• No results found

MARINE INSURANCE Review

N/A
N/A
Protected

Academic year: 2021

Share "MARINE INSURANCE Review"

Copied!
6
0
0

Loading.... (view fulltext now)

Full text

(1)

MARINE INSURANCE

Review

A quarterly review of marine insurance risks Issue 11: December 2013

Personal Injury l Property & Construction l Insurance l Commercial & Financial Risks l Fraud l Health & Safety l Motor Prosecutions In this issue

- Reform, Beware

- Strict Liability or Not - Time will tell - The Lady Tramp

- Limited Right to Appeal an Arbitration Award to the Court of Appeal

- Policy Coverage - ISM Compliant Only a Documentary Requirement

Seminars

- A Date for your Diary

REFORM, BEWARE

The Jackson reforms came into effect from 1 April 2013 and were the net result of Lord Justice Jackson's review of legal costs. These reforms apply to the Civil Procedure Rules and general litigation within the United Kingdom. The extent to which they may apply to businesses should not be underestimated. For example, any contracts containing English law and jurisdiction clauses and any personal injury claims falling within the UK jurisdiction will be affected by the reforms.

The intention of the review and subsequent reform was to streamline the litigation process, making it both more efficient and cost effective. The prevailing themes being proportionality and less tolerance for default or non-compliance with the Civil Procedure Rules, practice directions and/or orders. Practitioners should now be very wary of varying directions without the approval of the court. In considering an application for variation or extension, which should not be made retrospectively for want of the risk of strike out, the court is now obliged to consider all of the circumstances of the case with an overriding view of efficiency and proportionality.

Reforms regarding disclosure, funding and formal offers have also been altered to the effect that they should now deter frivolous claims whilst focusing the mind of the defendant on early settlement and reasonable offers. This being achieved by shifting the costs benefit/risk balance to promote efficient and economic settlement of justifiable claims.

Perhaps the biggest impact of the reforms relates to costs budgeting. Parties are now obliged to forward plan litigation, consider likely costs and agree the same before attending the

first case management conference. In the absence of agreement the court is encouraged to review costs for the parties and if any of the parties fail to file a costs budget in time, or at all, they will be limited to recovery of only court costs. Furthermore, parties cannot exceed the proposed budget without good reason for doing so. Matters to be heard in the Admiralty Court are exempt from the provision, but one should not be complacent given the court has ultimate discretion to make costs management orders in any case.

Whilst still in its infancy, the application of the reforms has to date been uncertain and inconsistent with some judiciary taking a stricter approach than others.

The judgment in Andrew Mitchell MP -v- News

Group Newspapers Limited [2013] handed

down on 27 November 2013 now provides some clarity and guidance on the approach to be taken when dealing with applications for relief from sanctions. The Court of Appeal held that Mr. Mitchell's legal costs were to be limited to court fees only for failing to meet the Rules.

The Court of Appeal took the opportunity to emphasise that courts will consider both the need for litigation to be conducted efficiently and at a proportionate cost, as well as the need for enforcement of compliance with the Rules, practice directions and court orders as considerations of paramount importance.

Regard will still be had to 'all the circumstances

of the case' within the Rules, but this will be

given less weight than the aforementioned considerations. Furthermore, there will only be very defined exceptional circumstances whereby a court that imposes a sanction can

Bristol

One Redcliff Street BS1 6NP T. 0117 910 0200

London Bedford Square

18 Bedford Square WC1B 3JA T. 020 7323 4632

London Market Office

77 Gracechurch Street EC3V 0AS T. 020 7220 7818 Manchester City Tower Piccadilly Plaza Manchester M1 4BT Milton Keynes 2 Eskan Court Campbell Park MK9 4AN T. 01908 298200

Southampton

3600 Parkway The Solent Centre, Solent Business Park, Fareham PO15 7AN T. 01489 882900

(2)

MARINE INSURANCE

Review

Page 2 of 6

REFORM, BEWARE CONT’D

vary or revoke an earlier order. Insignificant failures to comply, or failures of form rather than substance will usually attract relief, anything else will require a good reason for the failure. Administrative difficulties will not be considered

a good enough reason. It was further reiterated that applications made promptly to extend a time limit before the expiry of the same will be looked at more favourably.

Clearly, the intention of this decision was to send a warning shot across the bows; parties who fail to comply with the Rules do so at their peril.

Perhaps as a natural consequence of the economic down turn the extent to which charterparty clauses are being scrutinised and tested is on the increase.

