UK: Shipping Newsletter - July 2014

Expert legal advice in uncertain waters

Written by legal experts, Clyde & Co's Shipping Newsletter is a regular publication which covers recent legal developments within the sector.

In this issue:

  • "LNG GEMINI""Cargoes Injurious to the Vessel" charterparty clause examined – American Overseas Marine Corporation v Golar Commodities Limited "LNG GEMINI" [2014] – by Hatty Sumption and Dolly Brown
  • "BULK URUGUAY" – Charterers fail to establish anticipatory breach of contract – Geden Operations Ltd v Dry Bulk Handy Holdings Inc. (The "BULK URUGUAY") [2014] – by Iain Rowlands
  • General average adjustments: Importance of LOU security wording – St. Maximus Shipping Co. Ltd v A.P. Moller-Maersk A/S [2014] – by Chris Moxon
  • The "ASTIPALAIA" – VLCC loss of earnings following a collision – Owners of the ship "ASTIPALAIA" v Owners and/or demise charterers of the ship "HANJIN SHENZEN" [2014] – by Victoria MacGregor
  • Port terminal and shipowners dispute liability for crane damage – Terminal Contenitori Porto di Genova Spa v China Shipping Container Lines Ltd [2014] – by Jason Barnes
  • UAE – Ship arrests in the UAE and recent developments – by Khurram Ali

What's new?

  • Fulton Shipping Inc. v Globalia Business Travel S.A.U. (The "NEW FLAMENCO") – by Elizabeth Turnbull and Marcia Perucca
  • Court of Appeal ruling in The "FALKONERA" – by Hatty Sumption and Peter Ward
  • Court of Appeal defines scope of "Charterers' agent" in an off-hire clause – by Ed Webb-Mills and Dolly Brown
  • China's new Enterprise Income Tax regulation and its impact on international transportation business – by Ik Wei Chong, Samuel Yang and Kirsty Gow
  • China: Validity of mortgages established on vessels owned by company in bankruptcy – by Ik Wei Chong and Leslie Shen
  • China: Financial leasing contracts in China – an update – by Ik Wei Chong and Leslie Shen
  • Sanctions update: EU and US announce new measures – by Michael Swangard and Doug Maag
  • Record US sanctions penalties against BNP Paribas – by Doug Maag
  • Ukraine sanctions: EU lists two Crimean companies and 13 further individuals – by Michael Swangard and Rupert Gordon

The "LNG GEMINI" – "Cargoes Injurious to the Vessel" charterparty clause examined

Hatty Sumption and Dolly Brown

In the context of an LNG timecharter, the Commercial Court considered in American Overseas Marine Corporation v Golar Commodities Limited "LNG GEMINI" [2014] the interpretation of an Injurious Cargoes clause commonly found in the standard Shelltime form.

The clause in question reads as follows:

Clause 30

"No acids, explosives or cargoes injurious to the Vessel shall be shipped and without prejudice to the foregoing any damage to the Vessel caused by the shipment of any such cargo, and the time taken to repair such damage, shall be for Charterers' account."

The claimants, American Overseas Marine Corporation (AOM) were the managing owners of the vessel "LNG GEMINI". Golar Commodities Limited (Golar) had the vessel on timecharter for 60 days (15 days more or less, with two charterers' options to extend the hire for further such periods).

Golar ordered the vessel to proceed to and load a full cargo at the Cameron Terminal in Louisiana, USA, intended for carriage to Senboko, Japan. Difficulties were experienced during loading in the form of over-pressurisation suspected to arise from sediment in the cargo. Debris was found clogging filters in the terminal's loading arms. However, discharge in Japan proceeded without incident and no debris was found. The vessel performed several other voyages over the course of the timecharter, subsequent to the operations at Cameron, during which at various times debris was found in the vessel's spray pump strainers.

AOM subsequently took the vessel to a repair yard to undertake pre-planned works, where debris was found in all of the vessel's tanks. AOM claimed that this was sediment from the "Cameron cargo" and that it had damaged the vessel's tanks and pumps. They claimed from Golar the cost of expenses associated with and time spent on undertaking repairs and cleaning tanks at the repair yard on the basis that the Cameron cargo had been an "injurious cargo" for the purposes of clause 30.

In spite of the fact that clause 30 was in the same terms as clause 28 of the standard Shelltime form, there did not appear to be authority on the meaning of "injurious to the vessel".

On the facts, AOM were not able to prove to the Court's satisfaction that any of the damage observed at the repair yard had been caused by the Cameron cargo, or that the repairs and tank cleaning were necessary as a result of the carriage of that cargo. AOM therefore sought to argue that a cargo could be "injurious to the Vessel" without actually causing damage on the basis that if such cargo necessitated cleaning of the vessel's tanks, it would be "injurious" to the purpose of the vessel as an instrument of trade. In the alternative, a cargo could be "injurious" even if it didn't actually cause damage if it was of a kind that had a tendency or propensity to cause damage.

The judge rejected the first argument and said that Clause 30 was directed solely to physical damage. The clause expressly covered two types of cargo which might cause physical damage to the vessel, acid and explosives, and the inference was that it also covered other cargoes that also might cause physical damage. The clause was then concerned with repairs, which connoted physical damage, and only provided an indemnity for time spent to carry out repairs, not for time lost by other reasons, such as cleaning of tanks.

