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Simon Church of TM Law discusses a recent Aviation decision regarding rights and responsibilities in connection with the payment of airfreight.

SCHENKER LTD v NEGOCIOS EUROPA LTD (2017); QBD (Merc) (Moulder J)

In a Mercantile Court decision handed down this month, the English High Court has finally considered whether the age old common law rule in English shipping law that cargo interests have no right to set their claims against carriers off against sums due in freight should be applicable to contracts for carriage by air.

In this case the Defendant cargo interests employed the services of the Claimant, Schenker Ltd for the carriage of a cargo of chia seeds from Bolivia to Japan by air.

The Defendant claimed loss or damage arising from delay to the delivery of the cargo and withheld freight due under the Claimant’s invoice on account of its own claims. The Claimant responded by issuing proceedings in the Mercantile Court in London and applied for summary judgment on its US$58,000 claim, but this was refused by the Court on the grounds that the decision would create a new precedent and the Court decided the question should instead be dealt with as a preliminary issue.

At the hearing the Claimant sought to persuade the Court that cargo interests could make no deductions from airfreight on the following principal grounds;

  1.  That the common law rule applicable to contracts for carriage of goods by sea that there was no right of set-off against freight, was, as a matter of industry practice, assumed to apply to carriage of goods by air. Expert evidence to this effect was adduced by the Claimant in the form of a report from a specialised insurance broker. The Claimant’s expert also advised that if this understanding was contradicted by a decision of the Court this would only serve to disrupt the existing basis for contractual allocation of risk between parties to multi-modal freight contracts with the attendant uncertainties this would introduce.
  2. It had already been determined that the common law rule applicable to contracts of carriage of goods by sea was applicable to contracts of carriage by road in RH&D International Ltd v IAS Animal Air Services Ltd [1984] 1 W.L.R. 573 and United Carriers Ltd v Heritage Food Group (UK) Ltd [1996] 1 W.L.R. 371.
  3. Although there was no English authority directly on point, the Hong Kong cases of Emery Air Freight Corp v Equus Tricots Ltd [1989] 2 H.K.L.R. 554 and RAF Forwarding (HK) Ltd v Angela (t/a JMT Co) [unreported] had established that, since no logical distinction could be drawn between carriage of goods by different modes of transport, it was appropriate to apply the established common law freight rule to air freight.

In his Judgment, Moulder J held that decisions such as those in Henriksens Rederi A/S v Centrala Handlu Zagranicznego (CHZ) Rolimpex (The Brede) [1974] Q.B. 233 and Aries Tanker Corp v Total Transport Ltd (The Aries) [1977] 1 W.L.R. 185 confirmed the principal accepted for over 100 years that there should be no right of set-off against freight. In the United Carriers decision on the rule applicable to road haulage contracts the Judge had assumed that the same rule would apply to air freight. Whilst neither this obiter assumption nor the decisions of the Hong Kong courts were binding they were persuasive and it would be anomalous to treat contracts for carriage by air differently. The common law rule that claims cannot be off-set against freight was equally applicable to freight due under contracts of carriage by air.

For further discussion of the issues arising out of this decision please contact the author or Hamish Cotton of the Thomas Miller Law Sydney office.

Simon Church – Solicitor

+44 (0)1752 226020

simon.church@tmlawltd.com

Hamish Cotton – Aviation & Marine Lawyer

+61 (0)2 8262 5850

hamish.cotton@tmlawltd.com

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TM Law’s Alexis Cahalan looks at the real and potential impact of cyber risks on the transport and logistics sectors, and offers some guidance to operators on how to protect themselves.

Thomas Miller Law is a proud partner of the Freight & Trade Alliance (FTA) in Australia. This article appears in the latest edition of FTA’s quarterly publication, “Across Borders”.

The Case for Cyber Risk Management

Businesses will be used to ensuring workplace, health and safety and regulatory compliance and safeguarding against physical threats such as theft.  Processes to guard against such events are somewhat more identifiable where the risks are tangible and visible.  However, one of the biggest issues now facing business is how to deal with the almost unseen risks which arise when data breaches occur but which have quite tangible consequences. Proper cyber security risk analysis and developing a cyber risk management process should now be considered a key feature of good business management.

