Global Transportation and Insurance Updates

A.         SOLAS UPDATE

The IMO (International Maritime Organization) has amended the SOLAS (Safety of Life at Sea) Convention to require a packed container’s gross weight to be verified before the container can be loaded on board a vessel. This new rule will come into effect on July 1^st, 2016. A container without a verified gross mass (VGM) cannot be loaded on a vessel. Shippers have to submit the VGM to the shipping line who must transmit the information to the terminal operator. The IMO places responsibility on all parties involved for compliance. The IMO Guidelines provide:

13.1 Notwithstanding that the shipper is responsible for obtaining and documenting the verified gross mass of a packed container, situations may occur where a packed container is delivered to a port terminal facility without the shipper having provided the required verified gross mass of the container. Such a container should not be loaded onto the ship until its verified gross mass has been obtained. In order to allow the continued efficient onward movement of such containers, the master or his representative and the terminal representative may obtain the verified gross mass of the packed container on behalf of the shipper. This may be done by weighing the packed container in the terminal or elsewhere. The verified gross mass so obtained should be used in the preparation of the ship loading plan. Whether and how to do this should be agreed between the commercial parties, including the apportionment of the costs involved.

The SOLAS amendment will apply globally. Like other SOLAS provisions, the enforcement of the SOLAS requirements regarding the verified gross mass of packed containers falls within the competence and is the responsibility of the SOLAS Contracting Governments. Contracting Governments acting as port States are to verify compliance with these SOLAS requirements. Any incidence of non-compliance with the SOLAS requirements is enforceable according to national legislation.

B.         UK Supreme Court – “Global Santosh” Decision Handed Down

The Supreme Court handed down its decision on May 11^th, 2016 in NYK Bulkship (Atlantic) NV (Respondent) v Cargill International SA (Appellant) [2016] UKSC 20. By a time charter dated 11 September 2008, on an amended NYPE form, the owners NYK Bulkship (“NYK”) chartered the vessel Global Santosh to charterers Cargill International (“Cargill”) for one time charter trip (“the charter”). Cargill sub-chartered the vessel to Sigma Shipping. The vessel carried a cargo of cement from Slite, Sweden to Port Harcourt, Nigeria, pursuant to a contract of sale between Transclear SA (as sellers) and IBG Investments Ltd, which had the ultimate obligation to discharge the cargo. Transclear had probably sub-chartered the vessel, but whether this was from Sigma or by a more indirect link was not clear. Under that sale contract, IBG was to pay demurrage to Transclear in the event of delay in discharge beyond the agreed laytime in the contract. If that demurrage was unpaid, Transclear was purportedly granted a lien over the cargo.

The vessel arrived at Port Harcourt on 15 October 2008 and tendered notice of readiness. She was instructed to remain at anchorage because of port congestion (caused, at least in part, by the breakdown of IBG’s off-loader). She proceeded to berth on 18 December 2008, but was ordered back to anchorage and arrested on the basis of a Nigerian court order arising from a claim by Transclear to secure a demurrage claim against IBG. This was an obvious mistake, because the order should have directed the arrest of the cargo, not the vessel. Following an agreement between Transclear and IBG, the vessel finally began discharging on 15 January 2009 and completed discharge on 26 January 2009.

Cargill withheld hire for the period of the arrest. It relied on an off-hire clause in the charter, clause 49, which stated that the vessel should be off-hire during any period of detention or arrest by any authority or legal process during the charter, with the proviso “unless such capture or seizure or detention is occasioned by any personal act or omission or default of the Charterers or their agents”. Cargill commenced London arbitration claiming hire, but the arbitrators determined that the proviso in clause 49 did not apply during the period of the arrest. On an appeal, the Commercial Court allowed the appeal, holding that IBG’s failure to discharge within the laydays under its contract of sale with Transclear and to pay demurrage were omissions in the course of discharging, and remitted the question of causation back to the arbitrators. The Court of Appeal dismissed the appeal, on the basis that the delay to the vessel fell within the charterer’ “sphere of responsibility”. Cargill appealed to the Supreme Court.

