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Newsletter 13
SEA VENTURE
Luxury Yacht Liability Product Launched
Slot–Charterer’s Right to Limit Confirmed
Ship’s Doctor – Who is Responsible for Negligence?
Due Diligence – Obligation to Maintain
Forward Freight Agreements and Financial Woes
Crew PEME Scheme Launched
New Steamship Mutual Directors
HIGHLIGHTS4 Steamship Mutual: The Beginning
6 Luxury Yacht Liability Product Launched
6 COSCO’s Capt. Wei Jiafu to Receive CMA CommodoreAward
7 OOCL Named “Best of the Best” Ocean Carrier
8 Seminar in Korea
9 Steel Coils – Minimising the Risk of Cargo Rejection
10 Carriage of Calcium Hypochlorite
11 Ship’s Doctor – Who is Responsible for Negligence?
12 Demurrage Timebars –hhThe Tide is Turning on “Sabrewing”
13 Due Dilligence – Obligation to Maintain
14 Forward Freight Agreements and Financial Woes
14 Enforcement of Arbitration Award– New York Convention
15 “Knock for Knock” Clauses – England v US
16 Financial Crises and Frustration
17 Wilful Concealment of Pre-Existing Injury– Defence to a Jones Act Claim
18 Philippines – 120 days becomes 240 days
19 Crew PEME Scheme Launched
20 New Steamship Mutual Directors
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EDITORIAL TEAM
Naomi CohenSue WatkinsMalcolm Shelmerdine
Sea Venture is available in electronic format. If youwould like to receive additional copies of this issue orfuture issues in electronic format only please send yourname and email address to [email protected] and suggestions for future topics should alsobe sent to this address.
CONTACT
For further information, please contact:
Steamship Insurance Management Services LimitedAquatical House39 Bell LaneLondon E1 7LUTelephone: +44 (0)20 7247 5490 and +44 (0)20 7895 8490
Website: www.simsl.com
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INTRODUCTIONSteamship Mutual was founded on the 16 October 1909. Accordingly, thisyear, 2009, marks the centenary of the Steamship Mutual and its century ofservice to shipping. Prior to the market downturn, a series of events hadbeen planned to celebrate the anniversary. In view of the current financialand shipping markets, these will now be more restrained than originallyplanned. They will, however, include a book commemorating the centenaryand the Club’s history, to be published later this year, and the launch of awebsite dedicated to the Centenary featuring many aspects of the Club’sdevelopment.
In this edition of Sea Venture there are the usual mix of reports on recent caselaw, loss prevention issues, and Member news. In particular there are twoarticles reflecting the dramatic downturn in most shipping and commoditymarkets and consequent commercial pressures over the last year. One discussesForward Freight Agreements, which have been the cause of substantial, and insome cases terminal, losses suffered by some operators. The other discusseswhether a charterer is able to bring to an end what may, in the current climate,have become an uneconomic charter.
Indeed the big story over the last two quarters of 2008 has been therecognition that most of the world’s economies have slipped into recession,causing dramatic falls in the freight and hire rates, reduced cargo volumes andovercapacity on trades, with resultant increases in the numbers of laid upvessels and turbulence in the S&P markets. Not surprisingly, those owners andcharterers who continue to operate in this market have become wary of theirtrading partners and have been forced to walk a tightrope, balancing theneed to protect earnings against the risk of insolvency of their contractualpartners. In these conditions the service provided by Steamship Mutual is vital,as the Club’s Members increasingly have had to look to the Club for supportand advice; on liening freights, hires, and cargoes, as well as attaching assets,and renegotiating charters; to assist them to protect their cash flows andtrade through what, arguably, are the worst economic conditions since the1930s. In this respect the Managers would like to emphasise the importanceof the role played by the three syndicates that provide service to the Club’sMembership, and cement the strong relationship that exists between the Cluband its Members.
As a special feature, on page 4 of this issue of Sea Venture, there is a shortcommentary on the beginnings of Steamship Mutual, written by the author ofthe forthcoming centenary book, Dr Helen Doe of the University of Exeter. Asever, we welcome information and ideas from members and other friends ofthe Club for the book and the Club’s centenary website, as well as for futureeditions of Sea Venture.
We are most grateful to all those who have contributed to this issue of SeaVenture.
Malcolm Shelmerdine
23 February 2009
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Cover photographs:
Jaladurga: Passenger/cargo steamer, built1910, Scindia Steam Navigation.
Hirmand: VLCC, built 2008, NationalIranian Tanker Co., longstanding ClubMember
Sage was the manager to the newAssociation, and was based at 3 and 4Lime Street Square which was also theaddress of the Club’s solicitors, W&WStocken. One of the witnesses wasAlfred Stocken, who also gave hisstatus as gentleman. He was the sonof Walter Stocken, the solicitor, andwould later follow Lionel Sage as themanager of the Club in 1917.
The new Club offered six classes ofcover. There were three for Hull (allrisks, total loss and total loss andgeneral average), one coveringProtection, Indemnity, Workmens’Compensation Act claims, FreightDemurrage and Defence, another forthree fourths collision liabilities, andthe sixth covering Freight.
Steamship Mutual:THE BEGINNING
The articles of association of the Steamship
Mutual Underwriting Association Ltd were
signed on the 16 October, 1909. There
were seven signatories; two gave their
status and occupation as gentleman, one
was a merchant based in London, while
the remaining signatories were to become
closely linked to the Club and gave their
occupations as surveyor (Herbert Pope),
shipowner and shipbroker (Charles Henry
Nurse), shipowner (Alexander Johns), and
shipbroker (Lionel Clark Sage).