The judge accepted the alternative argument, but in this case AOM had failed to demonstrate that the debris found in the tanks at the repair yard were from the Cameron cargo, or that it had created a risk of damage to the vessel. The judge further noted that the industry did not appear to share the view that particles in LNG cargo create potential dangers for LNG carriers. When SIGTTO1 recommended that strainers be fitted in the manifolds of those ships, they did this for the purpose of protecting receiving terminals, not the LNG carriers themselves. Accordingly, the Judge held that Golar had not shipped an injurious cargo and they were not in breach of the charterparty. Further, AOM had failed to prove much of its damages claim. AOM's claim was accordingly dismissed.

The "BULK URUGUAY" - Charterers fail to establish anticipatory breach of contract

Iain Rowlands

In the recent case of the "BULK URUGUAY", the Court examined whether anticipatory breach of contract can arise purely on the basis of future performance being made contingent on a third party's conduct.

Facts

By way of a time charter entered into on 2 July 2010, the defendant, disponent owners (Owners), chartered the "BULK URUGUAY" to the claimant charterers (Charterers) for a period of about three years.

During the negotiation of the charterparty, Charterers had made it plain to Owners that the ability to transit the Gulf of Aden (GOA) - an area well-known for piracy - without the need to obtain Owners' permission, was of paramount importance as this would result in a competitive advantage over other vessels. Such a clause was included in the final charterparty. In contrast, under the head charter, GOA transit was subject to the consent of the head owners, resulting in Owners' rights and obligations not being back-to-back in this respect.

Shortly after granting permission to transit the GOA on the vessel's maiden voyage, Owners asserted, in correspondence, that the charterparty terms required their permission to be sought each time the GOA was to be transited, and indicated that Owners' position would be dictated by the position taken by the head owners. The Charterers treated the Owners' insistence on prior consent for each occasion as a repudiatory breach which they purported to accept as terminating the charterparty. The Owners, in turn, accepted the Charterers' purported termination itself as a repudiatory breach.

Arbitration

Arbitration was commenced to determine whether the Owners were in anticipatory breach of the charterparty. The majority of the Tribunal found that the Owners were not in repudiatory breach, Charterers were not entitled to terminate and, therefore, the Charterers' purported termination was itself a repudiation which had been accepted by the Owners.

The Charterers appealed2 the decision on the basis that the majority of the Tribunal had made an error of law in determining that the Owners, by their words/conduct, had not evinced an intention not to perform their obligations under the charterparty.

Appeal from the arbitration award

Popplewell J set out that anticipatory breach may consist of one, or both, of two types of conduct. Firstly, renunciation, which comprises words or conduct which clearly evince an intention by a contracting party no longer to be bound by its contractual obligations (the test for this being whether a reasonable person would conclude this to be the case). Secondly, self-induced impossibility, which includes conduct by the contracting party which puts it outside of its power to perform contractual obligations. In each case, the anticipatory breach has to be repudiatory in character, i.e. breach of a condition, or breach of an innominate term which goes to the root of the contract or deprives the innocent party of substantially the whole benefit of the contract.

Popplewell J referred to the comments of Devlin J in Universal Cargo Carriers Corporation v Citati [1957]3 when discussing the relationship between the two types of anticipatory breach and highlighted that the inevitability of non-performance was the common factor which entitled the innocent party to treat the contract as at an end prior to the time for performance. In the case of self-induced impossibility, this meant actual inevitability, while in the case of renunciation, this meant legal inevitability – which is based on what is clearly conveyed by the words or conduct of the contract breaker. Popplewell J went on to stress the high threshold for self-induced impossibility by saying the breach must be inevitable, not very unlikely or uncertain.

Popplewell J made it clear that there was no principle of law whereby there is anticipatory breach purely on the basis that the future performance is made contingent on a third party's conduct.

The Owners' position was not to be understood as being that they would be unable or unwilling to perform their contractual obligations if, and when, Charterers gave an order requiring GOA transit. There was no error of law and the appeal was dismissed. Popplewell J held that the majority had addressed the correct question. The Judge's acceptance that the correct approach was followed resulted in the ground for appeal essentially being one of fact and not law, and, therefore, the decision not being open to challenge on an appeal under section 69 of the Arbitration Act 1996.

Comment

Charterers and owners should consider carefully the basis on which they may claim anticipatory breach. Given the high threshold for establishing self-induced impossibility, renunciation is more likely to be the preferred route for a party wishing to demonstrate anticipatory breach.

Popplewell J stressed the analysis will be a question of fact, in each case, but that anticipatory breach will not be established purely on the basis of future performance being made contingent on a third party's conduct. The judge cited the fact that contractual performance is commonly subject to a host of uncertainties and contingencies. A party seeking to rely on a purported repudiation should be able to demonstrate that the words and/or conduct of the other party have evinced a clear intention to no longer be bound by its contractual obligations and a subjective belief that the other party's breach of contract will be inevitable.

To read this newsletter in full, please click here.

Footnotes

1. The Society of International Gas Tanker and Terminal Operators (SITTGO)

2. Geden Operations Ltd v Dry Bulk Handy Holdings Inc (The "BULK URUGUAY") [2014]

3. Lloyd's Rep 174

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions