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ITLOS Judgment (14.3.2012)

Mike Ryan, writing in the latest edition of the US MLA’s Cargo Newsletter, notes the case of St. Paul Travelers Insurance Company Limited v. Wallenius Wihelmsen Logistics et al, 433 Fed. Appx. 19, 2011 WL 1901738 (Second Circuit), Decision May 20, 2011.

The subrogated underwriter of a yacht damaged when a crane toppled over while the yacht was being offloaded, brought action against the ocean carrier, crane owner and operator and discharging stevedore, seeking to recover some $4,179,938. Defendants moved for summary judgment. The United States District Court for the Southern District of New York granted the motions, dismissing the claims against the crane owner-operator and stevedore and directing that judgment be entered against carrier in amount of $500. The subrogated underwriter appealed.
In a Summary Order, the Court of Appeals agreed with the District Court that the service contract between the ocean carrier and the shipper’s freighter forwarder did not cover the yacht in question because the bill of lading for the yacht did not include the service contract number. The service contract itself required its number to be included in any bill of lading to be applicable. The service contract also failed to specify a freight rate for this particular yacht.
Additionally, the complaint relied exclusively on the bill of lading to assert jurisdiction in the Southern District of New York; although the service contract provided that all disputes were to be settled through arbitration in London.
The subrogated underwriter also argued that the Himalaya Clause in the bill of lading would not cover the crane operator; however, the Circuit Court did not reach the arguments put forward because any action against the crane operator and the discharging stevedore was precluded by an independent, covenant-not-to-sue clause contained in the bill of lading. The subrogated underwriter forfeited any challenge to the validity of such clause by failing to raise it in the District and, moreover, abandoned the issue on appeal. Thus, it could not resurrect the claim in post-argument filings.
As to the ocean carrier, the Circuit Court considered “in the absence of any contrary evidence, the bill of lading’s unambiguous statements that the “No. of units or packages” is “1” and that the “Total no. of containers or packages received by the Carrier” was also “One”, evidenced the parties’ intent that the yacht was to be treated as a single package. The decision of the District Court dismissing the claims against the crane operator and stevedore and limiting the ocean carrier’s liability to $500 was affirmed.

Source: Lloyd’s Law Reporter 193

IONEER FREIGHT FUTURES CO LTD (IN LIQUIDATION) V TMT ASIA LTD – [2011] EWHC 1888 (Comm), Queen’s Bench Division, Commercial Court, Mrs Justice Gloster DBE, 21 July 2011

Forward freight agreements – Quantification of liability – ISDA 92

The parties had settled before judgment but requested determination of three issues that has been addressed in argument. They were issues of quantification of liability under forward freight agreements on the ISDA 92 form, calling into question the correctness of earlier decisions; namely Marine Trade SA v Pioneer Freight Futures Co Ltd BVI [2010] 1 Lloyd’s Rep 631, Lomas v JFB Firth Rixson [2010] EWHC 3372 (Ch) and Pioneer Freight Futures Co Ltd v COSCO Bulk Carriers Co Ltd [2011] EWHC 1692 (Comm); thus (i) are payment obligations which are suspended by virtue of section 2(a)(iii) of ISDA 92 nonetheless taken into account for netting purposes under section 2(c) (“the netting issue”)?; (ii) can Automatic Early Termination apply at all to a FFA after the last contract month specified in that FFA has passed, prior to the Automatic Early Termination date (“the AET issue”)?; ans (iii) is a suspended debt obligation extinguished once and for all at the end of the last contract month specified in the relevant FFA, such that it cannot be taken into account upon Automatic Early Termination (“the expiry issue”)?
Gloster J decided the netting issue in favour of Pioneer. For the purposes of determining what is due and payable on any particular settlement date, clause 2(c) imposed an automatic netting process which set off the aggregate or gross amounts due from each party to the other in respect of settlement sums payable in the same currency on the same date in respect of all transactions across the board, without regard to whether one or other party had complied with the conditions precedent specified in section 2(a)(iii) of ISDA 92. ISDA 92 and the relevant FFAs strongly demonstrated an intention to provide for an equitable netting or set off of payments and obligations. This was the opposite conclusion to that reached by Flaux J in Marine Trade. She declined to answer the Automatic Early Termination and expiry issues, given notably that the action had settled and that the judicial precedents called into question were subject to appeal.

