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11 January 2013 LMLN 864

CASES ENGLAND

(2013) 864 LMLN 1

Carriage of goods by sea Cargo damage Deterioration

in cargo following delay caused by engine breakdown

Whether vessel unseaworthy at commencement of voyage

Whether shipowners failed to exercise due diligence

Whether breach of obligation to proceed with all

convenient speed Quantum of damages

CHS Inc Iberica SL and Another v Far East Marine SA (TheDevon) QBD (Comm Ct) (Cooke J) [2012] EWHC 3747(Comm) 21 December 2012

The claimant cargo interests were the owners o a consignmento corn carried by the deendant shipowners on the vessel Devonrom Varna, Bulgaria to Tarragona, Spain. The contract ocarriage incorporated the Hague Rules. On 23 December 2010the vessel suered a main engine breakdown less than three hoursater sailing rom Varna and she was towed back the next day. Thenecessary repairs were not completed until 10 February 2011,and the vessel did not arrive at Tarragona until 20 February. As aresult o the delay, some o the cargo arrived caked and mouldy.

The breakdown report signed by the chie engineer stated:

At about 1950 o 23 December notice luboil hightemperature. The automation energized with indicationhigh luboil temperature. Bridge inormed immediatelyor this abnormality. Ater a very short time period theautomation energized again with indication rom oilmist detector rom no 4 unit. As you understand thiscondition enabled me to act quickly to stop the mainengine but during my way to control panel the mainengine tripped through automation with indication omain bearing high temperature.

On inspection at Varna, the crankshat journals and mainbearings 2, 3 and 4 were ound severely damaged. It was agreedby the experts that the damage began in way o bearing 4.

The claimants expert considered that the damage to thebearings and crankshat was caused by the breakdown o the luboil

viscosity caused by increased temperature in the luboil as a resulto the ailure o the saltwater (SW) cooling system adequatelyto cool the resh water in the resh water (FW) system which inturn was designed to cool the luboil used in the main engine. Theailure in the SW system was the result either o the blockage onthe salt water side o the Low Temperature Fresh Water cooler (theLT FW cooler) either by marine growth or by partial or ull closureo a valve in the system or by blockage in a strainer preventing thecooling medium rom cooling the volume o resh water to thecorrect temperature (or a combination o those deects).

The claimants said that the breakdown was attributableto unseaworthiness at the commencement o the voyage byreason o: (1) the poor condition o the engine lubricationand lubrication cooling systems; and (2) the lack o adequatesystems to ensure that (a) the temperature o the engine lube

oil was properly regulated, (b) the cooling system did notbecome blocked, and (c) the engine was adequately lubricated.

The claimants also said that the deendants ailed to exercisedue diligence within the meaning o the Hague Rules, and thatthere was a ailure to proceed on the voyage with all convenientspeed as required by the contract o carriage.

The deendants expert could not provide a denitive cause othe incident and considered that latent deect was a possibility.

As to quantum, the extent o the damage and its eect on thevalue o the cargo was disputed. The claimants arranged or asalvage sale o 3,020 mt o the total cargo o 14,353.50 mt.The deendants said that the damaged cargo should have beenmixed with sound cargo and sold without any diminution inprice. They also disputed various incidental expenses incurred

by the claimants in investigating the eect o the delay on thecargo and in eecting the sale.

Held, that as to unseaworthiness, the deendants could oer noreason or the ailure o the lubrication system. No claim hadbeen made in general average and no evidence had been adducedrom anyone on board the vessel at the time o the incident, norrom any expert who attended at Varna to investigate the cause.The record in the chie engineers report and in the logs, (whichcontained less inormation than that report) were the only basisupon which the experts could express their views, together withthe descriptions o the damage suered and the repairs done atVarna. The absence o any oral evidence rom the chie engineer,whose comments were relayed as hearsay was not a satisactorybasis upon which to proceed. Although it was said that he was

no longer in the employment o the deendants that was nota satisactory reason or the ailure to call him or either o theother two engineers or the oiler who worked on the vessel at thetime. No reason was advanced or the absence o any evidencerom the surveyors who inspected the ship in Varna.

