Gough Afloat

On 3rd September 2009, Stephen Mann of GOUGH attended the Isle of Man Yacht and Aircraft Conference at Barclays, Canary Wharf, London as one of the Isle of Man's key representative speakers where he explained the intricacies of corporate structures for jet ownership under the Isle of Man flag including: Client Confidentiality, Protection of Assets, Possible Structuring Methods, Family Wealth Management Plans, Liaison on Legal and Tax Advice Considerations.

In the last 12 months GOUGH have been involved in a number of shipping matters, both contentious and non-contentious and maintain a presence with the Isle of Man Shipping Association.

The Isle of Man hosts a number of large commercial shipping companies and of course many vessels flying the Red Ensign as Manx ships, both in the commercial and leisure sectors.

Those vessels and companies engaged in international commerce and/or taking international charters will need to be aware of general developments in the common law relating to shipping and international trade and Stephen Mann of GOUGH takes us through some of the more significant recent English cases in this article.

Arbitration Issues
No anti-suit injunctions from the UK court in respect of action brought in EU courts in breach of an arbitration agreement: Owners sought to prevent charterers / their insurers bringing court proceedings when an arbitration agreement was in place, by obtaining an anti-suit injunction from the English court, ordering the claimant to stop the foreign court action. Was this prevented by EU-law, which requires, in the event of a court action being started in another EU-state,  the English courts to let that other EU-state's court decide whether the subject arbitration agreement was binding? The European Court of Justice has now decided that such anti-suit injunctions now cannot be used between different EU-states. The message is that while the anti-suit injunction remains a useful weapon where foreign proceedings are brought in breach of an arbitration clause in a court outside the EU, it is no longer available where the court is within it.

Damages against cargo insurers where they induce their insureds to arrest vessels in breach of arbitration clauses in contracts of carriage: Cargo insurers demanded that as part of the bank guarantees they demanded in return for releasing vessels from arrest the owners would submit to Senegal jurisdiction for the cargo damage claims, notwithstanding the contractual obligation on cargo owners to go to London arbitration. The court held the cargo insurers liable for the additional lost time and other expenses caused by their actions, under the tort of procuring the cargo owners' breach of the arbitration clause in their contract of carriage. The message for owners is that if a conservatory arrest becomes an attempt to breach agreed jurisdiction clauses, damages may lie against both the contract counterparty and any insurer who effectively directs his action. Outside the EU (see below) an early anti-suit injunction may assist the owner. The message for cargo underwriters is to beware action like the above – personal liability may follow.

Restraining cargo claims made in breach of arbitration agreements: Cargo insurers/ receivers brought proceedings in China in breach of an arbitration agreement. Owners sought an anti-suit injunction to restrain them. The court had to consider whether the injunction issue should, following the Arbitration Act provision, be remitted to the Tribunal to seek its permission, or whether this could be avoided on the grounds that the court could grant the injunction, on the basis that it was needed urgently to preserve assets. The court considered that the owners' right to have a claim decided in arbitration was an asset which could be lost if the Tribunal did not rule on the issue before the Chinese court and granted the injunction. The message is that owners faced with oppressive cargo claims in unfavourable jurisdictions should not, in these circumstances, be hampered by the Arbitration Act in obtaining an anti-suit injunction from the courts.

Arbitration clauses surviving bribery: A number of Shelltime 4 charters of fleet vessels were alleged to have been procured by bribery and the ship-owners sought to claim rescission of them on the ground of fraud. The charters included an arbitration clause. The question for the court was whether the arbitration clause continued to apply, when it was argued the effect of the charter in which it was found, fell away. The court found that the arbitration clause did apply to the bribery dispute. The message for owners concerned that their agents might be bribed into entering contracts and who do not wish to be bound by arbitration clauses in them, is to ensure the arbitration clauses are drafted so as to allow court action in the event of allegations of bribery. Otherwise arbitration agreements can only be impugned on very limited grounds. 

Charterparty Issues

Charterparties – damages for breach of contract: Recent case law has provided some clarification on recoverable losses. What should happen where charterers breach the contract and deliver late, meaning owners miss out on a fixture they made in a high market and have to refix in a poor one? Can owners claim the difference between the old "high" rate and the new lower market one? And what about if charterers repudiate and face a prima facie liability to pay owners the difference between their charter rate and market rate for the duration of the charter, but events, such as war, subsequently arise and show that the charter would have been frustrated in any event? Broadly speaking the courts have stated that in the case that a "high" fixture is lost due to a late redelivery the damages payable will only be set at the market rate for the period during which redelivery is withheld – the reasoning being that the charterers could not reasonably be taken to have agreed to be responsible for all fluctuations in the market during the charter period. As for the case where frustrating events arise during a period for which charterers would otherwise have been paying owners charter rate less market rate, the courts have said that charterers can rely on the events that actually occur, such as war, to terminate their liability in damages. The reasoning is to avoid over-compensation. The points have been hotly debated. The message for owners is that better compensation than the above will require specific charter clauses.

