INTERNATIONAL TRADE AND COMMODITIES LEGAL UPDATE JUNE 2015

Transcription

1 INTERNATIONAL TRADE AND COMMODITIES JUNE 2015 CONTENTS INTRODUCTION 02 TRADE The GAFTA prohibition clause revisited Public Company Rise v. Nibulon S.A. [2015] EWHC 684 (Comm) 03 Anti-suit injunction granted in respect of warehouse certificate disputes subject to exclusive jurisdiction of English courts Impala Warehousing and Logistics (Shanghai) Co Ltd v. Wanxiang Resources (Singapore) PTE Ltd [2015] EWHC 811 (Comm) 04 TRADE FINANCE Repo transactions implications for traders and financing banks when the goods cannot be delivered Mercuria Energy Trading Pte Ltd and another v. Citibank NA & another [2015] EWHC 1481 (Comm) 06 SHIPPING Court of Appeal confirms construction of in-transit loss clause in voyage charterparty Trafigura Beheer BV v. Navigazione Montanari SpA (Valle di Cordoba) [2015] EWCA Civ Do cancellation rights under voyage charterparty survive variation of load port? St Shipping & Transport Inc v. Kriti Filoxenia Shipping Co SA (MT Kriti Filoxenia) [2015] EWHC 997 (Comm) 09 Demurrage time bar: crucial to comply with documentary requirements Kassiopi Maritime Co v. Fal Shipping Co Ltd (M/T Adventure) [2015] EWHC 318 (Comm) 10 CONTACTS 12

2 02 INTERNATIONAL TRADE AND COMMODITIES INTRODUCTION Welcome to the latest issue of our International Trade and Commodities Legal Update, which we hope you will find to be of interest and relevant to your business. The Update has a somewhat Chinese theme this time, due to the proliferation of litigation arising out of what has become known as the Qingdao metals fraud, which came to light in June 2014 and which involved the allegedly fraudulent use of warehouse receipts multiple times as collateral to raise finance. Some of this litigation has found its way to the English courts. One case, Mercuria v. Citibank, highlights the considerable impact the alleged fraud has had, and continues to have, on the financing of metals and other commodities in China. That dispute arose out of the sale and repurchase of copper and aluminium stored at warehouses in Qingdao and raised a number of legal issues, including where the risk of loss lies between a trader and a bank in a commodity repo transaction, in circumstances where the goods may have been lost or may not even have existed in the first place. The case also considers what will constitute effective redelivery of warehoused goods under a commodity repo transaction where physical delivery is not possible. Further proceedings in the Citibank dispute are expected and we will report on those in due course. In the other case arising out of the metals fraud, Impala Warehousing v. Wanxiang Resources, the English Court has upheld an anti-suit injunction in support of an exclusive English jurisdiction clause in warehouse certificates in circumstances where one party had commenced proceedings in China in breach of the jurisdiction clause. Significantly, contractual limitation provisions in that case would limit the claim of about US$10 million to US$1 million: while the English Court would be expected to give effect to those limitation provisions, the Chinese courts would likely refuse to apply them. The case highlights both the importance of the jurisdiction in which a dispute is heard as well as the English Court s policy of fortifying exclusive English jurisdiction clauses insofar as possible by issuing anti-suit injunctions where they are available. In the MT Kriti Filoxenia, the Court has helpfully clarified that cancellation provisions in a voyage charterparty do not survive a variation of the load port by the charterers pursuant to a liberty provision permitting the nomination of a new load port. This point arises frequently and it was previously uncertain how such clauses should be construed together. Finally, the M/T Adventure provides a useful reminder of the importance of submitting all relevant documentation in relation to a demurrage claim or, indeed, when submitting any claim subject to time limits or specific requirements on what needs to be produced and when in order to substantiate the claim. In the case, the Owner s claim was found to be time-barred. Ince & Co LLP s International Trade and Commodities Group provides a full service to clients in the global trading community. We advise clients in a range of industries including oil and gas, biofuels, coal, sugar/molasses, grain and feed, oils and fats and metals. If you have any queries arising out of the content of this Update, or any matters you wish to discuss with us, please feel free to contact me or the authors of specific case reports you are interested in, or your usual contact at Ince & Co. Stuart Shepherd Partner and Global Head of Trade, London stuart.shepherd@incelaw.com In relation to commodities arbitration, Public Company Rise v. Nibulon was an appeal from a GAFTA arbitration award regarding contracts for the sale of Ukrainian feed corn and the introduction by the Ukrainian government of Grain Export Quota Restrictions. The main issue was whether the prohibition clause in the GAFTA contracts applied so that the Seller was excused from performance. On the shipping side, we have previously reported on the first instance decision in the Valle di Cordoba case, in which the Court had to construe an in-transit loss clause in a voyage charterparty for the carriage of an oil cargo. In this Update, we report on the Court of Appeal decision, which dismissed the appeal and upheld the Owner s case that the clause did not cover loss of cargo due to the action of pirates.

