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  • Fraud and Asset Tracing - Third Party Disclosure Order Obtained from HMRC in the Commercial Court - Joseph EnglandView More

    Thu, 21 June, 2018

    XL Insurance Company SE v IPORS Underwriting Limited & Others 

    What happens when an alleged fraudster pays tax on moneys which the claimant alleges are trust moneys belonging to the claimant? Can the claimant seek disclosure from HMRC, including with a view to asserting proprietary claims over the moneys held by HMRC?

    XL Insurance Company SE (“the Claimant”) brought a debt claim for over £4 million against a coverholder for unpaid premiums.  As the premiums received by the coverholder were, under the terms of the agreement, to be held on trust for the Claimant, the Claimant also brought a variety of proprietary and equitable claims against: the coverholder, its sole director and shareholder (“D2”), and another company associated with D2.

    Having obtained numerous freezing and disclosure orders, the Claimant obtained disclosure of D2’s bank statements. These revealed payments to HMRC by D2 which, on the Claimant’s case, were wrongly based on “income” D2 had received, when in fact the moneys received were the Claimant’s trust funds. As a result, on the Claimant’s case, there was no tax due on the Claimant’s trust moneys. The Claimant therefore intimated proprietary claims to those sums, alleging that HMRC had no defence of bona fide purchaser for value, as no “value” had been given.

    The Claimant sought disclosure of D2’s tax records pursuant to the Court’s equitable jurisdiction in tracing claims and pursuant to CPR 31.17. HMRC could not provide disclosure without a Court order, but decided to oppose application on the basis that the disclosure sought was irrelevant to the primary issue of misappropriation and because any tracing could be done post-judgment. However, HMRC then adopted a neutral position by the time of the hearing, save for points over the scope of the order and costs.

    Decision

    HHJ Waksman QC (Sitting as a Judge of the High Court), in an ex tempore judgment, found there to be strong grounds for the broad disclosure sought by the Claimant. He rejected the original basis for objection by HMRC. 

    On the question of costs, the Judge accepted that only in exceptional cases would the Court depart from the general rule in CPR 46.1(2) was that the third party should have its costs, and noted that HMRC was a public body with duties of confidentiality. The Claimant submitted that, in this case, there was reason to depart from that rule due to HMRC’s unreasonable opposition, relying on CPR 46.1(3). The Judge held that the appropriate costs order was for HMRC to have half its costs and the Claimant be allowed to recover those costs (and its own costs of the application) against D2.

    Commentary

    The case raises interesting questions of tracing against innocent third parties/public bodies, including where a claimant asserts that trust moneys belonging to it have been treated as income by a defendant, and whether such moneys can be followed into the hands of HMRC.

    The decision is significant in showing the Court’s ability to make wide disclosure orders in this context in relation to a defendant’s tax affairs rather than, as is more commonly the case, against third party banks. It is also an example of the Court’s exercise of discretion in relation to costs in the context of third party disclosure.

    Joseph England appeared for the Claimant (instructed by Neel Robb of XL Catlin Services SE).

    > LawTel report

    Joseph England 

    Joe practises in a wide range of commercial disputes.

    Joe began his legal career qualifying as a solicitor at Allen & Overy LLP before transferring to the Bar. Joe spent the first year of his practice as the Judicial Assistant to Lord Sumption and Lord Wilson at the Supreme Court. He soon returned as counsel to the Supreme Court in Bank of Cyprus UK Limited v Menelaou [2015] UKSC 66.

    Since starting practice in August 2013, Joe has been engaged, on a near full-time basis, in a major ICC oil and gas arbitration in London and Geneva, and subsequent related litigations, working and appearing with legal teams in Poland, The Netherlands, Ireland, Curaçao, Nigeria, Mauritius, Scotland, the US, London and Switzerland.

    > view Joseph's full profile 

    joseph.england@quadrantchambers.com

  • When “no” is not an option: exercising contractual consents - Emily SaundersonView More

    Tue, 19 June, 2018

    This was first published in Butterworths Journal of International Banking and Financial Law in June 2018. To view a copy click here

    Crowther & Crowther v Arbuthnot Latham & Co Limited [2018] EWHC 504 (Comm) is the latest case to consider a “consent not to be unreasonably withheld” clause in a banking context. The court adopted the same approach as that taken in landlord and tenant cases concerning similar clauses. Emily Saunderson considers the implications for banks seeking to prioritise their own commercial interests when determining contractual consents.

    The thorny issue of contractual discretions has arisen again with Crowther v Arbuthnot, a decision of His Honour Judge Waksman QC handed down in late February. The case raises the question of whether some types of consent clauses confer a true discretion in that they admit of only one right answer in certain circumstances, or whether there will always be a range within which a discretion can be exercised reasonably, including whether conditions can be imposed legitimately on consent.

    Crowther v Arbuthnot turned on whether the defendant bank, which had extended a loan of €5.9m to the claimants, was entitled to withhold its consent to the sale of property upon which the loan was secured. The relevant clause (cl 8.2(d)) provided: 

    “If with the prior approval of the bank (such approval not to be unreasonably withheld or delayed) the property is sold, you shall immediately repay to the bank the net proceeds of sale."

    The claimants received an offer for the property of around €4.1m net of commission and fees, which was in line with market valuations at the time. The bank described it as “an agreeable offer” but refused to approve the sale, relying on cl 8.2(d).

    The bank’s position was that it would only consent if the claimants would provide security in respect of the balance of the loan that would remain otherwise unsecured after the proceeds of sale had been applied, which was around €1.7m. Since the claimants would not agree to provide further security, the bank refused its consent to sell and the sale was lost.

    The claimants said that it was not reasonable for the bank to make its approval of the sale conditional upon the provision of further security and that the bank was in breach of cl 8.2(d). They said, in essence, that the question of reasonableness in this context was to be determined by reference to the proposed sale price of the property: if the proposed sale price was at or above market value and there was no other event that would materially affect the value of the property between the time of the proposed sale and the end of the term of the loan, the bank could not reasonably withhold consent. The claimants sought a declaration to that effect. 

    The bank said that its refusal to approve the sale was reasonable because it was seeking to protect its own commercial interests. If it had extended an unsecured loan to the claimants of €1.7m, it would have charged a higher rate of interest than the interest that was accruing on the facility. Further, the bank said that if the property was sold and the sum outstanding under the facility was thereby reduced, the bank would be receiving interest on a significantly lower principal amount than it would be if part of the loan was not repaid. 

    The judge noted that at the time the security agreement was reached, the property was thought to be worth around €4m, so from the outset, the bank appeared to be under-secured. The judge also found there was no evidence that the property market was considered to be in a slump when the sale of the property was proposed, or that it was considered that the property market would be more buoyant later. 

    The defendant relied on Barclays Bank Plc v Unicredit AG [2014] EWCA Civ 302 where the Court of Appeal considered consent clauses in the early termination provisions of credit guarantees entered into between September and December 2008 under which Unicredit had transferred the credit risk in certain of its assets to Barclays. The lifetime of the guarantees was between 11 and 19 years.
    The provisions in question enabled Unicredit to bring the guarantees to an early end, after a period which the parties expected to be around five years from the date of the agreements, in certain circumstances, two of which required Barclays’ prior consent. Such consent was “to be determined by [Barclays] in a commercially reasonable manner”.

    Unicredit sought a termination in June 2010. Barclays withheld consent on the basis that to terminate the guarantees so early in their term would deprive the bank of a significant proportion of the overall revenue it had bargained for and so cause it material economic detriment. Early termination would also have cost Barclays around €7.45m in closing out its own hedges on the guarantees.

    At first instance, the judge held that Barclays was entitled to take account of its own interests in deciding to withhold consent.