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Indian Success: General cargo, built 1958, India Steamship – one of the first non UK Members of the Club
Why was the Club set up? The originsof the Club lay in the Sailing ShipMutual Insurance Association whichhad been incorporated on 14 February,1906. This Club, as its name suggests,was founded to look after the interestsof sailing ships. Its chairman wasCharles Nurse, and it was managed byLionel Sage. Also on the committeewas Alexander Johns.
Before World War I sailing ships werestill active despite the dominance ofsteam. Most of these vessels wereinvolved in coastal trades carrying lowvalue, non urgent bulk cargoes – coal,china clay and timber, and it madesense for these owners to mutuallyinsure their common interests.
Nurse and Johns between them had afleet of 28 sailing ships. There wereplenty of other similar sailing ship clubsin existence but many were small verylocal clubs such as the Padstow Cluband the Braunton Club, based on smallports in the South West of England.For steamships there were of coursethe large national clubs such asShipowners and British Marine Mutual,
Shipowners’ Protection and Indemnity,Britannia and the UK Club.
The establishment of the newSteamship Mutual by Nurse, Sage, andJohns, none of whom owned asteamship, was a recognition of therealities of shipping. Even the mostdedicated sailing ship owner could seewhere the future lay, and SteamshipMutual was designed to be a newcompetitor in an already wellestablished market.
There are few early records for theSteamship Mutual and it would seemthat it remained a reinsured subsidiaryof the Sailing Ship Club, with the maincommittee business being conductedalongside that of the Sailing Ship Clubuntil 1947.
We are grateful to Dr Helen Doe ofUniversity of Exeter ([email protected]) for preparing this article. Dr Doeis currently researching the history ofSteamship Mutual and will bepublishing a book to commemoratethe Club’s centenary year in 2009.
CENTENARY YEAR:
Board MeetingVenues
The Club had planned to hold itsJanuary 2009 Directors' meetingsin Mumbai. However, followingthe terrorist attacks which tookplace between 26 and 29November 2008, the venuewas changed to Amsterdam.
We would like to take thisopportunity to extend our deepestsympathies to all those who sufferedin any way as a consequence ofthose horrific attacks.
2009:
26/27 January – Amsterdam
11/12 May – New York
27/28 July – Hamburg
26/27 October – London
2010:
25/26 January – Hong Kong
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The new liability product istailored to meet the specificrequirements of those operatingin the luxury super and megayacht market which has seenescalating growth in recentyears. As yachts increase in sizeand are ever more subject tolegislation growing numbers of yacht owners and operatorsrequire the service andcapacity of an expert liabilityinsurer at levels in excess ofhull value.The Club believes itis uniquely well qualified andexperienced to meet thosespecialist needs.
Underwritten on a fixed premium basis,coverage limits will be available fromUS$1 million increasing to US$500 millionfor the world’s largest yachts. The newproduct offers enhanced coverage onterms much wider than generally availablein the commercial market.
Further details are available onthe Steamship Mutual website at:www.simsl.com/yacht-facility.htm
A brochure about the product can alsobe downloaded from this webpage.Alternatively, contact Rupert Harris([email protected]), Gary Field([email protected]) or JonathanAndrews ([email protected]).
In November the Club announced it was launching anew Yacht Liability insurance product for luxury superand mega yacht owners, operators, charterers and fleetmanagers. Given Steamship’s already strong position inthe passenger and cruise sector, this move into theYacht Liability market was seen as a natural step.
Yacht Liability Cover for luxurysuper and mega yacht markets
Luxury Yacht Liability Product Launched
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COSCO president and CEO, Capt. Wei Jiafu,has been named as the Connecticut MaritimeAssociation (CMA) Commodore for the year2009. Capt. Wei follows a long succession ofinfluential maritime industry leaders asCommodore. The Award will be presented inMarch marking the conclusion of the annualCMA conference and trade exposition.
The award is given each year to a person inthe international maritime industry who hascontributed to the growth anddevelopment of the industry. Beth Wilson-Jordan, president of the CMA, stated:"Today, as the world deals withunprecedented economic and trade
challenges, the CMA is delighted to have asour Commodore someone actively involvedin the growth and development of worldtrade. With the Board's choice this year ofCapt. Wei we continue the tradition ofrecognizing excellence. It will be an honourto have the leader of one of the world'slargest shipping companies accept theCMA Award".
COSCO was founded in 1961 and nowowns and operates more than 800 vessels.Capt. Wei has been a Director of SteamshipMutual since 2000. The Managers offertheir congratulations to Capt. Wei on thisaward. Capt. Wei Jiafu
COSCO’s Capt. Wei Jiafu to ReceiveCMA Commodore Award
OOCL Named“Best of the Best” Ocean Carrier
OOCL – Ningbo arrives in Hong Kong
The award was based on a survey of morethan 19,000 readers who ship productsusing ocean carriers. Those surveyed ratedthe five most important performanceattributes as:
port-to-port on-time performance
worldwide price of services
reliable partner in the globalsupply chain
the provider that helps savemoney across the globe, and
global customer service.
Based on these criteria OOCL was selectedas one of the top companies.
OOCL is one of the world's largest integratedinternational container transportation,logistics and terminal companies and is avalued longstanding Member.
