the eleventh annual international maritime law arbitration ... · the eleventh annual international...

University of Notre Dame Memorandum for Respondent

I

THE ELEVENTH ANNUAL INTERNATIONAL MARITIME

LAW ARBITRATION MOOT COMPETITION

2010

The University of Notre Dame

Australia – Team 6

IN THE MATTER OF AN ARBITRATION HELD IN SYDNEY

MEMORANDUM FOR THE RESPONDENT

On Behalf Of: Against: SSP Pty Ltd New England Chartering and Trading Company LLC Level 17, 10 Crow Street Level 36, 1 Sho Street Gamma, Upsilon Gamma, Upsilon RESPONDENT CLAIMANT

Team

Patrick Edward Corrigan Jonathan Llewelyn Heath

Ruth Mary Loveranes James William Parkinson

Sally Louise Millar


II

TABLE OF CONTENTS

LIST OF ABBREVIATIONS ..............................................................................................IV

TABLE OF AUTHORITIES .................................................................................................V

SUMMARY OF FACTS .........................................................................................................1

1. THE ARBITRAL TRIBUNAL HAS NO JURISDICTION TO HEAR MATTERS

SURROUNDING THE LETTER OF INDEMNITY DATED 6 OCTOBER 2008.............2

1.1 SSP accepts the competence of the tribunal to decide on its jurisdiction............................2

1.2 Issues surrounding the letter of 6 October 2008 are outside the scope of the arbitration

agreement...................................................................................................................................3

1.3 The term ‘any dispute’ does not embrace disputes arising outside of the Charterparty......3

1.4 Disputes surrounding the Letter of Indemnity do not ‘arise out of’ the Charterparty..........4

1.5 Disputes concerning the Letter of Indemnity cannot be said to be ‘in connection with’ the

Charterparty................................................................................................................................4

1.6 Extension of the arbitration agreement to canvass disputes surrounding the Letter of

Indemnity would be an example of excess of mandate by this tribunal and may affect overall

enforcement of the award...........................................................................................................5

2. THE LAWS OF GAMMA, UPSILON ARE APPLICABLE TO THE MERITS OF

THE DISPUTE BETWEEN NE AND SSP.............................................................................6

2.1 There has been no express choice of law to govern the merits of the dispute…….........…6

2.2 No implications as to a choice of substantive law can be derived from the facts................6

2.3 The appropriate conflict rules to determine the applicable substantive law are those of the

arbitral situs…………………………................................................................................……7

2.4 The conflict of law rules in Gamma, Upsilon dictate that the merits of the dispute shall be

determined via the law with the closest, most real connection to the Charterparty…........…...7


III

3. THE RESPONDENT IS NOT LIABLE TO INDEMNIFY THE CLAIMANT.............9

3.1 The Letter of Indemnity is illegal and unenforceable..........................................................9

3.2 Both parties are equally at fault in the illegality................................................................10

3.3 As NE is a party to the fraud they cannot enforce the Letter of Indemnity.......................11

3.4 In the alternative, the Letter of Indemnity is an approval of hold inspection under

cl.20..........................................................................................................................................13

3.5 No implied indemnity arises from the presentation of an inaccurate bill of

lading........................................................................................................................................14

4. NE IS RESPONSIBLE FOR THE PRESENCE OF OMICRON BARLEY IN THE

CARGO...................................................................................................................................14

4.1 There is a conflict between cl.2 and cl.20, as such the liability for hold cleanliness rests

on NE........................................................................................................................................15

4.2 NE has breached cl.20 of the Charterparty.........................................................................17

5. NE IS RESPONSIBLE FOR THE PRESENCE OF BITUMEN IN THE CARGO....18

5.1 The Claimant has breached cl.5(b) of the Charterparty.....................................................18

5.2 SSP is not liable to any claim of damages from Beta Beta as, having made reasonable

inquiries, it remains uncertain as to the truth or otherwise of the allegation...........................19

6. SSP IS NOT LIABLE TO PAY FREIGHT FROM GAMMA, UPSILON TO ZETA,

QOPPA UNDER THE ADDENDUM..................................................................................19

7. SSP IS NOT LIABLE TO PAY DAMAGES FOR DETENTION.................................23

7.1 SSP concedes that the contract has not been frustrated......................................................23

7.2 NE must prove SSP breached the Charterparty to claim damages.....................................23

7.3 SSP has not committed a breach that gives rise to damages for detention........................24

7.4 SSP has not breached an obligation to direct the Vessel to a safe port..............................25

PRAYER FOR RELIEF........................................................................................................25


IV

LIST OF ABBREVIATIONS:

NE: New England Chartering and Trading Company LLC

SSP: SSP Pty Ltd

CHARTERPARTY: The charterparty dated 19 July 2008 between the Claimant and

Respondent

LETTER OF INDEMNITY: The warranty provided by the Respondent to the Claimant in

the letter dated 6 October 2008

ADDENDUM: Addendum No.1 to the Charter party dated 21 October 2008

VESSEL: MV Super P

NOR: Notice of readiness

UQIS: Upsilon Quarantine and Inspection Service

CARGO: 25,103.6250mt of Single Superphosphate


V

TABLE OF AUTHORITIES:

CASE LAW: Aboub v BP Australia Ltd [1994] NSWCA 12 (Unreported, Gleeson CJ, Mahoney and Clarke JJA, 28 April 1994). Aggeliki Charis Compania Maritima SA v Pagnan SPA (The Angelic Grace) [1994] 1 Lloyd’s Rep 168. Aktieselskabet Reidar v Arcos Ltd (1926) 25 Ll L Rep 513. Ambassador Refrigeration Pty Ltd v Trocadero Building and Investment Co Pty Ltd [1968] 1 NSWR 75. Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99. Bonython v Commonwealth [1950] 81 CLR 486. Brown Jenkinson v. Percy Dalton [1957] 2 QB 621. Coast Lines v Hudig & Veder Chartering NV [1972] 1 Lloyd's Rep 53. Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. Comandate Marine Corp v Pan Australian Shipping Pty Ltd (2006) 157 FCR 45. Compagnie d’Armement Maritime SA v Compagnie Tunisienne de Navigation SA [1970] 2 Lloyd’s Rep 99. Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696. Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. Field v Commissioner for Railways (NSW) (1957) 99 CLR 285. Final Award in ICC Case Nos. 6515 and 6516, XXIVa Y.B. Comm. Arb. 80 (1999). Fiona Trust & Holdings Corp and Others v Privalov and Others [2008] 1 Lloyd’s Rep 254. Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133. Inverkip Steamship Co Ltd v Bunge & Co [1917] 2 KB 193. James Miller and Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583. Judgement of 6 March 1996, Societe Farhat Trading Co v Societe Daewoo 1997 Rev Arb 69 (French Cour de cassation civ. 1e).


