International Maritime Law Arbitration Moot

Transcription

1 International Maritime Law Arbitration Moot 2 8 July 2016 Exeter MEMORANDUM FOR CLAIMANT ON BEHALF OF AGAINST Zeus Shipping and Trading Company Hestia Industries Level 4 LV Beta Street 100 Alpha Street Poseidon Hades Tel: CLAIMANT RESPONDENT Team 30 Kirsten Jackson Dmitri Terjajev Breeda Okpo Jacqueline Dammens Lucy Marsden

2 TABLE OF CONTENTS STATEMENT OF FACTS...3 I. THE ARBITRAL TRIBUNAL HAS JURISDICTION TO DECIDE THE ISSUE OF FRUSTRATION...4 II. THE ARBITRAL TRIBUNAL DOES NOT HAVE JURISDICTION OVER THE SALVAGE CLAIM....6 III. THE RESPONDENT IS LIABLE TO CLAIMANT IN RESPECT OF DEMURRAGE...8 IV. THE CHARTERPARTY IS NOT FRUSTRATED V. ARREST OF THE VESSEL...11 VI. BIBLIOGRAPHY

3 Statement of facts 1.1 Hestia Industries concluded a charter party for the MV Athena with Zeus Shipping on 21 st July 2014 in Poseidon. 1.2 Vessel began sailing for Hades from Poseidon on 20 th September. It arrived in Hades port on 3 rd October Protests began at Hades port because of the vessel s arrival 1.4 The master asked if Hestia Industries wished to proceed with the loading following the protests occurrence. Hestia Industries ordered the master to proceed as planned. 1.5 The vessel completed the loading on 6 th October 2014 and attempted to sail from the port on 7 th October The opposition leader of Hades government seized control of the parliament on 7 th October Following the seizure, the President Simmons ordered the Hades coast guard to intercept MV Athena. 1.7 Hades coast guard intercepted the vessel late in the evening of 7 th October 2014 shortly after departing the Hades port. 1.8 Consequently the vessel was held in Hades port for 358 days thereafter. 1.9 Following the vessel s failure to leave the port until 6 th October 2015, Zeus Shipping issued Hestia with a demurrage bill of 17.9 million USD Hestia insists that the contract has been frustrated and therefore terminated 1.11 Zeus Shipping initiates Arbitration proceedings. Hestia responds but contends that the arbitral tribunal lacks jurisdiction to hear the matter. 3

4 JURISDICTION: 1. The arbitral tribunal has jurisdiction to decide the issue of frustration. 1.1 There is a valid arbitral clause; frustration arises under the contract as it affects the performance of an existing valid contract. 1.2 The Law governing the charter party agreement is the Laws of the State of Western Australia, Australia 1. The arbitral proceeding is guided by the Arbitration Rules of the Maritime Law Association of Australia and New Zealand as well as the mandatory provisions of the English Arbitration Act 1996 (because the seat of arbitration is London, England) The arbitral panel s jurisdiction is dependent upon the existence of a valid arbitral agreement as well as the scope of such agreement, i.e only the issues stated in the agreement to be the subject of arbitration can be arbitrated upon by the tribunal. The contract provides in Clause 30(a) that any dispute arising under this contract shall be referred to arbitration in London [ ] in accordance with Arbitration Rules of the Maritime Law Association of Australia and New Zealand. 1.4 This simply means that the only disputes that can be referred to arbitration must be disputes arising from under the contract i.e issues that exist as a result of the contract; for example a breach of the terms of the contract, and disputes as to any extra fee to be paid. Disputes as to the contract itself, such as validity of the contract and termination are not subject to arbitration. 1.5 There are two principles in common law which deals with the ability of the arbitrator to determine issues relating to the applicability/validity of the arbitral clause. 1.6 The first principle is that of severability. Here, the main contract is treated as a separate contract from the arbitral agreement even if they are contained in the same document. As a result, the arbitral tribunal can decide on issues relating to the scope and even the existence of 1 Paragraph 31 Voyage Charter Party between Zeus Shipping and Trading Company & Hestia Industries 2 Section 2 of the Arbitration Act

