september 2014 - clyde & co · september 2014 contents insurance contract law reform – are we...

Cargo

NewsletterSeptember 2014

ContentsInsurance contract law reform – are we on the home straight? Page 2

Court flexible in the incorporation of law and jurisdiction charterparty clauses into negotiable bills of lading Page 5

Procedural issues in multiple cargo claims Page 6

Shipowner not liable for cargo damage resulting from poor stowage Page 7

Court of Appeal clarifies issue of jurisdiction over successive carriers under the CMR Convention Page 8

Seafarer fatigue and the implications on seaworthiness 0

Recent casualtiesPage 12

Team member profilePage 14

Meet the teamPage 15

IntroductionWritten by legal experts, Clyde & Co’s Cargo Newsletter is a regular publication designed to keep you informed of recent legal developments.Clyde & Co’s cargo team has been involved in many of the major shipping disasters of the last few years, representing the majority of cargo insurers in containership casualties such as “MOL COMFORT”, “MSC NAPOLI” and “YM GREEN”, acting in the “MSC FLAMINIA” fire case, and advising on the sinking of the car-carrier “BALTIC ACE”. Our global network of offices ensures that we have a team available at all times of day, wherever our clients or their catastrophes are located. Our work on such high-profile casualties has led to our team becoming a market leader and we have long been one of the foremost names in the field.

For further information about any of the issues raised in this newsletter, please do not hesitate to speak to your usual contact or the authors listed herein. You can also email us at [email protected].

Clyde & Co – A leading international law firm with over 1,500 lawyers operating over 6 continents.

mailto:[email protected]

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Cargo Newsletter September 2014

Insurance contract law reform – are we on the home straight? Simon Culhane, Partner and William Melbourne, Consultant

Following the conclusion of HM Treasury’s consultation on the latest proposed bill drafted by the Law Commissions of England, Wales and Scotland, an amended bill has now been presented to Parliament. The bill will be following the special Parliamentary procedure for uncontroversial Law Commission bills and it is therefore possible that it will now be passed before the end of the current parliamentary session (30 March 2015). If royal assent is obtained, the Insurance Act 2014 will apply to every insurance policy and reinsurance contract written in England and Wales, Scotland and Northern Ireland and (with certain exceptions set out below) will come into force 18 months after the date it is passed. This will allow time for policy wordings to be amended, where necessary. It should be noted that the bill may be amended further during its passage through Parliament.

We set out below the current form of the bill.

1. Clauses which have been omitted from the Insurance BillThe following two substantial changes to the bill were made before it was presented to Parliament:

(a) Damages for late payment

The draft bill had provided for the payment of damages once insurers had had a reasonable amount of time to investigate a claim and could not show reasonable grounds for disputing a claim. Business insurers would not have been able to contract out of this reform where they were “deliberate or reckless” in delaying payment.

Following some criticisms of these provisions, the proposals for late payment damages have now been dropped in their entirety (and not just in relation to deliberate or reckless late payment).

(b) Terms designed to reduce the risk of a particular loss

The previous draft bill had also proposed that, where a term (eg a warranty or a condition precedent) was designed to reduce the risk of a particular type of loss, or the risk of loss at a particular time or in a particular place, a breach would entitle an insurer to refuse claims for losses falling within that category of risk. That proposal has also been omitted from the bill presented to

Parliament. Accordingly, where, for example, an insured breaches a warranty to install a burglar alarm, the insurer will still be able to refuse cover where loss is caused by a flood (subject to the other incoming reforms on warranties – see further below).

Although HM Treasury decided to drop these two provisions, the Law Commissions have not given up: they say they will continue their efforts to find a “workable solution” regarding these two areas. As mentioned further below, work will continue into next year on further possible reforms.

2. A summary of the main clauses which remain in the billThe clauses below are still currently included in the bill, which will amend and limit the remedies that insurers currently have under the contract of insurance. Of course, in the case of a number of regulated professions, professional indemnity insurance is already subject to minimum terms and conditions that limit insurers’ remedies in any case. The new proposals will remain relevant to cover purchased above the compulsory level, and to professions not subject to minimum terms of insurance.

(a) Warranties

All “basis of the contract” clauses will be prohibited. A basis of the contract clause in a proposal form has the effect of converting all answers in the proposal

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form (no matter how trivial) into warranties. In addition, all warranties will become “suspensive conditions”, allowing an insured to remedy a breach and thus come back “on cover” thereafter (and insurers will also still be liable for losses prior to the breach, as is currently the case).

(b) Utmost good faith/non-disclosure

These reforms will apply to business insurers only (consumer insurance having been dealt with in the 2012 Act). Insureds will still have a duty to volunteer information and will have to make a fair presentation to insurers (making disclosure in a manner which would be reasonably clear and accessible to a prudent insurer). The knowledge of an insured company will be what is known to its senior management or those responsible for the company’s insurance. They will also be required to carry out a reasonable search for information within the entity, but an insurer will be presumed to know things which are common knowledge, or which an insurer offering insurance of the class in question to be insured in the field of activity in question would be expected to know in the ordinary course of business.