The reality of cyber risks

A number of high profile companies have already fallen prey to cyber attacks. In August 2016, the Australia Bureau of Statistics Census Program was hacked and the extent of the data compromised largely unknown.  In October 2016, the Red Cross Blood Bank’s donor records were infiltrated and donors’ sensitive personal information was leaked. Closer to the logistics sector, in June 2017, AP Moller –Maersk, the world’s biggest carrier of seaborne freight carrying about 15% of all global trade by containers, fell victim to a massive cyber attack known as Petya.  It was believed to have been a ransomware attack where payments are extorted to restore data.  It is estimated that the financial losses incurred by Maersk as a result of the incident could be in the region of US$300 million.

The Maersk situation was the result of an untargeted attack and other companies and government institutions were similarly affected.  The threat of targeted attacks is also very real. In the recent decision in the English Court of Appeal, MSC Mediterranean Shipping Co SA v Glencore International AG [2017 EWCA Civ 365] the susceptibility of targeted cyber attack in cargo handling procedures was highlighted.  In that case three containers of cobalt briquettes were shipped from Freemantle to Antwerp where they were discharged according to an electronic release system (ERS) which had developed over some years.  Rather than paper delivery orders being presented against bills of lading, the ERS enabled consignees or their agents to present electronic pin codes to obtain the release of the containers.

When the legitimate recipients of the pin code arrived to collect the containers, only one remained.  It is not entirely clear how the remaining two containers were misappropriated, however, it was “tolerably clear” to the Court of Appeal that the pin codes had been accessed due to cybercrime.  One of the defences the carrier sought to rely upon was that the chain of causation had been broken due to the shipping agent’s email accounts being hacked. However, there was insufficient evidence to show how the thieves had accessed the pin codes either of the shipper or their agents or MSC’s operating systems. The Glencore case serves as a reminder that where electronic releases can influence the delivery of cargo, access to the system must be monitored as well as the conduct of the persons who have  access to those systems.

Cyber risk business check list

It is becoming increasingly important for businesses to create a culture of cyber responsibility and to develop processes to detect and respond to cyber breaches. Some aspects which your business can consider when reviewing its cyber risk profile are:

Not unlike the emergency response procedure which will apply when the physical environment of a business is out of action, develop of data risk response plan and nominate the person or group who can make immediate decisions when communication systems may be down. Take heed of the advice from the CEO of AP Moller-Maersk, Soren Skou whose reflection on  lessons learned in the aftermath of the attack was “ isolate an attack quicker and restore systems quicker “;

The effect of a fast response may disrupt operations and obligations to customers.  Consider whether cyber insurance will provide some financial support to limit financial losses to the business caused by the disruption and the inevitable rescheduling of services. Insurance may also assist with engaging public relations consultants to curtail potential reputational fallout;

Where you are providing a service, is this subject to your terms and conditions and do the terms and conditions limit liability for incidents caused beyond your control and limit liability to your customers for consequential losses arising from cyber incidents? Do they at least endeavour to allocate the risk appropriately between your business and your customer or other service providers?  For example, incorporate indemnities where your own suppliers or customers may be responsible for or fail to  mitigate a cyber incident;

Require and monitor your sub- contractors’ compliance with data protection storage, backup and recovery requirements and where applicable privacy and data protection laws. As a result of the new legislated mandatory data notification requirements which will come into effect on 23 February 2018, require your suppliers to notify your business in the event of a safety breach on their part;

Consider if you have sufficient internal resources to deal with a significant cyber incident and if not identify external service providers you may be able to rely upon;

Review third parties who may have access to your businesses systems and customers and the vulnerability to the release of data such as occurred in the Glencore case;

Encourage a culture of cyber risk awareness and integrate general risk management procedures , reviews and risk assessments into the planning of the business;

Cyber risk is no longer something which will require a response just from the “IT group”. It is a responsibility across the whole organisation and can be made so by driving the cyber psyche from management down to all levels of the business.  This means that consideration of and responses to cyber risk should be considered at board level and security related policies and procedures implemented throughout the business. This will also be important should it be necessary to prove that all has been done within a business to ensure the integrity of customer information. In the event of a claim, well thought out procedures could be a significant defence;

By being mindful of cyber risk, identifying vulnerabilities, considering effective responses and implementing procedures this will be positive steps towards positioning your business to be ready to respond to the increasing reality of cyber risks.

Author: Alexis Cahalan, Principal Lawyer

+612 (0)2 8262 5851

alexis.cahalan@tmlawltd.com

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On 8 September 2017 the Australian Maritime Safety Authority (AMSA) received a complaint that the bulk carrier DL Carnation had been underpaying its crew. Upon further investigation it was discovered that the vessel was keeping two sets of wage accounts and had been disguising the underpayment of crew in excess of US$17,000. The vessel was immediately detained for breach of Title 2, Regulation 2.2 of the Maritime Labour Convention 2006 (MLC) and released on 14 September following confirmation that the outstanding wages had been paid.