VI

Kodros Shipping Corp of Monrovia v Empresa Cubana de Fletes (The Evia) (No 2) [1983] 1 AC 736. Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2004] NSWSC 1143 (Unreported, Basten JA, 23 December 2009). Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181. Mendelsohn-Zeller Co Inc v T&C Providores Pty Ltd [1981] 1 NSWLR 366. Mgt & Tech. Consultants SA v Parsons-Jurden International Corporation 820 F 2d 1531, (9th Cir 1987). Naviera Mogor SA v Societe Metallurgique de Normandie (The Nogar Marin) [1988] 1 Lloyd’s Rep 412. Naviera Vasconzada v Churchill & Sim [1906] 1 KB 237. Neal v Ayers (1940) 63 CLR 524. Nelson v Nelson (1995) 184 CLR 538. Pagnan SpA v Tradax Ocean Transportation SA [1987] 2 Lloyd’s Rep 342. Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724. RA Brierley Investments Ltd v Landmark Corp Ltd (1966) 120 CLR 224. Re United Railways of the Havana and Regla Warehouses Ltd [1960] Ch 52. Richco International Ltd v Alfred C Toepfer International GmbH (The Bonde) [1991] 1 Lloyd’s Rep 136. Rivat Pty Ltd v B & N Elomar Engineering Pty Ltd [2007] NSWSC 638 (Unreported, Hamilton J, 21 June 2007). The Assunzione (No 1) [1954] 1 All ER 278. The Brabant [1967] 1 QB 588. The David Agmashenebeli [2003] 1 Lloyd’s Rep 91. The River Rima [1987] 2 Lloyd’s Rep 106. Toll (FDCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 (Unreported, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ, 11 November 2004). Tomkinson v First Pennsylvania Banking and Trust Co [1961] AC 1007. Total Transport Corporation v Amoco Trading Co (The Altus) [1985] 1 Lloyd’s Rep 423.


VII

TEXTS: Born, Gary B , International Commercial Arbitration: Volume II (2009) 2140. Cooke, Julian et al, Voyage Charters, (3rd ed, 2007). Redfern, Alan et al, Law and Practice of International Commercial Arbitration (4th ed, 2004). Tetley, William, International Conflict of Laws: Common, Civil and Maritime (1994). LEGISLATION: Carriage of Goods by Sea Act 1991 (Cth). Arbitration Act 1996 (UK). International Arbitration Act 1974 (Cth). Florida International Arbitration Act, FLA STAT (2009). International Arbitration Act 1974 (Cth). ARTICLES Ole Lando, ‘New American Choice-of-Law Principles and the European Conflict of Laws of Contracts’ (1982) 30 The American Journal of Comparative Law 19. Henry Mather, ‘Choice of Law for International Sales Issues not Resolved by the CISG’ (2001) 20 Journal of Law and Commerce 155.


1

SUMMARY OF FACTS:

1. New England Chartering and Trading Company LLC (‘NE’) is the owner of the ship MV

Super P (‘The Vessel’). Under a Charterparty dated 19 July 2008 NE chartered The Vessel to

SSP Pty Limited (‘SSP’) for a voyage from the Port of Alpha, Rholand to the Port of Gamma,

Upsilon. The Respondent manufactured and sold 25, 103.6250 m/t of Single Super Phosphate

(‘the Cargo’) to Theta Pty Ltd (‘Theta’). The Charterparty was for the delivery of the Cargo.

2. On 29 September 2008 the Cargo was loaded. At some stage after loading and prior to 6

October 2008, the Claimants surveyor’s inspected the hold on behalf of SSP. The inspection

found some fragments of bitumen and one piece of timber on the surface of the Cargo. On 6

October 2008 SSP warranted that the Cargo met the product specifications in relation to

moisture and absence of foreign objects. At a later, unknown date the Master issued a clean

Bill of Lading.

3. The Vessel arrived in the Port of Gamma, Upsilon on 16 October 2008. Upon arrival the

Chief Quarantine Officer of the Upsilon Quarantine and Inspection Service and his team

inspected the vessel. A piece of dunnage was found during inspection, which was

contaminated with the previous cargo, Omicron Barley. This is a prohibited import and

breached Upsilon’s quarantine policy. As the extent of the contamination could not be

established the Vessel was ordered into quarantine on 19 October 2008. As a result the

Cargo was unable to be discharged.

4. On the same day NE informed SSP that the Warranty signed 6 October 2009 would be relied

upon to indemnify the Claimant in respect for any claims against them.

5. Theta was ordered by customs to re-export. They on sold to Beta-Beta Pty Ltd (‘Beta Beta’),

who are based in Zeta, Qoppa. They did so at a loss of U$ 4,999,899, invoiced on 20 October

2008. To accommodate this change NE created an Addendum to the original Charterparty on


2

the 21 October 2008 agreeing that the Vessel will proceed from Gamma, Upsilon to Zeta,

Qoppa and deliver the Cargo. On 22 October 2008 SSP signed on a ‘without prejudice’ basis.

6. On 5 November 2008, the Vessel arrived in the port of Zeta, Qoppa. On 6 November

2008 the Vessel was granted customs clearance. On 8 November, prior to any discharge

occurring, the Vessel was placed under a government embargo on cargo discharge. On 29

October 2009 the government embargo was lifted. Discharge commenced on 30 October

2009 and finished at 0900 on 5 November 2009.

7. On 30 November 2009 NE commenced arbitral proceedings in accordance with clause 19(d)

of the original Charterparty. Another claim has been made due to the bitumen in the cargo

damaging the production system of Beta-Beta based solely on correspondence between NE

and Beta-Beta.

1. THE ARBITRAL TRIBUNAL HAS NO JURISDICTION TO HEAR MATTERS

SURROUNDING THE LETTER OF INDEMNITY DATED 6 OCTOBER 2008.

1.1 SSP accepts the competence of the tribunal to decide on its jurisdiction.

1. SSP does not dispute the authority of the tribunal to decide matters in relation to its jurisdiction

in order to determine which matters may be brought before it. All three states which have a viable

connection to these proceedings accept the doctrine of competence – competence as belonging to

all arbitral tribunals (ad-hoc and institutional)1; it being a basic tenet in international commercial

arbitration.2

It is however SSP’s position that the tribunal has no jurisdiction to hear matters

arising from the letter of 6 October 2008.

1 Arbitration Act 1996 (UK) s 30(1)(c); International Arbitration Act 1974 (Cth) Sch 2,Ch 4, art.16(1); Florida International Arbitration Act, FLA STAT ch 684.06(2) (2009). 2 Final Award in ICC Case Nos. 6515 and 6516, XXIVa Y.B. Comm. Arb. 80 (1999); see also the discussion in Alan Redfern et al, Law and Practice of International Commercial Arbitration (4th Edition, 2004) 252.


3

1.2 Issues surrounding the letter of 6 October 2008 are outside the scope of the arbitration

agreement.

2. The arbitration agreement contained in cl.19(d) of the Charterparty notes that ‘any dispute,

arising out of or in connection to this contract…shall be referred to arbitration…’ the letter of

indemnity provided on 6 October amounts to a separate agreement between NE and SSP and falls

outside of the terms of the Charterparty. As such, disputes surrounding the letter of indemnity do

not constitute ‘any dispute arising out of or in connection to [the Charterparty]’, after a true

construction of the arbitration agreement is undertaken.

