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  • Dealing with hopeless Section 68 applications: all working well … or time to get tougher?- Simon Rainey QCView More

    Mon, 17 December, 2018

    Two recent decisions of the Commercial Court shed different lights on the Commercial Court’s policy of weeding out hopeless section 68 applications at an early stage and merit close attention: see the decisions in Asset Management Corporation of Nigeria v Qatar National Bank [2018] EWHC 2218 (Comm) decided in July but published only recently, and Midnight Marine Ltd v Thomas Miller Speciality Underwriting Agency Ltd [2018] EWHC 3431 (Comm), handed down on 12th December 2018.

    The Problem: the Abuse of Section 68

    Under section 68 of the Arbitration Act 1996, a right to challenge an award lies in a range of narrowly defined situations which have been summarised as dealing with the case where something has gone “badly wrong” with the due process in relation to the conduct of the arbitration or the rendering of the award. The applicant must establish a serious irregularity of a type falling within one or more of the sub-paragraphs under section 68(1) and, in addition, that that irregularity has caused substantial injustice. The Court’s jurisdiction is to be exercised only “in extreme cases”.

    Given, however, the restricted right to challenge an award on its merits, which is confined to errors on questions of law which can get through the eye of the section 69 needle, parties frequently resort to dressing up a case, which is in reality a challenge to the substance of what the tribunal has decided, as a section 68 challenge for serious irregularity in the conduct of the arbitration. A common guise adopted for this is the argument mounted under s 68(2)(d) of the 1996 Arbitration Act, that the tribunal has failed to deal with all the issues that were put to it, which has resulted in the party suffering substantial injustice. (See e.g. Orascom TMT Investments v. Veon Ltd [2018] EWHC 985 (Comm) and Reliance Industries Limited v. The Union of India [2018] EWHC 822 (Comm).)

    The Solution: Paragraph O8.5 of the Commercial Court Guide

    The Commercial Court has previously referred to the large number of section 68 applications made and to the fact that the great majority of these are obviously unsustainable. The Court has adopted a summary procedure for hopeless applications. Paragraph O8.5 of the Commercial Court Guide provides that “If the nature of the challenge itself or the evidence filed in support of it leads the Court to consider that the claim has no real prospect of success, the Court may exercise its powers under rule 3.3(4) and/or rule 23.8(c) to dismiss the application without a hearing.” In practice, the application is responded to briefly by the respondent, by “a respondent’s notice to that effect together with a skeleton argument (not exceeding 15 pages) and any evidence relied upon”), the applicant answers this in writing and the Court may dismiss the application on the papers.

    As the first of the recent decisions has noted, “There is no reason why the court should not exercise its powers for summary dismissal on paper where the appropriate test is met and over the years the court has tended to do so more and more in the light of the raft of unmeritorious applications that are made under section 68” (: see Asset Management Corporation of Nigeria v Qatar National Bank [2018] EWHC 2218 (Comm), per Sir Jeremy Cooke at [38]).

    So far, so good.

    But where the Court makes an order dismissing the application without a hearing, the applicant has the right under Paragraph O8.5 to apply to the Court to set aside the order and to seek directions for on oral hearing of its section 68 application.

    It is here that problems can potentially arise. It is difficult to gauge how often this right is sought to be exercised. In Asset Management, Sir Jeremy Cooke (with many years of first-hand experience in the Commercial Court) noted that “For the most part, where such an application was summarily dismissed, my experience was that they were infrequently pursued” [38].

    The Remaining Problem … a Full Re-run at an Oral Hearing?

    But exercised that right certainly is, at least by certain applicants. The problem is then whether, having had the application thrown out on paper as unarguable, the applicant is nevertheless still able to have what virtually amounts to a full section 68 hearing, almost invariably with the same result of testy dismissal, but only after all the costs and inconvenience of a full hearing.

    The two recent decisions illustrate considerable differences of approach by Commercial Court judges to this problem and suggest that practitioners can certainly expect some further changes or clarifications of Paragraph O8.5 when the Commercial Court Guide undergoes its next revision.

    (1) In Asset Management v Qatar National Bank, a hopeless section 68 application based on section 68(1)(d) and “issues” allegedly not dealt with but which plainly had been addressed by the tribunal, Carr J. dismissed the application on paper. Asset Management renewed its application and sought an oral hearing. It failed, the application being described as “wholly without merit”. Looking at the judgment, the application appears to have been almost fully argued out as if a ordinary section 68 application.

    Sir Jeremy Cooke emphasised that there was, in his view, a real and important role for the oral hearing.

    While he recognised that the Court could refuse an oral hearing, notwithstanding O8.5, this would only occur in exceptional cases, i.e. “unless the underlying application was seen as something akin to vexatious”. Otherwise, the “usual” course was to proceed to an oral hearing. The Judge did not define the nature of that hearing but from what Sir Jeremy states, it is clear that he was envisaging a fully contested hearing and that he considered that this gave the Court an important cross-check. At [41], he extolled the benefits and essential justice of this type of oral hearing as he saw them:

    “ […] my understanding of the general practice is that where a hearing is sought by party, it would usually be granted by the court. This is because the Court ordinarily proceeds by way of oral hearing so that parties’ positions can be advanced and tested in a manner not always so readily achieved on paper. Questions can be asked and answered which may throw a different light on matters. There is always the possibility of the Court misunderstanding the position without such an opportunity and the English Court tradition has always been one of oral argument and presentation. The exchange between counsel and judge in probing questions and receiving answers is beneficial to the administration of justice.”

    (2) In Midnight Marine v Thomas Miller however, Males J. suggested that it was time for a rather different and more exacting approach.

    In that case, a multiple section 69 and section 68 application was mounted by the applicant. The essence of the section 68 challenge was that the tribunal had exceeded its jurisdiction by holding that, if not time barred, the applicant’s claim against underwriters fell to be struck out for inordinate delay under section 41(3) of the 1996 Act because its position was to be seen as a defendant and not a claimant. The section 68 application was dismissed on paper as hopeless. The applicant renewed the application and the parties agreed upon a consent order providing for a full hearing, which was approved by the Court. After that full hearing, the application was again dismissed as without merit.

    Males J. expressed his concern at the very outset of his judgement:

    “[3] The procedure in paragraph O8.5 the Commercial Court Guide for dismissal of a section 68 application at a hearing is intended to be a summary procedure for identifying and disposing economically and promptly of hopeless applications. The provision for an oral hearing of an application to set aside a dismissal on paper should not lead to a major escalation in the costs incurred in dealing with unmeritorious section 68 challenges

    [4] I am concerned that in the present case the application to set aside the dismissal on paper has been argued as fully as the section 68 application itself would have been. If that were to become the standard procedure, the availability of a procedure for dismissal on paper would achieve nothing.”

    After dealing with the merits of the applications, he proposed a more restrictive and structured approach to section 68 renewed applications.

    He pointed out that the ‘paper stage’ and a dismissal on paper at the first stage of O8.5 was concerned solely with the arguability of the section 68 application and whether or not it had a realistic prospect of success, nothing more.

