Trade Advantage — December 2011

21 Дек

В настоящем сборнике аналитических материалов опубликованы исследования в сфере морского права, в частности, права Европейского Союза, причем особенное внимание посвящается вопросам, связанным с девиацией, заморозкой (блокированием) активов и другими способами обеспечения обязательств, гражданско-правовой ответственностью и расчетами, арбитражным процессом и исполнительным производством.

Conwartime 2004: Pacific Basin IHX Ltd v Bulkhandling Handymax AS [2011]

This was an appeal by Charterers against an LMAA Award, on the grounds that the Tribunal’s decision was wrong in law.

The time charterers had chartered the vessel MV TRITON LARK on the NYPE form incorporating the CONWARTIME 2004 (which for relevant purposes materially reflects CONWARTIME 1993).  They had instructed the master to load cargo in Hamburg for a voyage to China via the Gulf of Aden.  Owners declined the instructions on the basis of what they said to be a risk of a piracy attack.  Instead the vessel proceeded via the Cape of Good Hope, adding to the hire and bunkers costs.  The Tribunal had found in favour of Owners.

The Tribunal’s assessment took into account the various communications between the parties. This included a request from head owners to change the route because of the threat of piracy.  They supported their request with a report that other vessels were being sent around the Cape of Good Hope, an account of hijacking attempts, an IMB warning for ships transiting the Gulf of Aden and a Weekly Piracy Report.  Charterers maintained that the vessel should continue via the Gulf of Aden, albeit within the Maritime Security Patrol Area.  Charterers also noted that they had been involved with vessels transiting the Gulf for the last six months without incident.

At the centre of the dispute was the correct interpretation of sub-clause (2) of CONWARTIME:

“The Vessel… shall not be ordered to or required to continue to or through, any port, place, area or zone… where it appears that the Vessel, her cargo, crew or other persons on board the Vessel, in the reasonable judgment of the Master and/or the Owners, may be, or are likely to be, exposed to War Risks.”

Charterers submitted that the Tribunal erred in law in their construction of the sub-clause, in particular as to:

(a) the meaning of the words “may be”;
(b) the reasonable judgment of the owners;
(c) owners’ discretion in arriving at its judgment.

They further argued that the Tribunal had erred in law in holding that the route around the Cape of Good Hope was not a deviation.

To assist in answering the above the Court examined why the CONWARTIME 1993 was created (notably to assist the master in his responsibility for the safety of his vessel and crew, and to ensure his actions are taken fairly) and looked to the Baltic and International Maritime Council’s Special Circular of July 1993 for guidance.

(a) Meaning of “may be”

The Court read sub-clauses (1)(b) (War Risks) and (2) together.  In effect:

“The vessel shall… not be ordered to… any place… where it appears that the vessel, her cargo or crew or other persons on board the vessel, in reasonable judgment of the Master and/or Owners, may be, or are likely to be, exposed to acts of piracy …which, in the reasonable judgment of the Master and/or Owners, may be dangerous or are likely to be or become dangerous to the vessel, her cargo, crew or to other persons on board.”

The Court held that, when read together, firstly the Master or Owners had to form a reasonable judgment that the vessel may be, or was likely to be, exposed to acts of piracy and secondly that such acts may be dangerous or are likely to be or become dangerous. The Court therefore had to decipher what degree of risk the words “may be, or are likely to be” required there to be shown and in doing so considered the key right of a charterer to give directions as to the employment of the vessel.

After deciding that it was a risk of ‘exposure’ to piracy and not necessarily the risk of an ‘attack’ by pirates, the Court held that the words “may be” and “likely to be” expressed only a single degree of possibility.  In other words, the “or” was used here in the sense “that is”, so that one would read “may be, that is likely to be, exposed to acts of piracy”.

That possibility was then to be assessed on the basis of “real likelihood”, in the sense of a real danger.  So the question to be considered by owners was whether there was a real likelihood of their vessel being exposed to piracy.

The answer to that question had to be arrived at on the basis of evidence, rather than speculation.  This would include events which were more likely than not to happen.  But the Court also found, in line with The Heron II (1969), that the term “likely” could include events which had a less than even chance of occurrence.

The Tribunal had decided that the phrase “may be, or likely to be” connoted a serious risk. Whilst the Court preferred the concept of real likelihood, it agreed that there was little difference between the two.  But the key difference was its application.  The Tribunal had held a “serious risk” to be a risk of an important or demanding event, i.e. a risk that a serious event will occur.  However, the Court held that the phrase connoted a serious risk in the sense that there was a real risk or real danger of being exposed to piracy, i.e. a serious risk that an event will occur.  If the threatened harm was of a serious nature then sub-clause 1(b) is likely to be satisfied.  That avoids the need for sub-clause (2) to involve an assessment of the importance of the harm threatened: its concern is whether there is a real likelihood of exposure to piracy.

(b) Was Owners’ judgment reasonable?

As the Tribunal’s interpretation of the phrase “may be, or are likely to be, exposed to [piracy]” was wrong, it followed that their conclusion that Owners had formed a reasonable judgment must also be wrong in law. However, beyond the application of the wrong legal test the Court did not consider there to be any further error.  In particular, it noted the Tribunal’s finding that Owners’ decision had been made in good faith, and that it was a decision which was objectively reasonable.

(c) Did Owners’ reasonable judgment require a duty to make reasonable enquiries?

Charterers submitted that if a party to the contract has a power to make a decision which could have an effect on both parties, a term will generally be implied to say that it will be exercised, among other things, honestly, after the necessary enquiries have been made.

The Court held that there was no necessity to imply a term as to how power must be exercised because the clause expressly said the judgment must be “reasonable”.  Thus an owner who wishes to make sure his judgment was objectively reasonable would make all the necessary enquiries.

The Tribunal’s conclusion that Owners had made all the necessary enquiries had been based on their (incorrect) understanding of the phrase “may be, or are likely to be”. The Court held that as a result the Tribunal’s conclusion that there had been sufficient enquiries was also wrong, but, as before, it was not a further error but a reflection of the first error.