    The Court of Appeal said it was the manner of the determination that had to be commercially reasonable and that it did not follow that the outcome had to be commercially reasonable, although if it was not, that would cause one to look critically at the manner of the determination.

    Longmore LJ said at para 16 of the judgment that Barclays was entitled to take account of its own interest in preference to that of Unicredit because “any commercial man whose consent to a course of action is required but to whom the determination (whether to give that consent) is entrusted would think it commercially reasonable to have primary regard to his own commercial interests”. The Court of Appeal held that Barclays had reasonably withheld consent to an early termination.

    In Crowther, HHJ Waksman QC said Longmore LJ had applied a Wednesbury unreasonableness test (AP Picture Houses v Wednesbury Corporation [1947] 1 KB 223), which he noted would probably today be regarded as a form of “Braganza duty” (see Braganza v BP Shipping Ltd [2015] UKSC 17). HHJ Waksman QC said it was  a test of rationality rather than a common law, reasonable man test.

    In Crowther v Arbuthnot, the bank argued that it could act in its own commercial interests in respect of giving consent and so, for example, seek a way to recoup the interest it would have earned had the property not been sold and had interest remained payable on the whole €5.9m. HHJ Waksman QC disagreed. He said there was no basis for a Wednesbury reasonableness test in this case; it was a different clause and the reasonable man test applied.

    HHJ Waksman QC preferred the analysis of a similar clause in Straudley Investments Limited v Mount Eden Land Limited (1997) 74 P&CR 306 (wrongly referred to in the judgment as Mount Eden Land Limited v Bolsover Investment Limited [2014] EWHC 3523), a landlord and tenant case. Straudley was the tenant under a long lease in a building owned by Mount Eden. The headlease provided as follows: 

     “The Lessee will not underlet  or  part with or share possession or occupation of the Premises or any part of parts thereof without the previous consent in  writing of the Lessor such consent not to be unreasonably withheld or delayed.”

    Straudley sought the consent of Mount Eden for a sublease to a new tenant. Mount Eden would only give consent on condition that it would hold half of the rental deposit to be paid by the tenant. Straudley said the condition was unreasonable and the new sublease did not proceed. Straudley succeeded in its claim for a declaration that Mount Eden had unreasonably withheld consent. Mount Eden appealed.

    In the Court of Appeal, Phillips LJ noted that from authorities about assigning a lease, it appeared that the purpose of a covenant against assignment without landlord consent was to protect the landlord from having his premises used or occupied in an undesirable way or by an undesirable tenant. A corollary was that a landlord was not entitled to refuse consent on grounds which had nothing to do with the relationship of landlord and tenant, such as where the refusal was designed to achieve a collateral purpose unconnected with the terms of the lease.

    Phillips LJ said that it was not necessary for a landlord to prove that the conclusions which led to his refusal of consent were justified, they just had to be conclusions that might be reached by a reasonable man in the circumstances, as per Pimms Limited v Tallow Chandlers Company [1964] 2 QB 547 at 564.

    Phillips LJ also said that it would normally be reasonable for a landlord to refuse consent or to impose a condition if it was necessary to prevent his contractual rights from being prejudiced, and that it would not normally be reasonable for a landlord to seek to impose a condition which was designed to enhance the rights he already had.

    The Court of Appeal held that Mount Eden’s proposed condition was an illegitimate attempt to improve its position under the headlease and that it was unreasonable.

    Applying similar reasoning, HHJ Waksman QC in Crowther v Arbuthnot decided that the bank had unreasonably withheld consent to the sale of the property. He said it was hard to see why the scope of the clause should go further than a concern of permitting disposal of the property at a proper price, and that the bank’s reason for refusing consent to the sale had no connection with the aim of getting a sale at a proper value.

    The wording of the relevant clause in Straudley was closer to that in Crowther than the clause in Barclays Bank v Unicredit, but the decision in Crowther does not necessarily mean that in a similar case with a similar clause, it would always be unreasonable for a bank to impose conditions on its consent. For example, it may be reasonable in certain circumstances for a bank to make its consent dependent upon the customer obtaining an independent valuation before it agreed a sale of security.

    The question of when or whether it is reasonable to withhold consent will naturally depend on the precise terms of the clause, the factual background, and the reasons given for withholding consent. Crowther v Arbuthnot simply illustrates that there is sometimes a fine line between a bank seeking to exercise a discretion so as to protect its existing commercial rights and interests and a bank seeking to exercise a discretion so as to improve its position improperly.

    Robert-Jan Temmink QC of Quadrant Chambers appeared for the Crowthers before HHJ Waksman QC and the bank’s application for permission to appeal was refused.  

    Emily Saunderson

    Emily is a general commercial practitioner specialising in commercial fraud, and banking and finance. She has broad experience in obtaining urgent injunctive relief including freezing orders, asset preservation orders and delivery up orders.

    Emily is ranked in the latest edition of Chambers & Partners in commercial dispute resolution and she is recommended as a leading junior in banking and finance and financial services by the Legal 500, where she is described as “technically outstanding, with a very sound grasp of copious quantities of fine detail.”

    "Emily is a very solid junior, who is very conscientious and careful. She is diligent and committed." - Chambers & Partners UK Bar 2018

    ‘Technically outstanding, with a very sound grasp of copious quantities of fine detail.’ - Legal 500 UK 2017

    ‘Incredibly hardworking.’ - Legal 500 UK 2017

    “She is plainly an extremely accomplished and high-flying junior.” - Legal 500 UK 2016

    > view Emily's full profile

    emily.saunderson@quadrantchambers.com

  • Hague Rules Time Limit Applies to Misdelivery Claims - Nevil Phillips and Tom BirdView More

    Fri, 15 June, 2018

    Deep Sea Maritime Ltd v Monjasa A/S (The Alhani) [2018] EWHC 1495 (Comm)

    In a judgment given on 15 June 2018, David Foxton QC (sitting as a Deputy Judge of the High Court) held that the time bar created by Article III Rule 6 of the Hague Rules applies to misdelivery claims where a shipowner has delivered the cargo to a third party without production of the bill of lading.

    * download PDF print version here. 

    The facts

    The claimant shipowners sought a declaration that they were not liable to the defendant (“Monjasa”) as regards Monjasa’s claims under or in relation to a bill of lading under which the cargo in question was carried. The bill incorporated the Hague Rules (which took effect as a matter of contract) as well as an exclusive jurisdiction clause in favour of the English High Court

    On 18 November 2011 the owners discharged the cargo onto another vessel by ship-to-ship transfer without production of the bill. The discharge and delivery of the cargo occurred simultaneously.

    Monjasa subsequently brought actions in multiple forums against the owners, including in Tunisia, where Monjasa had arrested the vessel in April 2012 and advanced a claim on the merits. Those proceedings had been dismissed for want of jurisdiction in July 2015 but were the subject of an outstanding appeal.

    The owners applied for summary judgment on their claim for a negative declaration on the ground that Monjasa’s claims had been extinguished pursuant to Article III Rule 6 of the Hague Rules, which provides:

    In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.”

    The issues

    As the judge noted, this case raised two important issues in relation to the law of carriage of goods by sea.

    The first was whether the time bar created by Article III Rule 6 of the Hague Rules applies to claims for wrongful delivery, where the shipowner has delivered the cargo to a third party without production of the bill of lading.

    The second was whether the requirement in Article III Rule 6 that “suit is brought within one year after delivery of the goods or the date when the goods should have been delivered” can ever be satisfied if proceedings are commenced in the courts of one country, when the bill of lading incorporates a clause from a charterparty giving exclusive jurisdiction to the courts of another country.

