BULLETINS

La Boussole - French Shipping Bulletin, February 2022

We wish you all a very happy (and hopefully better) new year and are pleased to start 2022 with a new edition of La Boussole and an overview of the recent hot topics in shipping under French law.

Direct Action Against P&I Clubs Vs Arbitration Clause: Who Wins?

As some of you may have experienced, France can be rather dogmatic in its approach to legal principles.

French law contains a well-established right to pursue a direct action against a liability insurer. The purpose of a direct action is to allow a victim to be compensated for the damage it has suffered and avoid potential difficulties in relation to the insured, by directly apprehending the insurance indemnity without it falling into the insured's assets. In practice, the victim will therefore act directly against the liability insurer.

On the other hand, through both statute and case law, France has proved its strong will to promote arbitration.

What happens when there is a conflict between the principle of direct action and France's policy to protect and promote arbitration?

This question is a particularly topical issue when it comes to direct action against P&I clubs. P&I club rules very often contain arbitration clauses that apply generally to the relationship between the P&I Club and its Member. Could the existence of such an arbitration clause constitute an obstacle to the victim bringing a direct action against a P&I Club before a French Court?

The response is definitely yes.

French Courts consider that the arbitration tribunal has exclusive jurisdiction to rule on its own jurisdiction and thus that the state courts have no jurisdiction. This principle is known in French law as the "negative sense of the principle "Kompetenz-Kompetenz". In this regard, Article 1448 of the French Civil Procedure (extended to international arbitration by the operation of Article 1506 of the same code) provides that: "Where a dispute under an arbitration agreement is brought before a state court, the state court shall decline jurisdiction unless the arbitral tribunal is not yet seized and the arbitration agreement is manifestly void or manifestly unenforceable." The arbitral tribunal is therefore the sole judge of its jurisdiction and the state courts have no jurisdiction to decide the dispute or to rule on the validity of the arbitration clause, unless the latter is manifestly void or unenforceable. This principle is now enshrined in a constant jurisprudence, which states "it is up to the arbitrator to rule on its own jurisdiction" ¹

The consequence of this case law is that an arbitration clause that is drafted sufficiently widely to avoid being classified as manifestly unenforceable, and with an initial vocation to apply to the relationship between the P&I Club and its member, will, for the purposes of the application of the Kompetenz-Kompetenz principle, also apply to the claim made by the victim who is not a party to the rules of the P&I Club.

Therefore, on the basis of the arbitration clause contained in its rules, a P&I Club is entitled to challenge the jurisdiction of the French court seized by the victim by way of a direct action.

Stanislas Lequette, Partner

Footnote

1. Cass. Civ. 1, 1 December 1999, No. 97-21.488; Cass. Civ. 1, 16 October 2001, No. 99-19.319; Cass. Civ. 1, 16 March 2004, No. 01-12.493; Cass. Civ. 1, 9 June 2010, No. 08-21.377; Cass. Civ. 1, 17 March 2021, No. 20-14.360). This solution is also applied in maritime matters concerning direct actions against P&I Clubs (Cass. Civ. 1, 6 November 2019, No. 18-18.292; Cass. Civ. 1, 19 December 2018, No. 17-28.951; Court of Appel of Aix-en-Provence, ch. 2, 23 November 2017, No. 17/01932.

The Latest In French Maritime Employment Law

Several new developments in French employment law have implications for the maritime industry, including those related to the Covid-19 vaccine pass, SRPS, marine renewable energy, asbestos and Dismissal - TUPE.

COVID 19 Vaccine Pass: Law n° 2022-46 and Decree n°2022-51, both dated 22 January 2022, are applicable since 24 January 2022 and replace the health pass with the vaccine pass for persons over the age of 16 years. The vaccine pass is required to access places previously accessible with the health pass. It applies inter alia to restaurants, sports arenas and to long distance public transport within mainland France by air, rail (when booking is required) and road, as well as carriage by sea-going ships and cruise ships with catering or accommodation. It does not concern transport between mainland France and overseas departments / territories, Corsica, or international transport.