(d) Deviation: Were Owners entitled to order the vessel to proceed via the Cape of Good Hope?

In the alternative, Charterers submitted that as per sub-clause (8) of CONWARTIME 1993, Owners were only permitted to refuse to obey the order to proceed via the Gulf of Aden and that proceeding via the Cape of Good Hope was contrary to instructions. Charterers argued that Owners should have waited at Gibraltar for new orders. The Tribunal considered that proceeding via the Gulf of Aden was “prohibited” by CONWARTIME 1993 and therefore waiting at Gibraltar would have been commercially unrealistic.

Owners submitted to the Court that the Tribunal’s decision was correct, as not only had Charterers given an order as to the route, which Owners were permitted to disobey but Charterers had also given an order as to the final destination, which Owners were under a duty to reach and which was fulfilled by going via the Cape of Good Hope. Sub-clause (8) provides that anything done or not done in compliance with sub-clause (2) shall not be deemed a deviation. Owners submitted that the decision not to proceed via the Gulf of Aden was something “not done” and proceeding to China, via the Cape of Good Hope, was something “done”, therefore there was no deviation.

The Court found that the Tribunal, as commercial arbitrators, had reached the right decision. Where Charterers had ordered a vessel to load and carry a cargo to China but where its order as to route was an order Charterers were not entitled to give, the vessel was not without orders and the decision to proceed via the Cape of Good Hope was in fulfilment of Owners’ duty to prosecute the voyage with due despatch.

The Court did not have jurisdiction to make findings on fact on an appeal of a point of law under s69 Arbitration Act 1996.  The facts had to be determined by the Tribunal.  Pending the parties’ further submissions it was expected that the matter would be referred back to the Tribunal for their assessment of the evidence to determine whether in the reasonable judgment of owners there was a real likelihood (a real danger) of their vessel being exposed to piracy.

Amanda Williamson / Claire Messer

Proposed EU Regulation on Freezing of Bank Accounts: European Account Preservation Orders (EAPOs)

Introduction

The European Commission has introduced a draft regulation creating the concept of European Account Preservation Orders (“EAPOs”) with a view to facilitating enforcement in cross-border debt recovery. EAPOs would enable a claimant, by virtue of one application, to freeze assets held by the defendant in other European member states.  It would avoid the need for separate applications within each jurisdiction where assets are held.  The new regulation would apply to civil and commercial matters but not to arbitration, and it would exist as an alternative, not a replacement, to the current protective measures under national legislation.

UK Government Consultation

In August 2011, the Ministry of Justice for England and Wales issued a consultation paper in order to decide whether the UK should “opt into” the regulation. However, in October, the UK Government announced that it will not opt into the proposed regulation, for reasons outlined below.

If the UK had chosen to participate in the new proposal, the UK would have been bound by its terms once adopted.  By exercising its right not to opt-in to the regulation, there will be no changes to current UK debt recovery procedures.and creditors should  continue to rely on existing national law or protective measures provided by virtue of the EU’s Judgments Regulation in order to freeze a UK account. The UK has, however, indicated that it will continue to participate in negotiations regarding the draft regulation, with a view to opting in at a later date.  Until such time, UK courts will not have the power to grant an EAPO and EAPOs will not take effect in the UK.

Scope of EAPOs

Where available, EAPOs could be used to freeze “bank accounts”, including any cash or financial instruments, as defined by Section C, Annex 1 of MiFID.  Beneficial and nominee accounts may also be frozen in some jurisdictions, although this would depend upon national legislation.

Jurisdiction

The claimant would have two options in respect of jurisdiction when applying for an EAPO:

1) where more than one court has jurisdiction for the substance of the matter, the court of the member state where the claimant has brought proceedings on the substance or intends to bring proceedings on the substance shall have jurisdiction and may grant a transportable EAPO which is, subject to certain restrictions, automatically enforceable in other European member states; or

2) the claimant could apply to the courts where the bank account to be frozen is located for an order which is national and non-transportable, operating solely within that member state.

With reference to the first option above, a situation may arise where two courts claim to have jurisdiction over the substance of the matter.  In such circumstances, the Judgments Regulation dictates that the court first seised must determine whether it has jurisdiction and, if so, decide the case. It is not unlikely that disputes and confusion will arise as to which court ultimately has jurisdiction over the matter, with particular attention given to the interrelationship between the new EAPO regulation and the EU’s existing Judgments Regulation.

Requirements for obtaining an EAPO

A claimant would be able make a without notice application using standard form documentation and could do so in the following circumstances:

— prior to or during proceedings;
— after having obtained judgment/settlement but where that judgment/settlement is not yet enforceable;
— after having obtained judgment/settlement which has become enforceable.

An EAPO would only be granted if the claimant submits evidence showing:

— the claim against the defendant appears to be well-founded; and
— without the EAPO, any subsequent enforcement of an existing or future title against the defendant is likely to be impeded or made substantially more difficult because there is a real risk that the defendant might remove, dispose of or conceal assets held in the bank account(s) to be preserved.

Notwithstanding the above, the claimant would not be required to submit full and frank disclosure regarding the strength of the case.

The claimant would also be required to disclose “all information” on the defendant and their bank account(s) to enable the bank(s) to identify the defendant.

If a claimant were unable to obtain “all information” they may seek assistance from the authorities of each EU member state who shall direct them to access a central register of bank account information or oblige banks to disclose whether the defendant holds an account with them.  The claimant would, however, have to bear in mind that (i) this may delay the application process; and (ii) the provision of information by this mechanism is limited to the following:

— defendant’s address;
— name of the bank(s) holding the defendant’s account(s);
— the defendant’s account number(s).

The issuing court may also require the claimant to provide a security deposit “or equivalent assurance”.  Such security is not, however, an automatic requirement and it is not necessary post-judgment.