Orient Overseas Container Line (OOCL) has been named “Best ofthe Best” in World Trade magazine’s “Performance PartnersAwards of Excellence”.
Teare J. concluded that a slot-charterer is soentitled. He went on to consider whetherthe slot-charterers are entitled to rely on afund that has been set up by the owners.He held that slot-charterers do have thatright. These were preliminary issues in theongoing litigation following the beachingand wreck removal of the “MSC Napoli”in January 2007.
Article 1(2) of the Convention expresslyincludes charterers within the definition ofshipowners. The Judge reasoned that theordinary meaning of “charterer” was aptto include any type of charterer, whetherdemise, time, voyage or slot. He alsoexpressed the view that inability to limitwould not encourage international tradeby sea, the aim of the Convention.
The Commercial Court in London recently considered thequestion whether slot-charterers are entitled to limitation underthe Convention on Limitation of Liability for Maritime Claims1976 (“the Convention”).
The Judge considered the second question,the right to rely on the fund constituted bythe owners, as clearly determined by theterms of the Convention. This leaves openthe interesting question of whether and onwhat basis owners can claim some form ofcontribution from slot-charterers towardsthe cost of establishing the fund.
This decision is discussed in more detailin an article produced by Dominic McAleerof MFB Solicitors for the Steamship Mutualwebsite at:www.simsl.com/napoli0109.html
Slot-Charterer’s Rightto Limit Comfirmed
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Is a charterer entitled to cancel a time charterparty if a vessel isnot at charterer’s disposal by the cancellation date by reason of
the charterer’s failure to nominate a delivery port? This questionwas addressed as a preliminary issue in Mansel Oil v Troon
Storage Tankers (The “Ailsa Craig”).
The fixture was negotiated with deliverybetween the 25 September and 31 October2007, with the option for charterers tonominate a delivery port in WAF-Ghana/Nigeria range. The cancellation datewas extended to the 15 November but,with the vessel in dry dock in Piraeus, whenit became apparent that the extendedcancellation date could not be met,charterers cancelled.
A dispute arose on the basis that charterershad not nominated a delivery port at thetime of cancellation. Thus, owners arguedthat the right to cancel could not beexercised until charterers hadcommunicated the port of delivery.
The Court decided that charterers, whileindeed having an obligation to nominatethe delivery port, should be allowed toexercise their right to cancel even when adelivery port has not been nominatedbecause, in the circumstances of this case,i) the failure to do so was not causative ofowners’ inability to deliver the vessel andii) the obvious futility of nominating a portwould be enough to discharge any duty tonominate a delivery port.
The decision is discussed by FrancisVrettos ([email protected]) in anarticle on the Steamship Mutual website at:www.simsl.com/Ailsa1208.html
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Impossibility ofNotifying Place of Delivery
In November 2008 the Managers hosted aseminar and reception for the KoreanMembership. The event was kindly openedby Club Board Member Mr C.S. Kim (KoreaLine Corporation) who reflected on thedifficult market conditions for theMembership and the Club. Underwritingissues and possible solutions to counterparty risk were considered by theManagers’ representatives present.
Guest speaker, Mr Richard Johnson, asenior manager from ITOPF, spoke on thespill response in the aftermath of the “HeibeiSpirit” pollution. Thanks to all those whoattended the seminar and to the supportreceived from the Club's local representativesin making the event such a success.
Seminar in Korea
Mr C.S.Kim at the Korean Membership Seminar
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With many commodity pricesdropping and recent figurespointing to a slump in theprice of steel an increase inthe number of steel cargoclaims is to be expected.In a weak economy buyers tend to look forreasons to reject more cargo than usual.This is particularly so in the steel marketsand if prices drop between purchase anddelivery. One such reason is where there isa dispute as to the apparent condition ofthe cargo on loading as described in the billof lading and any damage found ondischarge alleged to be of a pre-shipment
origin. The allegation is that the carrierunder the bill of lading has misrepresentedthe apparent condition of the cargo onloading. If made out any such liability hasnothing to do with the carriage of thecargo, is not a breach of contract, but aliability in deceit. The significance of thisdistinction is important.
This point, the role to be played by pre-load surveys, appropriate clausing of mate’sreceipts and bills of lading, and the risk ofreliance on letters of indemnity if clean billsof lading are issued when they should not,are discussed in an article by Daniel Brand([email protected]) on the SteamshipMutual website at:www.simsl.com/SteelClausing0109.html
Steel products are particularly susceptible todamage. Owners involved in the carriage ofthis cargo can minimise the risk of claimsby ensuring that their crew are properlytrained in industry best practice.
The handling, loading, stowage,securing and carriage of steel sheet coilsare discussed in an article written for theSteamship Mutual website by Capt. SimonRapley ([email protected]) of theClub’s Loss Prevention Department:www.simsl.com/Steel1208.html
Steel Coils– Minimising theRisk of Cargo Rejection
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Calcium hypochlorite is used for purifyingwater. It readily decomposes to releasechlorine and oxygen, and reaction withcombustible materials may lead to severefires. Studies at the time showed thatcalcium hypochlorite could undergo selfaccelerating decomposition, initiated atabout 70°C for drums of good qualitymaterial. It was classified under 3 headings:UN1748 (carriage on deck and away fromheat sources), UN2880 and UN2208 (bothcould be carried under deck but UN2880away from areas where heat sources of55°C or more would be encountered for24 hours or more).