Employees must be informed of the application of the new provisions applicable within the company. The Economic and Social Committee must be informed and/or consulted. As previously, if an employee fails to comply with the obligation of vaccination and does not take days off, the employer is entitled to suspend the employment contract and the payment of salary. A meeting must be organised by the employer after 3 days of suspension in order to try to find a solution.

The French Maritime Affairs has just clarified that, for sea transport, passengers and crew members would not be required to hold a vaccine pass. Only the health pass would be required. The French Maritime Affairs is also working on the possibility for shipping crew to travel within France by train upon presentation of a recent negative Covid test and their seaman book, but only with the aim to justify that they were unable to be fully vaccinated due to their being on board a vessel for an extended period of time.

SRPS: Further to Order 2021-77 dated 27 January 2021 relating to the Services of Recruitment and Placement of Seafarers (SRPS), the following application regulations have been published:

• The Arrêté dated 3 June 2021, providing a new model of Certificate of Compliance for SRPS providers established in states which have not ratified the MLC or the Work in Fishing Convention, 2007 (No. 188).
• The Arrêté dated July 2021, fixing the minimum capital insured for the coverage of repatriation costs (EUR 5,000 per claim and per seafarer) and for other pecuniary losses (EUR 10,000 per claim and per seafarer). It applies to placement and recruitment agencies, but agencies recruiting seafarers on behalf of employers registered before 1 January 2022 benefit from transitional provisions and have until 13 May 2022 to provide the insurance certificate.
• The Décret n° 2021-1477 dated 10 November 2021, amending the provisions related to the registration procedure and the annual report to be sent by the SRPS to the competent authority.
• The Arrêté dated 30 Novembre 2021, providing a new template for the above-mentioned report.

Marine Renewable Energy (MRE): on 21 October 2021, the French Maritime Affairs published an updated version of its information sheet on the "Social conditions applicable to workers engaged in an activity related to marine renewable energy (MRE) on board a ship or at an offshore installation". (Consult the information sheet, in French, here)

Asbestos: In a recent ruling, the Court of Appeal of Aix-en-Provence confirmed that seafarers (whether or not they worked in establishments listed as giving right to the special retirement scheme for asbestos workers) must prove that they were actually exposed to asbestos during the execution of their employment contract to claim anxiety loss and cannot rely on the presumption of exposure which exists for onshore employees. In this matter, the court held that the seafarer must bring proof of the actual exposure, the breach of the employer's duty of care and of the anxiety resulting therefrom, which is compensated by a sum of EUR 5,000 (CA Aix-en-Provence, ch. 4-1, 7 janv. 2022, n° 19/17663).

Dismissal - TUPE: The Court of Appeal of Caen published an interesting judgment on the application of the legislation of the transfer of employees in case of transfer of the ownership of a vessel. The court considers that a fishing vessel, performing the same activity (fishing of common whelks) before and after the transfer of ownership, must be considered an "autonomous economic entity" and that the employment contracts must be transferred to the new owner (CA Caen, ch. soc. sect. 1, 13 janv. 2022, n° 20/01987). 

Stéphanie Schweitzer, Partner

An Update On French Environmental Law

On 22 August 2021, the law n°2021-1104 was enacted, thus creating a new set of criminal offences in addition to the numerous offences already existing under, inter alia, the Environmental Code, the Code of Transport and the Criminal Code.

Of particular note is the implementation of a general offence relating to water and/or air pollution that punishes any " deliberate violation of a particular obligation of prudence or safety provided for by law or regulation" that would result in "emitting into the air, throwing, discharging or allowing to flow into surface or underground waters or into the waters of the sea within the limits of territorial waters, directly or indirectly, one or more substances whose action or reactions lead to serious and lasting harmful effects on health, flora, fauna, […] or to serious modifications of the normal water supply system". Under Article L.231-1 of the Environmental Code, such an offence may lead to five years' imprisonment and a EUR 1 million fine that could reach EUR 5 million if the author of the offence is a corporate entity.