1.3 The term ‘any dispute’ does not embrace disputes arising outside of the Charterparty.

3. SSP accepts that the term ‘any dispute’ as it is used in cl.19(d) would be afforded a wide,

liberal construction should it fall to be determined in a domestic court.3 However, leading

authorities as to the liberal approach of construction of arbitration agreements in regards to the

term ‘any dispute’ do not extend the application of the term to disputes arising outside of the

contract which the term is located.4 SSP asserts that to denote ‘any dispute’ is to encompass all

conceivable disputes in contract, tort or statute that could possibly arise from the commercial

arrangement between the parties once default by one party is evident. The liberal approach should

not be understood as extending the term ‘any dispute’ to those matters which are formulated under

an entirely separate agreement, especially where the new agreement expressly provides for

resolution of disputes a different tribunal, namely the Courts of Omicron.5

3 For instance see Aggeliki Charis Compania Maritima SA v Pagnan SPA (The Angelic Grace) [1994] 1 Lloyd’s Rep 168, 174 (QB); Mgt & Tech. Consultants SA v Parsons-Jurden International Corporation 820 F.2d 1531, 1534-35 (9th Cir 1987); Judgement of 6 March 1996, Societe Farhat Trading Co v Societe Daewoo 1997 Rev Arb 69 (French Cour de cassation civ. 1e); Comandate Marine Corp v Pan Australian Shipping Pty Ltd (2006) 157 FCR 45, 87-94 (Allsop J).

This is bolstered with

reference to the fact that cl.19 refers to ‘any dispute [relating to] this contract’. The clause itself

does not evince an intention by the parties that literally any and all disputes that arise between

4 Above, n 3, none of these cases have conclusively held that arbitration agreements can extend to conflicts about agreements entered into outside of the principal contract in which the arbitration agreement is found. 5 Fiona Trust & Holdings Corp and Others v Privalov and Others [2008] 1 Lloyd’s Rep 254, 259 (Lord Hope of Craighead).


4

them, in any commercial arrangement that they enter into aside from the Charterparty, shall be

submitted to arbitration. As such, to afford the term ‘any dispute’ a meaning that would

encompass separate agreements to indemnify would be to give it a scope inconsistent with its

intended operative effect.

1.4 Disputes surrounding the Letter of Indemnity do not ‘arise out of’ the Charterparty.

4. The phrase ‘arising out of’, like the phrase discussed above, is subject to a liberal construction

under the emerging ‘pro arbitration’ policy that each country with a viable connection to these

proceedings asserts is the prevailing construction of international arbitration agreements.6

1.5 Disputes concerning the Letter of Indemnity cannot be said to be ‘in connection with’ the

Charterparty.

Again,

this cannot extend to conflicts and controversies that surround entirely separate agreements

entered into by the parties outside the principal contract to which the arbitration clause is found.

In summation, a dispute concerning an entirely separate agreement to indemnify, like that

contained in the Letter of Indemnity, cannot be said to ‘arise out of’ the Charterparty.

5. English, Australian and United States courts have taken a considerable liberal approach to

interpreting this phrase. However this liberty is not without restraint, SSP draws attention to the

one salient omission of all these aforementioned cases in which liberty has been the predominant

characteristic towards arbitration agreement construction; namely that liberty does not extend

arbitration clauses to disputes outside of the agreement to which they are formulated and

contained, especially where the new agreement expressly provides for judicial determination - not

arbitration.7

6 Discussed in Gary B. Born, International Commercial Arbitration: Volume II (2009) 1067-1076.

Liberty is espoused in arbitration agreements to encompass disputes that are non-

7 Above n 5, see also facts page 11 – ‘This warranty is governed by the laws of Omicron. Each party irrevocably and unconditionally submits to the exclusive jurisdiction of the Courts of Omicron.”


5

contractual in nature.8

1.6 Extension of the arbitration agreement to canvass disputes surrounding the Letter of

Indemnity would be an example of excess of mandate by this tribunal and may affect overall

enforcement of the award.

The original hostility towards a narrow approach was a caution as to

whether an arbitration agreement could adequately extend to disputes arising in tort and other

various doctrines of law outside of contract. The emerging liberty, as emphasized, does not and

should not extend the arbitration agreement to commercial arrangements outside of the contract in

which they are contained. To do so would be to exercise a liberty that is inapposite to the case law

on point as to the construction of arbitration agreements. Put simply, no court has ever stated or

held that an arbitration agreement in one contract can extend to all contracts to which the parties

enter.

6. Should the tribunal extend its mandate to consideration of issues arising under the Letter of

Indemnity it would be a manifest example of a tribunal dealing with a difference not contemplated

by or falling within the terms of the submission to arbitration.9 As discussed above, it is SSP’s

position that the Letter of Indemnity establishes a new contractual arrangement between NE and

SSP outside of and separate to the Charterparty. As an arbitral tribunal gains its jurisdiction via

consent of the parties, this tribunal should be aware that where there is no clear expression by the

parties to submit certain matters to arbitration it should not be for the tribunal to attempt to extend

its jurisdiction to such matters purely as a matter of convenience.10

8 For instance, their extension to cover disputes arising in tort or under statute, see generally, Naviera Mogor SA v Societe Metallurgique de Normandie (The Nogar Marin) [1988] 1 Lloyd’s Rep 412 (for arbitrations hearing tortious claims, namely the tort of deceit); Fiona Trust & Holdings Corp and Others v Privalov and Others [2008] 1 Lloyd’s Rep 254 (in which the issue as to whether an arbitral tribunal could hear matters surrounding bribery and potential invalidity of contract were resolved in favor of arbitration).

To do so would be to run the

possibility of a national court refusing to enforce the award and dismiss its binding nature as

between the parties. It is this concern that SSP submits to the tribunal as a valid reason for

9United Nations Conference on International Commercial Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards opened for signature on 10 June 1958, 330 UNTS 38, art 5(1)(c), entered into force 7 June 1959 as enacted in International Arbitration Act 1974 (Cth) Sch 1, art.5(1)(c). 10 See Alan Redfern et al, above n 2, 152-153.


6

refusing resolution of matters surrounding the Letter of Indemnity under the auspices of this

arbitration.

2. THE LAWS OF GAMMA, UPSILON ARE APPLICABLE TO THE MERITS OF THE

DISPUTE BETWEEN NE AND SSP.

2.1 There has been no express choice of law to govern the merits of the dispute.

7. Clause 19(d) makes no mention of what national substantive law shall apply to the resolution of

disputes arising under the Charterparty. As it is SSP’s contention that the reference to the Courts

of Omicron in the letter of the 6 October reserves the right of such courts to hear disputes arising

out of that letter, it is SSP’s position that there can be no finding that this amounts to a selection of

Omicron law to guide the tribunal in its analysis of the Charterparty disputes.

2.2 No implications as to a choice of substantive law can be derived from the facts.

8. In the absence of express choice, it will no doubt be for the tribunal to attempt to infer from the

surrounding circumstances of the case what tacit choice of substantive law the parties have made

to govern their dispute. SSP draws attention to the artificiality in such an approach to selection in

substantive law as numerous decisions have considered such an approach to be legal fiction, and

as a result have tended to reject this test as means of determination of the applicable law to a

Charterparty.11 William Tetley also suggests, quite cogently in SSP’s opinion, that a tribunal

seized of a dispute should automatically reject this test and shift its focus to the ‘proper law of the

contract’ test, which is endorsed as a conflict of law rule under the applicable rules of the law of

arbital situs (Gamma, Upsilon).12

11 See Lord Denning’s comments in Coast Lines v Hudig & Veder Chartering NV [1972] 1 Lloyd's Rep 53, 54; Tomkinson v First Pennsylvania Banking and Trust Co [1961] AC 1007, 1068 (Lord Denning); see also Lord Morris’s comments at 1081; see also the House of Lords Decisions in Compagnie d’Armement Maritime SA v Compagnie Tunisienne de Navigation SA [1970] 2 Lloyd’s Rep 99 (HL); James Miller and Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 (HL).