Nor was the court satised that the deendants had disclosed alldocuments in their control relating to the cause o the damage.The inerence was that the cause or possible causes discussed werecauses which the deendants wished to hide because they werecauses which would not have assisted them in their dispute withthe claimants. They must have involved some unseaworthinesso the vessel at the commencement o the voyage rom Varna.

A latent deect leading to premature bearing ailure was notthe cause o the main engine breakdown because there was nomechanism to explain it. In the circumstances, the claimants

experts explanation best tted the evidence, when thetemperature rise o the luboil was only explicable by reerenceto a ailing in the LT FW cooling system, caused by a problemblockage o some kind in the SW side o that system.

Accordingly, the vessel was unseaworthy at the commencemento the voyage by reason o the condition o the SW cooling systemand its dirty and partially blocked state, which led to a ailure inthe LT FW cooling system which maniested itsel within threehours o sailing rom Varna in the orm o high temperaturesin the luboil or the main engine. Moreover, the deendants hadno system in place or the proper monitoring o temperatures inthe engine luboil or pressures in the SW system. Inspection inthe three hours preceding the incident should have revealed thedeveloping problem which maniested itsel on the sounding othe luboil alarm. The vessel was unseaworthy by virtue o that

lack o system also, which meant that the cooling system wasprone to ail and the luboil to heat.

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GmbH, another German company, with the task o organisingand providing the transport o the installation rom Antwerp,Belgium, to Mexico. Samskip issued a bill o lading designatingKrones as the shipper and the recipient as the consignee. Thebill o lading contained a jurisdiction clause providing that anydispute was to be decided in Iceland according to Icelandic law.

The consignment was damaged during the carriage andthe recipient brought proceedings against Samskip beore theBelgian courts. The Antwerp Court o Appeal declared itsel

to have no authority to hear and decide the case. It heldthat the recipient was not entitled to bring proceedings onthe basis o the contract o carriage. The recipient was boundby the jurisdiction clause contained in the bill o lading. The

judgment also stated that the Icelandic courts had exclusivejurisdiction, and or that reason the Belgian courts had noauthority to hear the case. That judgment had become nal.

Krones (and the insurers to whom Krones had assigned itsclaims) subsequently brought proceedings or compensationagainst Samskip beore the German courts. Samskip submittedthat the actions were inadmissible inasmuch as the judgmento the Antwerp Court o Appeal produced legal eects notonly as regards the Belgian courts lack o jurisdiction but alsoas regards the nding that jurisdiction lay with the Icelandiccourts. Samskip said that the judgment had binding eect on

the German court in accordance with articles 32 and 33 oCouncil Regulation (EC) No 44/2001.

Krones and the insurers submitted that the binding eect othe Antwerp Court o Appeals judgment was conned to thatpart o the judgment which ound that the Belgian courts hadno jurisdiction. It did not extend so ar as to mean that, as aresult o the asserted jurisdiction o the Icelandic courts, courtso member states other than Belgium had no jurisdiction.

The German court regarded the judgment o the AntwerpCourt o Appeal as a procedural matter. Procedural judgmentswere not generally regarded by the German courts as beingcapable o recognition. It thereore reerred questions to theECJ or preliminary rulings: (1) as to whether article 32 oRegulation (EC) No 44/2001 covered a judgment by which acourt o a member state declined jurisdiction on the basis o a

jurisdiction clause, even though that judgment was classied asa procedural judgment by the law o another member state;and (2) as to whether articles 32 and 33 meant that the court,beore which recognition was sought o a judgment by which acourt o another member state had declined jurisdiction on thebasis o a jurisdiction clause, was bound by the nding (made ina judgment, which had since become nal, declaring the actioninadmissible) regarding the validity o that clause.

