Claims and Legal Volume 1: Number 3: November 2009
1. CHARTERERS NOT TO BE DEPRIVED OF FULL CHARTER PERIOD BY GIVING 30 DAY APPROXIMATE NOTICE
2. WITHDRAWAL OF A SHIP FROM A TIME CHARTER FOR NON-PAYMENT OF HIRE AND THE RIGHT TO CLAIM DAMAGES
3. INDIAN LAW PROVIDES A TRAP FOR THOSE RELYING ON FOREIGN ARBITRATION
4. ACCIDENTS IN THE PANAMA CANAL – PROMPT ACTION REQUIRED
5. THE INTERMEDIATE CLAIMS PROCEDURE OF THE LONDON MARITIME ARBITRATORS ASSOCIATION (2009) – A NEW SET OF LMAA TERMS
CHARTERERS NOT TO BE DEPRIVED OF FULL CHARTER PERIOD BY GIVING 30 DAY APPROXIMATE NOTICE
In April of this year the High Court in London held that a time charterers’ 30 day approximate notice of redelivery could be revised by him, even though the shipowner was then forced to lose follow-on business fixed in reliance on the first notice. An article in Lloyd’s List in June 2009 stated that the decision created“legal uncertainty”. However, appreciation of some facts underlying the case – regarding the progress of the voyage and its impact on charterers’ options – does throw more light on the judge’s reasoning.
The charter party provided for a redelivery date range “minimum September 20 / maximum November 22, 2007” and that “charterers are to give owners not less than 30 days followed by 20, 15, 10, 7 days notice of approximate redelivery date”. There was further provision for four notices of “definite” (as opposed to “approximate”) redelivery date. This type of clause requires the charterers to decide when – within the stated date range – they propose to redeliver, and then to give notices of redelivery accordingly.
On 5 October 2007 the charterers gave the following notice to owners: “Approximate notice of redelivery, 1 sp China on about 4 Nov 2007 basis agw, wp, wog, uce”. This was the 30 day notice provided for by the charterparty.
Acting on this notice the owners assumed that the ship would be re-delivered about 4 November and on 15 October they fixed next business with a laycan “1 – 11 November.”
However,on the same day (15 October) that owners fixed the next business they received from charterers the following notice: “We hereby revise the date of redelivery to owners to about Nov 20 within the range of redelivery.” The charter required a notice of “not less than 30 days”so this 35 day notice was, in effect, a revised 30 day notice. It still did not put charterers in breach of their obligation to redeliver the ship by November 22,but it did present owners with a big problem in that they were now going to get the ship back 16 days later than they had at first been lead to expect, and would miss the laycan on their next business.
The owners ignored the revised notice and withdrew the ship from the charter on 2 November in accordance with the first approximate notice given by charterers. They had a laycan to meet! This did mean however that charterers lost the use of the vessel for the final 20 days unexpired period of the charter ie up to 22 November.
The background to charterers’decision to revise the notice was that the vessel came ahead in her schedule unexpectedly which meant that charterers now found they had enough time to fit in an extra voyage, and still redeliver her by 22 November. Charterers’ contention in the case was that an approximate 30 day notice given“wog” (without guarantee) should not deprive them of the right to use the full charter period allowed to them.
In the first instance the dispute was heard in London arbitration as provided by the charterparty. The arbitrators made the following findings in favour of the owners:
• That where the charterers have given such a notice, a term needs to be read/implied into the charter, to make commercial sense of it, that charterers may not themselves do anything that deliberately prevents the approximate date being met;
• That once the owners had acted in reliance on the notice (by fixing new business) the charterers were prevented from revising it. Even though the notice was expressed to be “without guarantee” this should not be allowed to deny the notice of any contractual force.
The arbitrators found in favour of the owners and the charterers appealed this finding in the High Court in London.
The High Court judge rejected the idea that once owners had acted in reliance on the first notice the charterers were “estopped” (prevented from) revising the notice, holding that the first notice was given “without prejudice” and “without guarantee”and owners were therefore not entitled to place such reliance on it.
He also rejected the contention that a term should be implied into the charter that the charterer was obliged not to do anything deliberately which prevented the date of the first notice being met. He held that a term may only be implied or read into the charter where it is necessary for the business efficacy of the contract, and that was not the case here. This was a standard form of charter contract – much used in the industry – and parties had used it perfectly well in the past without implying such a term, therefore it was not necessary to imply one now.
The Judge pointed out that after the approximate notices were given, the charter party provided for four definite notices to be given, and that a difference between the two types of notice should be acknowledged. He found that each notice had to be honestly given at the time it was given. There was no evidence that charterers first notice was not honestly given.
A principal finding of the Judge was that by their second notice, charterers were using their contractual right to redeliver the ship at the end of the charter period,making use of the full term allowed to them. It followed that he was not prepared to hold that charterers should be deprived of using the full charter period by reason of having given their first notice.
The judge found in favour of the charterers and the appeal succeeded. The owners sought further leave to appeal to the Appeal Court, which was denied.
