- New Lord Mayor of London visits Baltic
The newly elected Lord Mayor of the City of London, Peter Estlin, visited the Baltic Exchange today (14 November), meeting with a range of senior maritime industry figures over lunch.
Welcoming the 691st Lord Mayor to the Baltic, the Exchange’s Chairman Duncan Dunn underlined the Baltic’s support for the Lord Mayor’s global agenda. The lunch was a useful opportunity to showcase the importance of the UK’s maritime services sector to the Lord Mayor who serves as a global ambassador for Britain’s financial and professional services industry.
Duncan Dunn briefed the Lord Mayor on the global sulphur cap for shipping and its impact on the commercial shipping markets. He also explained how the Baltic is updating its Code, noting that:
“There is a greater focus on fairness and competition, anti-bribery and corruption and benchmarking related issues than before. By introducing this new code of conduct, we want to preserve confidence in and the integrity of the physical freight and freight derivatives markets, eliminate poor practices and raise standards across the entire market as well as increasing the attractiveness of doing business with Baltic Exchange members.”
“London and the Baltic Exchange aren’t just exporters of goods and services. We are also exporters of “good governance.”
The meeting was also an opportunity to brief the Lord Mayor on the plans for London International Shipping Week which takes place in September 2019.
Click here to download a copy of the Baltic Chairman’s speech.
- Baltic calls for more specific Bribery Act guidelines
Giving evidence to the House of Lords Bribery Act 2010 Committee on 30 October, Baltic Exchange Chief Executive Mark Jackson told the Committee that more practical guidance and specific case studies were needed to help smaller freight market players comply with the UK’s Bribery Act. The Committee, made up of 12 members of the House of Lords, is scheduled to report its findings at the end of March 2019.
“The guidance is set at almost at too high a level to be of practical use to the smaller, less sophisticated freight market players. They lack access to specialist legal advice in the day-to-day running of their businesses, and they find it hard to transpose the guidance into their daily actions. More prescriptive guidance, including case studies covering some of the complex or marginal breaches, would be useful to these smaller companies,” said Mark Jackson.
When asked by the Committee on the difference between “facilitation” payments and bribery, Mark Jackson explained that many facilitation payments demanded from shipping companies were in fact a form of ransom.
The Committee also heard how the Baltic Exchange will be including a section on bribery and corruption in its revised Code, designed to ensure that it can be adopted in different jurisdictions
Also giving evidence on behalf of the shipping industry were Cecilia Müller Torbrand, Program Director, Maritime Anti-Corruption Network and Tim Springett, Policy Director, Employment and Legal, UK Chamber of Shipping.
The Bribery Act 2010 came into force in July 2011. The Act has a far-reaching scope and means that shipping companies with a UK presence need to ensure that they implement firm-wide anti-corruption policies, which apply to the conduct of all their subsidiaries or agents, regardless of the different business culture in which those subsidiaries/agents operate.
- Baltic Caledonia: St Andrew’s Day Lunch
The Baltic Caledonia Society would like to invite members and guests to its St Andrew’s Day (30 November) lunch at the London Scottish Regiment HQ.
Starting at 12.15pm, the lunch will run all afternoon with guest speaker Will Allen in attendance in addition to the customary piper.
Tickets are £95 per person which includes one bottle of wine and large quantities of smoked salmon, haggis, neeps and tatties as well as a selection of Scottish Cheeses.
A charity draw will take place before proceedings come to a close at around 6pm.
Pictures from the Baltic Caledonia St Andrew’s Day lunch 2016, can be found here.
For more information and to book, contact Mike Robson.
- Damned if they do, damned if they don’t
In the recent case of Classic Maritime Inc. v Limbungan Makmur SDN BHD, Lion Diversified Holdings BHD (2018), the High Court reviewed established jurisprudence concerning the need to prove causation when relying on a force majeure clause. The case arose out of the devastating events of the failure of the Fundao dam in the iron ore producing complex Germano, Brazil. The Court considered whether the dam’s failure was causative of the defendant’s failure to subsequently ship iron ore pellets.
The shipowner and claimant in this case, Classic Maritime Inc (“Classic”), had entered into a long-term contract of affreightment for the carriage of iron ore pellets with Limbungan Makur SDN BHD (“Limbungan”), the charterer and defendant.
The contract included an exceptions clause (or “force majeure clause”) which stated the following:
“Neither the Vessel, her Master or Owners, nor the Charterers, Shippers or Receivers shall be responsible for … failure to supply, load … cargo resulting from: Act of God, … floods, … accidents at the mine or production facility … or any other causes beyond the Owners’, Charterers’, Shippers’ or Receivers’ control; always provided that such events directly affect the performance of either party under this Charter Party.”