AMSA subsequently issued the vessel with a notice banning the vessel from entering or using any Australian port for 12 months.

This ban follows several other instances at Australian ports recently including the ban of the bulk carrier Rena and the issuance of deficiency notices on the bulk carrier Maratha Paramount. Both cases involved breaches in relation to unpaid crew wages and safe workplace obligations.

In Australia the MLC has been implemented through section 12 (ca) of the Navigation Act 2012 (Cth) and associated delegated legislation, such as Marine Order 11 (Living and working conditions on vessels) 2015. In accordance with Title 5, Regulation 5.1.3 of the MLC, all members must ensure that ships carry a Maritime labour certificate and declaration of maritime labour compliance.

The strong stance taken by AMSA in relation to crew welfare and compliance with national and international law follows, among other things, the Coronial Inquest in relation to the Sage Sagittarius as well the banning of the coal carrier Five Stars Fujian in mid-2016 for deficiencies in relation to wages and food supply.

AMSA’s position is reflected not only in relation to the MLC but by the other international conventions to which Australia is a party. AMSA is charged with the enforcement of the following conventions that have been adopted by Australian law.

  • International Convention for the Safety of Life at Sea (SOLAS), International Convention for the Safety of Life at Sea (SOLAS),
  • International Convention for the Prevention of Pollution from Ships (MARPOL),
  • International Convention on Load Lines (CLL), and the
  • International Convention on the Standards of Training, Certification and Watchkeeping for Seafarers (STCW).

As stated by AMSA’s General Manager of Operations, Allan Schwartz:

“Shipping companies should be aware that AMSA has the power to ban entire fleets if we uncover systemic issues within an operation and will not hesitate to do so where deliberate non-compliance is uncovered”.

For more information on Australian shipping regulations please contact the author or the Thomas Miller Law Sydney office.

Author: Alistair Sullivan

+612 8262 5859

alistair.sullivan@tmlawltd.com

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The United Nations Commission on International Trade Law’s model law on Cross-Border Insolvency (Model Law) aims to maximise the assets available to creditors of an insolvent company where those assets, and creditors, span across the globe. It is the goal of protecting creditors’ rights across jurisdictions that has naturally led the Model Law to collide with the law of the maritime lien – a right that attaches to the ship like a barnacle at the moment the relevant circumstances occur. This article attempts to make some sense of the relationship between the Model Law and the maritime lien.

 

Introduction

It might seem like a simple enough question to ask, but the area where cross-border insolvency law and the ancient legal right provided by a maritime lien interacts is far from simple. Indeed, the international issue continues to perplex well-versed maritime and insolvency lawyers. While the implementation of the Model Law in Singapore should be seen as a step in the right direction, joining the likes of Australia, the UK, the US, Japan, South Korea and New Zealand[1], arguably it does not do enough to protect the status of a maritime lien. It is understandable that there may exist some doubt as to whether the law of Admiralty should take precedence over such a feat as the international asset-protection regime created by the Model Law, however, it is submitted that, the centuries old security regime developed by maritime law, which generally remains observed around the world, should at the very least be taken into account when involved in cross-border insolvency disputes[2].

 

The Maritime Lien

A lien is a specific right that will attach to property (not only ships) that can be defined differently depending on what type of law the lien interacts with.  In a general sense, a lien is the right to hold the property of another as security for the performance of an obligation or the payment of a debt[3].  A lien can be found in statute, in the common law as well as in equitable jurisdictions. The traditional maritime lien, however, is unique, in that the Admiralty jurisdiction provides the right to bring a claim that will attach to the property, regardless of who may be in possession of that property.  This distinction is important in relation to insolvency law as a maritime lien will attach to a ship as soon as the relevant circumstances arise, while a statutory lien, for example, will only arise once proceedings are initiated.  This timing issue can be problematic when deciding which law should take priority over the other[4].

The complicated nature of the maritime lien in itself was outlined in The Bold Buccleugh:[5]

‘A maritime lien is the foundation of the proceeding in rem, a process to make perfect a right inchoate from the moment the lien attaches; and whilst it must be admitted that where such a lien exists, a proceeding in rem may be had, it will be found to be equally true, that in all cases where a proceeding in rem is the proper course, there a maritime lien exists, which gives a privilege or claim upon the thing, to be carried into effect by legal process[6]‘.

