Spotlight: shipping contracts in United Kingdom (England & Wales)

10 Авг

Shipping contracts (by HFW)

i Shipbuilding

English law continues to be the governing law of choice for parties entering into shipbuilding contracts and so England and Wales remains a key jurisdiction in this respect. See the ‘Shipbuilding’ chapter for further discussion of the law in this area.

The United Kingdom itself has a proud history of shipbuilding spanning many centuries; however, since the closure of many yards in the 1970s and 1980s, commercial shipbuilding has been in significant decline.

ii Contracts of carriage

The Hague-Visby Rules, incorporated into English law by the Carriage of Goods by Sea Act 1971, are the salient convention rules applicable in this jurisdiction. The Rules will apply compulsorily to bills of lading when the port of shipment is in England and Wales or when the bills are issued there. Further legislation on the function of bills of lading and contracts of carriage has been enacted by the Carriage of Goods by Sea Act 1992. There is no specific legislation governing multimodal contracts of carriage, although it is generally accepted that the Hague-Visby Rules will apply to the seagoing leg of such contracts for carriage. As yet, the United Kingdom is not a signatory to the UN Convention on the Carriage of Goods by Sea 1978 (the Hamburg Rules) or the UN Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea 2009 (the Rotterdam Rules).

The Carriage of Goods by Sea Act 1971 qualifies that for contracts falling under that Act (including bills of lading governed by English law), there is no absolute implied term as to seaworthiness. The effect of this is to make the carrier’s general duty regarding seaworthiness one of exercising ‘due diligence’. Following Article III.1 of the Hague-Visby Rules, a carrier must exercise due diligence to (1) make the ship seaworthy, (2) properly man, equip and supply the ship, and (3) make holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe. The duty is on the carrier personally and is not delegable to servants, agents or contractors. Deck and live animal cargoes are excluded from the provisions of the Hague-Visby Rules.

Pursuant to Article III.2 of the Hague-Visby Rules, the carrier must properly and carefully load, handle, stow, carry, keep, care for and discharge the goods under the contract for carriage. Owners may rely on the defences at Article IV.2 if goods in their care are lost or damaged. These defences include the act or neglect of the master in the navigation or management of the vessel, act of war and arrest or restraint of princes, as well as latent defects not discoverable by due diligence (otherwise known as ‘inherent vice’).

Article IV.6 states that inflammable, explosive or dangerous goods may be discharged or destroyed at any time before discharge without compensation if the carrier has not consented (with full knowledge of their characteristics) to carry them.

Unless notice of loss or damage is given in writing to the carrier or his or her agent before or at the time of the receiver removing the goods into his or her custody (or within three days of doing so, if the loss or damage is not immediately apparent), the carrier will be deemed to have complied with its obligations, as per Article III.6. In any event, the time limit under which a claim can be brought under the Hague-Visby Rules is one year from the cargo’s date of delivery or the date on which it should have been delivered.

Liens

The right to exercise a lien under English law may arise out of a variety of contexts, either pursuant to a contract or another legal relationship. Liens may be classed as maritime, statutory, equitable or possessory and each of these classes has a defined means of enforcement. A common characteristic of all liens is their function of conferring a proprietary interest in an asset as security for a claim and in enforcement against third parties. Liens generally do not have to be registered under English law.

Maritime liens under English law are confined to five specific categories:

  1. bottomry and respondentia;
  2. damage done by a ship;
  3. salvage;
  4. seafarer’s wages; and
  5. masters’ wages and disbursements.

These categories also overlap with the definitions under Section 20(2) of the Senior Courts Act 1981, and so maritime liens may be pleaded as statutory liens in the alternative. Purely statutory liens are defined under Section 20(2), Paragraphs (e) to (r) of the Senior Courts Act 1981, and include claims for loss or damage to goods carried in a ship, personal injury sustained in consequence of a defect in or wrongful act done by a ship, claims relating to any agreement in relation to the carriage of goods in a ship, and claims arising out of general average acts. Maritime and statutory liens fall under the umbrella term ‘admiralty liens’, coming under the exclusive jurisdiction of the Admiralty Court, and may be brought as in rem claims (see Section V).

English common law recognises possessory liens, which confer the right to enforce a claim by means of retaining property already held by the claimant. Typical possessory liens include a shipowner’s lien on cargo for outstanding freight or general average contributions.