An offence punishing the endangerment of the environment and significantly increasing the penalties for some specific offences in the case that they " directly expose fauna, flora or water quality to an immediate risk of serious and lasting damage" has also been enacted. For instance, the unauthorized carriage of hazardous goods by land, rail or inland waters may now result in 3 years' imprisonment and a EUR 250,000 fine, reaching EUR 1 million if the author is a corporate entity.

In addition, the French legislator has set out new procedures and tools in order to allow the authorities to efficiently investigate and prosecute any environmental offences committed within the French territory or waters. Environmental inspectors – and not only police officers – are now entitled to detect any environmental infringements and the French investigators may now rely on regional offices composed of judges and prosecutors specializing in environmental matters.

Undoubtedly, these recent reforms demonstrate that the French authorities are now willing to adopt a firm position regarding environmental damage and to provide the public prosecutors and the civil society actors (NGOs, etc.) with new legal tools in order to prevent and fight environmental offences.

Taking into account the rising concerns regarding climate change and in the context of a significant increase in environmental litigation, numerous economic operators have launched important compliance programs in order to reduce their environmental footprint, setting out risk prevention processes and training their staff regarding the environmental and related criminal risks arising from their activities.

Michael Bekkali, Associate

Introduction Of Autonomous Ships And Drones Into The French Transport Code

A recent Ordinance on the navigation conditions of autonomous ships and drones modernizes the French Transport Code by introducing two new categories of floating craft: autonomous ships and drones.

Ordinance n° 2021-1330 of 13 October 2021 intends to remove obstacles to the navigation and operation of autonomous (i.e. operated by their own operating system) or remotely controlled floating crafts, without on-board personnel, while maintaining an overall level of safety and preserving the environment.

New Article L.5000-2-2 of the Transport Code defines an autonomous drone as " a floating surface or underwater craft operated remotely or by its own operating systems, without personnel, passengers or freight on board, and whose technical characteristics, in particular the limits of size, power and speed, are defined by regulation, without its gross tonnage being greater than or equal to 100".

Any autonomous floating craft exceeding this limit of a gross tonnage greater or equal to 100 will fall under the category of autonomous ship, which is defined by new Article L.5000-2-1 of the Transport Code, as " a vessel operated remotely or by her own operating systems, whether or not there are seafarers on board".

For the moment, a gross tonnage limit of 100 is the dividing line between these two categories, but the soon-to-be-adopted implementing acts may take into account other criteria such as size, power, speed and kinetic energy. The appropriate criteria are currently the object of discussions between the Legal Office of Maritime Affairs, the industry and professional seafarers' organizations.

1. The autonomous drone; a new category of floating craft with a specific regime

With the definition of the autonomous drone, Ordinance n° 2021-1330 creates a new category of maritime craft with its own legal regime, simpler and lighter than the regime applicable to ships.

Unlike ships, autonomous drones do not need a navigation title issued by the Maritime Administration to be allowed to sail. A mere declaration to the Maritime Administration will be sufficient.

However, the drone must:

• be registered on the register of maritime drones;
• display the French flag;
• be identifiable by an external marking; and
• be equipped with a device allowing its localisation at sea (new Article L.5241-2-1 A).

Moreover, the provisions relating to safety and the prevention of pollution provided in the Transport Code will apply to drones. The maritime authorities will also be able to prohibit the navigation of these crafts if they do not comply with the set requirements or if they present a danger to navigation.

The drone's owner or manager will also be under the obligation to take out a specific insurance, which shall have to cover, at least, the list of maritime claims within the meaning of the 1976 London Convention on Limitation of Liability for Maritime Claims (the "LLMC").

This provision shall also apply to any autonomous drone entering a French port.

The other side of the coin is that the drone's owner or manager will be entitled to invoke a limitation of liability as far as maritime claims are concerned.