    From that starting point, he explained why it would never be appropriate to have a full section 68 type hearing on the renewed oral application under O8.5: this was because the issue remained the same short one: did the applicant have an arguable case or not? That could be addressed in a summary manner, similar to that adopted for applications for permission in other contexts (e.g. as formerly to the Court of Appeal and as in judicial review applications).  

    “But it must be remembered that the question at that oral hearing will simply be whether there is a real prospect of success such that the case should be allowed to go forward to a full hearing of the section 68 application. If the oral hearing for which paragraph O8.5 provides becomes effectively a full hearing of the section 68 application preceded by a further round of submissions and evidence, the objective of weeding out hopeless applications at an early stage by a prompt and economical procedure will have been frustrated.” [38]

    Males J. suggested a new approach which would effectively dispense with a contested oral hearing [39]. The features of the new procedure would be:

    1. Only a short hearing, “typically no more than 30 minutes”.
    2. Listed before the judge who has dismissed the application without a hearing (who would therefore be already familiar with the issues).
    3. No further written submissions save for a statement by the applicant as to why the Judge’s reasons for dismissal were contested.
    4. Perhaps most revolutionary (and as odds with the approach endorsed in Asset Management) “in general respondents should not attend or, at any rate, should not recover their costs if they do”: this being justified by the fact that “bearing in mind the limited nature of the issue, i.e. whether the claim has a real prospect of success, and that respondents will already have made submissions on the point in writing”.
    5. Special cases might exceptionally need to be dealt with differently but this procedure should otherwise apply generally.

    The Way Ahead?

    It seems clear that this suggested way forward will certainly be tabled for consideration by the Commercial Court judges and users, given that Males J. stated that the matter “merits further consideration by the judges of this court”.

    There is much to be said for the Males J. approach.

    In restricting as much as possible the disruption in and delays to the enforcement of an award which are occasioned by unmeritorious challenges, the Court supports English arbitration and allays concerns that English seated arbitrations are too exposed to judicial challenge. 

    The exploration of the issues on the proposed section 68 application, which Sir Jeremy Cooke thought potentially valuable, is fully catered for by the “short hearing” at which the applicant will have its case tested by the Judge who has already fully read in and at which the applicant will be able, if possible, to show that an initial view on paper that the case is hopeless is wrong. The prospect of this limited further stiff hurdle will probably discourage all but the most dogged and desperate or those who are faced with the rare case of an unduly harsh paper determination. Paragraph O8.5 already makes it clear that indemnity costs will usually await the applicant who chooses to roll the dice a second time.

    Simon Rainey QC

    Simon Rainey QC is one of the best-known and most highly regarded practitioners at the Commercial Bar noted for his intellect and advocacy. 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 the 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 and again in 2019 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.

    > To view Simon's full website profile, please click here.

    simon.rainey@quadrantchambers.com

  • Feeding back to arbitrators? - Saira ParukView More

    Thu, 13 December, 2018

    This article was first published by the Practical Law Arbitration Blog, here. 

    On 20 November 2018, Quadrant Chambers held its biannual international arbitration seminar. The topic for discussion and debate was “Feeding back to arbitrators”. The panel event was chaired by Simon Rainey QC of Quadrant Chambers and the speakers were Paula Hodges QC, head of global arbitration at Herbert Smith Freehills and future LCIA President, Damian Honey, Head of International Arbitration and Disputes at HFW, and Ruth Hosking of Quadrant Chambers.

    Simon Rainey QC gave some background to the debate. The 2018 International Arbitration Survey (often referred to as the White &Case/Queen Mary survey) asked respondents whether they would like to be given the option of evaluating arbitrators at the end of proceedings. 80% of (the 922) respondents said that they would, though sub-group results differed: 65% of full-time arbitrators expressed their preference for providing an assessment of their peers, whereas 90% of in-house counsel said that they would like to provide an evaluation of arbitrators. The survey noted that this was up from 75% in the 2010 survey, which had looked at the question of feeding back to arbitrators from a corporate view, stating:

    “The 2010 survey, which measured corporate views… Almost a decade later, the current results show that corporations (through their in-house counsel) have an even stronger wish to become involved in this process”.

    The respondents who answered “yes” to providing feedback were asked a follow-up question as to how they would like to provide such an assessment. They were given a choice of three options, plus a blank space for new suggestions. The overall results showed that reporting to an arbitral institution (provided the arbitration was on an institution’s rules) would be by far the preferred method of providing assessment of arbitrators (at 88%). All sub-groups were in favour of reporting to arbitral institutions. There was a difference in sub-groups as to whether feedback should then be subject to public review or simply feedback to the arbitrator in question.

    The debate

    It was against the results of the White & Case/Queen Mary Survey that the panel looked at the issue of feeding back to arbitrators and posed the questions: Why? When? How? Whose feedback?

    First, Paula Hodges QC addressed the question of why providing feedback on arbitrators would be a good idea. She began by commenting on the proliferation of feedback in modern life and then addressed arbitral feedback from the perspectives of the parties, counsel, the institutions and the arbitrator(s).

    The general theme underlying all perspectives was that feedback enabled arbitrators to improve and develop their skills. That in turn promoted confidence in the arbitral system, which is beneficial given the proliferation of arbitral institutions. It also assisted in promoting party autonomy and would help institutions with their future arbitral appointments. It might also assist parties with decisions on party appointments, either through information from the institutions or from publicly available information about arbitrators (if feedback was given on a public platform). Publicly available feedback might also help address the current problems with diversity in arbitrator appointments.

    Paula also addressed the potential drawbacks of feeding back to arbitrators. In particular, she considered that context was key and that any form of publicly available feedback (which was available for future disputes) may not give an accurate or complete picture because, for example, the parties will not be able to see whether delay is caused by all three arbitrators or only one.

    The other concern Paula identified was that if arbitrators were conscious of their performance being publicly judged, they may shy away from making hard (or robust) decisions for fear of getting a bad write-up. She concluded by quoting Alan Bennett in Writing Home, where he said: “When people are on their best behaviour they aren’t always at their best.”

    Damian Honey then looked at when to feedback to arbitrators was appropriate:

    • At the end of proceedings but before the award.
    • Continually throughout the arbitration.
    • After the award.

    His preference was before the award, because a party’s views post award were coloured by the outcome. Pre-award, their evaluation was neutral. This left the difficulty that there would then be no feedback on the quality of decision-making. He had concerns about giving continual feedback throughout the proceedings because it might (on a practical level) become unmanageable, increase cost and delay resolutions. There were also concerns about whether providing feedback would, or would be seen to, influence decisions made by the tribunal as it went along. He looked at what other jurisdictions do, with a particular focus on Hong Kong and Finland.