The result may seem to be harsh on the owners who made plans in reliance on the first notice, but it would appear that the High Court was persuaded that charterers should not be deprived of the use of the ship for the full charter duration when the 30 day notice of redelivery was expressed to be approximate.
WITHDRAWAL OF A SHIP FROM A TIME CHARTER FOR NON-PAYMENT OF HIRE AND THE RIGHT TO CLAIM DAMAGES
Clause 5 of the 1946 N.Y.P.E charter form provides that payment of hire is to be made semi–monthly in advance… “otherwise failing the punctual and regular payment of the hire… owners shall be at liberty to withdraw the vessel from the service of the charterers, without prejudice to any claim they may otherwise have on the charterers”
When owners withdraw a ship under this clause, apart from recovering hire earned up to the date of withdrawl, they may also wish to recover damages for “future losses”, ie the hire they would have earned through to the end of the charter (with credit given to charterers for earnings made under a substitute fixture).
It is essential that owners understand that under English Law damages for “future losses” are recoverable only where failure to pay hire by the due date can be shown to be repudiatory. So in the case where owners’main aim is to withdraw the ship from a defaulting charterer, then upon non-payment of hire, the owners will likely serve such warning notice on the charterer (as may be required by the charter party) and, after the requisite number of clear days has elapsed without payment, the owners will withdraw the ship from charter service with no claim on the charterer for future losses. They will be entitled to recover hire unpaid up to the date of withdrawal, but no more. (In this respect the situation is a bit like cancellation of a voyage charter by charterers under clause 5 of the Asbatankvoy charter: If the ship does not arrive by the start of the laycan spread, the charterer can cancel the ship but has no ordinary right to claim damages as well.)
Owners can only recover “future losses” if the charterer repudiates the contract. The charterer will be taken to have repudiated the contract where his words or conduct show an intention no longer to be bound by the contract or where it is clear that the failure by charterers will be repeated and go to the root of the contract. It is suggested that where the charterer has repeatedly failed to pay hire due at all this may amount to a repudiation. Late payment alone or failure to pay one instalment on its own will not amount to a repudiation.
There is no pre-determined number of late or failed payments which can be said to constitute a repudiation. Each case has to be considered separately on its merits.
This is an area of the law where it is imperative for owners to take legal advice from a solicitor before peremptorily withdrawing a vessel.The overall conduct of the charterers in respect of the charter should be reviewed and appropriate steps taken to prepare the ground for any subsequent withdrawal of the ship, seeking,where possible, to preserve any rights that owners may have to claim “future losses”.
INDIAN LAW PROVIDES A TRAP FOR THOSE RELYING ON FOREIGN ARBITRATION
In a recent case – Venture Global Engineering v Satyam Computer (2008 4 SCC 190 – and following the case of Bhatia International v Bulk Trading SA (2002) 4 SCC 105, the Supreme Court of India has held that Part 1 of the Indian Arbitration & Conciliation Act 1996 applies to foreign awards unless the parties have expressly and/or impliedly excluded its application. The effect of this is that an aggrieved party who participated in the foreign proceedings and was found liable, is entitled to challenge the foreign award in India even if the parties have expressly agreed on the choice of law and jurisdiction (for example, English law, London Arbitration – as is the case in most charter parties) unless they specifically exclude the application of Part 1 of the Arbitration & Conciliation Act 1996.
The aggrieved party may be able to convince the Court that it has jurisdiction under section 2(e) of the Arbitration & Conciliation Act 1996 if, for example, a party carries on business and/or resides in India, has an agent in India, has ships that regularly call at Indian ports, pays taxes in India and/or incurs debt in India. In the Venture Global Engineering case, one of the parties was Indian and the agreement was in respect of a joint venture in India.
This raises serious concerns and leaves the possibility of a losing party challenging a foreign award in India even if it had fully participated in the foreign arbitration or even if it started the foreign arbitration itself. (Indian proceedings can be fairly long – lasting many years – and costly).
In order to avoid this situation (especially if one of the parties is based in India) it is recommended that the Arbitration Clause in the charter party specifically excludes the application of Part 1 of the Arbitration & Conciliation Act 1996. Specifically the Clause should be amended such that the parties expressly agree; (1) Indian Law does not apply, (2) Indian Courts do not have jurisdiction and (3) no arbitration in India. Alternatively, the parties should expressly agree that the Indian Arbitration & Conciliation Act 1996 does not apply and Indian courts do not have any jurisdiction.
Arguably, the aforementioned may also apply to foreign litigation as well as arbitration.
ACCIDENTS IN THE PANAMA CANAL – PROMPT ACTION REQUIRED
It is trite law that a Master retains responsibility for the navigation of his vessel even whilst under pilotage. This is not the case in the Panama Canal, there the pilot takes full command and responsibility of the vessel. As a result, any damage to the vessel caused by the pilot (as well as by tugs, locomotives and line handlers) may give rise to a claim by the owners against the Panama Canal Authority (PCA) - the party responsible for the pilots. However, in order for a claim to be raised against the PCA, the Master, via the local agents,will need to request a Formal Investigation by the Board of Local Inspectors (BLI). The request must be made before the vessel leaves the Canal as, failing this, the owners will lose any right to claim against the PCA.
