IN THIS ISSUE• Club liability to third parties: the

“PRESTIGE” [2015] EWCA Civ 333• When is a sale of goods not a

sale of goods – when it’s a bunker supply contract with a retention of title clause: the “RES COGITANS” [2015] EWHC 2022 (Comm)

• Responsibility for loadingand discharging under Clause 5 Synacomex

• Making your mind up: revised voyage orders, cancellation and BEEPEEVOY3

BENTLEYS’ BULLETINJuly 2015

CLUB LIABILITY TO THIRD PARTIES: THE “PRESTIGE” [2015] EWCA CIV 333

When the “PRESTIGE” broke up and sank of Cape Finisterre in November 2002 it was only a matter of time before there was the latest challenge to the “pay to be paid” provisions found in the rules of most P&I Clubs and an attempt to enforce directly against the owner’s Club. The reason is that although the International Convention on Civil Liability for Oil Pollution Damage (“the CLC”) does allow both recovery of damages for pollution clean up costs and direct action against a Club, this is limited.

Spain (later joined by France) sought a full recovery by commencing criminal proceedings under the Spanish Penal Code against the ship’s offi cers. Under these, the owner was said to be vicariously liable for the offi cer’s acts. Spain also relied on their domestic legislation to claim directly against the Club.

The Club (the London Club) paid their CLC liabilities but resisted any further claims. The route they took was to argue that Spain and France were bound by the contract between them and the owner under the Club rules. That contained English law and arbitration clauses together with a “pay to be paid clause”. The Club, therefore, commenced arbitration proceedings for declarations to this eff ect. The tribunal found in the Club’s favour.

The Club then applied to enforce the award as a judgment of the High Court. If successful that would mean that as and when the Spanish Courts obtain a domestic judgment, the Club could resist enforcement under article 34(3) of the Judgment Regulation.

Spain and France opposed those applications on the grounds of state immunity and also that the tribunal lacked jurisdiction because the rights enforced against the Club arose under Spanish law independently of the insurance contract. It goes without saying that this case gave rise to extraordinarily complicated questions of substantive and procedural law

spanning all concerned jurisdictions. The hearing lasted a full 7 days of complex legal argument but the High Court (Hamblen, J.) did give permission to enforce the awards as judgments against Spain and France, who then appealed.

The Court of Appeal (Moore-Bick, Patten and Tomlinson, L.J.J.) dismissed this. In their judgment, it is necessary to ascertain the nature and scope of the right which Spain/France sought to enforce. Either it is a right to enforce an obligation defi ned by the contract of insurance or it is an independent statutory right created by Spanish legislation and independent of the contract.

The starting point of the enquiry is the Spanish legislation. This largely recognised that the right to claim against the insurer is determined by the terms of the insurance contract. The eff ect of the legislation is in substance to enable the claimant to enforce the obligations arising under that contract.

Whether this right is tortious under Spanish law or not is beside the point: it entails enforcing the insurance contract. Since the insurance contract is governed by English law, it was necessary to apply English law to determine the scope of the insurer’s liability and the terms on which it may be enforced.

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July 2015 Issue

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On the question of state immunity, by making applications to set aside the award on the grounds of no jurisdiction Spain and France took a step in the proceedings other than for the sole purpose of claiming immunity and thereby lost the right to claim state immunity under the State Immunity Act 1978.

The Court of Appeal also said, albeit that this was obiter, that the assertion of claims against the Club in Spain meant that they had consented to arbitration, because those claims fall within the arbitration clause in the Club rules. This normally requires an agreement expressed in writing.

Although Spain and France were not parties to the arbitration agreement in that full sense, the pursuit of a claim against the Club in the Spanish proceedings amounted to an adoption of the agreements. This gave the Club and the appellants the right to refer the disputes to arbitration and did satisfy the requirement of an agreement in writing.

The Court of Appeal was also satisfi ed that the claims made in the Spanish proceedings were capable of being determined by arbitration. Although not a criminal tribunal an arbitrator did have jurisdiction to fi nd facts which could constitute a criminal off ence. As an example, tribunals frequently make fi ndings of fact which would amount to fraud. Furthermore, the disputes submitted to arbitration between these parties were whether the appellants

were bound by the arbitration clause in the Club’s rules and whether the “pay to be paid” clause defeated their claims. These issues could be determined by the arbitrator without having to decide whether any of the accused offi cers had committed criminal off ences under Spanish law.

