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In this issue: Australian Federal Court rules that FFA-linked ship arrest was not legally justified; “ABQAIQ”•English Court champions arbitration; The “KOS”; Quarterly Case Update; News; Conferences & Events.

Australian Federal Court rules that FFA-linked ship arrest was not legally justified

Justice Gordon of the Federal Court of Australia has ruled in the case of Transfield ER Futures Ltd v The Ship Giovanna Iuliano that ships cannot be arrested on the basis of claims relating to Forward Freight Agreements (FFAs).

This article first appeared in the 14 June 2012 issue of Lloyd’s List Australia and is reproduced with kind permission.

It is understood to be the first ruling of a court in a Commonwealth country on this issue. It is also likely to stand as persuasive authority in many jurisdictions for the proposition that an arrest cannot be founded on a claim arising from an FFA.

The issue before the court was whether a claim arising out of an FFA could constitute a maritime claim for purpose of founding jurisdiction in rem.

If so, that would thereby enable a claimant to obtain security for the claim by arresting a ship.

Justice Gordon ruled that such a claim is not a “general maritime claim concerning a ship” within the meaning of the Admiralty Act. She added that the arrest of the bulk carrier Giovanna Iuliano in respect of a claim under a FFA “was not justified”.

The judge immediately proceeded to set aside the writ and arrest warrant, and order that the ship be released.

Although Australia is not a party to the 1952 Arrest Convention, the key findings in this case are equally relevant to countries that have given effect to the convention.


On 17 May 2012, Transfield commenced in rem proceedings against the Giovanna Iuliano for the purpose of obtaining security for a claim against its owners, Deiulemar Shipping SpA*, which was said to arise under the FFA.

Transfield had obtained a judgment against Deiulemar in the Queens Bench Division of England’s High Court in respect of that claim.

While the Federal Court was not required to consider that issue, there was a question as to whether, having obtained judgment, Transfield’s claim could be properly cast as arising under a FFA rather than the enforcement of a judgment.

In any event, Transfield had pleaded that the in rem jurisdiction of the Federal Court was invoked under section 17 of the Admiralty Act on the basis that its claim against Deiulemar under the FFAs was a “general maritime claim” pursuant to section 4(3)(f), namely:

“a claim arising out of an agreement that relates to the carriage of goods or persons by a ship or to the use or hire of a ship, whether by charter- party or otherwise.”

On 18 May 2012, the ship was arrested at Port Melbourne. Deiulemar filed an urgent application to have the arrest set aside.

On 22 May 2012 Justice Gordon ordered that the arrest be set aside and that the ship be released on the grounds that the Federal Court’s in rem jurisdiction had not been properly invoked by Transfield.

Analysis - right to proceed in rem on owner’s liabilities

Section 17 of the Admiralty Act prescribes the elements that must be satisfied in order to commence proceedings in rem against a ship on account of owners’ liabilities as follows:

“Where in relation to a general maritime claim concerning a ship or other property, a relevant person:

a. was, when the cause of action arose, the owner or charterer of, or in possession or control of, the ship or property; and

b. is, when the proceeding is commenced, the owner of the ship or property.

a proceeding on the claim may be commenced as an action in rem against the ship or property.”

With regard to the application of section 17, Justice Gordon cited the Full Court of the Federal Court’s decision in The Skulptor Konekov (in which the Full Court applied the reasoning of the House of Lords in The Eschersheim) as authority for the principles that a “general maritime claim” cannot be at large (with section 17 directing that it must concern “a ship or other property”), and the requirement that there must exist a relationship between the claim and a particular ship was applicable to all heads of claim under section 4(3) of the Admiralty Act.

In ruling that Transfield’s claim arising out of an FFA was not a claim concerning a particular ship, the judge noted that FFAs do not involve the chartering of any ship or the carrying of goods on any ship, rather they are derivatives:

“...FFAs are commonly described as “derivatives”. They are derivatives because no party buys or sells any goods. There is no chartering of any ship. There is no carrying of goods whether by ship or otherwise.

“FFAs are usually entered into for one of two purposes: as a form of insurance, or hedge, by freight companies who desire some form of protection from fluctuations in freight prices either charged or paid by them ... or as pure speculation, a bet. FFAs can be, and are, traded as financial instruments.”