 

Issues

The adoption of the Model Law by Singapore through the Companies (Amendment) Act 2017 on 23 May 2017 was made in contrast with the case of Beluga Chartering GmbH (in liquidation)[7], where it was articulated that Singapore courts would recognise foreign insolvency proceedings on an ad hoc basis.  The ruling in Beluga was made following the Singaporean High Court’s (Court) decision to recognise foreign proceedings in Re Taisoo Suk[8], where the Court dealt with the winding up of Hanjin Shipping, a ruling more in line with the universal principles expressed by the Model Law.

The Model Law acts to recognise foreign insolvency proceedings and takes into account international choice of law rules, jurisdictional rules and enforcement rules.  Notably, the Model Law will require enacting countries to put a stay on proceedings where it has been recognised that insolvency proceedings have been commenced where the debtor’s main interests lie.  The approach of the Model Law does not deal with traditional Maritime law, only referring to a lien in its 2009 and 2013 guides[9].  This approach differs from the Insolvency Regulation of the European Union[10], where in rem rights provided by a maritime lien are preserved if that right would have been granted by another member state.

This issue is further complicated by decisions made regarding ownership as it allows for in rem actions. In the case of Ayerst[11], where it was held by the House of Lords that the effect of winding up a company was to divest it of the beneficial ownership of its assets.  The effect of denying assets, the subject of insolvency, the benefit of being beneficially owned by the debtor company in question, is that proceedings will not be able to be brought on the basis of a maritime lien.  While in the UK the Ayerst has been supported, it has been rejected in other common law jurisdictions.

To the contrary, the contention that beneficial ownership does not pass once winding up orders have been issued has been supported in both Australia and Hong Kong.  In Commissioner of Taxation v Linter Textiles Australia Ltd (in liquidation)[12] it was held by the majority of the High Court of Australia that ‘the appointment of a liquidator… does not mean that the company itself has ceased to own beneficially its assets… Power to deal with an asset and matters of ownership or title are not interchangeable concepts’.

In the Hong Kong case International Transportation Service Inc v The Convenience Container[13], it was rejected that a winding up order instituted in Singapore would deprive the owner its rights as beneficial owner of a number of vessels that had been arrested in line with the findings of the Australian High Court.  There are additional difficulties that arise when characterising elements of an insolvency claim when taking into account national legislation such as the Corporations Act 2001 (Cth) and how it interacts with the Model Law and in rem claims[14].    In light of the differences between jurisdictions on how insolvency proceedings affect maritime liens and in rem actions and the lack of clarity provided by the Model Law, it has been suggested that a provision that protects in rem rights from the operation of the Model Law be implemented.

 

Solution

Given the great difficulty that arises in attempting to resolve the differences between maritime law and insolvency law, which mostly arises due to the timings that give rise to each particular right or claim[15], it has been suggested that a line similar to that taken by the European Insolvency Regulation be adopted in relation to the effect of cross-border insolvencies on proceedings in rem.[16]  It is provided in Article 5.1 of the European Regulation that the initiation of insolvency proceedings should not affect the rights in rem of creditors or third parties in respect of assets belonging to the debtor which are situated within the territory of another member state at the time of the initiation of proceedings.  Therefore, where a ship is arrested in a jurisdiction that is not that of a member state, claims will be ranked in accordance with the law of the state where the liquidation is taking place.  With no strict application of reciprocity required by the Model Law, such an amendment would be a welcome addition from the perspective of maritime lawyers.  Such a clause would ensure that the universal approach embodied by the Model Law is maintained, while states intrinsically linked to the dispute retain the ability to apply their local maritime laws.

This article was first published by the IBA Asia-Pacific Regional Forum in August 2017, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association.

[1] See the list found on UNCITRAL’s website at www.uncitral.org/uncitral_texts/insolvency/1997Model_status.html.

[2] Yu v STX Pan Ocean Co Ltd (South Korea), in the matter of STX Pan Ocean Co Ltd (receivers appointed in South Kores) Yu v STX Pan Ocean Co Ltd [2013] FCA 680.

[3] Hall v Richard (1961) 108 CLR 84.

[4] For more detail see Martin Davies Cross-border insolvency and admiralty: a middle path of reciprocal comity, CMI http://www.comitemaritime.org/Uploads/Work In Progress/Cross-Border Insolvency/Cross-border insolvency and admiralty – a middle path (002).pdf.