If, on the other hand, damage is caused by the vessel to the PCA’s property or employees, which the PCA think is worth pursuing, they will instigate a BLI Formal Investigation themselves.
A BLI Investigation will involve a certain amount of delay to the vessel (minimum delay of 12 hours), as evidence will need to be given by the Master, crew and the pilot. It is usual for the agents to appoint a lawyer to act on behalf of the Master and crew. Once the necessary information has been collected, the vessel will be allowed to sail. The final verdict of the BLI Investigation will follow approximately 45-60 days later. Although the BLI’s verdict is not binding, it is persuasive, especially in a claim against the PCA.
To protect their right to claim against the PCA, it is essential therefore, that the putative claimant requests a BLI Investigation. Failure to request a BLI Investigation will amount to a waiver of the right to claim against the PCA. The PCA on the other hand retains the right to fine a vessel or its owners for an infringement of the Canal Regulations regardless of the commissioning of a BLI Investigation. Third parties and PCA employees also have the right to sue owners for liabilities caused by the negligence of the vessel or its crew whether or not a BLI Investigation has been carried out. However, it should be noted that an indemnity claim against the PCA will not be possible unless a BLI investigation has been carried out.
Especially in the situation where the PCA has decided that the damage to their property does not warrant a BLI Investigation, the owners and their Masters will need to decide swiftly whether the damage sustained by the vessel is sufficient to warrant the delay that will inevitably arise if they request a BLI Investigation. A BLI investigation is particularly recommended where there have been injuries to crewmembers, Canal employees or other third parties, in order to protect owner’s right to claim indemnity from the PCA.
THE INTERMEDIATE CLAIMS PROCEDURE OF THE LONDON MARITIME ARBITRATORS ASSOCIATION (2009) – A NEW SET OF LMAA TERMS
Most of the charter parties entered into by our Members provide for disputes to be resolved by arbitration in London. In fact,more maritime disputes are referred to arbitration in London than to any other place. The charter party clause will typically provide: “This contract shall be governed by and construed in accordance with English Law and any dispute arising out of or in connection with this contract shall be referred to an arbitration in London in accordance with the Arbitration Act 1996”.
The Arbitration Act 1996 is the statutory framework that governs arbitration in the United Kingdom generally. It is the means by which commercial arbitration agreements, including those found in charter parties, are assessed by the courts and by which provision is made for the enforcement of arbitration awards. But the Act does not govern the detailed procedure pursuant to which the arbitration will be conducted. For that, the parties need a set of arbitration terms and for maritime arbitration in London, parties will almost invariably choose one of the sets of terms (procedures) of the London Maritime Arbitrators Association (LMAA).
Parties are free to choose which set of LMAA terms should be used in their disputes and the two most commonly used are“The LMAA Terms 2006”and“The LMAA Small Claims Procedure”. Many charter clauses will actually refer to these terms by name, but if they do not, the parties can still adopt the terms (procedures) by agreement after a dispute has arisen.
By far the most commonly used terms are the LMAA Terms 2006 which can be used for claims regardless of the amount in dispute. The LMAA Small Claims procedure, by contrast, is used by parties who want a smaller scale of arbitration, with lower cost, for smaller value claims, generally up to USD 50,000.
For some time parties to London arbitration have been calling for some ‘intermediate’ terms for claims that, although not small, are not of a scale which would make the LMMA Terms 2006 appropriate. In response to this demand the LMAA has produced the new Intermediate Claims terms 2009 (ICP2009). As these terms are new, the Association has not seen an arbitration run under them, so cannot comment on their efficacy, but we can highlight the main elements of ICP 2009:
• They are to be used for claims which exceed $50,000 (the upper limit for the Small Claims Procedure) but are less than US$400,000.
• The terms provide that the parties can agree between themselves how many arbitrators to appoint, but absent agreement the tribunal will consist of 3 arbitrators.
• For submissions the usual procedure of Claim, Defence and Reply, applies.
• A provision designed to limit the use of expert witnesses provides that a party must obtain express permission of the tribunal to serve expert evidence.
• An oral hearing will tend to be the exception rather than the rule and will normally be limited to a maximum of 5 hours in total.
• Under the procedure the parties agree that there will be a right of appeal to the Courts but only where the tribunal certifies in its award that the dispute involves a question of law of general interest or importance to the industry in question. It is anticipated that this may allow for more appeals than have been seen in the past when other LMAA terms have been used.
• The procedure places an upper limit (or cap) on the parties’ legal costs of 30% of the claim amount or 50% in case there is an oral hearing.
The test now will be to see whether parties do actually make provision for use of the ICP 2009 in their charters. Only then,when the procedure is tried and tested in practice, will it be seen whether the LMAA has achieved what it set out to do in terms of proportionality, costeffectiveness and satisfied users.
