Welcome to this month's edition of our shipping case digest, providing you with concise and useful summaries of recent legal decisions in the shipping market.
SEPTO TRADING INC -V- TINTRADE LTD  EWCA Civ 718
The Court of Appeal considered the effect of incorporated general terms which were alleged to conflict or to be inconsistent with a term expressly agreed between the parties in a recap.
This was a dispute between Septo Trading Inc (buyer) and Tintrade Limited (seller) arising from the sale of a cargo of fuel oil loaded on board the vessel "NOUNOU" at the port of Ventspils in Latvia in July 2018.
The contract was evidenced by a recap dated 20 June 2018, which said that a quality certificate issued by an independent inspector at the load port would be binding on the parties in the absence of fraud or manifest error, but it also provided for the BP 2007 General Terms and Conditions for FOB Sales ('the BP Terms') to apply 'where not in conflict with the above'. Those terms say that the quality certificate will be conclusive and binding 'for invoicing purposes', but without prejudice to the buyer's right to bring a quality claim.
On 25 June 2018, the seller nominated Ventspils as the loading port. On 26 June 2018, the buyer provided an independent inspector with instructions to perform quantity and quality determinations of the fuel oil to be shipped at Ventspils on board the vessel.
The quality certificate issued by the independent inspector certified that the fuel oil was in accordance with the contractual specification at the load port, but the judge at first instance found as a fact that it was not (see the first instance judgment). He held that the BP terms qualified the recap term which, if it had stood alone, would have excluded the buyer's quality claim, but that there was no conflict between these terms which could be read together so as to give effect to both of them. Accordingly the buyer's claim against the seller for the off-spec cargo succeeded and the judge assessed damages in the sum of US $3,058,801.
The seller appealed contending that the BP terms were in conflict with the recap term providing for the determination of quality by the independent inspector to be binding on the parties.
Lord Justice Males delivering the leading judgment noted that the law was well settled where there was said to be an inconsistency between specially agreed terms and the printed standard terms of the contract where the contract contained an inconsistent clause.
Applying the leading cases of Pagnan SpA -v- Tradax Ocean Transportation SA  3 All ER 565 and Alexander -v- West Bromwich Mortgage Co Ltd  1 All ER 942 he stated that there was a distinction between a printed term which qualified or supplemented a specially agreed term and one which transformed or negated it. In order to decide on which side of this line any particular term fell, the question was whether the two clauses could be read together fairly and sensibly so as to give effect to both. Ultimately, the object was to ascertain the intention of the parties as it appeared from the language in its commercial setting.
The judge's starting point was the meaning of the recap term. A provisional view of what that term meant had to be formed, which could be tested against other clauses of the contract in the usual way. At that stage, account should not be taken of the printed term which was alleged to be inconsistent. However, if the provisional view formed required significant modification when account was taken of Section 1 of the BP terms that was likely to be relevant to the issue of inconsistency.
The judge held that the first instance judge was right to conclude that the effect of the recap term, considered on its own, was that the quality certificate was intended to be binding on both parties for all purposes. That was the clear meaning of the term.
Lord Justice Males saw no reason to revise this provisional view when the construction of the recap term was tested against other provisions of the contract, including (assuming it to apply) Section 1 of the BP terms. Nobody would think, reading the recap term, that the word 'binding' meant 'binding for invoicing purposes'.
Accordingly, the starting point for consideration of the issue of inconsistency was that the recap term provided that the quality certificate issued by the mutually acceptable independent inspector was binding on the parties, so that (assuming always that the certificate showed the product to be on-spec) the buyer could not then bring a claim on the ground that the quality of the product was not in accordance with the contract.
The next step was to consider the effect of the printed term. Section 1.2 of the BP terms provided that the quality certificate was to be 'conclusive and binding on both parties for invoicing purposes' and that the buyer was obliged to make payment in full, but that this was 'without prejudice to the rights of either party to make any claim' that the product was not in accordance with the specification. Plainly, that was different from the recap term.
Finally, the judge turned to the question of inconsistency and concluded that Section 1.2 of the BP terms was in conflict with the recap term. The two provisions could not fairly and sensibly be read together. The printed term did not merely qualify or supplement the recap term, but rather deprived it of all practical effect, for the following reasons:
- The recap term provided for the quality certificate to be binding for all purposes, so as to preclude a claim for damages for breach of quality, while the printed term provided that the binding nature of the certificate was for a very limited purpose. This for practical purposes deprived the recap term of all effect.
- A regime in which a certificate of quality was binding was fundamentally different from one in which it was not.
- The provision in the recap term for the quality certificate to be binding was a central feature of the contractual scheme. It defined the seller's obligation with regard to the quality of the product, that obligation being to provide a product, which was certified by the independent inspector as being in conformity with the contractual specification. In the case of a liquid cargo whose composition could only be determined by sampling and analysis, and where no two sets of samples were likely to be exactly the same, this provided an important measure of certainty. It was unlikely that the parties would wish to detract substantially from this by means of printed terms.
