Shipping E-Brief summer 2014

SHIPPING E-BRIEF
SUMMER 2014
CONTENTS
SHIPPING
Are Owners bound to give credit for benefit obtained following Charterers’ repudiation? 2
The correct test for anticipatory breach by renunciation 4
Court of Appeal gives broad meaning to “charterers’ agents” in off-hire clause 5
Court clarifies that enhanced statutory interest rate not applicable to charterparties with no
significant connection to UK 7
A tough lesson on guarantee wordings: triple-check them! 8
Package limitation – can a cargo claimant “pick and mix”? 10
Charterer who expressed intention to perform in future nonetheless held to be in repudiatory breach 11
Towing the line – competing jurisdiction clauses 13
Underperformance disputes under time charterparties 14
Berth damage 16
Court upholds LMAA tribunal’s jurisdiction to rule on costs 18
SHIP FINANCE
Loan agreement relating to yacht construction contract construed as “on demand” 20
PRC Rules relating to the provision of cross-border security are relaxed: new SAFE regulations come into force 21
NEWS AND EVENTS

02 SHIPPING
E-BRIEF, SUMMER 2014
SHIPPING
Are Owners bound to give credit for benefit obtained
following Charterers’ repudiation?
Fulton Shipping Inc v. Globalia Business Travel S.A.U. (New
Flamenco) [2014] EWHC 1547 (Comm)
In a significant case regarding measure of loss and mitigation of
damages, the Commercial Court considered whether Owners,
who were claiming damages for the Charterers’ early redelivery
and repudiation of a time charterparty, had to give credit for the
capital value of the vessel, sold by the Owners upon the
Charterers’ repudiation for a greater sum than the value of the
vessel at the contractual date of redelivery under the
charterparty. Following a review of several leading authorities
on this issue, the Commercial Court held that no such credit
should be given since the benefit obtained by the Owners in
realising the capital value of the vessel was not legally caused by
the Charterers’ breach.
The background facts
The vessel was chartered under a charterparty on an NYPE
form dated 13 February 2004. A dispute arose between the
Owners and the Charterers as to whether they had agreed a
binding extension to the term of the charterparty.
The Charterers maintained that they were entitled to redeliver
the vessel by 28 October 2007, whilst the Owners contended
that the Charterers could only lawfully redeliver the Vessel on
2 November 2009. The vessel was redelivered on 28 October
2007. Shortly before redelivery of the vessel, the Owners
entered into an agreement to sell the vessel.
The Owners commenced arbitration against the Charterers.
The arbitrator held that there had been an agreement to extend
the charterparty and that redelivery by the Charterers on 28
October 2007 was a repudiatory breach. It is the question of
the quantum of Owners’ claim, however, that is of particular
interest.
The numbers:
Net loss of profit for remaining period
of the charterparty: €7,558,375
Proceeds for sale of vessel in 2007: US$23,765,000
Anticipated sale proceeds of vessel had it
been sold in November 2009: US$7,000,000
In the arbitration, the Owners claimed damages in the amount
of €7,558,375 for net loss of profit, which the Owners claimed
they would have earned had the vessel not been redelivered
early. The Charterers argued that credit should be given for the
US$16,765,000 difference in sale proceeds which the Owners
gained as a result of selling the vessel in 2007 rather than 2009.
Charterers’ position was that the sale had been a mitigating act
and they were, therefore, entitled to the benefit of that act.
The arbitrator found that the sale of the vessel in October 2007
was caused by the Charterers’ breach and was made in
reasonable mitigation of the Owners’ damages. There was
therefore no reason why capital savings could not and should
not be taken into account when assessing the net loss suffered
by the Owners. On the numbers set out above, this would have
extinguished Owners’ claim. The Owners appealed the
arbitrator’s finding to the Commercial Court.
The Commercial Court decision
The question of law before the Commercial Court was whether
an owner claiming damages for a charterer’s repudiation of a
time charterparty must give credit for the capital value of the
vessel sold at the time of the repudiation for a greater sum than
the value of the vessel at the contractual date of redelivery.
The Commercial Court held that, on the facts found by the
arbitrator, and applying the legal principles outlined in full in the
judgment, the Owners were not required to give credit to the
Charterers for any benefit in selling the vessel in October 2007
(relative to its value in November 2009), because this benefit
was not legally caused by the Charterers’ breach.
In reviewing the relevant legal principles and authorities, the
Court (Mr Justice Popplewell) took as the starting point the
fundamental and uncontroversial principle that damages for
breach of contract are intended to put the innocent party in the
financial position it would have been in had the contract been
performed; known as the “compensatory principle”. However,
not all damages are recoverable and this principle is subject to
considerations of causation, such that where a claimant’s losses
are factually or legally too remote, they will not be recoverable.
The Commercial Court indicated that there is no general rule
that determines when a party in breach may obtain credit for a
benefit received following his breach of contract. The Court did,
however, summarise a number of principles which emerged
from its consideration of the numerous authorities, including
The Elena D’Amico [1980]. In essence, the Court stated as
follows:
1. In order for a benefit to be taken into account in reducing
the loss recoverable by the innocent party for a breach of
contract, it is generally speaking necessary that the benefit
is caused by the breach. It is not sufficient if the breach has
merely provided the occasion for the innocent party to
obtain the benefit, or merely triggered his doing so.
2. Whether a benefit is caused by a breach is a question of
fact and degree that must be answered by considering all
the relevant circumstances, including the nature and
effects of the breach and the nature of the benefit and
loss, the manner in which they occurred and any pre-
existing, intervening or collateral factors which played a
part in their occurrence.
3. The fact that a mitigating step by way of action or inaction
may be a reasonable and sensible business decision with a
view to reducing the impact of the breach does not of
itself render it one that is sufficiently caused by the breach.
A step taken by the innocent party that is a reasonable
response to the breach and designed to reduce losses
caused thereby may be triggered by a breach but not
legally caused by the breach. Benefits flowing from a step

03SHIPPING
taken in reasonable mitigation of loss are to be taken into
account only if and to the extent that they are caused by
the breach.
4. Where, and to the extent that, the benefit arises from a
transaction of a kind which the innocent party would have
been able to undertake for his own account irrespective of
the breach, that is suggestive that the breach is not
sufficiently causative of the benefit.
5. There is no requirement that the benefit must be of the
same kind as the loss being claimed or mitigated, but such
a difference in kind may be indicative that the benefit is not
legally caused by the breach.
6. Although causation between breach and benefit is
generally a necessary requirement, it is not always
sufficient. Considerations of justice, fairness and public
policy have a role to play and may preclude a defendant
from reducing his liability by reference to some types of
benefit or in some circumstances even where the
causation test is satisfied. In particular, benefits do not fall
to be taken into account, even where caused by the breach,
where it would be contrary to fairness and justice for the
defendant wrongdoer to be allowed to appropriate them
for his benefit because they are the fruits of something the
innocent party has done or acquired for his own benefit.
In the present case, applying the principles above, the Court
found that the fall in the value of the vessel between the
relevant two dates was not caused by the Charterers’ breach
but by the drop in the market as a result of the financial crisis.
The effect of the drop in the market on the Owners was also
not caused by the Charterers’ breach but by the decision of the
Owners to sell the vessel. The decision to sell the vessel was
legally independent of the Charterers’ breach. That breach only
provided the context or occasion which enabled the Owners to
sell the vessel and was therefore the trigger not the cause of
the benefit obtained by the Owners.
The Court also held, on policy grounds, that it would be unfair
and unjust to allow the Charterers to benefit from the Owners’
decision to sell the vessel at an opportune time when the
market conditions favoured them, since this would allow the
Charterers to appropriate the benefits of the Owners’ own
investment in the vessel.
In addition, the Court found that the sale of the vessel was a
type of transaction that the Owners were able to enter into
irrespective of the Charterers’ breach of the charterparty. For
example, if the Charterers had not repudiated the charterparty,
the Owners may have chosen to sell the vessel on terms which
enabled the new owner to perform the remainder of the
charterparty.
On the basis of the above findings, the Court allowed the
appeal, holding that the arbitrator had erred in law. In particular,
the arbitrator’s finding that the sale of the vessel was caused by
the Charterers’ breach and in reasonable mitigation of loss was
not legally sufficient to establish the causal link between the
Charterers’ breach and the benefit obtained by the Owners.
The Commercial Court has granted the Charterers leave to
appeal to the Court of Appeal.
Comment
Like many other cases that arose around the time of the global
financial crisis, this case involves the Charterers’ repudiation of
their charterparty with the Owners and the subsequent
assessment of the Owners’ damages. This case is, however,
unusual compared to many others since it involves an
assessment of benefits obtained by the Owners from a sale of
the vessel at the time of the Charterers’ repudiation, on which
there was no directly applicable authority. Further analysis by
the Court of Appeal of the issues under consideration would be
welcomed, given the important implications the case may have
on the law on measure of loss and mitigation of damages in the
context of repudiatory breach and termination of contracts.
Rania Tadros
Partner, Dubai
rania.tadros@incelaw.com
Pavlo Samothrakis
Solicitor, Dubai
pavlo.samothrakis@incelaw.com