    Paula Hodges QC then considered how feedback should be given. The Arbitrator Intelligence Questionnaire was discussed. She highlighted the inherent difficulties of access to data without the surrounding context of the particular dispute. For example, heavy disclosure previously ordered in a complex fraud case might not be a real guide to an arbitrator’s usual practice. She also discussed the divergence in the approaches of the major arbitral institutions with regards to seeking feedback. She opined that the arbitral institutions had a role to play in receiving feedback which would assist them, both in relation to institutional appointments in the future but also party appointments where parties asked the institutions for a steer on who to appoint. It is important to give contextual feedback whilst preserving the confidentiality of an arbitration’s proceedings. There was general consensus in the audience that it should be through the arbitral institution (if the arbitration was being conducted on institutional rules). Word of mouth was also important, so where parties were looking for recommendations of arbitrators to appoint they sought feedback from colleagues. Indeed, that fed into responses to one of the other questions on the White & Case/Queen Mary survey, which found that the majority of respondents identified “word of mouth” followed by “from internal colleagues” as the main sources of information about arbitrators.

    In this context, the panel discussed their concerns about putting up in-depth profiles on websites which set out, for example their approach to case management in arbitrations. This was because each case was different and, in accordance with section 33 of the English Arbitration Act 1996, a tribunal had a duty to adopt procedures suitable to the circumstances of a particular case so a one-size-fits-all approach to case management, for example was inappropriate.

    Ruth Hosking then looked at the question of whose feedback we should be interested in. She noted that the respondents to the White & Case/Queen Mary survey were mainly lawyers, with only about 10% of the phase one participants being in-house counsel. She noted that whilst feedback from legal users of the system and arbitrators themselves was important and valuable (and not to be underestimated), feedback from the ultimate users (and funders) of the system was also valuable, and important and  there was potential for their voices to get lost in discussions about feeding back. If feedback was to be given by the underlying parties (rather than their lawyers) and their funders (if any), there was a case for feedback to be given during the arbitral reference; otherwise, feedback did not help the current client in the current dispute.

    The discussion was then opened to the floor. The debate was lively and participants gave a range of views as to when and how feedback should be given. For example, some argued that if arbitrators start to make decisions in order to receive good feedback, they may become reluctant to make difficult decisions during the arbitration. However, the general consensus was that feeding back to arbitrators was a good idea.

    Saira Paruk

    Saira practises in all of Chambers’ key areas of work as both sole counsel and as a junior.

    Saira regularly appears in the Commercial Court and in arbitrations in a wide range of commercial disputes including shipping, carriage of goods, shipbuilding, insurance and reinsurance, and private international law.  She also has extensive experience of interlocutory matters of all kinds including jurisdictional challenges, freezing orders and injunctions.

    Saira’s recent reported cases include Polaris Shipping Co Ltd v Sinoriches Enterprises Co Ltd (The "Ocean Virgo") [2015] EWHC 3405 (Comm) successfully appealling an arbitration award, Carlos Soto SAU v AP Moller-Maersk A/S (The SFL Hawk) [2015] EWHC 458 (Comm) as sole counsel in a Commercial Court trial, Crowther & Another v Rayment & Another [2015] EWHC 427 (Ch) as sole counsel successfully resisting the appointment of an arbitrator.

    > view Saira's full profile

    saira.paruk@quadrantchambers.com

  • Court of Appeal upholds Ship Arrest decision in Stallion Eight Shipping Co SA v NatWest Markets Ltd (THE “MV ALKYON”) – Jonathan ChambersView More

    Thu, 13 December, 2018

    In a significant judgment on the law of arrest, the Court of Appeal have upheld the Judgment of the Admiralty Judge Mr Justice Teare [2018] EWHC 2033 (Admlty) on the availability and utility of arrest in relation to obtaining security for subsequent claims.

    Mr Justice Teare had confirmed earlier in 2018 that an arrest of a vessel within the Admiralty jurisdiction of the English High Court (in support of specified maritime claims) is not generally subject to the same rules and protections afforded to those faced with freezing injunctions at general law. This judgment was previously covered here. 

    The Court of Appeal on 11th December 2018 (Etherton, Gross and Flaux LJJ) upheld Teare J.’s judgment and held that

    1. Firstly, provided only that the property (generally a ship) is within the scope of an action in rem and there has been procedural compliance with the rules, arrest is as of right. No judicial discretion is involved - and no question arises of requiring a cross-undertaking in damages from the arresting party as the price of issuing the warrant of arrest.
    2. Secondly, no damages can be claimed for wrongful arrest absent malice (bad faith) or (effectively) gross negligence on the part of the arresting party: Willers v Joyce [2016] UKSC 43 ; [2016] 3 WLR 477.
    3. Thirdly, once a vessel has been arrested, the settled, usual practice of the Admiralty Court is that the vessel will not be released unless the shipowner provides security for the underlying claim or in cases of abuse of process: the security required must cover the amount of the claim, plus interest and costs, on the basis of the arrestor’s reasonably arguable best case.

    However, in an important departure, the Court of Appeal held that although a Judge might have power to depart from the usual practice of not ordering release of a vessel from arrest absent provision of sufficient security, a Court “would [have to] think long and hard before departing from the usual practice”.

    The Court of Appeal questioned why the position of a party making a maritime arrest (where a cross-undertaking is not generally required) should continue to diverge from that of a claimant obtaining a freezing order where a cross-undertaking in damages is invariably required and forms part of the standard form of freezing order. This is particularly the case where an arrest may bear more harshly on a shipowner than a freezing order.

    This was because

    1. A freezing order ordinarily has exceptions for ordinary business expenses which is not mirrored in an arrest;
    2. Under an arrest a shipowner loses the use of a profit-earning asset but will continue to be liable for various expenses relating to the vessel under arrest.
    3. Although the security required to release a ship from arrest is limited to the amount of the claim, plus interest and costs, on the basis of the claimant’s reasonably arguable best case the ship arrested may well be considerably more valuable than the claim. By contrast a freezing order will be limited by the Court to the estimated amount of the claim, plus interest and costs.

    However the Court of Appeal was prepared to preserve the existing law and practice relating to arrest for the following reasons:-

    1. The availability of arrest provides the unique feature of the claim in rem and it is what makes the action in rem unique or distinctive;
    2. Of there was a discretion to release from arrest without provision of security requirement of a cross-undertaking to make or continue an arrest would become routine;
    3. The remedy of arrest or even the threat of arrest, is effective in compelling the provision of some other security;
    4. A ship arrest is asset specific; it does not “freeze” or paralyse the entirety of the shipowner’s business in the same manner as a freezing order might do.
    5. The analogy between maritime arrests and interlocutory injunctions, in particular the freezing injunction, is neither exact nor compelling;
    6. Although an arrest has not been a requirement for establishing Admiralty jurisdiction since 1883 there has been no reconsideration of its availability in England.
    7. There is no, or no significant, pressure from the maritime industry for a change in the balance struck on arrest.
    8. The maritime industry via P&I Clubs and hull underwriters routinely give undertakings either to avoid arrest or to secure release from arrest.

    The Court of Appeal held that the fact that a one-ship owning company could not of itself put up alternative security to obtain the release of the vessel was not a relevant factor taking the case out of the normal practice of the Admiralty Court.