3 INTERNATIONAL TRADE AND COMMODITIES 03 TRADE The GAFTA prohibition clause revisited Public Company Rise v. Nibulon S.A. [2015] EWHC 684 (Comm) This was an appeal from a GAFTA Appeal Board which concerned the relationship between the obligation on the Seller to obtain export licences and the standard form GAFTA prohibition clause. Whilst the Court was asked to determine three separate issues, the core issue was whether the GAFTA prohibition clause qualified in any way the Seller s absolute obligation to obtain export licences. Hamblen J, in the Commercial Court, concluded that it did. The background facts The dispute between the parties arose out of three contracts relating to the sale by Public Company Rise ( the Sellers ) of 158,000 mt of Ukrainian feed corn to Nibulon S.A. ( the Buyers ). The contracts were on CPT terms (carriage paid to) and were for delivery to the Buyers transhipment terminal. The contracts were on the GAFTA 78 form. Each contract provided as follows Clause 11.3 Seller is obliged to obtain at his own risk and expenses any export license or any other official document and to perform where it is required, all customs formalities for export of the goods Clause 12 All other terms, conditions and rules, not in contradiction with the above contained in Form 78 of GAFTA... Clause 17 of GAFTA 78 PROHIBITION In case of prohibition of export, blockade or hostilities or in case of any executive or legislative act done by or on behalf of the government of the country of origin or of the territory where the station(s) or private siding(s) of loading named herein is/are situate, restricting export, whether partially or otherwise, any such restriction shall be deemed by both parties to apply to this contract and to the extent of such total or partial restriction to prevent fulfilment whether by shipment or by any other means whatsoever and to that extent this contract or any unfulfilled portion thereof shall be cancelled. Sellers shall advise Buyers without delay with the reasons therefore and, if required, Sellers must produce proof to justify the cancellation. The Ukrainian Government introduced Grain Export Quota Restrictions in October 2010 as the result of a poor harvest. These imposed a limit on the total quantity of grain which could be licensed for export during the relevant delivery period. The Appeal Board concluded that, despite their best endeavours, the Sellers were not granted the necessary export licences. As a result, the Sellers cancelled the contracts pursuant to the prohibition clause. The Buyers treated this is as a repudiation and held the Sellers in default. The Appeal Board found for the Buyers and held that they were entitled to damages in excess of US$17 million. In reaching their conclusion, the Appeal Board made the following findings: 1. the obligation to obtain export licence(s) was an absolute one and overrode the prohibition clause except in the situation of a total ban on export; 2. there was, during the relevant period, no total ban on exports; and 3. in any event, the Sellers could not rely on the prohibition clause as they were not prevented from but merely restricted in making shipment to the Buyers. The issues for the Commercial Court The three questions that were put to the Commercial Court on appeal from the GAFTA Appeal Board award were as follows: 1. Does the obligation to procure an export licence override the prohibition clause or does the prohibition clause operate as a qualification on the obligation to obtain an export licence? 2. Does the prohibition clause only relieve the Sellers of an obligation to obtain an export licence in circumstances where the prohibition amounts to a total ban? 3. Are the Sellers not able to rely on the prohibition clause when they are not prevented but merely restricted from making shipments? The Commercial Court Decision The Commercial Court answered the above questions as follows. As to question (1) the Buyers essential argument was that there was a conflict between the absolute obligation to obtain an export licence and the prohibition clause. They said that this was so since the contracts expressly provided that the terms and conditions in GAFTA Form 78 only applied when not in contradiction with the terms of the contract and here there was a contradiction. Hamblen J. referred to the decision in Pagnan v. Tradax [1987] 2 Lloyds Rep 342, which was concerned with the very same issue of the relationship between an obligation to obtain an export licence and the GAFTA prohibition clause. He quoted Bingham LJ in that case, where he said It is not enough if one term qualifies or modifies the effect of another; to be inconsistent a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses. As in the Pagnan case, Hamblen J. concluded that the obligation on the seller to obtain export licences at his own risk and expense is to be read subject to any other terms of the contract which may be invoked by the seller in the event of a contingency such as prohibition. In other words, if there is a provision, such as a prohibition clause, which excuses the seller from delivering the goods concerned, it will not have an obligation to obtain an export licence. As to question (2), Hamblen J. dealt with this point fairly swiftly. He pointed out that the prohibition clause expressly applies to prohibition restricting export whether partially or otherwise and that to the extent of such total or partial restriction, the contract or any unfulfilled portion shall be cancelled. He found that in accordance with its wording, the clause plainly applies to a qualifying event partially restricting export. As such it applies to a partial prohibition or other qualifying event which has a like effect.