12 William Tetley, International Conflict of Laws: Common, Civil and Maritime (1994) 262.


7

2.3 The appropriate conflict rules to determine the applicable substantive law are those of

the arbitral situs.

9. In an effort to seek harmony, simplicity, expedience, neutrality and fairness SSP submits that

the conflict of law rules applicable in Gamma, Upsilon should be embraced by this tribunal in

order to determine the substantive law applicable to the merits of this dispute.13 In doing so, this

tribunal removes an unnecessary element to the procedural determinations that must take place

prior to a discussion of the merits of this dispute.14

2.4 The conflict of law rules in Gamma, Upsilon dictate that the merits of the dispute shall

be determined via the law with the closest, most real connection to the Charterparty.

10. The conflict of law rules in Gamma, Upsilon as per the holding in Bonython v

Commonwealth15 indicate that the selection of the appropriate substantive law shall be via a

determination as to which national system of laws have the closet, most real connection to the

charterparty.16

11. In considering such an approach the principal points for this tribunal to consider as

‘connecting factors’ include; ‘the place of contracting, the place of contractual performance, the

principal place of business of the parties and the nature and subject matter of the contract.’

17

12. The place of contracting is to be determined via the place where the contract was concluded.

18

Box 2 of the Charterparty identifies this (in the absence of other facts) as being Gamma, Upsilon

on 19 July 2008.19

13 Gary B. Born, above n 6, 2140. 14 Ibid. 15 [1950] 81 CLR 486. 16 Ibid. 17 Re United Railways of the Havana and Regla Warehouses Ltd [1960] Ch 52, 91. 18See generally Ole Lando, ‘New American Choice-of-Law Principles and the European Conflict of Laws of Contracts’ (1982) 30 The American Journal of Comparative Law 19, 19-21. 19 Facts, page 1.


8

13. The place of contractual performance is the destination in which performance, characteristic in

the conclusion of the contract, is located.20 On the facts at hand the Super P was contracted to

carry cargo to Gamma, Upsilon in order to facilitate the conclusion of a contract of sale between

SSP and Theta Pty Ltd.21

14. Box 4 of the Charterparty identifies that SSP has its habitual place of business in Gamma,

Upsilon with NE having theirs located in Omicron, as indicated in Box 3. Though this may appear

to split such a connecting factor as being between two separate countries, NE has its P&I Club

located in Gamma, Upsilon, this at least gives a tacit connection from NE’s perspective to the

country of Upsilon.

Though the contract was altered via an addendum entered into on 21

October 2008 and the cargo eventually discharged at Zeta, Qoppa, such a destination was not in

contemplation of the parties at the time of contacting. This being so, it is SSP’s submission that

Gamma, Upsilon, at the time of contracting, is the facilitative destination in which characteristic

performance would have been affected.

22

15. The nature and subject matter of the contract consideration encompasses various

miscellaneous connecting factors that arise on the facts of a given dispute. On our facts these

would include: that the place of arbitration is to be Gamma, Upsilon;

23 that the original port of

discharge was to be Gamma, Upsilon;24 that the bills of lading are to encompass the terms of the

Carriage of Goods by Sea Act 1991 (Cth)25; and that demurrage is to be paid in Upsilon dollars.26

The latter point referred to above has been considered a decisive factor towards the indication as

to the applicable law to the merits of a dispute.27

20 Henry Mather, ‘Choice of Law for International Sales Issues not Resolved by the CISG’ (2001) 20 Journal of Law and Commerce 155, 171.

21 Facts, page 18. 22 Procedural Order 2, Point 6. 23 This has been considered to encompass a tacit choice of law, which SSP has submitted should not be the principal reason for the selection of Upsilon law, it should not however be disregarded as a connecting factor. 24 Facts, page 1. 25 Facts, page 5. 26 Ibid. 27 The Assunzione (No 1) [1954] 1 All ER 278, 282 and Mendelsohn-Zeller Co Inc v T&C Providores Pty Ltd


9

16. As a final point of analysis the Vessel is registered at Rholand and flies the flag of Alpha.28

The connecting factor seeking the law of the flag as an indicator is only to be embraced when

other connecting factors present a position of ambiguity before a tribunal.29 It is SSP’s submission

that having regard to the factors outlined above, it should be correctly concluded that the laws of

Gamma, Upsilon govern the merits of the disputes before this tribunal. Going further, the ‘law of

the flag’ conflict rule has seen a significant decline in support in recent years and should not be

considered decisive in the present matters.30

17. It is with this analysis that SSP submits that the laws of Gamma, Upsilon are applicable to the

merits of the dispute between SSP and NE.

3. THE RESPONDENT IS NOT LIABLE TO INDEMNIFY THE CLAIMANT.

3.1 The Letter of Indemnity is illegal and unenforceable.

18. A letter of indemnity is not an illegal contractual document. Ordinarily, the Master issues a

bill of lading that should be representative of the apparent order and condition of the goods31 and

a bill of lading is to be ‘claused’ when there has been damage to the cargo so that the bill of lading

is reflective of the condition of the cargo.32

19. However, in reliance on the Letter of Indemnity issued by SSP to NE the Master issued a

clean bill of lading. The effect of this was that Theta received a clean bill of lading which was not

representative of the cargo in question and caused them to suffer financial loss.

20. The unlawful intention must go to the substance of the transaction in order for the transaction

to be invalidated.33

[1981] 1 NSWLR 366.

The sole intention of the parties in issuing the Letter of Indemnity is that it

28 Facts, page 26. 29 As discussed in William Tetley, above n 12, 260. 30 The Assunzione [1953] 2 Lloyds Rep. 716, 738-739 (Hodson LJ). 31 Carriage of Goods by Sea Act 1991 (Cth) Sched 1A, Art 3, rr 3(c), (Australian modification). 32 The David Agmashenebeli [2003] 1 Lloyd’s Rep 91, 104. 33 Neal v Ayers (1940) 63 CLR 524, 531-2.


10

allowed for the issuing of the clean bill of lading, the effect of which was to perpetrate a fraud on

Theta. If foreign matter was not found in the cargo, the Letter of Indemnity would not have been

issued as there would have been no need to indemnify NE for any loss. The unlawful intention

therefore goes to the substance of the Letter of Indemnity. As the object of the Letter of Indemnity

is the perpetration of a fraud it is therefore illegal and cannot be enforced or relied upon.34

21. As a clean Bill of Lading is accepted as evidence of the condition of the cargo shipped

35, a

third party is therefore relying on the bill of lading to accurately represent the quality and

condition of the cargo. The clean bill of lading issued to Theta represented the cargo as being free

of defects, when in fact this was a fraudulent misrepresentation that caused Theta a loss of

U$4,999,889.36

22. The courts have looked unfavourably upon parties who issue letters of indemnity in exchange

for a clean bill of lading in circumstances where the cargo is damaged and the bill of lading

should be claused. In Brown Jenkinson v. Percy Dalton

37 barrels containing orange juice were

found to be old, frail and leaking and as such a ‘claused’ bill of lading should have been granted.