    This is a significant “win” for those with arrestable claims who are likely to obtain jurisdiction and security against a vessel as of right. In most cases where a ship is available to be arrested an arrest should generally be sought in preference to a freezing injunction.

    Jonathan Chambers

    Jonathan has a broad practice covering all aspects of commercial and transport law.  

    He is consistently ranked by Chambers UK and Legal 500 as a Leading Senior Junior, with Chambers UK (2018) commenting “A tenacious advocate with an admired intellectual capacity. His redoubtable practice focuses on complex cases involving personal injury and fatality”  and “He is easy to work with and responsive. He quickly identifies the issues”  and Chambers UK (2016) commenting that he is “Noted by peers for his meticulous preparation, strong advocacy skills and easy manner with clients” and Legal 500 (2016) describing him as “Very well prepared”

    Jonathan has a strong international practice and he is qualified to practise in England & Wales, Northern Ireland (practising) and Australia (currently non-practising). He has also advised on disputes involving Australia, Canada, the Channel Islands, Hong Kong, Northern Ireland, Scotland, Singapore, and the United States of America.

    Jonathan acts on behalf of shipyards, ship-owners, rig owners, crewing agencies and shipping unions and the Royal Yachting Association. He is involved in a large volume of wet and dry shipping cases including cargo claims, pilotage, collisions and groundings. International ship-building, rig-construction and repair cases are also a strong feature of his practice.

    He frequently acts in inquests involving aviation and maritime incidents and the civil claims which follow.

    click to view Jonathan's full profile

    jonathan.chambers@quadrantchambers.com

  • Volcafe v. CSAV [2018] UKSC 61: Who has to prove what, when? Cargo damage claims and the burden of proof under the Hague (and Hague-Visby) RulesView More

    Wed, 05 December, 2018

    The Supreme Court’s judgment in Volcafe v CSAV, handed down today, is essential reading for all involved in the carriage of goods by sea, whether lawyer, insurer, cargo owner or carrier. John Russell QC and Benjamin Coffer appeared for the Appellants, instructed by Andrew Nicholas from Clyde & Co. Simon Rainey QC and David Semark appeared for the Respondents, instructed by Mark Doyle from Mills & Co.

    Argued as test case on the Hague Rules, Volcafe provides the first authoritative analysis of the burden of proof under the Hague and Hague-Visby Rules, the continuing relevance of the English common law of bailment where the Rules apply, and the interaction between the carrier’s duty to care for cargo under Article III.2 and the defences available to the carrier under Article IV.2.

    Upholding the cargo claimants’ appeal, the Supreme Court has held that, as a bailee, a carrier is liable for loss or damage during the voyage unless it proves on the balance of probabilities that the loss or damage was not caused by any breach by it of its Article III.2 cargo care duties, or that one of the defences in Article IV.2 applies. In order to bring itself within one of the Article IV.2 defences, the carrier must also prove that the loss or damage was not caused by its own negligence or breach of Article III.2. In practice, the burden is therefore on the carrier in any cargo claim to disprove causative negligence.

    In reaching that conclusion, the Supreme Court has overturned the decision of the Court of Appeal in The Glendarroch [1894] P 226, which had proven controversial for more than a century, and rejected dicta, previously thought to be authoritative, of the House of Lords in Albacora SRL v Westcott & Laurence Line Ltd 1966 SC(HL) 19 and of the High Court of Australia in Great China Metal Industries Co Ltd v Malaysian International Shipping Corpn Bhd (The Bunga Seroja) [1999] 1 Lloyd’s Rep 5.

    The judgment also illustrates, again, the high threshold which must be met before an appellate court can interfere with primary findings of fact. Although Lord Sumption expressed some doubt about the weight given to the evidence by the Judge at first instance, he was clear that there had been no sound legal basis for the Court of Appeal to interfere with those findings. The Supreme Court therefore restored the findings made by the Judge at first instance.

    The facts and decisions below

    The claim in Volcafe was a routine low value cargo claim. It concerned condensation damage to a number of cargoes of coffee beans, which had been stuffed into containers by the carrier. Coffee beans, a hygroscopic cargo, emit moisture during carriage which causes inevitable condensation on the walls of the container. The damage caused by the condensation can be mitigated by lining the containers with paper or card. The carrier argued that the condensation damage was caused by an inherent vice of the cargo, its inherent propensity to emit moisture, and that it was therefore entitled to rely on the defence in Article IV.2(m) of the Rules. The cargo claimants argued that the carrier had failed to apply sufficient card or paper to the walls of the container.

    At first instance, the Judge decided the claim on the burden of proof. He held that proof of damage gave rise to an evidential inference that the damage had been caused by a breach of the carrier’s obligations under Article III.2, and that the carrier had not displaced that inference by showing that it had complied with its obligations under Article III.2. In those circumstances, it could not rely on the Article IV.2(m) defence.
    The Court of Appeal overturned the Judge’s decision. It accepted the cargo interests’ argument that the carrier, as a bailee, bears a legal burden of bringing itself within one of the defences in Article IV.2. Applying the long-standing decision in The Glendarroch, Flaux J (giving the leading judgment) held that the carrier could establish a ‘prima facie’ case of inherent vice merely by proving that the moisture which caused the damage had originated in the goods themselves. The burden would then ‘shift’ to the cargo interests to prove that the cause of the damage was not inherent vice, but some failure by the carrier to exercise reasonable care.

    The Supreme Court’s decision

    (1) On the burden of proof in a cargo claim

    In the Supreme Court, the argument concentrated on whether the Court of Appeal had been right to hold that the carrier bears a legal burden, or whether (as the Judge at first instance had held) the carrier’s burden was merely an evidential one (as arguably suggested by Albacora v Westcott & Laurence and The Bunga Seroja).

    The Supreme Court held that the carrier’s burden was legal. The contract of carriage is a contract of bailment, and the carrier is therefore a bailee. The bailee’s reverse burden of proof is not displaced by anything in the Hague Rules. Like any other bailee, a carrier is therefore liable for damage to goods in its possession unless it can prove that the damage was not caused by any breach of the required standard of care, or unless it can bring itself within a contractual exclusion clause.

    The Court rejected the carrier’s argument that the positive obligations of cargo care under the Hague Rules are inconsistent with any continuing role for common law bailment principles: the Court held that the Rules are “not exhaustive of all matters relating to the legal responsibility of carriers for the cargo”. Where the Rules are silent, English common law continues to apply.

    Because the carrier as a bailee bears the legal burden, it must therefore prove on the balance of probabilities that that the loss or damage was not caused by any breach of Article III.2, or that one of the defences in Article IV.2 applies. The Supreme Court held that “so far as [Albacora v Westcott & Laurence and The Bunga Seroja] suggest that the cargo owner has the legal burden of proving a breach of article III.2, they are mistaken”.

