The vessel Zoorik, owned by the Islamic Republic of Iran Shipping Lines ("IRISL"), was entered with the Steamship Mutual ("the Club"). On 9 October 2009, the Financial Restrictions (Iran) Order 2009 came into force. It prohibited transactions with IRISL, but HM Treasury issued Licences permitting the Club to provide certain specified insurance cover to IRISL. On 30 October 2009, the Club terminated cover, on the ground that the contract of insurance had been discharged by reason of frustration or supervening illegality: the Club's view was that the Licence meant that it was no longer permitted to insure IRISL. The following day, the Zoorik suffered a casualty, causing bunker oil pollution, and became a CTL. IRISL claimed under the insurance.
IRISL's claim succeeded.
- The Licence permitted the Club to provide IRISL with cover for risks required to be insured by reason of the Bunkers Convention 2001.
- The Order and the Licence did not frustrate the contract of insurance. The scope of permitted cover was narrowed, but its nature was not different. The purpose of the contract was to provide indemnity insurance, and part of that purpose remained lawful.
(Islamic Republic of Iran Shipping Lines v Steamship Mutual, High Court, 26 October 2010)
Oil major approval – meaning of "oil major"
Charterers terminated a five-year charter, claiming to exercise their contractual right to cancel on the basis that the ship had failed three consecutive oil major vetting reviews or inspections. Owners disputed the right to cancel.
Charterers were entitled to cancel.
- The ordinary and natural meaning of "oil major" includes all six major oil companies. Nothing in the charterparty confined the natural meaning of the phrase.
- It did not matter that, after the first rejection by an oil major, the ship had passed a BP inspection. This was because the BP inspection was commissioned by the owners, but the charterparty provided that the three relevant reviews/inspections had to follow a nomination by the charterers to an oil major.
- The judge rejected owners' argument that charterers had to prove that the latest SIRE report was an effective cause of the rejection. Neither the language of the contract nor the factual background supported such a construction. The fact that the SIRE reports were considered as part of the process of nomination and review was sufficient.
(Dolphin Tanker v Westport Petroleum, High Court, 21 October 2010)
FOB sale – whether implied term that goods would remain on-spec after delivery
Gasoil was sold on FOB terms. There was provision for conclusive inspection at delivery. That inspection found the cargo on-spec. However, at discharge port the cargo was found to be off-spec. The receivers rejected the cargo, and the buyers claimed damages from sellers.
At first instance, the judge found that: (1) there was an implied term at common law that the cargo would remain in accordance with the contractual specification for a reasonable period after delivery; (2) terms implied by the Sale of Goods Act could only be excluded by express exclusions of "conditions"; and (3) there was an implied term under Sale of Goods Act 1979, s 14(2) that the cargo would remain "of satisfactory quality" for a reasonable time after delivery. The sellers appealed to the Court of Appeal against (1) and (2).
- Appeal allowed. The implied term was not part of the intention of the parties. If it were otherwise, the whole point of a conclusive inspection clause would be lost.
- If a seller wishes to exclude the Sale of Goods Act conditions, he must do so by express exclusion of "conditions". A conclusive inspection clause replaces or redefines the statutory implied terms as to quality.
(The Mercini Lady, Court of Appeal, 19 October 2010)
Employer liable for employee's theft from container
Brink's contracted with a London bank to carry bars of silver from London to India. The silver was packed on wooden pallets which were put into a container at the bank's vaults. The container was taken to the Thamesport container terminal, where it was placed in a secure fumigation compound, as the pallets had to be fumigated.
Brink's instructed Hyundai (the ocean carrier) to arrange fumigation. Hyundai instructed Thamesport, which in turn engaged Igrox. Igrox instructed 2 of its employees to carry out the work. They removed the seal and inspected the cargo but did not fumigate it. They then re-sealed the container. One of them returned later, and stole 15 bars of silver. Brink's (as bailee) sued Igrox. Igrox argued that the thief was acting outside the scope of his employment, so they were not liable.
Igrox were liable. It was appropriate to consider whether the wrongful act could fairly be regarded as a risk reasonably incidental to the purpose for which the wrongdoer was employed. There was a sufficiently close connection between the theft and the purpose of the thief's employment to make it fair that Igrox should be held vicariously liable.
(Brink's Global Services v Igrox, Court of Appeal, 27 October 2010)
Ship conversion contract – whether appeal from arbitration allowed on point of fact
Disputes arose under a ship conversion contract. The shipowners were successful in arbitration, and the shipyard appealed. Part of their appeal concerned a question of fact. The arbitration clause stated: "The parties agree that either party may appeal to the English High Court on any issue arising from the award", and the shipyard argued that the parties had agreed that there could be an appeal on a point of fact.
That part of the shipyard's appeal would be struck out:
- As a matter of construction, what the parties intended was to dispense with the need to obtain permission for appeal on a question of law;
- Even if the parties had agreed to allow an appeal on a question of fact, it was very doubtful whether the court had jurisdiction to hear such an appeal.
(Guangzhou Dockyards v E.N.E Aegiali I, High Court, 5 November 2010)
Shipbuilding contract – whether liquidated damages clause void as a penalty
A shipbuilding contract provided that if the builder exercised his contractual right to terminate in the event of buyer failing to pay a sum due, then builder could retain 20% of the contract price by way of liquidated damages. The buyer failed to pay the first instalment, and the builder demanded the 20% from the guarantor of the buyer's obligations. The guarantor argued that the sum was not payable, as it was a penalty.