Maritime claims

Section 4(3) of the Admiralty Act lists the different types of “general maritime claim” which are, in effect, statutory heads of jurisdiction on which proceedings in rem can be instituted under section 17 to support an application for the arrest of a ship. The “statutory right of action in rem” set out in section 4(3)(f) is set out above.

It was argued on behalf of Transfield that the words “relates to” in section 4(3)(f) should be construed broadly in the sense that what is required is that an applicant show that its claim is ‘connected’ with an agreement covered by the section.

In support of this argument, reference was made to legal authorities in which a liberal construction and interpretation of the Admiralty Act had been applied.

Justice Gordon acknowledged that the Australian and English authorities supported a wide construction of the words “arising out of” as being equivalent to “in connection with”.

In particular, the judge noted Justice Allsop’s “careful analysis of the history [of the Admiralty Act]” in Heilbrunn v Lightwood plc.

However, she did not agree that the same considerations applied to the construction of the words “arising out of” could be applied to the interpretation of the phrase “related to”.

Rather, consistent with the approach taken by Justice Allsop in Heilbrunn, Justice Gordon adopted the interpretation of the House of Lords in Gatoil “which concluded that the phrase “related to” should not be construed widely, but that there should be some “reasonably direct connection” with the activities described in the provision” (in this case, the carriage of goods by a ship).

Justice Gordon then proceeded to make the following definitive statement: “Approaching the matter in that way ..., none of the FFAs in issue has a reasonably direct connection with the activity of carriage of goods by a ship and thereby “relates to the carriage of goods by a ship” under s 4(3)(f) of the Act.

“Put another way, there is a need for a relationship between the claim and the particular ship the subject of the application in rem. Here, there was no relationship. There was no claim which fell within the description of a general maritime claim in s4 and, in particular, there was no claim of the type provided for in s4(3)(f) of the Act.”


Justice Gordon’s findings are consistent with the widely-held view among maritime law practitioners internationally that claims arising out of FFAs are not of a character which are capable of giving a claimant a “statutory right of action in rem” or, for that matter, founding jurisdiction in rem on any other basis.

The fact that there does not seem to be any decided case in Australia or the United Kingdom “where a claim in relation to a FFA had founded jurisdiction for the arrest of a ship” was considered by Justice Gordon to be “not surprising given the nature of the agreement and the fact that there is no relationship between the claim arising out of the FFA and the particular ship the subject of the application in rem.”

The judgment provides a cogent analysis of the principles that apply in order for a claimant to found jurisdiction in rem and their application to claims arising under FFAs which are relevant to countries where the legislative basis for arrest is similar to Australia, and those countries where the Arrest Convention has been implemented.

Accordingly, this decision is of international significance as it is likely to be accepted in many countries as persuasive authority that the lawful arrest a ship cannot be maintained on the basis of claim under a FFA.

*Gavin Vallely (Partner) and Jenny Bazakas (Associate) of Holman Fenwick Willan acted for Deiulemar Shipping SpA.

For more information, please contact Gavin Vallely, Partner, on +61 (0)3 8601 4523 or, or Jenny Bazakas, Associate, on +61 (0)3 8601 4599 or, or your usual HFW contact.


Demurrage time bar clauses: construed strictly or commercially? Shipowners will have welcomed the judgment in the “ABQAIQ” which appears to make it easier to comply with strict demurrage time bar provisions. However, the case may not be the panacea it is being hailed as, and traps remain for those owners who do not pay close attention to the requirements of their clauses.

In early 2008, the “ABQAIQ” was voyage chartered to BP on a BPVOY4 form for the carriage of a cargo of crude oil from Freeport, Bahamas to Singapore. During loading, the vessel was ordered off the berth on 11 February due to the unavailability of cargo. On 17 February, the “ABQAIQ” reberthed, completed loading and on 18 February departed for Singapore, where discharge of the cargo was completed on 30 March.

Clause 20.1 of the charter required claims for demurrage to be presented “in writing” within 90 days of completion of discharge, failing which BP were to be discharged from all liability. The Owners submitted two invoices to BP within the time limit. The second invoice, issued on 2 April, claimed demurrage. The first invoice claimed for the time that the vessel was put off the berth between 11 and 18 February, but was put forward on a different basis (under the VITOL “interim port clause”). However, that claim was later, after the expiry of the 90 day time bar, recast by Owners as a further demurrage claim.

BP paid the second (demurrage) invoice, but refused to pay the first invoice, on the basis that all claims for demurrage had already been settled and/or that any claim for additional demurrage was now time-barred.