04 SHIPPING
The correct test for anticipatory breach by renunciation
Geden Operations Ltd v. Drybulk Handy Holdings Inc (Bulk
Uruguay) [2014] EWHC 855 (Comm)
The Commercial Court recently considered the principles
applicable to anticipatory breach of contract in a charterparty
dispute that came before the Court on appeal from a London
arbitration award.
The Disponent Owners of the vessel chartered it out on an
amended NYPE form for about 35 to 37 months. The
charterparty incorporated a Conwartime 2004 clause and a
BIMCO piracy clause, amended (by deletion of paragraphs a and
b) to reflect the market practice where it was intended that the
vessel could transit the Gulf of Aden (“GOA”) without Owners’
prior consent (“GOA OK”). Disponent Owners knew from the
negotiations with Charterers that the “GOA OK” status was
important to the Charterers.
The head charterparty between the Disponent Owners and the
Head Owners did not include such a provision but did include a
Conwartime clause. Accordingly, the Disponent Owners needed
the Head Owners’ consent for any transit of the GOA. When it
was indicated to Charterers, just before the vessel’s delivery
and her maiden voyage, that prior consent would have to be
obtained to transit the GOA on any occasion, they treated this
as an anticipatory and/or renunciatory breach and terminated
the charterparty.
Disponent Owners accepted Charterers’ purported termination
as itself a repudiation of the charterparty and sought to recover
their damages in arbitration.
The arbitration award
The Tribunal considered whether Charterers were obliged to
seek and obtain permission from the Disponent Owners on
every occasion when they wished the vessel to transit the GOA.
The majority of the Tribunal decided that, on a true
construction of the charterparty, the GOA transit was subject
to the Disponent Owners’ consent and, therefore, the
Disponent Owners’ rights and obligations were not back to back
with those in the head charterparty in this respect.
Nevertheless, the majority arbitrators decided that Charterers
were not entitled to terminate the charterparty as Disponent
Owners had not evinced an intention not to perform, nor
declared that they would be unable to perform their obligations
under the charterparty. The Disponent Owners’ behaviour
simply conveyed to Charterers that permission to transit the
GOA would be necessary and did not involve a refusal to comply
with an order to transit the GOA.
The majority arbitrators further held that the consequence of
the Disponent Owners’ refusal to allow the vessel to transit the
GOA freely did not deprive the Charterers of substantially the
whole benefit of the contract, since the possibility that the
vessel might have been unable to transit the GOA at some stage
in the foreseeable future could not be regarded as having any
significant effect on her earning capacity at the date of delivery,
particularly given market conditions and her wide trading limits.
For example, contemporaneous evidence showed that
Charterers would have traded the vessel initially in the Far East
and that they regarded the “GOA OK” status to be worth no
more than US$1,250 per day.
Accordingly, the Charterers were found to have repudiated the
charterparty and Disponent Owners were awarded damages
assessed on the basis of the difference between charter rate
and market rate. Charterers appealed on the grounds that the
majority arbitrators had made an error of law. The Commercial
Court dismissed the appeal.
The Commercial Court was asked to consider the following:
1. In order to demonstrate that the Disponent Owners had
evinced an intention not to be bound by the charterparty,
was it necessary to show that a reasonable man would
have concluded that Head Owners and hence Disponent
Owners would have refused to comply, or comply promptly
with an order to transit the GOA?
2. Did the stance adopted by Disponent Owners go to the
root of the contract?
The first question
Charterers argued that the majority of the Tribunal made an
error of law in deciding that, in order to demonstrate that the
Disponent Owners had evinced an intention not to be bound by
the charterparty, it was necessary to show that a reasonable
man would have concluded that the Disponent Owners would
have refused to comply or comply promptly with an order to
transit the GOA if and when made. Rather, the very act of
making plain that consent was dependent upon the choice of
Head Owners was itself sufficient to evince the necessary
intention. Whether or not Head Owners would in fact grant
permission was a speculative exercise which was irrelevant. By
contracting with Head Owners on terms that were not back to
back in respect of GOA consent, the Charterers alleged that the
Disponent Owners had put it out of their power and control to
perform their obligations under the charterparty.
Mr Justice Popplewell disagreed and stated that “this was an
attempt to appeal a finding of fact by dressing it up as an issue
of law”. Citing Universal Carriers v. Citati [1957], the Judge
stated that the conduct that would be sufficient to entitle the
other contracting party to treat himself as discharged from
further performance would either be:
>> renunciation, i.e. words or conduct evincing an intention by
the contracting party no longer to be bound by his
contractual obligations; or
>> self-induced impossibility, i.e. conduct that puts it out of
the party’s power to perform his contractual obligations.
In both cases, the inevitability of non-performance entitled the
innocent party to treat the contract as at an end prior to the
time for performance. However, unlikelihood or uncertainty in
future performance do not suffice. More particularly, the
uncertainty resulting from a party who has made his
performance dependent on a discretion to be exercised by a
third party does not put that party in anticipatory breach. This
was a question of fact, and the Charterers would have to wait to
see whether there would be a breach when the time for
performance would have arisen.

05SHIPPING
Furthermore, in cases both of renunciation and self-induced
impossibility, the breach of contractual obligations must be of
such character that in the event that it occurred after the time
of performance had arisen, the other party would be able to
treat himself as discharged from further performance. In
essence, the breach must be one of condition or of an
innominate term going to the root of the contract.
The second question
The Court held that the alleged anticipatory breach i.e. the
failure to comply promptly with a legitimate voyage instruction
if and when made by the Charterers, given that prior consent
would have to be sought by the Head Owners, was not a breach
that would go to the root of the time charter, even though the
“GOA OK” status had been expressed to be a “deal breaker”
and Disponent Owners knew it was important to Charterers.
Relying on the Court of Appeal decision in Telford Homes
(Creekside) Ltd v. Ampurius Nu Homes Holdings Ltd [2013], the
Judge stated that, when one examines whether an allegedly
anticipatory breach would have deprived one party of
substantially the whole benefit of the charterparty for the
remainder of the contractual period, it was necessary to look at
the question prospectively at the date of the anticipatory
breach, and then ask whether the party’s conduct deprived the
other party of the whole of that benefit.
The Judge accepted Disponent Owners’ arguments that the
benefit that the Charterers lost was the opportunity to market
the vessel at “GOA OK” in the longer term. He considered that
the findings of the majority arbitrators as to the vessel’s
intended use in the foreseeable future by the Charterers, the
competitive disadvantage of being unable to market the vessel
as “GOA OK”, the value the Charterers put upon the
competitive disadvantage and the ability to trade the vessel
elsewhere, were all supportive of the factual conclusion that the
Charterers were not deprived of substantially the whole benefit
of the charterparty.
Comment
This is an interesting judgment which deals with a legally subtle
yet practical point. The decision is important as it clarifies that
there are no special rules for time charters within the general
law on breach. In the context of a charterparty chain, the fact
that a sub-charterparty is not back to back with the head
charterparty in certain respects would not necessarily put
disponent owners in repudiatory breach. The judgment also
confirms that, in the context of renunciation, anticipatory
breach and termination of a contract for repudiation, a lot will
turn on factual points and a tribunal’s or court’s decision may
vary, depending on the facts of each case.
Ince & Co acted for the successful Disponent Owners. In case
of any query, please contact Jamila Khan.
Jamila Khan
Partner, Piraeus
jamila.khan@incelaw.com
Stavroula Mylona
Solicitor, Piraeus
stavroula.mylona@incelaw.com
Court of Appeal gives broad meaning to “charterers’ agents”
in off-hire clause
NYK Bulkship (Atlantic) N.V. v. Cargill International S.A.
(Global Santosh) [2014] EWCA Civ 403
The Court of Appeal recently considered the meaning of
“charterers’ agents” for the purposes of a proviso to an off-hire
clause in a case involving the arrest of a vessel that was time
chartered on the NYPE form.
By a charterparty dated 11 September 2008 on an amended
NYPE form, NYK time chartered the Global Santosh to Cargill.
Cargill sub-chartered the vessel to Sigma, by way of a voyage
charter, for a shipment of cement sold by Transclear, also a
sub-charterer of the vessel under a voyage charter, to IBG.
Under the contract of sale, IBG was responsible for the
unloading of the cargo and was liable to pay Transclear
demurrage if unloading of the cargo was delayed.
Upon arrival at the discharge port, the vessel was held at
anchor due to the breakdown of IBG’s unloader. Over two
months later, she was eventually called in to berth. However,
Transclear had obtained an Arrest Order on the cargo the day
before to secure a claim for demurrage against IBG for
$1,560,000. The Order prohibited any attempt to remove the
cargo from the vessel, but also mistakenly named the vessel as
the object of the arrest. Discharge only began nearly a month
later.
Cargill withheld hire for the period during which the vessel was
under arrest. NYK sought the payment of hire and the dispute
was submitted to arbitration.
Arbitration and Commercial Court decisions
Clause 49 of the charterparty provided as follows:
“Should the vessel be captured or seizured or detained or
arrested by any authority or by any legal process during
the currency of this Charter Party, the payment of hire
shall be suspended until the time of her release, unless
such capture or seizure or detention or arrest is
occasioned by any personal act or omission or default of
the Charterers or their agents.”
The question in issue was therefore whether the arrest was
“occasioned by any personal act or omission or default of the
Charterers or their agents”, i.e. whether it had been caused by
the personal act or omission or default of Transclear or IBG, as
Cargill’s agents. If the answer was ‘yes’, then Cargill was not
entitled to put the vessel off-hire under Clause 49. If the answer
was ‘no’, the proviso did not apply and Cargill was right to put
the vessel off-hire for the period in question.
The arbitral Tribunal, by a majority, found that neither
Transclear nor IBG were acting as Cargill’s agents and
therefore the proviso did not apply. This decision was reversed
by Mr Justice Field on appeal. The Judge found that IBG had
become Cargill’s delegate of the obligation to unload under

06 SHIPPING
the charterparty by reason of the sale contract. For the
purposes of Clause 49, the failure to unload within the lay days
was an act, omission or default that occurred in the course of
performing the obligation to discharge as delegated to it by
Cargill.
The Court of Appeal
The Court of Appeal was unanimous – 3:0. The judgment was
given by Lord Justice Gross, a judge with long experience of
shipping law. He dismissed the appeal and upheld Mr Justice
Field’s ruling in favour of NYK. The ship was on-hire for the
period of the arrest. The proviso did apply. However, he reached
his view on a different basis from Mr Justice Field.
He agreed that the proviso applied to agents in the broad sense.
As he put it, you look at who the actors are. Delegates of cargo
can be agents for the purpose of the proviso, irrespective of the
precise contractual relationship between them. They can
include sub-charterers, sub-sub-charterers and receivers.
But Lord Justice Gross took a different line from Mr Justice
Field on the relevance of the acts covered by the proviso to
Clause 49. In his view, there was nothing there to restrict the
application of Clause 49 to acts occurring in the course of the
performance by the delegate of the delegated task. It was
enough that the act of the delegate occasioned the arrest or
detention of the vessel.
The Court of Appeal was in no doubt that on the act/actor
analogy, the vessel’s arrest had been occasioned by an act or
default of an agent of Cargill. The relevant actors were
Transclear as well as IBG. Lord Justice Gross approached things
by looking at which side of the line the problem fell on. Was it
on NYK’s side or Cargill’s? He concluded that it fell on Cargill’s
side of the line. It involved Cargill’s delegate. NYK was not
involved in the dispute between Transclear and IBG about the
delay. True, Cargill was under no obligation either to discharge
the vessel in a given time – their charter was a time charter.
However, the proviso was not limited to Cargill’s contractual
obligations; what mattered was that the dispute arose out of
their trading arrangements for the vessel. The general scheme
of Clause 49 provided for the vessel to be on-hire or off-hire
depending on which side of the line things fell.
Comment
This decision gives a broad meaning to “charterers’ agents”
under a clause like this. It can include the whole chain of parties,
down to the sub-charterers and the receivers. It remains to be
seen how and to what extent this broad reading will be adopted
for other provisions of dry time charters.
The decision will be welcomed by shipowners. Each case will
depend on its facts, but the balance now seems to have shifted
towards a more equal approach. The risks of the arrest will be
borne by the party who is the most closely related to it –
depending on which side of the line the matter falls.
The Court of Appeal’s reasoning was based on the approach of
the Supreme Court recently in the Rainy Sky case, in which Ince
acted for the successful shipowners. The Supreme Court ruled
that where a contract term is capable of two meanings, you
should prefer the meaning which is more consistent with
business commonsense – and that, in doing so, you should look
at (a) the clause; (b) the contract as a whole; and (c) its
commercial context. That is what Lord Justice Gross did in the
Global Santosh.
Florence Preux
Solicitor, London
florence.preux@incelaw.com
Jonathan Elvey
Partner, London
jonathan.elvey@incelaw.com