Lastly, Article L. 5271-12 of the Transport Code specifies that " any operator of an autonomous drone must hold a navigation licence and follow a specific training for driving an autonomous drone at sea, corresponding to the category and use of the drone in question".

This navigation licence (high-sea navigation licence or maritime professional training certificate) is required to make sure that the drone operator has a good knowledge of the International Regulations for Preventing Collisions at Sea (COLREGs).

In the absence of any relevant training for the time being, drone manufacturers will thus have to offer a training module for operating drones at sea, which will be approved in advance by the maritime administration. Standard training content for drone operators is likely to be adopted by subsequent implementing acts, once there is enough data and experience available.

2. The autonomous ship; a ship sailing without an on-board crew

Traditionally, under French law, a ship is considered fitted out when she is provided with the necessary material, administrative and human resources for the intended maritime activity.

The main innovation brought by Ordinance n° 2021-1330 is that from now on, the necessary human resources may not be on board (article L5000-4 of the Transport Code), but may be located in a remote control room or be reduced to the ship's own operating systems.

Even without crew on board, an autonomous ship must have a Captain, defined as " the person who exercises command of the autonomous vessel" (Article L. 5000-2-1). The Captain remains liable for any breach committed in the performance of his/her duties.

Another issue is the required training for an autonomous ship's Captain and, more generally, the training of the operators of autonomous vessels. The minimum training requirements are currently being discussed between the Legal Office of Maritime Affairs, the industry and seafarers' organizations. It is already agreed that an STCW certificate will be required.

In the absence of international standards applicable to autonomous ships, the Ordinance of 13 October 2021 creates an experimental operating regime allowing autonomous ships to set sail in French territorial waters for a maximum period of two years, subject to obtaining prior authorization from the Maritime Administration.

Each application for an authorization will be examined on a case-by-case basis, as it is for ships belonging to the "alternative design" category, which will allow more flexibility in assessing the ship's ability to face the perils of the sea while ensuring her overall level of safety and her ability to preserve the environment.

The Ordinance thus brings the French legal and administrative environment closer to the already-existing technological developments of the French maritime industry. 

Hélène de Ferrières, Senior Associate

French Constitutional Court Rules On The Obligation On Maritime Carriers To Re-Route Foreigners That Were Not Admitted To French Territory

On 15 October 2021, The French Constitutional Court (Conseil Constitutionnel) issued a long-awaited decision in relation to the Schengen Agreement and European obligation for air and maritime carriers to return foreigners who were refused access to national territory.

In accordance with the Schengen Agreement and various European Directives in relation to immigration, Article L. 213-4 (now L. 333-3) of the French Immigration Code ( Code d'entrée et de séjour des étrangers et du droit d'asile) states that when entry into France is refused to a foreigner, the air or maritime carrier is obliged to return the foreigner without delay, upon request of the immigration authorities at the border, to the point where they began to use the carrying company's means of transport.

Article L. 625-7 (now L. 821-10) of the same code provides that a fine of up to EUR 30,000 shall be imposed on the air or maritime company that does not comply with the abovementioned obligations.

Airlines and maritime transport companies have often criticised these provisions for obliging them to re-route foreigners who have been refused access to the French territory, using force if necessary, especially when the foreigner's behaviour presents a risk for the safety of other passengers and staff on board the aircraft or ship. These provisions would thus have the effect of delegating to a (private) transport company the police powers that usually belong to public authorities.

Moreover, air and maritime carriers highlighted that they may be fined for failing to comply with this re-routing obligation even though the failure was attributable to the passenger's inappropriate behaviour during boarding.