WILLIAM MCILROY SWINDON LTD V QUINN INSURANCE LTD – [2011] EWCA Civ 825, Lord Justice Rix, Lord Justice Hooper and Sir Henry Brooke, 18 July 2011

Insurance (liability) – Arbitration – Time bar – Insurers denying liability for potential future claim against assured – Whether dispute arising between the parties at that point

Lenihan was insured by Quinn against public liability for 12 months from 21 July 2004, with two subsequent renewals. The insurance was arranged by brokers. General Condition 16 provided that: “Any dispute between the Insured and the Company on our liability in respect of a claim or the amount to be paid shall, in default of agreement, be referred within nine calendar months of the dispute arising, to an Arbitrator, appointed jointly by the Insured and the Company in agreement, or failing agreement, appointed by the chairman for the time being of the Bar Council and the decision of such Arbitrator shall be final and binding on both parties. If the dispute has not been referred to arbitration within the aforesaid nine-month period, then the claim shall be deemed to have been abandoned and not recoverable thereafter.”
On 5 September 2006 a fire broke out at premises being refurbished, with Lenihan as sub-contractor. On 2 July 2008 Quinn sent a letter to Lenihan, stating that it would not be offering indemnity due to two breaches of policy conditions: General Condition 6, a reasonable care clause; and General Condition 17, failure to disclose material information. It was accepted for the purposes of the present proceedings that the letter was not received by Lenihan until 18 February 2009. Lenihan was held to be liable to the claimants in three judgments in 2009, damages being assessed by January 2010. Quinn abandoned its defences but argued that it was not liable because Lenihan had not commenced arbitration within nine months from 18 February 2009. At first instance Edwards-Stuart J upheld the defence: (1) General Condition 16 prescribed a mandatory mode of dispute resolution, with a time limit within which that mode of dispute resolution could be exercised, failing which a claim in respect of that dispute was no longer recoverable, even in court proceedings; (2) General Condition 16 was incorporated into the policy; (3) there was a dispute on 18 February 2009 even though no judgment had been given against Lenihan at that time; and (4) the court had no jurisdiction to extend time under section 12 of the Arbitration Act 1996, because the contract was governed by Irish law and, even if that was wrong, time would not be extended because what had happened was not outside the contemplation of the parties and Quinn had not caused or contributed to the failure to commence proceedings in time. The claimants appealed against point (3) of the judge’s reasoning.
The Court of Appeal upheld the appeal and ruled that the time for bringing arbitration proceedings could not have commenced until a judgment had been given against Lenihan, because until that point there was no “claim” under the policy and no “dispute” between Lenihan and Quinn. The proper construction of General Condition 16 was that it applied to claims by Lenihan against Quinn and not to claims against Lenihan by third parties. Time began to run once the judgment had been given, and time had not expired. The Court of Appeal accepted that Lenihan would have been perfectly entitled to seek declaratory relief before the judgment had been given against it, but any such application would not have been within the time bar in General Condition 16 because it was not a dispute in relation to a claim by Lenihan. The Court of Appeal distinguished Walker v Pennine Insurance Co Ltd [1980] 2 Lloyd’s Rep 156, which appeared to reach a contrary conclusion, on the ground that the word “claim” might have a different meaning in a motor policy which covered both first and third party liability, so that there could be an immediate claim once an accident had occurred and before judgment had been given against the assured.

LIM KEENLY BUILDERS PTE LTD V TOKIO MARINE INSURANCE SINGAPORE LTD – [2011] SGCA 31, Singapore Court of Appeal, Justices of Appeal Chao Hick Tin JA, Andrew Phang Boon Leong and V K Rajah, 30 June 2011

Insurance (employers’ liability) – Policy defining “Insured” as contractor and all subcontractors – Policy covering liability for injury to any workman “in the Insured’s employment” – Contractor sued by employee of sub-contractor – Whether policy responded

LKB, a contractor, was insured by Tokio under a workmen’s compensation policy and under a contractors’ all risks policy. The insuring clause of the WC policy provided cover “if any workman in the Insured’s employment shall sustain personal injury by accident or disease caused during the Period of Insurance and arising out of and in the course of his employment by the Insured in the Business”. The term “Insured” was defined as including LKB and all its sub-contractors. LKB was sued by an employee of a sub-contractor who was injured on site, and the question was whether LKB’s liability to the employee was covered by the WC policy. It was common ground that if the employee had sued the subcontractor the policy would have responded. The Singapore Court of Appeal held that the phrase “in the Insured’s employment” extended to a person employed by a subcontractor, and that the contractor and subcontractor were to be treated as a single entity for the purposes of the policy: this was not a case of joint or composite insurance at all, but the insurance of a single entity, and in any event it was necessary to look at the respective insurable interests of the parties to determine whether the policy was joint or composite (as in New India Assurance Co Ltd v Dewi Estates Ltd [2009] HKCU 1403). The coverage of the policy could not depend upon the technical question of which party the injured employee chose to sue.