Obligations of Bank(s)

The bank(s) would be required immediately to implement the EAPO upon receipt (or if service is outside business hours, immediately at the beginning of the next business day), by ensuring that the identified funds are not transferred, disposed of or withdrawn by the defendant.  Within three working days following receipt of the EAPO, each bank would be required to make a declaration to the competent authority and the claimant as to whether and what extent funds in the defendant’s account have been preserved.

Challenging EAPOs

It is proposed that a defendant may challenge an order by a number of means, including prompt application to the issuing court for a review of the order and, in any event, within 45 days from the date on which the defendant had knowledge of the order and could react.

Third parties may also challenge EAPOs where their rights are prejudiced. Rather unhelpfully, the draft regulation does not stipulate the powers of the court in such circumstances.

Next Steps

Although the UK Government appears to welcome the primary objective of the proposed regulation, it is nonetheless concerned that:

— there is a lack of adequate safeguards for defendants;
— the threshold for obtaining an order is too low;
— there is no requirement for a claimant to provide any security to compensate a defendant for losses suffered from the wrongful grant of an order;
— more discretion is required for courts when deciding whether to issue an order or the amount for which it should be granted;
— the ease with which an order might be obtained may pose dangers to companies in the process of restructuring or rescue where the freezing of a bank account could undermine rescue and make insolvency more likely;
— there is a significant burden on the Government and banks through the provisions of access to information on bank accounts.

The UK intends to participate in negotiations of the draft regulation with a view to implementing sufficient changes in order to adequately address the above concerns and to limit the adverse effects of the regulation on parties in cross-border trade.  Until such amendments are made, the UK intends to refrain from a post-adoption opt-in.

Laura Neill

Construing indemnity clauses : ACERGY SHIPPING LTD V STE BRETONNE DE REPARATION NAVALE SAS (2011)

The court was required to determine preliminary issues on the interpretation of indemnity provisions in a contract for the provision of dry-docking services.

The «Acergy Falcon», a pipe-laying vessel used for oil and gas exploration, suffered a serious fire while in drydock. The shipowner Acergy sued the shiprepair company «Sobrena» in respect of the fire damage. Each party claimed that the damage was caused by the other’s breach of contract, an issue not currently before the court.

Article 10 of the contract contained a set of reciprocal indemnity provisions in respect of damage to property or personal injury which applied irrespective of fault. There was however, an exception to that arrangement. Article 10.2, which set out the buyer’s indemnity provisions, was subject to article 10.3. Yet Article 10.3 only applied to the ‘Works’ and stated, inter alia, that:

‘From start of the Works and until issue of the Delivery Certificate or, if later, the date when actual physical delivery of the Works to Buyer takes place, Supplier shall be responsible for loss or damage to the Works and shall carry out necessary measures to ensure that the Works are completed in accordance with the Contract. The cost of carrying out such measures shall be borne by Supplier and Supplier shall indemnify and hold Buyer’s Group and Client Group harmless from and against all claims, losses, damages, costs (including legal costs) expenses and liabilities howsoever arising of Buyer’s Group or Client Group in relation to the loss and damage to the Works … ‘.

Under the contract Sobrena was required to perform various works around the vessel. Acergy and its own subcontractors were also engaged in separate works in different areas of the vessel. At the time of the fire, Sobrena was cutting and replacing part of the main deck above the carousel hold using blow torches. The fire started in the hold below and caused damage to the hold and surrounding spaces. The only part of the vessel on which Sobrena was working on at the time of the fire and which was damaged was the deck plating above.

The preliminary issue for determination by the court was in respect of what part of the loss or damage was Sobrena obliged to indemnify Acergy.  Acergy submitted it should be indemnified by Sobrena for all the fire damage because it constituted ‘losses … howsoever arising … in relation to loss and damage to the Works‘.

The court noted that the interpretation of the contact terms “of course involves determining the meaning that the contract would convey to a reasonable person having the available background knowledge”.

It was held that Sobrena was only liable to indemnify Acergy in respect of the damage to the Works it was doing or had done, and that it did not have to indemnify Acergy in respect of the damage to the vessel as a whole, or in respect of the damage to the carousel. Articles 10.1 and 10.2 allocated responsibility for damage to the contractual parties’ property to the relevant proprietor ‘howsoever arising’ in connection with the performance of the contract. Articles 10.1 and 10.2 provided a “knock for knock” arrangement. Regardless of cause, losses to Acergy’s property or personnel were allocated to and borne by Acergy. The exception in Article 10.3 only applied to the ‘Works’. If the second sentence of Article 10.3 encompassed all losses to the property arising during the performance of the contract and not just relating to the ‘Works’, the proviso effectively eliminated the scope of the governing clause at Article 10.2.

Consequently, this preliminary issue was decided in favour of the defendant ship repair company Sobrena.

Kate Docton

The construction of awards: A.K.KABLO IMALAT SAN VE TIC A.S. v INTAMEX S.A. (2011)

This was a hearing on a challenge to a London Metal Exchange (“LME”) award pursuant to section 68 Arbitration Act 1996 (the “Act”) on the grounds of serious irregularity and also on an application for leave to appeal under section 69 of the Act.

The facts of the case are very specific to the dispute between the parties and are considered below.  However, the importance of this case lies in the approach taken by the Courts in England in reviewing awards, particularly those that may not initially be easy to understand from a strictly legal point of view.  A tribunal of the LME, upon an application by the losing party seeking clarification of its award under Section 53(3)(a) of the Act, rejected that application on the basis that there was no ambiguity or error but said that it was “disturbed” that its award has been assessed incorrectly and apparently lacked clarity.  It was accepted in Court that the award was not “altogether an easy read” and the Court said that expressions were used in the award that a trained lawyer would not have used, such as that there was an “implicit agreement” to support a conclusion that that there was in fact no agreement as contended.  Nonetheless, the Court refused both the challenge to the award and the application for leave to appeal the award.  It reaffirmed that the correct approach when reviewing the reasons of an arbitral tribunal is for the Court to read the award as a whole in a fair and reasonable way with a view to upholding the award rather than “with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults in awards”.