4 04 INTERNATIONAL TRADE AND COMMODITIES Lastly, as to question (3), Hamblen J. pointed out that the prohibition clause requires proof of a qualifying event which is (a) a prohibition of export or blockade or hostilities or an executive or legislative act done by or on behalf of the (relevant) Government which has the effect of (b) restricting export, whether partially or otherwise. In order to be able to rely upon the clause, it is necessary to prove that the qualifying event caused a relevant inability to perform. On the specific question addressed to the Court, the Judge said that: Insofar as the Appeal Board are... saying that it is necessary to establish a qualifying event which prevents export that is not correct. What needs to be established is a qualifying event which restricts export. The word prevent appears as part of the deeming provision in the clause. It is not part of the definition of the relevant qualifying event. However, if the Appeal Board are saying that it is necessary to show that the qualifying event prevented performance in the sense that it caused inability to perform then that would be a correct approach. The Judge then considers whether the Appeal Board had reached any definite conclusions as to whether the restriction on export in fact restricted export of the goods concerned. In that respect, the Judge concluded that the Board of Appeal had not specifically addressed that question nor could he confidently conclude what the answer to that question was on the basis of the findings in the Award. As a result, he remitted the matter to the Appeal Board for further consideration. Comment In terms of the question of the relationship between the Sellers obligation to obtain export licences and the GAFTA prohibition clause, this decision speaks for itself. However, on a more general level, the case illustrates how the courts will endeavour to give effect to all contractual provisions unless it is simply impossible to do so. This is of particular significance in construing together clauses imposing absolute obligations on a party on the one hand and clauses which, on the other hand, excuse a party from performing. Anti-suit injunction granted in respect of warehouse certificate disputes subject to exclusive jurisdiction of English courts Impala Warehousing and Logistics (Shanghai) Co Ltd v. Wanxiang Resources (Singapore) PTE Ltd [2015] EWHC 811 (Comm) In June 2014, what subsequently became referred to as the Qingdao Metals Fraud came to light and was widely reported in the press. The alleged fraud concerned a Chinese metal trading company and its affiliates, which were reported to have been using the same stockpiles of metal commodities stored at the bonded warehouses in Qingdao Port for the purpose of collateralising multiple loans. This has given rise to litigation in multiple jurisdictions, some of which has found its way to the English courts. We are reporting separately on the recent Commercial Court decision in Mercuria Trading Energy Pte Ltd v. Citibank NA and another, which also arose out of the alleged fraud. This article deals with another Commercial Court decision, in which the Court considered whether it should give effect to an exclusive English jurisdiction clause incorporated in warehouse certificates issued by the Claimant warehouse keeper ( Impala Shanghai ) by making final an interim anti-suit injunction previously granted by the Court to prevent the Defendants ( Wanxiang ) from pursuing substantive proceedings against Impala Shanghai in the Shanghai courts. The Court upheld the anti-suit injunction and made it final. The background facts The metal to which this particular dispute related was metric tonnes of aluminium ingots said to be stored in warehouses in Qingdao ( the Goods ). Impala Shanghai issued warehouse certificates in respect of the Goods. Wanxiang, a large trading company, became the holder of two warehouse certificates issued by Impala Shanghai in or around July 2014 in respect of the Goods. Stuart Shepherd Partner and Global Head of Trade, London stuart.shepherd@incelaw.com Jane Fitzgerald Senior Associate, London jane.fitzgerald@incelaw.com On or about 27 May 2014, the Chinese authorities placed the warehouses in Qingdao in lockdown as part of a criminal investigation against the alleged fraud. Neither Impala Shanghai nor Wanxiang has had access to the warehouse since. It appears that because of the lockdown, Impala Shanghai could not deliver the Goods nor were they in a position to ascertain whether the Goods were still in the warehouse, if they ever were there. Wanxiang commenced court proceedings in Shanghai, seeking an order that Impala Shanghai deliver the Goods to it or, if delivery could not be made, that Impala Shanghai should pay damages of almost US$9 million ( the Shanghai Proceedings ). Impala Shanghai contended that the English courts had exclusive jurisdiction under the warehouse certificates but the Shanghai court rejected this argument. Impala Shanghai then applied to the English Court seeking mandatory and prohibitory injunctive relief, requiring Wanxiang to discontinue the Chinese proceedings and restraining it from commencing or prosecuting any claim otherwise than before the English courts, on the basis