[5] The Bold Buccleugh (1851) 7 Moore 267 (PC), 13 ER 884.

[6] The Bold Buccleugh (1851) 7 Moore 267 (PC), 13 ER 884.

[7] Beluga Chartering GmbH (in liquidation) and others v Beluga Projects (Singapore) Pte Ltd (in liquidation) and another(deugro (Singapore) Pte Ltd, non-party) [2014] SGCA 14.

[8] Re Taisoo Suk (as foreign representative of Hanjin Shipping Co Ltd) [2016] SGHC 195.

[9] 2009 Unilateral Guide to Enforcements and 2013 Unilateral Guide to Enforcements.

[10] Regulation (E.U.) 2015/848 of the European Parliament and Council of 20 May 2015 on insolvency proceedings (recast), which will take effect on 26 June 2017.

[11] Ayerst v C & K (Construction) Ltd [1976] AC 167, [1975] 2 All ER 537.

[12] Commissioner of Taxation v Linter Textiles Australia Ltd (in liquidation) [2005] HCA 20, (2005) 220 CLR 592.

[13] International Transportation Service Inc v The Convenience Container [2006] 902 HKCU 1.

[14] Kim and Yu v STX Pan Ocean Co. Ltd [20140 NZHC 845.

[15] Derrington & Turner, The Law & Practice of Admiralty Matters (Oxford University Press, 2006) Chapter 8; Martin Davies Cross-border insolvency and admiralty: a middle path of reciprocal comity, CMI http://www.comitemaritime.org/Uploads/Work In Progress/Cross-Border Insolvency/Cross-border insolvency and admiralty – a middle path (002).pdf.

[16] See Julie Soars Cross-border Insolvency and Shipping – a Practical Guide (2015) Australian Federal Court www.fedcourt.gov.au/law-and-practice/national-practice-areas/admiralty/admiralty-papers/julie-soars-2015.

Author: Alistair Sullivan

+612 8262 5859

alistair.sullivan@tmlawltd.com

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TM Law’s Hamish Cotton looks at an Australian decision with global significance, dealing with the interpretation of the Montreal Convention in claims for damage to cargo during air transport

The New South Wales Court of Appeal has recently handed down its decision in Singapore Airlines Cargo Pte Limited v Principle International Pty Limited[1] in which it considered the provisions of the Montreal Convention 1999 as they relate to damaged cargo.  Importantly, the Court considered the interpretation of Article 18 of the Convention and whether the phrase “the event which caused the damage” should be interpreted as analogous to the phrase “the accident which caused the death or injury”, which appears in Article 17 of the Convention and which has been the subject of extensive judicial consideration, both in Australia and abroad.

Background facts

Principle International Pty Limited (Principle) contracted with Singapore Airlines Cargo Pte Limited (SIA Cargo) for the carriage of live cattle from Melbourne to Harbin, China, such carriage to occur over three separate flights, departing Melbourne on 23, 25 and 27 September 2013. Eighteen (18) cattle that were transported on the 27 September flight were found dead on arrival. The cattle had been loaded into crates consisting of nine cattle per crate and had been placed on the lower deck of the cargo hold. Other crates holding the same number of cattle were transported on both the upper and lower decks of the aircraft’s cargo hold.

Whilst there was some divergence of opinion as to the cause of death, with both heat stress and suffocation proposed by the various experts, each expert agreed that the relevant condition was caused by a lack of ventilation and therefore the exact cause of death was not an issue in the proceedings.

The Court of Appeal was required to consider various provisions of the Montreal Convention and in particular, Article 18 dealing with damaged cargo and Article 20, dealing with exoneration and contributory negligence. The consideration of Article 18 is of particular interest and focussed on the meaning of the term “event”.

Article 18(1) provides that:

“The carrier is liable for damage sustained in the event of the destruction or loss of, or damage to, cargo upon condition only that the event which caused the damage so sustained took place during the carriage by air.”

SIA Cargo contended that the “event” that caused the damage was the inadequate packing by Principle of the cattle into the crates, which occurred at a time when the cattle were not in the control of SIA Cargo and therefore no liability could attach to them. Anything that happened thereafter was, SIA Cargo contended, part of the ordinary carriage by air. Consequently, SIA Cargo argued that if the Court determined the event was in fact the lack of ventilation during the course of the transport, it should follow the previous judicial interpretations of Article 17 of the Convention. Article 17(1), which deals with death and injury of passengers, provides:

“The carrier is liable to damage sustained in the case of death or bodily injury of a passenger upon condition only that the accident which caused the death or bodily injury took place on board the aircraft or in the course of any of the operations of embarking or disembarking.”