The Court of Appeal has recently affirmed a decision in which it was asked to determine the extent of the exception in a laytime clause in the case of ED&F Man Sugar Ltd -v- Unicargo

Transportgesellschaft GmbH (Polska Zegluga Morska PP, interested party), 'The Ladytramp' [2013] EWCA Civ 1449.

The Facts

Charterers, ED&F Man Sugar Ltd, chartered "The Ladytramp", owned by Unicargo

Transportgesellschaft GmbH, to carry a cargo of sugar. On 9 June 2010, the voyage charterparty was concluded on the "Sugar Charter Party

1999" form, "1-2 safe berth(s), 1 safe port (intention Santos) but not south of Paranagua".

It declared Paranagua, Brazil, as the loading port. On 4 June 2010, local agents advised the parties by email that a fire had occurred at the terminal of the loadport where the vessel had

been scheduled to load. The conveyor belt system linking the terminal to the warehouse had been destroyed. On 15 June 2010, the agents advised that the berthing programme had to be changed to another terminal in Paranagua. On arrival on 20 June 2010 the vessel tendered a valid notice of readiness to load, but in the absence of an available berth remained off port until 14 July 2010. She then weighed anchor and entered the inner road of the port awaiting berthing instructions. ED&F Man Sugar Ltd were unable to deliver the cargo

STRICT LIABILITY OR NOT - TIME WILL TELL

THE LADY TRAMP

Historically, duties imposed by some of the health and safety regulations relating to employer liability claims have been 'strict', in the sense that they impose liability even where every reasonably practicable precaution has been taken to avoid injury or harm to employees. The burden went as far as imposing liability under the regulations even where there was no liability in the common law of negligence. So, for example, in the often cited case of Stark -v- Post Office [2000] it was held that the defendant employer was liable for a defective bicycle provided to its employee despite rigorous inspection having not revealed the defect.

As a result of research commissioned by the Government and perhaps in line with the various reforms recently implemented to curtail a compensation culture, the Enterprise and

Regulatory Reform Act 2013 came into force on

1 October 2013. Specifically, s.69 of the Act, applying to England, Wales, Scotland and to a certain extent, Northern Ireland, purports to abolish the strict liability regime altogether for a breach of statutory duty by allowing the employer to mount a defence under the common law principle of having taken all

reasonable steps to avoid or reduce the risk of injury.

However, care should be taken to note the limitations of the 2013 Act. It does not apply retrospectively but only to breaches of duty occurring after 1 October 2013 and even then

s.69 of the 2013 Act will only relate to health

and safety regulations as defined or made under the Health and Safety at Work etc. Act

1974, i.e. 'the six pack regulations', and/or the

existing statutory provisions (listed in schedule 1 of the 1974 Act). Section 15 of the Health and

Safety at Work etc Act 1974 specifically

precludes its provisions from applying to work conducted on vessels outside of Great Britain, although the 1974 Act does state that for the purpose of the Act the words 'premises' and 'buildings' will include vessels. However, given that most, if not all, health and safety

regulations relating to merchant shipping and fishing vessels stem from powers conferred by the Merchant Shipping Act 1995, not the Health

and Safety at Work etc Act 1974, section 69 of

the Enterprise and Regulatory Reform Act 2013 should have little or no effect on the shipping health and safety regulations.

Therefore, employer's liability for personal injury claims brought by crew members injured at sea or onboard vessels within the United Kingdom, or where UK legislation otherwise applies, will not be subject to the strict liability regime. Where a member of staff is injured within a UK Port, so long as the accident occurs after 1 October 2013, the Enterprise and Regulatory

Reform Act 2013 will strip away the legislative

burden previously imposed.

Furthermore, whereas traditionally even where an employee held a high degree of culpability for the accident giving rise to his injuries awards for contributory negligence have remained relatively modest, the removal of the strict liability regime may now result in judges taking more into account the claimant's own actions and also the vicarious liability of contractors. We are already starting to see examples of this from the Supreme Court, e.g.

Woodland -v- Essex County Council [2013].

In any event, it appears that the intention of Parliament in implementing the Enterprise and

Regulatory Reform Act 2013 Act is to reduce

bureaucracy and avoid unfairly reprimanding the reasonable and prudent employer.

(3)

MARINE INSURANCE

Review

Page 3 of 6

THE LADY TRAMP CONT’D

to the second alternative terminal, having to utilise a third terminal instead. Loading commenced on 18 July 2010 and was completed on 20 July 2010.