The Owners’ claim failed at first instance, but they won in the Court of Appeal, which held that an earlier demurrage settlement related only to the amounts set out in the second invoice, and did not also extend to the amounts claimed under the first invoice.

The Court also decided that Owners’ claim for further demurrage was not time-barred, holding that the documents which accompanied the 2 April invoice included everything which could possibly be required to substantiate every part of Owners’ claim, as required by the time bar clause. All that had happened was that Owners had put a different ‘legal label’ on the claim. Clause 20 required an owner to ensure that his charterer had received both claim and supporting documentation within the 90 day period and, as long as the charterer could work out that one related to the other, the owner would have satisfied the time bar clause.

Overall, the Court of Appeal judgment calls for a commonsense approach when examining whether an owner has in substance complied with any time bar, and emphasises the need for clarity rather than the approach of “strict compliance” adopted in the earlier case of The “SABREWING”. In that case, the judge had effectively found that all of the documents supporting the demurrage claim must be provided to the charterer by the owner himself. The Court of Appeal in The “ABQAIQ” disagreed, suggesting that compliance with the time-bar clause might even be achieved if relevant documents were supplied to the charterer by a third party, or if the owner asked his charterer to refer to documents he already had.

Some might say however that the Court’s insistence that an overly literal approach towards time bar clauses should not be taken has in fact muddied the waters, and that in some instances it will now be less clear whether the owner has complied with the time bar. This might happen where, for example a third party had supplied relevant documents to his charterer which, whilst they contained the same information, were of a different type to those specified by the clause, or if an owner’s attempt to describe a relevant document in charterers’ possession was unclear, so that the charterer did not in fact know what document was being referred to.

In summary, despite the fact that this judgment implies a relaxation of the rules, owners still need to take considerable care to meet the requirements of demurrage time bar clauses. An owner would be best advised to supply all of the relevant documents to his charterer himself. If he does not, he risks falling foul of any time bar.

For more information, please contact, Nick Roberson, Associate, on +44 (0)20 7264 8507 or, or Helen McCormick, Associate, on +44 (0)20 7264 8464 or, or your usual HFW contact.

English Court champions arbitration

In West Tankers Inc v Alliance SpA & Anor [2012], Flaux J of the High Court held that the EU law principle of effective judicial protection (i.e. deferring to the court first seized) does not extend to private arbitral tribunals.

West Tankers Inc (“WT”) chartered a vessel to Erg Petroli SPA (“Erg”). The charterparty contained an English law and London arbitration clause. The vessel was involved in a collision at Syracuse, Italy. Erg was reimbursed by its insurers, but commenced arbitration against WT in London to recover its excess. Erg’s insurers also brought a claim against WT, but in the Syracuse Court in tort under Article 5(3) of the Brussels Regulation. WT then sought an anti-suit injunction in the English Court restraining the insurers from continuing with the Syracuse claim on the basis that doing so was a breach of the arbitration clause. The anti-suit injunction was granted at first instance, but the insurers appealed, and ultimately the appeal was referred by the House of Lords to the ECJ. The ECJ, in agreement with the opinion of AG Kokott, held: (a) it was for the Syracuse Court as court first seized to determine the dispute and (b) anti-suit relief was not compatible with the Brussels Regulation.

The question whether WT could recover from the insurers in the London arbitration damages or indemnity in respect of costs and liability in the Syracuse claim (for breach of the arbitration agreement) had been adjourned until after the ECJ ruling. Following the ECJ decision, the tribunal dismissed the claim. The tribunal decided that (a) its jurisdiction to award damages for breach of the arbitration agreement was prescribed by the Brussels Regulation and the ECJ’s decision and (b) it must refuse to exercise a parallel jurisdiction where this was inconsistent with the parties’ rights to bring and continue proceedings in the appropriate Court first seized.

Flaux J allowed WT’s appeal from the award, holding that the tribunal did have jurisdiction to award damages for breach of the obligation to arbitrate. He observed:

  • The principle of effective judicial protection was limited to court proceedings under Article 5(3) which did not apply to arbitration.
  • Even if the tribunal’s jurisdiction was prescribed by the Brussels Regulation, there was no basis for finding that an award on damages/an indemnity would interfere with insurers’ rights under EU law.
  • The tribunal’s dismissal of the claim was premature because the Syracuse Court had not yet ruled on the issue of jurisdiction and its ruling would determine whether an award of damages/an indemnity was necessary.