Previously, the bill provided that the knowledge of an insured would not include confidential information which it had acquired through a business relationship with a third party. That has now been amended to refer to confidential information acquired by the insured’s agent (eg broker) or an employee of the agent through a business relationship with a third party.

The remedies for a misrepresentation or non-disclosure remain unchanged from the earlier draft bill. Broadly, avoidance (without a return of premium) will be available if the insured has been deliberate or reckless and in all other cases a scheme of proportionate remedies will apply (designed to reflect the situation as it would have been had full disclosure been made):

– Where the insurer would not have entered into the contract on any terms the insurer can avoid the contract but must return the premium

– If the insurer would have entered into the contract on different terms, the contract is to be treated as though it is on those different terms

– Finally, where the contract would have been entered into (on the same or different terms) and a higher premium would have been charged, the insurer can reduce proportionately the amount claimed (ie if double the premium would have been charged then half the claim would be payable)

These remedies are more favourable to insurers than those allowed under certain of the regulators’ minimum terms. For example, the SRA minimum terms do not allow avoidance of the policy for any reason, including fraud, although do allow recovery, from any insured committing or condoning the non-disclosure/ misrepresentation, to the extent that insurers have been prejudiced, The RICs minimum terms allow avoidance of the policy only where there has been intention to deceive by the insured, and otherwise allow insurers to charge a reasonable additional premium if there has been prejudice caused by the non-disclosure/misrepresentation.

(c) Good faith

It is still proposed that the remedy of avoidance for the breach of the duty of utmost good faith will be abolished (the Law Commissions having previously pointed out that, where an insurer breaches its own duty of good faith, an insured would not want the policy avoided because that would prevent its claiming under the policy). The Law Commissions have instead indicated that insurers may be prevented from exercising a right if it has not been exercised in good faith (although it is perhaps difficult to see how a legitimate right could be exercised in a manner amounting to bad faith in all but the most extreme of circumstances. In any event, there is no provision to this effect included in the bill). Damages are not proposed as an alternative remedy (and so an argument that late payment by an insurer amounts to a breach of the duty of good faith, thus attracting damages for late payment via an alternative route, would not work).

(d) Fraudulent claims.

It is proposed that insurers will now have an option of terminating the policy with effect from the date of a fraudulent act, without a return of premium (thus allowing insurers to refuse to pay any genuine claims thereafter, although they would still be liable for legitimate losses before the fraud).

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3. Contracting out of these changesThere has been no change to the proposal that the Insurance Act will represent only a “default regime” for business insurers (although it will not be possible to contract out of the basis of the contract clause prohibition). Where insurers intend to opt out and include a “disadvantageous term”, sufficient steps must be taken to draw that to the insured’s attention before the contract is entered into. A boiler-plate opting out clause will therefore not suffice: each and every departure from the default position will have to be flagged up. Furthermore, an alternative remedy or position will have to be specified, otherwise there will be a void (and the courts are likely to imply back into the policy the position set out in the Act).

It is also worth noting that the changes to the duty of fair presentation and good faith apply to contracts or variations entered into after 18 months after the Act is passed. However, the changes to warranties and fraudulent claims will apply only to contracts entered into after 18 months after the Act is passed, or variations to those contracts (ie variations to contracts written before the end of the 18 month period will be governed by the previous law).

4. Third parties (Rights against Insurers) Act 2010One surprising feature of the published bill is the inclusion of various minor provisions relating to this Act, which received royal assent on 25 March 2010, but which is still awaiting a further statutory instrument to bring it into force. A review of the main provisions of this Act is beyond the scope of this update, but the Act is, broadly, intended to make it easier for third party claimants to bring direct actions against insurers where an insured has become insolvent. The changes included in the Insurance Bill allow the Secretary of State for Justice greater scope to make further regulations and amend the definition of an “insured” (and, more specifically the type of insolvency event which the insured must undergo in order to trigger the application of the Act).

Although no deadline to bring the 2010 Act into force is set out in the draft Insurance Act, it is worth noting that the powers being passed to the Secretary of State come into force two months after the bill receives royal assent. Accordingly, it might be anticipated that the aim is to bring the 2010 Act into force at some point during 2015.

5. Further reform?In addition to continuing to work on a possible implementation of the two areas deleted from the bill (see above), the Law Commissions have indicated that they are aiming to produce a third and final report in 2015 on various issues which were not addressed in the bill but which have been the subject of review and proposals in earlier papers. These include the proposed abolition of the need for a formal marine policy (section 22 of the Marine Insurance Act 1906) and reform of section 53(1) of the 1906 Act, which makes a broker liable to pay premiums to the insurer and applies only to marine insurance policies.

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Court flexible in the incorporation of law and jurisdiction charterparty clauses into negotiable bills of lading Simon Culhane, Partner and Eleanor Coates, Associate

It has long been established that in order for a law and jurisdiction clause in a governing charterparty to be incorporated into a negotiable bill of lading, specific reference must be made to the clause. The courts have required this level of clarity in order to protect the consignee, who will almost always not be a party to the original contract of carriage.