Held, that the principle o mutual trust would be underminedi a court o a member state could reuse to recognise a

judgment by which a court o another member state declinedjurisdiction on the basis o a jurisdiction clause. A restrictiveinterpretation o the concept o judgment would give rise toa category o judicial decisions which were not among the

exhaustively-listed exceptions set out in articles 34 and 35 oRegulation (EC) No 44/2001, which could not be categorisedas judgments or the purposes o article 32 and whichthe courts o other member states would accordingly not beobliged to recognise. Such a category o decisions, includingin particular those by which a court in another memberstate declined jurisdiction on the basis o a jurisdictionclause, would be incompatible with the system established byarticles 33 to 35, which avoured the unimpeded recognitiono judgments and ruled out the possibility o review o the

jurisdiction o the court o the member state o origin by thecourts o the member state in which recognition was sought.Accordingly, article 32 also covered a judgment by which thecourt o a member state declined jurisdiction on the basis oa jurisdiction clause, irrespective o how that judgment was

categorised under the law o another member state.A judgment by which a court o a member state had declined

jurisdiction on the basis o a jurisdiction clause, on the groundthat that clause was valid, bound the courts o the other

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There was no evidence o any system or inspection otemperature and pressure gauges or monitoring o themin watchkeeping duties. The system was to rely on alarmssounding beore investigating a problem. Had there beenany monitoring o the pressure gauge at the SW pump ormonitoring o the ecacy o the ballast pump, it would haverevealed a change in pressure i there was a blockage in theSW line. There was a ailure to institute a system to monitorsuch matters which contributed to the casualty. The same

eature that constituted unseaworthiness also constitutedlack o due diligence in that respect. The blockage in the SWsystem should have been discovered at Varna.

Accordingly, no deence was available to the deendantsbased on article IV rule 1 o the Hague Rules. As there wasunseaworthiness at the commencement o the voyage, neitherarticle IV rule 2 (p) (latent deect not discoverable by due diligence)nor (q) (any other cause arising without the actual ault or privityo the carrier, or without the ault or neglect o the agents orservants o the carrier) could assist the deendants either.

There was no separate breach o the obligation to proceed withall convenient speed. The cause o the delayed voyage was thebreakdown o the vessel which resulted rom her unseaworthiness.Any ailure to proceed with all convenient speed could only ariseat the point where the incident occurred. It was hard to see how

there could be such a ailure simply by virtue o the total lengtho the voyage when the reason or the delay was the incident itselwhich was caused by a breach o the Hague Rules seaworthinessobligation. There could not be a separate breach o the obligationto proceed with convenient speed, when the vessel could notproceed at all as a result o an earlier breach.

As to quantum, the deendants submissions in relationto the partially damaged cargo were unreal and wouldbe rejected. The experts had agreed that the cargo haddeteriorated as a result o the delayed voyage. It was clearthat 3,020 mt o cargo had been sold at a lower price than thesound arrived value o the cargo. On the evidence, that saleprice properly refected the value o the damaged cargo.

The claimants were also entitled to damages in respect o:(1) additional stevedoring costs and warehouse costs, (2) loss

adjusters charges or the salvage sale, (3) surveyors charges,and (4) Spanish Lawyers ees or arresting the vessel in orderto obtain security or the claim. The deendants submission, inreliance on The Ocean Dynamic [1982] 2 Lloyds Rep 88, thatthose were irrecoverable in principle, as the costs o oreignproceedings, would be rejected. The proceedings in the presentcase were or security purposes and would all to be decidedalongside liability issues in the substantive proceedings, unlikethe protective writ with which The Ocean Dynamic was concerned.

Judgment or the claimants accordingly.

David Walsh (Hill Dickinson) for the claimants; Adam Turner

(Reed Smith) for the defendants.

(2013) 864 LMLN 2

Practice Judgment Recognition Carriage of goods

Exclusive Iceland jurisdiction clause in bill of lading

Whether courts of one member state bound to recognise

judgment of another member state determining that clause

conferred exclusive jurisdiction on non-member state

Whether relevant that judgment was procedural in nature

Council Regulation (EC) No 44/2001, articles 32 and 33

Krones AG and Others v Samskip GmbH ECJ Case No

C-456/11 15 November 2012

Krones AG, a German company, sold a brewing installation to aMexican undertaking (the recipient). Krones charged Samskip

CASES EUROPEAN COURTOF JUSTICE

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member states both as regards that courts decision to declinejurisdiction, contained in the operative part o the judgment,and as regards the nding on the validity o that clause,contained in the ratio decidendi which provided the necessaryunderpinning or that operative part. Accordingly, articles 32and 33 meant that the court beore which recognition wassought o a judgment by which a court o another memberstate had declined jurisdiction on the basis o a jurisdictionclause was bound by the nding (made in the grounds o a

judgment, which had since become nal, declaring the actioninadmissible) regarding the validity o that clause.