07SHIPPING
Court clarifies that enhanced statutory interest rate not
applicable to charterparties with no significant connection
to UK
Martrade Shipping & Transport GmbH v. United Enterprises
Corporation (MV Wisdom C) [2014] EWHC 1884 (Comm)
The principal point of interest in this charterparty dispute was
whether the Owners, who succeeded in arbitration proceedings
in respect of their claim for unpaid hire, were entitled to interest
on the amount recovered from the Charterers at the statutory
rate provided for by the Late Payment of Commercial Debts
(Interest) Act 1998 (the “1998 Act”). In broad terms, the 1998
Act applies to qualifying debts arising under commercial
contracts for the supply of goods and services and implies a
term into such contracts that such debts are to carry statutory
interest, which is currently set at 8% above base rate.
The Tribunal awarded the Owners an enhanced interest rate
pursuant to the 1998 Act. The Charterers appealed to the
Commercial Court and the Court was asked to consider the
applicability of the 1998 Act where a charterparty contract
incorporates an express choice of English law and London
arbitration.
This issue has been raised numerous times in a number of
London arbitrations. Allowing the Charterers’ appeal, the
Commercial Court has now confirmed that a real connection
with England must be shown to establish that English law would
have applied to the parties’ contractual obligations irrespective
of the parties’ express choice of law and jurisdiction. In
particular, the Court found that an English law and London
arbitration clause is not a relevant connecting factor for the
purposes of the 1998 Act.
The Wisdom C (the “vessel”) was owned by a Marshall Islands
company. She was entered with the Panamanian Registry and
was managed by a Liberian company registered and operating
from Greece. The vessel was chartered to a German company,
for a time charter trip via the Mediterranean/Black Sea. Clause
48 of the charterparty provided for English law and London
arbitration. Hire was paid in US dollars to a bank account in
Greece. The brokers involved were Greek and the charterparty
recorded that it was made and concluded in Antwerp.
The arbitration award
A number of disputes between the parties were referred to
LMAA arbitration in London. The disputes included a claim by
Owners for unpaid hire. Charterers contended that they were
entitled to make lawful deductions from hire for alleged off-hire.
The Tribunal found that the Charterers’ deductions from hire
had not been made on reasonable grounds and in good faith
and that the Owners were entitled to an award in respect of the
principal amount of hire claimed. The Tribunal further found
that the Owners were entitled to interest on that sum and
awarded interest at the rate of 12.75% per annum, being 4.75%,
the official rate in June 2005, plus the enhancement of 8%,
under the 1998 Act.
In their award the Tribunal considered the provisions of s.12(1)
of the 1998 Act which provides:
“This Act does not have effect in relation to a contract
governed by a law of a part of the United Kingdom by
choice of the parties if:
(a) There is no significant connection between the
contract and that part of the United Kingdom; and
(b) But for that choice, the applicable law would be a
foreign law.”
Addressing the issue of the applicable law under s.12(1) of the
1998 Act, the Tribunal considered various factors and found
that the choice of London arbitration “would be a very
powerful indication in favour of English law”. The Tribunal also
considered other factors such as the use of the English
language, the fact that the vessel’s logs to which the Charterers
were entitled were in English, that GA was to be adjusted in
London (and English law was to apply to it), that the vessel was
entered with the London P&I Club and that the Inter-Club
Agreement was incorporated, which would be subject to
English law. The Tribunal found that these considerations “are
wholly persuasive in favour of a conclusion that English law
would have governed absent an express choice” and concluded
that the 1998 Act applied.
On appeal, the Charterers contended that the 1998 Act had no
application in that, contrary to the Tribunal’s findings, there was
no significant connection between the contract and the UK as
required under s.12(1)(a) of the 1998 Act.
There were two issues for consideration:
1. The first issue was whether the factors relied upon by the
Tribunal – and, in particular, the London arbitration clause
– were capable of amounting to significant connecting
factors such as to make the 1998 Act applicable.
2. The second issue was whether – absent the express
choice of English law in the clause – the application of art.
4 of the Rome Convention (given the force of law in
England by the Contracts (Applicable Law) Act 1990) led
to the conclusion that the charterparty would be governed
by foreign law such as to make the 1998 Act inapplicable.
The Commercial Court allowed the appeal.
On the first issue, Mr Justice Popplewell reversed the
arbitrators’ finding and held that the London arbitration clause
was not a relevant connecting factor for the purposes of
s.12(1)(a) of the 1998 Act. In fact, the Court found that such
clauses are irrelevant for the purposes of the requirements
under s.12 (1)(a). Section 12 of the 1998 Act provides that,
where parties to a contract with an international dimension
have chosen English law as the governing law of the contract,
the choice of English law is not sufficient to attract the
application of the 1998 Act. The 1998 Act attracted the
application of the penal interest rate provisions only if either or
both of the two requirements under s.12(1) were fulfilled.
The Court stated that factors that provide a “significant
connection” must connect the substantive transaction itself to
England. Such factors might include the following: (a) the place
of performance of obligations under the contract is England; (b)

08 SHIPPING
the nationality of the parties or one of them is English; (c) where
the parties are carrying out some relevant part of their business
in England; or (d) where the economic consequences of a delay
in payment of the debts may be felt in the UK.
On the second issue, art. 4(2) of the Rome Convention provides
in clear terms that the governing law of the charterparty is to be
determined by the principal place of the business of the owner.
In this case, the Owner was a one-ship company incorporated in
a jurisdiction of convenience and the ship was managed by
another company which has its place of business elsewhere. In
those circumstances, it would be the place of business of the
management company that was determinative of the governing
law. The management company was running its business from
Greece, not England. In the Judge’s opinion, it followed that,
pursuant to art. 4(2) of the Rome Convention, the charterparty
would not have been governed by English law in the absence of
an express choice of English law by the parties.
Comment
This judgment confirms that, where there is no contractually
agreed interest rate, the 1998 Act will only apply if it can be
shown that (a) there is a significant connection between the
contract and the UK and/or (b) English law would be the
applicable law pursuant to the provisions of art.4(2) of the
Rome Convention. If the charterparty’s only connection with
the UK is the parties’ choice of English law as the governing law
of the contract, that is not enough to trigger the 1998 Act.
The Commercial Court’s decision means that, where the
requirements of the 1998 Act are not satisfied, a successful
charterparty claim brought in London arbitration or the English
courts will only attract interest at such rate as the arbitrators or
judge deem fit, pursuant to section 49 of the Arbitration Act
1996 or section 35A of the Senior Courts Act 1981
respectively. Those rates will be considerably lower than what
might otherwise have been claimable under the 1998 Act.
A primary consideration for restricting the 1998 Act’s
applicability in this way, as stated by Mr Justice Popplewell,
would appear to be the concern that applying a penal rate of
interest on debts might discourage the international trading
community, including those involved in shipping, from choosing
English law and jurisdiction to govern their contracts.
Despina Plomaritou
Solicitor, Piraeus
despina.plomaritou@incelaw.com
David McInnes
Partner, London
david.mcinnes@incelaw.com
A tough lesson on guarantee wordings: triple-check them!
St Maximus Shipping Co Ltd v. AP Moller-Maersk AS (Maersk
Neuchatel) [2014] EWHC 1643 (Comm)
The recent decision of Mr Justice Hamblen in the Commercial
Court on the construction of a Letter of Undertaking (“LOU”),
provided by way of general average security, will give those
negotiating such securities pause for thought when considering
the precise wording and liabilities agreed.
The Owners were the demise charterers of the vessel Maersk
Neuchatel. They time chartered the vessel to Maersk as
Charterers under a charterparty dated 16 August 2004,
pursuant to which the vessel operated in a liner trade, calling at
ports in South East Asia, South Africa and West Africa.
With regard to General Average, the charterparty provided as
follows:
“General average shall be adjusted at the place as
indicated in Box 33 according to the York-Antwerp Rules
1994 or any amendment thereto by an adjuster appointed
by Owners. In the event of general average or salvage, the
Charterers shall provide an acceptable temporary security
covering all goods and containers to avoid delay and
secure their release so that transit/delivery may continue.
The Owners agree that Charterers’ temporary guarantee
may be exchanged in due course for a full set of securities
from the appropriate interested parties covering all goods
and containers. The Charterers agree to co-operate with
the Owners and the Owners’ appointed average
adjusters, to assist by supplying manifests and other
information and, where required, to endeavour to secure
the assistance of the Charterers’ local agents in the
collection of security, at the Owners’ expense.”
On 20 July 2007, the vessel grounded off the port of Tema,
Ghana. General Average was declared on 25 July 2007 and
Owners appointed an average adjuster.
The adjuster provided a draft LOU on 27 July 2007. The initial
draft was intended to be temporary security in respect of the
cargo, however Charterers opted to provide permanent
security. The terms of the LOU were negotiated and agreed
and, on 25 September 2007, Charterers’ solicitors sent a copy
of the signed LOU by email to the average adjuster and to
Owners’ solicitors.
The LOU provided as follows:
“In consideration of the delivery to Cargo Interests or to
their order on payment of freight due of the cargo carried
on board the MV MAERSK NEUCHATEL at the time of the
above mentioned casualty, we hereby undertake and
agree as follows:
1. To pay the proper proportion of any General Average
and/or Special Charges which may hereafter be
ascertained to be due from the Cargo or Shippers or
Owners thereof under an Adjustment prepared by the
appointed Average Adjuster in accordance with the
Charterparty, dated 16 August 2001, and/or the Bills of
Lading issued by us or SCL.
...”