In response, the Conseil Constitutionnel determined that the decision to implement the re-routing of a person who was not admitted to French territory falls within the exclusive competence of the authorities responsible for controlling immigration at the border. As a consequence, air and maritime transport companies are only obliged, at the request of these authorities, to take charge of these persons and to ensure their transport back to the country where they boarded. Thus, the French immigration code does not have the purpose nor the effect of imposing on maritime carriers an obligation to use force against the re-routed foreigner, as such measures fall within the sole competence of the police authorities. Besides, these provisions do not deprive the Captain of the right to disembark a person who generates a danger to the safety, health, hygiene or good order of the ship.

This much-anticipated decision paves the way for more certainty for international carriers regarding the scope of their obligation to re-route foreigners who do not comply with state entry requirements.

One can, however, question the practice of certain administrative services when stowaways in an irregular immigration situation are discovered on board. Usually, although this is not provided for in the abovementioned laws, the border police opposes the departure of the ship on which the stowaways have been discovered as long as they have not left the territory on board this ship or another ship, thus obliging shipowners to divert their route, sometimes at great expense. 

François Dainelli, Associate

Electronic Bills Of Lading

First mentioned in the 1980's, the electronic bill of lading (eB/L) remains, at this stage, a pipe dream. Given the major importance of the bill of lading (B/L) to global trade (as it is a receipt for the goods carried, a contract of carriage concluded between the carrier and the shipper and a title permitting the delivery of the goods to its holder), operators are sometimes reluctant to change their practices due to the legal uncertainty surrounding the use of eB/Ls.

Advantages of the use of eB/Ls

The assessment of the impacts of eB/Ls tends to show that their use will provide numerous benefits for the shipping sector.

Firstly, and although cybersecurity issues exist and are developing, eB/Ls will always ensure more reliability for transactions than the current paper B/L that can easily be forged, lost, destroyed, switched or mistaken. In fact, the identification of the eB/L is easier through e-signing, clouding, secured platforms, block chain technology, etc.

Secondly, the eB/L also avoids situations where the cargo arrives before the B/L and prevents delivery of cargo without the presentation of the B/L (especially for short routes and since the carrier must deliver the cargo on presentation of the original B/L). EB/Ls are by nature transferred instantly to their recipients through digital courier services, thus avoiding delays, risks of liability for the carriers, service interruptions, etc.

Finally, the adoption of eB/Ls would also have a positive impact on the environment by limiting paper-based transactions inherent to classic B/L use. This would also reduce administrative costs related to B/Ls by creating a paperless environment.

Legal issues due to the lack of harmonization of national laws related to the use of eB/Ls

In a nutshell, the only (but major) downside of using eB/Ls at the present time is the lack of international harmonized legal frameworks for such a vital instrument. Thus, operators are understandably reluctant to switch to eB/Ls.

Operators that wish to use eB/Ls today go through eB/L electronic systems such as Bolero or E-Title. These platforms create a multilateral contract signed by the different stakeholders involved in the carriage operation in order for their electronic systems to replicate, by contract, the law behind paper B/Ls. However, it sometimes happens that one of the intervening parties in the operation (for example a subcontractor) does not use eB/Ls. In such a case, a paper B/L will have to be issued, which will negate the positive impacts of the use of eB/Ls.

The reason behind this obligation to conclude a multilateral contract to enable the use of eB/Ls is the lack of legal framework related to its use.

On 7 December 2017, the United Nations Commission on International Trade Law (UNCITRAL) created the Model Law on Electronic Transferable Records (MLETR). The objective of this model law is to create a secured legal framework that would allow the use of electronic documents in the global trade market, such as eB/Ls. It provides that electronic documents are equivalent to paper documents, granted that they contain the required information and that the integrity of the electronic document can be verified.

Despite the relevance of the MLETR for the use of such technology, only one country (Bahrain) enacted it in its legal system after its issuance.

Recent steps towards the harmonization of the use of eB/Ls

In 2021, four countries enacted the MLETR in their national legal system: Belize, Kiribati, Singapore and the United Arab Emirates, in addition to Bahrain, which demonstrated an increased interest in the development of eB/Ls.

