Transport & Logistics News - June 2016 (Part 1)
In brief - Local and international news about shipping
In part one of this issue, we cover local and overseas shipping news and summarise some interesting cases from Australia and around the world which have been handed down in the last eight months.
Verified gross mass (VGM) of packed containers
The International Maritime Organization (IMO) has addressed carriers' concerns about how transhipment cargo is to be treated when the International Convention for the Safety of Life at Sea (SOLAS) regulation V1/2 comes into effect in July 2016.
The problem concerns containers shipped prior to 1 July 2016, and therefore not subject to the new regime, which are transhipped at another port after 1 July 2016 without complying with the new regime.
The MSC.1/Circ 1548 provides that states should adopt a practical and pragmatic approach for three months after 1 July 2016 and permit such containers to be shipped to their final port of discharge without the VGM being specified.
Coastal shipping reform
The Bill to repeal the Coastal Trading (Revitalising Australian Shipping) Act 2012 has been defeated in the Senate.
Part X of the Australian Competition and Consumer Act (CCA)
Since publication of the final report of the Competition Policy Review Panel (which we reported on in our last issue of Transport & Logistics News on 30 September 2015), the government has published its response to the Liner Shipping recommendation, namely the repeal of Part X, as follows:
The Government remains open to this recommendation.
The Government supports measures to ensure that liner shipping arrangements are competitive and efficient.
A general class exemption power will be introduced into the CCA, which will allow the ACCC to authorise broad classes of conduct.
The Government will work with the ACCC and relevant stakeholders, including shipping lines and importers and exporters, to investigate options regarding how a class exemption could be applied to the liner shipping industry to ensure that shipping routes to and from Australia continue to be reliably and competitively serviced and that the costs to obtain a class exemption are not burdensome.
Any options considered would need to be consistent with Australia's international law obligations.
Port of Melbourne lease
The formal transaction process for the 50-year lease of the Port of Melbourne commenced on 20 March 2016. It is hoped to realise $6 billion.
Trans Pacific Partnership Trade Deal (TPP)
In October 2015, Australia was one of 12 Pacific Rim countries that have entered into a TPP. The text of the TPP agreement was tabled by Minister Robb in the Australian Parliament on 9 February 2016. The 12 countries are Australia, New Zealand, United States, Canada, Mexico, Japan, Singapore, Chile, Peru, Vietnam, Malaysia and Brunei.
Australia has also separately entered into recent trade agreements with China, Korea and Japan.
On 17 May 2016, the Ministers of all signatories met to review progress on their respective internal processes to approve the TPP agreement.
Read our latest TPP publication, The Trans-Pacific Partnership: a brief overview from a transport and trade perspective.
Members of the Maritime Union of Australia (MUA) voted to authorise the union to enter merger negotiations with the Construction, Forestry, Mining and Energy Union (CFMEU). The recently completed report of the Royal Commission into Trade Union Corruption was heavily critical of the activities of individuals involved with the CFMEU and also of activities of the MUA, in particular its Western Australia branch, where contributions from shipping and offshore companies were alleged to have been obtained by the use of threats. The sum of $3.2 million was identified as having been made through contributions from shipping companies to MUA political and union causes. While they were described as being "voluntary" and "legitimate", the Royal Commission described them as having been made to "secure industrial peace from, or to keep favour with, the MUA."
Cultural reforms on the waterfront
In the slow news period after Christmas, we were interested to read a report in the Australian Financial Review to the effect that DP World had banned its staff from swearing.
The future of Asciano
Qube and Canada's Brookfield joint bid to takeover Asciano appears to have stalled while ACCC considers the implications and litigation between Asciano and Australian Container Freight Services takes place.
On 26 May 2016, ACCC released a statement of issues on the proposed acquisition of Asciano by Qube, Brookfield and others, inviting industry stakeholders to provide further submissions and feedback by 10 June. It is expected that ACCC will announce its final determination on 21 July.