The background is as follows. By a contract dated 10 March 2009 (“the Contract”), Intamex SA (the “Seller”) agreed to sell a quantity of copper cathode CIF free out Ambarli Port in Turkey to Ak Kablo (the “Buyer”).  The consignment was divided into three lots.  The Buyer took delivery of lots 1 and 2 only and paid provisional invoices issued in respect of each. Issues arose in respect of lot 3.  The relevant clauses in the Contract included:

“C) Price/Quotational Period: LME Cash settlement average price for Copper Grade A plus a premium of USD 40.00/mt. QP to be mutually agreed between date of contract and ten market days following arrival at port of destination.

F) Payment terms: Nett cash by T.T. against presentation of following documents through Buyer’s bank in Turkey, on arrival, for the total under the contract:

1. Seller’s invoice
2. Copy Certificate of Weight and quality…
3. 3/3 original clean shipped on board Bs/L
4. Insurance certificate in duplicate for 110% of invoice value.”

The relevant chain of events as they appear from the judgment is as follows:

— 14 March 2009 — Shipment of the three lots of copper at Novorossisk
— 16 March 2009 – Provisional invoices in respect of all 3 lots presented ($3700 pmt)
— 18 March 2009 – Consignment arrives at Ambarli
— 31 March 2009 – Buyer pays the provisional invoice for and takes delivery of lot 1
— 2 April 2009 – Buyer pays the provisional invoice for and takes delivery of lot 2
— 15 April 2009 — One week delivery extension for the collection of lot 3 agreed
— 20 April 2009 – Seller issues second provisional invoice for lot 3 at $4765 pmt.  Buyer objects to increased price.
— 24 April 2009 – Final pricing for lots 1 and 2 agreed
— 27 April 2009 — Seller issues further invoice for lot 3 at $4490 pmt.  Buyer again objects.
— 29 April 2009 – Buyer informs Seller it would buy the cargo elsewhere. Seller then notifies Buyer that the Contract was terminated.

The Seller alleged that the Buyer was in breach of contract for failing to pay the provisional invoice for lot 3 issued on 16 March 2009 and for repudiating the Contract by indicating on 28 April 2009 that it would purchase replacement cargo and claimed damages.  The Buyer for its part alleged that the Seller was in breach of Contract by failing to issue a valid provisional invoice in respect of which it counterclaimed the difference between the cost of replacing lot 3 and monies payable to it under the Contract.  The Buyer said that the pricing mechanism in Clause C of the Contract had been varied so that a provisional invoice would be issued on a date requested by the Buyer based on the previous day’s LME settlement, and that it had been orally agreed that the provisional invoice for lot 3 would be issued based on LME cash settlement price for 24 April 2009.  The LME tribunal found in favour of the Seller and dismissed the Buyer’s counterclaim.  The tribunal’s findings included the following:

— It is standard practice to issue provisional invoices.  Payments against such invoices are generally effected immediately. Payments are adjusted at a later date with final pricing.
— The contractual pricing process was varied with respect to timing.
— The Seller was not in breach of a pricing agreement with the Buyer by not raising an invoice as requested by the Buyer at LME cash settlement price on 24 April.  As the Contract required payment against documents, the Buyer had no power to request a provisional price at a specified date.
— The Buyer was in breach by failing to pay the first provisional invoice (issued on 16 March) in respect of lot 3 on arrival of the vessel.  The later invoices had been issued by the Seller to keep the contract alive.
— The Buyer was in breach for failing to take up lot 3 and repudiated the contract by indicating it would be purchasing replacement goods.
— The Contract was terminated on 29 April 2009.

In its reasons, the tribunal said: “Although parties throughout the hearing agreed that pricing for provisional invoices was to be on a date requested by the [Buyer] and based on previous day’s LME Settlement, the pattern was not followed. As an example, the pricing of the provisional invoice for Lot 2 was not based on the day requested by the [Buyer]…”

The Buyer sought clarification of the award pursuant to section 57(3)(a) of the Arbitration Act and a confirmation of a number of matters including that the tribunal had found that the parties had agreed that pricing for provisional invoices was to be on a date requested by the Buyer and based on the previous day’s LME settlement.  The  tribunal rejected that application on the basis that there was no ambiguity or error in the award but nonetheless in a letter clarifying its findings said:  “We find that although there was implicit agreement for the parties to price provisional invoices on a date requested by the [Buyer] based on previous day’s LME settlement, this agreement was varied as shown…although the parties agreed to pricing provisional agreements on a date requested by the [Buyer] based  on the previous day’s LME settlement, they chose not to adhere to this agreement.”

The Buyer challenged the award and sought permission to appeal the award.  It submitted there had been a serious irregularity since the tribunal had found that there was an implicit agreement between Seller and Buyer to price provisional invoices on a date requested by the Buyer based on the previous day’s LME cash settlement price but had also found that that agreement was varied by practice with reference to the pricing of lot 2 in circumstances where the alleged variation formed no part of either party’s case and so the Buyer had not given the opportunity to deal with it.  The fundamental point taken by the Seller in opposing the challenge was that the tribunal had neither found the agreement on pricing alleged by the Buyer nor a variation of that agreement.

Reading the award as a whole and in fair and reasonable way, not with a view to upsetting the award but instead with a view to upholding it, the Court agreed with the Seller.  Notwithstanding the terminology used by the tribunal on there being an “implicit agreement” between the parties to price provisional invoices on a date requested by the [Buyer] based on previous day’s LME settlement, the Court held that the tribunal had in fact found that that the contractual pricing process was as detailed in Clause C of the Contract.  The reference in the tribunal’s letter to the “agreement” having been “varied” was no more that the “agreement” was not followed by the parties i.e. there was no such agreement.  There had been debates before the tribunal as to whether there was an express or implied agreement on pricing different from Clause C, and the tribunal had accepted the Seller’s case that the pricing mechanism was as set out in Clause C.  On these debates, the Buyer had had a full opportunity to advance its case and accordingly the section 68 challenge was dismissed.

