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Shipping Bulletin, September 2015 (Korean)

In this issue: Is it a "ship"? judgment of an Australian court on an application for a seizure order of a surrogate ship in respect of a claim against a vessel under construction; SFL HAWK and spoiled swordfish; London Arbitration 5/15: Suspension of berth and charter charges, are these two insurmountable?; shipping cybersecurity; Conferences & Events

Is it your "ship"? An Australian court ruling on an application for a seizure order of a surrogate ship in relation to a claim for a vessel under construction

The Federal Court of Australia recently rejected a motion for seizure of a vessel filed by a buyer who was dissatisfied with the quality of a new-build vessel, claiming that it was a surrogate or sister vessel against another vessel under construction by the shipbuilder1. This case explains whether a new vessel under construction can be construed as a "vessel" under the Australian Maritime Act, and at what point such is so and the concept of ownership for the purpose of applying for seizure of the surrogate.

Facts

In 2010, Austal Ships (Austal) handed over the JEAN DE LA VALETTE, a ferry with a capacity of 800 passengers and 156 cars between Italy and Malta, to Virtu Fast Ferries (Virtu). Following the delivery of the vessel, Virtu initiated arbitration against London-based Austal for breach of contract, claiming that the ferry was potentially defective due to poor welding and lack of technical skills.

THE CAPE LEVEQUE WAS A CUSTOMS PATROL VESSEL BEING BUILT BY AUSTAL ON BEHALF OF THE AUSTRALIAN GOVERNMENT, WHICH HAD BEEN LAUNCHED BUT HAD NOT YET BEEN DELIVERED TO THE GOVERNMENT. In February 2015, Virtu commenced the process of filing a garnishment application on behalf of CAPE LEVEQUE to obtain security for enforcement purposes in the event of an arbitral award.

In order to commence an action against a vessel under the Australian Maritime Act 1988 (Cth), the plaintiff must have a recognized vessel priority privilege or claim, which includes "claims relating to the construction of the vessel (including claims relating to the vessel prior to launch)".

Pursuant to section 19 of the Australian Maritime Code, a property action may be initiated against a proxy vessel if the following conditions are met:

• The person concerned (i.e., the guilty party in a personal action) must be the owner, charterer, possessor, or controller of the "vessel" to which the claim relates at the time the cause of action arises.
• The person concerned shall be the owner of the agency vessel at the time the legal proceedings are initiated.

Austal applied to quash the warrant for the following reasons:

• Austal was not the owner of the "ship" involved in the claim at the time the cause of action arose. This is because the cause of action arose before launch, because the ferry was in an unfinished state and not a formal "ship," and because the claim arose after Virtu became the shipowner.
• At the time of the issuance of the warrant, Austal was not the shipowner of CAPE LEVEQUE.
• AT THE TIME THE WARRANT WAS ISSUED, THE CAPE LEVEQUE WAS A "GOVERNMENT VESSEL" AND WAS THEREFORE NOT SUBJECT TO THE AUSTRALIAN MARITIME LAW.

sentence

The tribunal held that ownership of the surrogate vessel implies right of dominion and true ownership (i.e., the right to use and sell the unfinished vessel and retain the proceeds). BY THAT TIME, THE CAPE LEVEQUE WAS NEARING COMPLETION, AND THE AUSTRALIAN GOVERNMENT COULD APPLY FOR A COURT ORDER TO FORCE AUSTAL TO FULFILL ITS CONTRACTUAL OBLIGATIONS TO DELIVER THE COMPLETED VESSEL. OWNERSHIP OF THE VESSEL HAS NOT YET BEEN TRANSFERRED, BUT THE COURT DISMISSED THE WARRANT BECAUSE THE AUSTRALIAN GOVERNMENT IS THE BENEFICIARY OF THE CAPE LEVEQUE.

On appeal, the court denied the warrant on the grounds that Virtu's application for a seizure order lacked a reasonable likelihood of success. As to the justification of the application for seizure of the surrogate vessel, the court explained that the cause of action arising from the defect in the work prior to launch occurred before the vessel under construction became a formal "ship" under the Australian Maritime Act, and therefore the application for seizure of the surrogate vessel could not be granted.

"In order for a vessel under construction to be considered a "ship" for the purposes of Article 19(a), there must be a clear statement indicating this."