09SHIPPING
The final adjustment was published on 10 January 2012. Taking
into account sums already paid, the adjustment provided that a
further US$4,254,985.53 was due from cargo interests.
Charterers contested the adjustment and argued that their
liability was limited to amounts that were properly and legally
due – not necessarily the amount contained in the average
adjustment. A draft of the adjustment had been provided to
Charterers that had indicated that 79.55% of the bottom
damage and 100% of the propeller damage was sacrificial
damage and the amount due from cargo interests was
US$6,304,663.92. The final adjustment, however, indicated that
82.17% of the bottom damage and 100% of propeller damage
was sacrificial damage and, taking into account a payment on
account, the amount due from cargo interests was
US$4,254,985.53. Charterers contested the correctness of
these conclusions and it was their case that only a further
US$3.5 million was properly and legally due.
Charterers further argued that they were not bound to accept
the correctness of the average adjustment and had not given up
their right to dispute the adjuster’s determination.
Alternatively, they argued that Owners were estopped from
challenging Charterers’ construction of the LOU by accepting
the LOU under cover of an email dated 25 September 2007,
which stated as follows:
“This guarantee is provided on the basis that any liability
on the part of cargo to contribute in GA arising out of this
incident is agreed between Owners and Charterers or
determined by the English High Court of Justice in the
event GA liability is disputed.”
Alternatively, they said that the LOU should be rectified on the
basis of common mistake so as to reflect the Charterers’
construction.
Owners contended that, on the proper construction of the
LOU, Charterers were obliged to pay the full amount stated in
the adjustment, provided only that the adjustment was
prepared in accordance with the York-Antwerp Rules 1994 by
Owners’ appointed adjuster. They argued that Charterers were
bound by the findings of fact in the adjustment and the
adjuster’s assessment of their costs.
The Court was asked to consider as a preliminary issue the
construction of the LOU and Charterers’ arguments regarding
estoppel and rectification.
The Court preferred the Owners’ construction of the LOU and
held that there was a clear undertaking to pay. The language of
Clause 1 amounted to an unconditional and absolute obligation
to pay the amount ascertained to be due in the adjustment.
Mr Justice Hamblen considered the decision of Mr Justice
Sheen in The Jute Express [1991] 2 Lloyd’s Reports 55. In that
case, additional wording had been used to qualify the obligation
to pay an amount “which is payable in respect of the goods by
the owners thereof.” Mr Justice Sheen found this to mean sums
that were legally due and therefore the cargo interests had
preserved the right to challenge the amount said to be due in
the adjustment. Mr Justice Hamblen considered this to support
Owners’ case and that, in the absence of such wording in this
case, Charterers were obliged to pay the adjusted amount. He
pointed out that Charterers could have used such wording in
the present case if they had wished to preserve the right to
challenge the adjuster’s findings.
On the proper construction of the LOU, Charterers were
obliged to make payment of the amount ascertained to be due
in the adjustment. The Court held that the obligation was akin
to an on-demand guarantee. In doing so, it placed weight on
the commercial bargain made by the parties. If this resulted in
overpayment, then Charterers may have a means of recourse
against Owners. If there was an underpayment, then
Charterers would be free of any further liability and Owners
would be left with unsecured claims against various cargo
interests for the balance.
Additionally, the Court rejected Charterers’ argument that
Owners were estopped by representation from asserting that
Charterers’ construction of the LOU was incorrect as they had
not responded to the covering email that had purported to add
terms to the LOU. Neither had Charterers established that the
LOU should be rectified on the basis of common mistake.
Comment
This is an important case for all parties involved in the
negotiation of General Average security and will be of interest
to all parties involved in negotiating other types of security. In
light of this decision, a guarantor’s liability to pay an amount
ascertained to be due under a General Average adjustment is
likely to be construed as an on-demand guarantee to pay the
amount ascertained to be due in the adjustment, unless express
wording is included preserving the right to contest the
adjustment and limiting the obligation to pay amounts that are
legally due.
When negotiating the wording of General Average security, it is
important that one considers carefully the precise wording of
the LOU and the effect it may have on a party’s obligation to
make payment of general average contributions. It may be
appropriate to insert additional wording to protect a party’s
ability to contest the determination in the average adjustment
and limit the guarantor’s payment obligation to making
payment of amounts legally due. For other forms of security,
this decision reinforces the point that all terms of the security
should be included in the guarantee itself, rather than in related
correspondence: the safest course of action will always be to
treat the guarantee document as “stand alone” and likely to be
strictly construed.
Anna Devereaux
Solicitor, London
anna.devereaux@incelaw.com
Kevin Cooper
Partner, London
kevin.cooper@incelaw.com

10 SHIPPING
Package limitation – can a cargo claimant “pick and mix”?
Yemgas Fzco & Ors v. Superior Pescadores S.A. Panama
(Superior Pescadores) [2014] EWHC 971 (Comm)
The Commercial Court (Mr Justice Males) recently had to deal
with some interesting issues relating to a clause paramount and
package limitation. In short, the Judge held that (1) the phrase
“The Hague Rules as enacted in the country of shipment...” did
not mean the Hague-Visby Rules; (2) in relation to several
identical bills of lading, the cargo claimants could not choose
the Hague Rules limits instead of the Hague-Visby Rules limits
as and when it suited them; and (3) the relevant date under the
Hague Rules for converting gold value into money is the date of
delivery of the goods.
A cargo of machinery was loaded on the MV Superior
Pescadores at the port of Antwerp, Belgium in January 2008
and the Owners issued six bills of lading for carriage to Balhaf in
Yemen. Each of the bills was for a number of packages and
contained on its reverse side a Paramount Clause in the
following familiar terms:
“2. Paramount Clause
The Hague Rules contained in the International
Convention for the Unification of certain rules relating to
Bills of Lading, dated Brussels the 25th
August 1924 as
enacted in the country of shipment shall apply to this
contract. When no such enactment is in force in the
country of shipment, the corresponding legislation of the
country of destination shall apply, but in respect of
shipments to which no such enactments are compulsorily
applicable, the terms of the said Convention shall apply.”
Although the bills of lading were not issued on the standard
Congenbill form, this wording was (with one immaterial change)
identical.
While the vessel was crossing the Bay of Biscay, the cargo
shifted and was damaged, giving rise to a claim (ignoring
package limitation) said to be in excess of US $3.6 million.
An agreement was subsequently reached that the claim would
be subject to English law and jurisdiction. That law includes the
Carriage of Goods by Sea Act (“COGSA”) 1971 which renders
the Hague-Visby Rules applicable as a matter of statute law
when the carriage is from a port in a contracting state. Belgium
is such a state.
In some of the bills of lading, the Hague Rules limit was always
higher than the Hague-Visby limit, and the Claimants claimed
this higher limit. In the case of bill of lading no. 4, application of
the Hague Rules yielded a higher limitation figure for four of the
six packages, while for the remaining two packages the Hague-
Visby limit was higher. In the case of each package, the
Claimants claimed whichever limitation figure was the higher.
The effect of the different limitation formulae for which the two
regimes provide was that (at current values) the Hague Rules
limit was higher for packages weighing up to about 10 tonnes,
while for packages weighing more than this, the Hague-Visby
limit was higher.
The Owners paid the amount of the Hague-Visby package limit,
equivalent to just over US $400,000, and contended that it was
not open to the Claimants to claim a further US$200,000 by
picking and choosing between the Hague-Visby package limit
and the Hague package limit, depending on which gave them
more.
1. Which Rules apply?
The basis for the Claimants’ argument was that the Hague
Rules were contractually incorporated into the bill of lading by
virtue of the Clause Paramount. Whilst the Hague-Visby Rules
applied compulsorily, they allow the parties to agree
contractually on a higher package limitation figure.
The first question was, therefore, whether the Hague Rules
applied contractually. That depended on what was meant by the
phrase “the Hague Rules contained in the International
Convention for the Unification of certain rules relating to Bills
of Lading, dated Brussels the 25th
August 1924 as enacted in
the country of shipment...”. It was common ground that if this
did not refer (or was not capable of referring) to the Hague-
Visby Rules which have been enacted in Belgium, then the
Hague Rules would be incorporated by virtue of the second
sentence of the clause.
On this point, the Judge had a lot of sympathy for the Owners’
argument that this expression was capable of referring to the
Hague-Visby Rules given that these are just an amendment of
the Hague Rules. However, he decided to follow the approach in
the Happy Ranger [2002] EWCA Civ 694 and he held that the
clause paramount constituted a contractual agreement to
incorporate the Hague Rules.
2. Can the Claimants pick and mix?
Article IV, Rule 5 (g) of the Hague-Visby Rules says:
“By agreement between the carrier, master or agent of
the carrier and the shipper other maximum amounts than
those mentioned in sub-paragraph (a) of this paragraph
may be fixed, provided that no maximum amount so fixed
shall be less than the appropriate maximum mentioned in
that sub-paragraph.”
The Owners argued that you could not have an agreement
which might only sometimes give rise to a higher figure,
depending on the weight of the package lost and the respective
values of gold and SDRs. The Judge had sympathy with that
argument, but decided that there was no reason in principle
why you could not agree a regime that involved a “wait and see”
approach. However, readers will know that where you normally
expect to find this sort of agreement, if ever, is on the front
page of the bill in a box marked “Declared Value” or similar.
There is no mention of this point in the judgment, but the Judge
was deeply uneasy about the “oddness” of the cargo claimants’
“pick and mix” approach, where identical bills were governed by
different regimes and where, in the case of one bill of lading,
different regimes were applied to different packages covered by
the bill. He therefore found in favour of the Owners on this
point and held that the Hague-Visby Rules limit applied.