It can be seen that this is a very important decision concerning where the dividing line falls between contractual and statutory provisions. As the court pointed out, whenever legislation gives a third party a right to make a direct claim against an insurer by reference to the terms of a contract of insurance both statutory and contractual rights are involved. The distinction is between a case where the right conferred is one to enforce the obligation created by the insurance contract, and a case where the right conferred is one to enforce a liability independent of that contract. In the former case, the proper law of the contract will govern the nature and scope of the obligation. In the latter, the law of the country whose legislation created the right will govern its nature and scope. One useful indication is the extent to which the law creating the right of direct action seeks to modify the scope of the obligation under the contract.

July 2015 Issue

The starting point of the enquiry is the Spanish legislation. This largely recognised that the right to claim against the insurer is determined by the terms of the insurance contract. The effect of the legislation is in substance to enable the claimant to enforce the obligations arising under that contract.

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July 2015 Issue

WHEN IS A SALE OF GOODS NOT A SALE OF GOODS – WHEN IT’S A BUNKER SUPPLY CONTRACT WITH A RETENTION OF TITLE CLAUSE: THE “RES COGITANS” [2015] EWHC 2022 (COMM)

As is sadly well known the world’s then largest bunker suppliers and traders, OW Bunkers (“OWB”), discovered a massive fraud perpetrated in their Singapore offi ce, could not recover from this and collapsed fi nancially. The group is now subject to liquidation proceedings in Denmark.

That process is causing enough headaches of its own but the major problem for owners and charterers who purchased bunkers from OWB is that they are often faced with competing interests all saying they are entitled to payment. The facts of this case are a good example. It is worth mentioning that the judge, Mr Justice Males, was told that there were hundreds of pending arbitrations revolving around similar points. There is no doubt, therefore, that many owners and bunker suppliers are not the best of friends just at the moment.

In simplifi ed terms, the owner purchased the bunkers from OWB. OWB assigned their rights to payment for these to their bank ING. OWB sourced the bunkers from Rosneft who were the physical suppliers of the bunkers.

The various contracts contained payment terms giving 30 or 60 days credit. In addition, they contained retention of title clauses, providing that the property in the bunkers remained with the seller until they received payment. The owner

naturally wanted to start consuming the bunkers shortly after delivery. The terms permitted this prior to payment even though, ostensibly, the owner did not have property in them.

OWB did not pay Rosneft and, to quote the judge, their prospects of recovery are “not promising”. Rosneft directed their fi re, therefore, on the owner, asserting that they still had property in the bunkers. Meanwhile ING also demanded payment from the owner. This left the owner with an all too common dilemma. Again as the judge recorded, they had no objection to paying but, fairly unsurprisingly, did not want to pay twice.

The route the owner took was to try to knock OWB and ING out of the equation. They did so by arguing that the supply contract was a contract to which the Sale of Goods Act 1979 (“SOGA”) applied. The owner’s argument here was that given the fact that the bunkers would be consumed before payment would become due they could rely on section 49 of SOGA. This

sets out the conditions under which the price for the goods becomes payable. Under section 1 this requires that “property in the goods has passed to the buyer”.

If SOGA does apply that would mean that OWB/ING would never have been entitled to the price. The reason is that because the bunkers had been consumed before the price became payable there was no property in the bunkers to pass. It had been extinguished. In normal circumstances, OWB/ING would have had an alternative remedy. They could claim for specifi c performance of the obligation to pay the price. That door would, however, also be shut to them because OWB had failed to pay Rosneft and, had never acquired title to the bunkers. They would not, therefore, have been in a position to perform their own obligations under the contract.

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July 2015 Issue

Conversely, if OWB/ING could take themselves out of the SOGA regime they would have a clear remedy. They would have an unrestricted claim in debt not fettered by the requirement to pass property in the bunkers to the owner at the time of payment.

An arbitration was agreed on an expedited basis to consider a number of preliminary issues arising out of the above. In short, the tribunal found against the owner. In their view the contract was not covered by SOGA.

The owner appealed to the High Court where Males, J., in large part, upheld the tribunal’s fi ndings. The judge considered fi rst the statutory defi nition of a contract of sale as found in SOGA. For the purposes of this case, the crucial wording is found in section 2 (1) which states that it is “..a contract by which the seller transfers or agrees to transfer the property in the goods to the buyer for a money consideration, called the price”. Males, J. then identifi ed two requirements of fundamental importance in this case. Firstly, that one party has to have agreed to transfer property in the goods to the other. Secondly, there has to be a link between the transfer of property and the price. It has to be shown that the buyer is paying money for title in the goods and not some other benefi t.