The events underpinning this case highlight the importance for businesses to be prepared for natural and man-made disasters
Following the failure of the dam, production of iron ore ceased at the mine, and Limbungan relied on the exceptions clause to excuse themselves for their failure to supply iron ore pellets in accordance with the contract of affreightment.
Classic argued that the failure of the dam was not legally relevant because; i) Limbungan failed to make relevant alternative arrangements to provide the cargo following its only supplier refusing to supply; and ii) Limbungan had missed several shipments before the failure of the dam. Classic tried to convince the Court that Limbungan would not have fulfilled its obligations irrespective of the failure of the dam.
Teare J carefully assessed the various arguments and concluded that Limbungan was not able to rely on the exceptions clause in the contract in order to avoid liability for non-performance. However, Teare J applied the compensatory principle to conclude that Classic were not able to recover substantial damages because even if Limbungan had been willing to perform in accordance with the contract, the failure of the dam would have prevented performance in any case.
In reaching this conclusion, Teare J provided some insightful commentary on what could previously have been seen as settled principles:
1. Alternative arrangements principle
Usually, in order to successfully rely upon a force majeure clause, the party relying on it must establish that it has attempted to mitigate the losses by considering alternative arrangements to facilitate the performance. In this instance, Teare J held that the principle was applicable here, and that if Limbungan was to be regarded as: i) having made arrangements to ship from alternative ports and ii) following the dam burst, as having made all reasonable efforts to ship from those ports with no success, then the dam burst could be regarded as the cause of its failure to supply the cargoes. Teare J considered this point when deciding on the causation element of the claim (see point 2 below). Importantly, Teare J rejected Classic’s argument that alternative arrangements required under the alternative arrangements principle must be legally binding.
2. “But for” test
Teare J discussed at length the significant difference between; a) a frustration clause; and b) an exceptions clause. A frustration clause does not require the satisfaction of a “but for” test, and operates to bring the contract, or what remains of it, to an end so that, thereafter, the parties have no obligations to perform. In contrast, an exceptions clause is concerned with whether or not a party is exempted from liability for breach of contract at a time when the contract remained in existence. Considering the wording of the exceptions clause in this contract, specifically the words “directly affect”, Teare J concluded that the clause imports the requirement to satisfy a “but for” test and as such must be an exceptions clause. As such, Limbungan had to demonstrate that “but for” the failure of the dam, the cargo would have been supplied in accordance with the contract. It was Limbungan’s failure to satisfy this test which prevented it from successfully relying upon the exceptions clause to claim an exemption from liability for breach of contract.
Notwithstanding the above, Teare J denied Classic substantial damages from Limbungan because of the operation of the compensatory principle; the principle requires a comparison between the wronged party’s position as a result of the breach of contract, and the position it would have been in had the contract been performed without breach. Here, the compensatory principle required a comparison between Classic’s position as a result of the breach and the position it would have been in had Limbungan performed its obligation. In this instance, Teare J held that if, “but for” the dam failure, Limbungan had been willing and able to ship the cargoes, no cargoes would in fact have been shipped because of the dam failure, and, therefore, the dam failure would have excused Limbungan for its failure to make the required shipments. Accordingly, Classic was not entitled to substantial damages even though Limbungan was not able to rely on the exceptions clause in the contract.
Owing to the wording of the exceptions clause, this judgment was distinguished from previously established case law in which it was suggested that force majeure or exceptions clauses did not require a “but for” test to be satisfied before a party could be exempted from liability. There are two significant points to note as a result of the judgment.
Firstly, parties should be aware of the distinction between a frustration clause and an exceptions clause, especially in respect of the thresholds which a party is required to meet before it can rely on the clauses.
Secondly, parties should be aware that the courts will consider the parties’ intentions irrespective of a force majeure event, if an exceptions clause is being relied upon. Parties should also be able to demonstrate a clear genuine effort to establish alternative arrangements for the fulfilment of the contract in such instances; albeit this case clarifies that such arrangements need not be legally-binding arrangements.
The events underpinning this case highlight the importance for businesses to be prepared for natural and man-made disasters which can create significant business disruption. Such risks are beginning to be recognised by insurers. For more information on the topic, please see the recently published report by Clyde & Co entitled “Closing the protection gap through inclusive insurance”.
Jessica Maitra and Ross Howells work at Clyde & Co, a global law firm focusing on insurance, trade and commodities, energy, infrastructure and transport. Ms Maitra can be contacted on +44 (0)191 249 5438 or at firstname.lastname@example.org.