    (2) On the burden of proof under Article IV.2 defences and The Glendarroch

    In The Glendarroch (a pre-Hague Rules case), the Court of Appeal had held that where a cargo claimant alleged that the carrier could not rely on the perils of the sea defence because of its own negligence, the burden of proving negligence was on the cargo claimant: negligence was “an exception to an exception”.  

    Lord Sumption described the The Glendarroch as “technical, confusing, immaterial to the commercial purpose of the exception and out of place in the context of the Hague Rules”, and declined to follow it. He held that there is no general principle of law that a cargo claimant bears the burden of proving negligence. If the carrier seeks to rely on one of the defences in Article IV.2, the carrier must prove that the effective cause of the loss or damage was the excepted peril, and not the carrier’s own negligence or breach of Article III.2.

    (3) On ‘inherent vice’ under Article IV.2(m) and generally

    The Supreme Court judgment also provides useful guidance on the meaning of inherent vice. As an alternative ground for the decision, the Court held that inherent vice meant the unfitness of the goods to withstand the ordinary incidents of the voyage, given the degree of care which the shipowner is required by the contract to exercise in relation to the goods. To establish the defence, the carrier would therefore have had to prove either that the shipowner provided the contractual degree of care, or that even had it done so the damage could not have been prevented. As it had not proven either of those matters (on the Judge’s findings of fact), it could not rely on the defence.

    The impact of the decision

    The decision is a landmark one which brings decisive clarity to a much debated area, both generally in relation to the burden of proof upon the cargo claimant and the carrier in a case of cargo damage and in particular in relation to the correct application of the Article IV.2(m) defence of inherent vice.

    The universal approach adopted to the pleading of any standard Hague or Hague-Visby Rules cargo claim is likely to undergo rapid reappraisal. Cargo claims will now proceed on the basis that the cargo claimant is able to rely on proof of damage to the cargo as setting up, by itself, a sustainable cause of action, which casts the legal burden on the carrier in all cases to disprove negligence.  A different approach will also need to be taken to the pleading by carriers of Article IV.2 defences with the necessary particularisation in most cases of how (well) the goods were carried and cared for.

    > Download a copy of the Judgment

     

    Appeared for the Appellants:

    John Russell QC

    https://marketing.lexportal.co.uk:443/marketingServer/webVersions/113/3572/imgSvr/8.jpg

    John is an experienced and determined commercial advocate and has acted as lead Counsel in numerous Commercial Court trials, international and marine arbitrations and appellate cases, including in the Supreme Court. He has also appeared as counsel in inquests and public enquiries.

    He relishes both detailed legal argument and cross-examination of lay and expert witnesses. He will always ensure that a client's case is presented in the most persuasive manner possible, both in writing and orally.

    John provides advice to a wide range of clients. He combines first rate technical legal analysis with a pragmatic, commercial, problem solving approach to cases.

    John accepts instructions in many fields of commercial dispute resolution with a particular focus on shipping, commodities, international trade,  marine insurance, aviation and travel.

    He is ranked in the Legal 500 and Chambers & Partners in Shipping, Commodities, Aviation and Travel.

    To view full website profile, please click here.

    Benjamin Coffer

    Ben is described by the directories as  "a rising star" (Legal 500, 2019); “a standout shipping and commodities junior" (Chambers & Partners, 2018) and “a star of the future” (Chambers & Partners, 2017). He is also recognised as a leading junior in the Legal 500 Asia Pacific Guide. Ben undertakes the full spectrum of shipping work, including every species of charterparty and bill of lading claim, as well as shipbuilding and ship finance disputes. He has developed a particular specialisim in cases involving carriage of goods under the Hague and Hague-Visby Rules, and has appeared in several of the leading cases on such claims in recent years.


    To view full website profile, please click here. 


    Appeared for the Respondents:

    Simon Rainey QC

    https://marketing.lexportal.co.uk:443/marketingServer/webVersions/113/3572/imgSvr/10.jpg

    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 and commercial pragmatism. He has a broad commercial advisory and advocacy practice spanning substantial international contractual disputes, energy and natural resources, trade and commodities, and shipping and maritime law in all its aspects, in arbitration and at all Court levels. His practice involves a steady diet of high profile and high value commercial fraud cases, typically involving heavy interlocutory stages centred around pre-emptive strike applications such as worldwide freezing injunctions and anti-suit and other injunctive relief, a recent example of which is the hard fought Gerald Metals v Timis litigation in England, Cayman and the BVI (2017-2018). He has been cited for many years as a Leading Silk in Commercial Litigation / Dispute Resolution by Chambers and Legal 500. He also sits as a Deputy High Court Judge in the Commercial Court. "A fantastically intelligent and tactically astute barrister who is immensely erudite." (Chambers UK 2019); ‘Absolutely charming and probably the best cross-examiner I’ve ever seen.’ (Legal 500 2019).

    To view full website profile, please click here.

    David Semark

    https://marketing.lexportal.co.uk:443/marketingServer/webVersions/113/3572/imgSvr/11.jpg

    David ‘Produces excellent work and represents exceptional value for an experienced litigator.’ (Legal 500 2015). A former army officer David also previously trained in the Shipping Department of one of South Africa's leading maritime and international trade firms, before joining and later becoming a partner at what is now known as Reed Smith. He retrained as a barrister and became a member of Quadrant in 2010.

    David specialises in commercial law, with a particular emphasis on shipping and maritime law (especially dry shipping disputes), international trade and commodities, jurisdictional disputes and insurance. Although his practice is primarily as an advocate, he is also an LCIA arbitrator.

    He is the co-author of P&I Clubs: Law and Practice (2010, 4th ed.) and Maritime Letters of Indemnity (2014, 1st ed.)

    To view full website profile, please click here.

  • Stewart Buckingham is featured in Lloyd’s List Top 10 Maritime Lawyers 2018View More

    Tue, 04 December, 2018

    We are delighted to announce that Stewart Buckingham has been featured in the Lloyd's List Top 10 Maritime Lawyers of 2018.

    The top 10 maritime lawyers is one section of their feature on 2018's Top 100 most influential people in shipping. For the full list please click here.

  • Shortlisted for nine awards at the Legal 500 UK Awards 2019View More

    Tue, 04 December, 2018

    We are delighted to announce that Quadrant Chambers has been shortlisted for both Commercial Litigation and Shipping Set of the Year for the Legal 500 UK Awards 2019. In addition, Simon Croall QC, Simon Rainey QC, David Goldstone QC, Matthew Reeve, Nevil Phillips and Caroline Pounds have each received individual nominations:

    Commercial Litigation Set of the Year
    Shipping Set of the Year
    Simon Croall QC - Shipping Silk of the Year
    Simon Rainey QC – International Arbitration Silk of the Year and Shipping Silk of the Year
    David Goldstone QC - Shipping Silk of the Year
    Matthew Reeve - Shipping Junior of the Year
    Nevil Phillips - Shipping Junior of the Year
    Caroline Pounds - Shipping Junior of the Year

    A list of all the nominations can be viewed here.