11SHIPPING
3. Converting gold value
The final point, albeit just a comment given the result above,
was when the gold value should be assessed under the Hague
Rules and whether this should be at the date of judgment (as is
the case with SDRs) or the date of delivery of the goods. The
Judge held it was the latter, relying on the assumption made by
Mr Justice Hobhouse in The Rosa S [1989] QB 419.
Comment
To a newcomer to the world of maritime claims, the risk
apportionment in the Hague and Hague-Visby regimes is not
particularly fair. However, the rationale for the Rules, that have
served world trade well for coming on 100 years, is that they
promote certainty and the parties to the venture can and
should insure their respective risks. Given the hundreds of
cargo claims that occur worldwide every day, this is an area of
the law that really does benefit from certainty and, in this
regard, we consider that the Court’s decision in this case will be
a welcome addition to those of us who deal with such claims on
a daily basis.
This decision is being appealed. We will report on the Court of
Appeal judgment in due course.
Ted Graham
Partner, London
ted.graham@incelaw.com
James Hickland
Senior Associate, London
james.hickland@incelaw.com
Charterer who expressed intention to perform in future
nonetheless held to be in repudiatory breach
London Arbitration 7/14, LMLN 20 March 2014
In a recent arbitration award reported in the Lloyd’s Maritime
Law Newsletter, London arbitrators have taken a robust
approach to a case involving an alleged repudiatory breach of
charter by defaulting Charterers, in circumstances where the
Charterers were insisting that, despite their non-performance
to date, they remained willing to perform their contractual
obligations in the future. This is likely to be a welcome decision
for owners facing similar situations.
The vessel was chartered on the NYPE form for a period of
about 5 years. In January 2012, Charterers failed to pay an
instalment of hire and proposed paying only 30% of all
outstanding hire due to their financial difficulties. On 30
January 2012, Charterers wrote to Owners to say:
“we once again express our apologies for the
inconvenience so far caused, but as we have repeatedly
informed Owners, this is really something beyond our
control and Owners should therefore take such steps as
may be necessary to minimise losses/damages.”
Owners responded by asking Charterers to make their position
clear in respect of the payment of the outstanding hire and
their intentions to pay further hire instalments. In response,
Charterers wrote to say:
“We refer to Owners’ last message and their request for
clarifications. As we have previously informed Owners,
whilst Charterers intend to perform the charter, they are
however currently unable to say when hire can be paid,
hence our invitation to Owners to propose how best to
mitigate/resolve this situation.”
In reply, Owners pressed Charterers again to say how they
intended to perform the charter in circumstances where they
could not clarify when they would pay hire. Charterers did not
respond to this message and so again, on 3 February, Owners
called upon Charterers to pay the outstanding hire and to clarify
their position as a matter of urgency.
On 6 February, Charterers wrote to Owners to complain about
steps the Owners had taken against a company with a similar
name to that of Charterers, but they did not respond to the
points Owners had been making in relation to the subject
charter. On 7 February, Owners pressed Charterers again to
confirm when the outstanding hire would be paid. There was
again no response from Charterers to this message.
On 13 February, Owners pointed out to Charterers that the
ship had been re-delivered under the sub-charter and again
called upon Charterers to state their intentions. Despite
reminders sent on 14 and 15 February, Charterers failed to
respond. On 16 February, Owners informed Charterers that
they considered their conduct to be repudiatory and that, if the
outstanding hire was not received by 20 February, Owners
would withdraw the vessel.

SHIPPING
12
On 17 February, Charterers responded to say:
“As we had previously informed Owners, our intention has
always been and still is, to perform our contractual
obligations. Unfortunately, current financial conditions are
preventing us from dealing with this matter as we would
have liked... if Owners believe the best way to mitigate is
to fix the vessel for their own account, then we will not
stop them.”
On the same day, Owners responded to say there was nothing
in Charterers’ message which gave a proper indication that
Charterers intended to or were able to perform the charter.
Owners gave an extended deadline of 21 February for payment
of outstanding hire.
When Charterers failed to respond to this message, on
22 February Owners brought the charter to an end on the
basis of Charterers’ repudiatory breach.
The Tribunal’s decision
The Tribunal stated that they had no hesitation in concluding
that Charterers were in repudiatory breach of charter despite
their various messages to the effect that they wanted to
continue to perform the contract. The Tribunal relied on the
following factors to reach a conclusion that any reasonable
observer would find Charterers’ behaviour was repudiatory:
>> The failure to pay the instalments of hire and to find a
sub-fixture for the vessel.
>> Charterers’ frequent failures to respond to Owners’
messages in which Owners raised unequivocal questions
that required adequate answers.
>> The Tribunal concluded Charterers’ message of 17
February was “as close as one might get to a clear
admission that the Charterers were unable to perform”
the charter. This was so even though Charterers’
responses, when they did send them, were carefully
worded in an attempt to make it difficult for Owners to say
that Charterers’ conduct was repudiatory.
Accordingly the Tribunal awarded Owners’ damages of
US$15,910,650.
Comment
In the current market, many owners are facing difficult decisions
as to whether the conduct of a defaulting charterer is sufficient
to amount to a repudiatory breach of charter entitling the
owner to terminate and receive damages for their losses post
withdrawal. Under English law, in order to demonstrate that a
party has renounced its obligations under a contract, it is
necessary for the innocent party to show that the conduct of
the defaulting party unequivocally demonstrates an intention
not to perform the contract, or an inability to perform, either in
its entirety or in a manner which goes to the root of the
contract. The innocent party faces a dilemma where a
defaulting party insists that, despite its non-performance to
date, it intends to perform its obligations in the future.
The Tribunal in this case appeared to have little difficulty in
seeing through Charterers’ assertions that they intended to
perform in the future. The Tribunal concluded that objectively
the Charterers’ messages, taken together with their conduct in
not paying three instalments of hire, demonstrated they would
not or could not perform the charter.
This will be a welcome decision for Owners who face similar
situations though, of course, every case has to be assessed on
its own facts.
David Richards
Solicitor, London
david.richards@incelaw.com
Nick Burgess
Partner, London
nick.burgess@incelaw.com

13SHIPPING
Towing the line – competing jurisdiction clauses
Med Marine v. Castillo Schiffahrts – GMBH & Co & Anr (Conti
Cartagena) [2014] EWHC 1064 (Comm)
In a recent judgment, the Commercial Court has dismissed a
challenge to the jurisdiction of the English Court by two
defendants, who alleged that the proper jurisdiction for a
dispute under an agreement which incorporated the UK
Standard Conditions for Towage and other Services (Revised
1986) (the “UK Towage Conditions”) was the Istanbul Court. Mr
Stephen Hofmeyr QC, sitting as a Deputy Judge, concluded that
the reference to the Istanbul Court was simply a carve out to
the otherwise exclusive jurisdiction of the English Court,
allowing the Claimant the option to sue in Turkey for unpaid
fees only.
The Claimant is a Turkish company which provides tug,
pilotage and mooring services to vessels entering ports in
Turkey. The first Defendant is the registered owner and the
second Defendant the demise charterer of the vessel Conti
Cartagena (the “Vessel”).
In August 2012, the Vessel was at the Besiktas Shipyard in
Turkey having works carried out and was scheduled to be
shifted to a floating dry dock. The Defendants engaged the
Claimant to provide the necessary tug and pilotage assistance
but, during the course of the shifting operation, the Vessel
collided with a floating dry dock and with another vessel.
The Vessel Owner and Demise Charterer commenced
proceedings in Turkey. However, the Turkish company alleged
that the English courts had jurisdiction over the dispute and
issued English proceedings, seeking a declaration of non-
liability. The Commercial Court had to decide whether it had
jurisdiction over the parties’ dispute. For the purposes of the
English proceedings, therefore, the Turkish company was the
Claimant and the Vessel Owner and Demise Charterers were
the Defendants. In the meantime, the Turkish proceedings were
stayed, pending the outcome of the Claimant’s application to
the Commercial Court.
The parties’ agreement
The parties’ agreement was contained in a booking note (the
“Booking Note”) in Turkish, which contained the following
provisions (as translated into English):
“We request pilotage, towage and mooring services for
the vessel detailed above which is under our ownership/
agency...”...
“Pursuant to our request we undertake and agree to the
application of the provisions of the service tariff applied
by our company and all instructions and regulations
issued by the port and docks, to the application of the
United Kingdom Standard Towage Conditions (Revised
1986) to pay [relevant] companies such pilotage, towage
and mooring fees as may accrue to them, and [we agree]
that if the due and payable invoice debts with respect to
the various services are not paid, our request for services
shall be suspended and shall not be complied with, that
after the invoice for the service referred to in this letter of
request has been issued we may not change the said
invoice address, and [we agree also] that the Courts and
Enforcement offices of Istanbul shall be competent in the
resolution of disputes between the parties.”
The Booking Note therefore incorporated the UK Towage
Conditions. Clause 9 of the Conditions provides as follows:
“9(a). The agreement between the Tugowner and the
Hirer is and shall be governed by English law and the
Tugowner and the Hirer hereby accept, subject to the
proviso contained in subclause (b) hereof, the exclusive
jurisdiction of the English courts...
(b) No suit shall be brought in any jurisdiction other than
that provided in subclause (a) hereof, save that either the
Tugowner or the Hirer shall have the option to bring
proceedings in rem to obtain the arrest of or other similar
remedy against any vessel or property owned by the other
party hereto in any jurisdiction where such vessel or
property may be found.”
The Claimant alleged that the English Court had jurisdiction
over the case because the Booking Note expressly incorporated
the UK Towage Conditions. The Claimant said that, although
the Booking Note did include an Istanbul jurisdiction clause, this
only applied to claims by the Claimant to recover unpaid fees
and that, in any event, the Istanbul jurisdiction clause was a
non-exclusive jurisdiction clause.
The Defendants, on the other hand, argued that the Istanbul
jurisdiction clause applied to all disputes between the parties
and, if this was correct, the English jurisdiction clause in the UK
Towage Conditions was not incorporated into the Booking
Note. The Defendants also argued that, insofar as the Booking
Note contained two jurisdiction clauses, they must operate in
parallel such that once one of the parties invoked the
jurisdiction of Court X, it was then no longer possible for the
other party to utilise Court Y.
The Judge noted that the burden of proof was on the Claimant
to demonstrate a good arguable case that the English Court
had jurisdiction and that, to succeed, they had to show that they
had a much better argument than the Defendants.
Having heard the arguments, the Judge concluded that, read in
context, the reference in the Booking Note to the jurisdiction of
the Istanbul Court related solely to the First Defendant’s
obligation to pay any fees due for the services rendered by the
Claimant and that as such, “it can be seen to do no more than
carve out an exception to the exclusive English jurisdiction
clause in the Booking Note”. The Judge added that he
considered the argument by the Defendants that the Istanbul
jurisdiction clause was an exclusive jurisdiction clause was
“wholly without merit”.