We reported on the first instance interlocutory decision in this case in our 30 September 2015 issue. It was argued on appeal before a Full Bench, consisting of five judges, in the Federal Court on 25 February when judgment was reserved. We will report on the decision as soon as it becomes available.
These proceedings arose out of the loss of the yacht Froia II which ran aground off Cape Talbot, Western Australia on 22 June 2013 while returning to Australia from Indonesia. The vessel was insured under two separate insurance policies. One was issued by Pantaenius PTS on behalf of Kiln Europe SA, Catlin Europe SE and Torus Insurance Marketing Limited. The agreed value of the vessel under that policy was $275,000. The second policy was underwritten by Nautilus Marine Agency Pty Ltd on behalf of a syndicate of underwriters at Lloyd's and the relevant sum under that policy was $250,000.
The underwriters under the Pantaenius policy claimed contribution from those under the Nautilus policy as being another insurer liable for the same loss. In denying liability, Nautilus relied upon a clause under its policy which required that in the event that the vessel intended to enter foreign waters, all cover under the policy would be suspended between when the vessel cleared Australian Customs for the purpose of leaving Australian waters and the time when it cleared Australian Customs on return. It was argued that as the vessel had not yet cleared Australian Customs on its return from Bali, cover under the policy was suspended at the time when it ran aground. Pantaenius argued that section 54(1) of the Insurance Contracts Act 1984 (Cth) was engaged in the present case.
Section 54(1) provides:
Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which sub-section (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer's liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act.
Foster J decided that the suspension of coverage provision in the Nautilus policy should be read as being amenable to the beneficial operation of section 54, because the suspension of coverage did not go to the nature of the risk covered by the policy but simply operated as if it were an exclusion. As his Honour said: "...when careful consideration is paid to the terms and structure of the Nautilus policy, it is, as was submitted by the applicants, an occurrence based policy which provided cover to Mr Phillips against loss or damage to the vessel caused by (inter alia) impact or sinking or any other event not specifically excluded by the policy occurring while the vessel was within Australian waters at any time between 4.00 pm on 1 December 2012 and 4.00 pm on 1 December 2013, being the period when the respondent was on risk under that policy." (At )
He then went on to find that the loss of the vessel occurred while the respondent was on risk and the vessel was within Australian waters, which, for the purposes of the policy, are those waters within the land mass of the Australian mainland and the island of Tasmania and those coastal waters which are within 250 nautical miles of the Australian mainland and the island of Tasmania. He went on to explain that "...the provisions suspending cover when the insured vessel cleared Australian Customs for the purpose of leaving Australian waters, was almost always going to come into effect well before the insured vessel actually left Australian waters. Usually, as was the case here, the suspension period would commence while the insured vessel is in its home port— here, Fremantle WA. The suspension provision was in the nature of an exclusion and did not operate as one of the contractually prescribed elements of the geographical limits on the scope to cover itself." (At )
PST Energy 7 Shipping LLC Product Shipping and Trading S.A. and OW Bunker Malta Ltd and ING Bank NV
This was the decision of the English Court of Appeal which was handed down in October 2015 and was listed for hearing in the Supreme Court in London on 22 March 2016. It arises from the collapse of the OW Bunker group of companies. The litigation also involves ING Bank NV which had entered into a financing agreement with OW Bunker before its collapse (ING has commenced many actions around the world, including within Australia, against shipowners whose vessels have been arrested, sometimes in circumstances in which the time charterers of the vessels had entered into contracts with OW Bunker for the supply of bunkers).
The decision of the English Court of Appeal was that the sale of the bunkers was not a sale within the Sale of Goods Act, therefore the owners could not assert that because OW Bunker was in breach of its contract in not being able to provide title to the bunkers to the owners it had no liability to pay the owners for them.