  • Court of Appeal Flags Privilege Claim Offside - Joseph SullivanView More

    Tue, 04 December, 2018

    In the recent case of West Ham v E20 the Court of Appeal delivered a judgment clarifying the scope of litigation privilege in the light of SFO v ENRC and explained when a Judge should inspect controversial documents.

    In this important decision, which was the first televised appeal in the Court of Appeal, limits were set on the scope of litigation privilege and the circumstances in which a Judge may inspect a document over which a claim for privilege were expanded.

    Background

    The claim concerned a dispute between West Ham United and the owners of their stadium, E20. West Ham wished for the match-day capacity of the stadium to be increased and contended that it had a contractual right that E20 must act in good faith in deciding whether to make an application for permission for the increased capacity. E20 disputed this obligation but argued in the alternative that it had, in any event, acted in good faith as it had decided not to increase the stadium’s capacity due to legitimate safety concerns.

    Accordingly, the reason for E20’s decision not to apply to increase the permitted match-day capacity of the stadium was an important issue in the claim: West Ham contended that the real reason for E20’s decision was that it wished to use the issue to seek to extract commercial advantages in negotiations with the club.

    E20 had asserted litigation privilege over the only contemporaneous documents evidencing its decision-making process, stating that those six documents were composed with the dominant purpose of discussing a commercial settlement of the dispute between the parties at a time when litigation was in reasonable contemplation.

    West Ham challenged this assertion of privilege, contending that the documents cannot have been concerned with obtaining information or advice for use in the litigation and so could not fall within the scope of litigation privilege. They requested an order that the Judge inspect the documents to ascertain whether the assertion of privilege was sound.

    First instance decision

    At first instance, Norris J refused West Ham’s application in connection with the six documents. He held, in reliance on the recent Court of Appeal decision in ENRC v Serious Fraud Office, that litigation privilege was not limited to documents concerned with obtaining information or advice for use in the litigation but also included any document prepared for the purpose of settling or avoiding a claim.

    He went on to hold, following the guidance set down by Beatson J in the West London Pipeline case, that he could only inspect the documents if he was reasonably certain that the test for privilege had been wrongly applied by E20’s solicitors.  Since he was not reasonably certain that this was the case, he found that he could not inspect the documents.

    Norris J granted West Ham permission to appeal to the Court of Appeal and the appeal was expedited since the trial of the claim was due to commence less than four weeks after Norris J’s decision.

    Court of Appeal decision

    A unanimous Court of Appeal (the Master of the Rolls, Lewison and Asplin LJJ) allowed West Ham’s appeal.

    The Court analysed its earlier decision in ENRC and held that this did not expand the scope of litigation privilege to encompass documents which neither seek advice nor information for the purpose of conducting litigation. It held that ENRC only clarified that settling litigation formed part of conducting litigation. The requirement that the documents must be concerned with obtaining information or advice remains.

    It rejected E20’s argument that “conducting litigation” encompassed documents which merely comprised discussions as to a commercial settlement of that litigation. It also rejected its suggestion that internal communications within a company which are made for the dominant purpose of conducting litigation are, without more, necessarily subject to privilege, and overruled the earlier decision of Mayor and Corporation of Bristol v Cox.

    The Court provided a useful summary of the scope of litigation privilege:

    1. Litigation privilege is engaged when litigation is in reasonable contemplation
    2. Once litigation privilege is engaged it covers communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with the conduct of the litigation, provided it is for the sole or dominant purpose of the conduct of the litigation.
    3. Conducting the litigation includes deciding whether to litigate and also includes whether to settle the dispute giving rise to the litigation.
    4. Documents in which such information or advice cannot be disentangled or which would otherwise reveal such information or advice are covered by the privilege.
    5. There is no separate head of privilege which covers internal communications falling outside the ambit of litigation privilege as described above.

    The Court also examined the circumstances in which a Judge should inspect a document to test a challenged assertion of privilege. It considered that the formulation set out in all the leading textbooks, taken from West London Pipeline, was too narrow. The power to inspect is not limited to cases in which, without sight of the documents in question, the court is “reasonably certain” that the test for litigation privilege has been misapplied. Instead, the Court has a broader discretion to inspect, though the power should be exercised cautiously. In exercising its discretion, the Court should taken into account the nature of the privilege claimed, the number of documents involved and their potential relevance to the issues.

    Paul Downes QC and Joseph Sullivan acted for West Ham in the Court of Appeal, instructed by Neil Warner, Gateley Plc. 

    > download a copy of the judgment

    Joseph Sullivan

    Joe specialises in commercial law, banking and finance, commercial fraud and professional negligence. He is recommended as a leading junior in the Legal 500 for banking & finance. He often appears unled against silks and has a particular specialism in multi-jurisdictional disputes both in court and in arbitration and in claims involving both personal and proprietary remedies. This year his instructions have included acting for the Malaysian government in respect of the 1MDB fraud, one of the most notorious and largest kleptocracy claims to come before the English courts, appearing as lead counsel for the respondent in the Supreme Court in Takhar v Gracefield Developments - an appeal to determine the test for setting aside a judgment on grounds that it was procured by fraud and acting for West Ham United in the Court of Appeal in its claim against the operators of its stadium.

    To view full website profile, please click here.

    joseph.sullivan@quadrantchambers.com 

  • UKSC 26: The Implications of the Supreme Court’s Approach to Concurrent Causation for the Wider Insurance Industry - Craig WilliamsView More

    Fri, 30 November, 2018

    Navigators Insurance Company Limited and Others v Atlasnavios-Navegacao LDA (formerly Bnavios-Navegacao LDA (“the B Atlantic”) [2018]

    The recent decision of the Supreme Court in the B Atlantic ([2018] UKSC 26.) in which Quadrant Chambers’ Guy Blackwood QC represented the successful insurers, was not only an important decision for the marine insurance market but the insurance industry as a whole.

    An area of particular interest to the wider insurance industry is the Supreme Court’s comments on the correct approach to the causation analysis in cases where the parties posit multiple potential causes for a loss. This is a topic which shall be dealt with in detail in an upcoming series of talks by Quadrant Chambers on the broader impact of the B Atlantic, however, the issue is briefly explored in this article.

    The Facts of B Atlantic

    After loading a cargo of coal in Lake Maracaibo, Venezuela, for discharge in Italy, an underwater inspection by divers discovered 132kg of cocaine strapped to the vessel’s hull below the waterline. This concealment constituted an offence contrary to Article 31 of the Venezuelan 2005 Anti-Drug Law. Articles 63-66 of the same law provided for the seizure of the vessel in such circumstances. The vessel was therefore seized by the Venezuelan authorities. The vessel remained in detention until August 2010, after which the Court ordered the final confiscation of the vessel. The owners, having abandoned the vessel to the Venezuelan court in September 2009, treated vessel as a constructive total loss and pursued a claim under their insurance.

