Thu, 08 June, 2017
Mediterranean Shipping Company SA (“MSC”) and Glencore International AG (“Glencore”) are major carriers and traders respectively. This dispute between them involved a claim which was not large in money terms, but which raised a number of questions of some general importance in relation to (a) electronic bills of lading and delivery orders and (b) waiver and estoppel. Michael Howard QC looks at the decision.
Counsel for Respondents: John Passmore QC instructed by Gateley PLC
Between January 2011 and June 2012, 70 consignments of drums of cobalt briquettes were shipped by Glencore and carried by MSC to Antwerp on a standard form MSC bill of lading. On the last occasion, when the receiver’s haulier went to collect the goods from the port, two of the three containers had gone missing, and it was common ground that they had been misappropriated by persons unknown who had succeeded in penetrating the release procedures.
The bill of lading was a “to order” bill, on the front of which appeared the following provision:-
If this is a negotiable (To Order/of) Bill of Lading, one original Bill of Lading, duly endorsed must be surrendered by the Merchant to the Carrier (together with outstanding freight) in exchange for the Goods or a Delivery Order.
In 2005 the Port Authority in Antwerp had introduced a new procedure, the Electronic Release System, or ERS. Under this procedure, when bills of lading are presented, the carriers provide computer generated electronic numbers to the relevant receivers or their agents and the port terminal. These numbers are given instead of Delivery Orders or Release Notes, and are not seen by the Carriers, who generate them through the Port Authority. The holders of the bills then present the pin codes to the terminal to take delivery of the goods, normally by the collecting driver entering the pin codes at the terminal. This system is not mandatory and is not adopted by all the carriers using the port; but it had been employed for all 69 previous shipments of cobalt by MSC and Glencore’s port agents, Steinweg.
MSC operated the system by sending a release note providing the pin codes by email on presentation of a bill of lading (and payment of all outstanding charges). The trial judge found that Glencore was unaware at the time of shipment that Steinweg and MSC were using the ERS. He also held that the port agents had no authority to vary the contract of carriage. These two conclusions were not challenged on appeal. He held that MSC were liable for misdelivery and that the release note, whether or not coupled with the pin code, did not amount to a delivery order as required by the bill of lading; nor in any event to a ship’s delivery order within the meaning of section 1(4) of the Carriage of Goods by Sea Act 1992. He also held that Glencore were not estopped by the conduct of their agents in accepting the varied procedure on 69 previous occasions from insisting on strict performance on the seventieth.
Four grounds of appeal were advanced, namely:-
i. that there had been a symbolic delivery, because the provision of the pin codes was equivalent togiving the receiver the key to the warehouse;
ii. that the release notes coupled with the pin codes amounted to a delivery order and that was sufficient;
iii. that the release notes coupled with the pin codes did in any event amount to a delivery order within the meaning of the 1992 Act; and
iv. that the conduct of Glencore’s agents gave rise to an estoppel against challenging the revised delivery procedure.
There was also an application to add a further ground on the basis of evidence coming to light after the trial, but the application was dismissed.
Ground (i), symbolic delivery failed on the facts, and calls for no further comment.
Sir Christopher Clarke gave the only reasoned judgment in the Court of Appeal, Lewison and Henderson LJJ agreeing. He held in relation to ground (ii) that the term delivery order might have several meanings, but in the context of this bill of lading meant a ship’s delivery order, as that expression was defined in Section 1(4) of the Carriage of Goods by Sea Act 1992 which provides as follows:-
4. References in this Act to a ship's delivery order are references to any document which is neither a bill of lading nor a sea waybill but contains an undertaking which—
a. is given under or for the purposes of a contract for the carriage by sea of the goods to which the document relates, or of goods which include those goods; and
b. is an undertaking by the carrier to a person identified in the document to deliver the goods to which the document relates to that person.
In relation to ground (iii), he rejected Glencore’s submission that the electronic release note was not a document, but he upheld their submission that it was not a delivery order within section 1(4) either because it did not contain an undertaking to deliver to anyone, or because it did not contain an undertaking to deliver specifically to Glencore or its port agent. It seems therefore that the Court required an express identification of the obligor and the obligation.