What is of particular interest in this case was the comment made in the leading judgment by Moore-Bick LJ where his Lordship said:
The owners' case before the arbitrators was that they were not liable to pay OWBM because the contract was one for the sale of goods and property in the goods had not passed to them. They do not appear to have advanced the alternative argument that, if the nature of the contact was that for which OWBM contended, they were not liable to pay because they had not been authorised to consume the bunkers in a manner which bound RMUK and other suppliers in the chain. Whether they should be allowed to do so at this stage is probably a matter that ought to have been left to the arbitrators.
The matter had therefore proceeded at first instance on the basis that RMUK was bound by the licence to use the bunkers for the propulsion of the vessel given to the owners by OWBM in its standard terms. The owners did not seek to challenge that aspect of the judge's judgment on appeal which dealt solely with the construction of the contract between the owners and OWBM.
Fulton Shipping Inc of Panama v Globalio Business Travel SAU of Spain (the "New Flamenco")  1 Lloyd's Rep. 383
We reported on the first instance decision of Popplewell J in our 30 September 2015 issue. The time charterer, who had redelivered a vessel on 28 October 2007 when it was not due to do so until 2 November 2009, failed to persuade the first instance judge that it should be entitled to have the damages that it was liable to pay reduced to take account of the substantially increased sale price the owners obtained from the sale of the vessel than it would have achieved in late 2009. On appeal the charterer was successful.
This was a decision of the Singapore Court of Appeal in which the appeal was allowed. At first instance the claim had been struck out. The facts giving rise to the claim were that the claimant/appellant supplied bunkers to the "STX Mumbai" and after the bunkers had been supplied, but three days before the contractual payment date, it had demanded immediate payment because it formed the view that the group of companies to which the owner belonged, STX Panocean PTE Limited, was in financial difficulties. It commenced in rem proceedings and arrested the vessel on the next day, asserting that there had been an anticipatory breach of contract by the owners.
The Court of Appeal held that it was not completely unarguable that the insolvency could have made it impossible for a timely payment to be made to the contract and therefore it could not be said that the appellant's claim was legally unsustainable.
Glencore International AG v MSC Mediterranean Shipping Co  1 Lloyds Rep 508
The question in this case was whether a carrier was liable for breach of its contract of carriage of goods which had been shipped from Fremantle to Antwerp under a negotiable bill of lading. Glencore asserted that two of the containers which had been shipped had been misappropriated in Antwerp when the carrier, MSC, had caused computer generated electronic numbers (PIN codes) to be issued rather than issuing paper delivery orders or release notes against bills of lading.
Glencore argued that MSC should have delivered the cargo only on presentation of the bill of lading or a delivery order given in exchange for the bill of lading, in accordance with the express terms of the bill of lading.
It was held by Andrew Smith J that a PIN code did not constitute a delivery order within the meaning of the bill of lading. Arguments by MSC which relied on implied terms and estoppel against Glencore were rejected.
This case is a reminder to owners of cargo that they have a duty to take delivery of cargo at the discharge port. In this case, the carrier discharged the cargo into a warehouse pursuant to provisions in the bill of lading. Three and a half years later the cargo had still not been collected, storage charges exceeded the value of the cargo and the warehouse exercised a lien. The cargo owner sought damages for conversion against the shipowner, but failed.
This UK Supreme Court decision revisits the issue of penalty clauses, that is clauses in contracts which identify the financial consequences which the parties agree will follow if one commits a breach. Two cases were heard together. The Australian High Court has also dealt with this topic in recent years in the case of Andrews and Others v ANZ Bank  HCA 30.
The leading judgment in the Supreme Court was delivered by Lords Neuberger and Sumption, with whom Lord Carnwath agreed. They did not accede to the suggestion made by Cavendish's senior counsel that it was time to abolish the penalty rule (that such provisions are unenforceable) as being antiquated, anomalous and unnecessary. The opposing senior counsel argued for an extension to the penalty rules, that being "the course taken by the High Court of Australia" in the Andrews case, which was a case dealing with contractual bank charges. The High Court's path was not followed by the Supreme Court.