This is explained by increased acceptance of and interest in eB/Ls by global shipping associations (BIMCO, International Group of P&I Clubs, ICC), noting the need for the shipping industry to adopt such electronic documents in the near future.

BIMCO and the International Chamber of Commerce (ICC) have teamed up on a project to identify the difficulties related to the adoption of eB/Ls globally. BIMCO has notably been tasked to develop a global eB/L for the dry and liquid bulk sectors and to promote its use throughout the sector's main stakeholders.

Thus, it is likely that these instruments will be increasingly used in the near future with the involvement of associations strongly recognized in the industry, such as BIMCO and the International Group of P&I Clubs. It is now up to countries to adapt their legal framework in order to ensure a smooth transition towards the use of eB/Ls.

Erwan Briant, Associate

Bill Of Lading Jurisdiction Clause

Cass. com., 30 June 2021, no. 19-23.665
Recently, the question of the legal regime of the action of parties whose names do not appear on the bill of lading has arisen in the context of the traditional litigation on the enforceability of jurisdiction clauses.

Since the "Mercandia" ruling ¹, it has been traditionally accepted that, contrary to English law, French law broadly admits the right of action against the maritime carrier, by not limiting itself to the name appearing on the bill of lading. Thus, claims by the notify party², by the actual consignee ("destinataire réel") not listed as the notify party³, and by the actual shipper ("chargeur réel") (the Mercandia, cited above) have been admitted.

The exact regime of these actions against the carrier has not been clearly stated by case law. However, legal authors have noted that the approach adopted by the Supreme Court in these decisions suggests a contractual basis.

More recently, the question of the legal regime of the action of parties whose names do not appear on the bill of lading has arisen in the context of the traditional litigation on the enforceability of jurisdiction clauses.

In a 30 June 2021 decision, the Commercial Chamber of the Court of Cassation reaffirmed that when a "commissionaire de transport" (French law freight forwarder) is named as a party on the bill of lading, the principal of the latter, who is not named on the bill of lading, is not a party to the contract of carriage. As such, the general conditions of the maritime carrier are not enforceable against him.

In this case, a container fell during harbour handling and struck a reefer container, which caused the loss of the goods carried in the reefer. The owner of the goods, represented by HFW, filed proceedings in France against the French freight forwarder and the Danish maritime carrier. The latter invoked the jurisdiction clause in its general conditions.

By judgment of 10 June 2016, the Commercial Court of Quimper accepted jurisdiction and ordered the carrier to compensate the claimants. Before the Rennes Court of Appeal, the carrier relied in particular on Article 23(1) of Regulation 44/2001 of 22 Dec. 2000, according to which a jurisdiction clause may be agreed in international trade under a form in accordance with the usage. However, the Court of Appeal considered that, as the shipper of the goods had entrusted the organisation of the transport to a freight forwarder, he was not a party to the contract of sea carriage and could not therefore have agreed to the carrier's general conditions containing the jurisdiction clause. The Court of Cassation approved this reasoning, noting that the principal was acting in tort, on a quasi-delictual basis. It deduced that the Court of Appeal was not required to investigate whether the agreement on the jurisdiction clause was customary.

This decision reaffirms the solution already adopted by the Court of Cassation in 2013, in the "Panama Express" decision, which had not been published in the court's bulletin (Cass. Com., 9 July 2013, no.12.15-515), unlike the new decision.

The Hague Visby Rules set out a presumption of liability of the carrier, which results from the negative stipulation in Article 4 that the carrier shall not be liable if the damage results from an excepted case, implying that he is liable in all other cases. The carrier can therefore only escape the presumption of liability by proving an excepted case, and would then also benefit from a limitation of his liability.

With the action of the principal of a freight forwarder being of a non-contractual nature, what are the consequences on the liability regime? Does the regime resulting from the Hague Visby Rules apply, or must the actual shipper acting on a tort basis prove the fault or negligence of the carrier, on the basis of Article 1240 (ex 1382) et seq. of the Civil Code? Does the carrier have to prove a fortuitous event or the fault of the victim to be exonerated?