In the judge’s view, there was a combination of four factors in this case which rendered it likely that the parties accepted that it was likely title would never, in fact, be transferred. These were: the retention of title clause; the credit period granted before payment was due; the fact that the owner had been granted permission to consume the bunkers; and fi nally, the fact that these would be consumed prior to expiry of the credit period such that the property would cease to exist.

In his own words:

“….it is diffi cult to conclude..that..(OWB)..undertook an obligation to transfer the property in the bunkers to the Owners. There is no good reason why it should undertake an obligation which both parties knew that it was unlikely to be able to perform. It is equally diffi cult to conclude that what the Owners were paying for was the transfer of title to them, when both parties knew this was unlikely to happen.”

That inevitably leaves the question of what, if it was not a sale, the contract did encompass - in other words, what was the owner actually paying for? Males, J., again adopting the reasoning of the arbitrators, endorsed the view that it amounted to a contract by which OWB would supply bunkers in return for which the owners would pay them in accordance with the agreed payment regime. As such, OWB/ING were entitled to recover the sums due as a debt under a contract not subject to SOGA.

That leaves the owner with the unpalatable prospects of having to pay both OWB/ING and Rosneft. Rosneft’s claim would, potentially, arise under the tort of conversion on the grounds that the owner had consumed bunkers which still belonged to them. That is because Rosneft had not been paid by OWB in circumstances where a retention of title clause in the OWB/Rosneft contract meant the bunkers were still owned by Rosneft.

Males, J. expressed the view (it is in no sense binding because Rosneft were not a party to the action) that as a matter of English law Rosneft could have no such claim. In his view Rosneft had either expressly or impliedly consented to the use of the bunkers by the owner. This was because they would have been

aware that OWB would not be the end user and that the OWB contract with the owner would permit them to consume the bunkers prior to payment.

It was fully recognised that this reasoning might not be followed in other jurisdictions. The owner remains at risk of arrest elsewhere and a successful claim by Rosneft. As Males, J. said, however, those factors did not affect the English law position and, in his own words:

“..the risk of an adverse decision in a foreign court which views matters differently from English law is typical of the risks which a shipowner undertakes as it trades its vessel around the world”.

It goes without saying that this case will make unpalatable reading given the present climate. There is at least the comfort of Males, J.’s comments in relation to the claim from Rosneft as a matter of English law. In circumstances where bunkers are typically supplied subject to a chain of contracts all containing credit terms and retention of title clauses an owner is bound to feel caught between a rock and a hard place. Settling their English law obligations may well still mean they still have to pay another party in a different jurisdiction. Equally this case only dealt with preliminary issues and, given the general importance of these, will be considered further on appeal, so we will follow developments with interest.

It is worth mentioning that the judge, Mr Justice Males, was told that there were hundreds of pending arbitrations revolving around similar points. There is no doubt therefore that many owners and bunker suppliers are not the best of friends just at the moment.

“”

RESPONSIBILITY FOR LOADING AND DISCHARGING UNDER CLAUSE 5 SYNACOMEX

In the “SEA MIROR” [2015] EWHC 1747 (Comm) Mr Justice Flaux was asked to determine a preliminary issue on the construction of Clause 5 of the Synacomex 90 standard form in relation to cargo claims under bills of lading incorporating those terms and governed by the Hague Rules.

The issue was put in simple terms: “Whether on the proper construction of the contract of carriage contained in or evidence by the bill of lading…the defendant is liable for loss or damage to the cargo caused by improper loading or discharging of the cargo”.

Clause 5 of the Synacomex form provided: “Cargo shall be loaded, trimmed and/or stowed at the expenses and risk of Shippers/Charterers at the average rate of 1,500 metric tons per weather working day…Cargo shall be discharged at the expenses and risk of Receivers/Charterers at the average rate of 1,500 metric tons per weather working day…”.

Flaux, J. found that responsibility for loading and discharge operations rested on the cargo interests. Although at common law, responsibility for loading and discharge is upon the carrier, responsibility for those functions can be transferred to the cargo interests by clear wording. If “at the expense and risk of” in Clause 5 only indicates that the risk of fortuitous loss was on the charterer, the words added nothing to the position in bailment or under the Hague Rules Article IV Rule 2(q).

Further, these words could not be concerned only with responsibility for delay in loading and discharging since delay is expressly dealt with by the laytime and demurrage regime. Clause 5 has to be construed in the context of the charterparty as a whole before any question of which clauses are incorporated in the bill of lading arises. The words of the clause cannot bear a different meaning when incorporated in the bill of lading from the meaning they bear when the charter is construed as a whole.