- Shoring up early principles
For some time the question of whether the Monroe v Ryan  2 KB 28 authorities apply when there is neither a loadport Expected Ready to Load Date (“ERTL”), nor Estimated Time of Arrival date (“ETA”), has been open. The question of course touches upon the allocation of risk before a vessel enters into its chartered service, particularly where Owners have agreed to take on, or are already engaged in, a preceding fixture.
The Court of Appeal has affirmed that the duty arises even without the ETRL/ETA, and the Parties should look to the full terms of the Charter to determine what the reasonable expectations for the time of commencing the approach voyage is. Here, that involved considering the itinerary stated, assessing a reasonable time for discharge at the discharge port of the preceding voyage and thereby finding the date when “reasonably” the Owner should commence the approach voyage.
The “PACIFIC VOYAGER” was chartered for a voyage from Rotterdam, or ship to ship transfers off Rotterdam, to the Far East. At the time of the fixture, the vessel was carrying cargo under a previous charter. On her way to discharge this cargo, she hit a submerged object in the Suez Canal and suffered rapid water ingress into a ballast tank. There was no suggestion that the vessel or the Owner was in any way at fault or could have avoided this incident.
The vessel required significant repairs, which Owners anticipated would take in the order of “months”. Charterers terminated the Charterparty and claimed damages accordingly. The issue in the proceedings was whether, in these circumstances, the Owners’ failure to commence the approach voyage by a specific date was a breach of the Charterparty.
Owners have expressly reserved their rights to appeal the decision to the Supreme Court
The Charterparty in question provided that “…the vessel shall perform her service with utmost despatch and shall proceed to [loadport]…and there…load a full cargo”.
It is established law that, where a voyage charterparty contains this type of provision (occasionally framed in terms of proceeding ‘with all convenient speed’), there is an absolute obligation on the Owner to commence the approach voyage by a date when it is reasonably certain that the vessel will arrive at the loading port on or around the ETRL or the ETA. The usual charterparty exceptions thus only apply once the approach voyage is commenced and cannot avail an Owner prior to this point.
The fundamental principles underlying this body of case law originated with the case of Monroe Brothers Limited v Ryan  2 KB 28 and these have been consistently upheld and elaborated upon ever since.
However, until now, it has been unclear as to whether a similar obligation arises where there is no provision as to ETRL or ETA at the loading port. The question raised in the “PACIFIC VOYAGER”‘ case is whether, in the absence of an ETA or ETRL at the loading port, the obligation to proceed could attach by reference to either (i) an itinerary contained in the charterparty which provided an ETA at the last discharge port under the previous charter; or (ii) the cancelling date.
At first instance in the High Court, Popplewell J found that the duty to proceed to loadport arises at a particular point of time, which is within a reasonable period of time, to be determined as a matter of construction of the charterparty terms. Taking this as a starting point, Popplewell J found that on the particular wording of the charter, the ETA which provided for the vessel’s final discharge at Antifer under the previous charter could be used to derive the time at which the vessel could be expected to commence her approach voyage (namely, following anticipated discharge at Antifer). As Owners did not commence the voyage on or around that date, they were in breach and the Charterers were entitled to damages accordingly.
Popplewell J noted, obiter, that if there had been no ETA for the previous port, Owners would have been obliged to commence the approach voyage by a date when it was reasonably certain that the vessel would arrive at the loading port by the cancelling date.
Court of Appeal decision
In challenging the first instance decision, Owners alleged that the obligation to proceed only attached when the vessel departed from her last discharging port under her previous charter. As the vessel never departed from the last discharging port, the obligation did not arise.
Owners sought to distinguish the previous authorities as being decisions which turned upon each charterparty’s own wording. In the charterparty in question, Owners maintained that there were three key differences to the previous authorities: (i) there was no ETA or ETRL, but instead the relevant Part 1(B) of Shellvoy 5 stated an itinerary in respect of the prior fixture, (ii) the ETA which related to the discharge at Antifer under the previous charter was expressly qualified by the wording “bss iagw/wp”, and (iii) the obligation of utmost despatch was expressly made ‘”subject to the terms of this charter”.
The Court of Appeal unanimously upheld Popplewell J’s decision at first instance.
Longmore LJ acknowledged that every charterparty must be construed on its own terms, but noted that the shipping world required authoritative guidance in the interests of business certainty. As such, the general principles of policy which underpin the previous decisions (such as Monroe vs Ryan) should be regarded as “helpful guides” against which the contractual terms ought to be construed.