    The hearing before the Supreme Court turned on the inter-relationship between perils identified in clauses 1.2, 1.5 and 1.6 of the policy[1] and the exclusion identified in clause 4.1.5. The premise upon which the case proceeded to the Supreme Court was that the concealment of the cocaine by unknown third parties constituted a malicious act (it was only on this basis that the owners were able to claim under clause 1.5 and argue that clause 4.1.5 was inapt to exclude liability).[2] However, the Supreme Court found that (despite the parties’ agreement to the contrary) the concealment of the cocaine did not in fact constitute a malicious act. This was sufficient to dispose of the appeal, nevertheless the Supreme Court helpfully considered what the position would have been if this premise had been accepted.[3]

    Competing or Concurrent Causes

    Where multiple “causes” are said to give rise to an incident, the general rule in insurance law is that the Court will identify the true proximate cause,[4] finding the other posited cause(s) to be too remote or not actually causative.[5] The identification of the proximate cause is an exercise in common sense, it is not necessarily the last event prior to the loss.

    An example of the general rule being followed is In re Etherington and the Lancashire and Yorkshire Accident Co[6] where the assured fell from his horse, suffered shock and wetting and later died from pneumonia. Whilst the policy in question covered death caused by and occurring within three months of an accident, it had an exception in respect of death caused by “disease or other intervening cause”. However, the accident was held to be the proximate cause of the death as the pneumonia was considered to be something usually attendant upon the particular accident and caused by it rather than an independent disease.

    The general rule is, of course, subject to exceptions and sometimes the correct analysis is that there are in fact two (or more) concurrent causes. The issue of concurrent causation usually arises in cases where there are potentially applicable exception clauses,[7] likely because of the increased commercial advantage in insurers running such arguments in those cases[8] and because the very existence of an exception clause affects the analysis of what is regarded as proximate.[9] The question of whether there is concurrent causation is in no way restricted to marine insurance disputes, a well-known example being Wayne Tank and Pump Co Ltd v Employers Liability Corporation Ltd[10] where the Court of Appeal had to consider whether the cause of a fire which burned down a factory was: (i) the defective nature of equipment; (ii) the negligence of one of the servants of the insured in leaving said equipment turned-on and unattended overnight prior to proper testing of the installation; (iii) or both as concurrent causes.

    Therefore the Supreme Court’s comments on this subject are of great interest to the wider insurance industry. The issue of concurrent causation was not argued at first instance or the Court of Appeal but was argued in the Supreme Court. The owners sought to avoid the loss being excluded by arguing that it was the malicious act,[11] not the detainment/seizure for the infringement of customs regulations (which was excluded), which fell to be regarded as the proximate cause of the loss. Therefore, the Supreme Court had to choose from the following posited causes:  (i) the malicious acts of third parties;[12] (ii) the seizure/detainment by reason of infringement of customs regulations; or (iii) both (acting as concurrent rather than independent causes). In rejecting the owners’ argument, the Supreme Court made the following comments:

    1. The Court is more likely find concurrent causes when the policy has a potentially applicable exceptions clause. [13]
    2. The likelihood of concurrent causes being found was increased by the fact that the owners had effectively used a clever construction of the policy to avoid relying on the most obviously applicable peril, which was itself obviously covered by the applicable exceptions clause, in order to side-step that otherwise wise applicable exception.
    3. The owners needed to rely upon the detainment/seizure of the vessel for 6 months in order to establish it as a constructive total loss under Clause 3. However, in order to avoid the effect of the exception clause at 4.1.5, they sought to argue that the detainment and its continuation were not causatively relevant as they were simply incidents of or sequela to the original malicious act. The Supreme Court rejected that the submission as “unreal in practical terms”[14] as they were “by no means bound to occur”. This appears to be a very high standard indeed.

    Therefore the Supreme Court held that it was the combination of the “malicious act” and the seizure/detainment which led to the loss, with the latter arising from the excluded peril of infringement of customs regulations and therefore that the owners’ claim failed. The case demonstrates the very real difficulties that an insured will encounter in attempting to recover in respect of a loss where the insurers are arguing that the loss was caused (in whole or concurrently) by an excluded peril.


    [1] The policy in question was a standard war risks insurance policy on the Institute War and Strikes Clauses 1/10/83 with additional perils.

    [2] This had been common ground from at least the first instance hearing before Flaux J: [2014] EWHC (Comm). The basis for this common ground was that those unknown third parties were reckless as to whether or not the concealment of drugs on the vessel led to the detention or confiscation of the vessel.

    [3] See [2018] UKSC 26, at [30]-[31]. The remainder of this article will therefore refer to the concealment of the cocaine as a malicious act.

    [4] What is referred to in this article as the “proximate” cause is also given other monikers in the case law, such as the “operative”, “dominant”, or “effective” cause. This article shall take the same approach as the Court of Appeal in B Atlantic and call this the “proximate” cause ([2016] EWCA Civ 808, at [23]).

    [5] [2018] UKSC 26, at [43].

    [6] [1909] 1 KB 591.

    [7] ENE Kos I Ltd v Petroleo Brasileiro SA (No 2) [2012] UKSC 17, [41]-[43].

    [8] Where a loss has two or more proximate causes both of which are necessary for the loss to occur (i.e. concurrent, not independent) but only one of which is insured (the other being excluded), the exclusion will prevent the insured from recovering for the loss despite the insured cause also applying: see John Cory & Sons v Burr (1883) 8 App Cas 393, pp. 400-401, and Wayne Tank and Pump Co Ltd v Employers Liability Corporation Ltd [1974] 1 QB 57, see Lord Denning MR at p 67B-68A, Cairns LJ at 69B-D and Roskill LJ at pp. 74E-75D.

    [9] See Royal Greek Government v Minister of Transport (The Ann Stathatos) (1949) 83 Ll L Rep 228, 237: “the whole of what one might call the area naturally appurtenant to the excepted event must be granted to it”.

    [10] [1974] 1 QB 57.

    [11] The argument was considered by the Supreme Court on the hypothetical that the concealment of drugs was considered to be malicious.

    [12] On the hypothetical that concealment of drugs constituted a malicious act.

    [13] [2018] UKSC 26, at [42]-[43].

    [14] [2018] UKSC 26, at [44].

    Craig Williams 

    Craig has an international commercial practice which encompasses banking, energy, international trade, and shipping. He regularly appears in the High Court (including the Commercial Court and Admiralty Court) and arbitration both as sole and junior counsel.

    Prior to joining Quadrant, Craig worked in the litigation team (EMENA) of an energy multinational. He has also worked in-house at a boutique commercial disputes firm and undertaken secondments at a leading London shipping law firm and in the insurance industry.

    > click to view Craig's profile here

    > craig.williams@quadrantchambers.com

  • Ship arrest remains a very powerful weapon: jurisdiction and security without risk - Jonathan ChambersView More

    Tue, 27 November, 2018

    Natwest Markets PLC v Stallion Eight Shipping Co SA (THE "MV ALKYON") [2018] EWHC 2033 (Admlty)

    In a decision which appears to have escaped the law reports until now, the often undervalued and neglected remedy of a ship arrest has been given new impetus by the judgment of Admiralty Judge in THE "MV ALKYON" [2018] EWHC 2033 (Admlty). Where it is available, an arrest is not subject to a duty of full and frank disclosure, or to a cross-undertaking and is available as of right.