SHIPPING
14
The Judge went on to say that there was no overlap between
the types of dispute which may be submitted to the Turkish
courts and those which must be submitted to the English
courts. Therefore, no issue of co-existence between the two
jurisdiction clauses arose.
Comment
This is an interesting decision which again shows the
attractiveness of the English Court to international litigants, but
confirms the need for parties to use clear and concise language
in law and jurisdiction clauses to avoid disputes such as this
arising in the future.
Catherine Earnshaw
Solicitor, London
catherine.earnshaw@incelaw.com
Bob Deering
Partner, London
bob.deering@incelaw.com
Underperformance disputes under time charterparties
London Arbitration 12/14, LMLN, 29 May 2014
This award is the latest of a number of court decisions and
LMAA arbitration awards dealing with issues that frequently
arise in time charterparty underperformance disputes.
The vessel, a 1998-built bulk carrier, performed a winter voyage
from the U.S. Atlantic Coast to South Korea on an NYPE 1993
time charterparty.
Charterers’ router reported a 50.89 hr time loss (based on a
12.26 kt “good weather” speed net of a 0.2 kt assisting current)
and 71 mt IFO over-consumption, and Charterers deducted
from hire on the basis of these figures.
Owners’ router reported a 23.98 hr time loss (based on a 12.68
kt “good weather” speed) with no over-consumption, and
Owners claimed the US$63,435.10 difference between their
admitted underperformance figure (based on their router’s
report) and Charterers’ deduction.
The charterparty provided as follows:
>> The parties deleted NYPE lines 19-20 (“capable of
steaming fully laden under good weather conditions at a
speed of...”)
>> Clause 63 (“Vessel’s Description”): “...abt 13.5/14.0kts on
ifo 380cst 34mt(l)/34mt(b) per day +0.1mt mgo per day
...ADA [i.e. “all details about”] ... SPEED AND
CONSUMPTIONS OF THE VESSEL AS PER DESCRIPTION
ARE REPRESENTATIONS BY THE OWNERS AND ARE A
CONTINUOUS WARRANTY THROUGHOUT THIS
CHARTER”
>> Clause 100 (“Speed Consumption”): “The words ‘good
weather conditions’ in line 20 of this Charter shall mean
any weather condition in which the wind does not exceed
Force 4 at the Beaufort Scale and/or Douglas sea state 3
no advance current/no negative influence of swell...”
>> Clause 113 (“Ocean’s Routes clause”): “The vessel shall be
capable at all times during the currency of this Charter of
steaming as per description. For the purpose of this
charter ‘good weather conditions’ are to be defined as
weather conditions not exceeding Beaufort force 4 and
Douglas 3 no advance currents/no negative influence of
swell...”
The following issues arose in the arbitration:
1. Did the deletion of lines 19-20 mean that Clause 63’s
ongoing performance warranty was given for all weather
conditions throughout the charter (as Charterers said); or
was it given for “good weather conditions” as defined in
Clauses 100 and 113 (as Owners said)?
2. If the warranty was given for “good weather”, did Clause
63’s “no advance currents” criterion allow assisting
currents to be taken into account (as Charterers said) so as
to allow their routers to reduce the vessel’s “good

15SHIPPING
weather” speed by 0.2 kts for the 0.2 kt assisting current;
or was it a misprint that only allowed adverse currents to
be taken into account (as Owners said)?
3. Which routers’ report should prevail?
The Tribunal’s decision
The Owners won. The Tribunal upheld their US$63,435.10
claim and awarded them 4.25% quarterly compound interest,
for the following reasons:
Issue (1) – all weather or “good weather” warranty’?
The Tribunal preferred Owners’ interpretation. The repeated
references to “good weather conditions” in Clauses 100 and
113 strongly indicated that, in accordance with general shipping
practice, the performance description in Clause 63, to which
Clause 113 referred (“as per description”), was given for the
“good weather” conditions set out in Clauses 100 and 113. The
deletion of printed lines 19-20 was probably a clerical error and
did not affect the Tribunal’s construction of the three rider
clauses.
Issue (2) – “no advance currents”
The Tribunal again preferred Owners’ interpretation. The
essential purpose of a “good weather” definition is to limit the
performance warranty to wind/sea conditions in which the
vessel can realistically be expected to perform as warranted;
and, as is common, currents are mentioned to ensure that the
vessel’s performance in those conditions is not impeded by
currents. So “no advance currents” really meant no adverse
currents.
Issue (3) – whose report should prevail?
The Tribunal preferred the report of Owners’ router for the
following reasons:
1. The four wind/sea readings each day reported by Owners’
router suggested greater accuracy than the one reading
each day by Charterers’ router.
2. The 0.2 kt reduction by Charterers’ router of the vessel’s
“good weather” speed for the 0.2 kt assisting current was
incorrect in view of the Tribunal’s ruling on issue (2) –
though this made a modest difference.
3. Owners’ router had submitted that Douglas Sea State 3
referred to a 0.5-1.25 metre average wind wave and that
this equated to a significant wave height (i.e. the 33%
highest wind waves plus swell that were encountered) of
2 metres or less (by multiplying it by a 5/8 fraction); and,
on this basis, they treated significant wave heights of up
to 2 metres as “good weather”. By contrast, Charterers’
router treated “good weather” as (i) swell of up to 2
metres; and (ii) 1.25 metre wind waves on top of that.
The Tribunal preferred the approach of Owners’ router
and, therefore, its “good weather” days to those of
Charterers’ router. Consistent with this, during various of
Charterers’ “good weather” days, the swell was on, or
forward of, the vessel’s port beam – constituting
“negative influence of swell” which precluded those days
from being “good weather” days.
4. Charterers’ router purported to apply The Didymi’s “good
weather” performance test (i.e. ascertain the performance
during good weather and extrapolate over the whole
voyage) in the following manner:
(1.) Notional warranted voyage time: 10,960.9 nm (voyage
distance) ÷ 13 kts = 843.15 hrs
(2.) Notional voyage time at the “good weather” speed:
10,960.9 nm ÷ 12.26 kts = 894.04 hrs
(3.) Time loss: 894.04 hrs minus 843.15 hrs = 50.89 hrs
However, Owners’ router argued that this failed to factor in the
actual time taken during the voyage or any reduced speed
during non-“good weather” days on account of operational/
navigational reasons, i.e. the “necessary adjustments and
extrapolations” referred to by the Court in The Didymi. They
applied the following approach, which they said applied the
reality of the actual voyage:
(1.) “Good weather” speed shortfall: 13 kts less 12.68 kts
= 0.32 kts
(2.) Allowed voyage time: 10,988.9 nm ÷ [11.88 kt actual
voyage speed plus 0.32 kts] (12.20 kts being the
speed she should have achieved in the absence of her
0.32 kt shortfall) = 900.73 hrs
(3.) Time loss: 900.73 hrs minus 924.70 hrs (actual voyage
time) = 23.98 hrs
The Tribunal preferred the approach of Owners’ router for the
reasons they gave. Consistent with this, they noted that the
router’s 12.68 kt “good weather” speed represented a 2.5%
shortfall compared with the 13 kt warranty which, netting
down the 924.7 hr voyage time by 2.5%, produced a 902.15 hr
allowed voyage time and a 22.55 hr time loss figure, which was
much closer to the 23.98 hr figure of Owners’ router than the
50.89 hr figure of Charterers’ router.
5. The Tribunal also considered that the 10,988.9 nm voyage
distance of Owners’ router, which corresponded with the
figure derived from the Master’s, was more reliable than
the 10,960.9 nm figure of Charterers’ router.
6. The over-consumption figure of Charterers’ router was
incorrect because (i) it failed to allow 5% for “about” with
regards to the warranted consumption figure (applying the
“ADA” provision); and (ii) its consumption figure was
directly linked to its incorrect time loss figure.
Comment
The Tribunal’s decision appears to have properly applied the
charterparty’s performance provisions. However, it does
highlight the need for parties to be clear whether a
performance description applies in “good weather” (“all
weather” warranties being very rare) and how/when currents
should be taken into account.
In addition, the time loss calculation, which the Tribunal
preferred, seems to properly apply the principles set out in The
Didymi for the reasons set out above. However, approaches can

16 SHIPPING
vary in practice. In London Arbitrations 15/05 and 20/07, the
Tribunals applied the approach which Charterers’ router was
advocating here. At any rate, it is unclear that the calculation by
Owners’ router in 4 above was the real reason for the difference
between the routers’ time loss figures – applying Owners’
router’s “voyage distance” and “good weather” speed figures
to Charterers’ router’s calculation (so as to compare the
calculations based on the same underlying figures) results in a
21.33 hr time loss figure (i.e. very close to, and in fact slightly
better than, the 23.98 hr figure of Owners’ router). The real
difference appears to be due to the different “voyage distance”
and “good weather” speed figures – as to which see 2, 3 and 5
above.
Finally, the dispute as to which sea state conditions qualified as
“Douglas Sea State 3” highlights the differing views on this and
the need for a charterparty to be clear about this so as to avoid
confusion.
Evangelos Catsambas
Partner, Piraeus
evangelos.catsambas@incelaw.com
Berth damage
Terminal Contenitori Porto di Genova SpA v. China Shipping
Container Lines Limited (Xin Xia Men) [2014] EWHC 1629
(Comm)
Instances of vessels making contact with and damaging a berth
are fairly common. Disputed claims on liability are much rarer,
given that often it is very clear that the vessel bears 100% of
the fault. In this recent first instance decision, the High Court
was asked to consider allegations of negligence directed at the
terminal.
On 5 June 2011, during strong wind and rains, Xin Xia Men
(the “Vessel”), a container ship owned by China Shipping
Container Lines Limited (the “Owners”), was blown off the
quay at Genoa’s container terminal (the “Terminal”) and
impacted with the Terminal’s shore crane PT4.
The wind speed was measured at various sources around the
Terminal, but the anemometer on crane PT4 indicated that the
wind speed shot up from about 7km/h at 1713 to 77km/h just
30 seconds later. There were gusts of around 80km/h until
1715 when it dropped to 60km/h. Footage from the Terminal’s
CCTV showed the Vessel begin to move away from the quay as
the wind speed increased. By 1715, the Vessel was about 20m
parallel to the quay. It stopped at around 1716 then began
swinging back in four minutes later. At 1725, the Vessel stopped
moving. The Vessel’s starboard bow connected with the leg of
crane PT4 at some point between 1714 and 1725. The crane
derailed and was damaged.
Owners sought to defend the Terminal’s subsequent claim on
the basis that the damage was caused or contributed to by the
unsafety of the berth and/or the Terminal’s negligence.
There were six issues for Mr Justice Hamblen in the
Commercial Court to determine. We consider each in turn.
1. Was the Vessel negligently moored and was this the cause
of the Vessel being blown off the berth?
The Judge concluded that yes, the Vessel was negligently
moored and that the Vessel was blown off the berth as a result.
The Vessel was moored with four head lines and two spring
lines forward and four stern lines and two spring lines aft. The
experts agreed that this was the usual arrangement for
container vessels of this size in non-adverse weather conditions.
As the arrangement was not of itself negligent, the likely cause
was human error in slackening one of the stern lines.
In coming to this conclusion, the Court was assisted by expert
evidence on whether the load was greater than the brake
design render limits (72 tonnes). This turned on (i) the wind
speed; and (ii) the wind co-efficient. Whilst the crane
anemometer had measured winds of around 80km/h, the
crane was 70.5m above sea level. The internationally accepted
Beaufort scale adopts a 10 minute mean at a height of 10m.
Did this mean that the wind speed had to be revised
downwards to reflect the lower height of the Vessel?