Arbitration

Owners claimed demurrage from charterers for the period during which the vessel had to wait at the loading port and, following arbitration proceedings in 2012, an award was made in favour of owners awarding them demurrage.

Clause 28 of the charterparty provided that time

lost as a result of, amongst other things, mechanical breakdowns at mechanical loading plants would not count as laytime. The tribunal found, and the first instance court agreed, that

Clause 28 made no reference to fire as an

excepted peril and that the inoperability of the conveyor belt was as a result of physical damage from the fire rather than mechanical breakdown.

Court of Appeal Decision

Charterers appealed, but their appeal was dismissed.

The Court of Appeal agreed with the tribunal's and the first instance court that as a matter of ordinary language and common sense, the destruction of an item was not within the scope of the term 'breakdown', still less within the term 'mechanical breakdown'. The court considered that the word 'mechanical' served to restrict the word 'breakdown' which must be established for the purposes of the exception. Thus, it

concluded that what was required was a breakdown of a mechanical nature.

Furthermore, Clause 28 contained no reference to fire whilst other clauses within the

charterparty did, which affirmed the courts view that the intention of Clause 28 was not therefore to include fire as an excepted peril.

The court further held that owners were entitled to rely upon the contra proferentem principle (any exception clauses or ambiguous terms are to be construed against the party who imposed its inclusion within the contract).

Comment

The courts will have no qualms about scrutinising the terms of a charterparty to this extent. The inclusion of the word 'mechanical' proved critical and distinguished the case. The decision emphasises that exception clauses are to be construed against the party relying upon them. This is in line with the commercial purpose of the laytime and demurrage regime which entitles owners to demurrage if laytime is exceeded, and they will only be deprived of that demurrage if one of the exceptions or

circumstances specified in the charterparty applies.

LIMITED RIGHT TO APPEAL AN ARBITRATION AWARD TO THE COURT OF APPEAL

Kyla Shipping Company Ltd -v- Bunge SA (2013) EWCA 734

The Facts

The vessel , "MV Kyla", a nearly 30 year old bulk carrier, was time chartered for a period of 12 to 15 months at the charterers' option on a

NYPE 1946 form charterparty. The owners

warranted that they would fully cover the vessel throughout the charter against hull and machinery risks for $16 million. Subsequently, the "MV Kyla" was badly damaged in a collision whilst docked in a South American port. The owners argued that since the cost of repairs ($9 million) would exceed the vessel’s value ($5.75 million) they were entitled to and so tendered a notice of abandonment to the insurer, asserting that the vessel was a constructive total loss and the charterparty was frustrated.

Arbitration

The dispute was referred to arbitration in London and the arbitrator upheld the owners’ position on the grounds that the owners' obligations under the charterparty had become radically different or commercially impossible

since the repairs were uneconomical.

High Court Decision

The charterers appealed the arbitrator’s award on a point of law, namely, the effect of the clause in the charterparty by which owners warranted that, throughout the period of the charterparty, the vessel’s hull and machinery would be kept fully insured up to a stated limit ($16 million). The charterers argued that this clause, along with the repairing obligation in the

NYPE 1946 charterparty, amounted to an

allocation to the owners of the risk of damage to the vessel costing less than the insured value to repair. They submitted this meant that owners were obliged to repair the vessel up to the sum insured ($16 million) and they could not rely on the fact the cost of the repairs exceeded the sound value of the vessel.

The High Court agreed with charterers. They found that the charterparty went further than the standard clauses in the NYPE form

charterparty. The owners could not argue that the damage had been sufficient to frustrate the charterparty because the charterparty

contained an express continuing warranty with regards to the insurance and the limit of liability. The parties allocated the risk in the charterparty so that where the vessel was damaged and the cost of repair was within the insured value, the repairs would be covered by the owners (through their insurers). So, contrary to the arbitrator’s findings, the contract was not frustrated; and, owners were in breach of contract for failing to carry out the repairs and return the vessel to charterers so they could perform the remainder of the charter period.

This decision raises a number of practical difficulties for owners of a time-chartered vessel. They will be required to commence repairs as quickly as possible. owners are likely to be entitled to an indemnity under their hull and machinery insurance. However, the requirement to get on with the repairs is unlikely to synch with the investigations of hull and machinery underwriters. The most common standard hull clauses allow insurers to decide on or reject the place of repair. The court held in this case that issues of this nature were part of the commercial risk borne by owners.