In the case of Caresse Navigation Ltd v Office National de L’Électricité and 5 others (The “CHANNEL RANGER”) [2013], the Court considered the question of how accurate such a reference to a charterparty law and jurisdiction clause needs to be.

Facts The claim concerned alleged damage to a cargo of coal, shipped from Rotterdam to Morocco, as a result of selfheating and consequent dousing with sea water. The claimant shipowners (who were also the contractual carriers of the cargo) commenced proceedings in the English courts for a declaration of non-liability against the defendant cargo interests concerning damage to the coal. Cargo interests contested the jurisdiction of the English courts on the grounds that the clause providing for English jurisdiction in the underlying voyage charter was not adequately incorporated into the bill of lading.

The bill of lading (in the Congenbill 1994 form) provided that the “Law and Arbitration” clause of the voyage charter was incorporated. The problem was, however, that the underlying voyage charter (in the Amwelsh form 1979) contained a “Law and Jurisdiction” clause rather than a “Law and Arbitration” clause. Cargo interests argued that there was a need for clarity and certainty and, as such, the wording in the bill of lading should be taken literally. They therefore argued that as there was no “Law and Arbitration” clause in the charterparty to incorporate, no other clauses in the charterparty should be deemed incorporated in its place, including the “Law and Jurisdiction” clause. As a result, they contended, no inference as to English jurisdiction could be made, and the proper forum should instead be Morocco, this being the location of discharge.

DecisionThe claimant argued that a certain amount of verbal manipulation should be permitted, in order to achieve the result which the parties had originally intended. Mr Justice Males agreed with this approach, stating that the question was one of construction, not incorporation; the requisite “specific reference” to a clause in the charterparty had been made, and it was therefore for the Court to decide to which clause this referred. The Judge concluded that as there were no other clauses in the charterparty dealing with dispute resolution, the “Law and Jurisdiction” clause was the only possible clause which a reasonable person would have understood as having been intended. As a result, it was possible to correct an error by the parties in mistakenly using the word “arbitration” instead of “jurisdiction.” However, he added the caveat that the consignee would only be bound by such charterparty clauses to the extent they were usual in the trade.

Mr Justice Males made it clear in his judgment that his decision was not inconsistent with the prevailing view that clarity and certainty are required in order to protect a thirdparty consignee. He maintained that as a result of his decision, a consignee is put in no worse position than if the underlying charterparty had in fact contained a “Law and Arbitration” clause which had been straightforwardly incorporated in the usual manner, as, in both circumstances, a consignee would still need sight of the charterparty before being able to ascertain the terms incorporated. It therefore seems to be the case that as long as a specific reference is made in the bill of lading to a discernable clause in a charterparty, which is usual in the trade, minor mistakes in the reference wording are likely to be overlooked. However, it should be noted that the decision is subject to appeal and a hearing is expected to take place in the Court of Appeal before October 2014.

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Procedural issues in multiple cargo claimsAndrew Nicholas, Partner

In cases where a number of claims are brought against a carrier concerning cargo loss arising from a common incident or cause, tactical and procedural issues can often play a significant part in maximising potential recoveries. An excellent example of this was provided by the decision in Volcafe Ltd v Compania Sud Americana de Vapores SA (2013) where the carrier’s attempt to have individual claims dealt with separately was rejected in the Commercial Court, in a case where the successful claimants were represented by Clyde & Co.

The claims arose in relation to the carriage of coffee by CSAV from Peru and Colombia to Bremen over a six-month period. Nine of the ten claims alleged damage caused by “sweating” or condensation inside the containers during carriage. The tenth claim alleged damage to the cargo by ingress of water through a hole made in the container.

The carrier applied to the High Court for an order that the claims should be heard separately. This approach would result in a number of the smaller-value claims being dealt with under the fast track procedure, thereby potentially limiting the extent of costs that may be recovered as well as the ability to submit expert evidence. They also argued that the claims should be transferred to the County Court rather than the Mercantile Court in order to save costs. This proposed approach seemed designed to create an increased evidential burden and costs exposure for the claimants, thereby potentially improving the negotiating position of the carrier in relation to the claims taken as a whole. The claimants objected to the carrier’s application and argued that the claims should be heard together in the Mercantile Court.

The procedural dispute was determined by Mr Justice Teare in the Commercial Court and he held in favour of the claimants. The Judge noted that the cargoes were all carried on the same terms and so any legal issues were likely to be common to all the claims. In addition, although no defence

had yet been served, it seemed likely that the sweating and condensation claims would raise common issues about the carrier’s system for preventing such damage. In these circumstances, the Judge felt that the most cost-effective course of action was for all the claims to be tried together. This approach meant that the court could consider the possible option of identifying one lead claim that might be held determinative of all the claims (or at least those where the damage was alleged to relate to a common cause). Finally, the Judge noted that the Mercantile Court had experience of dealing with small cargo claims arising from international carriage of goods and it was by no means certain that the costs would be higher in the Mercantile Court than in the County Court. It was therefore appropriate for all the claims to be transferred together to be heard in the Mercantile Court.