During the 1990’s the proportion ofcalcium hypochlorite carried in containers
increased and the manufacturers increasedthe drum size of “bulk” packages. Thecargo was sometimes declared under othernames such as chloride of lime, limechloride and hy-chlor.
Between 1997 and 1999 there were sixvery large incidents on container shipsinvolving calcium hypochlorite. Studiesfound that self accelerating decompositionin a 40ft container could, in fact, start attemperatures as low as 37°C.
IMO recommended that all forms should becarried “On Deck Only”. Furthermore thisdeck cargo should be shaded from directsunlight, stowed away from any heat sourcesand should have adequate air circulation.
There has been a major reduction in thenumber of fire incidents involving calciumhypochlorite reported in recent years. Thismay be the result of the revised methodsof carriage or possibly because many shipowners have excluded the cargo in theircharterparties. The carriage of containerisedcargo relies on the shippers’ full andaccurate description of the contents. Onlywith this information can proper carriageconditions and safe transport be provided.
The carriage of calcium hypochloriteis discussed in more detail in an articleproduced by Dr Geoffrey Bound of MintonTreharne & Davies for the SteamshipMutual website:www.simsl.com/CalciumHypo0109.html
Carriage of Calcium Hypochlorite
The very first issue of the oldstyle Sea Venture, published inFebruary 1978, included anarticle on the carriage ofcalcium hypochlorite and, inparticular, the proposedamendment to the IMCORegulations. This cargo wascausing particular concern atthat time. In the six yearperiod prior to 1978 therewere at least twelve seriousfire and explosion incidentsinvolving the carriage ofcalcium hypochlorite.
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The case of Carlisle v Carnival CruiseLines was discussed in Sea Venture issue9 (and on the Steamship Mutual websiteat:www.simsl.com/USMedMalpractise0907.html). At that stage, the 3rd DistrictCourt of Appeal had held that, in essence,
a ship’s doctor is held out as the agentof the owner and the owner can beheld liable for his acts. The FloridaSupreme Court then reversed thatdecision on the basis that it wentagainst previous authority.
The principles guiding this issue wereestablished in 1988 by the U.S. Court ofAppeals, 5th circuit, in Barbetta v S/SBermuda Star:
1. The doctor-patient relationship is under the control of the patient, not the shipowner, as neither the master nor owner of the ship can interfere inthe treatment of the medical officerwhen he attends a passenger.
2. A shipowner is not in the business ofproviding medical services to passengers.It does not possess the relevant expertiseto supervise a physician or surgeon carried on board a ship as a convenienceto passengers.
Nonetheless, a court may hold an ownerliable for the acts of a ship’s doctor if apassenger can show that an “apparentagency” existed. Those seeking to pursue such a claim face a heavy burdenof proof.
In an article written for the Steamship Mutual website Paul Brewer([email protected]) reviews theCarlisle case and considers these issuesin further detail:www.simsl.com/Carlisle1208.html
Ship’s Doctor –Who is Responsiblefor Negligence?
George GreenwoodShipwrights’ Prime WardenThe Managers are pleased to offer their congratulations toGeorge Greenwood, pictured with his wife Fiona, as heapproaches the completion of hisyear at the helm of the WorshipfulCompany of Shipwrightswww.shipwrights.co.uk/index.htm.
George Greenwood was Senior Partner ofthe Club’s Managers from 1986 to 2003.He was elected Prime Warden of theWorshipful Company of Shipwrights fromthe 1 May 2008 and in this new role hasbeen leading the charitable and trainingactivities of the Shipwrights. As a LiveryCompany in the City of London, theShipwrights’ main focus is on maritimeprojects and activities.
Demurrage Timebars– The Tide is Turningon “Sabrewing”On 21 October 2008, Mr. Justice David Steel handeddown Judgment on threepreliminary issues in The“Eternity”. One of thosepreliminary issues concernedthe operation of thedemurrage provisions in theBPVoy 4 Form (“the Form”).Pursuant to a charterparty on an amendedversion of the Form, the defendant ownerscarried cargoes of mogas and high speeddiesel to Mossel Bay in South Africa onboard the M/T “Eternity”.
The total amount of laytime allowed underthe charterparty was 84 hours. The ownersalleged that, largely as a result of the aboveoperations, the total amount of time spenton laytime and demurrage was 754 hoursand 37 minutes. Accordingly, the ownerssubmitted a significant claim for demurrage.
Clause 19.7 of the charter provided, interalia, that an owner should submit a pumpinglog signed by both a senior officer of the
vessel and a “terminal representative” insupport of any claim “in respect of additionaltime used in the cargo operations”. It wascommon ground that the pumping logsfurnished by the owners in respect of thecargo operations at Mossel Bay and at CapeTown had not been signed by a terminalrepresentative. The charterers contendedthat, as a consequence of this omission, theentirety of the owners’ claim for demurragewas now timebarred under Clause 20.
The Judge found in favour of the owners,holding, inter alia, that on the trueconstruction of the Form, a failure toprovide contractually compliant documentsin support of one element of a claim fordemurrage is not fatal to the entire claim.
In so holding, the Judge declinedto follow the decision in The “Sabrewing”where a failure to provide signed pumpinglogs was held to be fatal to the entirety ofa claim for demurrage.
The decision in The “Eternity” iscontrasted with that of The “Sabrewing”in an article by Mark Seward of MFBsolicitors on the Steamship Mutual websiteat: www.simsl.com/Eternity0109.html
Recently the Club has encountered anumber of cargo damage claims arisingfrom Automatic Heeling System componentfailure. These systems are usually fitted onthe tanktop in a hold (either under the holdwalkways or in their own space adjacent toa cargo hold) on container ships or multi-purpose general cargo vessels to ensurethat the vessel remains upright during cargooperations by automatically pumping ballastfrom wing tank to wing tank to correct anylist that may develop.