5 the main contract. This is so important, it is codified in both Section 16 (2) and (3) of the Commercial Arbitration Act 2012 and Section 7 of the Arbitration Act As such, even though this contract has been frustrated, it does not affect the tribunal s authority to arbitrate on whether or not the facts indeed amount to frustration. 1.7 The second principle is that of kompetenz- kompetenz. This allows the tribunal to decide on its own jurisdiction, i.e. it allows them to decide whether they have the jurisdiction to determine the validity or applicability of the arbitral clause. 3 This has equally been codified in Section 16 (1) of the Commercial Arbitration Act Frustration is the termination of a contract by operation of law due to an unexpected event, which makes performance of the contract in the new circumstances radically different from the performance originally expected. Such unexpected event is due to a mistake of future fact or law made upon entry into a contract. 4 To decide if the contract has been frustrated, the court/tribunal needs to look at the circumstance of each particular case, and the terms of the contact in that case, as what may amount to frustration under one contract may not amount to frustration under a similar contract This contract is valid. Frustration does not affect the validity of the contract, but however affects the performance of an already existing contract. It puts an end to the future performance of a contract. This however, does not affect the arbitration clause which continues to exist based on the principle of severability discussed above As Viscount Simeon stated in Kruse v. Questier & Co 6 'If, therefore, when parties have entered into a contract, circumstances arise before the performance of the contract is completed which, in the view of one party, brings the contract to an end by frustration, and, therefore, discharge both parties from further performance, but the other party does not agree, 3 Robert Merkin, Arbitration Law (3 rd edn, Informa 2004) Codelfa v SRA (1982) 149 CLR 33. Davies Contractors Ltd. v Fareham Urban District Council [1956] A.C. 696, Heyman v Darwins [1942] AC 356, Krell v Henry [1903] 2 KB [1953] 1 QB 669. See also Joseph Constantine Steamship Line Ld. v. Imperial Smelting Corporation Ltd [1942] A.C. 154,

6 this is a difference about the applicability of the implied term and is just as much within the arbitration clause as if it were a difference about an express term of the contract." 1.11 Furthermore, the manner in which a contract is to be performed can only be found in the contract itself i.e the terms and obligations of the contract. As such, frustration arises from under the contract and consequently the Arbitral Tribunal has jurisdiction Lastly, the court held in Fiona Trust & Holding Corp v Privalov 7 that arbitral tribunals should presume that parties intend for one jurisdiction to decide all matters relating to the dispute. In this case, the parties have chosen the arbitral tribunal to decide matters arising under the contract, which by extension includes frustration. 2. The Arbitral Tribunal does not have jurisdiction over the salvage claim 2.1. The Claimant submits that all disputes should be determined in the same place and by the same tribunal. However, the Arbitral Tribunal has no jurisdiction over the Respondent s claim for salvage since the claim does not arise under the charter party and courts of Australia have jurisdiction over the salvage claim The Claimant submits that salvage claim does not arise under the charter party because salvage was performed by a company that is not a party to the contract. Further, the salvage operation was of a non-contractual nature According to Clause 30 (a) of the charter party agreement in order for the dispute to be referred to arbitration, the dispute has to arise under the contract. 8 Since the parties intended to arbitrate only disputes relating to the substance of the contract for the arbitrators to have jurisdiction over the salvage has to be stipulated in the contract. 7 [2007] 4 All E.R Clause 30 (a) of the Charter party agreement, p. 45 6

7 2.4. First, salvage operation is a separate transaction performed by a third party. Salvage operation was performed by Hestug, which is separate legal entity owned by the Respondent. The charter party agreement is concluded between Zeus Shipping and Trading Company (Claimant/Shipowner as evidenced by Box 2 of the charter party agreement) and Hestia Industries (Respondent/Charter as evidenced by Box 3 of the charter party agreement). Moreover, the charter party agreement does not mention Hestug at all. Since there is no connection of the salvage operation to the charter party agreement, the claim for salvage can not arise under the contract in the sense of Clause 30 (a) of the charter party agreement and thus, the Arbitral Tribunal has no jurisdiction over the claim for salvage Secondly, the salvage operation performed by Hestug is clearly of a non-contractual nature. For an action to constitute salvage four requirements needs to be satisfied, namely the action should be voluntary, there has to be real or apprehended danger, salvage service should be provided and it should be successful. 9 In the present case the requirements are clearly met. However, no contract to provide salvage services exist, since Hestug were originally contacted to provide towage services in order to help the ship out of the port of loading. Thus, salvage operation is a separate transaction and the Arbitral Tribunal has no jurisdiction over it Furthermore, Section 9 of Admiralty Act 1988 of Australia confers jurisdiction on Australian court in relations to maritime claims. 10 Moreover, according to Section 4 (g) of Australian Admiralty Act 1988 claims arising under salvage are maritime claim. 11 Thus, in the present case Australian courts have jurisdiction to decide the salvage claim Consequently, the Arbitral Tribunal does not have jurisdiction to determine the claim for salvage. The salvage operation in the present case was performed by a third party and was of non-contractual nature. Moreover, the claim for salvage should be determined by courts of Australia. 9 John Reeder, Brice on Maritime Law of Salvage 5 th ed., Sweet & Maxwell 2011, at [1.5] 10 Admiralty Act 1988, S Admiralty Act 1988, S. 4(g) 7