The fact that there are one or more arguable constructions of Clause 5 does not mean that the carrier’s construction is incapable of being suffi ciently clear to transfer responsibility for loading and discharge to the charterers. The word “risk” has been equated with “responsibility” in reported cases concerned with liability for cargo operations, which supported the owner’s construction. The words “at the expense and risk of shippers/charterers” (in the case of loading) and “at the expense and risk of receivers/charterers” (in the case of discharge) in Clause 5 were suffi ciently

clear to transfer responsibility for loading and discharge and any shortcomings in those operations to the charterers and cargo interests. Equally if the cargo interests were correct, the later sentence “stowage shall be under Master’s direction and responsibility” would add nothing since stowage would be the carrier’s responsibility at common law in any event.

There are many reported decisions considering the important issue of responsibility for cargo operations. This case reinforces the point that responsibility for bad loading, stowage and discharge does not depend upon undertaking the actual performance of the operations. Performance, expense and responsibility are separate elements which can be allocated as the parties please.

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Although at common law, responsibility for loading and discharge is upon the carrier, responsibility for those functions can be transferred to the cargo interests by clear wording.

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July 2015 Issue

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July 2015 Issue

MAKING YOUR MIND UP: REVISED VOYAGE ORDERS, CANCELLATION AND BEEPEEVOY3

The events giving rise to the “KRITI FILOXENIA” [2015] EWHC 997 date back so far that the charterparty form in question (the BPVOY3) has been superseded by the BPVOY4. Nonetheless, the earlier form remains in occasional use and the case also concerns more general principles.

It concerns the juxtaposition of separate clauses covering: fi rstly, the agreed laycan spread; and secondly, the charterer’s rights to change their original nomination of a loadport to another. Originally, the charterers had nominated Tuapse, which the ship could arrive at prior to the cancellation date. Whilst the ship was on the approach voyage, they changed this to Batumi. The ship could not arrive there in time and the charterer purported to cancel the charter in accordance with the laycan provisions. The owner treated this as a repudiatory breach and pursued a claim for damages in arbitration.

The issue for consideration was whether the cancelling provisions still applied where the charterer had used their separate right to vary the loadport. If those provisions did apply, the parties agreed that the order had to be given within a reasonable time, but disagreed about what a reasonable time meant. The charterer’s position was that a revised order would inevitably be reasonable if given before the vessel arrived at a deviation position where she had to deviate from her course to the original nominated port.

The tribunal held that the cancelling date no longer applied once the loadport was varied. In addition, they held that the charterer could not cancel if the re-nominated loadport is a port at which, at the time of the revised order, the vessel’s ETA would be after the cancelling date. The owner was awarded damages for wrongful cancellation. Charterers appealed both issues to the High Court.

Mr Justice Walker dismissed the appeal. In this respect he accepted that provisions allowing cancellation were of great importance to a charterer. The charterer had argued from this that it would be a “completely unreal” consequence if they lost the right to cancel simply by making a renomination – this could, after all, have been made only a minute or two after the original nomination. Walker, J. did not fi nd this a compelling argument. In his view, the charterer has to make a commercial judgement essentially balancing the loss of their right to cancel with their desire to renominate. It made no difference whether re-nomination occurred fi ve minutes or fi ve days after the original nomination, it was for the charterer to assess the commercial pros and cons and make a decision as to whether they wished to preserve rights to cancel over a desire to renominate.

He went on to point out that the renomination provisions did not address what should happen in respect of cancellation. Renomination applied equally to second, third and fourth loadport nominations, cancellation was restricted to the fi rst load port. Further, it is inconsistent for a charterer to accept that their ability to make the fi rst nomination is fettered by the duty not to impair the ability to achieve the cancelling date, but to say that their ability to re-nominate is completely unfettered such that they get the benefi t of the cancelling date.

The charterer’s case was that they could make a revised nomination in circumstances where it would mean that the vessel could no longer meet the cancelling date. Walker, J. pointed out that the existence of a cancelling date inevitably entails a duty not to impair the achievability of that cancelling date. The liberty given to vary the fi rst load port is too wide to carry with it any continued ability to rely upon the cancelling date.

The interesting fact about this case is that it was not the lateness of the revised nomination itself which made the ship miss her cancelling date. She would never have made it to Batumi in time in any event. It was found, however, that she was only expected to meet the cancelling date for the fi rst nominated port. It follows that if a charterer desires to have the certainty of a cancellation date even where port nominations have been changed, it is advisable to try and stipulate for this expressly.

It made no difference whether re-nomination occurred fi ve minutes or fi ve days after the original nomination, it was for the charterer to assess the commercial pros and cons and make a decision as to whether they wished to preserve rights to cancel over a desire to renominate.

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