So far as estoppel, ground (iv), is concerned, the Court rejected the submission that the 69 previous transactions where the ERS had been followed by the parties gave rise to an estoppel in favour of MSC. It was held that there was no representation by Steinweg that the Release Notes coupled with the PIN codes were to be treated as the equivalent of delivery orders for the purposes of the bill of lading. Rather they were merely repeated instances of toleration by the receivers of breach of contract by the carriers in tendering documents in exchange for the bill of lading other than a delivery order as required by the terms of the bill. The decision therefore illustrates the distinction between contractual waiver and waiver/equitable estoppel. The Court also held that just as Steinweg lacked authority to vary the contract, so they lacked authority to waive the terms so as to create an equitable estoppel even though they could waive the breach.
The decision is of general interest for three main reasons. First, there was no previous guidance as the interpretation of the expression “ship’s delivery order” in section 1(4) of the 1992 Act. Secondly, the case concerned a commonly used term in a bill of lading in the context of what is a procedure increasingly to be found in ports, particularly large container ports, which have throughout this century been introducing systems whereby containers may or must be retrieved from a container park by reference to computer codes rather than the presentation of physical documents. The result of the Court’s decision is in effect to transfer of the risk of theft from the receiver to the carrier in such cases. Thirdly, the decision on estoppel is a striking illustration of the way in which the rules relating to variation of contract, equitable estoppel, waiver and the authority of agents as regards all of these may intersect.
To download a copy of the Judgment, click here.
Mon, 05 June, 2017
Gard Shipping v Clearlake Shipping  EWHC 1091 (Comm) Sir Jeremy Cooke 12 May 2017
Persimmon v Ove Arup  EWCA Civ 373 Court of Appeal (Jackson, Beatson, Moylan LJJ) 25 May 2017
In this update, we draw attention to two recent cases addressing the correct approach to the construction of contracts.
The Gard Shipping case is of interest, as it is the first application in a first instance decision, of the recent Supreme Court decision in Wood v Capita Services, which rejected the suggestion that there was any tension between the Supreme Court’s earlier decisions in Rainy Sky v Kookmin Bank and Arnold v Britton. It also considers the application of the Supreme Court decision on the implication of terms in Marks & Spencer v BNP Paribas.
The decision in Persimmon is striking, not so much for what it decides, as to the doubt it casts on the continuing relevance in commercial contracts, of the principle of contra proferentem and the rule in relation to exemption clauses flowing from the Canada Steamship case.
Gard Shipping v Clearlake
The Supreme Court decision Rainy Sky in 2011 opened the floodgates: no case on construction could be argued without it being asserted or, indeed, “trumpeted” (per Eder J in Aston Hill Financial) by each side that its interpretation made more commercial sense.
This development was not embraced with enthusiasm by most first instance judges. How could advocates or judges discern what, objectively, made commercial sense in myriad different circumstances? And even if they could, construing a contract in accordance with objective commercial sense risked rewriting the bargain actually struck by the parties.
Such doubts seemed to be reflected in the subsequent Supreme Court judgment in Arnold v Britton in June 2015. This was widely seen as being a “rowing back” from the free-for-all of Rainy Sky. Although there was no criticism of Rainy Sky per se, the Supreme Court emphasized the importance of the language of the provision which was to be construed. Commercial common sense was not to be invoked to undervalue the importance of the language.
Then, in March of 2017, came the Supreme Court decision in Wood v Capita Services. Giving the only judgment, Lord Hope emphatically rejected the submission that Arnold was a rowing back from or recalibration of Rainy Sky. What the court has to do, in any case, is, in the unitary exercise of construction, balance the indications given by the language and the commercial implications of competing constructions. The balancing exercise is key to the approach.
As to how that balance is to be struck, Lord Hodge identified 3 factors (which must be viewed as non-exhaustive): (1) the quality of the drafting - the poorer the drafting the more the balance may tip away from a strict semantic reading; (2) the court should bear in mind that one party may simply have made a bad bargain; and (3) the court should bear in mind that the drafting may be a negotiated compromise, with the parties unable to agree more precise terms.
Gard shows the first application of Wood in a first instance decision.
A voyage charterparty based on BPVOY4 contained standard laytime/ demurrage provisions. It also contained specifically agreed terms that the charterers had the liberty to order the vessel to stop and wait for orders. If they exercised that liberty, waiting time was to count as laytime and demurrage was to be payable at enhanced and escalating rates. The charterers did not give a “stop and wait” order. Instead, after the vessel tendered a Notice of Readiness (NOR) at the discharge port, the charterers simply gave no discharge orders at all for over 2 months.