The Buyer’s application for permission to appeal under Section 69 was based in part on the same suggestion as in the section 68 application, namely that the tribunal had found an agreement which had been varied.  As the tribunal had made no such finding, the application failed on this argument.  The Buyer also relied on the tribunal’s suggestion that it would have been more logical and prudent for the Buyer to pay the provisional invoice, then pay or receive against the final invoice and subsequently claim for any extra charge arising.  This, the Buyer said, was wrong in law and was inconsistent with statements made by the courts.  However the Court disagreed and said in circumstances where the tribunal had held that “it is standard practice to issue a provisional invoice in this type of business…payments are later adjusted with final pricing”, the suggestion of the tribunal as to what the Buyer should have done was very far from being obviously wrong.

This case is remarkable for the illustration that it provides of the extent to which the English Courts will go in upholding the arbitral process in construing awards by reading them broadly in order to ascertain what the tribunal truly meant notwithstanding the terminology used.

Laura Neill / Kamal Mukhi

Construing guarantees: RAINY SKY SA & ORS v KOOKMIN BANK (2011)

This was a case that involved the Supreme Court construing the terms of an advance payment bond or refund guarantee issued by a bank to the buyers of ships in respect of instalments paid in advance to the shipbuilders to determine whether under the terms of the bond those instalments were recoverable by the buyers from the bank in the event of the shipbuilders’ insolvency or whether the bond was restricted to other, specific defaults by the shipbuilders.  The importance of the case lies in the role to be played by considerations of common business sense in the context of commercial contracts in determining what the parties meant over the niceties of language.

The claimant buyers (“the Buyers”) entered into six shipbuilding contracts (“the Contracts”, all dated 11 May 2007, with the shipbuilders, Jinse Shipbuilding Co Ltd (“the Builder”), each contract being for one vessel.  The price of each vessel was US$33.3 million payable in 5 equal instalments.  Under the Contracts, it was a condition precedent to payment of the first instalment that the Builder would deliver a refund guarantee to the Buyers relating to the instalments in a form acceptable to the Buyers’ financiers.  By letter dated 22 August 2007, the respondent bank (“the Bank”) issued six materially identical advance payment bonds (“the Bonds”), one to each of the Buyers.  On 29 August 2007, each of the Buyers paid the first instalment of US$6.6 million.  In January 2009, the Builder entered into a debt workout procedure under the Korean Corporate Restructuring Law, whereupon Buyers demanded an immediate refund of all instalments plus interest from the Builder on the basis that Article XII. 3 of the Contracts, which provides that if the builder is subject to insolvency proceedings “the buyer may by notice in writing to the builder require the builder to refund immediately to the buyer the full amount of all sums paid by the buyer to the builder” applied.  The Builder disputed that Article X11.3 was triggered and that dispute has been submitted to arbitration.  The Buyers then made a demand against the Bank under the Bonds.  The Bank initially refused payment on the ground that it was not obliged to pay pending resolution of the dispute between the Buyers and the Builder but that was rejected by the High Court.  The alternative argument of the Bank, which was the subject of the appeal, was that on their true construction the Bonds did not cover refunds to which the Buyers were entitled from the Builder pursuant to Article XII.3 of the Contracts.  Article XII.3 did not on its terms entitle the Buyers to terminate the Contracts on the Builder’s insolvency.

The Supreme Court considered the wording of the Bonds.  The relevant paragraphs are as follows:

“[2] Pursuant to the terms of the Contract, you are entitled upon your rejection of the Vessel in accordance with the terms of the Contact, your termination, cancellation or rescission of the Contract or upon a Total Loss of the Vessel, to repayment of the pre-delivery instalments of the Contract Price paid by you prior to such termination or a Total Loss of the Vessel (as the case may be) and the value of the Buyer’s Supplies delivered to the Shipyard… together with interest thereon …”

“[3] In consideration of your agreement to make pre-delivery instalments under the Contract…we undertake to pay to you…all such sums due to you under the Contract…plus interest thereon….”

The question concerned the true construction of paragraph [3].  Buyers said that “such sums” in this paragraph referred back to “pre-delivery instalments” in the first line of the same paragraph.  They said that the purpose of the Bonds was to guarantee the refund of the pre-delivery instalments and therefore this was the promise in the Bonds.  On this analysis, the Bonds extended to the refunds due to them from the Builder on the Builder’s insolvency. The Bank for its part said “such sums” in paragraph [3] referred back to paragraph [2] and therefore the Bond only covered repayment of pre-delivery instalments in the circumstances stipulated at paragraph [2] (i.e. repayment of pre-delivery instalments paid prior to the Buyers’ rejection of the Vessel, termination, cancellation or rescission of the Contract or upon a Total Loss of the Vessel) and did not extend to insolvency.

Judgment

It was said that the terms of the Contracts, referred to in the Bonds themselves, were plainly an important aid to in construing the Bonds.  The relevant terms of the Contracts include the following:

“ARTICLE X:  PAYMENT

5.  REFUND BY THE BUILDER

The payments made by the Buyer to the Builder prior to delivery of the Vessel shall constitute advances to the Builder.  If the Vessel is rejected by the Buyer in accordance with the terms of this Contract, or if the Buyer terminates, cancels or rescinds this Contract pursuant to any of the provisions of this Contract specifically permitting the Buyer to do so, the Builder shall forthwith refund to the Buyer …the full amount of total sums paid by the Buyer to the Builder…”

8.  REFUND GUARANTEE

The Builder shall as  condition precedent to payment by the Buyer of the first installment deliver to the Buyer an assignable letter of guarantee issued by a first class Korean Bank … to the Buyer’s Financiers for the refund of the first instalment, and at the same time, together with the letter of guarantee relating to the first installment, Builder shall also deliver to the Buyer an assignable letter of guarantee issued by a first class Korean Bank … for the refund of the respective installments…”