5 INTERNATIONAL TRADE AND COMMODITIES 05 that the warehouse certificates incorporated an exclusive English jurisdiction clause which read: All contracts between the Company and the Customer and any claims relating to the Goods shall be governed by the law of England and disputes dealt with exclusively by the English courts. The Commercial Court decision The Court granted an interim anti-suit injunction in the first instance and subsequently had to decide whether to make that interim injunction final. A number of arguments were put forward by Wanxiang against the anti-suit injunction, but all proved unsuccessful. In particular: Contractual issues 1. The Court dismissed Wanxiang s argument that the Shanghai proceedings related to a claim in tort rather than contract, so that the jurisdiction clause in the warehouse certificates did not apply. The Shanghai courts were dealing with the claim on the basis that it was contractual. Furthermore, the issue of warehouse certificates to a party depositing goods in a warehouse, or a party purchasing goods already in the warehouse, will bind that party to the terms of the warehouse certificates. On an English law analysis, therefore, there was a bailment on terms and the underlying relationship with the warehouse was contractual. The fact that the purchase was financed by a bank did not mean that the terms of the warehouse certificates no longer applied to the original purchaser. 2. The Court further rejected the argument that the exclusive English jurisdiction clause was not effectively incorporated into the warehouse certificates. On their face, the warehouse certificates referred to and incorporated Impala s terms and conditions. On the reverse of the certificates, the website on which the latest version of those terms and conditions could be found was identified. While the website provided three sets of standard terms, it was clear which of those related to warehousing and that those were the applicable terms. Those warehousing terms contained the relevant jurisdiction clause. Reference to a website was sufficient incorporation of the warehousing terms to be found on the website. Wanxiang had the opportunity to find out what the terms were if it wanted to and it was, therefore, deemed to have notice of the terms, including the exclusive jurisdiction clause. 3. Wanxiang also sought to argue that, in fact, the relevant contract that applied to the transactions in question, was a Collateral Management Agreement ( CMA ) entered into between Wanxiang s financing bank, Rabobank, Wanxiang and Impala UK and that the warehouse certificates were no more than receipts. The CMA provided for Singapore jurisdiction. The Court disagreed. While Impala UK had undertaken to provide certain services under the terms of the CMA, the contractually agreed scheme also provided for warehouse certificates to be issued by Impala Shanghai, as in fact they were. In any case, the CMA ceased to be relevant once Wanxiang had repaid its borrowing from Rabobank. Basis for granting an anti-suit injunction As a matter of principle, the English Court will usually grant an anti-suit injunction to restrain (non-eu) foreign proceedings in breach of an exclusive English jurisdiction clause, unless there are strong reasons not to do so. The Court found that, in this case, there were no such strong reasons. Specifically, the fact that any English Court judgment would not be enforceable in China was not a sufficiently strong reason. While non-enforceability might in certain circumstances amount to strong reason, this would be rare because the non-enforceability of an English Court judgment in a particular foreign country may be foreseen or foreseeable as a risk when the exclusive jurisdiction clause is agreed. Furthermore, the fact that Impala Shanghai was based in China, did business in China, Wanxiang was a subsidiary of a Chinese company doing business in China and evidence on issues of fact was in China, did not sway the balance in favour of refusing an anti-suit injunction. The Court also gave little weight to the argument that the exclusive jurisdiction clause was not specifically negotiated (because it was contained in standard terms and conditions) and should not therefore be enforced. In conclusion, the Court held that Impala Shanghai was in principle entitled to a final prohibitory injunction and a final mandatory injunction. Comment This case highlights the English Court s pragmatic attitude when considering whether to grant an anti-suit injunction in breach of an exclusive English jurisdiction clause. The Court will seek to enforce the commercial bargain between the contracting parties and uphold the jurisdiction clause in the absence of significant prejudice that militates against doing so. Ultimately, this type of jurisdictional dispute, and the resulting forum shopping, normally come down to pure monetary considerations. In this case, if the underlying claim is determined in England, limitation provisions in Impala s terms and conditions may reduce a claim of approximately US$10 million to about US$1 million. On the other hand, the Chinese courts would likely refuse to apply those limitation provisions. This may be one of the factors that has apparently resulted in the parties considering whether to refer their dispute to Hong Kong arbitration. Given the extent and consequences of the alleged Qingdao fraud, it is expected that more related decisions will be handed down in the coming months. Wai Yue Loh Partner, Beijing waiyue.loh@incelaw.com Reema Shour Professional Support Lawyer, London reema.shour@incelaw.com

6 06 INTERNATIONAL TRADE AND COMMODITIES TRADE FINANCE Repo transactions implications for traders and financing banks when the goods cannot be delivered Mercuria Energy Trading Pte Ltd and another v. Citibank NA & another [2015] EWHC 1481 (Comm) The Commercial Court has recently issued judgment in the first round of litigation between commodities trader Mercuria and Citigroup, following the reported fraudulent use of the same stockpiles of metal commodities stored at Qingdao Port, China as collateral for multiple loans. This is the second judgment from the English courts arising out of the widely reported alleged fraud, and comes after the decision in Impala v. Wanxiang, in which a warehouse operator successfully obtained an anti-suit injunction preventing a commodities trader from continuing proceedings against it in China. The background facts Pursuant to two Master Agreements, Mercuria sold quantities of metals to Citigroup under a series of obligated repo transactions, whereby Mercuria was obliged to purchase Equivalent Metal, at a specified future date, at a higher price. The metals were variously