Trip time charter – whether vessel off-hire during detention

Article published on July 2014 in Stephenson Harwood Shipping Bulletin and reproduced by courtesy of Stephenson Harwood

A vessel was chartered by NYK to Cargill for a time charter trip. Cargill sub-chartered to Sigma. The cargo was a shipment sold by Transclear to IBG. (Transclear were a sub-charterer, but it was not clear whether this was from Sigma or from an intermediate charterer.)

A dispute concerning unpaid demurrage arose between Transclear and IBG and Transclear had the vessel arrested. Cargill withheld hire for the period of the arrest, relying on clause 49 of the charterparty:

"Should the vessel be captured or seizured [sic] 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 arbitral tribunal held that Cargill were entitled to put the vessel off hire. On appeal Field J held that Cargill were not so entitled. Cargill appealed.

 Held:

The appeal was dismissed. Cargill were not entitled to put the vessel off hire, as the arrest had been "occasioned by any personal act or omission or default of the Charterers or their agents".

1     The word "agents" in clause 49 was not limited to agents strictly so called. Delegates of Cargill could be its agents for the purposes of the clause, irrespective of the precise contractual relationship existing between the delegate and the party above him in the contractual chain. The word “agents” was accordingly capable of extending to sub-charterers, sub-sub-charterers and receivers.

2     The acts or omissions or defaults in question were not restricted to those occurring "in the course of the performance by the delegate of the delegated task".

3     The general scheme of clause 49 was that the vessel would be off-hire where the relevant matters were either on NYK's side of the line or were the acts or omissions of third parties (eg government authorities) unconnected to either NYK or Cargill.

4     However, the dispute between Transclear and IBG clearly fell on Cargill's side of the line. The dispute arose out of Cargill's trading arrangements. The result was that hire continued to run over the relevant period (subject to questions of causation). The acts or omissions of both Transclear and IBG led to that result.

(The Global Santosh [ 2014 ] 2 Lloyd's Rep 103)

Authors: Michael Bundock, Senior Associate and professional support lawyer with Stephenson Harwood & Joanne Champkins, Associate specialising in marine insurance with Stephenson Harwood / Publisher: SCMO

Bill of lading – clause paramount – agreement for limitation figure

Article published on July 2014 in Stephenson Harwood Shipping Bulletin and reproduced by courtesy of Stephenson Harwood

Cargo was shipped under a bill of lading for carriage from Belgium to the Yemen. It included the following clause:

"Paramount Clause

The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels 25 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.”

A dispute arose, and it was subsequently agreed that the claim would be subject to English law and jurisdiction. The principal point at issue was the figure of package limitation which was applicable. The Hague-Visby Rules had mandatory application by virtue of Carriage of Goods by Sea Act 1971. However, the claimants argued that by contractually adopting (by a clause paramount) the Hague Rules the parties had contracted out of the Hague-Visby package limitation figure in favour of the claimants.

Held:

The Hague-Visby Rules limitation figure applied.

1     The Hague-Visby Rules have been enacted in Belgium. The judge held that he was bound by The Happy Ranger to hold that the Hague-Visby Rules were not to be regarded as the "Hague Rules … as enacted in the country of shipment", as there were important differences between the two codes.

2     The Yemen has not enacted either the Hague or Hague-Visby Rules, so the opening words of the second sentence of the clause paramount did not apply. Accordingly, the last phrase of the second sentence applied, and the clause paramount took effect as a contractual agreement that the Hague Rules would apply.

3     However, the Hague-Visby Rules had mandatory application. Art IV(5)(g) of those Rules permits agreements which increase the carrier's liability above that laid down by the Rules. The judge rejected the view expressed in Voyage Charters that Art IV(5)(g) only permits the use of a formula if there are no circumstances in which it could produce a figure lower than that specified by Art IV(5)(a) of the Rules. The judge held that an Art IV(5)(a) agreement would only be invalid to the extent that in any particular case it in fact produced a limit lower than that permitted by the Rules.

4     However, the judge did not accept that the parties had made any such agreement in this case. Had the parties thought about the clause paramount, they would have understood that the Hague Rules would not apply at all because Belgium is a Hague-Visby Rules State. They would have viewed the clause paramount as surplusage, which could be ignored.