- It was necessary to stand back and consider the intention of the parties as practical business people operating in the real world. While it was perfectly reasonable for parties to choose a contractual scheme in which the quality certificate was not binding but was merely evidence, it was appropriate to ask whether that was a commercially reasonable interpretation of what they have done in this case. The judge held that it was not.
In the circumstances, the Court of Appeal unanimously held that the contract, on its true construction, provided that the quality certificate issued at the load port would be binding, with the consequence that the buyer was precluded from bringing its claim in this case. The appeal was allowed.
This case is a useful reminder of how the courts will construe conflicting specially agreed terms in a contract where they conflict with standard printed terms. The judge referred to relevant considerations when dealing with the question whether such clauses could be read together fairly and sensibly so as to give effect to both. That question had to be approached practically, having regard to business common sense, and it was not a literal or mechanical exercise. It would be relevant to consider whether the printed term effectively deprived the special term of any effect. It would also be relevant to consider whether the specially agreed term was part of the main purpose of the contract or, whether it formed a central feature of the contractual scheme. If so, a printed term which detracted from that scheme was likely to be inconsistent with it.
TECOIL SHIPPING LTD -V- NEPTUNE EHF & ORS  EWHC 1582 (Admlty)
In this case, the admiralty registrar was required to consider an application to set aside a judgment in default. In doing so, the registrar considered whether, in an action issued in personam, the defendant was bound by determinations made in an in rem claim.
On 18 July 2018, a collision occurred between two ships, the "POSEIDON", a research/survey vessel, and the "TECOIL POLARIS", an oil tanker. The "TECOIL POLARIS" was at berth at Albert Dock, Hull, and the "POSEIDON" was manoeuvring towards the berth when she struck the starboard side of the "TECOIL POLARIS", causing considerable damage. The claimant is the owner of the "TECOIL POLARIS" and the first defendant, now in liquidation, is the owner of the "POSEIDON".
On 3 August 2018, Lodestar Marine Limited (Lodestar), the P&I insurers of the "POSEIDON", acting as agents for Royal & Sun Alliance Insurance Plc (RSA), the underlying insurer, (the insurers) issued a letter of undertaking (the LOU). Under the LOU, RSA undertook to pay to the claimant, on demand, such sum due from the first defendant, provided that their total liability, inclusive of interest and costs, did not exceed US $200,000.00.
On 28 June 2019, the claimant commenced in rem proceedings against the "POSEIDON". No acknowledgment of service was filed. Accordingly, on 18 December 2019, the claimant applied for judgment in default. A hearing took place before the then admiralty registrar, Mr Jervis Kay QC, on 14 January 2020. In accordance with the practice of the Admiralty Court the hearing was in open court and the claimant had to prove the claim to the satisfaction of the court. Judgment was handed down on 24 February 2020 and the claimant was awarded around US $525,000.00.
Prior to the judgment being delivered, it had become clear that RSA were not intending to make payment under the LOU. RSA argued that the LOU would not respond to an in rem judgment. As a result, the claimant had no real choice but to issue an in personam claim against the first defendant. The claimant issued this claim on 16 July 2020.
Before the service of the claim form, the claimant amended it, pursuant to CPR 17.1(1), so as to add the insurers as parties and to include the claim against them for the sum due under the LOU. The claimant served the amended claim form on the insurers within the jurisdiction and on the first defendant's liquidator in Iceland, having been granted permission by the court to do so.
On 5 February 2021, time having expired for the first defendant to file an acknowledgment of service, the claimant made a request for judgment in default. Judgment was entered against the first defendant on 12 February 2021 (the default judgment). That same day, the claimant made a, further, formal demand under the LOU for the sum of US $200,000.00. The insurers rejected the demand.
In an email dated 17 February 2021, the insurers argued that (a) the default judgment was not a final unappealable judgment (following the wording of the LOU), and (b) the LOU was not intended to protect the claimant from the risk of the first defendant's insolvency in the event that the "POSEIDON" was not of sufficient value to satisfy its claims.
On 8 December 2020, the insurers applied to set aside the service of the amended claim form on them and on 26 February 2021, they applied to set aside (a) the order giving the claimant permission to serve the first defendant out of the jurisdiction and (b) the default judgment against the first defendant. The admiralty registrar heard the applications on 12 March 2021 and rejected the procedural objections taken by the insurers to service of the amended claim form on them and to the order giving permission to serve out on the first defendant, but deferred consideration of the application to set aside the default judgment.
On 23 March 2021, the claimant issued an application for (a) permission to re-amend the claim form, so as to plead a claim based on the demand made on 12 February 2021, and (b) for summary judgment against RSA. On 18 May 2021, the admiralty registrar heard the insurers' application to set aside the judgment in default and the claimant's application for summary judgment.