The decision provides a useful reminder of the potential significance of tactical and procedural issues when dealing with multiple cargo claims. However, it is important to note that in order for claimants to maximise the potential advantages that may be obtained by grouping claims in appropriate cases, it is helpful for details of all relevant claims to be submitted to Clyde & Co together where possible, to enable the most beneficial strategy to be developed from the outset.

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Shipowner not liable for cargo damage resulting from poor stowage Charles Smith, Partner

In Yuzhny Zavod Metall Profil LLC v Eems Beheerder B.V. (The “EEMS SOLAR”) [2013], the Court was asked to examine whether the shipowner was liable to the lawful holder of the bill of lading for damage caused to the cargo, and found that it was not.

Background Russian metal trading company Yuzhny Zavod Metall Profil (YZMP), the holder of a CONGEN 1994 bill of lading, took delivery of 411 coils of steel sheets at Novorossiysk, Russia, all with varying degrees of damage. YZMP decided to claim under the bill of lading against the owner, Eems Beheerder B.V., as carrier under the bill of lading. YZMP maintained that the owner was in breach of Article III Rule 2 of the Hague Rules 1924 (incorporated into the bill of lading) whereby the owner is required to “properly and carefully load, carry and discharge the goods”.

It was the owner’s defence that the Gencon 1994 charterparty was incorporated into the bill of lading. Crucially, the charterparty contained an Owners’ Responsibility clause and a Loading and Discharging clause which stated that the cargo was to be loaded “by the Charterers, free of any risk, liability or expense whatsoever” and owners were only to be liable for “want of due diligence.”

Facts Charterers appointed stevedores at load port to load the cargo but their failure to use locking coils meant the stow was not appropriate. The Master was not satisfied with stowage but decided to sail regardless

During the voyage, the vessel experienced heavy weather which led to a strap breaking and a shift in the cargo; the crew were unable to secure the shifted cargo for lack of additional lashing straps, resulting in damage to a number of coils.

The key question was who was responsible for the shifting:

(a) Stevedores: in failing to load and stow the cargo safely and correctly; or

(b) Owners: in failing to provide the necessary lashings, equipment and/or crew

Decision The judge concluded that the sole effective cause of damage to the cargo was the vessel not being properly loaded and stowed when she left the port. Locking coils were not used appropriately, and the lashing was not systematic. On a true construction of the bill of lading, owners were not responsible for stowage because the charterparty was incorporated into the bill of lading, and the terms of the charterparty made it clear that owners were not responsible for improper stowage. The Judge noted:

“Where the responsibility for the stowage has been contractually passed from the shipowner to the charterer (or the cargo owner) the shipowner will not be liable for damage arising from improper stowage even if it renders the vessel unseaworthy unless it is established that the bad stowage leading to the damage arose from a significant intervention by the shipowners or their master”.

The Judge also found that there was no basis for the contention that the ship should have carried additional lashings on board, and the failure to do so did not render the vessel unseaworthy or uncargoworthy.

Comment This case illustrates the protection afforded to owners by the incorporation of charterparty clauses into the bill of lading. The “EEMS SOLAR” goes beyond the “JORDAN II“ by protecting owners even where the incorporated charterparty does not refer to the “Shipper”, “Receiver” or “Consignee.”

The decision also raises a number of questions that may cause difficulties in future cases. For example, where the bill of lading is in the hands of a third party receiver, it raises the possibility of indemnity proceedings against charterers (as being the party responsible for the stowage). Such claims could be very significant where, for example, stowage issues resulted in the loss of vessel and cargo. In all cases of this type the evidence and contractual provisions relating to the appointment of stevedores will remain a key issue and, very likely, a significant area of dispute.

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Cargo Newsletter September 2014Back to page 1

Court of Appeal clarifies issue of jurisdiction over successive carriers under the CMR Convention Julie Allen, Legal Director

In the matter of British American Tobacco Switzerland SA v (1) Exel Europe Ltd & (2) Ors [2013]1, the Court of Appeal was asked to examine the question of choice of jurisdiction in a claim against successive road carriers under the CMR Convention2.

Background facts British American Tobacco (BAT), the goods owner, contracted with Exel Europe Ltd (Exel), a company registered in England, for the provision of warehousing and distribution services. The agreement between BAT and Exel was governed by English law and subject to exclusive English jurisdiction.

The goods in question consisted of two consignments of tobacco to be carried by road, one from Switzerland to Holland, and the other from Hungary to Denmark, and CMR notes were issued for each consignment.

Exel sub-contracted the transport of the goods to two Dutch carriers, H Essers Security Logistics BV (Essers), and Kazemier Transport BV (Kazemier). Both sub-contracts contained an English law and jurisdiction clause, but neither made reference to Exel’s contract with BAT.