- The clause was not even arguably a penalty. Both parties were legally represented in the contract negotiations, and the evidence showed that the clause was commercially justifiable and its purpose was not deterrent.
- If the clause had been a penalty, the sum could not have been recovered from the guarantor: it would be contrary to principle to allow indirect enforcement of a penalty.
- If the clause had been a penalty, builders would still have been entitled to summary judgment for the first instalment.
(Azimut-Benetti v Darrell Marcus Healey, High Court, 3 September 2010)
GAFTA arbitration – whether party to the substantive proceedings may challenge validity of arbitration agreement
Alfred C. Toepfer International (Toepfer) commenced GAFTA arbitration in London against Broda Agro Trade ("Broda"), for breach of a contract for sale of milling wheat. Broda (whose principal place of business was in Russia) alleged that there was no concluded contract, and obtained an order from the Russian Courts to that effect.
The GAFTA tribunal stated that it would make a separate decision on its jurisdiction. Broda disputed the jurisdiction in two letters, but made no formal submissions. On 3 July 2008, the tribunal held that it had jurisdiction. (It noted, but disagreed with, the Russian Court decision.)
On 3 September 2008, Broda served and filed respondents' submissions. Toepfer served reply submissions, and Broda served a respondents' rejoinder. On 19 February 2009, the tribunal issued its final award in Toepfer's favour. On 12 August 2009, Broda presented appeal submissions to the GAFTA Board of Appeal.
On 2 October 2009, Broda applied to the Court for (1) a declaration under Arbitration Act 1996, s 72 that there was no valid arbitration agreement; or (2) an extension of time for making an application challenging the tribunal's jurisdiction under s 67. The High Court dismissed Broda's application, and Broda appealed to the Court of Appeal.
The appeal was dismissed.
- A person who takes no part at all in arbitral proceedings may challenge the jurisdiction of the tribunal under s 72. It was not straightforward to decide whether Broda had participated in the proceedings on jurisdiction, but it was unnecessary. A person who participates in the proceedings, either in relation to the jurisdiction of the arbitrators or in relation to the substantive issue cannot challenge the jurisdiction under s 72.
- At first instance the judge held that the reason the time expired was that Broda did not obtain English legal advice until 21 August 2009, and were not aware of the 28-day time limit for a s 67 challenge. The judge held that there was considerable delay (14 months), caused by Broda's unreasonable failure to seek English legal advice. He refused to extend time. On appeal, the Court held that Broda had failed to show that the judge had erred in this exercise of his discretion.
(Broda Agro Trade (Cyprus) Ltd v Alfred C Toepfer International, Court of Appeal, 12 October 2010)
GAFTA 49, clause 6 – meaning of "in readiness to load"
Sellers sold feed barley FOB to buyers on the GAFTA 49 contract, clause 6 of which stated "Provided the vessel is presented ... in readiness to load within the delivery period, Sellers shall if necessary complete loading after the delivery period".
Shipowners served NOR on the last day of the delivery period. Buyers' surveyors issued a certificate of cleanliness, but sellers' surveyors found the vessel unclean. Sellers declared buyers in default due to vessel not being presented ready to load. Buyers sued for non-delivery of the cargo. GAFTA arbitrators dismissed sellers' claim, but the GAFTA Board of Appeal and the High Court both upheld it. Sellers appealed to the Court of Appeal.
The appeal was dismissed. Being "in readiness to load" under clause 6 did not mean that the vessel had to be in a position to issue NOR. The technical rules about notices of readiness had been incorporated into the sale contract for the purposes of laytime and demurrage. It did not follow that they had been incorporated for all purposes.
A valid NOR was not required for determining whether the vessel had arrived during the delivery period. All that had to happen within the delivery period was that the vessel must be presented in readiness to load. The fact that holds needed cleaning did not mean that sellers could throw up the contract on the basis that no vessel had arrived during the delivery period.
(Soufflet Negoce v Bunge, Court of Appeal, 13 October 2010)
Whether commodities broker liable for closing out trader's positions
Under a futures trading agreement, the trader agreed to pay on demand sums due by way of margin required to protect the broker against risk of loss. The trader built up a substantial short position, and the broker sent a margin call by email. The trader stated that it would not pay any margin call unless there was an agreement with all its brokers for co-ordinated reduction of its positions. Seven hours after the margin call, the broker liquidated the trader's positions, and sought to recover its losses from the trader. The trader argued that the margin call was void, and that the broker was not entitled to liquidate the positions.
The broker was entitled to close out the positions:
- The parties had agreed by conduct that the broker could demand by email payment of the margin.
- The trader's failure to pay within seven hours was a breach of its obligation to pay on demand.
- The broker would not be liable except (as provided in its terms of business) for losses arising directly from its gross negligence, wilful default or fraud. The natural reaction of a broker, anxious to mitigate his exposure (and his client's liability), was to close out the position quickly. In this case, the broker had closed out the positions in a professional and competent manner.
(Marex v Fluxo-Cane, High Court, 27 October 2010)
Insurance of floating dock – whether there had been fair presentation of risk – whether dock seaworthy
A floating dock sank while being towed from Russia to Vietnam. The insurers avoided the policy for (a) non-disclosure of the assessment part of the towage plan; and (b) unseaworthiness.
The insurers were not entitled to avoid:
- There had been disclosure of the information which the insurers claimed they had not been given. The disclosure made constituted a fair presentation of the risk, and included the wave height limit in the towage plan assessment.
- On the evidence, the dock was not unseaworthy.
(Garnat Trading & Shipping v Baominh Insurance, High Court, 19 October 2010)