    The decision

    On the first issue, the judge held that Hague Rules time limit did apply to misdelivery claims. In summary, he found that:

    1. Approached purely by reference to its language and purpose, Article III Rule 6 was capable of applying to misdelivery claims. The words “in any event” and “all liability” are wide and the object of finality (which the time limit was intended to achieve) would be “seriously undermined if the Rule did not apply to misdelivery claims” (para. 48).
    1. Article III Rule 6 was not limited in its application to breaches of the Hague Rules obligations (though even if it were, the misdelivery claim in the present case was capable of being pleaded, and had in fact been pleaded, as a breach of the Hague Rules). The time limit applies to breaches of the shipowner’s obligations which “occur during the period of Hague Rules responsibility” and which have a “sufficient nexus with identifiable goods carried or to be carried” (para. 65).
    1. There was no “settled understanding” that Article III Rule 6 does not apply to misdelivery claims.

    Accordingly, he concluded that the Article III Rule 6 time limit applies to misdelivery claims, at least where the misdelivery occurs during the period of the Hague Rules period of responsibility.

    As regards the second issue, the judge considered the question of what the effect of bringing suit in one set of proceedings had on the application of the Article III Rule 6 time bar in another set of proceedings.

    He held that if the first proceedings are brought in a particular court in breach of an agreement to bring claims in another forum, then, save perhaps in exceptional circumstances, they will not constitute proceedings before a competent court.  Monjasa could not rely on the Tunisian proceedings as the bringing of suit because they had been brought in breach of the exclusive jurisdiction clause in favour of the English courts.

    Discussion

    This is an important decision on the scope of the Article III Rule 6 time bar and resolves an issue which has long been the subject of divergent views – whether the time limit applies to misdelivery claims.

    It is submitted that the result would have been no different had the Hague-Visby Rules been incorporated into the bill of lading: the language of the Hague-Visby Rules time bar is, if anything, even more emphatic, providing that the carrier and the ship shall “in any event be discharged from all liability whatsoever in respect of the goods”.

    One question that remains open, however, is whether the Hague Rules time limit applies to wrongful delivery which occurs after the discharge of the cargo from the vessel, as when a container is discharged onto the quayside and delivered some weeks later. That issue will have to be determined in another case. 

    Nevil Phillips and Tom Bird acted for the successful claimant, instructed by Ian Short and Trudy Pisani-Cerulli of Campbell Johnston Clark.

    A copy of the judgment can be found here

    Nevil Phillips

    Nevil Phillips is among the most highly-regarded advocates at the Commercial Bar. He has consistently been listed for many years as a first-ranked Leading Junior in Shipping, Commodities, and Trade & Customs by The Legal 500, Legal 500 Asia Pacific, Chambers UK, Chambers Global, Who's Who Legal, and Best Lawyers where he has been variously cited as:

    “Absolutely top-notch”

    “User-friendly, innovative, proactive, and the best advocate money can buy.”

     "Excellent. Extremely approachable and very bright"

    "an outstanding advocate, incredibly fast thinking and a real problem solver"

    "a very polished advocate, who gets results through his preparation and through his clear and compelling presentation of the client's case".

    Nevil was the winner of the Chambers & Partners UK Bar Award for Shipping Junior of the Year 2017, was shortlisted for that award in 2016 and was shortlisted for the Legal 500 award for the Leading Shipping Junior of 2017, and was Acquisition International's "Best Shipping Barrister – UK" in their 2015 Legal Awards.

    > view Nevil's full profile

    nevil.phillips@quadrantchambers.com

    Tom Bird

    Tom Bird has a broad commercial practice with a focus on shipping, commodities, aviation, insurance and reinsurance. Chambers UK recommends him as “a rising star ... He's responsive, accessible, bright, tenacious, and user-friendly."

    Tom has represented clients in the High Court, Court of Appeal and Supreme Court. He is equally at home in arbitration. His significant cases include appeals to the Supreme Court in The DC Merwestone – a marine insurance dispute concerning the fraudulent device doctrine – and Stott v Thomas Cook, the leading case on the exclusivity of the Montreal Convention and its relation to EU law.

    Tom is recommended as a leading junior barrister in Chambers & Partners UK Bar and the Legal 500.

    ..."He is really going places." "He is a pleasure to work with and very responsive."... (Chambers UK, 2018)

    ..."‘He is very responsive and commercial in his approach, which is appreciated by clients"... (Legal 500, 2017)

    "Tom is a rising star. He's responsive, accessible, bright, tenacious, and user-friendly." (Chambers UK 2017)

    "Very commercial" (Legal 500, 2016)

    ..."One to watch ... He's bright, he's user-friendly, he's accessible and he has good judgement."... (Chambers UK 2016)

    > view Tom's full profile

    tom.bird@quadrantchambers.com

  • Matthew Reeve appointed Pro Bono ChampionView More

    Tue, 05 June, 2018

    Matthew Reeve has been appointed Quadrant Chambers' Pro Bono Champion. This new initiative with the Bar Pro Bono Unit is to re-engage the bar and to encourage them to take on not-for-profit work. 

  • Quadrant Chambers welcomes international arbitration specialist Brandon MaloneView More

    Wed, 30 May, 2018

    Quadrant Chambers is pleased to welcome international arbitration specialist Brandon Malone as an associate member of Chambers. Brandon has over 25 years’ experience in commercial dispute resolution as arbitrator and counsel, specialising in construction, engineering, infrastructure, and energy, including oil and gas and renewables, and international trade law.

    I am absolutely delighted to be joining Quadrant Chambers as an Associate. Quadrant has a formidable reputation in the commercial sphere, and it is a set that I have long admired. I am very much looking forward to working with Quadrant and enjoying the support of its excellent clerks in my international arbitration practice.” Brandon Malone

    We are very pleased to welcome Brandon Malone to Quadrant Chambers. His reputation in international arbitration as counsel and arbitrator is outstanding and his areas of specialism, particularly his work within the energy field compliments the strengths at Quadrant Chambers.” Luke Parsons QC, Head of Quadrant Chambers

    Brandon was the architect of the Scottish Arbitration Centre and has served as its Chairman since its inception in 2011.  He is a Co-Director of the International Centre for Energy Arbitration.

    Brandon chairs the ICCA/NYC Bar/CPR Working Group on Cybersecurity in International Arbitration, and is the Congress Chair for the XXVth ICCA Congress to be held in Edinburgh in May 2020.

    Quadrant Chambers holds a pre-eminent position as a leading international commercial disputes set with a strong sector driven approach. We are market leaders with a reputation for excellence in our areas of focus: aviation and travel, banking and financial services, commercial disputes, commodities and international trade, energy and natural resources, insurance and reinsurance, international commercial arbitration and shipping.

  • Relief from Sanctions granted to a Foreign State to resist enforcement of an Arbitration AwardView More

    Tue, 22 May, 2018

    Joseph England (led by David Wolfson QC and Nehali Shah) appeared for the successful applicant, a foreign government, in obtaining relief from sanctions/a retrospective extension of time. This was in relation to the late filing (by 13 business days) of an acknowledgement of service and application to set aside (pursuant to s.103(2) of the Arbitration Act 1996) an order permitting enforcement of an award against the foreign state’s commercial assets within England and Wales for around £70 million. Service was governed by CPR 6.44 and the provisions of the State Immunity Act 1978 such that the foreign state had 2 months and 23 days from the date of service on the equivalent of its Foreign Ministry to respond to the claim.

    In an ex tempore judgment, Mrs Justice Moulder DBE held that the principles in Denton v TH White Ltd [2014] EWCA Civ 906 applied in this context, and that the breach was not significant or serious. She held that, although the applicant had no good reason for the delay, the lateness arose from a bona fide error and had no material adverse effect on the proceedings. An analysis of the decision can be found on Westlaw here.

    Joseph England

    Joe practises in a wide range of commercial disputes.