In the case that gave rise to the judgment, the Court of Appeal had noted that the damage had occurred during a transhipment operation, while the damaged container was under the responsibility of the carrier. The Court of Appeal had deduced that the primary origin of the damage was to be found in a handling fault attributable to the carrier. The tort was thus characterised.

In the judgment and the ruling that preceded the ruling of the Court of Cassation, the carrier's limitations of liability were applied, which was not called into question at the cassation stage. Indeed, Article 4 bis of the Hague Visby Rules stipulates that "The defences and limits of liability provided for in this Convention shall apply to any action against the carrier in respect of loss or damage to goods covered by a contract of carriage whether the action be founded in contract or in tort". From the possibility of benefiting from the excepted cases is inferred the application of the presumption of liability of the carrier. It can therefore be considered that in case of cargo loss or damage, the carrier transporting goods under a clean bill of lading will be presumed liable, even in tort.

This solution is in line with the most recent case law of the Court of Cassation on the assimilation of contractual and tortious faults. According to this case law, a third party to a contract may invoke the contractual breach of one of the parties to the contract as a basis for the latter's tortious liability towards him, if this failure has caused him damage, without having to demonstrate a distinct fault, negligence or imprudence. This ruling, affirmed in 2006 ⁴, was reaffirmed anew at the beginning of 2020 by the Plenary Assembly of the Court of Cassation⁵.

In the end, it seems that the unenforceability of jurisdiction clauses in the contract of carriage is the main, if not the only, specificity of the carrier's liability regime vis-à-vis a principal who has used a freight forwarder, as compared with contractual liability.

Mona Dejean, Senior Associate

Footnotes

1. Cass., Ass. Plén., 22 Dec. 1989, No. 88-10.979
2. Cass. Com. 7 April 1987, No. 84-17.124, and 15 July 1987, No. 85-12.957
3. Cass. Com. 7 July 1992, No. 90-14.151
4. Cass. Ass. Plén., 6 Oct. 2006, no 05-13.255
5. Cass. Ass. Plén., 13 Jan. 2020, no.17-19.963

Cargo Insurance: Condition Of Guarantee Or Clause Of Exclusion? The Paris Court Of Appeal Provides Its Interpretation

Cour d'appel de Paris, 21 janvier 2021, n° 18/0322: Cases where insurance companies reject in full a major claim and refuse to indemnify their insured are quite unusual. By a decision dated 21 January 2021, relating to the insurance of a maritime shipment of bovines, the Paris Court of Appeal outlined the distinction between a condition and an exclusion of guarantee, and endorsed insurers' refusal to cover a claim.

In order to cover the risks arising from the transportation by sea of several thousand bovines (mainly pregnant cows) between Texas and Russia via the Black Sea, the seller underwrote two cargo insurance policies, each covering some of the cattle.

It was the inaugural voyage of the vessel, an ex-container ship refitted as a livestock carrier.

A few days after the vessel's departure, the design of the vessel started to worsen the conditions of transport (lack of suitable litter, malfunctioning of the ventilation and excrement evacuation system, difficult access of the animals to the trough…) which resulted in wounds, infections, malnutrition, illness, miscarriage and, finally the death of bovines. The crew, which included very few members with cattle experience, was overwhelmed. They could not care for or heal the dying animals, and had to cut carcasses in the hold to be able to throw them to the sea. When the vessel was able to call at port almost two weeks later, the insured requested a veterinarian on-board. However, once at destination, hundreds of bovines were found dead and almost half of the cattle were dead at the end of the quarantine.

The claim was settled under one of the two policies. However, the other group of two insurers, who underwrote the second policy, refused to guarantee the claim as they considered that the insured had failed to provide care to the cattle. The insured initiated proceedings in Paris against the insurers (one of which is represented by HFW) and the insurance broker, claiming approximately USD 4.3 million.