The owners argued that it was clear that the commercial purpose of the clause was to make the charterers pay at the enhanced rates, where they used the vessel as floating storage. They had used the vessel as floating storage at the discharge port. It could make no commercial sense if the charterers could avoid the enhanced rate by the tactic of giving no orders, after NOR, rather than giving a “stop and wait” order. Commercially the two amounted to the same thing, and should attract the same consequences.
Sir Jeremy Cooke had no hesitation in rejecting this argument. The wording of the specially agreed terms required a “stop and wait” order to trigger the enhanced rates. There was no such order. Therefore, the enhanced rates were not triggered. The ordinary demurrage rate applied. He also firmly rejected the owners’ alternative argument based on an implied term on the grounds of lack of commercial necessity.
This case, therefore, provides an early indication that in charterparties, which are indeed often a negotiated compromise, in carrying out Lord Hodge’s balancing exercise judges will give more weight to the words the parties have actually used, rather than arguments based on supposed commercial common sense. Notwithstanding Lord Hodge’s assertion that Arnold did not recalibrate Rainy Sky, the post-Arnold focus on the actual words of the contract is likely to be maintained.
Persimmon v Ove Arup
The correction of approach to the relevance and utility of the so-called “commercial” approach to construction of commercial contracts post Arnold v Britton and the current emphasis on the primacy of the language used by the parties as usually the best and surest guide to what they intended to achieve has found an echo in the rather different field of exemption clauses. The traditional approach that an exclusion or exemption clause is to be construed contra proferentem (once one has decided who the proferens is) in the event of any ambiguity has ruled the field for many years, although there have been many statements to the effect that it is not to be deployed where the words are themselves sufficiently clear. But the trend has increasingly been to give effect to exclusion clauses in commercial contracts without resort to maxims of hostile construction where the wording is subjected to some special linguistic threshold or a more demanding need for clarity.
An early indication of the new approach was given by Lord Neuberger MR in K/S Victoria Street v House of Fraser  EWCA Civ 904, although was perhaps lost sight of. The position was reviewed more clearly and emphatically in the context of the mutual indemnities and exclusions in Transocean Drilling v Providence Resources (The Arctic III)  EWCA Civ 372 where the Court of Appeal ruled that the principle had no role to play in the case of a mutual clause “especially where the parties are of equal bargaining power”, and stressed the parallels with Arnold v Britton. The Court distinguished the sort of mutual exclusion clause before it from what it described as “a typical exclusion clause, by which a commercially stronger party seeks to exclude or limit liability for its own breaches of contract.” The decision raised a number of questions in particular as to equality of bargaining power and the consistency of the Court’s approach in the light of a case decided by the Court of Appeal just shortly before (: Nobahar-Cookson v The Hut Group Ltd  EWCA Civ 128) in which the contra proferentem approach appeared to receive restatement and approval. However the Court was clear that it was not intending to cast any doubt on the allied principle of construction that clear words were required to exclude liability for negligence and the ‘Rule’ in Canada Steamship.
The recent decision in Persimmon Homes v Ove Arup appears to continue the trend towards minimising the scope for a contra proferentem approach generally, and not just in the context of mutual exclusion or exemption clauses. The case raised issues of construction under a contract for consultancy and surveying services rendered by Ove Arup to Persimmon and other parties relating to a redevelopment project for the Barry Docks. Asbestos was found in more than expected quantities for which it was alleged that Ove Arup was responsible by negligently failing to detect and manage that risk. A number of issues arose as to the application of exclusion and limitation clauses. In particular a clause which read “Liability for any claim in relation to asbestos is excluded”.
The Court of Appeal re-endorsed in terms the approach in K/S Victoria Street to the effect that the language used should be and usually is enough to resolve the meaning without resort to “rules” of construction and the approach taken in The Arctic III. But more importantly it went a step further and doubted the relevance and applicability of the Canada Steamship principles (by which a clause must either expressly refer to negligence or some synonym of it or, if it does not, must indicate that it covers negligence with general words being read as covering non-negligent liability if possible to do so and unless such liability is fanciful).