(2013) 864 LMLN 3

Company law Winding up Charterers asserting right

to wind up shipowning company for failure to pay

charterparty freight Whether shipowners entitled to

declaration and injunction restraining charterers from

presenting winding-up application

SE Shipping Lines Pte Ltd v Austral Asia Line Pte Ltd (The AAL

Shanghai) High Court (Choo Han Tek J) [2012] SGHC 220 30 October 2012

The plainti chartered the vessel AAL Shanghai rom thedeendant. The charterparty was entered into to allow theplainti to transport cargoes rom South Korea and Chinato Brazil, under a contract between the plainti and SuzlonEnergy Limited (SEL). SEL was the owner o the cargo, and theconsignee was Suzlon Energy Eolica do Brasil Ltda (SEEBL).

The plainti ailed to pay reight under the charterparty, andthe deendant exercised its lien over the cargo onboard AALShanghai. It also commenced proceedings against SEL and SEEBLin Brazil, and issued a notice o arbitration against the plainti.

By letter o 12 June 2012 the deendants solicitorsdemanded that the plainti pay all the outstanding reight in a

sum in excess o US$2 million, and threatened to wind up theplainti i payment was not made within 21 days.

The reight remained unpaid, and the deendant claimedthe right to commence winding-up proceedings against theplainti pursuant to section 254(1)(e) and 254(2)(a) o theCompanies Act.

The plainti now applied by originating summons or adeclaration that any application by the deendant to wind upthe plainti would amount to an abuse o the process o thecourt, and or an injunction preventing the deendant lingany application to wind up the plainti.

Held, that an injunction would be granted i the debtor was ableto show that it was likely that a winding-up order would not bemade i a winding-up petition was presented (Metalform Asia

Pte Ltd v Holland Leedon Pte Ltd[2007] 2 SLR(R) 268). This washardly such a case. The plainti had raised a host o objections towinding-up proceedings by the deendant, including the act thatdeendant had obtained security or its claim because SEEBL hadpaid a sum o US$ 2,547,440 into the Brazilian court, and thathaving sued in Brazil and commenced arbitration, the deendantwould be abusing the process o court i it were allowed to presenta winding-up petition in Singapore. However, the contract underwhich the present debt had arisen was the charterparty betweenplainti and the deendant. That was entirely separate rom thecarriage contract between the plainti and SEL. Further, theBrazilian proceedings concerned SEL and SEEBL, not the plainti,and the arbitration proceedings related to separate claims. Theplainti could not piggyback on the security SEEBL paid into theBrazilian court as it related to a separate claim against a dierent

party in proceedings which the plainti was not part o.The plainti had also claimed that it had cross-claims against

the deendant arising rom the latters alleged unlawul exerciseo its lien over the cargo on board AAL Shanghai. In cross-claim

cases, the court would incline towards granting an injunctioni there was a distinct possibility that the genuine cross-claimmight exceed the undisputed debt. However, the case that theplainti had sought to make out was not only unclear, butreasonably disputed. The charterparty between the plainti andthe deendant expressly entitled the deendant to exercise a lien onall cargo or any amount due under the contract and the costs orecovering the same. The plainti had also ailed to show that itscross-claim exceeded the value o the deendants claim or reight.A debtor asserting a genuine and substantial cross-claim had todo more than merely assert the act that a cross-claim existed,and the court was entitled to reject evidence i it was inherentlyimplausible, contradicted or unsupported by the documents.

In the circumstances, no reasonable court would declarethat the deendant would be abusing the process o court i itwere allowed to proceed with the winding-up proceedings. Theplainti was entitled to challenge the winding-up petition andit lay in the jurisdiction o the winding-up court to determinewhether there was any merit in the petition, and urther,whether the petition was an abuse o the process o court. Nocourt would grant an order preventing a party rom seekingredress, whether by writ or petition, unless the evidence wasclear and incontrovertible.

Accordingly, the plainti s application would be dismissed.

Govindarajalu Asokan (RHTLaw Taylor Wessing LLP) for the

plaintiff; Kenneth Tan SC, Bazul Ashhab bin Abdul Kader, Mabel

Leong Qing Jing and Ang Kai Li (Oon & Bazul LLP) for the defendant.