During the transit, the first consignment was allegedly stolen in Belgium, and a substantial part of the second allegedly disappeared somewhere between Hungary and Denmark.

High Court proceedings BAT started proceedings in the English court against Exel and the sub-contractors, Essers and Kazemier.

Essers and Kazemier, both challenged the jurisdiction of the English courts, invoking Article 31(1) of the CMR.

Article 31(1) provides:

“In legal proceedings arising out of carriage under this Convention, the plaintiff may bring an action in any court or tribunal of a contracting country designated by agreement between the parties and, in addition, in the courts or tribunals of a country within whose territory

(a) the defendant is ordinarily resident, or has his principal place of business, or the branch or agency through which the contract of carriage was made, or

(b) the place where the goods were taken over by the carrier or the place designated for delivery is situated,

and in no other courts or tribunals.”

Essers and Kazemier argued that England was neither their principal place of business, nor did they make the contract of carriage in an English branch or agency.

Furthermore, they did not take over the goods in England and the delivery place was not England. Consequently, they contended, the English court had no jurisdiction over them, and they could only be sued where they were present (Holland), where the goods had been taken over (Switzerland or Hungary), or where they were due to be delivered (Holland or Denmark).

The High Court agreed with the Defendants’ arguments, and ruled that the English court had no jurisdiction to hear the claims brought by the cargo owners against the Dutch carriers.

1 British American Tobacco Switzerland SA v (1) Exel Europe Ltd (2) H Essers Security Logistics BV & Ors: British American Tobacco Denmark A/S & Ors v Exel Europe Ltd (2) Kazemier Transport BV [2013] 2 Convention on the Contract for International Carriage of Goods by Road 1956 enacted into English law by a schedule to the Carriage of Goods by Road Act 1965

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Court of Appeal proceedings BAT appealed, insisting that there was jurisdiction over Essers and Kazemier by virtue of Article 36 of the CMR. Article 36, they maintained, extended jurisdiction over successive carriers if there was jurisdiction over any carrier under Article 31(1). As there was undisputed jurisdiction in England over Exel, BAT argued that it followed that there should therefore be jurisdiction over the Dutch sub-contractors.

Article 36 of the CMR provides:

“… legal proceedings in respect of liability for loss, damage or delay may only be brought against the first carrier, the last carrier or the carrier who was performing that portion of the carriage during which the event causing the loss, damage or delay occurred; an action may be brought at the same time against several of these carriers.”

In the alternative, BAT contended that the jurisprudence of the European Court of Justice required the CMR to be interpreted so as to promote the principles of the Judgment Regulation (previously the Brussels Convention)3 in terms of avoiding dual proceedings in more than one jurisdiction and potential inconsistent judgments.

The main issue the Court of Appeal had to consider was whether Article 31(1) of the CMR applied individually to each successive carrier being sued by a sender or consignee, and if so the sub-contractors could not be brought within the jurisdiction of the English court, or whether the provision of Article 36 of the CMR that “an action may be brought at the same time against several of these carriers” had the effect of extending jurisdiction over a first, last or performing carrier if there was jurisdiction under Article 31(1) over any one of them.

The Court of Appeal held that it was necessary to consider the CMR Convention as a whole and give it a purposive, as opposed to a literal, interpretation. In that manner, jurisdiction could be obtained against successive carriers, pursuant to Article 36, in situations where jurisdiction was established under the contract of carriage against the primary carrier, under Article 31(1).

Commenting on the relationship between the CMR Convention and the Judgment Regulation, the Court of Appeal held, first, that the Judgment Regulation would be available to fill in a gap left by the jurisdictional provisions of the CMR, secondly, that a purposive approach should be adopted to bring the CMR in line as far as possible with the Judgment Regulation and, thirdly, that in the event of a conflict, the Judgment Regulation should take precedence over the Convention.

In conclusion, the Court of Appeal allowed the appeal and declared that the English court had jurisdiction over the claim against both Dutch sub-contractors.

Comment The Court of Appeal has provided much needed clarification in relation to where proceedings can be commenced in circumstances where a principal carrier is based in England but the successive carriers are based in different jurisdictions and goods are not carried to or from England.

Under the CMR, cargo interests may simply pursue the principal carrier however, if there are tactical reasons to sue more than one of the carriers in England, this ruling now permits cargo interests to do so pursuant to Article 36 of the CMR.

Therefore, successive carriers will now not only face potential proceedings in the jurisdiction in which they are present, and where the goods are taken over or due to be delivered, but also in England if jurisdiction can be established against the principal carrier under Article 31(1) of the CMR.

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3 Council Regulation (EC) No. 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters

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Seafarer fatigue and the implications on seaworthiness Stephen Angove, Master Mariner

Fatigue is generally described as a state of feeling tired, weary, or sleepy that results from prolonged mental or physical work, extended periods of anxiety, exposure to harsh environments, or loss of sleep. The result of fatigue is impaired performance and diminished alertness. A common symptom of fatigue is a change in the level of risk that a person accepts, or a tendency to accept lower levels of performance and not correct errors which come about in the course of performing tasks while fatigued. All these could have a significant impact on shipboard operations and personal safety.