The term “accident” in Article 17(1) has been widely held to mean an event external to the passenger and not the passenger’s own internal reaction to the usual, normal and expected operation of the aircraft. SIA Cargo argued that “event” in Article 18 should be construed in a similar manner.

The Court of Appeal looked at the language of each of the Articles and made a clear delineation between the language used in the Convention for damage to cargo, as opposed to the provisions related to personal injury and death. Ultimately, the Court determined that “the event must be identified in the context of an “event which caused the damage”. The inquiry is not directed to ascertaining whether there was something unusual or unexpected happening outside the normal incidence of the flight. That is relevant to determining whether there was an accident for the purposes of Article 17(1).”

The Court found that whilst the cause of death was as a result of the lack of ventilation to the cattle, the event for the purposes of Article 18(1) was the placement of the crates on the lower deck, the conditions of which were such that it amounted to an event which caused the damage.

The Court of Appeal has highlighted the difference between the tests required in respect of damage to cargo (Article 18) and death and injury of passengers (Article 17) which arguably and interestingly provides a greater scope for claims for cargo damage over those for death or injury to passengers.

Author: Hamish Cotton

+61 (2)8262 5857

+61 408 663 211

hamish.cotton@tmlawltd.com

[1] Singapore Airlines Cargo Pte Limited v Principle International Pty Limited [2017] NSWCA 216

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Thomas Miller Law is delighted to announce the launch of its Swiss office, based in Geneva.

The expansion into Switzerland is a natural progression for TM Law, building on its core shipping, international trade and commercial team in the UK.

We welcome on board two lawyers who bring with them a wealth of varied experience, and add a new dimension to what the firm can offer the shipping, trading, commodity and insurance sectors.

Bob McCunn
Bob was admitted in 1986 and worked with two leading London shipping and international trade firms, including a period in Greece. He has vast experience in marine insurance, reinsurance and general shipping, and has specialised further in oil and commodity trading, fraud and asset tracing. He has represented international commercial clients in several high-profile matters, including recovering for the insurers of Brinks Mat following the infamous Heathrow robbery, and secondment to a major Kuwaiti oil and tanker company following the Iraqi invasion in 1990. A non-executive Director of various major trading companies, Bob has been based in Geneva since 2008.

Cyrus Siassi
Cyrus is admitted in England and Switzerland, and has over twenty years’ experience of representing major insurance, financial and institutional clients in complex and high-profile matters. Cyrus handles litigation, arbitration, mediation and other dispute resolution work in England and Switzerland, specialising in cross-border transactional matters, shipping, international trade, aviation, construction, finance, insolvency, fraud and debt-collection. He has particular experience in the metals, energy and commodities sectors, and is an authority on international sanctions and embargoes. Cyrus also advises clients on regulatory, compliance and criminal liability, white collar crime, judicial investigations in Switzerland and anti- money-laundering and terrorist financing worldwide.

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Thomas Miller Law’s Shipping and Logistics team discuss the implications of a recent Court of Appeal decision in MSC MEDITERRANEAN SHIPPING CO SA v GLENCORE INTERNATIONAL AG[1].  This concerned the impact of new technology on cargo handling procedures and the associated risks of susceptibility to cyber-crime.

The Facts

Pursuant to bills of lading issued by ocean carriers, MSC, a cargo of cobalt briquettes was shipped in three containers from Freemantle to Antwerp where the bills of lading were to be “surrendered by the Merchant to the Carrier . . . in exchange for the Goods or a Delivery Order”.

In practice, and following a course of dealing which had been adopted between the carriers and the shippers, Glencore, on numerous previous occasions, when the cargo arrived at Antwerp it was handled under an electronic release system (ERS) used for containerised cargo. Under the ERS the carriers did not issue paper delivery orders against bills of lading, but instead provided computer-generated electronic numbers (pin codes) which the consignees or agents presented to the terminal before taking delivery of their goods.

So, in this case the carriers emailed a Release Note for the three containers to the shipper’s agents, giving an ERS pin code for each container, but when the agents’ hauliers went to collect the containers they found that two of them had already been collected.