If an owner or disponent owner under a time charter party has not been paid hire by the charterer, the owner may be entitled to exercise a lien requiring the charterers down the charter chain to pay direct to the owner the sub-hire or sub-freight that would ordinarily have been payable to their owners. The EWCA confirmed in the Bulk Chile case that owners are able to exercise a lien over freight from the shipper under the bill of lading as well as a lien over the sub-freights due under a charter party in a charter party chain. Salvors may exercise possessory liens over salved property. Possessory liens can also be created by contract or statute.

An equitable lien is a right to proceed against an asset pursuant to a claim arising from a contract (the classic example being a floating charge) or pursuant to a course of conduct. Equitable liens will bind third parties only if they have acquired a legal interest in the liened asset with notice of the lien.

iii Cargo claims

The bill of lading evidences a contract for carriage, obliging the carrier to deliver cargo against that document. Aside from charter parties, bills of lading are a fundamental element of cargo claims under English law. A common basis for English law cargo claims is the breach by the carrier of their duty under Articles III.1 or III.3 of the Hague-Visby Rules, namely a failure to exercise due diligence to make the vessel seaworthy or a failure to care for the cargo properly.

Pursuant to the Carriage of Goods by Sea Act 1992, which is applicable to bills of lading, sea waybills and ships’ delivery orders, title to sue is vested in the lawful holder of the bill of lading. The ‘lawful holder’ is the person who becomes the holder of the bill in good faith, that is, a consignee or endorsee (following a valid endorsement or chain of endorsements) in possession of the bill. The EWCA confirmed that a bank that is the pledgee of goods under a letter of credit can also be classed as a lawful holder of the bill of lading, because it is entirely entitled to those goods.

The party that is potentially liable for the cargo claim under the bill of lading is the carrier stated under the bill. Typically, this is the shipowner or head time charterer. English law will generally give effect to ‘identity of carrier’ and demise clauses in bills of lading, which seek to make clear that it is the shipowner that is to be regarded as the carrier under the bill, although the issue of on whose behalf the bill has been signed will also be an important factor in deciding who is actually the carrier.

Liability in tort – that is, a breach of the duty to take reasonable care not to cause damage or loss (i.e., negligence) – will usually be asserted by any cargo claimant against the shipowner, and may also arise between parties where no contractual relationship exists, for example, between stevedores and cargo owners. The claimant must be able to prove physical loss or damage, and so cannot claim for pure financial losses in the absence of any cargo loss or damage (for example, in the event of cargo delay). Furthermore, only the person who owned the cargo, or was entitled to possession, at the time of the negligent act may claim. Apart from tortious liability, English law also recognises the effectiveness of Himalaya clauses in bills of lading in the context of losses caused by the acts of stevedores (for a deeper analysis of Himalaya clauses, see the ‘Ports and Terminals’ chapter).

When bills of lading are issued in respect of carriage on a chartered vessel, carriers may attempt to limit liability to cargo owners with reference to a charter party, by expressly incorporating terms of the charter party into the issued bills of lading. Provisions incorporating charter-party terms into bills of lading will be recognised only if they are relevant to the bill of lading contract, and terms as to choice of law or jurisdiction (including arbitration) must be expressly referred to if they are to apply. There is a general presumption that terms in a charter party will not be upheld if they are inconsistent with the terms of the bill of lading.

Parties will often attempt to incorporate the terms of the charter party into the bill of lading. However, this will be successful only if (1) the wording purporting to incorporate the charter-party terms is wide enough, (2) the term of the charter party being incorporated makes sense in the context of the bill of lading, and (3) the incorporated term is consistent with the terms of the bill of lading itself.It is important when trying to incorporate charter-party terms into a bill of lading to refer to the exact charter party in question, as the charter may not otherwise be incorporated effectively. There is a presumption that in circumstances in which the parties failed to specify which charter party in a chain is being incorporated in the bill of lading, the head charter party is incorporated, but that presumption is subject to several exceptions.

Cargo claims can also be brought under charter parties. They will usually be made within the framework of the Hague Rules or Hague-Visby Rules, which have usually been incorporated into the charter by contract. The apportionment of liability for cargo claims as between owners and charterers who are party to a dry bulk time charter is often governed by the International Group of P&I Clubs’ Inter-Club New York Produce Exchange Agreement (revised in 2011).

iv Limitation of liability

The earliest legislation entitling shipowners to limit their liability was the Shipowners Act 1733. This permitted shipowners to limit their liability to the value of the ship and freight in respect of theft by a master or crew. Subsequent legislation seeks to strike a balance between a claimant’s right to be compensated adequately in allowed situations and a shipowner’s requirement for the insurance costs of an adequately high limitation fund to be affordable.