Seafarers often work hours that would not be tolerated in any other mode of transport. Safety at sea is seriously compromised by fatigue, with often catastrophic consequences. Some high profile examples of casualties in which seafarer fatigue has been a key causal factor include, the Exxon Valdez, Cita, Jambo, Pasha Bulker, and Thor Gitta, to name a few.

Research carried out with the support of the Trade Union, Nautilus International, claims that:

– A quarter of seafarers say they have fallen asleep while on watch

– Almost half report working 85-hour weeks or more and say that their working hours increased over the last ten years despite regulations being introduced

– Over a third believe that their working hours may pose a danger to the safe operations of their ship

Research also shows how the problems are exacerbated by false record keeping and lack of enforcement of the regulations.

If the above statistics are to be believed then it stands to reason that fatigue is causative in far more marine casualties than recorded.

On 20 August 2013 new regulations came into force with the implementation of the Maritime Labour Convention 2006 (MLC). These included new regulations regarding the hours of rest for seafarers. Up until then, hours of rest regulations varied throughout the industry depending on which Flag State a ship was registered with. Flag State regulations that were largely based on STCW, and that did not recognise the ILO 180 convention, were open to varied

interpretation that enabled Ship Operators and Owners to approach the problem of fatigue with greater convenience, rather than confront it head on. Under the old provisions of STCW, where later legislation was not adopted it was potentially acceptable for a seafarer to work 98 hours per week.

Now with the implementation of the MLC, the minimum standard is more universal and it is clear to all that these regulations apply to all seafarers (not just watchkeepers) including the Master.

To summarise the MLC hours of rest regulations, the limits on hours of work or rest shall be as follows:

– Minimum hours of rest shall not be less than ten hours in any 24-hour period

– 77 hours in any seven-day period

– Hours of rest may be divided into no more than two periods, one of which shall be at least six hours in length, and the interval between consecutive periods of rest shall not exceed 14 hours

– The Master shall have the right to suspend the minimum limits on hours of rest and require a seafarer to perform any hours of work necessary for the immediate safety of the ship, persons on board or cargo, or for the purpose of giving assistance to other ships or persons in distress at sea. In such cases, and as soon as practicable after normal conditions have been restored, the Master shall ensure the seafarers are provided with an adequate period of rest

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So what does this mean, and how does this affect cargo interests? The majority of cargoes are carried pursuant to contracts of carriage that contain within them a Hague Rules type regime and hence, amongst other things, an obligation on the carrier to exercise due diligence before and at the commencement of the voyage, to properly man, equip and supply the vessel and to make it seaworthy.

It could be argued that if a ship cannot maintain its commercial schedule and remain safe, with the master and ship’s officers and crew having received adequate rest to avoid the onset of fatigue setting in, then that ship should be considered to be undermanned irrespective of what the minimum manning certificate may say. Additionally, it could be argued that a master, officer, or crew member that is fatigued could be considered to be incompetent (temporarily), in that their mental and physical capacity to perform their duties is impaired. Therefore, the carrier could be viewed to have failed to exercise due diligence before and at the commencement of the voyage to properly man the vessel in breach of the Hague/Hague Visby Rules.

Where a casualty has arisen due to the action or inaction of the ship’s master, an officer or a crew member and that individual can be said to be fatigued, then it is arguable that the effects of fatigue could be considered to be causative. In such an event and where cargo interests are seeking to recover their losses against the carrier, it stands to reason that the hours of rest records of the ships complement are documents that should be sought and inspected as a matter of course. Furthermore, in light of the research findings that indicate false record keeping being an endemic problem within the industry, then these documents should not be inspected in isolation but compared with other documents such as log books and even e-mail chronology, to confirm that the hours of rest records are accurate.

The ISM Code (International Management Code for the Safe Operation of Ships and for Pollution Prevention) places a very clear responsibility on the company to monitor its safety management system which will incorporate within it the hours of rest regulations. The company must also keep records to this effect in order to fulfil external auditing requirements. Thus the errant shipowner who turns a blind eye to practices such as the false record keeping of the hours of rest will no longer be able to hide behind a veil of ignorance and present this as his defence.

To date, there are no reported judgments to form a precedent in order to back up an argument that a ship is unseaworthy as a result of seafarer fatigue. However, P&I Clubs and ship owners alike would be very uncomfortable arguing otherwise in an open court, particularly given the sensitivity of the subject within the maritime industry. When confronted with evidence alluding to this point, recent experience has shown that a settlement offer, favourably weighted towards cargo interests, is a more likely outcome.