However the defendants, as the shippers of the orange juice, required a clean bill of lading, so the

owners signed the clean bill of lading on the basis that the defendants gave them an indemnity for

any loss that would arise from the issuance of the clean bill of lading. The shipowners, by making

in the bill of lading a representation of fact that they knew to be false with intent that it should be

acted upon were committing the tort of deceit, and that the defendants' promise to indemnify the

shipowners against loss resulting from the making of that representation was accordingly

unenforceable.38

3.2 Both parties are equally at fault in the illegality.

34Aboub v BP Australia Ltd [1994] NSWCA 12 (Unreported, Gleeson CJ, Mahoney and Clarke JJA, 28 April 1994) [11]. 35 Carriage of Goods by Sea Act 1991 (Cth) Sched 1A, Art 3, rr 3(c), 4 (Australian modification). 36 Facts, page 17. 37 [1957] 2 QB 621 (CA). 38 Ibid 621.


11

23. NE and SSP are equally at fault for the illegality arising from the Letter of Indemnity. SSP

have issued the Letter of Indemnity to NE and NE made no attempt to distance themselves from

its effects. Indeed they have done the opposite, in attempting to rely on the Letter of Indemnity for

the damage suffered by Theta.39

24. There is no single criteria for determining whether the parties are in pari delicto.

40 However a

claimant is not in pari delicto with a recipient where the claimant is unaware of any illegality, and

the responsibility for it rests on the recipient.41 However NE and SSP are clearly in pari delicto as

they would be aware that the Letter of Indemnity is a document that has been issued with the

result that a clean bill of lading would be issued. While SSP state in their letter of 20 October that

they did not request or direct the Master to issue a clean bill of lading, it is clear that this is what

their implied intention was.42

25. The Master of the MV Super P is at all times an agent of the owners, therefore NE are liable

for the master not clausing the bill of lading based on the Letter of Indemnity. Furthermore if NE

had an issue relating to the Letter of Indemnity then they should have responded to SSP in a letter

stating that they did, as they did not do this, they are implicit in the illegality. They had the

opportunity to raise any concern that they had, however they never took this opportunity to make

it known to SSP that they objected to the Letter of Indemnity being given and a clean bill of

lading issued. Therefore they are equally culpable in the illegality with SSP.

3.3 As NE is a party to the fraud they cannot enforce the Letter of Indemnity.

26. There is no general rule in equity that where there has been any impropriety equity will allow

the loss to lie where it falls.43

39 Facts, page 15.

Rather equity eschews any broad generalisations in favour of

40 Equally at fault for the illegality. 41 Ambassador Refrigeration Pty Ltd v Trocadero Building and Investment Co Pty Ltd [1968] 1 NSWR 75. 42 Facts. Page 16. 43 Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2004] NSWSC 1143 (Unreported, Basten JA, 23 December 2009).


12

concentrating upon the specific situation which has arisen44

27. Where it is found that an agreement has an unlawful purpose the question must be asked “are

the circumstances surrounding the agreement such that the court should deny a relevant remedy to

the party seeking the assistance of the court?”

However the events that have

transpired between NE and SSP in relation to the Letter of Indemnity are such that the tribunal

should allow the loss to lie where it falls as the specific situation that has arisen has no special

characteristics that should excuse NE from their part in the illegality.

45

28. The High Court has stated that there are a number of exceptions which allow relief to be

granted despite the presence of illegality.

The circumstances relating to SSP and NE are

such that the court should deny NE any remedial assistance.

46

• First, the courts will not refuse relief where the claimant was ignorant or mistaken as to the

factual circumstances which render an agreement or arrangement illegal.

• Second, the courts will not refuse relief where the statutory scheme rendering a contract or

arrangement illegal was enacted for the benefit of a class of which the claimant is a

member.

• Third, the courts will not refuse relief where an illegal agreement was induced by the

defendant's fraud, oppression or undue influence.

• Fourth, the courts will not refuse relief where the illegal purpose has not been carried into

effect.47

29. None of these exceptions apply to the circumstances before the tribunal. As a multinational

shipping company NE could not claim ignorance or mistake as to the effect of a clean bill of

lading that should have been claused. Furthermore, there is no statutory scheme in place enacted

44 Nelson v Nelson (1995) 184 CLR 538, 559-561 (Deane and Gummow JJ). 45 Ibid 538, 604. 46 Ibid 604-5. 47 Ibid.


13

for the benefit of NE. There does not seem to be any evidence of fraud, oppression or undue

influence on the part of SSP that induced NE to accept the Letter of Indemnity. Finally, the illegal

purpose has been carried into effect and caused Theta to lose U$4,999,889. For these reasons

there is no relief available to NE for their part in the illegality.

30. Because the Letter of Indemnity is illegal and unenforceable, the liability for damage arising

from the timber and bitumen shifts back to NE as it is their responsibility under the Charterparty

via cl.20. This also means that NE can make no assertion as to restitution under the illegal Letter

of Indemnity as they would have had to pay compensation to Theta due to their breach of cl.20 of

the Charterparty.48

3.4 In the alternative, the Letter of Indemnity is an approval of hold inspection under cl.20.

31. In the Letter of Indemnity, SSP provided that:

...the Cargo meets product specifications in relation to moisture and absence of foreign objects, of the type discovered [i.e. the piece of timber and fragment of bitumen fragments], neither of which would affect the handling, storage or use of the Cargo.

It is SSP’s position that this letter amounts to an approval of the cleanliness of the holds after

surveyor’s discovery of the timber and bitumen during hold inspection.

32. Under the Charterparty, cl.20 provides that:

Any approval or rejection by the charterer following such inspection [of the Vessel’s holds] or any failure by the charterer to appoint a surveyor or arrange an inspection, will not relieve the Owner of its obligations under this contract.

The parties have intended that any such approval or rejection shall not alter the obligations and

allocations of risk under the Charterparty. The letter SSP sent to NE on 6 October 2008 is an

approval of hold cleanliness that is anticipated by this clause. In accordance with the party’s

intentions as stated in cl.20, the letter cannot vary or alter the terms of the Charterparty to shift

48 See above arguments in relation to conflict between cl.2 and cl.20 Charterparty.


14

responsibility for the timber and bitumen to SSP. Under cl.20, NE remains responsible for the

presence of these items in the cargo holds and any loss that may arise as a result of their presence.

3.5 No implied indemnity arises from the presentation of an inaccurate bill of lading.

33. Clause 10 of the Charterparty establishes that the ‘bills of lading [are] to be signed as and

when presented in any number of sets required by the Charterers...’ It is the ship owner’s and

hence the master’s duty to issue a bill of lading which records the apparent good order and

condition of the goods according to the reasonable assessment of the master. In circumstances

where the order or condition of the cargo cannot be described as “good”, the master should clause

the bill of lading, so as to reflect his opinion as to its true apparent condition.49 The master has a

duty to check the accuracy of statements in the bill of lading, even when a ‘clean’ bill of lading is

presented for signature. According to the Nogar Marin50

The defective condition of the cargo is to be apparent on reasonable examination, If this is so, the master should not issue clean bills. Why imply a term to protect the owners against the consequences of the master failing to do his job...