stored in warehouses in Qingdao, Penglai and Shanghai and Citi s ownership was evidenced by a number of warehouse receipts (known locally as rukudans) issued to Citi s order, having been procured by Mercuria from various warehouse operators. It was common ground that the transactions were true sales, in the sense that risk and title to the metals passed from Mercuria, on the assumption that it had good title to pass to begin with, to Citi under the initial sale. However, there was no intention that the metals would leave the warehouse at any stage and both the sale and the forward sale were to take place by way of documentary transfers of title. The transactions began to unravel when, in late May 2014, evidence began to emerge that substantial quantities of metal were either missing from the warehouses or were subject to multiple pledges. The Notices Once it became aware of the suspected fraud, Citi served notices exercising its contractual right to bring forward the forward sale date ( the Bring Forward Notices ). The effect of the Bring Forward Notices, if validly served, was to require Mercuria to re-purchase the metal one banking day after receipt, paying the full agreed price for the subject metals. In response, Mercuria served notice declaring that a termination event had occurred ( the Termination Event Notices ), namely that the events in China could reasonably be expected to have a material adverse effect on Citi s ability to deliver Equivalent Metal pursuant to the forward transactions. If valid, the effect of the Termination Event Notices was to require Citi to deliver Equivalent Metal before Mercuria was obliged to pay the price under the forward transaction. Citi later purported to deliver the metal to Mercuria, by tendering the warehouse receipts that had been issued to Citi s order, endorsed in blank. Citi did not, however, instruct the warehouse operator to release the metal to Mercuria. Mercuria commenced these proceedings seeking declarations that the Bring Forward Notices were invalid and/or were superseded by Mercuria s Termination Event Notices and, in any event, that Citi had not performed its delivery obligations by tendering endorsed warehouse receipts. By contrast, Citi claimed that it was entitled to the price specified in the forward sales agreement approximately US$270 million. Citi also contended that it was entitled to terminate the Master Agreement. Was there a valid delivery of the metals to Mercuria? The key issue was whether delivery of warehouse receipts endorsed in blank was sufficient to constitute delivery of the metals by Citi to Mercuria under the forward transactions. As a matter of English law, in order for there to be an effective delivery of goods that are in the possession of a third party, there must be either (a) a transfer of a document of title, or (b) an attornment by the party in possession of the goods, i.e. an acknowledgement that he holds the goods on behalf of the buyer. In this case, Citi accepted that the warehouse receipts tendered to Mercuria were not documents of title. Neither was there any attornment by the warehouse operators in favour of Mercuria. Citi argued that the tender of endorsed warehouse receipts to Mercuria amounted to a deemed delivery and that this was sufficient under the contractual arrangements between the parties. This argument was based on the delivery provision of the forward sale agreements, which stated as follows: Delivered by means of in warehouse transfer pre import and/or re-import clearance into any jurisdiction, with irrevocable and unconditional transfer of title and possession, free from any Encumbrance created by Citi, to Counterparty without the need for any confirmation from the owner/operator of the Storage Facility following receipt of payment of the Invoice Value. Citi contended that the underlined wording demonstrated a clear agreement that an attornment by the warehouse operators would not be necessary in order to effect delivery to Mercuria. It followed that Citi s only obligation under the forward sales was to tender endorsed warehouse receipts. This, Citi said, was not surprising because a lender should be able to obtain repayment on a purely documentary basis, without the need to concern itself with any problems at the storage facility. The Judge rejected this argument. The clear effect of the Master Agreements was that Citi was obliged to make actual delivery in the sense of transferring constructive possession of the metal. There was nothing in the contracts permitting

7 INTERNATIONAL TRADE AND COMMODITIES 07 Citi to fulfil its obligations by delivering documents only, without regard to Citi s inability to actually deliver constructive possession of the metal. While the above quoted provision of the forward agreements did on its face appear to dispense with the need for an attornment, the Judge held that this could not be reconciled with the clear wording of the Master Agreements and should therefore be rejected. to possession are evidenced only by instruments such as warehouse receipts. The confirmation that a warehouse receipt is not a document of title, thereby requiring an attornment by the warehouse keeper in order to transfer the right to possession, is also an important principle to be borne in mind by all engaged in such commodity financing. It followed that the delivery of endorsed warehouse receipts did not amount to a delivery of the metals by Citi to Mercuria, although it is worth noting that the position could have been different if the documents involved had been documents of title instead of the rukudans (warehouse receipts) tendered by Citi. The effect of the various notices and Citi s claim for the price The Judge held that the Bring Forward Notices were validly served, thus bringing forward Mercuria s payment obligations to 11 June He rejected Mercuria s argument that the Bring Forward Notices were superseded by its own Termination Event Notices. The plain and obvious meaning of the