5     If (contrary to the judge's conclusion) the Hague Rules limit applied, then the limit was £100 per package or unit gold value. This refers to the gold value of £100 sterling, not its nominal or paper value, so that the applicable limitation figure is the value of 732.238 grams of fine gold (The Rosa S). The judge held that the time at which this gold value is to be converted into national currency is the date of delivery (or, in the case of loss, the date when the goods ought to have been delivered), and not the date of judgment.

(Yemgas FZCO v Superior Pescadores [ 2014 ] EWHC 971 (Comm))

Authors: Michael Bundock, Senior Associate and professional support lawyer with Stephenson Harwood & Joanne Champkins, Associate specialising in marine insurance with Stephenson Harwood / Publisher: SCMO

Foreign insolvency – whether termination of contract of affreightment prevented

Article published on July 2014 in Stephenson Harwood Shipping Bulletin and reproduced by courtesy of Stephenson Harwood

F, a party to a contract of affreightment which was expressly subject to English law, had an express right to terminate the contract on the insolvency of the other party, P (a Korean company). P entered into an insolvency process in Korea, and that process was recognised by an order of the English Court as a "foreign main proceeding under the Cross-Border Insolvency Regulations 2006 ("the CBIR").

F terminated the contract of affreightment under its express contractual right. The administrator of P applied to the English Court for an order that F should not exercise its right to terminate.

Held:

The application was rejected by Morgan J.

1     The Court's power under CBIR to order a stay of "the commencement or continuation of individual actions or individual proceedings" did not apply. The service of a notice terminating the contract was not the commencement or continuation of an individual action or individual proceeding.

2     

The Court had power under CBIR to grant "any appropriate relief". However:
2.1     that did not give the Court power to order that F should not terminate the contract. The Court's power was limited to relief which would be available to the court when dealing with a domestic insolvency.

2.2     Even if the court had such a power, the judge would not have exercised it. It was appropriate for the Companies Court to apply English law and to give effect to the parties' choice of English law.

(Fibria v Pan Ocean [ 2014 ] EWHC 2124 (Ch))

Authors: Michael Bundock, Senior Associate and professional support lawyer with Stephenson Harwood & Joanne Champkins, Associate specialising in marine insurance with Stephenson Harwood / Publisher: SCMO

Sale of contaminated sunflower seed oil – measure of damages

Article published on July 2014 in Stephenson Harwood Shipping Bulletin and reproduced by courtesy of Stephenson Harwood

A FOSFA tribunal considered a claim by Saipol as FOB buyers for contamination of sunflower seed oil. The sale contract was for 3,000 MT sunflower seed oil, which was shipped as part of a total cargo of 16,600 MT. Saipol were buyers of all the cargo from 5 different sellers. Before shipment all 5 consignments had been commingled. On discharge it was discovered that the entire cargo was contaminated.

The buyers claimed the difference in value between sound and contaminated cargo, and also consequential losses. Their claim against Saipol related to all 16,600 MT on the basis that each seller was in breach of contract, and each seller had contributed to the contamination of the whole; accordingly each seller was liable for the whole of the losses. The tribunal held:

1     There being no special circumstances, the applicable measure of damages was that laid down in Sale of Goods Act, s 53(3). Buyers were entitled only to the difference between goods as warranted and their actual value.

2     Sellers' liability extended only to the 3,000 MT.

Buyers appealed.

Held:

The appeal was allowed:
1     The tribunal had proceeded on the basis that the only potentially applicable measures were s 53(3) and s 54. The correct starting point was s 53(2). Under 53(2) there can be, depending upon the facts, a claim for consequential losses on the basis that they will arise in the usual course of things.

2     The tribunal had given no proper reasons for rejecting the contention as to joint contribution in breach of contract relating to the contaminated cargo as a whole.

The matter would be remitted to the tribunal to consider, applying the law as it should have been applied.

(Saipol v Inerco Trade [ 2014 ] EWHC 2211)

Authors: Michael Bundock, Senior Associate and professional support lawyer with Stephenson Harwood & Joanne Champkins, Associate specialising in marine insurance with Stephenson Harwood / Publisher: SCMO

Airbus - world’s fleet will double in 20 years

Article published on October 2013 in Legal Eye and reproduced by courtesy of Stephenson Harwood

In its latest Global Market Forecast in September, Airbus predicted that in the next 20 years the world will need to double the size of its aircraft fleet from 17,740 aircraft to 36,560 aircraft, as a consequence of economic growth, and increased air travel by the affluent
middle classes in fast growing markets, such as India and China. Of the new 29,220 passenger and freight aircraft predicted by Airbus to be
required, worth over £2.7 trillion, 10,400 will replace existing jets with more fuel-efficient models, with aircraft sizes increasing to make the best use of limited airport capacity.