    Joe began his legal career qualifying as a solicitor at Allen & Overy LLP before transferring to the Bar. Joe spent the first year of his practice as the Judicial Assistant to Lord Sumption and Lord Wilson at the Supreme Court. He soon returned as counsel to the Supreme Court in Bank of Cyprus UK Limited v Menelaou [2015] UKSC 66.

    Since starting practice in August 2013, Joe has been engaged, on a near full-time basis, in a major ICC oil and gas arbitration in London and Geneva, and subsequent related litigations, working and appearing with legal teams in Poland, The Netherlands, Ireland, Curaçao, Nigeria, Mauritius, Scotland, the US, London and Switzerland.

    > view Joe's full profile

  • Arbitral Appeals under s.69…No Second Bites? - Simon Rainey QC and Peter StevensonView More

    Thu, 17 May, 2018

    Agile Holdings Corporation v Essar Shipping Ltd [2018] EWHC 1055 (Comm)

    Overview: second bites at s.69(3)?

    The English statutory regime for appeals against arbitration awards on questions of law under s.69 of the Arbitration Act 1996, as is well known, applies a two stage process: (i) the application of permission to appeal and, (ii), if permission is granted the appeal itself.

    Section 69(3) sets out the matters on which the Court is required to be satisfied as pre-conditions for granting permission to appeal. Where a party unsuccessfully resists permission on the basis that some or all of the requirements are not met, can it nevertheless reargue the point or points all over again on the appeal proper? 

    The position and the few cases in this area were recently considered by the Commercial Court in Agile Holdings Corporation v Essar Shipping Ltd [2018] EWHC 1055 (Comm).

    The answer is: “it depends”.

    How the issue arose

    The claimant sought permission to appeal against an arbitration award on a question of law arising from the Award. The defendant opposed permission on various grounds including a submission that the tribunal had not been asked to decide the relevant question (and therefore that the threshold requirements of s.69(3) of the Arbitration Act were not met). It was contended that the argument now being sought to be run had never been argued in that way before the arbitrators. The claimant disputed that and put in evidence of the written submissions and the transcript of the oral submission. The Judge granted permission, rejected the submission and held that the point had been argued. He refused an application by the defendant for an oral hearing on the point.

    On the full appeal, the defendant sought to re-open the issue and re-argue its original submission.

    The Commercial Court’s decision

    The Judge (HHJ Waksman QC, sitting as a deputy Judge of the High Court) allowed the appeal in full. On the s69(3)(c) point, he held that:

    (i) the exercise undertaken by the judge granting leave to appeal involves a detailed consideration of the threshold questions;

    (ii) once leave has been granted, there is every reason to move onto the merits of the question without the distraction of re-litigating tangential points which have already been decided;

    (iii) a party cannot resist the appeal on the basis that the threshold requirements of s.69(3)(a) and (d) are not met. Those issues arise exclusively at the leave stage and the decision of the judge at that stage is final;

    (iv) the position is different in respect of the requirements of s.69(3)(c) because, whether a point was put to the tribunal is tied to the issue of whether there is a question of law arising out of the award at all;

    (v) however, while the Court hearing the appeal may not be bound as to whether the question arises from the award, it should give considerable weight to the decision of the judge granting leave.

    Simon Rainey QC, leading Peter Stevenson, represented the successful appellant.

    The Detailed Reasoning of the Court

    The defendant submitted that the Court did not have jurisdiction to entertain an appeal because the threshold requirements of s.69(3) were not met.

    In support of that proposition it relied upon two authorities: Motor Image v SCDA Architects [2011] SGCA 58, a decision of the Court of Appeal of Singapore, and The Ocean Crown [2010] 1 Lloyd’s Rep. 468 a decision of Gross J (as he was).

    (1) In Motor Image v SCDA Architects, the Singaporean court considered identical appeal provisions in s.49 of the Singapore Arbitration Act 2002. The judge at first instance (Prakash J., as she was) had granted permission to appeal a question of law under those provisions. When the same judge heard the appeal she decided that the question did not arise on the facts as decided by the tribunal. She took the view that as a result the appeal should be dismissed. The Court of Appeal agreed. It held that this sort of point could be reargued on appeal because it went to the very jurisdiction of the court to hear the appeal in the first place. In other words, the grant of leave was a finding that the court had the relevant jurisdiction. So if on further analysis, one of the threshold conditions was not made out, the court was actually deprived of jurisdiction and could not hear the appeal.

    HHJ Waksman QC rejected that analysis. He held that once leave has been granted, the question of whether the Court has jurisdiction to determine the appeal has been determined. Subject to any challenge to that decision, the Court has jurisdiction to determine the appeal. The effect of this finding is that it is not open to a party to meet an appeal under s.69 by re-arguing points which relate exclusively to the threshold requirements for permission. Specifically the Judge held that a party cannot re-argue (i) that the determination of the question will not substantially affect the rights of the parties (s.69(3(a)); or (ii) that it is not just and proper for the court to determine the question (s.69(3)(d)).

    (2) The decision The Ocean Crown was of a different nature. In that case there were three separate questions of law for appeal for which permission had been granted. The third question involved the allegation by the appellant that the tribunal had sought to restrict the ambit of a well-known legal principle concerning salvage remuneration and had thereby committed an error of law. The respondent argued that the tribunal had done no such thing but was merely dealing with how that principle was to be applied on the particular facts of the case. On that analysis there was no error of law at all.

    Gross J. held that, in determining whether a question of law arises out of the award (a pre-requisite of allowing an appeal) the court is not bound by the decision of the judge granting leave.

    As HHJ Waksman QC noted, Gross J’s decision not concerned with the threshold requirements of s.69(3) of the Act. It is concerned with whether s.69 is engaged at all: s.69 only permits appeals on questions of law arising from an award (s.69(1)). The Judge described this as ‘the Law Question’ which he distinguished from the issue of whether the question of law was actually put to the tribunal (which he described as ‘the Determination Question’).

    However, although not addressing the point head on, the Judge appears to have accepted that the Determination Question is connected to the Law Question and is therefore not merely a threshold requirement for obtaining leave, but may also be considered as part of the substantive appeal.

    Having drawn this distinction the Judge held that he was not prohibited from reconsidering whether the question of law raised in the appeal was one that the tribunal had been asked to determine. But he emphasised that the Court should give ‘considerable weight’ to the decision of the judge granting leave to appeal, particularly if (i) the decision was made after an oral hearing; and/or (ii) the materials before the judge granting permission are the same or substantially the same as those before the appeal court.

    Adopting that approach the Judge reviewed the material advanced by the defendant and held that he was in no doubt that the question of law was one that the tribunal had been asked to determine.

    Conclusions

    The decision of the Judge is helpful in three respects.

    First, it clarifies that the decision of the judge granting permission to appeal is final and determinative of that issue. It is not open to a party to meet an appeal by arguing that the threshold requirements for leave to appeal were not met and leave should not have been granted. In that respect it drew a clear distinction between the position under English law and the approach taken by the Singaporean Court of Appeal in Motor Image v SCDA Architects.

    Second, it confirms that when determining whether the question of law arises from the award, the Court hearing the appeal is not bound by the decision to grant leave and, as part of that process, can reconsider whether the question was one that the tribunal was asked to determined.

    Third, it provides clear guidance as to the weight that should be given to the decision of the judge granting leave to appeal. If the judge granting leave considered the issue and had the same material before him/her, ‘very considerable weight’ should be given to the original decision.

    It is to be hoped that this robust approach discourages defendants who are unsuccessful at the permission stage from re-opening such points thereby rendering the s.69 process more time-consuming and more costly.