BARCLAYS BANK PLC V NYLON CAPITAL LLP – [2011] EWCA Civ 826, Court of Appeal, Lord Neuberger MR, Lord Justice Thomas and Lord Justice Etherton, 18 July 2011

Expert determination – Scope of mandate – Application for stay of substantive judicial proceedings – Whether court should stay proceedings or determine scope of mandate

NC was the manager of two hedge funds set up by B in the Cayman Islands. The investors included an individual, B, and the claimant bank. The agreement establishing NC contained an expert determination clause under which disputes relating to profit and loss allocations and payments due to an outgoing member were to be resolved by expert determination. Disputes arose between B and the bank following the bank’s withdrawal from the hedge funds, and the bank commenced judicial proceedings for a declaration that it faced no liability to B or NC. B sought a stay of the proceedings so that the matter could be referred to the appointed expert. The Court of Appeal refused to stay its proceedings, and held that it was appropriate in the present case for the court to resolve the jurisdictional question itself so that, if there was no jurisdiction, a pointless expert determination could be avoided. The decision contains conflicting views on the question whether an error of law by an expert automatically means that the expert had exceeded his mandate.

MERITZ FIRE & MARINE INSURANCE CO LTD V JAN DE NUL NV AND ANR – [2011] EWCA Civ 827, Court of Appeal, Lord Justice Laws, Lord Justice Longmore and Lord Justice Etherton, 21 July 2011

Guarantee – Advance payment guarantees for shipbuilding contracts – Whether guarantor discharged by variations of the shipbuilding contracts – Whether corporate changes limited defendant’s right to make contractual demands triggering liability under the guarantees – Uniform Rules for Demand Guarantee of the International Chamber of Commerce (ICC) 1992 The claimant insurer had given guarantees for the repayment of advance payments to a shipbuilder by the defendant buyer of a ship. The shipbuilder had undertaken to build several hulls but failed to complete them due to financial difficulties. The shipbuilder became liable to repay the advance payments but did not do so. Instead a change of the shipbuilder’s corporate identity was effected. The insurer sought a declaration of non-liability and the buyer counterclaimed for sums it said were due under the guarantee. The Court of Appeal, upholding the judgment of Beatson J, held that the advance payment guarantees were to be construed independently of the underlying documents, and that the buyer was entitled to recover its advance payments from the claimant under the guarantees. The guarantees provided that payment would be made if the shipbuilder “failed to make the refund”, and that was what had occurred, and it was irrelevant that the true liability to make payment was the new company.Meddržavno sodišče v Haagu (ICJ) je 8. marca 2011 izdalo ‘začasne odredbe’ v razmejitvenem sporu med Kostariko in Nikaragvo. Odločba je zanimiva, predvsem pa je pomembno, da mednarodna sodišča in tribunali v, vedno pogosteje upoštevajo interese varstva okolja na ‘spornem ozemlju in morju’. Glej: http://www.icj-cij.o…rg/docket/files/150/16324.pdf

DOLPHIN TANKER SRL V WESTPORT PETROLEUM INC (THE MT “SAVINA CAYLYN”) – [2010] EWHC 2617 (Comm), Queen’s Bench Division, Commercial Court, Mr Justice Simon, 21 October 2010