Suggestion

Considering that many claims related to design and construction defects and lack of technical skills are usually made before launching, and that most of the ships that have been launched are nearing completion and the buyer "owns" the beneficial rights, it is very difficult for a buyer who is dissatisfied with the quality to seize the agency under construction to secure security for the claims. Therefore, prospective ship buyers should consider securing alternative security for the performance of the contract, such as an extension of the warranty period, a potential defect guarantee, and a performance guarantee bond.

Footnote

1. Virtu Fast Ferries Ltd v Ship “Cape Leveque” [2015] FCA 324; Virtu Fast Ferries Ltd v The Ship “Cape Leveque” [2015] FCAFC 58.

Injunction to Appeal: Limitation of the Court's Protective Power

In the recent cases of Hin-Pro International Logistics Ltd v. Compania Sud Americana de Vapores S.A.¹ (Hin–Pro) and Spliethoff's Bevrachtingskantoor BV v. Bank of China Ltd 2 (SBV), the UK Court of Appeal and the High Court considered the authority of a party to a contract to determine the jurisdiction of a dispute if it breaches the provisions of the English jurisdiction clause in the contract and proceeds with legal proceedings in another country.

Background to the Hin-Pro Incident

Hin-Pro International Logistics Ltd (Hin-Pro), a Hong Kong-based freight forwarding broker, has filed a lawsuit against Compania Sud Americana De Vapores SA (CSAV) in China. Hin-Pro alleged that CSAV delivered several shipments listed in the named bill of lading without the recall of the bill of lading. These bills of lading were subject to the applicable laws of the United Kingdom and the jurisdiction of the United Kingdom.

CSAV argued that the lawsuit filed by Hin-Pro in China was fraudulent because there was no shipment and the actual C&F sellers had received the full payment.

"Exclusive" Jurisdiction Clause

CSAV filed an application with the Commercial Court of England for an injunction against Hin-Pro and an injunction to freeze its assets worldwide, which were granted. Claiming that the jurisdiction clause is not exclusive and that the company has the authority to initiate litigation in China, Hin-Pro has filed an appeal against the injunction in the UK Court of Appeal. The relevant provisions are as follows:

“... Any claim or dispute arising thereunder shall be governed by the laws of England and the jurisdiction of the High Courts of England ... Notwithstanding the foregoing, if legal proceedings are commenced in the jurisdiction of another State, such proceedings shall be conducted in ordinary courts."

Dismissing Hin-Pro's appeal, the English Court held that the complaint was subject to the exclusive jurisdiction clause of the United Kingdom for the following reasons:

1. The phrase "shall be subject to" is both compulsory and imperative.
2. The commercial intent of this provision is to specify the governing law and the courts having jurisdiction.
3. Since the governing law is English law, the United Kingdom is the best place to govern.
4. The phrase "notwithstanding the foregoing" is an acknowledgment that the first sentence should proceed with litigation in the UK.
5. The second sentence applies only if the first sentence is invalid.
6. Under the jurisdiction of the English court, it is not clear which of the parties to the complaint is favourable, so the provision cannot be construed to the disadvantage of either party (the principle of author disadvantage).

Accordingly, the English court ruled that the injunction should be upheld. This ruling is an example of the extent to which English courts can protect the commercial validity of contracts.

On the other hand, the ruling in Spliethoff's Bevrachtingskantoor BV (SBV) case shows the limits of the court's power.

SBV Incident Background

This case involved two disputes between SBV and shipbuilders, which arose because the ship was not delivered by the promised time. SBV commenced arbitration in London pursuant to the relevant agreement and was awarded an arbitral award in its favour.

The shipbuilders alleged fraud by SBV and filed a lawsuit against SBV in China's Qingdao Maritime Court. In response, SBV applied to and obtained a temporary injunction from an arbitrator in London that prohibited the shipbuilders from proceeding in Qingdao. SBV also participated in the litigation process in China, initially challenging the jurisdiction of the Qingdao courts. A Chinese court ruled in favor of the shipbuilders.

SBV has opened a lawsuit in the UK High Court regarding a claim under an advance refund guarantee issued by China's central bank. The Central Bank of China's defense of SBV was to assert the judgment of the Chinese court. In response, SBV argued that the Chinese court's ruling should not be upheld because it was obtained in violation of the arbitrator's injunction against the complaint and the provisions of English law and jurisdiction.