    > click to download a copy of the judgment

    Simon Rainey QC

    Simon Rainey QC is one of the best-known and most highly regarded practitioners at the Commercial Bar with a high reputation for his intellect, advocacy skills, commercial pragmatism and commitment to client care. He has established a broad commercial advisory and advocacy practice spanning substantial commercial contractual disputes, international trade and commodities, energy and natural resources, insurance and reinsurance shipping and maritime law in all its aspects,. He appears in the Commercial Court and Court of Appeal and also the Supreme Court (with two recent landmark victories in NYK v Cargill [2016] UKSC 20 and Bunge SA v Nidera SA [2015] UKSC 43.) He regularly handles Arbitration Act 1996 challenges.

    He has extensive experience of international arbitration, regularly appearing as advocate under all of the main international arbitral rules (LCIA; SIAC, UNCITRAL; ICC, Swiss Rules etc) and also sitting as arbitrator.

    Current examples of his work as counsel are in arbitration before the Permanent Court of Arbitration in a US 13billion gas supply dispute; under Nigerian Law and seat in relation to an offshore oilfield redetermination dispute between oil majors, under UNCITRAL Rules in a mining supply take or pay dispute involving one of the world’s leading mine conglomerates; an ICC arbitration concerning a new mine development in Russia and an ICC Dubai seat arbitration involving specialist offshore vessels and in associated s67 and s68 LCIA challenges in the A v B [2017] EWHC 3417 (Comm) litigation in the4 Commercial Court. Recent arbitral appointments include an ICC Paris seat arbitration concerning a power station failure, a French law and seat arbitration relating to an oil rig drilling contract, an offshore construction contract claim under SIAC Rules and a long-term ore supply contract claim under Swiss Rules.

    He is highly ranked by Chambers and Partners and Legal 500 as a first division international arbitration specialist (“Highly regarded for his expertise in handling high-profile international arbitrations in connection with complex oil and gas, banking and finance and trade issues. He is well known for his prowess in advising and representing clients in disputes in countries as far flung as Turkey, Russia, the USA, China and India” 2018; “Incredibly good, with a particular skill in reducing the complicated to the elegantly simple, which when you're trying to present a case to a tribunal or court is one of the more valuable things you need to have” 2018; “Clearly now one of the top commercial silks and a delight to work with.” 2018; “A mixture of brilliance and brevity, his written submissions are like poetry” 2018), He was nominated for “International Arbitration Silk of the Year 2017” by Legal 500 and has also been awarded “Shipping & Commodities Silk of the Year” 2017 by both Chambers & Partners and Legal 500.

    He sits as a deputy High Court Judge in the Commercial Court and is Honorary Professor of Law, Business and Economics, University of Swansea.

    simon.rainey@quadrantchambers.com

    > view Simon's full profile

    Peter Stevenson

    Peter has a broad commercial practice with a particular emphasis on shipping, marine insurance, private international law, insolvency law and commercial injunctions.

    He is recommended as a leading junior in The Legal 500 and in Chambers & Partners UK in which he is variously described as ‘bright and punchy on his feet.’  ‘savvy, quick and sharp’, ‘someone who can turn things around very quickly” and ”very good at getting to the nub of the issue."

    Peter regularly appears in the High Court and has been led in a number of significant appellate cases both in the Court of Appeal and the Supreme Court including The Alexandros T  [2014] 1 Lloyd's Rep. 223, Star Reefers v JFC [2012] 1 C.L.C. 294 and The Cendor Mopu [2011] UKSC 5.

    "...Gives clear, no-nonsense advice."... "A very bright and astute barrister who thinks a couple of moves ahead of the opponents..." (Chambers UK, 2018)

    "...very commercial and very responsive, he really gets to the nub of things..." "...he is good when we are struggling, he comes up with good ideas..." (Chambers UK, 2017)

    peter.stevenson@quadrantchambers.com

    > view Peter's full profile

  • Insurance Legal focus: fraudulent documents and policies on goods - Luke Parsons QC and Ben GardnerView More

    Wed, 16 May, 2018

    This article was first published in Insurance Day on 10 May 2018. 

    Engelhart CTP (US) LLC v Lloyd’s Syndicate 1221 [2018] EWHC 900 (Comm)

    The Commercial Court provides a timely reminder that an insurance policy on goods will only cover physical loss and damage unless clear words are used to extend cover.

    The facts of the case

    In Engelhart CTP (US) LLC v Lloyd’s Syndicate 1221 [2018] EWHC 900 (Comm), the Court was asked to consider the proper meaning of an ‘all risks’ marine cargo carriage and storage policy.  The Insured claimed that they had suffered losses when containers believed to contain a shipment of 2,000 MT of copper ingots turned out to contain only slag.  Although the circumstances in which only slag came to be in the containers was not agreed between the Insured and the Insurers, the parties agreed certain facts on which the Court was asked to decide the construction of the policy under CPR Part 8.  The assumed facts were that no cargo of copper ingots ever existed and the Insured suffered loss because it paid for and accepted fraudulent bills of lading under a CIF sale contract in the mistaken belief that the bills of lading were genuine.

    The policy was very broad and reflected the Insured’s status as a large trading group dealing in a range of goods including oil products, coffee, sugar, metals and vegetable oils.  The Insurers provided cover on Institute Cargo Clauses ‘all risks’ terms with a series of bespoke clauses widening the coverage, including the following two clauses:

    Container Clause.  It is agreed that this Insurance contract is also to pay for shortage of contents (meaning thereby the difference between the number of packages as per shippers and/or suppliers invoice and/or packing list loaded or alleged to have been laden in the container and/or trailer and/or vehicle load and the count of packages removed therefrom by the Assured and / or their agent at time of container emptying) notwithstanding that seals may appear intact, and/or any other loss and/or damage including but not limited to cargo and/or container sweat howsoever arising.

    Fraudulent Documents Clause.  This insurance contract covers physical loss of or damage to goods and/or merchandise insured hereunder through the acceptance by the Assured and/or Shippers of fraudulent documents of title, including but not limited to Bill(s) of Lading and/or Shipping Receipt(s) and/or Messenger Receipt(s) and/or shipping documents and/or Warehouse Receipts and/or other document(s) of title.”

    The Court’s decision

    The Insured argued that the policy extended to cover paper losses.  The Insured also contended it could bring itself within these clauses to recover its losses resulting from the acceptance of fraudulent bills of lading.  In particular, the Container Clause defined shortage of contents to include paper losses resulting from a difference between the packages alleged to be loaded and the packages actually discharged and provided for cover in the case of loss resulting from fraudulent shipping documents.

    The case came before Sir Ross Cranston in the Commercial Court, who noted that policies on goods ordinarily covered only physical loss, whereas the loss complained of here was a paper loss because “something must exist to be physically lost”.  Following Coven SpA v Hong Kong Insurance Co [1999] Lloyd’s Rep. IR 564, the Judge held that clear words were necessary to extend a policy on goods to cover paper losses and that there were no such words in the policy.

    The two clauses principally relied upon by the Insured did not have that effect.  The Container Clause was concerned with a shortage of contents, which ordinarily meant a difference between what was loaded and what was discharged.  The words in brackets were subsidiary and did not transform the cover into one for paper losses.  The Fraudulent Documents Clause did not apply either.  The Insured’s argument faced what the Judge considered to be an insuperable difficulty that only physical loss was covered and, on the agreed facts, the Insured had not suffered any physical losses.

    Implications of the Court’s decision

    The decision in Engelhart is a timely reminder that a policy on goods will only respond to physical loss or damage to the subject matter insured unless the parties clearly express their intention to cover financial losses that do not result from physical loss or damage.

    The Court will take a narrow view of ‘physical loss’.  The Judge disagreed with the Insured’s argument that it had suffered a physical loss in this case because it had paid for documents of title containing fraudulent statements, but received no goods.  Physical loss meant that the goods previously existed and no longer existed.  Therefore the rule is not limited to fraudulent documents and will apply equally to measurement errors and other innocent mistakes in paperwork.

