Australia: Transport & Logistics News - March 2017: part 2

This article is part of a series: Click Transport & Logistics News - March 2017: part 1 for the previous article.

Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [2016] FCA 1131

This was an attempt to set aside an arbitration award in a commodity transaction involving the sale from Noble Resources to Sino Dragon of 170,000 mt of iron ore. There had been previous attempts to have two of the arbitrators removed. The award which was given in Sydney was recognised in Hong Kong and leave to enforce it was given in that jurisdiction where the applicant, Sino Dragon, was incorporated.

The applicant sought to set aside the original award in the Federal Court pursuant to Article 34(2) of the UNCITRAL Model Law which is given the force of law in Australia by the International Arbitration Act 1974.

The application was unsuccessful and Beach J dismissed it. The challenges which were made were summarised by Beach J in his judgment as being that:

  1. the arbitration dealt with a dispute not contemplated by the arbitration clause in the Contract of Sale. His Honour commented that: "this ground is in substance a challenge really going to the merits of legal and factual questions, but superficially characterised and cloaked as an excess of jurisdiction question." His reasons dealt at length with the material upon which he relied to support his comments in that regard.
  2. the evidence of two witnesses called by Sino Dragon via video conference facilities was beset by technical difficulties, giving rise to a lack of procedural fairness. This issue, according to his Honour, caused him some difficulty. It raised the issues of whether Sino Dragon was given a reasonable opportunity to present its case and whether there was a lack of equality of treatment. His Honour did not believe either issue was made out by Sino Dragon. In particular, there had been no "real unfairness" or "real practical injustice". Once again his Honour dealt with all the competing arguments in considerable detail.
  3. two of the three arbitrators were not appointed in accordance with the agreement of the parties and there was a real apprehension of bias. His Honour rejected this ground, again, in considerable detail.

The case is also significant as Sino Dragon was ordered to pay two-thirds of the costs on an indemnity basis and the remaining one-third on a party and party basis. In reaching that decision, Beach J rejected the suggestion that it would be justified by reason of a special rule. However, in applying current principles of Australian law to the issue, his Honour was of the opinion that the first and third challenges that were made in the application to set aside the award did not have reasonable prospects of success.

Watkins Syndicate 0457 at Lloyds v Pantaenius Australia Pty Limited [2016] FCAFC 150

We reported on the first instance decision of this case in Transport & Logistics in June 2016. It involved a claim for contribution by one of the two insurers (the Pantaenius policy) of the same yacht against the other insurers of a second policy (the Nautilus policy). At first instance, Nautilus had unsuccessfully defended the claim in reliance on a provision in this policy which suspended cover in the event that the yacht intended to enter foreign waters. It had entered foreign waters prior to its claim arising but was within the geographical scope of the cover at the time when it ran aground. The central legal issue before Foster J at first instance and the Full Court of the Federal Court (Allsop CJ, Rares and Besanko JJ) was whether or not section 54(1) of the Insurance Contracts Act 1984, which permits the court to overlook acts or omissions of insureds (in certain circumstances), was engaged for the benefit of the claim being pursued by the other insurer who had paid the insured's claim under the Pantaenius policy.

Foster J had held that it did apply as "the suspension provision was in the nature of an exclusion and did not operate as one of the contractually prescribed elements of the geographical limits on the scope of cover itself".

The Full Court agreed, and carried out a full examination of the recent cases in the High Court and Court of Appeal of New South Wales (as well as other courts), but especially Meagher JA's judgment in the NSW Court of Appeal in Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013] NSWCA 252 and the High Court decision of Maxwell v Highway Hauliers Pty Ltd [2014] HCA 33.

The following extract of the judgment (at [46]) explains how the Full Court came to determine the issue that section 54 was engaged:

The Nautilus policy provided cover where, as here, the yacht suffered a casualty within its stated geographical limits of 250 nautical miles off mainland Australia and Tasmania. But for the operation of the suspension of cover, after the insured's act of causing the yacht to clear Australian customs for the purpose of leaving Australian waters and the insured's omission to clear Australian customs after the yacht had re-entered the geographic limits on the return voyage, the Nautilus policy would have responded to the casualty. The act of clearing Australian customs and the omission (as yet at the time of the casualty) on the yacht's return to clear Australian customs, can each be seen to be an act or omission of the insured that occurred after the inception of the Nautilus policy, during its period of cover and within its geographic limits. That was sufficient to engage s.54(1) because the effect of the suspension of cover in those circumstances entitled Nautilus to refuse to pay the insured's claim: Maxwell 252 CLR at 599 [26]-[27].

The Full Court also held (at [52]) that the applicability of section 54 was just as relevant to circumstances in which another insurer sought recovery as when the insured made a claim under that policy because "contribution between insurers is founded in equitable principle... It is the existence of co-ordinate liabilities of two parties that gives a right of contribution. A payment under one policy relieves the other policy of what would be a liability were a claim to be made on it... Natural justice and equality underpin the right."

Bibin v Mainfreight International Pty Ltd [2016] NSWCATCD 70

The decision of Member French in the New South Wales Civil and Administrative Tribunal provides an example of the evidential difficulties faced in small cargo damage claims.

The applicant had imported building products from China. At the time of despatch, the supplier had sent a very apologetic email to the applicant purchaser regarding damage which had been sustained to the products prior to shipment. The supplier apologised for the rough cutting of building panels and advised there would also be some damage on loading and unloading the shipping containers owing to the size of items shipped.