On 25 May 2021, after the admiralty registrar had drafted his judgment but before he had circulated it, he received an email from the parties to the effect that they had settled in principle. As the admiralty registrar considered that the arguments advanced by the parties, in relation to the application to set aside the judgment in default, raised issues of wider interest, he proposed, notwithstanding the settlement, to promulgate that part of his judgment. The parties did not object to this proposal.
The insurers' application to set aside the default judgment
The insurers advanced two arguments; first, that the judgment was wrongly entered and therefore fell to be set aside as a matter of right pursuant to CPR 13.2; second, the judgment ought to be set aside as a matter of discretion pursuant to CPR 13.3.
The insurers' first argument was based upon the proposition that, in a collision claim, judgment in default is not available unless the party seeking judgment has either filed a collision statement of case, or, at least, obtained an order dispensing with that requirement. The insurers sought to rely on CPR 61.9(2).
The admiralty registrar rejected this argument, stating that the insurers' submission did not reflect the wording of CPR 61.9. The admiralty registrar held that the requirement to serve a collision statement of case is triggered by the filing of an acknowledgment of service, in accordance with CPR 61.4(5), and, as no acknowledgment of service had been filed, the requirement to file a collision statement of case had not been triggered. The admiralty registrar stated that the application was therefore governed by CPR 6.19(3)(b), which provided that it had to be made in accordance with Part 12 with any necessary modifications.
The admiralty registrar pointed out the fact that, contrary to the insurers' submission, the textbooks are unanimous that judgment in default of acknowledgment of service is available in a collision action which has been brought in personam. In addition, although the issue did not arise, the admiralty registrar stated that, had CPR 61.9(2) applied, it would have been necessary for the insurers to distinguish admiralty registrar Kay QC's decision that judgment in default of acknowledgment of service was available in a collision claim in rem. The admiralty registrar held that had it been necessary for him to decide this issue; he would have followed admiralty registrar Kay QC's decision.
As to the insurers' second argument, their starting point was that it would be open to the first defendant in in personam proceedings to contest liability and/or the sums for which the registrar gave judgment in rem. The insurers argued that admiralty registrar Kay QC's judgment of 24 February 2020 was not an in rem judgment because it did not determine the status of the res, ie the "POSEIDON". The insurers submitted that the registrar's determinations were in personam decisions and, accordingly, they did not bind all the world and were not conclusive evidence of the matters decided therein.
The admiralty registrar stated that this submission was contrary to the general understanding of practitioners as to what is meant by an in rem judgment. The admiralty registrar held that the proceedings before admiralty registrar Kay QC were quite clearly in rem proceedings in that they were brought against a res, the "POSEIDON", and they established rights over the res which were good against all the world. The admiralty registrar went on to state that, without deciding the point, the insurers were probably correct to say that the judgment in the in rem proceedings against the "POSEIDON" could not be directly enforced against the first defendant. However, the admiralty registrar stated that the cases upon which this point had been decided were in relation to enforcement in in rem proceedings, whereas, in the present case, the claimant was not seeking to enforce the in rem judgment against the first defendant, the claimant had brought an entirely fresh action.
Quoting from Admiralty Jurisdiction and Practice, 5th Ed, the admiralty registrar stated it is a well-established principle that even though judgment has already been obtained in a claim in rem, a party may bring a subsequent claim in personam in respect of the same claim, unless the proceeds of sale are sufficient to cover the damages. The admiralty registrar stated that, in such a claim, it does not follow that the defendant is entitled to re-litigate all the issues in the in rem action. The admiralty registrar held that as against the first defendant the judgment in rem was conclusive evidence of the matters therein decided and it was not open to the first defendant to go behind it. This was because although the first defendant was not, strictly speaking, a party to the in rem proceedings, it was at least indirectly impleaded to be affected by the judgment of the court. Quoting from The "Parlement Belge" (1880) LR 5 PD 197 (CA) at 218, the admiralty registrar stated that the liability to compensate was fixed not merely on the property, but also on the owner through the property. The admiralty registrar went on to state that it was clear that in this subsequent action in personam the first defendant was bound by the determinations in the in rem claim, and there was therefore no point at all in setting aside the default judgment.
In case his decision was wrong, the admiralty registrar went on to set out a number of reasons as to why he would not anyway, as a matter of discretion, set aside the judgment. One of the reasons being that the insurers had a full opportunity to participate in the in rem proceedings which, if they wished to contest the quantum of the claim, would have been the proper thing to do, but they deliberately decided to take no meaningful part.
Accordingly, the admiralty registrar dismissed the insurers' application, and in doing so held that to allow the insurers to re-litigate the claimant's claim would be an abuse of process.
The claimant's application for summary judgment
The admiralty registrar held that as the parties had settled, it was unnecessary, and would be inappropriate, for him to promulgate his judgment on this aspect.
This is an important decision which makes clear that determinations made in an rem claim can bind an owner, or their insurers, in a subsequent action in personam. However, and although the point was not officially decided by the registrar, it appears that a judgment in rem cannot be directly enforced against an owner, a fresh action in personam is required.
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