Recognition of Chinese Court Judgment

Notwithstanding the fact that the Chinese litigation was initiated in violation of the arbitration clause and the arbitrator's injunction against the proceedings, the UK court held that the judgment of the Chinese court should be upheld because SBV had voluntarily participated in the proceedings in ^China3. In addition, SBV argued that the Chinese court's ruling should not be upheld on the grounds of public interest, but it did not succeed.

summarization

The cases of the two cases with different outcomes remind us of the importance of the governing law and jurisdiction clauses in contracts. The CSAV case suggests that if one party to a lawsuit wishes to apply a contractual jurisdiction clause, if the other party initiates proceedings in another country, the party must take affirmative action to enforce the contractual jurisdiction provision.

Footnotes

1. [2015] EWCA Civ 401
2. [2015] EWHC 999 (Comm)
3. Pursuant to Section 1982 of the Civil Jurisdiction and Judgment Act 32

SFL HAWK and the Putrid Swordfish

Despite the fact that the carrier transporting the damaged swordfish had already settled a claim with the shipper, he faced a lawsuit from the consignee claiming damages for the cargo. The court examined the chain of the contract of sale and found that the consignee was the owner of the cargo at the relevant time and therefore entitled as a plaintiff (title to sue).

Factual Relationships

The above case1, which was recently heard in the Commercial Court, involved a cargo of frozen swordfish that was damaged in transit from Indonesia to Spain. The sales contract signed by the shipper, PT Awindo, with Fishco under CFR terms stipulated that payment was to be made in accordance with a letter of credit 45 days after shipment and that Fishco had the right to refuse to accept the cargo if the shipment was not allowed to enter by the appropriate authorities. At the time, Fishco sold the consignee to Carlos Soto on similar terms, but the contract did not include a refusal clause.

Following shipment, the bill of lading was issued as directed, endorsed and transferred to Fishco, which in turn was transferred to Carlos Soto. However, before payment could be made, the cargo arrived in Spain and the port authorities refused to allow it to be brought in. Fishco refused to accept the cargo, but Carlos Soto, who determined that the cargo was under its responsibility, did not refuse to accept the shipment and resold the cargo at a price of 10% of the original price.

PT Awindo filed a lawsuit against the carrier, Maersk, for damages. Maersk settled PT Awindo's claims, and PT Awindo signed a settlement agreement stating that it was pursuing the settlement on behalf of all interested parties involved in the consignment and that no other party was eligible as a plaintiff. Later, Carlos Soto filed a lawsuit against the carrier, Maersk, claiming that the company was in fact a plaintiff in the cargo.

During the trial, it was established that Carlos Soto was the holder of the bill of lading, and accordingly, the court determined whether Carlos Soto was the owner of the cargo and whether it had suffered damages as a result of the damage to the cargo.

sentence

• The first issue is whether ownership was transferred under the contract between PT Awindo and Fishco. The test of whether ownership has been transferred under a CIF or CFR terms agreement is whether it was the "actual intent" of the parties. The fact that the bill of lading has been endorsed and delivered to the buyer is not prima facie evidence or conclusive evidence of intent to transfer ownership. The tribunal held that the terms of the letter of credit did not meet the payment due date for 45 days after shipment and that Fishco had the right of cancellation during this period, and that the intent of the parties was not to transfer ownership until payment was made. Thus, since Fishco had never paid for the cargo, Fishco had never acquired ownership of the cargo.
• The second issue was whether, despite this, Carlos Soto could have acquired title to the goods under section 1979(1979) of the Sale of Goods Act 25 in the United Kingdom. In summary, this clause states that if the buyer acquires the goods or title securities in good faith and has no knowledge of the interest of a third party in the goods, the buyer is deemed to have ownership of the goods. The tribunal found that Carlos Soto was not aware that PT Awindo was still in possession of the cargo at the time the bill of lading was obtained, and therefore found Carlos Soto to be the owner of the cargo and entitled as a plaintiff for damages to the cargo.

Suggestion

An important lesson from the above case is that the carrier runs the risk of being compensated twice for the same damage to the cargo, i.e., the shipper and the receiver are liable for compensation respectively. In this case, the shipper has entered into an agreement that qualifies as the sole plaintiff and has breached the terms of the agreement, and the carrier should be entitled to recover damages from him, but the outcome may depend on the shipper's financial capacity and location, and such a claim would also be costly. Accordingly, this judgment suggests that it is important to ascertain the eligibility of the parties involved as plaintiffs and whether actual damages have been incurred before settling a claim.

Footnote

1. [2015] EWHC 458 (Comm) Carlos Soto SAU v AP Moller-Maersk AS (the SFL HAWK)

London Arbitration 5/15: Suspension of berth and charter charges, are these two things incomprehensible?