Following a review of the authorities on the construction of documents, the Supreme Court did not like the test that had been applied by the majority of the Court of Appeal in construing documents, where it was held that the bank was not liable under the bond.  In the Court of Appeal, it was said that unless the most natural meaning of the words produces a result which is so extreme as to suggest that that meaning was unintended, the Court has no alternative but to give effect to it.  The Supreme Court reiterated where the parties have used unambiguous language, the Court must apply it.  The ultimate aim of interpreting a contract, especially a commercial contract, is to determine what the parties meant by the language used, and this involves ascertaining what a reasonable person who has all the background knowledge which would reasonably have been available to the parties at the time of contracting would have understood the parties to have meant.  However, the deeper issue here concerned the role to be played by considerations of business common sense in determining what the parties meant.  The Supreme Court said that where there are two possible meanings to the words used, the Court is entitled to reject the meaning which is unreasonable or, in a commercial context, flouts business common sense.  On the facts of this case, the Supreme Court held that both the different interpretations put forward by the Buyers and the Bank were possible but that it would be a “surprising and uncommercial result that the Buyers would not be able to call on the Bonds on the happening of the event, namely insolvency of the Builder, which would be most likely to require first class security”. The decision of the Court of Appeal was reversed and judgment was given for the Buyers.  As a result of this decision, it is expected that courts and tribunals in England when construing a commercial document will attribute to it a meaning which accords with business sense and purpose unless it is entirely unambiguous, which as was observed by the Court is often not the case.

Laura Neill / Kamal Mukhi

Demurrage / Time-bar: GLENCORE ENERGY (UK) LTD V SONOEL ISRAEL LTD (2011)

This was an application by buyers to strike out the sellers’ claim for demurrage, on grounds that the claim was time-barred.

For the purposes of the strike out application, the parties agreed (but not necessarily admitted) a set of facts.  The dispute centred around two contracts of sale both for the delivery of gasoil at Ashkelon between 1 and 12 January: the first contract was dated 15 December 2004, the second 10 January 2005.  The sellers Glencore had bought the gasoil on cif terms from BP.  The vessel is said to have arrived at Ashkelon on 28 December, but she did not berth until 9 January, and discharge was completed on 11 January.

The sellers received BP’s demurrage invoice on 27 April 2005.  They raised their own demurrage invoice to the defendant buyers on the following day, 28 April.  That demurrage invoice noted “we charge your account for demurrage incurred …, due date: upon presentation of invoice”.  Legal proceedings were brought by the sellers on 19 April 2011.  The issue before the court was when did the sellers’ cause of action arise.  If it related to the invoicing date, the claim was within time (there being a six-year time limit for ordinary contractual claims).  If it referred back to events at Ashkelon, the claim was time-barred.

Regard therefore had to be given to the sale contracts’ laytime and demurrage provisions.  That led to discussion as to whether the provisions in these particular contracts resulted in a free-standing independent obligation on buyers to pay demurrage or if they were instead an indemnity in respect of monies paid to shipowners.  If it were an independent obligation, the parties accepted that buyers’ obligation to pay demurrage accrued day by day pro rata from the expiry of laydays.  Of course that meant here that sellers preferred an interpretation that the demurrage clause provided for an indemnity.  In any event, buyers argued that their obligation to pay would only accrue on receipt of all the documents, particularly the invoice.

The demurrage term in question was phrased “Demurrage: As per charter-party rate, terms and conditions”.

Buyers raised a number of unsuccessful arguments.  In short, the court followed the decision in The Devon (2004).  In that case, the Court of Appeal had noted the need for commercial certainty and therefore accepted the preference of some parties to opt for an independent demurrage provision.  Each clause had to be construed in its own context, but The Devon highlighted a number of significant factors.  In the instance case, the court’s attention was closely drawn to the fact that there were differing laytime provisions in the sale contracts and the charterparty: 48 hours in the sale contracts and 84 hours in the charterparty.  That suggested that the sale contracts’ laytime did not mean the period after which demurrage would be payable but set out a minimum discharging period before demurrage might become payable.  Further, the very fact that the laytime provisions in the two types of contracts did not coincide pointed to the sale contracts’ demurrage clause as being an independent obligation.

Another of buyers’ arguments concerned the need for a quantified claim.  However, the court noted the absence of any payment provisions in the sale contracts to suggest that a documented claim was a prerequisite to the accrual of the cause of action.  But even if that were the case, it would not necessarily affect the time bar position, with the general rule remaining that an obligation to pay demurrage refers to the moment when laydays expire.

The sellers’ claim for demurrage was therefore struck out as being out of time.

Claire Messer

Non-payment of hire / Termination / Waiver: PARBULK II AS v HERITAGE MARITIME LTD SA (2011)

The parties had entered into a bareboat charterparty whereby Parbulk II AS (Owners) had chartered their vessel to Heritage Maritime Ltd SA (Charterers) for 60 months at a daily rate.

Pursuant to the terms of the charterparty, hire was to be paid monthly in advance. After the first 13 months, on 20 January 2009, Owners agreed to Charterers’ request for hire to be paid on the first and fifteenth of each month for the period from February to July 2009; however hire was not paid from 16 April 2009 onwards.

On 16 April 2009, 4 May 2009, 18 May 2009 and 2 June 2009, Owners had served notices on Charterers in respect of the relevant unpaid instalments, requesting payment within three days, and stating that non-payment would constitute Events of Default under the charterparty. No payments were made. A further invoice (for hire accruing during the period 15 to 30 June 2009) was issued by Owners on 8 June 2009, and upon non-payment, on 16 June 2009, Owners issued a further demand notice. Still no payment was made, and so on 22 June 2009, Owners terminated the charterparty. In their termination notice, Owners referred to the first four notices in respect of non-payment; however they did not refer to the notice of 16 June 2009. In the subsequent arbitration, the Tribunal held that Owners had validly terminated the charterparty. Charterers appealed to the Court.