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Recent casualties Jai Sharma, Head of Cargo Casualty

Please find below some details of some recent casualties which we have been involved in:

“GREEN FREEZER” – Grounding off IcelandThe “GREEN FREEZER” is a 5084 GT reefer vessel which was carrying frozen fish loaded in Icelandic ports. Whilst waiting to call in at the next load port in Iceland, it ran aground on the 17th September 2014. Although there was no water ingress into the cargo holds, the propeller and rudder were damaged so the vessel was salvaged by the Icelandic coast guard. We are instructed for the vast majority of cargo interests on board in respect of salvage, General Average (GA) and recovery claims.

Unusually, September brought two casualties to the coast of Iceland, the second being the grounding of the “SAMSKIP AKRAFELL” on the 6th September 2014 when, it appears, the crew member on watch fell asleep. We are also involved in this casualty on behalf of cargo interests in respect of Salvage claims brought by the Icelandic Coastguard and Svitzer, under LOF, GA and recovery claims.

“PAUL RUSS” – Grounding off SaipanThe “PAUL RUSS” grounded on a reef off Saipan on the 8th September 2014. Professional salvors T&T Bisso are assisting with the refloating, which appears to be complicated by the presence of old unexploded devices in the area. We are assisting cargo underwriters in respect of all claims arising from the casualty.

“WANHE” – Grounding off ColombiaThe “WANHE”, a 65,140GT container vessel, grounded off Colombia on the 26th September 2014 whilst rounding a bend to access a terminal in Buenaventura. At the time of writing it remains aground and it is likely to require outside assistance to refloat.

“SOUTHERN EXPLORER” collision with “BEST UNITY”The “SOUTHERN EXPLORER”, laden with a cargo of Iron ore bound for China, collided with the “BEST UNITY” whilst at a bunkering anchorage. The “SOUTHERN EXPLORER” required salvage assistance on LOF terms, which is being provided by Smit and Nippon salvage.

“VENTO DI TRAMONTANA”The “VENTO DI TRAMONTANA” grounded off Casablanca port on the 2nd September 2014, with the loss of 27 containers. She has subsequently resumed service.

“HANJIN ATHENS” – FireThe containership “HANJIN ATHENS” suffered a fire off Suez on the 5th May 2014. Professional assistance was provided by Salvors and GA was declared. We represent substantial cargo interests involved in this casualty, dealing with claims for GA and recovery.

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Update on some on-going casualties

“HANJIN ITALY” collision with “AL GHARRAFA” The “HANJIN ITALY”, a 2011 built container vessel with a capacity of 10,114 TEU, was in a collision in the Malacca Straits with the “AL GHARRAFA”. The bow of the”AL GHARRAFA” struck the “HANJIN ITALY” amidships, causing damage to the vessel and some cargo. Further significant quantities of cargo were damaged as the hold flooded, resulting in the loss of approximately 270 containers. From the course taken by both vessels, it was clear that the “AL GHARRAFA” was mostly to blame. The course taken can be seen at the following link: http://www.youtube.com/watch?v=KaoL6PcRJVs

The “HANJIN ITALY” signed a LOF although this was quickly changed to a salvage on commercial terms. The “HANJIN ITALY” also declared GA, although this was subsequently withdrawn.

As well as substantial involvement in the GA claim prior to it being withdrawn, our clients had Particular Average (PA) losses in the region of USD 6 million, which was the largest share of the cargo loss.

A settlement formula for the recovery claims was agreed within approximately three months of the casualty. This settlement gives our clients a high percentage of recovery on submission of the usual claims documents.

“HEUNG-A DRAGON” collision with “ELENI”This was a collision which occurred in Vietnamese waters. The “HEUNG-A DRAGON” was a container ship with 666 containers on board and was coming into Vung Tau port. The “ELENI” was in ballast, leaving Vung Tau. As a result of the collision, the “HEUNG-A DRAGON” was holed and the under deck spaces were flooded.

A LOF was signed by the “HEUNG-A DRAGON” with Smit, with SCOPIC incorporated and invoked, and General Average was declared. We represent cargo in over 400 of the 666 containers on board, with a value of approximately USD 17 million. For the cargo which was salved, we have agreed a settlement of the salvage claim in principle, and the GA claim has now been dropped. Efforts are being made to maximise the recovery.

“BIANCO ZEALAND”Having loaded a cargo of Manganese Ore in Ghana, bound for China, the “BIANCO ZEALAND” broke down off Mauritius in December. A LOF was signed. The noteworthy feature of this case was the length of the tow – Salvors, Svitzer, towed the casualty to the discharge port in China, via Sri Lanka and Singapore.

We are instructed by cargo underwriters in respect of salvage, GA and recovery.

Back to page 1

http://www.youtube.com/watch%3Fv%3DKaoL6PcRJVs

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Team member profile

As an experienced Master Mariner, Stephen specialises in marine casualty work and all the problems arising from a marine casualty as well as that of disputes arising from ship operational issues.

Stephen’s 20+ years’ seagoing experience as a deck officer and master incorporated time served on VLCCs, suexmax, aframax, panamax, LNG, DP shuttle and product tankers, as well as FPSOs and passenger vessels.