It was noted that the obligation of utmost despatch was an important one and was intended to give comfort to charterers. Such an obligation would be meaningless if some time for sailing was not put in. This meant that the vessel must either proceed “forthwith” at the date of the charter or “within a reasonable time”. In this instance, the inclusion of the itinerary in the form of ETAs from the previous charter meant that “forthwith” could not have been meant. Instead, one had to look at the terms of the charterparty to ascertain what a reasonable time would be. Whilst in some charters this could be ascertained by reference to the ETRL, Longmore LJ held that “there is no particular magic in the concept of a date of expected readiness to load” and that this was simply a guide to working out what a reasonable time would be. In this case, the itinerary was the best guide.
In other words, the general principle remains the same, irrespective of whether the charterparty contains an ETRL, ETA or other provision: the duty arises either ‘forthwith’ or within a “reasonable period” of the date of the charter. If a charter contains an ETA/ETRL for the loadport, then a ‘reasonable period’ will be the date the vessel must leave to allow her to arrive at the loading port on or around the ETRL or ETA. If a charter contains an ETA for the previous discharge port or an itinerary for the previous charter (as was the case for the “PACIFIC VOYAGER”), the reasonable time would be such time as it is reasonable to suppose the vessel would leave for the loadport once a reasonable time for discharging had elapsed at the previous port.
Longmore LJ echoed the observations of Devlin J in the North Anglia  2 Lloyd’s Rep 449 in holding that Owners would have had to have used very clear words if they had sought to make the beginning of the chartered service contingent on the conclusion of the previous voyage.
In finally disposing of Owners’ case, Longmore LJ noted that the rubric “bss iagw/wp” merely served to underscore what was already implicit in the estimates given in the itinerary, namely that they were estimates given honestly and on reasonable grounds. Similarly, Owners could derive no assistance from the words “subject to the provisions of this charter”, as these words did not add anything of significance to the normal rules of construction. In any event, it had been accepted by Owners that the exceptions could not apply to events which occurred before the chartered service, particularly in this instance where the vessel was performing obligations under a previous charter which Charterers had no control over.
In contrast to Popplewell J’s decision, Longmore LJ shied away from expressly stating that the cancelling date in this charter could also have sufficed for the purposes of ascertaining the moment the obligation attaches. He noted that if, for any reason, it were impermissible to rely on the itinerary for the previous charter, he would have difficulty in saying that the cancellation date would do instead. In order to decide this point, it would be necessary for the Court to know why it was that the itinerary could not be relied on and, if it were because there was no ETA Rotterdam, that might apply equally to any argument about the cancelling date. If there were no itinerary, however, the position might be different.
In so saying, it is likely that the Lord Justice had in mind the Owners’ qualification argument; namely, if it were found that the qualification to the ETAs (‘iagw/wp’) meant that there was no effective ETA in Rotterdam, then that reasoning might apply equally to any other means of defining the relevant date. Were there no qualified itinerary, that problem might not arise and the laycan may still constitute good evidence.
It should be noted that Owners have expressly reserved their rights to appeal the decision to the Supreme Court. If they do so, and permission were granted, it appears likely that they will seek to overturn the Monroe v Ryan doctrine in its entirety.
In light of this, combined with Longmore LJ’s reluctance to confirm that the cancelling date would suffice for the purposes of calculating the date upon which the duty attaches, Charterers should continue to ensure that ETAs or ETRL dates are provided in all charterparties as best practice.
David Bennet, Harriet DeFreyne Kelk, Andrew Rourke and Eleanor Coates work at Clyde & Co, a global law firm focusing on insurance, trade and commodities, energy, infrastructure and transport. Its website address is www.clydeco.com, and its London office can be contacted on +44 (0) 20 7876 5000 by telephone or +44 (0) 20 7876 5111 by fax.
- Member update: 14 November
The following individuals have applied for Membership under an existing member company:
Individual Company Dr A W Hodgson Affinity (Shipping) LLP Mr R MacConnell Freight Investor Services Ltd Mr R Gilbey Freight Investor Services Ltd Mr S M Wild Chandris (U.K.) Limited Mr M Cavataro Engelhart CTP (Switzerland) SA Mr U Halfon Engelhart CTP (Switzerland) SA Mr M Chew Cargill International SA
The following individual has applied for Retired Membership:
Mr M A Randall
Any comments should be passed to Karen Karanicholas by 21 November 2018.
- Baltic-ICS Member Lectures return in November
The Baltic Exchange and Institute of Chartered Shipbrokers (ICS) will be presenting the second in their series of lunchtime lectures on 28 November in Singapore, Shanghai, Athens and London.
Intended to support and develop brokers and operations professionals, the series will examine topical issues facing those working in chartering and operations roles, offering advice on best practice in critical situations and insight into the changing patterns affecting the shipping sector.
This second lecture will focus on charterparty pitfalls and how to avoid them.
This event is free to Baltic and ICS member companies. Those interested must register by email to email@example.com (reference: BXICS202).
For more details, click here.