(4)

MARINE INSURANCE

Review

Page 4 of 6

The owners sought permission to appeal the High Court decision but this was refused on the grounds that the case was not one of general importance. The High Court considered that the reason why the dispute arose was because owners chose to walk away from the charterparty, without repairing the ship, even though the insurers were prepared to the repair the vessel. The High Court judge called it a

‘self-induced frustration’. The Court of Appeal decision

Owners appealed to the Court of Appeal in respect of the High Court's refusal to allow them the right to appeal. The Court of Appeal declared that it had no jurisdiction to decide whether to grant permission to appeal. The jurisdiction to set aside a refusal of permission can only be granted where that refusal has come about as a result of unfair or improper

process, so that the decision to refuse cannot be categorised as a decision at all. A person complaining about the refusal of permission to appeal under the Arbitration Act has a difficult task to be successful.

The Court of Appeal appreciated that the decision was a disappointment for the owners, but advised “that if shipowners wanted to have

readier access to the expertise of this court, they should agree to the High Court resolving their disputes in the first place”. Had this been

an appeal from a judgment of the High Court under a litigation clause, rather than an appeal of an arbitration award, owners would automatically have had the right to appeal to the Court of Appeal for permission to proceed to an appeal.

Comment

The Court of Appeal's refusal to grant owners permission to appeal the arbitration award confirms the more limited rights of appeal where the parties have provided for their disputes to be resolved in arbitration under English law as opposed to by referral to the English courts. The High Court decision as it stands suggests that where a charterparty contains a Kyla-type repairing obligation and a stated insured value, owners will usually be obliged to repair the ship, even if the repairs are wholly uneconomical, provided they are within the insured value. This decision has come as a surprise to owners and their insurers.

LIMITED RIGHT TO APPEAL AN ARBITRATION AWARD TO THE COURT OF APPEAL

CONT’D

POLICY COVERAGE - ISM COMPIANT ONLY A DOCUMENTARY REQUIREMENT

In the case of Sea Glory Maritime Co &

Swedish Management Co SA -v- Al Sagr National Insurance Co [2013] EWHC 2116 (Comm) QBD (Comm) - 17/07/2013, the

registered owners of the vessel "Nancy" (first claimant) and the vessel's commercial and technical managers (second claimants) successfully recovered under a hull and machinery policy for the constructive total loss of the vessel, subject to giving credit for residual value and refund of premium, and the Commercial Court rejected attempts by marine underwriters to avoid cover for material misrepresentation, non-disclosure, breach of warranty and illegality.

The Facts

The insured vessel was a 1980 built bulk carrier. Following a fire, the insured claimed for a constructive total loss of the vessel. Insurers avoided the policy on the grounds of alleged non-disclosure and/or material

misrepresentation as regards the vessel’s management - the insurers alleged that a third party company were the technical and commercial managers when they were in fact chartering brokers.

Subsequently, underwriters raised additional defences of non-disclosure of Port State Control (PSC) detentions, breach of an express International Safety Management (ISM) Code warranty and breach of the implied warranty of legality under s.41 of the Marine Insurance Act

1906 for violation of US sanctions against Iran

-the vessel had been chartered in early 2009 to carry cargo from Iran to China for a Hong Kong charterer; payment by the charterer was processed by the claimants United States bank in US dollars; and underwriters alleged that by asking the US bank to process the payment they were in breach of US legislation.

Decision

The Commercial Court found that the third party company alleged by insurers to be the technical and commercial managers of the vessel had acted as chartering brokers and provided other assistance, however, they were not the technical or commercial managers, so there was no material misrepresentation or non-disclosure. The expert evidence revealed that the second claimant maintained such control that even if it had been disclosed that the third party company was involved as chartering

brokers this would not have influenced underwriters assessment of the risk.

The court also found that the vessel had five detentions in the four years before inception of the policy, however, all deficiencies had been rectified to the satisfaction of class. The underwriter admitted in evidence that most elderly vessels had a prior history of PSC inspections or detentions. If he had been told that the deficiencies had been rectified, he would have written the risk on the same terms. Therefore, any non-disclosure of the detentions had not induced him to write the risk. It also found that the claimant had not deliberately failed to disclose information about the detentions in order to obtain cover, so there was no inducement.

As far as the Marine Insurance Act 1906 s.18(3) was concerned, the court stated the fact that the information about the detentions was available to underwriters online on Lloyd's List intelligence did not necessarily mean that an insurer will be presumed to have knowledge of that information or that he has waived disclosure of it.