It decided that in both of these cases the clauses in question were not penalties. In one case, the provisions in the commercial agreement were treated as a price adjustment and price formula clause not being penal, the object of the clauses not being to punish.
In the second case, the issue was whether a provision imposed by a car park operator of a fee if a car was parked for more than two hours was a penalty, and therefore unenforceable. The additional charge of Ł85 was categorised by the Supreme Court as "a charge for contravening the terms of the contractual licence." (At ) It was conceded that the charge was "not a pre-estimate of damages." (At )
Although it was also agreed that the charge was levied to deter overuse, it was held by the Supreme Court not to be a penalty: "...deterrence is not penal if there is a legitimate interest in influencing the conduct of the contracting party which is not satisfied by the mere right to recover damages for breach of contract." (At ) The trial judge had held "...that the Ł85 charge was neither extravagant nor unconscionable having regard to the level of charges imposed by local authorities for overstaying in car parks on public land." (At )
Involnert Management Inc v Aprilgrange Ltd and Ors and AIS Insurance Services Limited & OAMPS Special Risks Limited  2 Lloyds Rep. 289
This claim was brought by the owner of the yacht Galatea which had caught fire at its mooring in the Athens Marina in December 2011. It was damaged beyond economic repair. The vessel was insured against all risks at an agreed value of €13 million. There was no dispute that there was a fortuity giving rise to a valid claim under the policy but insurers defended the claim in relation to its overvaluation which it asserted its value was no more than €7 million to €8 million. (At the time when the policy was concluded, the yacht was being advertised for sale for €8 million). None of the material relating to the owner's knowledge in the lead up to placing the insurance concerning the vessel's value had been disclosed to the insurer.
The insurer had accordingly avoided the policy on the grounds of non-disclosure and/or relied on misrepresentation in the proposal form concerning values.
The claimant joined the producing broker and the English broker who had placed the insurance in the London market. Both brokers denied that they had been negligent.
Leggatt J found that the divergence between the price at which the vessel had been put on the market for sale and the value for which it was insured came about by accident rather than design.
The decision on non-disclosure was made in the light of section 18 of the Marine Insurance Act 1906, that is the provision which is identical to section 24(1) of the Marine Insurance Act 1909 in Australia. Leggatt J found that the fact that the yacht was being marketed with an asking price of €8 million when the claimant was seeking to insure the yacht for €13 million was "obviously material" and a "prudent insurer would undoubtedly want to take this information into account in assessing the risk and to know on what basis, if any, the owner thought it justifiable that he should be paid €13 million under the insurance contract if the vessel was lost when he would apparently be happy to dispose of the vessel for a sale price of (at most) €8 million."
The insurers were successful on their non-disclosure defence but unsuccessful on their misrepresentation argument.
The producing broker was found to have owed a duty of care to the claimant in contract and tort and was in breach of those duties, having failed to take care to ensure that the proposal form for insurance of the yacht stated its opinion of the market value of the yacht. That breach of duty caused the claimant to enter into a voidable contract to insure the yacht for €13 million instead of a valid contract to insure the yacht for €8 million. The placing broker, OAMPS, was found not to have owed any duty of care directed to the claimant and did not commit any breach of duty of care which it owed to AIS. The damages which the claimant was entitled to recover against AIS was limited to €2 million, that being the amount which it might have recovered under Section B of the policy.
Our latest marine insurance publications
The marine insurance market establishes loss that is not actual total loss by defining it as constructive total loss. However, shipowners who wish to make this type of claim must give their insurers notice of unconditional abandonment and give up possession to the insurer or risk having it treated as a partial loss. (Published by Stuart Hetherington and Julian Peake on 22 March 2016.)
The rising number of piracy attacks near West Africa and South East Asia means that ship owners, charterers, carriers and importers need to consider this risk and possible consequences such as ransom payments and off-hire events in their insurance arrangements and charter agreements. (Published by Stuart Hetherington, Andrew Tulloch and Julian Peake on 23 May 2016.)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.