After sailing all over the world, from the frequently visited Baltic, Mediterranean, Persian Gulf, Caribbean and Black seas, Pacific, Atlantic and Indian Oceans to the less widely travelled destinations of Antarctica, Greenland and the Arctic Circle, Stephen “swallowed the anchor” in 2013 in order to join Clyde & Co LLP.

Since joining the firm, Stephen has been investigating (and advising clients) on marine casualties including: collision, grounding, sinking, fire and explosion, damage to cargo, and acts of piracy; as well as cargo shortage, charterparty disputes, general average and salvage.

Additionally, Stephen holds a marine engineering officer certificate of competency and engineering qualifications to complement his more traditional skillset as a Master Mariner.

Stephen’s recent experience includes:

– “SAMCO EUROPE” – advising clients on the aspects of the collision with the vessel “MSC PRESTIGE” and the subsequent dispute over General Average

– “ZHI QIANG” – advising our clients following the grounding on a well-charted coral reef in clear weather in unexplained circumstances. The voyage was abandoned, and the ship and remaining cargo were salved, although a large amount of cargo was sacrificed in order to re-float the vessel

– “PACIFIC SKY”– advising clients on the operational circumstances that were deemed causative in producing the pollution that damaged vehicle paintwork to approximately five thousand new vehicles in port

– “CHEMSTAR DUKE” – advising clients following the oil cargo shortage discovered on discharge due to defective gauging

– “POTRERO DEL LLANO II” and “FAJA DE ORO II” – advising clients on the termination of bareboat charters, where the condition of the vessel and responsibilities for maintenance were disputed

– “EVER URANUS” – advising clients on all aspects of the collision with the vessel “APL SEATTLE” including the recovery claims against both the colliding and carrying vessel

– “ROSALIA D’AMATO” – advising our clients following a pirate attack and capture of the vessel for ransom

– “BUNGA ALPINIA” – advising our clients after loss of cargo due to fire/explosion aboard the vessel in port during loading

– “THUAN MY” – advising clients on the aspects of the collision with the vessel “BEKS HALIL”

– “AINTREE” – advising clients following an explosion and fire in the engineroom and the subsequent dispute over General Average

Stephen AngoveMaster MarinerT: +44 (0)20 7876 5381 E: [email protected]

mailto:[email protected]

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Jai SharmaHead of CasualtyT: +44 (0)20 7876 5457 E: [email protected]

Stephen AngoveMaster MarinerT: +44 (0)20 7876 5381 E: [email protected]

Simon CulhanePartnerT: +44 (0)20 7876 5000 E: [email protected]

Andrew BicknellPartnerT: +44 (0)20 7876 4718 E: [email protected]

Andrew NicholasPartnerT: +44 (0)20 7876 5327 E: [email protected]

John ReedLegal Director, Senior Master MarinerT: +44 (0)20 7876 5507 E: [email protected]

Julie AllenLegal DirectorT: +44 (0)20 7876 4712 E: [email protected]

John DuntConsultantT: +44 (0)20 7876 5544 E: [email protected]

Nick GreensmithEquity PartnerT: +44 (0)20 7876 5309 E: [email protected]

Charles SmithPartnerT: +44 (0)20 7876 5380 E: [email protected]

Meet the team

William MelbourneConsultantT: +44 (0)20 7876 4528 E: [email protected]

Charlotte GaleSenior Associate T: +44 (0)20 7876 5301 E: [email protected]

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Sophie GrantSenior AssociateT: +44 (0)20 7876 5464 E: [email protected]

Jessica ReedSenior Associate T: +44 (0)20 7876 5585 E: [email protected]

Eleanor CoatesAssociateT: +44 (0)20 7876 5428 E: [email protected]

Emma RiceSenior Associate T: +44 (0)161 240 2854 E: [email protected]

Rebecca ArmstrongAssociate T: +44 (0)20 7876 5437 E: [email protected]

Amy-Jo ClarkeAssociate T: +44 (0)20 7876 5386 E: [email protected]

Giyan TangAssociate T: +44 (0)20 7876 4768 E: [email protected]

Joanne WellsAssociate T: +44 (0)20 7876 5509 E: [email protected]

Ian WoodsAssociate T: +44 (0)20 7876 5511 E: [email protected]

Katy EgertonMarine Claims AssistantT: +44 (0)161 240 2515 E: [email protected]

Yvonne PeachMarine Claims Assistant T: +44 (0)20 7876 5571 E: [email protected]

Clyde & Co offices

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For full office details please refer to the Clyde & Co website www.clydeco.com/offices/global

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www.clydeco.com/offices/global

www.clydeco.comClyde & Co LLP

CC005666 - September 2014

Further advice should be taken before relying on the contents of this Newsletter.

Clyde & Co LLP accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary.

No part of this summary may be used, reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, reading or otherwise without the prior permission of Clyde & Co LLP.

Clyde & Co LLP is a limited liability partnership registered in England and Wales. Authorised and regulated by the Solicitors Regulation Authority.

© Clyde & Co LLP 2014

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