The Convention on Limitation of Liability for Maritime Claims 1976 (the LLMC Convention 1976) was given effect in the United Kingdom by virtue of the MSA 1995 and is incorporated in Schedule 7 thereof. The Protocol to amend the LLMC Convention 1996 (the 1996 LLMC Protocol) was given effect in the United Kingdom by Statutory Instrument 1998 No. 1258, which varied the LLMC Convention 1976 (and Schedule 7 of the MSA 1995) to the extent set out in the 1996 LLMC Protocol. The main effect of the Protocol is to raise the limits.

As from 8 June 2015, the limits under the 1996 LLMC Protocol have automatically been increased by 51 per cent through the tacit acceptance procedure.

Who can limit liability and what claims are subject to limitation?

Under the 1996 LLMC Protocol, shipowners and salvors may limit their liability in accordance with the rules of the Protocol. The definition of ‘shipowner’ under Article 1(2) includes ‘the owner, charterer, manager or operator of a seagoing ship’. Each of these terms requires clarification and although the ‘owner’ of a vessel may be reasonably clear, the English courts have not had an opportunity to define what is meant by ‘manager or operator’. Charterers are entitled to limit their liability, as are slot charterers,but only in respect of certain claims. For example, they cannot limit in respect of damage to the vessel by reference to which the limitation fund is calculated.

Salvors are also entitled to benefit from limitation under the LLMC Convention 1976 provided the salvors are directly connected with the salvage. The 1996 LLMC Protocol does not change this.

An insurer may limit its liability to the same extent as its assured (under Article 1(6) of the LLMC Convention 1976).

Before the LLMC Convention 1976, shipowners were only able to limit liability in respect of claims for which they were liable in damages, as opposed to debts. Consequently, towage costs and wreck removal expenses claims brought by harbour authorities, for example, could not be limited. The LLMC Convention removed this requirement and now, per Article 2 thereof (which is unchanged by the 1996 LLMC Protocol), ‘claims whatever the basis of liability may be’ may be limited. There are exceptions, however, so that, for example, claims for salvage, contributions in general average, certain oil pollution claims and others (Article 3) may not be subject to limitation, nor can a party limit in respect of claims to the extent they relate to remuneration under a contract with the person liable (Article 2(2)). It is also not possible to limit claims for wreck removal. However, indemnity claims in respect of salvage contributions as between owners and cargo interests are limitable.

Generally, limitation may be invoked against all qualifying claims ‘arising on any distinct occasion’ (Article 6). Claims in respect of loss of life or damage to property that occur ‘on board or in direct connection with the operation of the ship . . . and consequential loss resulting therefrom’ may be subject to limitation (Article 2). Thus, the action leading to limitation does not have to occur on board a vessel.

Breaking limits

The LLMC Convention 1976 (unchanged by the 1996 LLMC Protocol) makes it very difficult to break the limitation limit. To do so, it must be proved that the act or omission of the person seeking to limit was ‘committed with the intent to cause such loss or recklessly and with the knowledge that such loss would probably result’ (Article 4). The LLMC Convention (unchanged by the Protocol) is a compromise whereby claimants accept that they are unlikely to break the right to limit liability, in return for a higher compensation fund.

Overview of English procedure

As a matter of English law, it is not necessary to admit liability to take advantage of a limitation defence. Nor does invoking limitation constitute an admission of liability. The procedure for pleading limitation and constituting a fund is set out in CPR 61.11 and the accompanying practice direction.

Two particularly important points are, first, that, as a matter of English law, it is not necessary for a liability action to already be pending before an owner is permitted to initiate limitation proceedings, and second, bringing England in line with many other jurisdictions, a limitation fund can now be constituted by way of a letter of undertaking, which offers owners and insurers a significant cost saving.

Summary

States across the world have enacted the provisions of the LLMC Convention 1976 and the 1996 LLMC Protocol in different ways, in particular in relation to wreck removal expenses and whether an owner is entitled to limit for these (many states have excluded Article 2(1)(d) from domestic law). Given that one state party should automatically recognise a fund constituted in another (Article 13), careful consideration is needed as to where to limit, as this may significantly mitigate against an owner’s exposure following a casualty.

HFW

https://www.lexology.com/library/detail.aspx?g=46e30c5d-9270-4066-9c23-6234de4af337