Charterparty (time) – Termination – Shelltime 4 – Arbitration – Appeal on a question of law – Introduction of documents other than the award and the contract – Whether permitted – Arbitration Act 1996, section 69 By a five-year time charterparty, the claimant owners had let Savina Caylyn to the defendant charterers at a daily rate of US$27,000, on the terms of an amended Shelltime 4 form dated 9 July 2007. Clause 50 of the charterparty allowed the charterers to place the vessel off-hire or terminate the charter, if the vessel failed on three consecutive oil major vetting reviews or inspections. On 26 February 2010 charterers gave notice of cancellation on the basis of 10 consecutive rejections which met the criteria set out in clause 50. A sole arbitrator held that the charterers were entitled to terminate. The owners appealed.
Simon J dismissed the appeal. The arbitrator had not made any error of law. (1) On appeal, owners had sought to rely on a number of documents, apart from the charterparty and the award, in support of their arguments on the appeal on a question of law. The judge did not agree that there had been a loosening of the general rule that only the award and the relevant contract should be put before the court in an appeal on a point of law. An appeal on a question of law was confined to facts found by the award and the only admissible findings in relation to the commercial background were those in the award. The same vigilance must be applied under the 1996 Act as under the 1979 Act. (2) On the three concepts which the arbitrator had been asked to interpret, the judge said the following. (i) The concept “oil major” was to be given its natural and ordinary meaning namely as referring to the six international oil majors rather than just to those five named in para 2.2 of clause 50. (ii) The meaning of “three consecutive inspections” was at issue because BP had given the vessel a “pass” inspection, but this came about at the initiative of the owners and not following a nomination by charterers of the vessel to BP. The judge agreed with the arbitrator that the contract’s definition of inspection was one that had been initiated by the charterer’s nomination of the vessel to the oil major. Although there was a potential commercially absurd result if charterers exercised their option to place the vessel permanently off-hire, leaving the vessel in limbo and owners without a remedy, this was something that could be resolved by implying a term. (iii) An inspection was defined in the charterparty as a review by an oil major by physical inspection or of the latest SIRE Report. The judge, like the arbitrator, rejected owners’ argument that charterers must prove that the latest SIRE Report was either the effective cause or an effective cause of rejection. It was usually not clear what the reasons for the rejection were and it would therefore be sufficient to show that the SIRE report was considered as part of the process of nomination.

(SOURCE: Lloyd’s Law Reporter 159, 26 October 2010)

GARNAT TRADING & SHIPPING (SINGAPORE) PTE LTD V BAOMINH INSURANCE CORPORATION – [2010] EWHC 2578 (Comm), Queen’s Bench Division, Commercial Court, Mr Justice Christopher Clarke, 19 October 2010

Insurance (marine) – Voyage policy on floating dock – Damage suffered in tropical storm – Whether dock seaworthy – Voyage in stages – Whether assured failed to disclose material facts – Inducement and waiver – Marine Insurance Act 1906, sections 18(3) and 39 The claimants insured a floating dock for a voyage from Vladivostok, Russia to Vung Tau, Vietnam, with the defendant insurers under a voyage policy dated 12 June 2006, the sum insured being US$8,388,600. The dock was powerless, and was, under a towage contract, to be towed by two tugs. In April 2006 the assured engaged a shipping company to supervise the preparation of the dock and workshop for towage, and a substantial repair programme took place. On 23 June 2006 the dock commenced the voyage. On 9 July 2006 the dock encountered a force 6 typhoon which caused a swell of up to 6 m, but was able to continue after repairs to the lashings which tied the pontoon to the deck. On 13 July the dock encountered a tropical storm, Bilas, which the dock had tried to avoid but which had – contrary to weather forecasts – changed course. The dock was caught by a near direct hit. The swell was initially 6 m but by the following day the swell had reached 10 m. The lashings were unable to withstand the weather, and the dock was seriously damaged when the pontoon broke loose. The assured served a notice of abandonment on the insurers. On 17 April 2007 the insurers purported to avoid the insurance for alleged material non-disclosure, and they also asserted that the assured was in breach of the implied warranty of seaworthiness in section 39 of the Marine Insurance Act 1906.
Both defences were dismissed by Christopher Clarke J. (1) The insurers’ allegation that the assured had failed to disclose a material document forming part of the towage plan which showed the maximum wave height that the dock could withstand was rejected on the facts. However, even if it had not been disclosed, the insurers could not avoid the policy because: (a) they had waived disclosure by agreeing to insure without seeing the towage plan as long as it was approved by a Classification Society; (b) earlier drafts of the policy had contained towage plan warranty, and although it was by oversight omitted from the final version of the policy, so that it could not be said that disclosure was rendered unnecessary by section 18(3)(d) of the Marine Insurance Act 1906, the fact that there had been a draft warranty rendered disclosure superfluous, given the very short time between the deletion of the warranty and the issue of the policy; and (c) the insurers were not induced by any failure to disclose because the evidence was that they would have insured on the terms which were actually agreed. (2) The voyage was in two stages: from leaving berth to the commencement of ocean towage; and then the ocean towage itself. The fact that the towage contract specified only one stage was irrelevant to determining how many stages there actually were. The most significant allegation was the deficiency of the pontoon securing arrangements, but the court held that the insurers had not established by the factual and expert evidence that the dock was unseaworthy at the commencement of any part of the voyage.

(SOURCE: Lloyd’s Law Reporter 159, 26 October 2010)