With air travel becoming increasingly accessible in all parts of the world, the growth of the travelling middle classes, and increased
urbanisation, tourism and migration in emerging economies, Airbus predicts that by 2032 two thirds of the population in emerging markets will take at least one flight annually.

Airbus is also predicting that by 2032 domestic flights within China will be the world’s largest airline market, outgrowing the US domestic market, and that the wider Asia-Pacific region will account for 34% of the total distance travelled by fare-paying passengers.

Author: Paul Phillips (Partner, Head of aviation litigation and regulation with Stephenson Harwood) / Publisher: SCMO

EU blacklist labelled absurd

Article published on October 2013 in Legal Eye and reproduced by courtesy of Stephenson Harwood

Following the publication of the latest update to the EU blacklist of foreign carriers in July of this year, which removed Philippine Airlines and Venezuelan carrier Conviasa from the list, Tony Tyler, the Director General of IATA, spoke out again about the lack of transparency in the decision-making process followed by the EU in adding and removing airlines or whole countries to or from the EU blacklist.

In June 2013, Tony Tyler called the EU’s list of banned airlines “absurd” when speaking at the IATA Annual General Meeting in Cape Town, South Africa. Of the 20 countries currently subject to a blanket ban on the EU blacklist, 15 of them are African, and Tyler has warned that the EU’s disproportionate focus on Africa has led many observers to conclude that its blacklist is a mercantile policy masquerading as a safety policy. He says “the point that all the African airlines make – and that we certainly agree with – is that if a government isn’t exercising sufficient regulatory oversight on aviation, then that applies equally to air navigation service, ground services and everything else. So if it’s not safe for the African carrier to operate into Europe, then why is it safe for the European carrier to operate to the African country?”

The EU’s disproportionate focus on Africa has led many observers to conclude that its blacklist is a mercantile policy masquerading as
a safety policy.

IATA takes a different approach, it says, to that taken by the European Commission, by working with countries to put in place IATA operational safety audits (IOSAs), and engage with countries and carriers on the implementation of IOSA training programmes, as opposed to penalising under-performing airlines. In calling for greater transparency, Tyler said “There are no clear guidelines on what you have to do to get off the banned list...or, indeed how exactly you got on it. In America, the FAA says you’re Category 2, then it identifies what
particular tests you have failed, or what you’re not doing properly, but in Europe there is no checklist. There are no specifications about what standards they want.”

In a thinly veiled reference to the EU’s unilateral imposition of its own emissions trading scheme on foreign carriers, Tyler said:

“ICAO does its own inspections of the regulatory authorities and helps them lift their game where necessary. But Europe is going off on its own again, as it seems to love doing in this industry.”

Author: Paul Phillips (Partner, Head of aviation litigation and regulation with Stephenson Harwood) / Publisher: SCMO

Holding pattern for EU Airports Package

Article published on October 2013 in Legal Eye and reproduced by courtesy of Stephenson Harwood

The progress of the European Commission’s EU Airports Package, which was published in December 2011 to address issues on slots, ground-handling, and noise, has stalled. The European Parliament has approved all three elements of the package of legislation, with some substantive amendments, at First Reading stage, but the European Council has not.

Slots

The slots proposal was amended and approved at first reading by the European Parliament on 12 December 2012. The Parliament made some changes to the Commission’s original proposal, maintaining the current ratio of the use it or lose it rule at 80:20, and reduced the Commission’s proposal for the qualifying length for a series of slots from 15 to 5 in Summer and 10 to 5 in Winter. The amendments are now with the European Council for consideration. The rumours coming out of Brussels are that the text of the proposed new Slot Regulation is
not agreed and that it is becoming increasingly uncertain whether a new Slot Regulation will be required at all.

One ongoing concern for airlines is that the European Commission and Parliament are resentful that airlines have control of their own slots, and that they (the EU legislature) may reserve the right to tackle the issue of who should own slots at a later date. This issue is of particular concern because airlines have capitalised the value of their slots as assets in their balance sheets, so any indication of an attempt by EU legislators to introduce measures to change slot ownership has to be monitored carefully.