Charterers argued that they could rely on a principle in landlord and tenant law by which a demand for future rent waived the right to terminate.  On that basis, the Court had to consider:

1.   Did the 8 June demand for future hire amount to a waiver of Owners’ right to terminate for the prior non-payment of hire?
2.   Were Owners entitled to accept the entirety of Charterers’ conduct in not paying hire as repudiatory?
3.   If so, was Owners’ notice of termination of 22 June an acceptance of repudiation so as to bring the contract to an end?
4.   Were the Owners permitted to justify retrospectively a notice of termination for an Event of Default by reference to an Event of Default not specifically identified in the notice of termination?

As to issue (1), the Court held that there was no binding authority, even in the law of landlord and tenant, such that an unambiguous demand (as opposed to acceptance) of rent functions in law as an automatic waiver of the right of forfeiture. It was at least questionable whether, even if such principle existed in landlord and tenant law, it extended beyond that field. However, the Judge was prepared to assume that such principle existed and that it would apply to a demand for hire under a bareboat charterparty. The Judge further assumed in Charterers’ favour that the consecutive demands for hire on and prior to 2 June constituted successive waivers by the Owners of their rights at the time contractually to terminate the charterparty. However, there had been no such waiver as regards the hire for the period 1 — 15 June, to which the notice of 2 June related. Until the time had expired for compliance with that notice, Owners were not entitled under the charterparty to terminate. That period had not expired at the time of the 8 June invoice. Therefore, the demand dated 8 June for future hire could not be seen as an unequivocal act inconsistent with any right to terminate, because no such right to terminate existed at that date.

In relation to issue (2), the Court held that Charterers were in repudiatory breach as at the date of the termination notice of 22 June.

The termination notice said enough so as to communicate reliance on repudiation, and so issue (3) was answered in the affirmative.

As to issue (4), on the facts the Court found that the termination notice of 22 June had satisfied the contractual requirements, and so the failure to identify the non-payment of hire in respect of the period of 16-30 June as an Event of Default in the termination notice did not invalidate that notice.

Accordingly, Charterers’ appeal was dismissed.

Laetitia Malan

Arbitration / Alerting a party to a potential argument: ED&F MAN SUGAR LTD v BELMONT SHIPPING LTD (2011)

This was an application under section 68 of the Arbitration Act 1996 to challenge an award on the ground of serious irregularity.

The original issue in dispute between the appellant Charterer and the respondent Owner concerned a demurrage claim and the commencement of laytime.  The award was based on documents alone, ie without an oral hearing.  The award noted that the Charterer had not relied upon the decision in the Happy Day (2002)and that the potential consequences of that case had not affected the Tribunal’s conclusion.

Section 33 of the Arbitration Act 1996 obliges arbitrators to act fairly and impartially, giving each party a reasonable opportunity to put his case and to deal with his opponent’s case.

The Charterer sought to challenge the award on the basis that the arbitrators had failed in that duty by not enquiring whether any reliance was placed on the Happy Day.  It was the Charterer’s case, as per Waller LJ in the Magdalena Oldendorff(2008):  “If an arbitrator appreciates that a party has missed a point then fairness requires the arbitrator to raise it so that the party can deal with it”.

It was also the Charterer’s view that they should not be penalised for opting for a documents only procedure, particularly since an oral hearing is likely to have facilitated a broader discussion of the issues and potentially, discussion of theHappy Day decision.

On the contrary, the Owner was of the opinion that it is not for the arbitrators to find ways in which the claimant’s claim might be put and then allow that party to make submissions on such an issue.  Further, the Owner argued there was no substantial injustice where this was the Charterer’s own failure to advance a point.

The Court held there was no breach by the Tribunal of its duty pursuant to section 33 of the Arbitration Act 1996:

— In circumstances where the parties had exchanged written submissions setting out their respective cases and the Tribunal was asked to proceed to its award, it could not be said the Charterer had not had a reasonable opportunity to put its case.
— The comment in Magdalena Oldendorff was made in a different context: it concerned a point already in issue and one which was required to be dealt with;
— For an appeal on serious irregularity grounds, the Court repeated its design ”as a long stop, available only in extreme circumstances where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected”.  This was not such a case;
— Notwithstanding the fact that arbitrators are not barred from asking a party whether it has considered raising a different case from that which it has advanced, they are not obliged to do so by section 33.

Accordingly, the Charterer’s challenge on grounds of serious irregularity was dismissed.

Laura Neill / Claire Messer

The Judgments Regulation and “place of performance”: ECJ ruling in Case C-87/10 (Electrosteel Europe SA v Edil Centro SpA)

Regulation (EC) No 44/2001 deals with jurisdiction in disputes between Member States.  In matters of contract, it provides:

Special Jurisdiction, Article 5

A person domiciled in a Member State may, in another Member State, be sued:

1(a) in matters relating to a contract, in the court for the place of performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:
— in the case of the sale of goods,
the place in a Member State where, under the contract, the goods were delivered or should have been delivered,
— in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided.

Reference was made by the Italian courts to the ECJ for guidance on the “place of performance” in a sale of goods context between French and Italian counterparties.

The goods in question were delivered by a carrier who collected them at the claimant sellers’ premises in Italy, for delivery to the defendant buyers in France.

The defendant buyers disputed the jurisdiction of the Italian courts, arguing that as a company with its seat in France it should have been sued in France.

The claimant sellers challenged this on grounds that (a) the contract was concluded in Italy (where sellers had their legal seat) and (b) the contract included a term translated as “delivered free ex our business premises” thereby noting the place of delivery as Italy.  That term, sellers argued, was in line with the Incoterms 2000 “ex works”.

It is understood that there had until this point been conflicting decisions by the Italian courts on the interpretation of «place of performance» and hence the reference to the ECJ for a preliminary ruling.

The question asked of the ECJ was whether “place of performance” under the Regulation meant that “the place of final destination of the goods covered by the contract or the place in which the seller is discharged of his obligation to deliver […]”.

In the interim, the ECJ had handed down its preliminary ruling in Case C-381/08 Car Trim [2010].  There it had held that the place of delivery had to be considered by reference to the particular contract terms and if that did not resolve the issue (without reference to the law of the contract) the place is “where the physical transfer of the goods took place, as a result of which the purchaser obtained, or should have obtained, actual power of disposal over those goods at the final destination of the sales transaction”.