8 SUBSTANTIVE CLAIMS: 3. The Respondent is liable to Claimant in respect of demurrage. 3.1 In accordance with the charter party, the Notice of Readiness was tendered 12 and given at 0915 on 3 rd October to begin the running of laytime. 14 Therefore as the vessel had 10 weather working days to discharge the cargo, 15 the laytime expired on 13 th October. 3.2 The charter party confirms demurrage starts running automatically once the laytime has expired. 16 As the vessel failed to depart from Hades, it subsequently incurred demurrage. Accordingly given the vessel s port stay of 358 days until 6 th October 2015, with the demurrage accruing at a rate of US $50,000 per day, Hestia Industries now owes Zeus Shipping US $17.9 million In referring to the assessment of laytime the charterparty states that it will run until the vessel leaves the loading place. The claimant submits that as MV Athena was close enough to the port 18 to be reached by dinghy, 19 she could not have been considered to have departed. Accordingly given the Athena s registration under the Hades flag, the Master was obliged to comply with the order of the Hades Coast Guard to remain in port. Consequently laytime and 12 Correspondence with Zeus Shipping and Hestia Industries (03/10/2014) in Zeus Shipping and Trading Company v Hestia Industries Case Documents (4 December 2015), p Statement of Facts in Respect of MV Athena at Hades in Zeus Shipping and Trading Company v Hestia Industries Case Documents (4 December 2015), p Clause 9(c)(i) of the charter party, p Ibid. 16 Clause 10 of the charter party, p Demurrage invoice in Zeus Shipping and Trading Company v Hestia Industries Case Documents (4 December 2015), p Correspondence between Hades coast guard, Jim Payne, with President Simmons concerning the vessel s interception in Case Documents (4 December 2015), p Breaking news reported in The Hades Advocate in Case Documents (4 December 2015), p.55 8

9 subsequently demurrage continued to run until the Athena left the Loading Place on or about the 6 October Furthermore, the classification of the presdient s order for the MV Athena s interception is somewhat uncertain, particularly as the coast guard himself appears not to have thought he had the authority to arrest it. 21 Therefore, the incident cannot constitute an arrest and falls outside the intervening circumstances stopping demurrage from accruing The Charterparty is not frustrated 4.1. The claimant submits that the charterparty was not frustrated as performance of the contractual obligations did not require something radically different, the risk of delay was foreseeable by the parties, and the charterers failed to make any attempt to secure the release of the vessel. 4.2 In the alternative, if the tribunal should find that the charterparty is frustrated, this does not defeat the claimants claim in respect of demurrage which accrued prior to the frustration The doctrine of frustration provides for the termination of a contract as a matter of law when, without the default of either party, the performance of a contractual obligation would be rendered radically different due to a change in circumstances. 20 Confirmed by Zeus Shipping and Trading Company s Points of Claim document in Case Documents (4 December 2015), p Article from The Law Institute of Hades Journal (printed on 04/12/2015) in Case Documents (4 December 2015) 22 Circumstances listed in clause 9(e) of the charter party, p.10 9

10 4.4. In defining the term radically different Rix LJ. in The Sea Angel recognized that the mere incidence of expense or delay or onerousness is not sufficient 23. In order for frustration to arise it must be considered unjust to hold the parties to the contract Despite the fact that the detention of the vessel by the Hades port authority resulted in an extensive delay to the voyage charter. Such a delay was as a result of the controversial nature of the cargo on board the vessel, of which the charterers were aware or should reasonably have been aware 25 and therefore it is in the interests of justice that the financial consequences of such delay should thus borne by the charterers Rix LJ. in The Sea Angel 27 suggests a multifactoral approach in assessing whether the contract is frustrated. The tribunal should consider the nature and impact of the supervening event in light of the terms of the contract and obligations of the parties, and the reasonable and objectively ascertainable possibility of performance. The claimant submits that an onus rested upon the charterers to secure the release of the vessel and their failure to do so is what prevented the performance of the charterparty In the alternative: irrespective of frustration of the contract, claims for damages in respect of breaches remain valid. 28 Demurrage is liquidated damages in respect of the breach of the 23 Edwinton Commercial Corporation and Another v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The Sea Angel) [2007] 2 Lloyd s Rep. 517 at para 111: the test of "radically different" is important: it tells us that the doctrine is not to be lightly invoked; that mere incidence of expense or delay or onerousness is not sufficient; and that there has to be as it were a break in identity between the contract as provided for and contemplated and its performance in the new circumstances. 24 Per Lord Denning in Ocean Tramp Tankers Corporation v V/O Sovfracht ( The Eugenia ) (1963) 2 LI. Rep at The Hades Advocate, Hestia in a tangle in Case Documents (4 December 2014), p Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497, 510: It is really a device, by which the rules as to absolute contracts are reconciled with a special exception which justice demands." 27 Edwinton Commercial Corporation and Another v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The Sea Angel) [2007] 2 Lloyd s Rep. 517 at para Julian Cooke [and seven others], Voyage Charters, 4 th ed., Informa Law (2014) at p