17SHIPPING
The Terminal’s expert said yes. The industry standard computer
programme used to calculate wind loads, OPTIMOOR, adopts a
10m standard, so a 1/7 exponent had to be applied to the wind
profile power law equation. Owners’ expert disagreed, because
these were not normal wind conditions. He treated the wind
speed acting on the Vessel as being the same as recorded at
crane height and claimed it would be accelerated by containers
stacked around the berth. The Judge agreed with the Terminal.
Owners’ expert evidence was largely anecdotal and the expert’s
theory was not supported by literature, articles or papers.
As regards the wind coefficient, the Terminal used the
coefficient of 0.87, as applied by OPTIMOOR. By contrast,
Owners’ expert used a co-efficient of 1.5, for reasons not
explained in his expert report. When challenged, he told the
Court it was based on his own experience and could not point
to data or literature in support. Again, the Court agreed with
the Terminal. There was no way of testing Owners’ qualitative
assessment and besides, it produced counter-intuitive results: it
resulted in the same loads on the Vessel as experienced by a
ship with almost twice the windage area.
Whilst Owners’ results showed that the Vessel was at the limits
of safe operation, their calculations were rejected. As the loads
were not greater than the render limits, the only remaining
possible causes involved negligence. The Court found that the
moorings were inadequately tensioned: this was the effective
cause of the lines rendering and the Vessel being blown off the
berth.
2. When did the Vessel strike the crane?
The Terminal said that the Vessel struck the crane on its return
to the berth. Owners said contact may have occurred when it
was being blown off the berth – and, as result, any subsequent
negligence was causally irrelevant.
The Court agreed with the Terminal. Whilst Owners did not
submit any eye witness evidence to support their version, two
of the Terminal’s witnesses gave evidence that contact
occurred on re-berthing. They both saw the Vessel move away
from the berth and then heard the loud bang of the Vessel
hitting the crane. The Court rejected Owners’ attempt to
introduce a new positive case on causation in final submissions
that the witnesses had only heard the crane derailing. This case
was not put to the witnesses, and in any event the crane’s
operator was adamant that the ship was moving away from the
berth as he descended from the crane. If the crane had been
struck whilst he was coming down the stairs, he would have felt
the impact.
3. Was the re-berthing of the Vessel carried out negligently?
Following the Court’s finding on question 2., negligence in
re-berthing remained in play. The Court concluded that the
Master must have brought the Vessel back alongside the berth
at an angle, causing contact with the crane.
According to the Master’s witness statement, by 1717 the
Vessel was still off the berth but was back under control. There
was an inconsistency between the Master’s witness statement
and his contemporaneous accident report as to whether he had
used the bow thruster to port. There was a further
inconsistency between the statements of the Master and the
Chief Engineer: the Master said the Chief Engineer was
instructed to look out for the distance off the berth, but the
Chief Engineer said he could not see the crane. Owners’
decision not to call the Master or the Chief Engineer to give
evidence meant that inconsistencies in their evidence could not
be resolved before the Court.
The Master’s decision not to use tugs was criticised. Both
experts agreed that this was a difficult operation to carry out
without tugs. The Owner’s expert tried to excuse the decision
as it was made in an emergency situation and “the agony of the
moment”, but the Court was not persuaded. The Master’s
evidence was that the Vessel was back under control by this
point. He had time and tugs were available.
The Court took a dim view of an eleventh-hour amendment to
Owners’ case that the Vessel was being pushed alongside by
tugs without the Master’s knowledge. The Judge dismissed the
amendment as a late expert-based case not supported by any
factual evidence and described the way it was raised as
“unsatisfactory”. The Judge concluded that the failure to
re-berth in parallel must have been due to the Master’s
negligence: either he was negligent in its execution or, if the
manoeuvre was so difficult that its failed execution could not be
said to be negligence, then the Master was negligent in not
getting assistance from the tugs.
4. Was the berth unsafe?
Following the findings on 1-3, any unsafety was causally
irrelevant. In any event, all five allegations of unsafety – none of
which had been considered in Owners’ expert report – were
rejected as a matter of fact.
5. Was there contributory negligence?
No. The Terminal was not negligent in not moving the cranes
away from the berth.
6. Quantum
The Terminal recovered its principal claim for crane repair costs,
business interruption and survey fees totalling €1,546,277.94.
The Court did not agree to the Terminal’s claim for interest at
10.41% – what the Terminal claimed was the standard
commercial loan rate for Italian banks at the date of the
incident, or “finanziamenti alle imprese”. A usual commercial
Euro interest rate was applied.
Comment
This case provides a stark reminder of the importance of calling
witnesses to give live evidence, particularly when liability is
heavily dependent on the facts. Whilst evidence in person is
always preferable, international witnesses should consider
giving evidence via videolink.

18 SHIPPING
The case also highlights the importance of getting early expert
evidence, to ensure that all possible causes are pleaded upfront.
Deus ex machine, like the expert reconstruction of tug
involvement introduced a month before the hearing or the new
causation case introduced in final submissions, were deemed
not credible and are highly unlikely to be accepted.
Max Cross
Partner, Hong Kong
max.cross@incelaw.com
Kirsty Cattanach
Senior Associate, Hong Kong
kirsty.cattanach@incelaw.com
Court upholds LMAA tribunal’s jurisdiction to rule on costs
Sun United Maritime Ltd v. Kasteli Marine Inc (IMME) [2014]
EWHC 1476 (Comm)
In this recent case, the Commercial Court has affirmed the
jurisdiction of the appointed arbitrators to rule on whether the
parties reached a binding agreement regarding the recoverable
costs of the arbitration.
In a LMAA charterparty dispute between Sun United as
Charterers and Kasteli as Owners, Owners’ claims had been
secured by money paid into an escrow account in the name of
Charterers’ solicitors.
There were claims and cross-claims in the arbitration, but
Charterers ended up as the paying party. The principal/interest
sums payable were paid from the escrow account to Owners’
solicitors; the balance of the escrow funds was sufficient to
cover Charterers’ liability for costs.
Before the Tribunal published their Award on costs, an
agreement was said to have been reached between the parties’
solicitors over the telephone on 29 May 2013 in respect of
Charterers’ liability for costs. Charterers’ solicitor said that it
had been agreed during that telephone conversation that
Charterers would pay €50,000 in respect of Owners’
recoverable costs; however, Owners’ solicitor said that it was a
stated condition during that telephone conversation that a
written agreement be drawn up in order for there to be a
binding agreement (because only a written agreement would
be sufficient in order for the costs to be paid from the monies
held in escrow).
Owners contended that because there was no written
agreement, there was no binding agreement with regards to
costs. They therefore referred the costs issue to the Tribunal.
Charterers contended that an agreement had been reached in
relation to costs and that the Tribunal therefore had no
jurisdiction to deal with costs on that basis. The Tribunal held
that no written agreement had been reached and awarded
Owners the sum of €55,661.11 in respect of their recoverable
costs.
Charterers applied to the Commercial Court under section 67
of the Arbitration Act 1996 (the “Act”) on the grounds that the
Tribunal had no jurisdiction to make the costs award and also
sought permission to appeal under section 69 on the basis of an
alleged error of law by the Tribunal.
The section 67 application
The Court, observing that neither party had been able to refer
to any authority or textbook on point, held that the dispute did
not fall within the scope of section 67 (and so Charterers’
application failed on this first hurdle).
The Act defines a section 67 challenge to the Tribunal’s
“substantive jurisdiction” to make its Award as a challenge as to
(a) whether there is a valid arbitration agreement; (b) whether

19SHIPPING
the Tribunal was properly constituted; or (c) whether matters
have been submitted to arbitration in accordance with the
arbitration agreement.
Charterers contended that the issue here (as to whether there
remains a dispute in the arbitration reference) fell within (c) in
the present case.
The Owners argued in response that the Tribunal had not been
asked any of the questions in (a) to (c) – it had been asked to
rule whether the parties had bindingly settled all questions of
costs; and since the parties had agreed for it to rule on that
question, they were bound by its decision.
The Court ruled in favour of the Owners:
1. Owners’ claim for recoverable costs was a claim which had
been brought in the arbitration reference (which reference
includes the power to make an award on costs) and the
alleged fact of settlement would be a defence which the
Charterers could bring to Owners’ continuing claim for
their costs – though even where there is a settlement, it
does not generally bring the arbitration reference to an
end.
2. The issue here was whether a matter which had already
been submitted to the Tribunal had been resolved by
agreement. It was not an issue as to whether “matters
have been submitted to arbitration in accordance with the
arbitration agreement”.
3. On this basis, section 67 did not apply.
Was there a binding agreement on costs?
The Court alternatively held that, even if section 67 did apply,
on the evidence it was satisfied that a written agreement was
an essential condition for the costs settlement to be binding
– so there was no binding settlement without it. It followed
from this, therefore, that the Tribunal had jurisdiction to rule on
the issue as to costs.
The section 69 challenge
The Court held that the question of whether or not a final and
binding agreement was concluded in the telephone
conversation on 29 May 2013 was an issue of fact. As it did not
therefore raise any question of law, the Court had no
jurisdiction to grant permission to appeal.
Comment
The Court found on this occasion that neither section 67 nor
section 69 of the Act applied, as the Tribunal had simply made
a finding of fact in relation to the question of whether a matter
submitted to arbitration had been resolved. This is not
something that falls within section 67 or section 69. However,
it is suggested that the case may show some support for the
arbitral principle of “competence-competence”, namely that
the Tribunal has jurisdiction to rule on the existence and scope
of its own substantive jurisdiction, as expressed in section
30(1) of the Act.
Of course, parties seeking to compromise any aspect of their
arbitral claims would be well advised to make it clear that all
verbal discussions are provisional only and subject to written
agreement. If it is unclear and a dispute arises in relation to
whether a verbal conversation has resulted in a binding
agreement settling some aspect of the dispute, this case
appears to confirm that there is no basis for challenging the
Tribunal’s finding either on grounds of jurisdiction or error of
law.
Evangelos Catsambas
Partner, Piraeus
evangelos.catsambas@incelaw.com
Chris Ward
Solicitor, London
chris.ward@incelaw.com