It remains unclear  how exactly the two containers in question were appropriated, but  the carriers intimated in the Appeal hearing that the relevant pin codes may have been leaked as a result of the shipper’s agents’ email accounts having been hacked.

Claims Made and the Approach of the Courts

The shippers brought claims in the High Court for breach of contract, bailment and conversion against the carriers, and they succeeded before Andrew Smith J at First Instance[2].  His decision was upheld by the Court of Appeal which addressed the carriers’ defences as follows:

  1. They rejected the carriers’ contention that delivery of the Release Note containing the pin codes effectively constituted delivery such that the carriers should not be liable. At best the Release Note constituted some form of Delivery Order;
  2. In considering whether the Release Note did indeed constitute a Delivery Order, they held that to do so it would need to fall within the definition a “ship’s delivery order” contained in the Carriage of Goods by Sea Act 1992, s.1(4) as “an undertaking by the carrier to a person identified in the document to deliver the goods to which the document relates to that person”.
  3. The provision of the pin codes in the Release Note did not constitute such an undertaking and, as such, their delivery could not constitute an exchange of “a Delivery Order” for the bills of lading as required by the bills.
  4. They rejected a submission by the carriers that the shippers were estopped from contending that delivery of the cargo upon presentation of a pin code was a breach of contract and/or duty on the part of the carriers because they had been content for the ERS to be used on 69 previous shipments. Just because the shippers consented to the use of the ERS system this did not amount to a representation  that they were or would be content for the goods to be delivered to just anyone who presented the correct pin code.
  5. On the question of the possible hacking of email accounts and whether this afforded the carriers with a defence on causation, whilst accepting that the chain of causation could be regarded as broken by sufficiently egregious action or inaction on the part of the shippers or their agents in supervising their operating systems, the evidence adduced was insufficient to establish any such failure on the part of the shippers or their agents.

Conclusions

This case highlights that the use of electronic systems for the release of containerised cargo is susceptible to data breach and losses being incurred as a result.  If such systems are to be utilized and the parties intend the terms governing what will constitute delivery to be amended accordingly this must be clearly stated in the relevant contract.

[1]  [2017] EWCA Civ 365

[2]  [2015] 2 Lloyd’s Rep. 508

Author: Simon Church

+44 (0)7919 576293

+44 (0)1752 226020

simon.church@tmlawltd.com

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Kashima’s long wavelengths and severe northerly winds combined in the loss of OCEAN VICTORY (Photo copyright: MS3866 at http://forum.shipspotting.com)

 

The Supreme Court has given its long-awaited judgment in this US$170 million case concerning the total loss of a capesize bulk carrier in 2006. This note focusses on the circumstances in which weather and similar temporary hazards may amount to a characteristic of a port and the meaning of “abnormal occurrence” within the classic definition of safety set out in the EASTERN CITY[1].

The vessel was discharging its cargo of iron ore at berth in the modern and purpose built port of Kashima in October 2006. The quay in use was vulnerable to a meteorological condition known as long waves which can make it difficult for a vessel to remain at berth. The port was also prone to severe northerly winds, which can make it difficult for a vessel to navigate the relatively narrow entrance channel. These conditions operate independently of one another; however, on the date in question, both occurred simultaneously. The vessel sought to leave port due to the adverse effect of long waves, but was unable to navigate the entrance channel due to the severe northerly winds and she grounded on a breakwater, becoming a total loss.

Owners claimed a breach of the safe port warranty. It was common ground that the test was whether damage was caused by an “abnormal occurrence”.

At first instance[2], Charterers were found to be in breach of the safe port warranty. Teare J ruled that long waves and northerly storms were each characteristics of the port and the concurrence of those two conditions, although rare, could not be said to be an “abnormal occurrence”.

The Court of Appeal[3], however, disagreed. The question was whether the critical combination of long waves and northerly gales was an abnormal occurrence or a normal characteristic of the port. This requires an evidential evaluation of the particular event giving rise to the damage and the relevant history of the port. No vessel in the port’s history had been dangerously trapped at the quay at the same time the entrance channel was not navigable due to gale force winds (it was also relevant that the storm was of exceptional severity) and the combination was therefore “abnormal”.

The Supreme Court unanimously upheld the Court of Appeal decision. Lord Clarke, giving the leading judgment, began by reinforcing that the date of the safe port promise is the date of nomination and is a prediction about the safety of the port when the ship arrives in the future. “Abnormal occurrence” should be given its ordinary meaning, namely something which is rare and unexpected, out of the ordinary course, well removed from the normal and which a notional charterer would not have in mind. One should ask whether the particular event was sufficiently likely to occur to have become an attribute of the port. The evidence in this case established that the conditions were an abnormal occurrence and there had accordingly been no breach of the safe port warranty.