The Court stressed that it was necessary to distinguish between a simple exclusion of liability and an indemnity clause requiring a party to hold the other harmless from the consequences of that party’s negligence and that, at least in the former case, the Court’s “impression” was that Canada Steamship guidelines “in so far as they survive” are “now more relevant to indemnity clauses than to exemption clauses” and that in commercial contracts between sophisticated parties, such as a large construction contract, it should all turn on the language. The Court made it clear that the wording in question (referred to above) was clear enough to cover liability for negligence and that Canada Steamship was simply not of assistance. As belt and braces the Court then applied Canada Steamship and held that any liability other than liability for negligence was indeed fanciful.
The case represents a further cutting back of the application of technical canons of construction to exclusion clauses in the commercial context in favour of simply giving ordinary language its effect. It also states, perhaps more clearly than before, that the same approach applies generally and that Canada Steamship is not exempt from the process.
Although the Court was at pains to stress that the issues before it were not such as to merit a general review of Canada Steamship, its words will be likely to be cited generally as building on an Arnold v Britton approach, even to exclusion clauses: “Exemption clauses are part of the contractual apparatus for distributing risk. There is no need to approach such clauses with horror or with a mindset determined to cut them down.”
Thu, 18 May, 2017
We are delighted to welcome commercial chancery specialist Nicola Allsop to Quadrant Chambers. Nicola specialises in civil fraud, insolvency and company law (particularly shareholder disputes) and litigation arising out of the breakdown of business relationships. Her practice has a strong international element, including cross-border and jurisdiction disputes. She was called to the Bar of the BVI in 2012 and the Cayman Islands in 2016.
Nicola brings with her a wealth of trial experience both as sole counsel and as part of a team. Notable cases include the Weavering litigation which occupied her throughout most of 2016 and concerned a claim against the Fund’s Cayman auditors arising out of a large-scale fraud perpetrated by the Fund’s founder Magnus Peterson; a 10-week fraud trial Sita v Serruys; a series of matters arising out of the collapse of the Arch Cru Fund; and a long-running shareholder dispute involving the Barclay Brothers and the affairs of Coroin Limited, the owner of Claridges, the Berkeley and the Connaught.
“I am delighted to be joining Quadrant Chambers, I am particularly impressed with the professional, commercial and business attitude adopted to the running of chambers and the approachability of barristers and clerks. I look forward to adding strength to their already dynamic commercial chancery team.” Nicola Allsop
“It is a pleasure to welcome Nicola to Quadrant Chambers, with her commercial chancery and international experience she will be a tremendous asset to our highly regarded commercial chancery team”. Luke Parsons QC, Head of Quadrant Chambers
Nicola joining Quadrant Chambers further strengthens the commercial chancery team and is part of the active recruitment of commercial chancery practitioners to chambers. 2017 has seen two new commercial silks for chambers, with the elevation of Michael McParland QC and Robert-Jan Temmink QC. We are recommended in the UK, Asia-Pacific and Global legal directories and as a leading set in the fields of commercial dispute resolution, aviation, commodities, energy, insurance & reinsurance, international arbitration and shipping. Quadrant was named International Arbitration set of the year at the 2017 Legal 500 UK Awards and has been shortlisted for Chambers of the Year at The Lawyer Awards 2017.
We welcome applications from established individuals or teams. Enquiries and applications in the first instance should be made in confidence to Chirag Karia QC.
Wed, 17 May, 2017
We are delighted to announce that Michel Kallipetis QC has been awarded Mediator of the year 2017 and listed in Who’s Who Legal Global Thought Leaders for Mediation.
Please click here to view all Who's Who Legal Practice Area Awards 2017.
Wed, 10 May, 2017
The Supreme Court has today given judgment in The “Ocean Victory”, an appeal which considered important issues in three areas: safe port obligations in charter parties, the impact of insurance provisions on the right to claim against third parties, and the scope of limitation of liability. All of the parties instructed members of Quadrant Chambers. James M. Turner QC was instructed by Gard, Michael Davey QC was instructed by Sinochart, and David Goldstone QC was instructed by Daiichi.
Click here to download the judgment.