When the cargo arrived and was unpacked, the applicant refused delivery of much of the cargo, purchased replacement goods and brought a claim against Mainfreight for the cost of the goods, storage, customs clearance and port charges, replacement costs and for consequential costs, including additional rental costs and interest, a claim in excess of the Tribunal's AU$40,000 jurisdiction. It was conceded by the applicant that the Tribunal could not compensate it beyond AU$40,000 and to that extent abandoned the excess claim.

It was argued by Mainfreight that the Tribunal lacked jurisdiction to determine the dispute because the claim was one in the federal Admiralty jurisdiction as it concerned issues regarding international shipping. The Tribunal rejected this argument, the claim instead being one based on breach of the New South Wales Fair Trading Act and the Australian Consumer Law which arose from the unloading of the shipping containers.

However, the Tribunal found that while there was evidence that the arrived condition of the goods was worse than that on loading of the containers, there was insufficient evidence to discount the possibility of damage having been sustained during the voyage. There was also a lack of evidence of any fault or neglect on the part of Mainfreight in the manner in which the cargo was unloaded by its employees.

In all the circumstances, the applicant's claim was dismissed for lack of substantiation.

International decisions

Oldendorff GmbH and Co KG v Sea Powerful II Special Maritime Enterprises & Ors (2016) EWHC 3212

This case involved the sale of a cargo of 17 mt of iron ore to Xiamen C&D Minerals Co Ltd by SCIT Trading. It had a contract of affreightment with SCIT Services, who concluded a voyage charter with Oldendorff Carriers GmbH & Co KG for the carriage of cargo to China from Western Australia. Oldendorff Carriers had a long-term contract with Oldendorff GmbH & Co KG which in turn concluded a time charter trip with the owners of the "Zagora".

A letter of indemnity seeking delivery of the cargo without production of the original bill of lading was provided by Xiamen, which had itself on-sold the cargo, ultimately, to Shanxi Haixin International Iron & Steel Co Ltd.

Delivery of the cargo took place to Sea-Road Shipping Agency Co Ltd who had been appointed agent at the discharge port by Shanxi Haixin, and all the way up the chain to Oldendorff. The vessel had arrived at the discharge port on 25 December 2013 and discharge of the cargo was completed on 31 December 2013. The cargo was ultimately transported from Lanshan, the port of discharge, to the ultimate receiver between the 14 January and 8 February 2014. On 20 February 2014, the Bank of China paid the purchase price on behalf of Shanxi Haixin, who were not required to reimburse the Bank of China for 150 days. The Bank of China was in possession of the original bills of lading and arrested the vessel in Lanshan on 27 August 2014. The vessel was eventually released on 24 September 2014 when Oldendorff provided security to obtain its release, without prejudice to its rights to argue that the LOI had not been engaged. The bank's claim was therefore being litigated in China. The arbitrations and appeal therefrom were heard in London.

Although the arbitrations, down the line from the owners to Xiamen, had all been consolidated, the only parties who were represented at the hearing before Teare J were the owners and the Oldendorff companies. The issue in all cases was whether the LOIs were engaged, i.e. were the parties who had sought delivery of the cargo without production of the bill of lading liable to indemnify those to whom they had addressed the letter of indemnity? Teare J found that they were and they were enforceable down the line of the chain of charters. The only factual-legal issue that might have prevented that finding related to the capacity in which the entity to whom delivery of the cargo was made, Sea-Road, was serving. Was it the agent of the ship or the receiver of the cargo? The Court found that Sea-Road had been appointed as agent for the cargo receiver, it being improbable that the owners appointed those agents for the purposes of the delivery of the cargo. The owners had thereby complied with the instructions contained in the letter of indemnity.

Transgrain Shipping (Singapore) Pte Ltd v Yangste Navigation (Hong Kong) Co Ltd (MV "Yangste Xing Hua") (2016) EWHC 3132

This case involved an issue of construction of the Inter-Club New York Produce Exchange Agreement 1996 ("ICA") and whether the term "act" in the phrase "act or neglect" means a culpable act in the sense of fault, or whether it means any act, whether culpable or not.

The cargo in this case was soya bean meal being carried from South America to Iran. The vessel arrived off the discharge port in December 2012, but the charterers ordered the vessel to wait off the discharge port for over four months as they had not been paid for the cargo. The arbitrators had found "it seemed very clear that it actually suited the shippers/charterers, in money terms, to use the vessel as floating storage, at the receiver's expense, rather than unloading it ashore into a bonded warehouse". When ultimately discharged, the cargo in two of the holds was found to be lumpy and discoloured. The tribunal found that the monitoring of the cargo temperatures by the owners was not at fault and that the cause of the damage was a combination of the inherent nature of the cargo (and its oil and moisture content) together with the prolonged period at anchor at the discharge port. The delay was too prolonged, given the moisture content.

Clause 8(d) of the ICA requires cargo claims to be apportioned on a 50/50 basis between charterers and owners, "unless there is clear and irrefutable evidence that the claim arose out of the act or neglect of the one or the other... in which case that party should bear 100% of the claim".

Arbitrators had found that the proviso was engaged in this case and charterers should bear 100% of the consequences, despite finding that there was no "neglect" by charterers, in loading the cargo, "albeit that what in fact they loaded, together with instructions to wait outside the discharge port, was in all probability the cause of the damage...". They therefore had held that "act" was to be distinguished from something suggesting "fault, breach or neglect".

It was submitted in the appeal to Teare J by charterers that "act" means "culpable act" and the phrase "act or neglect" compendiously meant "fault".

Having examined the history of the ICA and other cases, Teare J found that the arbitrator's interpretation was correct; the word "act" in this context did not require fault.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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This article is part of a series: Click Transport & Logistics News - March 2017: part 1 for the previous article.
This article is part of a series: Click Transport & Logistics News - March 2017: part 3 for the next article.
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