London Arbitration 5/15 outlines the risks that a charterer may face if a vessel under a term charter is re-chartered under a voyage charter.

Facts

The vessel was chartered under the NYPE style and then re-chartered under the Gencon type sailing charter to sail from Argentina to Kenya.

During the term of the charter contract, before the voyage charter came into force, the hull was damaged in a dock contact accident in Uruguay. The arbitral tribunal held that the damage was not caused by the fault of the main court.

The ship arrived at the port of Necochea in Buenos Aires on June 6 and sent the first Notice of Readiness (NOR 24) at 6 a.m. on the same day.

At the time of the ship's arrival, the dock was empty, but due to bad weather and strikes, the ship could not dock until 7 July. It was also alleged that the cargo was not ready to be shipped at the time.

The ship received a berthing order on 7 July, but it was not allowed to load cargo until repairs were made. As a result, the terminal was not allowed to berth the main line. Renovations were carried out at the temporary pier and were completed on July 3. At this point, the captain notified NOR 7, the second notice of readiness for unloading.

The arbitral tribunal considered three issues in its decision on this case.

1. Whether the suspension of charter fees applies from the time the main ship arrives at Necochea Port on 6 June until the completion of repairs on 24 July.
2. When the laytime starts
3. Whether the charterer is entitled to claim damages from the shipowner for damage to the hull

Issue 1: Stop accruing charter fees

Section 15 of the NYPE Form states that if hull damage occurs and "the vessel is not fully operational," charter payments will be suspended for the time "lost therein." Accordingly, the charter fee shall not cease unless the charterer is unable to perform the services required by the charterer.

Accordingly, the arbitral tribunal held that the vessel remained in a chartered state during the time it waited at the berth, notwithstanding the damage to the hull. The main line was eventually reopened and ordered to enter the port, but it was not until July 7, when the terminal refused to dock the main line, that the charter fee was stopped.

Issue 2: Anchorage Time Initiation

The charterer was responsible for paying the charter fees due to July 7, and since both NORs had been voided, the recharterer could not be charged for demurrage incurred during that period.

• NOR 1: The vessel was not physically ready for unloading due to hull damage.
• NOR 2: Under the condition of "dock chartering", the main ship was required to be at the dock at the time the NOR was notified, but it was not.

Thus, the berthing period was applied only from the time of commencement of shipment.

Issue 3: Charterer's Claim for Damages

The charterer sought damages from the shipowner on the grounds that the damage to the hull prevented the following matters:

1. Demurrage charges for recharterers
2. Claims for damages for delays from the recharterer during the period when there was no cargo to be shipped.
3. Claim damages for "consequential loss of time" due to delay

The charterer argued that damage to the hull constituted a violation of Article 7 of the charter contract on the grounds that the vessel was not fully usable, and that it constituted a violation of Article 8 in that it was not possible to sail quickly. However, the arbitral tribunal held that the inability to use the main line was due to the shipowner's repair of the main line and therefore did not constitute a violation of Article 7.

With regard to Article 8, the arbitral tribunal held that the charterer had to prove that the defect in the main vessel had caused a breach of the duty of expedited navigation, but the charterer failed to do so.

The arbitral tribunal also found that there was no consequential loss of time due to breach of charter contract or attributable to the shipowner. The delay after the completion of the repairs was due to the use of the berths by other ships.

Suggestion

Shipowners and charterers need to be more cautious when negotiating the terms of charter contracts. In particular, the charterer, who is an intermediary in the contractual chain, is unlikely to be the party that bears the losses due to delays in the case of a back-to-back contractual chain.

Shipping Cyber Security

Not many people can agree that the biggest risk for a company is hackers breaking into computers and tampering with systems. However, the World Economic Forum's 2014 Global Risk Report identified cyberattacks as one of the top five risks facing the global economy.

The shipping industry is highly vulnerable to these cyber threats and is in fact the most obvious target. This manuscript examines the potential vulnerabilities of ships, oil rigs, ports, and terminals, as well as the potential damages that cyberattacks can cause.

Dependence on computer systems

Like any other industry, the shipping industry is increasingly reliant on electronic systems. Electronic systems such as navigation, engine control, controls, and cargo management play a major role in many aspects. Nearly all major ship owners, port operators, freight forwarders, and logistics companies regard information technology as a critical system for their business.