The vessel “Ocean Victory” was ordered to discharge a cargo of iron ore at Kashima, Japan in October 2006. Whilst discharging, the meteorological phenomenon of “long waves” made it unsafe to remain at the berth. The vessel attempted to leave the port and in so doing met with severe weather at the entrance to the port. As a result, she grounded and was a total loss. Losses amounted to some US$ 170 million. The trial judge, with as much experience of safe port claims as any other in this field, held that the port was unsafe, since both the susceptibility to “long waves” and the danger of storms closing the entrance/exit to the port were “characteristics" of Kashima. The Court of Appeal disagreed with the judge, holding that what had to be considered was the combination of characteristics, and deciding that the combination of characteristics was not characteristic of the port. The Supreme Court unanimously held that the Court of Appeal was correct. It reaffirmed one traditional understanding of what made a port unsafe, but some may say it left unresolved a number of issues as to how tribunals are to act in what is a fertile area for shipping disputes.
Having decided that the port of Kashima was safe, none of the other points arose for decision. But the Supreme Court recognised that they were each of general importance.
The second question which arose was the right of the bareboat charterers of the vessel to bring a claim at all. The bareboat charterers alleged that as a result of the total loss of the vessel at an unsafe port, they were liable to the registered owners of the vessel and entitled to recover such loss from the time charterers who had sent the vessel to such a port. It was argued by the time charterers and sub-time-charterers that there was no such liability, as the bareboat chartering regime contemplated that the parties would look to insurance paid for by the demise charterers, to the exclusion of claims between the parties. As between registered owners and bareboat charterers it made sense that there would be no litigation, but if that ruled out claims against third parties responsible for the loss, the answer becomes less clear. The judge ruled that the charter regime did not preclude a claim. The Court of Appeal disagreed. The Supreme Court upheld the Court of Appeal by a majority of 3:2. How this will play out for other contracts with insurance -based solutions will no doubt provide much scope for debate.
Finally, the Supreme Court ruled on a relatively old question under the 1976 Convention on Limitation of Liability of Shipowners. That regime expressly brought charterers within the fold of parties entitled to limit their liability for maritime casualties, but left unanswered questions as to how limitation was intended to work as between Owners and Charterers themselves. Could Charterers limit their liability against Owners in respect of the loss of the vessel? In 2004, in the “CMA Djakarta”, the Court of Appeal ruled that Charterers could not. The House of Lords granted permission to appeal, but the case settled before the hearing. The correctness of the decision was therefore open to question, and difficulties in applying the regime in practice had led to uncertainty. The Supreme Court unanimously endorsed the decision in The “CMA Djakarta”, though it will remain a matter of controversy as to whether the workings of the regime have been fully explained by this decision at the highest level
Tue, 09 May, 2017
We are delighted to announce that Quadrant Chambers has been shortlisted for Chambers of The Year as part of The Lawyer Awards 2017.
The awards ceremony will be taking place at Grosvenor House, Park Lane on Tuesday 27th June 2017. A full list of the nominations can be viewed here.
Thu, 04 May, 2017
John Russell QC and Benjamin Coffer (instructed by Clyde & Co LLP) have obtained permission from the Supreme Court to appeal the controversial Court of Appeal decision in Volcafe v. CSAV  1 Lloyd's Rep. 32.
The Supreme Court will therefore have the opportunity to clarify the fundamental legal principles which apply in cargo claims, and in particular the burden of proof, the relationship between the defences in Article IV.2 of the Hague Rules and the obligations of the carrier under Article III.2, and the scope of the inherent vice defence.
The Court of Appeal held that, even where the Hague Rules apply, there is a legal burden on a carrier as a bailee to prove that it is not liable for the damage, by reference to the terms of the contract (including the Hague Rules and the defences in Article IV.2). However, the Court went on to hold that the carrier could discharge that burden merely by showing “a prima facie case for the application of the exception of inherent vice” . This appears to suggest that the carrier can shift the legal burden back on to the claimant by something less than proof on the balance of probabilities that an exception applies.
The Supreme Court will consider whether that conclusion was correct, or whether a carrier must go further and prove on the balance of probabilities that the loss does in fact fall within one of the exceptions. That requires consideration of the essential nature of a legal burden of proof, as well as the interaction between Article III.2 of the Hague Rules and the defences in Article IV.2.