termination provisions in the Master Agreement was to suspend any further payments until delivery was made. This, the Judge found, plainly did not serve to suspend payments that had already accrued due. This left Citi with a theoretical claim for the price of around US$ 270 million. However, that claim failed on the basis of circuity, in that upon receiving payment of the price, Citi would be obliged to deliver the metals to Mercuria and would be in breach of the forward sales agreements to the extent that it was unable to do so, and liable to reimburse Mercuria for the price paid. Citi did, however, retain the right to terminate the Master Agreements on the basis that Mercuria s failure to pay the sums due pursuant to the Bring Forward Notices was a repudiatory breach, which Citi was entitled to accept as bringing the Master Agreements to an end. What next? While this decision may appear to be something of a no-score draw, this is not the end of the matter. It is likely that there will be further proceedings to examine whether Citi or Mercuria breached their respective warranties of title once the nature and extent of the fraud in Qingdao is known. Further, it remains open to Citi to pursue a claim for potential breaches of Mercuria s obligations under a separate agreement to arrange secure storage of the metal, once the full facts are known. Comment Parties involved in repo transactions, both on the trading side and on the side of banks providing finance under such agreements, will monitor any further developments in this case with interest. However, the judgment and more broadly the case itself, sounds a reminder of the importance of risk assessment where cargoes held in foreign jurisdictions are the subject of such repo transactions, but where title and/or right Wai Yue Loh Partner, Beijing waiyue.loh@incelaw.com Carl Walker Solicitor, London carl.walker@incelaw.com

8 08 INTERNATIONAL TRADE AND COMMODITIES SHIPPING Court of Appeal confirms construction of in-transit loss clause in voyage charterparty Trafigura Beheer BV v. Navigazione Montanari SpA (Valle di Cordoba) [2015] EWCA Civ 91 The Court of Appeal has recently confirmed the meaning of the expression in-transit loss ( ITL ) in a voyage charterparty. In the High Court, it was held that (1) a loss by piracy does not fall within the meaning of in-transit loss so that the Owner would not be liable for loss so caused; and (2) if the Court was wrong and the type of loss did fall within the meaning of in-transit loss, then the Owner could nonetheless rely on the exceptions contained within the Hague-Visby Rules (the Rules ) that were incorporated in the charterparty. This decision was upheld by the Court of Appeal on both counts. The background facts On 24 December 2010, 15 armed pirates took control of the Valle di Cordoba whilst she was off Lagos, Nigeria, and stole some 5,300 mts of oil cargo loaded on board. The pirates transferred the stolen cargo to an unknown lightering vessel that then departed with the cargo. The Charterer claimed against the Owner for the value of the cargo lost on the basis that the charterparty contained the following in-transit loss clause: In addition to any other rights which Charterers may have, Owners will be responsible for the full amount of any in-transit loss if in-transit loss exceeds 0.5% and Charterers shall have the right to claim an amount equal to the FOB port of loading value of such lost cargo plus freight and insurance due with respect thereto. In-transit loss is defined as the difference between net vessel volumes after loading at the loading port and before unloading at the discharge port. The High Court decided that: 1. the stolen cargo was not in-transit loss, but even if it had been; 2. the Owner would have been able to rely on the exceptions within the (incorporated) Rules to avoid liability for the cargo loss. The Court was assisted by that judgment to conclude that the commercial reasons for ITL clauses are to help in determining notoriously difficult oil shortage claims. The parties therefore make an allowance (sometimes 0.3% but in this case 0.5%) to account for discrepancies in volumetric measures in circumstances where the loss is of a kind encountered on a normal voyage, when the loss is otherwise unexplained. The Court rejected the Charterer s construction of the ITL clause because it would effectively make the Owner an insurer of the cargo. If that were the intention of the parties, they would have had to agree a clear clause to that effect. The wording of the ITL clause was not clear enough to achieve that. The majority of the Court concluded, therefore, that the wording of the ITL clause was clear in covering loss incidental to the carriage of the cargo and so excluded loss caused by piracy. Turning to the second issue, the Court unanimously held that even if the ITL clause was meant to cover losses of the type claimed, the Owner would still be able to benefit from the exceptions incorporated by the Rules. The Court concluded that there was no incompatibility between the ITL clause and the clause incorporating the Rules neither clause made the other otiose. By way of an example, where there is a cargo loss during a normal voyage and the reason for that loss is unexplained, then the ITL clause would apply and it would be unlikely that an owner could excuse himself from liability by relying on the exceptions provided in the Rules. Lord Justice Briggs agreed with the majority that, whether or not the claim for loss from piracy in this case fell within the ITL clause, that claim was still excluded by the exceptions to the Rules. However, he had difficulties as to the construction of the ITL clause. He expressed the view that, as a matter of language, the ITL clause imposed liability for loss of cargo in transit regardless of the cause of that loss, provided that it exceeded 0.5%. Comment This decision is important because it clarifies the scope of ITL clauses within the charterparty regime. The court confirmed that ITL clauses deal only with losses occurring during a normal voyage, incidental to the carriage of cargo. The Court of Appeal decision The Court of Appeal confirmed the High Court decision and dismissed the appeal. The Court was referred extensively to the case of the Olympic Brilliance [1992] 2 Lloyd s Rep. 205, the only authority put before it in relation to ITL clauses. As to the first issue, the Court distinguished the Olympic Brilliance on the basis that the ITL clause in that case dealt only with the charterer s right to make deductions from freight as opposed to a claim for cargo loss, as in this instance. Paul Herring Chairman, London paul.herring@incelaw.com Marco Crusafio Solicitor, Monaco marco.crusafio@incelaw.com