Ground-handling

The proposed increase in the minimum number of ground handling companies given licences to operate at large airports is politically very sensitive, with the German ground-handlers’ unions, particularly at Frankfurt and Munich airports, exerting considerable lobbying pressure on MEPs.

The European Commission proposed an increase in groundhandlers at large airports from 2 to 3 at airports with more than 5 million passengers per annum. The Rapporteur for the TRAN Committee of the European Parliament, Polish MEP, Arthur Zasada, proposed in his working report to the TRAN Committee an increase in groundhandlers from 2 to 4 at qualifying airports. The TRAN Committee rejected this proposal, requiring the Rapporteur to significantly amend his report and find a compromise with the demands of the Employment Committee of the European Parliament. The text that was adopted by the TRAN Committee in March 2013 proposed a smaller increase in groundhandlers from 2-3 only at airports with over 15 million passengers per annum over a 10 year period. The TRAN Committee also proposed more stringent social terms and conditions and protection of employment conditions. These revised recommendations have been narrowly voted through the first reading of the European Parliament, but have not been voted on yet by the European Council – where there are reported to be significant differences of opinion. The timeline for the European Council to vote on this proposed new Regulation is unclear.

Noise

The proposed new noise Regulation is far less controversial than the proposed groundhandling Regulation. The European Parliament agreed on amendments on 12 December 2012 but approval by Council is still pending.

The current EU Lithuanian Presidency did not include the Airports Package in the European Council work plan for its six month Presidency of the EU, which expires in December 2013, which is why progress on the Airports Package has stalled at Council level. The EU Transport Commissioner, Vice President Siim Kallas, wants to have the Airports Package adopted in full, and there has been no move by the European Commission to disaggregate the three component parts of the Package, so the three draft Regulations in their current state look set to stagnate until the Greek Presidency takes over in January 2014.

The Greek Presidency has not yet said whether it is going to prioritise the Airports Package, but if it does, it will face political difficulties in pushing the proposed new groundhandling regulations through. It seems likely that it will not prioritise this package of regulations until after the European Parliament elections have taken place in May next year.

Author: Paul Phillips (Partner, Head of aviation litigation and regulation with Stephenson Harwood) / Publisher: SCMO

Merger creates the world’s largest airline

Article published on October 2013 in Legal Eye and reproduced by courtesy of Stephenson Harwood

The filing of an anti-trust suit by the US Department of Justice back in August to block the merger of American Airlines and US Airways on grounds that it would eliminate competition, reduce route choices, and raise prices, looked as though it would, at worst, completely derail the merger or, at best, delay the process by several months.

The DoJ’s blocking move seemed to represent a seismic shift in its attitude to consolidation in the US airline industry, which it has generally approved in recent years. It was also in stark contrast to the more relaxed stance of the European Commission, which approved the merger in double-quick time, albeit with minor conditions.

US Airways and AMR Corporation, AA’s parent company, that has been in Chapter 11 bankruptcy protection since November 2011, responded aggressively to the DoJ’s announcement, saying it would mount a “strong and vigorous defence” of its plans for the US$11 billion merger. Both US Airways and AA pointed to the advantages of the wave of consolidation over recent years in the US airline industry that has cut the number of large carriers in the US market from eight down to five, and how the reduction in cut-throat competition had enabled the consolidated airlines to operate more profitably and improve services for consumers.

In explaining its position, the DoJ maintained that it had learned important lessons from the 2008 merger of Delta and Northwest Airlines, and the 2010 merger between United and Continental, and were not convinced that the AA – US Airways merger would improve the lot of consumers further. Assistant Attorney General, Bill Baer, said that both US Airways and AA were in a position to be “competitive, aggressive and successful on their own, and that passengers would suffer if the merger was allowed to proceed”. The DoJ focused on how the merger would affect travellers from Washington’s Reagan National Airport, from which the merged airlines would have controlled 63% of nonstop flights, and on the fact that four US airlines would control over 80% of all US commercial flights.

Baer observed “If this merger goes forward, even a small increase in the price of airline tickets, checked bags or flight change fees would result in hundreds of millions of dollars of harm to American consumers.” He did not, however, rule out alternative ideas to a straightforward merger block, in order to preserve competition.

Faced with the prospect of unpicking what would be a very complex merger, which US Airways and AMR Corporation had been planning for over a year, and a costly and time-consuming anti-trust trial scheduled to start on 25 November, settlement negotiations were initiated to try and break the legal deadlock, and the parties agreed to consult a court appointed mediator.