The Car Trim ruling narrowed the issues raised by Electrosteel so that the ECJ only had to consider the appropriate interpretation of “under the contract” and in particular the scenario where the express terms do not directly identify the place of delivery.

In this context consideration was also given to Article 23 of the Judgments Regulation on agreed jurisdiction clauses.  That Article recognised agreed jurisdiction clauses which were not necessarily in written form but in a form usual for the parties’ practices or the particular trade.  In this regard the ECJ noted the wide recognition and use of Incoterms in international trade.

The ECJ concluded that a court was to look at all relevant terms of the contract, including those generally recognised and applied in international commercial trade where they clearly identified the place of delivery.  In Electrosteel it was noted that the Incoterm “ex works” dealt with delivery (and not simply the allocation of risk and costs).

However, it was left to the Italian court to determine the precise connection between the contract’s clause “delivered free ex our business premises” and Incoterms’ “ex works”.

Claire Messer

Proposed amendments to MiFID

In October the European Commission published its proposals to amend the Markets in Financial Instruments Directive (MiFID) along with its proposed revisions to the Market Abuse Directive (MAD). The aim is to create more integrated and better regulated single EU financial markets. The proposals seek to address the commitments made by the G20 to improve the regulation, functioning and transparency of financial and commodity markets. If implemented, these legislative proposals will have major effects on commodity and energy traders.

The main themes of the MiFID proposals are:

— Replacing MiFID with a new directive (MiFID II) and a Regulation (MiFIR).
— The proposals expand the scope of MiFID, both in terms of the types of firms and instruments captured. Current exemptions will be narrowed to bring more commodities firms into the scope of MiFID.
— The MiFID proposals would harmonise rules applicable to third-country firms providing services in the EU.
— New categories of trading venues, called Organised Trading Facilities (OTFs) will be introduced. These will sit alongside regulated markets (traditional regulated exchanges) and multinational trading facilities (MTFs). The addition of OTFs will bring into scope additional trading venues which have been established since MiFID was originally implemented.
— Transparency requirements will be extended to additional instruments, such as bonds, derivatives and structured finance products. The proposals include additional requirements in respect of transaction reporting, including the extension of reporting requirements to instruments admitted to trading on OTFs.
— The Commission has identified commodity markets and their related derivate markets as an area of concern, lacking in measures to ensure integrity and transparency and open to abusive behaviour. The proposals provide for greater regulation of commodity derivatives markets and their participants. Member States will be required to ensure that regulated markets, MTFs and OTFs on which commodity derivatives are traded will have to adopt position limits or alternative position management arrangements.

The MAD proposals include a draft EU Regulation as well as a draft EU Directive requiring Member States to introduce criminal sanctions for serious forms of market abuse. The proposals aim to provide a common and enhanced market abuse regime across the EU with a much broader and less precise definition of “inside information”.

Running as a theme throughout the proposals is a drive for enhanced “harmonisation” i.e. the levelling of differences in national regulation. The proposals include a Regulation and Directive for MiFID and MAD. This represents a major change in the level of direct European regulation.

The implementation timeline is still not clear. The proposals published in October will be passed to the European parliament and to the Council for negotiation and adoption.

Kate Docton

Update to FOSFA Rules of Arbitration and Appeal

FOSFA is amending its Rules of Arbitration and Appeal effective from 1 January 2012.

Rule 2(a)(iii) which deals with claims relating to goods sold of fair average quality has been deleted.

Rule 3 which covers the lapse of a claim has been amended so that a claim can no longer be renewed on an unlimited basis.  Now a claim can be extended just once, for one year after the expiry of the first year.  The position remains that claims not renewed are considered as withdrawn, unless the arbitrator(s) can be persuaded to exercise their discretion.

Amanda Williamson / Claire Messer

MF Global: Update

On 31 October 2011, the US brokerage firm MF Global filed for Chapter 11 bankruptcy protection in America. Now, over a month on, KPMG, appointed as administrators by the Financial Services Authority after the regulator placed MF Global UK into special administration, has expressed that UK customers can expect to see a «significant» return of their funds by the end of March 2012.

MF Global UK is the first business to be put through the Special Administration Regulations (“SAR”) regime since its creation after the 2008 collapse of Lehman Brothers. This regime was designed to speed up the return of assets to creditors and to ensure that this objective is met KMPG have published a timeline for the return of client money and client assets. Customers of MF Global UK with claims against funds in the client money pool and/or with claims against client assets can now complete a claim form which must be submitted by Friday 30th March 2012.

Claims procedure

There are currently two processes progressing in tandem. The first is in relation to the Initial Meeting whereby both clients and creditors will be asked to vote on the Special Administrators’ proposals and to consider the appointment and composition of any creditors’ committee and the second is the claims process. As “clients” and “creditors” are distinguished as separate potential claimants against the Company, there are two separate claim forms and two separate proxy forms and these can be found at:

http://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Pages/MF-Global-Client-Creditor-claims-forms.aspx.

All clients and creditors who wish to vote at the Initial Meeting will be required to provide details of their claim by 12 noon on 6 January 2012.

The proxy form allows you to submit voting directions in particular in relation to the Special Administrators’ proposals. Those proposals will be made available to all creditors and clients on or around 15 December 2011.

Claim for compensation

The Financial Services Compensation Scheme (“FSCS”) expects that some customers of MF Global UK may have eligible claims for compensation and those customers can expect to receive an application form. This is a completely separate and parallel process to the above and the above does not affect a customer’s ability to apply to the FSCS for compensation in any way. The FSCS will send out its Application Forms in phases to the various categories of client and progress of this will be regularly updated on the FSCS websitehttp://www.fscs.org.uk/.

In relation to investment claims against the firm, the FSCS can pay up to £50,000 in compensation per person.

Andrew Meads/Amanda Williamson

Источник: http://www.hilldickinson.com/downloads/client_services/knowledge_and_publications/marine,_trade_and_energy/a_commodities_update/december_2011.aspx