11 laytime provided for in the charterparty. 29 Therefore, if the arbitrators should find that the charterparty is frustrated by the delay in performance, the claimant submits that the respondent is liable in respect of demurrage up to the date of frustration, which the respondent submits is the 30/04/ Arrest of the vessel 5.1. In the event that the Respondent claim that a plead of arrest within clause 9(e) of the Charterparty 31 will stop demurrage from running, The Claimant submits that the Respondent may not plead arrest as to stop demurrage from running, as the interception of the Athena by the Coast Guard did not amount to an arrest Clause 9(e) of the Charterparty states that; Interruptions to Laytime Time occupied in shifting ports or berths or changing positions not to count as lay-time and demurrage not to accrue even if on demurrage and in the event of any delay or hindrance in procuring, preparing, carrying, loading, stowing, shipping or discharging the particular cargo intended for shipment or the cargo actually shipped by reason of Acts of God, war, public enemies, arrests (...) the laytime not to count during the period of such delay or hindrance and demurrage not to accrue even if the vessel is already on demurrage. 29 Ibid., at p Saxon Ship Co. v Union Steamship. Co. (1899) 4 Com. Cas. 29, 298, (1900) 5 Com. Cas Clause 9(e) of Voyage Charter Party between Zeus Shipping and Trading Company & Hestia Industries, p

12 5.3. Exception to demurrage has to be specific to stop demurrage from running. 32 The interception of the Athena by the Coast Guard did not amount to an arrest within the meaning of the Admiralty Act and the Admiralty Rules , as this was not an in rem action and the proper legal procedures has not been followed. Therefore the interception was clearly not an arrest as to stop demurrage from running. 32 Lilly v Stevenson (1895) 22 Sess Cas (4th Series) 278; President of India v N.G. Livanso Maritime CO (The John Michalos) [1987] 2 Lloyd s Rep Admiralty Act 1988, s Rule 43 Admiralty Rules 1988, part VI, rule

13 Bibliography Moot Documents Zeus Shipping and Trading Company v Hestia Industries Case Documents The Voyage Charterparty Case Law Codelfa v SRA (1982) 149 CLR 33 Davis Contractors Ltd. v Fareham Urban District Council [1956] A.C. 696 Edwinton Commercial Corporation and Another v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The Sea Angel) [2007] 2 Lloyd s Rep. 517 Fiona Trust & Holding Corp v Privalov [2007] 4 All E.R. 951 Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 Heyman v Darwins [1942] AC 356 Joseph Constantine Steamship Line Ld. v. Imperial Smelting Corporation Ltd [1942] A.C. 154, 163 Krell v Henry [1903] 2 KB 740 Kruse v. Questier & Co [1953] 1 QB 669 Lilly v Stevenson (1895) 22 Sess Cas (4th Series) 278 President of India v N.G. Livanso Maritime CO (The John Michalos) [1987] 2 Lloyd s Rep 188 Ocean Tramp Tankers Corporation v V/O Sovfracht ( The Eugenia ) (1963) 2 LI. Rep

14 Saxon Ship Co. v Union Steamship. Co. (1899) 4 Com. Cas. 29, 298, (1900) 5 Com. Cas. 381 Textbooks John Reeder, Brice on Maritime Law of Salvage, 5 th ed. Sweet & Maxwell (2011) Julian Cooke [and seven others], Voyage Charters, 4th ed. Informa Law (2014) Robert Merkin, Arbitration Law, 3 rd ed. Informa (2004) Statutes Admiralty Act 1988 Admiralty Rules 1988 Arbitration Act 1996 Commercial Arbitration Act