(5)

MARINE INSURANCE

Review

Page 5 of 6

In addition, the court considered the extent of the express “Vessels ISM Compliant” warranty contained within the policy. It found that this was a continuing warranty, requiring

compliance with the ISM Code at inception and throughout the policy period. However, it held that this required only documentary compliance by production of valid ISM certificates. It was found that the vessel had valid ISM certificates throughout the period and, accordingly, there was no breach of warranty for non-compliance.

It was an implied warranty in the policy that all adventures must be carried out legally under

s.41 of the Marine Insurance Act 1906. The

court found that the shipowners correspondent

bank in New York had processed payments of freight invoices in US dollars under a charter from Iran to China in inadvertent contravention of US sanctions. Although this was illegal under US law, the court held that there was no breach of the implied warranty on the basis the claim was entirely unconnected with the breach of US law, there was no causative connection between the illegality and the claim for an indemnity, and nor was there any reason why public policy should give insurers a defence to such a claim. In addition, payment of freight transport was not within the insured adventure. The implied warranty was that the adventure should be performed lawfully according to English law, and not foreign law.

Comment

The case highlights the difficulties often faced by insurers when trying to rely on non-disclosure and material misrepresentations to avoid cover, and the limits of the implied warranty of legality. Significantly, the decision also suggests that as with class warranties, ISM warranties will usually be construed as requiring documentary compliance only. Therefore, if insurers wish to obtain wider protection they will need make these warranties more specific.

POLICY COVERAGE - ISM COMPLIANT ONLY A DOCUMENTARY REQUIREMENT CONT’D

Further information

If you would like further information about Greenwoods’ marine offering or to discuss any of the cases or issues featured in this Review, please contact:

Gemma Pearce Milena Iyer

0117 910 0237 01489 882 934

glp@greenwoods-solicitors.com mai@greenwoods-solicitors.com

To subscribe or unsubscribe from this newsletter, please email crm@greenwoods-solicitors.com

Other Greenwoods publications

Greenwoods produces a number of regular publications on various topics, namely:

PROPERTY, CONSTRUCTION & INSURANCE REVIEW (Monthly) FRAUD REVIEW (Bi-monthly)

MOTOR CRIME FOCUS (Quarterly) H & S REVIEW (Quarterly) PI Alert (Weekly)

If you would like to subscribe to any of the above publications, please email crm@greenwoods-solicitors.com, indicating which you would like to receive.

A Date for Your Diary

Our “An audience with…..” series restarts on 21 January 2014 at 6.00 p.m. (central London) with Caroline Mitchell, of the Insurance Ombudsman Service. There are just a few places remaining, on a first come, first served basis, so if you have not already booked a place and wish to attend please contact crm@greenwoods-solicitors.com

(6)

MARINE INSURANCE

Review

Page 6 of 6

The information and opinions contained in this document are not intended to be a comprehensive study, nor to provide legal advice, and should not be relied on or treated as a substitute for specific advice concerning individual situations. This document speaks as of its date and does not reflect any changes in law or practice after that date.

Greenwoods Solicitors is a trading name of Parabis Law LLP, a limited partership registered in England & Wales. Parabis Law LLP is authorised and regulated by the Solicitors Regulation Authority. Registered office: 8 Bedford Park, Croydon, Surrey, CR0 2AP under number OC315763.

References

Related documents

• Any insurance contract is an aleatory contract, which means that the occurrence of an accident giving rise to a claim under the policy has to be uncertain and fortuitous� As

In this review, the research carried out using various ion-exchange resin-like adsorbents including modified clays, lignocellulosic biomasses, chitosan and its derivatives, microbial

ters of bed places located in the rural areas, in the EU-27, this sector already plays a major role in the rural economy (European Commission, 2011), and it plays a fundamental

. Effects %ike destruction of enemies, inf%uA of many kinds of $ea%th, regu%ar f%uA of many kinds of $ea%th, regu%ar $orship of gods Brahmin, preceptor, entertainment of kinsmen,

The management task, logistics organization, the logistics information systems topology of supply chain application, ERP, CRM, JIT, Warehouse management system, product

4/4 sized tubas are more appropriate for high school aged tuba players.. These should be comfortable for your students to perform on and will produce a big sound to support

 Determine the unit increment in the HCPCS code definition (noted on the LTC HCPCS Listing. in the unit

34 (1) Where the owner of a boiler or plant shows to the satisfaction of the chief inspector that the owner is unable, because of some exceptional circumstance, to obtain