On 12 November 2013, AMR and US Airways announced that they had settled the litigation with the Department of Justice, challenging the merger. Under the terms of the settlement the airlines will divest 52 pairs of slots at Washington Reagan National Airport and 17 pairs of slots at New York LaGuardia Airport, as well as certain gates and related facilities to support services at those airports. The airlines will also divest two gates and related support facilities at Boston Logan International Airport, Chicago O’Hare, Dallas Love Field, Los Angeles International and Miami International airports. The divestitures will take place through a DoJ approval process following the
completion of the merger. As part of the settlement agreement with the Department of Justice, the newly merged airline group has agreed to maintain its hubs in Charlotte, New York (JFK), Los Angeles, Miami, Chicago O’Hare, Philadelphia and Phoenix, in line with its historical operations, for a period of three years. In spite of the enforced divestitures, the new American Airlines Group Inc., as the combined airline will be called, is still expected to generate more than US$1 billion in annual net synergies from the merger, beginning in 2015.

Commenting on the settlement of the litigation and the approval of the merger, Bill Baer said that the airlines’ agreement to divest slots at key airports will allow low-cost carriers to expand and “will disrupt today’s cosy relationships among the incumbent legacy carriers and provide consumers with more choices and more competitive airlines”.

This agreement has the potential to shift the landscape of the airline industry

The settlement was approved by the US Bankruptcy Court on 27 November 2013, and Judge Sean Lane advised that the merger should be completed “without delay”. American Airlines and US Airways were planning to close their merger by 9 December 2013.

The US Attorney General, Eric Holder, commenting on the approved merger said:

“This agreement has the potential to shift the landscape of the airline industry. By guaranteeing a bigger foothold for low-cost carriers at key US airports, this settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country.”

Author: Paul Phillips (Partner, Head of aviation litigation and regulation with Stephenson Harwood) / Publisher: SCMO

Technology to counter future volcanic ash crisis

Article published on October 2013 in Legal Eye and reproduced by courtesy of Stephenson Harwood

Between 15 April and 21 April 2010, Europe experienced an unprecedented closure of its airspace, with over 100,000 flights cancelled, and an estimated 10 million passengers affected over a period of seven days. Airlines based in Northern Europe had all of their aircraft grounded as a result of airport closures, and overall, the European airline industry had 75% of its operations closed at the peak of the ash plume. It was catastrophic.

Three days into the crisis, as European airspace remained closed, several of the major carriers protested that national civil aviation authorities and Eurocontrol were acting too cautiously in maintaining the flight ban. Several airlines conducted their own test flights in the last two days of the crisis, including Air France-KLM and Lufthansa, and found the atmosphere to be clear.

Since the volcanic ash crisis, Airbus and Nicarnica Aviation have been developing technology for the fitting of sensors to aircraft for the detection and the measurement of the density of ash clouds, so that pilots can avoid them.

In an extraordinary experiment conducted on 13 November 2013, a tonne of volcanic ash, collected and dried from the 2010 Eyjafjallajokul eruption by the Institute of Earth Sciences in Iceland, was flown to Toulouse, then carried in an A400M Airbus aircraft and released at between 9,000-11,000 feet over the Bay of Biscay, to simulate conditions consistent with the volcanic ash cloud in 2010. easyJet then flew an Airbus A340-300 fitted with Airborne Volcanic Object Identifier and Detector (AVOID) sensors developed by Nicarnica Aviation towards the ash cloud, and successfully identified the ash from distances of 60 km, as well as accurately measuring its concentration. The tonne of volcanic ash released was apparently measured at 2.8km in diameter and was visible to the naked eye, but quickly dissipated, becoming difficult to identify.

Aircraft fitted with AVOID sensors would be able to feed back information to the ground in any future volcanic ash eruption, giving real time data to enable an accurate picture of the location and size of ash clouds to be built up, as well as their density, which would inform decisions on the ground as to whether airspace needs to be closed.

easyJet is planning to fit several of its aircraft with AVOID sensors by the end of 2014, so that if, and when, the Icelandic volcanoes erupt again, they will be able to argue coherently with national civil aviation authorities in the EU that it is not necessary to impose a blanket no-flight ban and shut down large areas of European airspace.

Author: Paul Phillips (Partner, Head of aviation litigation and regulation with Stephenson Harwood) / Publisher: SCMO