From an operational perspective, the judgment reinforces the importance of considering the likelihood of the vessel being exposed to danger during its visit and, if so, whether the set-up of the port adequately deals with such hazards. Temporary events such as weather conditions may be considered characteristics of a port if they are sufficiently regular or sufficiently foreseeable in the historical context of the port.  If more than one event is concerned, it is the likelihood of the combination of those occurrences which is to be considered.

Author: Nico Saunders

+44 (0)7771 335 196

+44 (0)1752 226020

nico.saunders@tmlawltd.com

[1] Leeds Shipping Company Ltd. v. Société Française Bunge [1958] 2 Lloyd’s Rep. 127

[2] [2014] 1 Lloyd’s Rep. 59

[3] [2015] 1 Lloyd’s Rep. 381

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TMCM wins Queen’s Award for Enterprise for the Second Time

TMCM is delighted to announce that we have won the Queen’s Award for Enterprise, in the International Trade category.

This is the second time the company has received the Award, which recognises outstanding achievements by UK companies in growing international earnings and is widely recognised as the UK’s most prestigious award for business performance.

We take this opportunity to thank the colleagues, clients and friends who have supported us along the way- your belief in what we do is critical to how TMCM grows and evolves.

Having already received a Queen’s Award in 2014 for its strong international growth, TMCM has gone from strength to strength, growing its core business while investing diversifying its range of services and expanding its office network.

“Exporting services to global markets has always been at the heart of what Thomas Miller does,” says our CEO, Peter Jackson. “The recent shifting and decentralisation in marine and logistics markets is just part of an on-going global evolution – TMCM will evolve along with it, as we always have from the start.”

Building on the success of its marine claims adjusting operation, based in London and Newcastle-upon-Tyne, TMCM has invested in the creation of a marine and logistics law firm, TM Law, which applies the same innovative and cost-effective approach to legal services. TM Law has expanded steadily through the acquisition of a marine firm in Plymouth, and both TMCM and TM Law now serve the Asia-Pacific region from offices in Sydney.

TMCM has also expanded its significant marine medical offering, creating unique partnerships to offer a marine-specific advisory and case management service under its Bluemed brand.

“We have to keep going forwards, will keep listening to what our clients tell us, identifying what the market wants and where the existing provision is lacking,” says Director, Stephen Hunt. “Once we’ve done that, we have to trust our instincts, and find ways to do it better.”

The Award was conferred on 21st April, the Queen’s birthday, and will be recognised officially at a reception at Buckingham Palace later in the year.

Mr Jackson has already been congratulated by Her Majesty once, but is determined not to let the second time be the last. “We’ve invested heavily, to diversify the offering and expand our footprint- we’re into a new phase of effort and opportunities. We have taken the same approach we took at the start and we expect to see the same results. I want to see us repeat the performance, and the success, and I don’t think many would bet against us.”

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Thomas Miller Law’s Danella Wilmshurst has been recognised by legal peers and industry experts as a leader in the field of Shipping & Maritime Law.

Danella, a Director of the firm, was recently named in Best Lawyers Australia for her work in this area.

Best Lawyers’ methodology is based entirely on peer review and is designed to capture the consensus of opinion among leading lawyers, about the professional abilities of their colleagues within the same geographical and legal practice areas.

If that was not enough, Danella was also listed in “Who’s Who Legal: Transport 2017”. Unlike Best Lawyers, the Who’s Who listing is based on extensive research into the opinions of law firm clients and transport experts.

For Danella to receive this recognition from both her peers and the industry as a whole, is a fantastic achievement.

Danella has been advising the shipping and insurance industry on maritime and transport law for over twenty years, having been a partner at two of Australia’s leading maritime and transport firms. An expert on wet and dry shipping, freight forwarding and logistics, transport contracts and transactional work, Danella is a Director of the Maritime Law Association of Australia and New Zealand and a Member of the Australian Federation of International Forwarders. She has taken several complex cases through litigation or arbitration, ranging from charter party disputes to oil pollution, and has an international reputation for her expertise and sound guidance to the industry.

Danella Wilmshurst, Principal Lawyer
danella.wilmshurst@tmlawltd.com
+61 (0)438 012733