(2013) 864 LMLN 4

Carriage of goods by sea Cargo damaged by improper

stowage US COGSA Hague-Visby Rules Whether vessel

a COGSA carrier Whether owners entitled to rely on

free-in-and-out provision in voyage charterparty

Man Ferrostaal Inc v M/V Akili US Court of Appeals (2nd

Circuit) (Winter, Katzmann and Lynch Ct JJ) 6 December 2012

Ferrostaal purchased a quantity o thin-walled steel pipes inChina or resale to an American company. Ferrostaal ar rangedor the pipes to be shipped to New Orleans on board thevessel Akili. Akili had been time-chartered to head charterersunder a charterparty providing that all bills o lading wouldincorporate a clause paramount designating the US Carriageo Goods by Sea Act (COGSA) as the controlling law.

The head charterers sub-chartered the vessel to SeyangShipping Ltd, who sub-chartered her to S M China or the voyagerom Shanghai to Houston and then to New Orleans. Prior tochartering the vessel rom Seyang, S M China had executed a

part-cargo charter (the voyage charterparty) with Ferrostaalor the carriage o the thin-walled pipes rom Shanghai to NewOrleans. The voyage charterparty did not identiy the vessel onwhich the cargo was to be shipped, stating that the ship wasTBN [to be nominated] by S M China.

The voyage charterparty placed responsibility or loss causedby improper or negligent stowage, or discharge or care orthe goods on the Owners o the vessel. It urther speciedthat stowage is to be under the Masters supervision andresponsibility as Owners agent. The Owner was dened as S MChina. It also contained a ree-in-and-out provision that statedthat handling o the cargo was to be ree o risk to the vessel.The voyage charterparty also contained a clause paramount thatstated Notwithstanding any other provisions in this contract,any claims or loss or damage to cargo shall be governed by the

Hague-Visby rules as i comprehensively applicable by law.A bill o lading was issued by agents o S M China to Zhongqing,

the shipper, and was then transerred to Ferrostaal throughbanking channels pursuant to the cash against documents

CASES SINGAPORE

CASES UNITED STATES

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term o the purchase order. The bill o lading contained a clauseparamount that incorporated the Hague Rules.

The pipes were carried rom China to New Orleans onboardAkili. Upon arrival in New Orleans it was discovered that thethin-walled pipes had been placed at the bottom o a cargohold and damaged when heavier pipes were placed on top. Itcost Ferrostaal US$286,078 to have the pipes repaired.

Ferrostaal led an action in rem againstAkili and in personamagainst the shipowners and also against SM China. The district

court held that Akili was liable in rem or the damage to thecargo but dismissed the claims or in personam liability.

The owners appealed. They submitted that the district courterred in holding that COGSA applied to Akili as a carrier,and that because a vessel was not a carrier under COGSA,Akili could not be liable in rem or damage to the cargo.They also submitted that the ree-in-and-out provision othe voyage charterparty relieved the vessel o liability orimproper stowage.

Held, that COGSA set out the obligations o carriersinvolved in the shipment o goods into the United States rominternational ports. It required ocean carriers to properlyand careully load, handle, stow, carry, keep, care or, anddischarge the goods carried (section 3(2)), and prevented

carriers rom contracting out o those obligations (section3(8)). COGSA dened a carrier to mean the owner,manager, charterer, agent, or master o a vessel, includingthe owner or the charterer who enters into a contract ocarriage with a shipper.

The owners had submitted that because a vessel wasnot a carrier under COGSA, Akili could not be liable in remor the cargo damage. That submission would be rejected.COGSA assumed the existence o the in rem proceeding ratherthan creating it. Section 3, the crux o the Act, set out dutiesapplicable only to carriers but it was entitled Responsibilitiesand Liabilities o Carrier and Ship (emphasis added). The verytitle o section 3 thus assumed that maritime law suppliedin rem liability coextensive with carrier liability. Well beoreenactment o COGSA and its predecessor, the Harter Act,

maritime law held ships liable in rem or cargo damage dueto improper stowage. In rem liability was derived rom a pre-COGSA maritime law doctrine to the eect that, once the cargowas aboard a vessel, the vessel was deemed to have impliedlyratied the underlying contract o areightment and wasanswerable or non-perormance. By setting sail with the cargoonboard, Akili impliedly ratied the contract o areightmentbetween S M China and Ferrostaal. As between S M Chinaand Ferrostaal, the contract o areightment was the voyagecharterparty rather than the bill o lading. A carrier might notalter its contractual obligations to a shipper under a voyagecharterparty by issuing a bill o lading in dierent terms (AsomaCorporation v SK Shipping Co 467 F.3d 817 (2d Cir 2006)).