9 INTERNATIONAL TRADE AND COMMODITIES 9 Do cancellation rights under voyage charterparty survive variation of load port? St Shipping & Transport Inc v. Kriti Filoxenia Shipping Co SA (MT Kriti Filoxenia) [2015] EWHC 997 (Comm) The Commercial Court has considered whether cancellation provisions in the BEEPEEVOY3 charterparty form were applicable in the event that the Charterers nominated a new load port under the charter. In this case, the Charterers, exercising their right under clause 24 of the charterparty, varied their original load port nomination and, upon the Owners giving an ETA at the newly nominated load port later than the cancelling date, the Charterers cancelled the charterparty. In arbitration proceedings, the Tribunal found that the cancellation provisions were not applicable where the Charterers had exercised the contractual option to vary the nominated load port. The Charterers appealed the decision to the Commercial Court, which upheld the findings of the Tribunal and dismissed the appeal. The background facts This case concerned a voyage charterparty under the BEEPEEVOY 3 standard form. The key clauses in the charterparty provided as follows: If it appears to Charterers that the Vessel will be delayed beyond the Cancelling Date Charterers may require Owners to notify Charterers of the date on which they expect the Vessel to be ready to load whereupon Charterers shall have the option to cancel this Charter If after any loading or discharge port or place has been nominated Charterers desire to vary such port or place, Owners shall issue such revised instructions as are necessary at any time to give effect to Charterers revised orders and any period by which the steaming time taken to reach the alternative port or place exceeds the time which should have been taken had the Vessel proceeded thither directly shall count as laytime or, if the Vessel is on demurrage, as demurrage. The vessel proceeded to the load port within the range originally nominated under the charterparty. The Charterers then nominated an alternative load port under clause 24. The Owners gave an ETA for that port beyond the cancellation date and the Charterers cancelled the charterparty in reliance upon clause 17. The Owners argued that the Charterers had no right to cancel and accepted the cancellation as a repudiation of the charterparty. The dispute went to arbitration. The Commercial Court decision When it came to construing the words in clauses 17 and 24 of the charterparty, the Court took as its starting point the ordinary and natural meaning of the words used in those clauses as they would be understood by reasonable charterers and owners in the context in which the agreement was made. The Court highlighted the importance of the fact that the parties to a charterparty were involved in a venture which required a degree of co-operation in order to work successfully. Regarding clause 17, the cancellation clause, the Charterers ability to cancel necessarily entailed that the Charterers would do what is necessary on their part to enable the vessel to achieve that cancellation date and not impair the Owners ability to comply with that date. The Court also looked at the reasons why it is in the interests of both sides to agree a cancellation date. At common law, subject to the express terms of a charterparty, both parties are bound by the contract until delay is such that it frustrates the commercial purpose of the venture. Agreeing a cancellation date provides certainty to both parties in that it avoids disputes as to when that delay has frustrated a contract, which is a matter of fact in each case. The Court noted that clause 24 of the charterparty made no express reference to the cancellation rights under clause 17. The Court recognised that the BEEPEEVOY 3 charterparty, being a standard form, is a document drafted with considerable care. Had the draftsmen of this form intended for the clause 17 cancellation rights to apply in the event of a variation of the load port under clause 24, express words would have been used to that effect and would have provided for how such rights would apply and in what circumstances. No such words were present in this case, which led the Court to the conclusion that once a charterer varies the load port under clause 24, the right to cancel the charterparty falls away. The appeal was therefore dismissed. Comment This case helpfully determines a point which has arisen in many cases where charterers have substituted a new load port for the port originally nominated by them, either in the original charterparty or by post-fixture nomination, and the ship concerned is unable to reach the newly nominated port by the cancelling date. There have been various arguments in the past as to how such cancellation provisions and provisions giving charterers the right to vary the load port are to be construed together. This decision will no doubt be welcomed for now bringing some certainty in this respect. The arbitration award The Tribunal found in favour of the Owners and held that the cancellation provisions in clause 17 did not apply where the Charterers exercised the liberty given under clause 24 to vary the load port. The Tribunal further held that, even if they were wrong about that and the cancellation provisions did apply, the Charterers may not cancel where the new load port nomination was made at a time when the estimated time of arrival at the port nominated in substitution was after the cancellation date in the charterparty. The Charterers appealed to the Commercial Court. Rania Tadros Partner, Dubai rania.tadros@incelaw.com Pavlo Samothrakis Solicitor, Dubai pavlo.samothrakis@incelaw.com