    In a strongly worded judgment the English Admiralty Judge Mr Justice Teare has confirmed that an arrest of a vessel within the Admiralty jurisdiction of the English High Court (in support of specified maritime claims) is not subject to the same rules and protections afforded to those faced with freezing injunctions at general law.

    A Bank had lent US$15,700,000 to the Shipowner of the vessel ALKYON. The loan was secured by a mortgage on the vessel. The Bank notified the Shipowner of an alleged event of default issued an in rem claim form and applied for and obtained the issue of a warrant of arrest against the vessel.

    The Shipowner denied the event of default and argued that the Bank did not exercise its powers in good faith or in pursuit of legitimate commercial aims. It argued that it would lose gross hire of US$11,350 per day and a profit of some US$3,500 to US$4,000 per day.

    The Shipowner brought an application under CPR 61.8(4)(b) for an order releasing the vessel from arrest unless the Bank provided a cross-undertaking in damages in the form usually given in the context of freezing orders. It argued that the current practice of the Admiralty Court not to require a cross-undertaking in damages was anomalous and unjustifiable.

    Mr Justice Teare refused the application as it

    (i) ran counter to the principle that a claimant in rem might arrest of right;

    (ii) would be inconsistent with the court’s long-standing practice that such a cross-undertaking was not required; and

    (iii) would be contrary to authority.

    A claim in respect of a mortgage on a ship is within the Admiralty jurisdiction and may be brought in rem against the ship in connection with which the claim arises; see section 20(2)(c) and section 21(2) of the Senior Courts Act 1981.

    A claim in rem is started by the issue of an in rem claim form and a claimant in rem may apply for the issue of a warrant of arrest; see CPR 61.5. When the court receives an application for arrest that complies with the rules and the practice direction the court will issue an arrest warrant; see CPR Part 61 PD §5.2

    The purpose of an arrest is to enforce an admiralty action in rem. The arrest establishes the jurisdiction of the English Admiralty court to hear and determine a claim. This is so even if the ship is registered in a foreign country and that the claim has no connection with England. By arresting the claimant can enforce his claim and the ship may be sold by the Admiralty Marshal upon the order of the court and the claimant may recover his claim from the proceeds of sale.

    The issue of a warrant of arrest is of right and is not discretionary. There is no duty of full and frank disclosure as there is upon an application for an ex parte injunction: The Varna [1993] 2 Lloyd’s Rep 253. Since 1858 it has been established that only where an arresting party acted in bad faith or with such gross negligence as implies malice can it be made liable for damage caused by a wrongful arrest; see The Evangelismos (1858) 12 Moo PC 352.

    The claimant in rem obtains the issue of a warrant of arrest as of right. If the court were to say that in exercise of its discretion to order release, the vessel must be released from arrest unless a cross-undertaking in damages is provided, the exercise of its discretion would negate the principle that a claimant may obtain the issue of a warrant of arrest without providing a cross-undertaking in damages.

    Therefore, if a defendant has a vessel which is likely to visit English shores, it would be worth considering an arrest in England as the perfect weapon to secure a claim rather than the more usual freezing injunction.

    Jonathan Chambers

    Jonathan has a broad practice covering all aspects of commercial and transport law.  

    He is consistently ranked by Chambers UK and Legal 500 as a Leading Senior Junior, with Chambers UK (2018) commenting “A tenacious advocate with an admired intellectual capacity. His redoubtable practice focuses on complex cases involving personal injury and fatality”  and “He is easy to work with and responsive. He quickly identifies the issues”  and Chambers UK (2016) commenting that he is “Noted by peers for his meticulous preparation, strong advocacy skills and easy manner with clients” and Legal 500 (2016) describing him as “Very well prepared”

    Jonathan has a strong international practice and he is qualified to practise in England & Wales, Northern Ireland (practising) and Australia (currently non-practising). He has also advised on disputes involving Australia, Canada, the Channel Islands, Hong Kong, Northern Ireland, Scotland, Singapore, and the United States of America.

    Jonathan acts on behalf of shipyards, ship-owners, rig owners, crewing agencies and shipping unions and the Royal Yachting Association. He is involved in a large volume of wet and dry shipping cases including cargo claims, pilotage, collisions and groundings. International ship-building, rig-construction and repair cases are also a strong feature of his practice.

    He frequently acts in inquests involving aviation and maritime incidents and the civil claims which follow.

    click to view Jonathan's full profile

    jonathan.chambers@quadrantchambers.com

  • Quadrant Chambers Special Edition: Cross-Border Insolvency and International Trade (Vol 2)View More

    Wed, 21 November, 2018

    Insolvency issues arise for businesses and clients in any sector. Quadrant Chambers has a well-established reputation in cross-border insolvency disputes in the specialist sectors in which we have in depth knowledge, such as aviation, commodities, energy, insurance and shipping.  We have acted in some of the largest insolvencies of recent times including OW Bunkers, Hanjin Shipping, Arik Airlines and Alpha Insurance.  

    Our sector expertise and experience in cross-border insolvency gives us a unique insight into legal and commercial problems which frequently arise from the interaction of cross-border insolvency legislation and choice of law rules, the law of property, international trade law and international conventions.

    Our barristers regularly contribute to the specialist journal International Corporate Rescue’. Here we bring you the Quadrant Chambers Special Edition: Cross-Border Insolvency and International Trade (Vol 2). The special edition looks at how the law continues to develop in this area.

    > Download the Quadrant Chambers Special Edition: Cross-Border Insolvency and International Trade (Vol 2).

    Articles include:

    • Proving for Foreign Currency Debts in a Solvent Administration or LiquidationMichael Howard QC
    • The Collapse of Hanjin Shipping: An English Lawyer’s PerspectiveRobert Thomas QC and Jeremy Richmond
    • If a Tree Falls in the Forest … Shouldn’t the Saplings in the Clearing Benefit?Thomas Macey-Dare QC on slots and airlines insolvencies
    • Insolvencies in the Supply Chain: Recourse against the Owner of the GoodsMatthew Reeve
    • Bakhshiyeva v Sberbank of Russia et al. [2018] EWHC 59 (Ch):Permanent Stays under the Cross-Border Insolvency Regulations 2006 – Jeremy Richmond
    • Subrogation Based on Unjust Enrichment: Menelaou v Bank of Cyprus PlcClaudia Wilmot-Smith
    • Unjust Enrichment and the Direct Transfer Rule: Investment Trust Companies v Revenue and Customs Commissioners - Claudia Wilmot-Smith
    • Thomas v Frogmore: COMI Factors and Improper Motive Reviewed Liisa Lahti
    • Ronelp Marine Ltd & Others v STX Offshore & Shipbuilding Co. Ltd [2016] EWHC 2228 (Ch) - Joseph England