    The decision also shows that it will not be good enough for the insured to argue that the intent behind the policy was to give very broad coverage.  The policy was on ‘all risks’ terms and extended cover in a range of ways so that the Insured could rightly argue that there were very wide terms to cover losses that were fortuitous.  Even in that context, the starting point is that losses flowing from the acceptance of inaccurate or fraudulent documents will not be covered by a policy on goods, even though a genuine and often (as in this case) substantial financial loss has been suffered.

    This was a marine cargo insurance policy.  However, there is no reason to think that the Court’s approach in Engelhart and the earlier case of Coven is limited to marine insurance.  The assumption is that polices covering goods are not intended to cover the financial consequences of the goods not existing unless this is spelled out by the parties.  That assumption holds good for non-marine insurance as it does to marine insurance.  This can be seen, for example, in Outokumpu Stainless Ltd v AXA Global Risks (UK) Ltd, where the financial consequences of disposing of radioactive slag was not covered by an ‘all risks’ policy in respect of a steelworks.

    Therefore this case provides an opportunity for parties to revisit policies on goods to see whether the broad coverage provided by ‘all risks’ terms covers financial losses resulting from the acceptance of fraudulent documents, measurement errors and other mistakes in documents.  In the absence of clear words, they are unlikely to do so.

    Luke Parsons QC and Ben Gardner of Quadrant Chambers acted on behalf of the insurers, instructed by Mark Lloyd and Andrew Yarwood, Kennedys Law LLP.

    Luke Parsons QC

    Luke is Head of Quadrant Chambers and a Commercial and Admiralty silk whose practice encompasses insurance and reinsurance, international trade, energy, sale of goods, banking, commercial contracts, and shipping. Shipping Silk of the Year at the Chambers UK Bar Awards, 2014, Luke is ranked by Chambers UK. Legal 500 UK, Chambers Global and the Legal 500 Asia Pacific legal directories. He has been described by the directories as: “"...Luke Parsons is exceptional. He is very commercially minded and will go the extra mile." Chambers UK 2018 and "...he's charming but at the same time incisive. He really drills down to the bottom of points...”; "...exceptionally bright and very good on his feet. He is a master of getting the tone and the content of his delivery just right no matter the audience..." Chambers UK 2017.

    Luke is often called in to handle the highest value, most complex claims, involving coordinating large teams of experts and has acted on many precedent-setting cases in the High Court, and Court of Appeal.

    Given the frequently international dimension of his practice, Luke has extensive experience in dealing with foreign law and multi-jurisdictional disputes.  In particular he frequently acts in arbitrations with a cross-border element and is experienced in making applications to the High Court in support of English arbitrations and also in support of foreign arbitrations in the English courts and advises on the enforcement of awards under the New York Convention.

    Before coming to the Bar, Luke worked with a firm of international Lloyd’s brokers and then with a multi-national underwriting company. This experience in the London and International Markets assists with his practical and commercial approach to disputes whilst maintaining the intellectual rigour for which he is well-known.

    luke.parsons@quadrantchambers.com

    > view Luke's full profile

    Ben Gardner

    Ben practises primarily in shipping, commodities and international trade, energy, insurance and conflict of laws, within a broad commercial practice.  He is recommended as a leading junior by Chambers & Partners and the Legal 500 for his shipping and commodities work, where he is described as "Very clever and a very good advocate", "An excellent barrister, who is precise, commercial and practical in his focus and forceful and effective in his arguments", "very impressive", "A super-bright guy who is very accessible and easy to work with", "a great junior counsel and very user-friendly" and "mature beyond his years" .

    Ben often appears in the High Court and in the Court of Appeal, as sole counsel and as part of a counsel team.  He has also appeared in the Supreme Court twice and acted on a number of recent, important cases including Fulton v Globalia (The New Flamenco) [2017] 1 WLR 2581 (SC); Stemcor UK v Global Steel Holdings Containerships Denizcilik v Shipowners' Mutual (The Yusuf Cepnioglu) (SC) (2017); Versloot Dredging v HDI Gerling (The DC Merwestone) [2017] AC 1 (SC); Yemgas v Superior Pescadores (The Superior Pescadores) [2016] All ER (Comm) 104 (CA); South West SHA v Bay Island Voyages (The Celtic Pioneer) [2015] Lloyd’s Rep. 652 (CA) and MOL v Salgaocar [2015] 2 Lloyd's Rep. 518.

    ben.gardner@quadrantchambers.com

    > view Ben's full profile

  • Who should pay for serious irregularities in international arbitration? - Robert-Jan Temmink QCView More

    Tue, 15 May, 2018

    This blog was first published by Practical Law Arbitration on 4 May 2019 to view a copy click here.

    The case of P v D, X & Y, heard in November 2017 but only recently published, concerned an application under section 68(2)(d) of the English Arbitration Act 1996 (AA 1996) in which P, the claimant in a London Court of International Arbitration (LCIA) arbitration, claimed that the failure of the tribunal to deal with an issue in the arbitral reference was a serious irregularity which had resulted in substantial injustice to the claimant, justifying remission of the award to the tribunal.

    A question then arises: who should pay for the substantial injustice caused by the tribunal’s failure to consider a claim properly before it? The application before the Commercial Court had resulted in C being granted the relief it had sought. That application had been opposed by D2, although D2 failed to attend the hearing. D1 had attended the hearing but had played no active part in it and D1 stated that it was “neutral” as regards the merits of the application. The court ordered D2 to pay C’s costs of the section 68 application on well-established principles that the unsuccessful opponent of an application should pay the successful party’s costs.

    Moving away from this case, and considering these rare situations more generally, what further costs might then be incurred? First, there are the costs involved in enforcing the costs order in the Commercial Court. Those costs ought, in principle, to be recoverable from the paying party. Secondly, having remitted the matter to the tribunal, most arbitral institutions will ask for a deposit against further fees of the tribunal. Thirdly, if the tribunal’s papers have been destroyed, a new bundle of documents for each arbitrator will have to be produced. The tribunal will have to reconstitute itself and will need to spend time considering the issue it missed, considering submissions and producing a fresh award on the remitted issue, or issues. On the one hand, the tribunal might expect to be paid for that additional work. On the other, it could surely properly be argued that the only reason there is any additional work is because the tribunal erroneously, and seriously, failed to deal with the issue or issues in the first place? In those circumstances, why should the party the court has found has suffered substantial injustice pay any further costs for the serious irregularity perpetrated by the tribunal?

    Is it fair for the tribunal, or the arbitral institution to ask for further fees in those circumstances? Whilst the tribunal might fairly say that it could have added something to the costs in the original reference to consider a point which was before it and which should have been then considered, such costs would most likely have been very modest whilst the tribunal was already seized of the matter and whilst it was considering all of the issues.

    Almost inevitably, by the time an article 27 (LCIA Rules) challenge has been made and considered, and a section 68 application made, heard and determined, a substantial amount of time is likely to have passed. Indeed, in P v D, the Phase 2 award, which was found to be subject to a serious irregularity, was dated 11 January 2017. An article 27 application was made to the tribunal within the time limit specified in the LCIA Rules. The dismissal of the article 27 application by the tribunal followed relatively shortly thereafter. The judgment in the Commercial Court which determined the section 68 application was handed down, on the day of the hearing, on 28 November 2017. That timetable is not surprising and is unlikely to be atypical. In those circumstances, it will surely take the tribunal members some time to read back into the case, familiarise themselves with the issues and then write an award to deal with the issue they missed the first time.