Mustill LJ stated that:

51

34. Failure by the master to clause a bill of lading in circumstances where the cargo is not in good

order, having been given the opportunity, will break the chain of causation from the charterer’s

breach in presentation of inaccurate bill and the loss suffered by the owner of the vessel in

reimbursing for the defects in the goods. No implied indemnity arises for NE against SSP, as the

court will not protect a party that has exercised poor judgment in the carrying out of their

functions; even where such functions are carried out by an agent of the loss suffering party.

52

4. NE IS RESPONSIBLE FOR THE PRESENCE OF OMICRON BARLEY IN THE

CARGO.

49 Naviera Vasconzada v Churchill & Sim [1906] 1 KB 237, 245, 247. 50 Naviera Mogor SA v Societe Metallurgique de Normandie (The Nogar Marin) [1988] 1 Lloyd’s Rep 412. 51 Ibid 421. 52 Ibid 422.


15

4.1 There is a conflict between cl.2 and cl.20 , as such the liability for hold cleanliness rests

on NE.

35. There is conflict between cl.2 of the Charterparty and cl.20 regarding NE’s responsibility for

the condition of the Cargo. Clause 2 is the standard printed Owners’ Responsibility Clause for the

GENCON charter party, whereas cl.20 is a clause inserted by the parties.

36. Clause 2 states that:

Owners are to be responsible for loss of or damage to the goods or for delay in delivery of the goods only in case the loss, damage or delay has been caused by personal want of due diligence on the part of the Owners or their Manager to make the vessel in all respects seaworthy and to secure that she is properly manned, equipped and supplied, or by the personal act or default of the Owners or their Manager.

The Owners are not responsible for loss, damage or delay arising from any other cause whatsoever, even from the neglect or default of the Master or crew or some other person employed by the Owners on board or ashore for whose acts they would, but for this Clause, be responsible, or from unseaworthiness of the Vessel on loading or commencement of the voyage or at any time whatsoever.

37. The relevant part of Clause 20 states that;

Vessel’s holds and hatches are to be clean of any previous cargo residues and Owner acknowledges the Upsilon Quarantine and Inspection Services (‘UQIS’) requirements that on arrival at Upsilon there is zero tolerance for any foreign organic matter. Owners must ensure the vessel’s compliance with, UQIS’ zero tolerance policy. If any residues of previous cargoes carried on board the performing vessel are found in the holds of the vessel, Owners agree to indemnify Charterers with respect to any loss Charterers suffer as a result whatsoever, including, but not limited to, loss of profits and consequential loss.

38. It is clear then that there is a conflict in terms between cl.2 and cl.20 of the Charterparty.

Clause 2 states that NE will only accept liability in circumstances pertaining to paragraph 1 and

they exclude all other liability via paragraph 2. Clause 20 however states that NE must ensure the

MV Super P’s compliance with the UQIS zero tolerance policy. Additionally if any residue of

previous cargo is found in the holds of the vessel then NE must indemnify SSP for any losses that

SSP suffer as a result of the holds being found to be contaminated. In order to deal with these

contradictory obligations it is our position that cl.20 must override cl.2, paragraph 2 in regards to

hold cleanliness.


16

39. The first step in the construction process is to see whether the two clauses can be reconciled

and read together; if they can, then the resulting construction should be adopted.53

40. As this inconsistency is therefore not reasonably reconcilable, and it must therefore be

determined which of the clauses is to prevail. Where the other clause is a typed clause, it will

normally be that which prevails, particularly if it contains some indication that the owners are to

be personally responsible for failure to carry out the obligations under the clause.

However the

clauses cannot be read together as they are in direct conflict as to the responsibility in relation to

damage arising from the cleaning of the holds.

54

41. Where a contract contains terms that are inconsistent with each other the court must decide

which term represents the objective intention of the parties in the circumstances.

55 This is done by

ascertaining the meaning of the parties expressions objectively and requires, “ascertaining of the

meaning which the document would convey to a reasonable person having all the background

knowledge which would reasonable have been available to the parties in the situation in which

they were at the time of the contract.”56 Furthermore, where there is an inconsistency between

printed provisions forming part of a standard form and provisions specifically inserted in the

contract in question, the inserted provisions will prevail.57

42. By using both of these principles of contractual construction it is clear that NE are liable for

the loss arising from the hold of the MV Super P not being cleaned adequately of previous cargo

residue. The meaning that the Charterparty would convey to a reasonable person who had all the

background knowledge that was available to NE and SSP at the time that the charter party was

formed is that it was NE’s responsibility via cl.20 to clean the vessels holds of previous cargo

residue. From a contractual construction point of view if the parties did not intend that this was to

53 Pagnan SpA v Tradax Ocean Transportation SA [1987] 2 Lloyd’s Rep 342. 54 Cooke, Julian et al, Voyage Charters, (3rd ed, 2007) 234. 55 Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99, 109. 56 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, 188 (Gleeson CJ, Gummow and Hayne JJ). 57 Rivat Pty Ltd v B & N Elomar Engineering Pty Ltd [2007] NSWSC 638 (Unreported, Hamilton J, 21 June 2007) [47].


17

be the case then cl.20 would not have been inserted into the Charterparty and any liability of NE

arising from the cleanliness of the Vessels’ holds would have been excluded via cl.2, paragraph 2

of the Charterparty. Furthermore, as cl.20 is a typed clause, not only is it clear evidence of the

objective intention of the parties, it also shall overrule cl.2 to the extent of any inconsistency. The

effect of this is that while cl.2, paragraph 2 seeks to exclude NE’s liability for the cleaning of the

holds and damage that flows from this, cl.20 effectively shifts that liability back onto NE.

43. In The Brabant58

44. It was held that the hold cleaning clause, as a typed clause, was entitled to greater weight in

the case of any doubt about the combined effect of the clauses. The court interpreted the words

“at owners risk” as an express assumption of responsibility of the owners’ part for the proper

cleaning of the holds. In our case, while cl.20 does not contain the words “at owners risk” it does

state that NE agree to indemnify SSP for any loss suffered as a result of the holds not being

cleaned of previous cargo residue and this has the same effect as the words “at owners risk” as NE

are assuming responsibility for any breaches of hold cleanliness.

, the parties contracted on the Baltime charter, cl.13 of which excluded

liability much in the same way that cl.2 of the GENCON charter does. However, the charterparty

also included a typed clause which read “the decks and holds and other cargo spaces are to be

properly cleaned at Owners’ risk and expense before loading.” The holds needed to be completely

clean, however the cargo of wood pulp was damaged by residual amounts of coal dust from a

previous cargo as the crew had failed to clean the holds properly, a failure which occurred without

any personal act or default of the owners or their manager.

4.2 NE has breached cl.20 of the Charterparty.

58 [1967] 1 QB 588.