It is well established that EU law requires EU courts to defer to the court first seized even if this is a breach of an applicable law and jurisdiction clause in a contract between the parties.

However, this judgment has decided that this rule does not apply to arbitration. As a result, where a Member State court assumes jurisdiction despite breach of an arbitration clause, although that decision under EU law cannot be reviewed by another Member State’s courts, it is possible for a tribunal to award damages or indemnity for the breach. Thus, a claimant who commences a claim in a foreign court in breach of an arbitration clause could face significant claims for damages in the arbitration. The judgment suggests that such a claim could in principle extend to a complete indemnity for all expenses and loss flowing from the claimants’ breach.

For more information, please contact Scott Pilkington, Associate, on +44 (0)20 7264 8323 or, or your usual contact at HFW.

Quarterly Case Update

After a short absence, the Quarterly Case Update summary makes a welcome return to the Shipping Bulletin. If you would like further details about any of the cases shown, please contact Rory Butler on, or Richard Strub on, or your usual contact at HFW.
  1. Pacific Basin IHX Ltd v Bulkhandling Handymax AS (Triton Lark) [2011] EWHC 2862 (Comm) Piracy routing. The test under Conwartime 2004 is: is there a real likelihood that compliance with the order would require the vessel to pass through a place which would be dangerous to that vessel.
  2. Rainy Sky SA v Kookmin Bank [2011] UKSC 50 Supreme Court gives guidance as to the construction of commercial contracts.
  3. Parbulk II A/S v Heritage Maritime Ltd [2011] EWHC 2917 (Comm) Withdrawal and termination for non-payment of hire. Argument rejected that subsequent demands for hire equated to a waiver in respect of previous non-payment(s).
  4. ED & F Man Sugar Ltd v Belmont Shipping Ltd [2011] EWHC 2992 Claimants’ advisors getting it wrong by failing to rely on The Happy Day. Arbitrators had no duty to draw this to their attention.
  5. Sideridraulic Systems SpA v BBC Chartering & Logistic GmBH & Co KG [2011] EWHC 3106 (Comm) Cargo claims “on deck” statements and the Hague Visby Rules.
  6. Hyundai Merchant Marine Co Ltd v Trafigura Beheer BV [2011] EWHC 3108 (Comm) (The “GAZ ENERGY”) Shelltime 3 Form Performance Warranty.
  7. Dawkins v Carnival plc [2011] EWCA Civ 1237 Passenger injury slip claim: Burden of proof.
  8. Micoperi SrL v Shipowners Mutual Protection and Indemnity Association (Luxembourg) [2011] EWHC 2686 (Comm) P&I Insurance coverage dispute: Can a Club change its mind on cover?
  9. M.H. Progress Lines SA v Orient Shipping Rotterdam BV [2011] EWHC 3083 (Comm) The ICA 2 year claims notification clause overrides an express time bar within the Charterparty.
  10. Star Reefers v JFC Group [2012] EWCA Civ 14 Anti-suit injunction overturned.
  11. Ehsanollah Bayat Telephone Systems International Inc. and Others v Lord Michael Cecil [2010] EWHC 641 (Comm) Court retrospectively sets aside an extension of time for service of the Claim Form previously granted on an ex parte basis to the Claimant.
  12. National Shipping Company of Saudia Arabia v BP Oil Supply Company [2011] EWCA Civ 1127 (The “ABQAIQ”) Court of Appeal - demurrage time bar, a more owner friendly decision.
  13. Eitzen Bulk A/S v TTMI Sarl [2012] EWHC 202 Shelltime 4 Form - price to be paid for bunkers.
  14. Rolf v De Guerin [2011] EWCA Civ 78 Court of Appeal - costs consequences of a refusal to mediate.
  15. African Fertilizers and Chemicals NIG Ltd (Nigeria) v BD Shipsnavo GmBH & Co [2011] EWHC 2452 (Comm) Declaratory Arbitration Award enforced as a judgment per s66 Arbitration Act 1996.
  16. West Tankers Inc v Allianz SPA & Anor [2012] EWCA Civ 27 Declaratory Arbitration Award enforced as a judgment per s66 Arbitration Act 1996.
  17. Progress Bulk Carriers Ltd v Tube City IMS [2012] EWHC 273 Economic Duress and its impact on a settlement agreed by owners/charterers.
  18. LMAA Rules 2012

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