    Could the tribunal simply reserve the costs and award them to whoever is the successful party on the remitted issue? A successful applicant before the court will have shown that the tribunal was in error, but on the remitted issue the tribunal (perhaps already slightly defensive in the light of the court’s findings) may determine the remitted issue against the applicant in any event. In those circumstances, perhaps costs should simply follow the event and the additional costs should be added to the bill of whomever loses the remitted issue?

    However, having “won” a section 68 application, it seems iniquitous that the successful applicant should bear not only the risk of failing to recover the costs awarded by the court on the application, but then also have to pay for the tribunal to correct its own mistake, whatever the outcome of the remitted issue. If a lawyer had made a serious error which had caused substantial injustice (which often means “damage”) to a client, the lawyer would surely correct that mistake at his or her own expense, or would call upon professional indemnity insurers to make good any losses suffered by the client? In a time when tribunals are increasingly criticised for the fees which they charge for awards which have become terribly formulaic (an often massive and interminable recitation of each side’s arguments followed by very short reasons and a shorter dispositive section), surely the tribunal should also take responsibility for those few instances where a court has been convinced it has made a serious mistake, and offer to deal with a remitted issue without seeking to levy any further fees?

     

    Robert-Jan Temmink QC

    Robert is recognised as a talented advocate with a commercial practice encompassing a broad spectrum, from Chambers' core areas of aviation and shipping, to energy, construction, and insurance law together with financial services, insolvency and fraud. Many of Robert's cases involve cross-border, or other jurisdictional issues both in the UK and abroad and he most regularly appears in the Commercial, Chancery and Technology & Construction courts in the United Kingdom. He is also registered to practice at the Dubai International Financial Centre Court where he has frequently appeared and is called to the Bar in Northern Ireland and as a Foreign Legal Consultant in the State of New York. He is often asked to work on cases in the Caribbean arising out of contractual or commercial chancery disputes.

    Robert is a Fellow of the Chartered Institute of Arbitrators and is one of the arbitrators at the Dubai International Arbitration Centre. He is also a panel arbitrator at the Kuala Lumpur International Arbitration Centre and the Hong Kong International Arbitration Centre.  He has appeared in a wide variety of arbitral proceedings under different institutions' rules, and as sole arbitrator in ICC proceedings. Robert is an accredited commercial mediator in the UK and abroad and is a TECBAR-accredited adjudicator, arbitrator and mediator.

    Robert is ranked as a leading barrister in the current editions of Chambers UK and The Legal 500. Areas include commercial litigation, international arbitration and aviation.

    robert.temmink@quadrantchambers.com

    > view Rob's full profile

  • Inter-Club Agreement: How similar is “similar”? Agile v Essar - Simon Rainey QC & Peter StevensonView More

    Fri, 11 May, 2018

    Apportionment of liability under Clause 8(b) of the Inter-Club Agreement and amendments “similar” to adding “and responsibility”

    Agile Holdings Corporation v Essar Shipping Ltd [2018] EWHC 1055 (Comm)

    Overview

    Under Clause 8(b) of the Inter-Club Agreement charterers are 100% liable for cargo claims arising from the handling of cargo unless the familiar words ‘and responsibility’ have been added to clause 8 of the NYPE or there has been a ‘similar amendment making the Master responsible for cargo handling’ in which case liability is apportioned 50/50 with owners. The issue that arose in Agile Holdings Corporation v Essar Shipping Ltd [2018] EWHC 1055 (Comm) was what constitutes a ‘similar amendment’ for the purposes of that proviso? Is it sufficient that responsibility for some aspects of cargo handling has been transferred to the owners or does the amendment need to achieve the same outcome as the addition of the words ‘and responsibility’, namely the total transfer of responsibility for cargo handling?

    Allowing an appeal from an arbitration award under s.69 of the Arbitration Act 1996, HHJ Waksman QC (sitting as a Judge of the High Court) held that nothing but a total transfer of responsibility is sufficient. In a judgment handed down on 11 May 2018  he rejected the proposition that apportionment under the ICA requires a factual enquiry as to (i) what aspect of cargo handling has caused a particularly loss; and (ii) whether responsibility for that aspect has been transferred to the owners. In reaching that conclusion he reaffirmed that a mechanistic and simple approach should be taken to apportionment under the ICA.

    Leave to appeal was refused

    Simon Rainey QC, leading Peter Stevenson, represented the successful appellant.

    The Background

    The underlying arbitration concerned a dispute between Agile Holdings Corp, the owners of the vessel ‘Maria’ and Essar Shipping Ltd, her charterers under a time charter on an amended NYPE ’46 form for a single trip Trinidad to India carrying a cargo of direct reduced iron (‘DRI’).

    DRI is reactive and combustible in the presence of heat or water. In the course of loading the cargo onto the vessel at Port Lisas, Trinidad, a fire was observed on the loading belt. However the appointed supercargo inspected the holds and advised that loading could continue. In fact some of the DRI loaded on board was still on fire and upon discharge, the cargo interests, Essar Steel Limited (an associated company of the charterer) brought a claim against the owners.

    Agile commenced arbitration arguing that the cause of the cargo claim was the manner in which the DRI had been handled during loading and sought a declaration that Essar was obliged to indemnify it under Clause 8(b) of the ICA.

    Clause 8(b) of the ICA provides:

    (b) Claims in fact arising out of the loading, stowage, lashing, discharge, storage or other handling of cargo: 100% Charterers unless  the words “and responsibility” are added in clause 8 [of the NYPE form] or there is a similar amendment making the Master responsible for cargo handling in which case: 50% Charterers 50% Owner

    The charter between Agile and Essar was on the NYPE ’46 form but the words ‘and responsibility’ had not been added to clause 8. Rather, it contained the following familiar provisions dealing with cargo handling:

    “… Charterers are to load, stow, and trim, tally and discharge the cargo at their expense under the supervision of the Captain…”

    It was common ground that the effect of this provision was to reverse the common law position and shift responsibility for all aspects of cargo handling onto charterers (per Court Line v. Canadian Transport (1940) 67 Ll. L. Rep. 161).

    The Tribunal (Mr Alan Oakley, Mr Michael Baker-Harber and Mr Robert Thomas QC) agreed with Agile that the cause of the cargo claim was the manner in which the cargo had been handled and thus liability fell to be apportioned under clause 8(b) of the ICA. However it refused to declare Essar 100% liable because, although the words ‘and responsibility’ had not been added to clause 8, a similar amendment had been made by the parties in clause 49.

    Clause 49 provided:

    The Stevedores although appointed and paid by Charterers/Shippers/Receivers and or their Agents, to remain under the direction of the Master who will be responsible for proper stowage and unseaworthiness and safety of the vessel…”

    The Tribunal construed this clause as making the Master responsible for part (at least) of the loading process and held that this was sufficient to trigger the proviso to clause 8(b) and lead to a 50/50 apportionment between the parties.

    The s.69 Appeal

    The addition ‘and responsibility’ to clause 8 of the NYPE restores the common law position and makes a shipowner responsible for all aspects of cargo handling (The Shinjitsu Maru No 5 [1985] 1 Lloyd’s Rep 568.

    On the appeal Agile argued that in order for an amendment to be ‘similar’ to the addition of ‘and responsibility’ to clause 8 it needed to have the same effect, i.e. it needed to effect a total transfer of responsibility for cargo handling and not merely a partial transfer.

    Essar rejected that analysis. It argued that a ‘similar amendment’ for the purposes of Clause 8(b) was one that transferred responsibility for the relevant aspect of cargo handling. The relevant aspect of cargo handling in any case was said to be the aspect of cargo handling that caused the cargo claim, i.e. if the claim arose from the manner in which loading had been effected and responsibility for loading had been transferred to owners, the proviso to Clause 8(b) was triggered and charterers would not be 100% liable.