Whilst automatic heeling systems arewonderful tools for easing the burden onDeck Officers during busy cargo operations,
their location tends to leave them out ofsight and out of mind, as long as they areworking. In three recent cases problemsoccurred due to component failure duringthe automatic transfer of ballast from oneside of the vessel to another.
In an article written for the SteamshipMutual website, Capt. Simon Rapley([email protected]) of the Club’s LossPrevention department discusses these casesin further detail and reminds owners andmanagers of the good practice measuresthat should be adopted to minimise the riskof such incidents occurring:www.simsl.com/AHS1008.html
Automatic Heeling System Maintenance
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Due Diligence– Obligation to Maintain
It will be recalled that the case focused onnew MARPOL regulations concerning thecarriage of fuel oil which came into effectin April 2005. As at October 2003, heavygrades of oil could only be carried withinthe EU in double-hulled vessels. MARPOLregulation 13H in tandem required, as ofApril 2005, that fuel oil cargoes be carriedin double-hulled vessels only, save for anexemption for vessels with “double-sidesnot used for the carriage of oil andextending to the entire cargo tank length.”
A fully double-sided vessel is one whereeach cargo tank is protected on the outside
by ballast tanks, forming a barrier to thecargo tanks in the event of a collision andthus reducing the likelihood of breach.
The vessels had been described in thecharters as “double-sided” but a small partof two slop tanks, aft of the cargo tanks,was bordered by bunker tanks rather thanballast tanks and Class had subsequentlydetermined the vessels to be only “partiallydouble-sided.”Accordingly, the vessels didnot fall within the MARPOL exemption and,as at April 2005, could not lawfully carryfuel oil cargoes. The issue between ownersand charterers was which of them should
bear the risk of a change in internationalregulations which have the effect ofrestricting the cargoes which can be carriedduring the currency of a long term charter.
While it is always a matter of construingthe particular charter as a whole the“Elli”/“Frixos” is now authority that thisburden will most likely fall on ownerswhere the change concerns due diligenceobligations and warranties as to the vesselcomplying with international conventions.
In light of the current market conditions, itis likely charterparty provisions will comeunder greater scrutiny than may otherwisehave been the case. In a market wherecharterers seek to avail themselves of anyopportunity to escape from an unfavourablefixture owners need beware of the need tocomply with all necessary obligations.
Article by Sian Morris([email protected])
Following on from Mr Justice Cooke’s judgment in Golden FleeceMaritime v ST Shipping (“Elli”/”Frixos”) in August last year andthe Court of Appeal judgment in May 2008, discussed in issues 9and 12 of Sea Venture (see also: www.simsl.com/GoldenFleece0908.html) the House of Lords has now rejected owners’application for leave to appeal.
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Forward Freight Agreements and Financial Woes
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Forward Freight Agreements (“FFAs”) areoften in the news at present with Armada ofSingapore being the latest major operator toblame them for its financial woes.
There are currently two available forms ofFFA, the 2005 and 2007 terms. Generallythe consequences of a default will dependon the type of default and whether the2005 or 2007 terms apply. In the event ofnon-payment, the non-defaulting party hasthe option to terminate or maintain theoutstanding or “live” trades. In the event ofinsolvency under the 2007 terms, all tradesare automatically terminated. The 2005terms do not provide for automatictermination following insolvency and thiscan have very significant advantages for thenon-defaulting party.
At first blush an FFA, whether on 2005 or2007 terms, can appear simple, but lurkingbehind this façade is a more complexdocument known as “ISDA” which sets outin detail the parties’ rights and obligationswith regard to payment, interest, events ofdefault, early termination and itsconsequences, notices etc.
Jeb Clulow and Eurof Lloyd-Lewis ofBarlow Lyde & Gilbert discuss some of theproblems which commonly arise in thisregard in an article on the SteamshipMutual website at:www.simsl.com/FFA0109.html
Enforcement of Arbitration Award– New York Convention
IPCO is a Nigerian subsidiary of a Hong Kongcompany which entered into a contract withNNPC for the design and construction of apetroleum export terminal.
The project was delayed because, IPCOcontended, NNPC sought substantialvariations to the works. IPCO’s claims to bepaid more than the contract price were thesubject of arbitration in Lagos underNigerian law. IPCO’s claims succeeded in asum in excess of US$152 million. NNPCsought to set aside the award before theFederal High Court of Nigeria whilst IPCOapplied to the English High Court toenforce the award.
IPCO’s initial ex parte application wasgranted but then enforcement adjourned onNNPC’s application, subject to NNPC lodging
security of US$50 million and makingpayment to IPCO of US$13 million. Thatwas in April 2005. By February 2008, whenit became apparent NNPC’s challenge inNigeria was taking significantly longer thananticipated, IPCO appeared before Mr JusticeTomlinson and renewed the application forenforcement. It was that order of Tomlinson Jthat was the subject of appeal.
Both judgments are discussed in moredetail by Sian Morris ([email protected])in an article on the Steamship Mutualwebsite at:www.simsl.com/IPCO0109.html
In National Nigerian Petroleum Corp. v IPCO the Court of Appeal recentlyruled that English courts have the power to enforce parts of an arbitrationaward under the New York Convention 1958 and the Arbitration Act1996. The Convention obliges contracting states to recognise foreignarbitration awards as binding and to enforce them in accordance withtheir own procedure.
