11 July 2006.

The text also includes language which requires the President to adjust these limits ofliability “not less” than every three years to reflect significant increases in theConsumer Price Index.

The existing regulations governing the need for Certificates of Financial Responsibility(COFRs) have not yet been amended which means that existing COFRs remain validdespite the increase in limits of liability.

Article by Colin Williams (colin.williams@simsl.com)

Sea Venture newsletter Issue 6

New OPA Limits

20

Vessel Type Current OPA ’90 Limits New OPA ’90 Limits

A. Single hull tank vessels (including The greater of $1,200 per The greater of $3,000 per

single-hull fitted with double sides gross ton OR gross ton OR

only or a double bottom only) ...

… in the case of a vessel greater $10,000,000 $22,000,000

than 3,000 gross tons

... in the case of a vessel of $2,000,000 $6,000,000

3,000 gross tons or less

B. A tank vessel other than a single The greater of $1,200 per The greater of $1,900 per

hull vessel referred to in A, above ... gross ton OR gross ton OR

... in the case of a vessel greater $10,000,000 $16,000,000

than 3,000 gross tons

... in the case of a vessel of $2,000,000 $4,000,000

3,000 gross tons or less

C. For any non-tank vessel $600 per gross ton or $950 per gross ton or

$500,000, whichever is greater $800,000, whichever is greater

Sou

rce:

ITO

PF

Turkey - NewCommercialCode

The second draft of the new Turkish Commercial Codeis currently under review by the Ministry of Justice. It isanticipated that the new Code will be in force by 1January 2007. Dr. Fehmi Ulgener of Ulgener LegalConsultants/Law Office sat as chairman of the sub-committee to the Chamber of Shipping charged withthe task of reviewing and evaluating the first draft ofthe new Code. In an article prepared by Dr. Ulgenerfor the Steamship Mutual website the background tothe draft new Code is discussed and some importantchanges to the fourth and fifth chapters of the Code,which deal with maritime and insurance law, arehighlighted. These include issues relating to carriers’liability, recognition of time charters and theacceptance of Club Letters of Undertaking as securityin lieu of or to gain release from arrest. The article canbe found at:

www.simsl.com/Articles/Turkey_NewCode0906.asp

Sea Venture newsletter Issue 6 21

A very recent decision of the English High Courtdemonstrates that ingress of sea water into a vessel'shold cannot be treated as a decisive indication ofunseaworthiness at commencement of the voyage -despite what many cargo recovery agents would seekto argue!

According to Judge Mackie QC in Ceroilfood v Toledo:"if the claimants establish that there was anunexpected ingress of sea water into the vessel's holdthen that will be a peril of the sea within Article IVRule 2(c) and the Defendants will not be liable unlessthe Claimants have established either causativenegligence or shown that the vessel was unseaworthyat the start of the voyage".

A full discussion of the decision, the impact of whichon cargo claims could be considerable, and which alsoaddressed the scope and application of the HagueRules Article III Rule 6 Time Limit, can be found in anarticle by Nina Jermyn (nina.jermyn@simsl.com) onthe Steamship Mutual website at:

Sea Water Ingress andSeaworthiness

www.simsl.com/Articles/Toledo0906.asp

As Members will beaware from Clubcirculars, SteamshipMutual has for manyyears co-operatedwith VideotelMarineInternationalLimited in theproduction ofvideo and

computer basedtraining programmes. The first title, a

three part series on Bridge Procedures, waspublished in early 1994. Since then, over50 further programmes have beenproduced.

One of the most recent programmesproduced by Videotel and Steamship Mutualon the subject of "Anchoring Safely" wasthe winner of a Bronze Award in the shortfilm/video category in this year's HorizonInteractive Awards competition. TheHorizon Awards were created to recogniseoutstanding achievement in the field ofinteractive media.

In addition the 2006/07 edition of theClub's innovative Claims Handling Guide,"A Team Effort” - A Guide to CasualtyInvestigation & Claims Handling, wasreleased in August. This Interactive CD-ROM contains updated versions of theClub Rules, List of Correspondents andStaff Contacts. Editorial improvements have

been made to the video and text chapters,and additional images have been added.Many reference documents such asstandard forms of charterparty andInternational Conventions are alsocontained within the CD, and there arelinks to useful internet resources, therebymaking the CD a comprehensive andstand-alone claims handling resource. TheCD is also now available in versions withthe video sub-titled in Spanish and Chinese.

The Guide is intended for use bothashore and onboard Members’ vessels.By providing Masters with guidance onmatters of essential importance in thehandling of particular claims, lossminimisation is facilitated. The CD is alsoan extremely useful training resource forthose who may be new to P&I insurance.

Steamship Mutual/Videotel TrainingProgramme Wins Award

Sea Venture newsletter Issue 622

Important amendments to SOLAS and SAR conventionscame into force on 1 July 2006. These have beensummarised in the following website articles:

• Lifeboats - Measures to Prevent Accidentswww.simsl.com/Articles/Lifeboats0606.asp

• Persons in Distress At Sea - SAR and SOLAS Amendmentswww.simsl.com/Articles/SAR_SOLASAmends0606.asp

• Bulk Carrier Safety - SOLAS Amendments in Forcewww.simsl.com/Articles/Bulk_SOLASAmends0606.asp

• Voyage Data Recorders for Cargo Shipswww.simsl.com/Articles/CargoVDR0606.asp

Other articles:

• Chemical Spills - OPRC-HNS Protocol in Force June 2007www.simsl.com/Articles/OPRC_HNS_0606.asp

• Compensation for Oil Pollution Damage - Parties tothe Supplementary Fund Protocolwww.simsl.com/Articles/3rdTierParties0606.asp

Articles Published on the SteamshipMutualWebsite

Sea Venture newsletter Issue 6 23

The 2006 Report & Accounts and Management Highlights

Members received these in hard copy in June. Theyhave also been published on the Steamship Mutualwebsite. The Management Highlights can bedownloaded as a whole or by section, as preferred.

• Report & Accounts www.simsl.com/Publications/RA/2006/Rep_Acc.asp

• Management Highlights www.simsl.com/Publications/Management_Highlights/Management_Report.asp

Additional Cover For Non-Poolable P & I Risks

Circular B.447 informs Members of a general reinsurancefacility which enables the Club to provide cover for awide range of non-poolable liabilities and costs for shipoperators. The facility is designed to offer additionalinsurance to Members who wish to be protected againstcertain non-poolable risks not otherwise insured underthe Rules. The nature of the risks for which cover isavailable are detailed in the Circular:

• www.simsl.com/Publications/Circulars/2006/B447.asp

RecentPublications

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