18

45. Months before undertaking the voyage charter with SSP, the Vessel had carried a cargo of

Omicron Barley.59

46. The presence of Omicron Barley in hold 1 of the Vessel evidences NE’s breach of clause 20

of the Charterparty. NE has clearly breached its obligation to ensure that the Vessel was free of

previous cargo residues. There is no other reasonable explanation for the presence of Omicron

Barley in the cargo hold.

Omicron Barley is a prohibited import into Upsilon. Pursuant to the

Charterparty between NE and SSP, the Vessel carried a cargo of single superphosphate from

Alpha, Rholand to Gamma, Upsilon. Upon reaching Upsilon, UQIS refused pratique due to the

discovery of Omicron barley residues on a piece of dunnage found on the surface of the Cargo in

hold 1 of the Vessel.

5. NE IS RESPONSIBLE FOR THE PRESENCE OF BITUMEN IN THE CARGO.

5.1 The Claimant has breached cl.5(b) of the Charterparty.

47. It has been argued that the Letter of Indemnity does not alter NE’s obligations under the

Charterparty.60

48. Clause 5(b) of the Charterparty requires NE to provide cargo handling gear in good working

order. Clause 2 further provides that NE is liable for a ‘personal want of due diligence’ in securing

that the Vessel is properly equipped.

This includes the NE’s obligations under cl.5(b) and cl.2 of the Charterparty.

49. The presence of bitumen within the Cargo is not disputed by SSP. It is however, disputed as to

how the Cargo was contaminated with the bitumen. SSP conducted further investigation as to how

the bitumen fragments found their way into the cargo. It was apparent from the investigation that

when the Cargo was being loaded the cranes ‘grabbed’ at the bitumen dock and loaded some

fragments of bitumen with the Cargo. Expert opinion was obtained suggesting that the most likely

59 Procedural Order 2. 60 See para 18-34 above.


19

reason for this grabbing was the poor calibration of the Vessels’s cranes resulting in over-

extending the reach.61

50. The calibration of cranes falls within the scope of NE’s obligations under the Charterparty. In

the case of The ‘River Rima’, Justice Sheen noted that equipment covers items which become a

part of the ship or are carried permanently by it.

62

51. SSP’s expert evidence, if accepted by the tribunal to be true on the balance of probabilities

would defeat NE’s submission that the Cargo was contaminated by any other means. NE would

have to destroy the credibility of the expert or draw upon other experts to defeat the evidence

presented by SSP’s expert witness. In the absence of any evidence to the contrary, the tribunal

must accept the expert’s evidence.

In this instance the cranes are attached to the

ship and play an integral role in enabling the Vessel to operate. A crane that is poorly calibrated to

the effect that it damages the dock is clearly not in proper working order. This is a breach of the

Charterparty as NE has failed to supply all cargo handling gear in good working condition. This

renders NE liable for all damages associated accordingly.

5.2 SSP is not liable to any claim of damages from Beta Beta as, having made reasonable

inquiries, it remains uncertain as to the truth or otherwise of the allegation.

52. NE has failed to verify the existence of Beta Beta’s claims. The only evidence presented to

SSP is through correspondence with NE. In the absence of any evidence the tribunal cannot

entertain this claim further.

6. SSP IS NOT LIABLE TO PAY FREIGHT FROM GAMMA, UPSILON TO ZETA,

QOPPA UNDER THE ADDENDUM.

53. SSP admit that they entered into the Addendum for the voyage from Upsilon to Qoppa, but

61 Facts, page 35. 62 The River Rima [1987] 2 Lloyd’s Rep 106, 108.


20

they did so ‘without prejudice’ to their rights against NE under the Charterparty.63 The technical

effect of the words ‘without prejudice’ is to indicate that any admissions of liability made in the

context of attempting to settle a dispute cannot be used in court against the party making the

admissions.64

54. By entering into the Addendum on a without prejudice basis, SSP are merely doing so in an

attempt to resolve any dispute between the parties. They are not admitting their liability for the

journey from Gamma to Zeta or liability for the breach of the Charterparty, which SSP asserts is

due to the fault of NE. NE can therefore make no assertion that by entering into the Addendum,

SSP are doing so on the basis that they realise the voyage from Gamma to Zeta was necessitated

by any breach of theirs of the Charterparty. In fact, SSP expressly state to the contrary in their

correspondence.

65

55. Where new terms are introduced into an acceptance of an offer, the effect of this is to refuse

the offer and make a counter-offer.

66 While the Addendum on its face appears to deal with all the

contractual issues between the parties, one of the terms crucial to the agreement - which party is to

pay freight for the voyage - is not specified in the Addendum. NE asserts that SSP are to pay for

the costs of transporting the cargo.67

56. Had the Addendum not been entered into, NE would still have been liable under the

Charterparty. As NE has breached the Charterparty, they would have been liable to pay the freight

In signing the Addendum and reserving their rights to claim

any amount of freight paid in respect of the voyage subject to the Addendum, SSP are effectively

rejecting the offer of NE in relation to the Addendum and substituting it with a counter-offer. The

counter offer itself revolves around this one point, as originally NE stipulated that SSP were to

pay for the freight, where as subsequently SSP asserts that NE is liable to pay for the journey.

63 Facts, page 25. 64 Field v Commissioner for Railways (NSW) (1957) 99 CLR 285, 291 (Dixon CJ, Webb, Kitto and Taylor JJ). 65 Facts, page 25. 66 RA Brierley Investments Ltd v Landmark Corp Ltd (1966) 120 CLR 224, 233-234 (Barwick CJ, Kitto and Windeyer JJ). 67 Facts, page 20.


21

for the subsequent journey. SSP are merely keeping that obligation on foot by clausing the

Addendum through their correspondence. NE has accepted this counter-offer via their conduct in

allowing the goods to be shipped and is therefore bound to pay the freight associated with the

journey.68

57. The Addendum is an incomplete contract which needs to include the intention of the parties as

to which party is to pay the costs for the journey, which is made clear in the correspondence

between SSP and NE. This is evidenced by the fact that while the Addendum sets out the amount

of freight to be paid, it does not specify the party that will be paying it. When NE first sends the

Addendum to SSP, they state that SSP are to pay the costs of the voyage from Gamma to Zeta.

69

58. As an arbitral tribunal is not bound by rules of evidence the parole evidence rule does not

apply and there is therefore no issue as to the admissibility of the correspondence to establish the

intent of the parties at the time of contract, nor to show that the Addendum is not a full and

complete contract.

However, as stated above in para 55, SSP have rejected this offer and replaced it with another

which states that NE is to pay for the cost of the voyage.

70

59. In any event the parole evidence rule would not be an issue as these facts fall under one of the

exceptions to the rule; that being where the parties clearly intended their agreement to be affected

by other unwritten factors. The parole evidence rule applies “unless it can be shown that the

document was not intended as the complete record of their bargain.”

71

60. It is clear from NE’s attached correspondence that the Addendum was never intended to be a

complete record of the contract for the voyage. This is evidenced by the fact that NE have drafted

The courts will look at

what the parties said and did during negotiations to determine what the parties really intend.

68 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. 69 Facts, page 20. 70 International Arbitration Act 1974 (Cth), Article 19(2) of the Model Law. 71 Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133, 143 (Isaacs J).