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A recent challenge to the scope and effectof the “knock-for-knock” provisionscontained within the BIMCO TOWCONform was heard before the EnglishAdmiralty Court in the case of ”A Turtle”.
A semi-submersible rig under tow in theSouth Atlantic was lost when the tug randangerously low on fuel and released thetow, allowing the rig to drift of its ownaccord. It took some 17 days beforeanother tug arrived to refuel the towingtug by which time all contact with the righad been lost. Both tugs spent a furtherweek searching for the rig without successand eventually the tug owners gave noticethat they considered themselves releasedof any further obligations under theTOWCON contract.
The Court found tug owners to be inbreach of their TOWCON obligation toexercise due diligence in making the tugseaworthy. However, the tug owners werestill able to rely on the knock-for-knockprovisions in clause 18 and the rig owners’claims were dismissed. The Court
“Knock for Knock” Clauses– England v US
considered that the nature of the lossclaimed fell within the type of loss rigowners had agreed to accept.
The Court agreed a limit does apply to theprotection afforded by clause 18 but onlyto the extent a party seeking to rely uponthe clause has (i) completely abandoned itsobligations under the TOWCON contract,and (ii) the loss flowed from thatabandonment. At the time of the releaseof the tow the intention was to re-fuel andresume the voyage.
The position is significantly different in theUnited States where The “Bisso”, a 1955decision, remains the leading case andexculpatory clauses in towage contractsare given no effect.
The decision in “A Turtle” and acomparison with the position in theUnited States is discussed in more detailin an article by Ian Freeman (ian.freeman@ simsl.com) on the Steamship Mutualwebsite at:www.simsl.com/Turtle0109.html
Since early December 2008 the‘Ship Strike Reduction Rule’ hasbeen in force to protect thedwindling number of NorthAtlantic Right Whales frombeing hit by vessels off the EastCoast of the United States.This regulation requires vessels of 65 feet(19.8m) or longer to reduce speed to 10knots in areas where Right Whales gather tofeed and give birth. They also apply on theapproaches to ports situated on the whales’migration route, the speed restrictionapplying in the various areas at varioustimes and places dependent on Right Whaleoccurrence. (There are exemptions in theevent of poor sea or weather conditions toensure safe vessel manoeuvreability.)
The regulation came into force in earlyDecember 2008 and will only be in placefor 5 years unless the U.S. National MarineFisheries Service can show that it is havinga positive affect on East Coast RightWhale population.
For further details on the areas affectedand the dates when the speed restrictionwill be in force visit the Steamship Mutualwebsite at:www.simsl.com/USRightWhale1008.html
US East Coast Ship SpeedRestrictions – Right Whales
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Although dependent on the jurisdiction,if a vessel is damaged or causes damageto third party property as a consequenceof pilot negligence the pilot is, as a generalrule, either immune from prosecution, oris able to limit liability in respect of claimsby the vessel or from third parties, or hasinsufficient assets to justify proceedings.The basis of the protection afforded to a pilotcan arise by statute, contract or, and morecontroversially, by custom or implied notice.
The justification for the protectionafforded pilots in this way is a matter of
debate, particularly when (i) the training,supervision and licensing of pilots maybe the responsibility of the port authorityor state regulatory bodies and (ii) pilotageis compulsory.
In this respect, a recent Mississippi case, inwhich the pilot was ordered to contribute50% of the cost of repairs and loss of useof a vessel during repairs, is of interest.
The case is discussed in an article byJamie Taylor ([email protected]) onthe Steamship Mutual website at:www.simsl.com/Pilot0109.html
Financial Crises and FrustrationCould the total collapseof trade finance or thesevere drop in freight
rates and cargo volumesresult in the frustration of
a charterparty?
The sharp corrections in the freight marketsfollowing the well-publicised credit crisisand its effect on trade finance have placeda number of charterers under financialstress, with some having gone intoadministration as a result. Those charterersin long term time charters and shippers incontracts of affreightment are now inuneconomical bargains and are, perhapsunderstandably, looking to renegotiateterms or to walk away from their contracts.
Case law suggests that the maritimeadventure is commercial in nature and thecontracting parties anticipate makingprofits and losses from the contracts;whether the loss is greater than initiallyanticipated does not negate the fact it isnonetheless contemplated – such losses arebusiness risks and cannot amount to alegally frustrating event.
Reviewing the case law on frustrationMahtab Khan ([email protected])looks at whether certain contracts, whichcontemplate a specific trade, couldarguably be discharged because post-formation events have occurred that makethe originally contemplated performanceeffectively impossible.
The article can be found on theSteamship Mutual website at:www.simsl.com/Frustration0109.html
Negligent Pilots and Liabilityfor Losses Caused
Wilful Concealment of Pre-Exisitng Injury– Defence to a Jones Act Claim
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A basic premise of the JonesAct is to ensure that the rightsand needs of an injured or sickseaman are protected.A Jones Act employer is obliged to paymaintenance and cure expenses to anemployee with Jones Act status should thatemployee suffer injury or illness while in theservice of a vessel. One defence to thepayment of such benefits is the wilfulconcealment of a disabling condtion by aseaman at the time of his or heremployment. The defence is often referredto as the McCorpen rule (McCorpen vCentral Gulf).