Examples of typical electronic systems:

• The Automatic Identification System (AIS) shares ship tracking and identification data with other ships, ports and coast guards.
• The position and speed of the vessel are displayed on the Electronic Chart and Display Information System (ECDIS), which is updated via the Internet (according to SOLAS, all vessels must be equipped with ECDIS electronic charts by 2018).
• Ships and container ports use Global Positioning System (GPS) to locate ships, control port cranes, and load containers.

Today, the shipping industry is concerned that the risk of misuse or over-reliance on electronic systems will increase.

Impact of the attack

The potential damage of a cyberattack to a ship owner or port operator is virtually impossible to measure.

There is some evidence that a cyberattack has already occurred:

• In order to raise awareness of the dangers, there is evidence that a cybersecurity firm has accessed and modified electronic charts in some ECDIS software. If this modification was clearly malicious, but no one was aware of it, it would have resulted in a collision or a ban on sailing.
• There have been reports of hacking of GPS systems on ships or ports. A U.S. port experienced a seven-hour GPS signal jam, which disrupted container movement operations.
• There have been cases where port computers that track and control the movement and location of containers have been hacked. This is the case when a criminal group has access to a port computer to identify a specific container and steal it.
• A cyberattack on a floating well rig tilted the rig and eventually forced it to shut down for several days.

Monetary losses

All of the above cases resulted in significant monetary losses caused. Further, with cyber attacks The potential for business interruption losses ^{Implications1}.

Damage to the corporate image

One of the reasons why there have been so few reported cyberattacks so far appears to be that companies are hiding the fact that they have been attacked for the sake of their reputation. Companies don't want investors, regulators, or insurance companies to know this.

However, many countries around the world, such as the United States and the European Union, are increasingly requiring notification of information breaches in the event of such a leak.

conclusion

The shipping industry as a whole is known to be highly vulnerable to both existing and emerging cyberattacks.

Organizations such as BIMCO, Intertanko, and Intercargo are aware of these risks and announced on April 2015, 4 that they are developing relevant standards and guidelines to address major cybersecurity challenges. These guidelines recommend minimizing the risk of an attack and developing emergency measures to respond to an attack if it occurs.

Meanwhile, HFW recommends that shipping companies pay special attention to their systems to prevent and respond to cyberattacks, regularly test their internal governance systems and supply chains, and monitor them to prevent intrusions.

Footnote

1. A recent report by Lloyd's in the UK and Cambridge University's Risk Institute predicted that coordinated cyberattacks on the U.S. power grid could cost hundreds of billions of U.S. dollars.

Note

Recent Incident Briefing Information

Dubai Court Makes Unprecedented Decision Recognizing and Enforcing Overseas Arbitral Awards (September 2015) (http://www.hfw.com/Dubai-court-issues-landmark-judgment-recognising-and-enforcing-a-foreign-arbitral-award-September-9)

Bunkers International Corporation (September 2015) (http://www.hfw.com/Bunkers-International-Corporation-September-9)

SOLAS Amendment – Mandatory Validation of Container Weight, Time Is Running Out (July 2015) (http://www.hfw.com/SOLAS-amendments-mandatory-verification-of-container-weights-July-7)

Australian Coastal Trade Update (July 2015) (http://www.hfw.com/Australian-cabotage-update-July-7)

Nigeria bans entry of 113 large vessels (July 2015) (http://www.hfw.com/Nigeria-bans-7-tankers-July-113)

Conferences & Events

14th Annual Marine Money Singapore Ship Finance Forum (Singapore)
September 2015-9, 22 Attendees: Tony Rice, Tien Tai,
Ian Chung

IMCC (Dublin)
September 2015-9, 23 Attendees: Toby Stephens,
Richard Neylon

Asia Law Awards (Hong Kong)
2015 September 9
HFW was nominated for:

• Best in Construction & Real Estate
• Best in Insurance
• Best in Shipping & Maritime

Lloyd's List Global Awards 2015 (London)
2015 October 10
HFW has been shortlisted in the following award categories:

• Corporate Social Responsibility
• Best Maritime Lawyer (Best Maritime Law Firm)

Offshore & Marine Finance Forum (Dubai)
October 2015,
10 Speaker: Tien Tai

IBA Annual Conference (Vienna)
October 2015-10, 4 Attendees: Elinor Dautlich,
Alex Kyriakoulis

HFW Conference on current trends in the Indian market (Mumbai
)
2015 October 10
Speakers: Paul Dean, David Morriss, Ashwani Kochhar, Alistair Mackie, Brian Perrott, Damian Honey
Attendees: Hari Krishna, Paul Wordley.

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