22

the Addendum72

61. Furthermore a court can look at evidence of surrounding circumstances to assist in the

interpretation of the contact if the language is ambiguous.

and therefore had the opportunity to include in the document the party that is to

pay freight. As they have not done this, and have relied on their correspondence as evidence that

SSP are to pay for the cost of the journey, it is clear that they intended the document to include the

Addendum, as well as their correspondence, to ascertain which party is to pay for the freight.

73 The meaning of the terms of a

contract is to be determined by what a reasonable person would have understood them to mean.

This requires consideration not only of the text, but also of the surrounding circumstances known

to the parties, and the purpose and object of the transaction.74 The freight clause is ambiguous as it

does not specify which party is to pay the freight for the journey, therefore the arbitral panel and

any subsequent court is able to look at the intention of the parties, which is evidenced in their

correspondence. In their letter dated 22nd October75

62. In light of the above arguments, NE can have no rebuttal to SSP’s assertion that their

agreement is partly in the Addendum and partly in their correspondence, as this was also NE’s

intention when they initially sent the Addendum to SSP.

, SSP state that they are not under an

obligation to pay freight for this journey as it was necessitated by the Vessel’s breach of the

Charterparty, which in turn makes NE liable. This clear intention that NE are to pay for the freight

associated with the journey clears up any ambiguity in relation to the freight clause in the

Addendum and NE are therefore bound to pay for costs associated with the journey from Gamma

to Zeta.

72 Facts, page 20. 73 Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352 (Mason J). 74 Toll (FDCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 (Unreported, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ, 11 November 2004) [41]. 75 Facts, page 25.


23

7. SSP IS NOT LIABLE TO PAY DAMAGES FOR DETENTION.

7.1 SSP concedes that the contract has not been frustrated.

63. From 8 November 2008 to 29 October 2009, the Vessel was detained at the port of Zeta,

Qoppa under a government embargo. SSP concedes that the embargo did not frustrate the

Charterparty. A contract is frustrated when an event not reasonably foreseen by the parties renders

the performance of contractual obligations radically different from that which was undertaken at

the time of contracting.76

7.2 NE must prove SSP breached the Charterparty to claim damages.

The ‘Exceptions to Laytime’ clause in the Addendum provides that time

lost due to ‘restraints of established authorities’ shall not count as used laytime or time on

demurrage. The parties have clearly foreseen and contemplated the possibility that government

restrictions such as an embargo could detain the Vessel. As such the contract is not frustrated.

64. The ‘Demurrage/Despatch Rate’ clause of the Addendum provides that, if the Vessel ‘is

delayed at the discharging port longer than laytime allowed then Charterers shall pay demurrage

at the rate specified in the governing Charterparty per day for every running day so detained and

proportionately for any part of the day’. Assuming the Vessel could discharge the 25 103.625mt

of Cargo at the contracted discharge rate of 10 250mt per day,77

65. This is not the correct position. Effectively, a breach of the Addendum’s laytime provisions is

required before SSP is liable to make any additional payments to the NE. The

‘Demurrage/Dispatch Rate’ clause provides that SSP is liable to NE where the Vessel is delayed

‘longer than laytime allowed’. It presupposes the operation of the Addendum’s ‘Commencement

the laytime allowed was 2 days

10 hours 47 minutes. NE may argue that SSP has assumed the risk of any delay detaining the

Vessel at the discharging port for longer than 2 days 10 hours 47 minutes.

76 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696; Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724. 77 Discharging Rate clause of the Addendum.


24

of Laytime’, ‘Discharging Rate’, and ‘Exceptions to Laytime’ clauses. SSP will argue that,

according to these provisions, the embargo did not delay the Vessel beyond laytime.

7.3 SSP has not committed a breach that gives rise to damages for detention.

66. Where a Charterparty contains a demurrage clause, general damages are available if a breach

‘additional to or separate from that of failing to load [or discharge] within the lay days’ delays the

vessel beyond laytime.78

67. On our facts, the Vessel was not detained beyond laytime. The Vessel arrived at Qoppa on 5

November 2008. Assuming the NOR was tendered on 6 November 2008, the day customs

clearance was granted, laytime was to commence on 7 November 2008.

SSP has not committed such a breach.

79 However, 7 November

2008 was a Friday and, as a weekly holiday, is not counted as used laytime.80 The weekly holiday

ended at 0800 hours on Saturday 8 November 2008.81 This is the point when laytime commenced.

However, 7 hours later, at 1500 hours, the Qoppa Government imposed an embargo on the

Vessel. There is nothing to say that SSP caused this. The Addendum provides that delays caused

by ‘restraints of established authorities’, such as the government embargo, do not count as laytime

or time on demurrage.82

68. Therefore, by the time the embargo was lifted, SSP had only used 7 hours of laytime. The

laytime allowed was 2 days 10 hours 47 minutes.

83 It is clear that SSP has not breached the

laytime provisions. In any case, such a breach would only amount to the application of the

demurrage rate.84

78 Richco International Ltd v Alfred C Toepfer International GmbH (The Bonde) [1991] 1 Lloyd’s Rep 136, 144; see also Aktieselskabet Reidar v Arcos Ltd (1926) 25 Ll L Rep 513, 514; Total Transport Corporation v Amoco Trading Co (The Altus) [1985] 1 Lloyd’s Rep 423, 433.

79 Facts, page 26; see also the Commencement of Laytime clause of the Addendum which provides that laytime is to commence 24 hours after the tender of NOR within office hours. 80 Facts, page 26; Discharging Rate clause of the Addendum. 81 Discharging Rate clause of the Addendum. 82 Exceptions to Laytime clause of the Addendum. 83 See para 66 above. 84 Demurrage/Despatch Rate clause of the Addendum; see also Inverkip Steamship Co Ltd v Bunge & Co [1917] 2 KB 193, 204, 198, 204.


25

7.4 SSP has not breached an obligation to direct the Vessel to a safe port.

69. Upon finding that the port of Qoppa was ‘unsafe’ for the purposes of the voyage charter, SSP

had, at most, a liberty to redirect the Vessel to another port. Whether such a liberty exists in the

context of a voyage charter was left open by the House of Lords in Kodros Shipping Corp of

Monrovia v Empresa Cubana de Fletes (The Evia)(No 2).85 Even if SSP had such a liberty and

directed the Vessel to another port, the Coast Guard would have prevented the Vessel from

leaving Qoppa.86

70. SSP has not committed a breach of the Charterparty that has caused the detainment of the

Vessel beyond laytime. SSP is therefore not liable for damages for detention.

In any case, SSP had no obligation to renominate a port and did not breach the

Charterparty by failing to do so.

PRAYER FOR RELIEF For the reasons submitted above, the Respondent requests this Arbitral Tribunal to:

DECLARE that it has jurisdiction to hear disputes arising out of the Charterparty but not disputes

arising out of the Letter of Indemnity;

ADJUDGE that the Respondent is not liable to indemnify the Claimant for losses resulting from

the presence of timber and bitumen in the Cargo.

and further

ADJUDGE that the Respondent is not liable to the Claimant for -

a) freight costs under the Addendum;

b) damages for detention.

85 [1983] 1 AC 736, 749, 764-5. 86 Facts, page 32.

the eleventh annual international maritime law arbitration ... · the eleventh annual international...

Documents