Notices of Readiness – acceptance by charterers' agents: Notices of readiness may be given under charterparties, bills of lading and commodity sale contracts. In each case they may be given to different parties and their validity may depend on different contractual terms. Accordingly, a charterer seeking to rely on charter terms preventing NOR tender outside port, except where there is congestion inside, will want to ensure his agents do not represent to owners that NOR has been accepted "by terminal" (or "shippers", for example) without making clear that charterers do not waive any irregularity in such tender under the charter. The terminal/ shippers may be unaware of charter terms differing from bill of lading/ contract of carriage terms. A recent court ruling found charterers' bound by their agents' apparent endorsement of a terminal's acceptance of a NOR that would otherwise have been invalid under the charter.


Statutory compensation for unlawful detention

Compensation from MCA for detention of "dangerously unsafe ship" under UK Merchant Shipping Act ss. 94/95: Cruise ship "VAN GOGH" was detained by the MCA due to sickness on board under the sections above. Her owners considered the detention wrongful. What were their remedies? The court made clear that owners needed to pursue statutory compensation in arbitration. They could not bring a court claim for damages for improper application of the sections to detain the ship and had no tort action for conversion, since the DoT/MCA was never in possession of the ship (albeit they had restricted her movements), this being one of the fundamental requirements of the conversion action. The message is to start the statutory arbitration in good time, failing which the only useful remedy will be lost.

Further information about any of the above decisions, their relevance in the Manx legal system or any questions relating to shipping, insurance or international trade under Manx or English law can be addressed to Stephen Mann at stephen.mann@goughco.com

Restraining cargo claims made in breach of arbitration agreements: Cargo insurers/ receivers brought proceedings in China in breach of an arbitration agreement. Owners sought an anti-suit injunction to restrain them. The court had to consider whether the injunction issue should, following the Arbitration Act provision, be remitted to the Tribunal to seek its permission, or whether this could be avoided on the grounds that the court could grant the injunction, on the basis that it was needed urgently to preserve assets. The court considered that the owners' right to have a claim decided in arbitration was an asset which could be lost if the Tribunal did not rule on the issue before the Chinese court and granted the injunction. The message is that owners faced with oppressive cargo claims in unfavourable jurisdictions should not, in these circumstances, be hampered by the Arbitration Act in obtaining an anti-suit injunction from the courts.

Arbitration clauses surviving bribery: A number of Shelltime 4 charters of fleet vessels were alleged to have been procured by bribery and the ship-owners sought to claim rescission of them on the ground of fraud. The charters included an arbitration clause. The question for the court was whether the arbitration clause continued to apply, when it was argued the effect of the charter in which it was found, fell away. The court found that the arbitration clause did apply to the bribery dispute. The message for owners concerned that their agents might be bribed into entering contracts and who do not wish to be bound by arbitration clauses in them, is to ensure the arbitration clauses are drafted so as to allow court action in the event of allegations of bribery. Otherwise arbitration agreements can only be impugned on very limited grounds. 

Charterparty Issues

Charterparties – damages for breach of contract: Recent case law has provided some clarification on recoverable losses. What should happen where charterers breach the contract and deliver late, meaning owners miss out on a fixture they made in a high market and have to refix in a poor one? Can owners claim the difference between the old "high" rate and the new lower market one? And what about if charterers repudiate and face a prima facie liability to pay owners the difference between their charter rate and market rate for the duration of the charter, but events, such as war, subsequently arise and show that the charter would have been frustrated in any event? Broadly speaking the courts have stated that in the case that a "high" fixture is lost due to a late redelivery the damages payable will only be set at the market rate for the period during which redelivery is withheld – the reasoning being that the charterers could not reasonably be taken to have agreed to be responsible for all fluctuations in the market during the charter period. As for the case where frustrating events arise during a period for which charterers would otherwise have been paying owners charter rate less market rate, the courts have said that charterers can rely on the events that actually occur, such as war, to terminate their liability in damages. The reasoning is to avoid over-compensation. The points have been hotly debated. The message for owners is that better compensation than the above will require specific charter clauses.

Notices of Readiness – acceptance by charterers' agents: Notices of readiness may be given under charterparties, bills of lading and commodity sale contracts. In each case they may be given to different parties and their validity may depend on different contractual terms. Accordingly, a charterer seeking to rely on charter terms preventing NOR tender outside port, except where there is congestion inside, will want to ensure his agents do not represent to owners that NOR has been accepted "by terminal" (or "shippers", for example) without making clear that charterers do not waive any irregularity in such tender under the charter. The terminal/shippers may be unaware of charter terms differing from bill of lading/ contract of carriage terms. A recent court ruling found charterers' bound by their agents' apparent endorsement of a terminal's acceptance of neither a NOR that would otherwise have been invalid under the charter.

Statutory compensation for unlawful detention
Compensation from MCA for detention of "dangerously unsafe ship" under UK Merchant

Shipping Act ss. 94/95: Cruise ship "VAN GOGH" was detained by the MCA due to sickness on board under the sections above. Her owners considered the detention wrongful. What were their remedies? The court made clear that owners needed to puruse statutory compensation in arbitration. They could not bring a court claim for damages for improper application of the sections to detain the ship and had no tort action for conversion, since the DoT/MCA was never in possession of the ship (albeit they had restricted her movements), this being one of the fundamental requirements of the conversion action. The message is to start the statutory arbitration in good time, failing which the only useful remedy will be lost.

Further information about any of the above decisions, their relevance in the Manx legal system or any questions relating to shipping, insurance or international trade under Manx or English law can be addressed to Stephen Mann at stephen.mann@goughco.com

Article posted: 15/09/2009