In order to establish a defence of “wilfulconcealment”, an employer must show that:
1. An intentional concealment ormisrepresentation of medical factsconcerning a prior injury or conditionoccurred.
2. The non-disclosed facts were material tothe employer’s decision to hire theemployee.
3. A connection existed between thewitheld information and the injurycomplained.
The 5th Circuit extended the application ofthe McCorpen defence in a recent decision;Johnson v Cenac Towing Inc. Counsel forCenac argued that Johnson’s intentionalmisrepresentation of a prior injury not onlynegated his eligibility for Jones Act benefitsbut also acted as an affirmative defence ofcontributory negligence on Johnson’s partand that any damages awarded by thecourt should be reduced accordingly. Onappeal, the Fifth Circuit ruled that the wilfulmisrepresentation of a pre-existing injurycould indeed be used as an affirmitivedefence for contributory negligencepurposes in certain circumstances.
This decision, together with theimportance of a pre-employment medical examination (PEME), is considered in further detail by Richard Allen ([email protected]) in an article written for the Steamship Mutualwebsite at: www.simsl.com/Cenac1208.html.
The recent English High Court decision inFarenco Shipping Co. Ltd v Daebo ShippingCo Ltd (The “Bremen Max”) dealing with aLetter of Indemnity (LOI) for delivery ofcargo without production of bills of ladinghas again highlighted some of the potentialpitfalls of what is no doubt a relativelywidespread practice albeit one for whichthere is no as of right P&I cover.
The dispute turned on a number of pointsof construction in relation to the LOI incircumstances where, notwithstanding thatunder the LOI charterers had undertaken toprovide on demand bail or other security toavoid the threatened arrest or release thevessel from arrest, the owners had providedsecurity of US$11m to the cargo claimants.The charterers sought to avoid their LOIundertaking because (i) owners had alreadyprovided security to release the vessel fromarrest, and (ii) they alleged the cargo hadnot been delivered to the party identifiedin the LOI.
These issues are discussed in an articleby Dan Thomas ([email protected])on the Steamship Mutual website at:www.simsl.com/LOI1208.html
Letters ofIndemnity –The Pitfalls
A separate article featuring the SteamshipMutual’s new PEME scheme can also befound on page 19 of this issue.
Enforcing ContractualJurisdiction ClausesIt is not unusual for cargoreceivers to attempt to displacecontractual law and jurisdictionclauses when they consider thattheir local jurisdiction may bemore favourable to them.However, two recent cases in the EnglishHigh Court, Kallang Shipping v AXA andComptoir Commercial and Sotrade vAmadou, have confirmed that, where acontract provides for English jurisdiction(whether it is High Court or arbitration)the Court will not allow the arrest of avessel in a different jurisdiction to displacethe jurisdiction agreed in the contract.
The Court held that arrest does not conferjurisdiction on the arresting court to hearthe substantive dispute where the partieshave agreed that another court or tribunalhas jurisdiction to hear the dispute. On thefacts of both cases, the court also held thatit was unlawful for a third party to attemptto procure a breach of the terms of thecontract by attempting to displace thecontractually agreed jurisdiction.
The decisions in these cases arediscussed in an article by Nick Barberof Reed Smith on the Steamship Mutualwebsite at:www.simsl.com/KallangComptoir0109.html
Philippines – 120 Becomes 240 DaysAs reported in issue 12 andearlier issues of Sea Venture(see also: www.simsl.com/Filipino120Day0808.html) thePhilippine Labor Code providesthat disability lastingcontinuously for more than120 days is considered “totaland permanent disability”.In the Crystal Shipping (October 2005) andRemigio (April 2006) cases, the PhilippineSupreme Court ruled that seafarers aresubject to the Labor Code concept ofpermanent disability. In both cases theclaimants, unable to perform theircustomary work for more than 120 days,were awarded the maximum compensationof US$ 60,000.
However, two recent decisions of thePhilippine Supreme Court can give ownerscause for hope. In Vergara v Hammonia (8October 2008) the Court reconciled the
Labour Code provisions with the POEAstandard contract and ruled that the 120 dayperiod for determining degree of disabilitycan be extended to up to 240 days,depending on the circumstances. On asimilar positive note, in Masangkay v TransGlobal (17 October 2008), the Court ruledthat it is the crewmember’s contract thatshould determine any right to compensation.
In this case the 2000 POEA contactspecified that to qualify for compensationillness must be work-related. The claimantfailed to prove this and his disability claimwas denied. Crystal Shipping wasdistinguished on the basis that in that caseit was the degree of disability that was inissue whereas in this case the question waswhether the crewmember’s illness waswork-related or aggravated.
These cases are discussed in greaterdetail in an article written by Jean Patmore([email protected]) for theSteamship Mutual website:
www.simsl.com/Filipino240day1208.html
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Safe Berth – Implied Warranty?Mediterranean Salvage & Towage v SeamarTrading (The “Reborn”) was the hearing ofan appeal to the Commercial Court unders.69 Arbitration Act 1996 on a point of lawarising out of an arbitration award of threevery experienced LMAA arbitrators. Just oneof the four issues identified by arbitratorswas the subject of appeal. That issue wasformulated by Mr Justice Aikens as:
“If a specific load port is named in a voyagecharterparty and there are several possibleberths within that port to which a vesselcould be directed to load by the Charterersand there is no express warranty in thecharterparty for the “safety” of either theport or the berth to which the vessel is tobe directed by the Charterers, is the
charterparty subject to an implied term thatthe Charterers must nominate a “safe”berth at the load port?”