By a judgment dated 14 December 2017, the Commercial Court of Paris considered that the claim had to be covered under the policy. The judges, however, reduced the quantum to USD 2.3 million and ruled on a shared liability, findingthat the insured, who had been involved in the refitting of the vessel and paid little attention to the implementation of shipping instructions, had a major share of liability (80%). This decision (of which the grounds retained by the tribunal were surprising, from a legal point of view) was appealed by the insured and the insurance broker.

The Paris Court of Appeal rejected the arguments of one of the insurers, according to which the insurance policy was void for lack of cause and the insured was in any event to be deprived of coverage for "infidelity". It was argued that the inadequate preparation of the voyage had made the risk ineluctable, depriving the insurance contract of its cause. The court reiterated what is constantly admitted: (i) the burden of proof of the absence of risk lies with the person who relies on it; and (ii) the existence or not of a risk is assessed at the time of taking out the policy; subsequent circumstances are irrelevant. The court considered that the insurer failed to demonstrate that the death of the cattle was very likely at the time when the insurance was agreed, i.e. several days before loading the vessel.

The court also rejected the argument that the claim was inadmissible due to the insurers' failure to cover the whole shipment under the litigious policy (some of the cattle were covered under another policy), considering that it was a floating policy, with only optional application.

The debate essentially focused on a specific clause in the policy entitled "Special Conditions", which provided, inter alia, that the insurer's liability was subject to the insured being able "at all times to provide the necessary care and attention to each insured animal" who, in the event of any problem whatsoever concerning the bovines, shall "immediately" engage a qualified veterinarian at his own expense.

The insurers argued that this was a condition of the guarantee, i.e. the insured should have requested the presence of a veterinarian on board from the beginning of the voyage.

The insured opposed that the disputed clause was an exclusion clause, which was not applicable, since a veterinarian had come on board as soon as possible.

This distinction between a condition and an exclusion of guarantee is essential, as it entails different legal regimes:

• The validity of an exclusion clause is subject to strict formalism set by Articles L.112-4 and L.113-1 of the Insurance Code ("mentioned in very apparent characters" and "formal and limited exclusion contained in the insurance policy"). On the contrary, no such formalism applies to the condition of guarantee (Cour de cassation, 12 May 1993, No.91-14.125);
• On the burden of proof, the insured is required to establish that the condition of guarantee is fulfilled; whereas the onus is on the insurer to demonstrate that the loss falls within the exclusion of guarantee.

The fine line between what is a condition and what is an exclusion of guarantee in insurance policies is often uncertain. Whereas the French Supreme Court provides a definition of the exclusion of guarantee (Cour de cassation on 26 November 1996, No 94-16058), neither the law nor the Cour de cassation provide a general definition of the condition of guarantee. Moreover, the distinction between the two types of clauses will depend on the wording of the policy, on a case-by-case basis, and is therefore inescapably subject to jurisprudential discrepancies.

In the commented decision, the Paris Court of Appeal ruled that the disputed clause should be qualified as a condition of the guarantee since it is clear from its terms (referring to the "prerequisite") that the guarantee is subject to the general and precise requirement to ensure the intervention of a veterinarian in case of illness or injury of an insured animal.

After having reminded the parties that "the condition of guarantee must be clear and precise", the court accepted the insurers' position that the use of the word "immediately" means "without delay" (and not "as soon as possible", as alleged by the insured) and due to the characteristics of the voyage (three weeks including Atlantic transit and two weeks before the first call), the presence of a veterinary on board was required from the beginning of the voyage, and not at the first possible call of the vessel. The condition set out by the clause having not been fulfilled by the insured, the insurers had therefore legitimately refused their coverage.

The insurer had also argued that as insurers were aware of the absence of a veterinarian on board from the beginning, they had waived the possibility to oppose this condition. The Court rejected the argument, considering that the waiver of a right must be expressed and unequivocal.

The insured is appealing this decision before the Supreme Court, which should give rise to an interesting ruling. 

Camille Aubert, Associate