20 SHIPPING
SHIP FINANCE
Loan agreement relating to yacht construction contract
construed as “on demand”
Swallowfalls Limited v. Monaco Yachting & Technologies
S.A.M. & Anr [2014] EWCA Civ 186
This Court of Appeal case provides further support for the
construction of contracts in the manner most consistent with
“commercial common sense”. It also shows that the English
Court will be slow to imply terms into commercial contracts
beyond what is necessary to make such contracts effective. The
Court of Appeal also held that the loan, which was the subject
of the dispute, was repayable on demand.
Swallowfalls commissioned the construction of a yacht from
Monaco Yachting & Technologies (“MYT”) in 2006. The
construction agreement between Swallowfalls and MYT
provided that Swallowfalls would pay the price of the yacht in
11 instalments, due when MYT had achieved certain milestones
in respect of the yacht’s construction. It was understood that
the actual construction work was to be carried out by a
sub-contractor of MYT. MYT had difficulty in meeting its
obligations under the sub-contract, and Swallowfalls realised
that it would have to provide interim finance to MYT.
Swallowfalls made funds available to MYT in a series of four
amendments to the original construction agreement. In 2008, a
loan agreement (the “2008 Loan Agreement”) was made at the
same time as the second amendment. Article 2.5(a) of the
2008 Loan Agreement provided:
“The Loan and Interest shall be repaid by the Borrower;
(1) within thirty (30) days from receipt of a demand letter
by the Lender, (2) upon termination of the Agreement or
the Loan Agreement or (3) the earlier of the expiration of
the Term hereunder... or the date of the Stage Certificate
for instalment 11 under the Agreement.”
The funding difficulties continued, and, in 2010, the parties
entered into a fourth amendment and a new loan agreement
(the “2010 Loan Agreement”) that replaced the 2008 Loan
Agreement.
Under the heading of Further Finance Facility, Article 3.11 of
the Fourth Amendment provided:
“From the signing of this Fourth Amendment until the
Delivery or until the termination of the Agreement, or
upon demand for repayment by [Swallowfalls], whichever
is the earliest, [Swallowfalls] agrees to provide the Loan
Facility of up to Euros 38,327,600.”
Clause 2.5(a) of the 2010 Loan Agreement provided:
“Unless previously repaid or prepaid pursuant to this Loan
Agreement the Borrower shall repay the Loan... on the
first to occur of: (i) the date on which the Lender gives the
Borrower notice that the Loan is immediately due and
repayable; (ii) the date on which the Agreement
terminates; (iii) an Event of Default; (iv)the Completion
Date; or (v) upon Delivery.”
After MYT’s repeated failures to repay the loan, Swallowfalls
gave notice under Clause 2.5(a) of the 2010 Loan Agreement
that the loan was immediately due and payable. Swallowfalls
obtained summary judgment against MYT. MYT appealed,
arguing that the loan was not repayable on demand but only
when an Event of Default had occurred or the Agreement was
terminated.
The Court of Appeal decision
The dispute turned on the construction of Clause 2.5(a) of the
2010 Loan Agreement. The Court of Appeal applied a natural
construction to the provision, agreeing with the trial judge. The
Court held that:
“If a clause provides that a loan is to be repaid ‘on the first
to occur of’ a number of events (i) to (v) and one of those
events is ‘the date on which the Lender gives the
Borrower notice that the Loan is immediately due and
payable,’ the natural construction of the words is that,
once such notice is given, the loan is to be repaid.”
The Court added that the natural construction of the provision
was confirmed by Article 3.11 of the Fourth Amendment,
whereby Swallowfalls agreed to provide the loan facility from
the signing of the Amendment “until the Delivery or until
termination of the Agreement or upon demand for repayment
by the Buyer”.
The Court underscored the importance of considering a
disputed provision in its relevant contractual context and
history, including the purpose for which the parties entered into
the agreement. In Swallowfalls, the Court observed that if the
repayment on demand provision was in the first amendment,
“one could legitimately say that the contract was somewhat
one sided.” On this basis, the Court rejected MYT’s argument
that the provision would lead to uncommercial consequences,
given that the 2010 Loan Agreement only came about as a
result of MYT’s repeated failures to meet its repayment
obligations under the loans.
This decision also reminds us of the well-established “rule” of
contract interpretation that plain, clear and unambiguous
contract wording should be interpreted as such, and such terms
given their natural and ordinary meaning. This was also the
proper construction of the contract in a commercial context.
The Court was also asked to consider whether two implied
terms proposed by MYT should be incorporated into the 2010
Loan Agreement. The Court agreed with MYT that it was
appropriate to imply a provision that Swallowfalls would
cooperate with MYT in confirming the completion of
milestones in the construction process. The reason for this
implied term was nothing more than “an ordinary implication in
any contract for the performance of which co-operation is
required.” However, there was no need to imply another term
that Swallowfalls would not prevent MYT from repaying the
loan, or delay MYT from repaying the loan, as the implied term
as to cooperation would suffice to make the contract work.

21SHIPPING
Comment
This decision is in line with the Supreme Court’s decision in
Rainy Sky S.A. and others v Kookmin Bank [2011] UKSC 50 (an
Ince case), in which it was held that, where a term of a contract
is ambiguous, it is generally appropriate to adopt the
interpretation that is most consistent with “commercial
common sense”. Swallowfalls serves as a reminder of the
importance of careful drafting of commercial contracts in order
that the language used correctly expresses the contracting
parties’ intentions.
Maureen Poh
Associate, Singapore
maureen.poh@incelaw.com
John Simpson
Partner, Singapore
john.simpson@incelaw.com
PRC Rules relating to the provision of cross-border security
are relaxed: new SAFE regulations come into force
The Provisions on the Administration of Foreign Exchange for
Cross-Border Security (the “New Regulations”), published by
the State Administration of Foreign Exchange (“SAFE”) in the
PRC came into force on 1 June 2014 and replace 12 existing
regulations providing for cross-border security.
Reflecting a huge step forward by SAFE, the New Regulations
apply to and regulate all kinds of cross-border security
structures, including the following three categories, which are
based on the places of registration of the parties:
1. Nei Bao Wai Dai or “Outbound Security,” where the
security provider is registered onshore (i.e. Chinese), and
the obligor and the creditor are both registered offshore;
thus, for example, where a guarantee is given but only the
guarantor is Chinese.
2. Wai Bao Nei Dai or “Offshore Security,” where the security
provider is registered offshore, but the obligor/debtor and
the creditor are both registered onshore (i.e. Chinese);
using the same example again, where a guarantee is given,
the guarantor is not Chinese, but both the other parties
are.
3. Any other types of cross-border security in which either
the creditor or debtor is onshore (Chinese) but the other is
offshore, and thus the cross-border element is between
these two parties; the security provider may be either
onshore or offshore.
The main changes
The main changes are as follows:
>> The validity of any cross-border security agreement is no
longer subject to SAFE approval, registration, filing or
other SAFE administrative requirements. A security
agreement would include, for example, a mortgage,
pledge, guarantee or standby letter of credit.
>> In relation to (1) Outbound Security and (2) Offshore
Security, the previous system of quota management and
pre-approval has been replaced with a requirement for
registration of the security following its execution. Prior
approval of the security is not required.
>> For (3), any other types of cross-border security, no
registration or filing is required.
>> The distinction in the administrative schemes regarding
security for finance purposes and security for non-finance
purposes has been abandoned. This means that banks are
no longer subject to any quota management in relation to
security for finance purposes.
>> Individuals are now explicitly permitted to provide
Outbound Security by reference to the corresponding
rules applicable to non-banking institutions.
>> SAFE approval on the enforcement of security is abolished.

22 SHIPPING
In practice, these changes mean:
>> In relation to charterparties, where, for example, a Chinese
guarantor provides to a foreign shipowner a parent
guarantee of performance by the charterer of a
charterparty: if (a) the charterer is a foreign company, the
guarantor must register the guarantee with SAFE within
15 days, but; if (b) the charterer is a domestic Chinese
company, then the guarantee will be characterised as (3)
above, “any other type” of cross-border guarantee, and will
not require any form of filing, registration or approval.
>> For an English P&I Club providing a guarantee, then: (a) if
this is provided directly to a Chinese company as claimant
on behalf of a foreign shipowner, no registration will be
required, but; (b) if it is provided on behalf of a Chinese
shipowner, this will fall within type (2) above and will
require registration.
>> In relation to refund guarantees, the position is as follows;
at present, where a Chinese yard is obliged under a
shipbuilding contract to procure a refund guarantee from a
Chinese bank, that Chinese bank will file general
information regarding that guarantee (and any material
amendment to it) with SAFE on a monthly basis as part of
a risk management requirement, although prior SAFE
approval is not required, nor is SAFE registration. Under
the New Regulations, that position would appear to be
unchanged.
Comment
We expect that these New Regulations will be warmly
welcomed by the international market, offering, as they do,
flexibility, certainty and accessibility when using cross-border
security.
Haoran Zhang
Associate, Shanghai
haoran.zhang@incelaw.com
Vincent Xu
Partner, Shanghai
vincent.xu@incelaw.com

23SHIPPING

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Shipping E-Brief summer 2014

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