The Court will also consider precisely what must be proven to establish the defence of inherent vice. The classic definition of ‘inherent vice’ in the carriage context is that of Gorell Barnes J in The Barcore  P 294 at 297: “[The cargo] deteriorated in condition by its own want of power to bear the ordinary transit in a ship”. In the leading decision on the defence, the House of Lords held that “ordinary transit” means “the kind of transit which the contract requires the carrier to afford” or “the voyage provided for in the contract”: Albacora SRL v. Westcott & Laurance Line Ltd  2 Lloyd’s Rep 58 per Lord Reid at 59. These dicta suggest that the defence is only available where the cargo is not capable of withstanding the contractual voyage, i.e. a voyage under the conditions of care which the carrier was contractually obliged to provide.
The Court of Appeal held that the Defendant had discharged the burden of proving that the inherent vice defence applied, because “the damage to the cargoes was due to condensation and that the source of the condensation was the coffee beans themselves” . The Court of Appeal therefore appears to have considered that the carrier is only required to prove that the moisture which caused the damage originated within the goods in order to bring itself within the defence. The Supreme Court will be asked to choose between these two possible approaches to the defence.
Tue, 25 April, 2017
Quadrant Chambers is delighted to announce the Spring 2017 issue of our International Arbitration Newsletter.
Sir David Steel provides the editorial of this edition, where he looks at recent changes to the SIAC Arbitration Rules and the ICC Rules in response to the increasing demand for international arbitration to be more efficient and cost effective.
This issue includes a guest article on third party funding in Asia by Chan Leng Sun, Global Head of Arbitration and Head of Dispute Resolution at Baker & McKenzie Wong & Leow.
Quadrant’s Koye Akoni looks at the recent decision in the long-running saga of IPCO v NNPC, where the Supreme Court held there was no jurisdiction for the English Court (as the enforcing court) to order security for an award as a condition for a party to be allowed to resist enforcement.
Please click here to view the publication.
Previous Publications - Please click on the publication to view
Thu, 20 April, 2017
Our Energy Disputes Seminar is taking place on Wednesday 26 April 2017 with the generous co-operation of CMS UK.
The programme has now been confirmed:
The seminar is free to attend and places will be allocated on a first come, first served basis. We therefore recommend early confirmation to ensure that a place is reserved for you. Registration will open at 5.30pm, with the seminar starting promptly at 6pm. Please join us after the seminar for drinks and canapés.
Thu, 13 April, 2017
Leading aviation specialist Tim Marland acted for the successful appellant aerodrome in Peires v Bickerton’s Aerodromes  EWCA Civ 273, an important decision in the Court of Appeal on the scope of the statutory immunity for nuisance under s.76(1) of the Civil Aviation Act 1982.
Since 1920 there has been a statutory immunity against actions for trespass or nuisance caused by aircraft in flight. The latest incarnation of this immunity is to be found in s.76(1) of the Civil Aviation Act 1982, and is extended to aircraft on the ground by virtue of s.77(2). In Peires v Bickerton’s Aerodromes, the Claimant, who owned a large house less than 60 metres from the boundary of Denham aerodrome, brought a noise nuisance complaint against the owners of the aerodrome in relation to the noise generated by helicopters performing a training exercise on sloping ground just inside the boundary and therefore close to her house.
At first instance Peter Smith J held that the immunity did not apply since the training operation did not involve “a flight” within the meaning of the immunity and the frequency and duration of the activities meant that they were not reasonable within the meaning of s.76(1). Tim Marland was instructed by the aerodrome for the appeal. The Court of Appeal held that the judge’s interpretation of the statute could not be justified. In reliance on the definition of ‘in flight’ in the Air Navigation Order 2016, and by reference to inter alia the Standardised European Rules of the Air, it was clear that ‘flight’ included helicopters manoeuvring to perform standard training activities. It was also clear that the only element of reasonableness within the statute was as to height, not as to matters such as frequency or duration – indeed, the very existence of the immunity presupposed that the activities complained of would be, from a common law perspective, unreasonable.
The Court of Appeal gave a written judgment in recognition of the wider implications of this decision, in particular the safety implication which would attend if helicopters performing aerial manoeuvres were not ‘in flight’ and therefore not subject to the safety regulations set out in SERA and the Air Navigation Order. In its judgment the Court has confirmed the width of the immunity and that it is not confined to flights from A to B, but essentially covers all aerial activity which is compliant with the Air Navigation Order.
A copy of the judgment is available here.