Accordingly, even i a vessel was not a car rier withinthe meaning o COGSA, maritime law rendered vessels liable

in rem or a carriers violations o its obligations. Thereore,while COGSA, i applicable, might aect or alter a carriersobligations and thereby determine the outcome o an in remproceeding against a carriers vessel, the in rem remedy was acreature o maritime law, not COGSA.

The court would also reject the owners argument thatthe ree-in-and-out provision o the voyage charterpartyrelieved the vessel o liability or improper stowage. COGSAand its predecessor, the Harter Act, were meant to modiy,not displace, in rem liability under maritime law. A principalmodication was to prohibit carriers rom contracting out otheir obligations under maritime law and out o their vesselsexposure to in rem liability (section 3(8)).

COGSA, thereore, prevented international ocean carriersrom contracting out o certain specied obligations, including

the obligation to stow cargo properly. Those obligations weredeemed as a matter o law to be incorporated by reerenceinto every bill o lading where COGSA applied. The Hague-Visby Convention set out an identical rule (article III, rule

8), and the parties in the present case had incorporatedthe Convention and its rules into the clauses paramount othe voyage charterparty and the bill o lading. I COGSAapplied as a matter o law, the ree-in-and-out provision wasunenorceable insoar as it was a waiver o in rem liability. Ithe cargo damage rules o Hague-Visby applied as a matter ocontract, the same result was reached.

Although COGSA did not specically mention a distinctionbetween public and private carriage, most American courts,

including the district court in the present case, determined theapplicability o COGSA depending on whether the vessel wasengaged in public, ie multiple cargoes and shippers, or private,ie a single cargo and shipper (cNichimen Co v MV Farland462F.2d 319 (2nd Cir 1972)).

In Tradearbed Inc v Western Bulk Carriers K/S374 Fed Appx464 (5th Cir 2010) the court instead treated the applicabilityo COGSA as turning on which document charterparty or billo lading governed relations between the litigants. Based onthe governing instrument standard, the owners had arguedthat COGSA did not apply because the bill o lading in thepresent case was only a receipt, and the voyage charterparty

with its ree-in-and-out provision was the governinginstrument. A bill o lading issued under a charterparty wasonly a receipt when it remained in the hands o the shipper-

charterer. In such a case, the charterparty continued togovern relations between the parties.

The adoption o the public/private carriage or thegoverning instrument interpretation o the applicabilityo COGSA might well aect the outcome o the present case.However, the court did not need to resolve the various issuesraised because the voyage charterpartys clause paramountincorporated the Hague-Visby Rules. Even i COGSA did notapply, the voyage charterparty provided rules regarding theimpermissibility o a waiver o in rem liability.

In maritime law a clause paramount identied the law thatwould govern the rights and liabilities o all parties to the billo lading (Sompo Japan Insurance Co of America v Union Pac RRCo 456 F.3d 54 (2d Cir 2006)), and thereore superseded theree-in-and-out provision (Asomo Corporation v M/V Seadaniel

971 F.Supp 140 (SDNY 1997)). The clause paramountthereore incorporated Hague-Visbys prohibitions on waiverso in rem liability into the voyage charterparty (Koppers ConnCoke Co v McWilliams Blue Line Inc 89 F.2d 865 (2d Cir 1937)).Accordingly to the extent that the ree-in-and out provisionmight relieve Akili o liability or improper stowage it was ono eect because it was prohibited by Hague-Visby.

The district courts judgment would be armed.

Vincent M Deorchis, Deorchis & Partners LLP, New York, for the

owners; Steven P Calkins, Kingsley Kingsley & Calkins, Hicksville

NY, for Ferrostaal.