    As an alternative to its primary position, Agile argued that, if Essar’s analysis were correct, clause 49 nonetheless did not trigger the proviso to Clause 8(b) since, contrary to the construction given to it by the Tribunal, the clause merely transferred responsibility for stowage leading to unseaworthiness and not stowage resulting in cargo damage.

    The appeal thus gave rise to two issues

    1. Whether a ‘similar amendment’ under Clause 8(b) requires a total transfer of responsibility for cargo handling to owners; and
    2. Whether, on its true construction, clause 49 transferred responsibility for cargo handing operations at all or whether it was concerned exclusively with stowage affecting seaworthiness.

    The Judge agreed with owners on both issues and ruled that the Tribunal had erred.

    Issue 1: What is a ‘similar amendment’

    Agile argued that the ICA, as originally drafted, was intended to create a simple and mechanistic regime for apportioning cargo claims in which liability for claims arising from unseaworthiness were for owners’ account and, subject to a limited exception, liability for claims arising from cargo handling were for charterers’ account.

    That limited exception was where the parties had agreed, by the insertion of the words ‘and responsibility’ to clause 8, that all cargo handling operations were to be the responsibility of the owners. In that case, although cargo handling would be the sole responsibility of owners, liability for cargo claims arising from cargo handling would be divided 50/50.

    Although this proviso to the clause had been extended in the 1996 version of the rules to cover ‘similar amendments’, the purpose of that change was not to alter the basic apportionment regime but merely to ensure that, where the parties had altered the cargo handling provisions of a charter to achieve the same effect (i.e. the total transfer of responsibility for cargo handling to owners) but by different words, charterers would not remain solely responsible for claims.

    The Judge agreed with this analysis. He held that it accorded with (i) the natural meaning of the words used; and (ii) the purpose of the agreement.

    In respect of the former, he agreed that the word ‘similar’ in Clause 8(b) was intended to connote a provision in the charter party which is of the same kind or is to the same effect as the addition of the words ‘and responsibility’ and not merely ‘alike but not identical’ as was contended by Essar. He drew support for that conclusion from the fact that (i) on Essar’s construction the word ‘similar’ could be deleted from the clause without altering its meaning; and (ii) the use of the same phrase in clause 4(b) of the ICA to connote an amendment making liability for cargo claims ‘clear’.

    In respect of the latter, he held that Essar’s construction would require a two stage factual enquiry before liability could be allocated. First, it would be necessary to determine whether a claim arose from cargo handling (rather than another cause covered by the ICA) and, second, what aspect of cargo handling caused the claim. The Judge concluded that there was nothing in the wording of the ICA which suggested that such a detailed enquiry of facts which may be in serious dispute was intended and it was inconsistent with the simple approach to allocation that underpins the ICA.

    Having reached these conclusions the Judge rejected the proposition that a strict reading of the ICA would lead to anomalous results such as charterers being held 100% liable for cargo claims when responsibility for all but a tiny aspect of cargo handling had been transferred to owners. He held (a) having regard to the usual forms of cargo handling such a scenario was highly unlikely to occur and (b) if there could be such an extreme case a de minimis exception might apply

    Issue 2: Proper construction of clause 49

    Having reached these conclusions it was not strictly necessary for the Judge to consider the proper construction of clause 49 (it being common ground that it did not effect a total transfer of responsibility for cargo handling to owners).

    Nonetheless he agreed with owners that the likely purpose of clause 49 was to reverse the effect of the well known decision of Langley J in The Imvros [1999] 1 Lloyd’s Rep 848 so as to make owners responsible for stowage insofar as it affects the seaworthiness of the vessel. It did not transfer responsibility for stowage generally.

    Conclusions

    The decision of the Judge is to be welcomed as bringing clarity to a question which had been hitherto unaddressed in any reported case and for reinforcing the mechanistic and simple approach to apportionment under the ICA. It confirms that, when faced with a claim arising from cargo handling, owners and charterers (and their Clubs) do not need to undertake a detailed analysis of the precise cause of the loss or to trawl through the charterparty to ascertain if responsibility for any part of cargo handling has been transferred to the owners. Unless there is a clause (or clauses) which effect a total transfer of responsibility for cargo handling to owners they can be confident that cargo claims arising from the manner in which the cargo has been handled will fall 100% on the charterers.

    > click to download a copy of the judgment

    Simon Rainey QC

    Simon is one of the best-known practitioners at the Commercial Bar with a broad commercial advisory and advocacy practice spanning substantial commercial contractual disputes, international trade and commodities, shipping and maritime law in all its aspects, energy and natural resources and insurance and reinsurance and has extensive experience of international arbitration. Simon regularly acts in ground-breaking cases including NYK Bulkship (Atlantic) NV v Cargill International SA (The Global Santosh) [2016] UKSC 20 where Simon was brought in to argue the case in the Supreme Court and represented the successful appellants, Cargill. The decision is a landmark one in relation to a contracting party’s responsibility for the vicarious or delegated performance by a third party of its contractual obligations, both in the common charterparty and international sale of goods contexts and more generally. In Bunge SA v Nidera SA [2015] UKSC 43 Simon successfully represented Bunge in a landmark decision by the Supreme Court on GAFTA Default Clause and sale of goods damages after The Golden Victory on points which had been lost at every stage below. He is next in the Supreme Court in November 2018 on the issues as to the burden of proof under the Hague / Hague-Visby Rules raised on the appeal in Volcafe Ltd v Compania Sud Americana de Vapores SA [2016] EWCA Civ 1103. 

    Ranked as the “Star Individual” for shipping by Chambers UK in 2015, 2016 ,2017 and again in 2018, Simon: ‘impresses with his mastery of the brief... exceptionally gifted, he has the strong confidence of his clients, and is an excellent presenter of complex material....’ and ‘….is one of those super silk guys who has judges eating out of his hands.” “He has the gift of going straight to the problem." He was ranked as Shipping Silk of the year 2017 by both Chambers and Partners UK and Legal 500 UK Awards and one of the Top Ten Maritime Lawyers 2017 and again in 2018 by Lloyd’s List. He has also been cited for many years as a leading Silk in the areas of Commodities, Commercial Litigation and Dispute Resolution, International Arbitration, Energy and Natural Resources, and Insurance and Reinsurance by Chambers UK and/or Legal 500.

    He is frequently appointed as arbitrator (LCIA, ICC, LMAA, SIAC, UNCITRAL and ad hoc, sitting both sole and as co-arbitrator) and has given expert evidence of English law to courts in several countries. He also sits as a Recorder in the Crown Court and as a Deputy High Court Judge (Queen’s Bench and Commercial Court).

    simon.rainey@quadrantchambers.com

    > view Simon's full profile

    Peter Stevenson

    Peter has a broad commercial practice with a particular emphasis on shipping, marine insurance, private international law, insolvency law and commercial injunctions.

    He is recommended as a leading junior in The Legal 500 and in Chambers & Partners UK in which he is variously described as ‘bright and punchy on his feet.’  ‘savvy, quick and sharp’, ‘someone who can turn things around very quickly” and ”very good at getting to the nub of the issue."

    Peter regularly appears in the High Court and has been led in a number of significant appellate cases both in the Court of Appeal and the Supreme Court including The Alexandros T  [2014] 1 Lloyd's Rep. 223, Star Reefers v JFC [2012] 1 C.L.C. 294 and The Cendor Mopu [2011] UKSC 5.

    "...Gives clear, no-nonsense advice."... "A very bright and astute barrister who thinks a couple of moves ahead of the opponents..." (Chambers UK, 2018)

    "...very commercial and very responsive, he really gets to the nub of things..." "...he is good when we are struggling, he comes up with good ideas..." (Chambers UK, 2017)

    peter.stevenson@quadrantchambers.com

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