The Supreme Court allowed Cargill’s appeal by a majority of four to one, holding that the vessel was off hire throughout the period of arrest and that the proviso in clause 49 was not engaged. Lord Sumption gives the lead judgment, with which Lord Neuberger, Lord Mance and Lord Toulson agree. Lord Clarke writes a dissenting judgment, and would have dismissed the appeal and held that the vessel was on hire.

C.         UK Supreme Court – “Res Cogitans” Decision Handed Down

The Supreme Court handed down its decision on May 11^th, 2016 in PST Energy 7 Shipping LLC and another v O W Bunker Malta Limited and another [2016] UKSC 23. In October 2014, PST Energy 7 Shipping LLC and Product Shipping and Trading S.A., the owners and managers of the vessel Res Cogitans, (collectively, the “Owners”) ordered a quantity of marine fuel, (the “bunkers”) from OW Bunker Malta Ltd (“OWB”). The contract between OWB and the Owners provided for payment 60 days after delivery and included a clause under which property was not to pass to the Owners until payment for the bunkers had been made. It also entitled the Owners to use the bunkers for the propulsion of Res Cogitans from the moment of delivery.

OWB obtained the bunkers from its parent company, OW Bunker & Trading A/S (“OWBAS”). OWBAS obtained the bunkers from Rosneft Marines (UK) Ltd (“RMUK”), which obtained them from RN-Bunker Ltd (“RNB”). In November 2014 OWBAS announced that it was applying to the Danish courts for restructuring and subsequently became insolvent. ING Bank NV (“ING”) became the assignee of OWB’s rights against the Owners.

The Owners consumed all of the bunkers in the vessel’s propulsion, without making payment to OWB, which did not make payment to OWBAS, which in turn did not make payment to RMUK. RMUK paid RNB and demanded payment from the Owners, asserting that it remained the owner of the bunkers. The Owners commenced arbitration against OWB and ING, seeking a declaration that they were not bound to pay for the bunkers, or damages for breach of contract, on the grounds that OWB had been unable to pass title to them, owing to the application of s. 2(1) and s.49 of the Sale of Goods Act 1979 (“SoGA”). The arbitrators determined that OWB did not undertake to transfer property in the bunkers to the Owners under the Contract and that the Owners therefore remained liable to pay OWB/ING. Males J agreed and the Court of Appeal dismissed a further appeal by the Owners.

The Supreme Court unanimously dismissed the appeal by the Owners, PST Energy. Lord Mance gave the only judgment, with which the other Justices agreed.

D.        Tokyo District Court Approves Rehabilitation Plan for DCKK

The Tokyo District Court has approved the rehabilitation plan for Japanese bulk-shipper Daiichi Chuo Kisen Kaisha (DCKK). The rehabilitation plan of Star Bulk Carriers, Daiichi Chuo’s wholly owned subsidiary, has also been approved and confirmed by the court. Under the rehabilitation plan, Daiichi Chuo would buy all of the company’s existing shares without consideration. Following the confirmation of the plan, the company would acquire and cancel the shares and issue new shares through which fourteen maritime cluster members would become Daiichi Chuo’s new shareholders.

E.         Greece - Piraeus Court of Appeal - Manager of Vessel Not Liable for Insurance Premium

The management company of a number of vessels arranged insurance cover for them. Premium being due, the insurers sued the managers claiming the premium. The managers contended they were not party to the insurance contract; they were acting on behalf of their principals, who were the shipowners; they alleged this was also clear to the underwriters, who were issuing the payment receipts in the name of the manager, "on behalf of" the owner. Based on this evidence, the court rejected the claim against the manager, considering it was the owners

who were party to the insurance contract and it was them who had to pay the insurance company. Piraeus One Membered Court of Appeal Judgment no 110/2014, Judge: I. Apostolopoulos, Attorneys at law: X. Adamandidis, Al. Konnidas, Maritime Law Review vol. 42, p. 360. NOTE: The manager can assume technical management (maintenance equipment, crewing of vessel) or commercial and technical management (also including chartering, expenses settlement, and any other job related to the vessel). The manager acting within these duties, binds the owner. For the manager to become liable, it should either not declare it acts for the principal – and under circumstances that cannot be inferred – or it should act beyond the scope of its powers.

[This legal column was written by Manolis Eglezos, Attorney at law, Manolis Eglezos & Associates Law Firm Attorneys at Law and Consultants, www.eglezoslaw.gr]