Aikens J held that in the absence of anexpress warranty as to the safety of eitherthe port or any berth nominated within theport, owners must demonstrate thatbusiness efficacy required such a warrantyto be implied into the charter.
However, in the case of The “Reborn” therewas no need to imply a warranty of safety.
The reasoning of the Court is discussedby Domenico Ferrara ([email protected]) and Sian Morris ([email protected]) in an article on the SteamshipMutual website at:www.simsl.com/Reborn1208.html
The Steamship PEME will be more rigorous inorder to detect unfit crew and reduce thepotential for unnecessary claims. The schemeaims to reduce the likelihood that individualswho are medically unfit are given clearanceto serve at sea. The cost of a PEME will rangebetween US$75-US$120 according to age,
and will bepaid by theshipowner ormanningagent in thenormalmanner.
Many of theClub’s recentcrew claimshave involvedunfitcrewmemberswith seriousmedical conditions that should have beendetected had a rigorous PEME beenconducted prior to employment. Vessels havebeen forced to make deviations, incurringsignificant voyage delays which are costly andhighly disruptive, and represent anunnecessary and avoidable loss.
For more information contact RupertHarris ([email protected]), Gary Field([email protected]), Jonathan Andrews([email protected]), or JeanneMaddern ([email protected]),pictured above, who will be Co-ordinator ofthe Club’s PEME scheme.
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Jeanne Maddern
Crew PEME Scheme LaunchedThe Club recently announced itis launching a structured Pre-Employment MedicalExamination (PEME) scheme.The PEME scheme will provideenhanced medical test andscreenings to Members’ crewand forms part of the Club’soverall loss prevention initiative.Initially based in the Philippines and usingonly pre-approved, recommended clinics toconduct the high quality PEMEs, the schemeis designed to ensure that crew are fit toserve at sea and to protect shipowners andthe Club against the risk of unnecessary lossand liability arising from crew illness.
Whilst many crew already undergo medicalscreenings prior to employment, the Clubbelieves that the quality and range of testsconducted can be variable. It is evident fromprior claims experience that it is notuncommon for symptoms of serious illnessto manifest themselves within just a fewdays of a crew member joining a ship, withinevitable and expensive consequences.
Collision Avoidance DVD"Collision Course"
This Loss Prevention DVD, produced bySteamship Mutual with the support of TheShip Safety Trust, aims to raise theawareness of watchkeeping officers of theimportant obligations imposed by Section Iof the COLREGS with the objective ofreducing collision risk for the future.
Further details together with a trailer fromthe DVD can be found on the SteamshipMutual website at:www.simsl.com/CollisionCourse1108.html
2008 Mid Year Review
The Mid Year Review provides an up-to-datepicture of the Club’s progress in the currentfinancial year, covering developments inunderwriting, claims and investments.Members received the Review in December.It can also be found on the website at:www.simsl.com/MidYearReview.html
Circulars
Circulars published on the Steamship Mutualwebsite are available at:www.simsl.com/Club-Circulars.htm
Website ArticlesArticles are published on the SteamshipMutual website on a regular basis. For a full list of the latest articles go to:www.simsl.com/publications-articles.html
In the Club’s centenary year the Managersare pleased to announce that Mr. CarlosJuan Madinabeitia, Mr. Sven Edye, and Mr. Antonia Zacchello, all of whomrepresent longstanding EuropeanMembers of the Club, were appointedDirectors of the Steamship MutualUnderwriting Association (Bermuda) Ltd at the Club’s January Board meeting.
Mr. Madinabeitia is the Managing Directorof Tradewind Tankers (formerly MaritimaAragua). Tradewind Tankers has beenentered with the Club for over 40 years.
Mr. Edye is a Member of the ManagingBoard of Sloman Neptun Schiffahrts-Aktiengesellschaft, and a Managing Partnerof Rob. M. Sloman & Co. oHG. The SlomanNeptun fleet has been a member of theClub for approximately 60 years.
Mr. Zacchello is the Chief Executive officerof Seaarland Shipping Management B.V.and Motia Compagnia di NavigazioneS.p.a. These fleets have been entered in theClub for 32 and 34 years respectively.
New Steamship MutualDirectors
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Recent Publications
As mentioned earlier in thisedition of Sea Venture, a bookto commemorate the Club’scentenary will be published laterthis year. In addition, a websitededicated to this landmark willsoon be launched. The website will feature several sectionsincluding Club history, news & events andpublications. In the history section, inparticular, the aim is to publish a pictorialrecord of the Club by means of an onlinegallery of images. We are looking forinteresting, good quality images of vessels,people and events that have featured in thelife of the Club over the past 100 years. Olddocuments relevant to the Club’s historywould also be welcome.
Any Sea Venture readers who may haveaccess to such images or documents areencouraged to send them to our websiteeditor, Naomi Cohen. Digital images caneither be emailed, or copied to CD andposted. Documents and hard copy imagescan be posted; these will be scanned and canthen be returned (if requested). Please supplyyour contact details and as much informationas possible about the images or documents.
Suitable images will appear on the website during the course of the next fewmonths. They may also be featured in thecentenary book.
Email to:[email protected]
Post to:Naomi CohenSteamship Insurance ManagementServices LimitedAquatical House39 Bell LaneLondon E1 7LU
The centenary website will be live from theend of February at:www.simsl.com/centenary
CentenaryWebsite –Send Us YourPictures!
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