10 10 INTERNATIONAL TRADE AND COMMODITIES Demurrage time bar: crucial to comply with documentary requirements Kassiopi Maritime Co v. Fal Shipping Co Ltd (M/T Adventure) [2015] EWHC 318 (Comm) In this case, the vessel Owners failed to provide the Charterers with all documents in support of their demurrage claim within the 90-day time period provided under the charterparty. Their claim was dismissed and they were time-barred from recovering demurrage from the Charterers. The background facts The vessel was chartered under a voyage charterparty on an amended BPVoy4 form dated 15 June The Owners brought a substantial claim for demurrage as a result of delays at the load port of Sitra, Bahrain, and the discharge port, Port Sudan. A formal demurrage claim was submitted to the Charterers by on 5 August The attached a number of documents. The Charterers disputed that demurrage was due to the Owners on the basis that the demurrage claim had not attached all of the necessary documents and that, because the 90-day period provided under the charterparty within which to submit those documents (and the claim) had elapsed, the Owners demurrage claim had become time-barred. The charterparty provisions The charterparty contained the following provisions: 19.7 No claim by Owners in respect of additional time used in the cargo operations carried out under this Clause 19 shall be considered by Charterers unless it is accompanied by the following supporting documentation: copies of all other documentation maintained by those on board the Vessel or by the Terminal in connection with the cargo operations Charterers shall be discharged and released from all liability in respect of any claim for demurrage, deviation or detention which Owners may have under this Charter unless a claim in writing has been presented to Charterers, together with all supporting documentation substantiating each and every constituent part of the claim, within ninety (90) days of the completion of discharge of the cargo carried hereunder. The arbitration award The Tribunal ruled that the Owners claim was time-barred. The Owners had failed to provide the Charterers with the documents required under clauses and In particular, the Tribunal ruled that the port log, time sheets and a manuscript note from the Master showing that he had received free pratique by VHF at Port Sudan should have been provided, being documents that would have been kept on board (per clause ). The Tribunal also ruled that the Owners should have disclosed upfront all the documents they would be required to disclose in an arbitration in support of their demurrage claim. The Commercial Court decision The Owners appeal was dismissed by the Commercial Court. The Judge was slightly more sympathetic to the Owners than the Tribunal had been. He agreed, however, with the Tribunal that the claim was time-barred. In particular: 1. The Judge disagreed with the Tribunal that the Owners had to disclose upfront all documents that they would be required to disclose in an arbitration or court case. This would impose a far-reaching and potentially unworkable obligation on the Owners. It would require them to undertake a detailed search for documents, in the context of disclosure, which was beyond what was being contemplated by the clause. The scope of disclosable documentation in arbitration or court proceedings is determined by the parties pleadings that identify the issues in dispute. Undertaking that type of disclosure before a claim had been formulated and formally commenced would be a heavy burden to impose upon the Owners. 2. Clause of the charterparty was limited to contemporaneous records kept by the vessel in connection with cargo operations. In this context, the Judge agreed with the Owners submission: the documentation contemplated under the clause involved regularly updated documents, as compared to one-off documentation that comes into being solely for the purpose of a demurrage claim, such as a statement of facts. However, the type of documents that had to be submitted at the time of submitting the demurrage claim to the Charterers was a question for the Tribunal. 3. Under clause 20.1, the Owners were to provide all supporting documentation, not merely supporting or essential documentation. What was required was documents which substantiated each and every part of the claim and which provided Charterers with the material required to satisfy themselves that the claim was wellfounded. Accordingly, the port logs and timesheets were required to be presented to the Charterers. The with the Master s manuscript note regarding the time when free pratique had been granted at Port Sudan was probably a supporting document too, because this information was important to the commencement and proper calculation of the laytime and there was no record of it in the other documentation provided by the Owners. The Owners failure to provide these documents to the Charterers within the 90-day time period provided under clause 20.1 meant that the Owners demurrage claim was time-barred.

11 INTERNATIONAL TRADE AND COMMODITIES 11 Comment This case reminds us again of the importance of understanding and fully complying with charterparty terms when presenting a demurrage claim or any claim subject to time limits or explicit requirements regarding what needs to be produced and when. Jonathan Elvey Partner, London jonathan.elvey@incelaw.com Despina Plomaritou Solicitor, Piraeus despina.plomaritou@incelaw.com

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