17TH ANNUAL INTERNATIONAL MARITIME LAW ARBITRATION MOOT COMPETITION 2016

Transcription

1 17TH ANNUAL INTERNATIONAL MARITIME LAW ARBITRATION MOOT COMPETITION 2016 King s College London Claimant s Memorandum Claimant: Respondent: Zeus Shipping and Trading Company Hestia Industries Team No: 16 Daniel Ask Alex Braune Cristina Harshman Joshua Thomson 1

2 TABLE OF CONTENTS LIST OF AUTHORITIES SUMMARY OF THE FACTS....6 PART I - THE ARBITRATION AGREEMENT PART II - LAYTIME AND DEMURRAGE 15 PART III FRUSTRATION.20 PART IV - SALVAGE..24 PART V - PRAYER FOR RELIEF

3 LIST OF AUTHORITIES A. LEGISLATION Admiralty Act 1988 (Cth) Admiralty Rules 1988 Crimes at Sea Act 2000 Navigation Act 2012 B. CASES Akerblom v Price, Potter, Walker & Co [1881] 7 QBD 129 Arnold v Britton [2015] UKSC 36 Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg [1981] 2 Lloyd s Rep 446 C v D [2007] EWCA Civ 1282 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd (HL) [1993] 1 Lloyd s Rep 291 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 Codelfa Construction v State Rail Authority of New South Wales [1982] HCA 24 Edwinton Commercial Corp and another v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The Sea Angel ) [2007] EWCA Civ 547 El Oldendorff & Co GmbH v Tradax Export SA [1974] AC 479 Ellis Shipping Corpn v Voest Alpine Intertrading, The Lefthero [1992] 2 Lloyd's Rep 109 Enercon GmbH v Enercon (India) Ltd [2012] EWHC 689 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 Finlay v Liverpool and Great Western Steamship Co (1870) 23 LT 251 Fiona Trust & Holdings Corporation v Privalov [2008] 1 Lloyd s Rep 254 3

4 Geipel v Smith (1872) LR 7 QB 404 Hadley v Clarke 8 T R 25 Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 Hirsch v The Zinc Corp Ltd (1917) 24 CLR 34 Mitchell Cotts v Steel (The Kaijo Maru ) [1916] 2 K.B 610 National Carriers Limited v Panalpina (Northern) Ltd [1981] AC 675 Napier Park Europe Credit Opportunities Fund Ltd v Harbourmaster Pro-Rata CLO BV [2014] EWCA Civ 984 Rainy Sky SA v Kookmin Bank [2011] UKSC 50 Sailing Ship Garston Co v Hickie (1885) 15 QBD 580 Skype Technologies SA v Joltid Ltd [2009] EWHC 2783 (Ch) Starlight Shipping Co v Allianz Marine & Aviation Versicherungs AG [2011] EWHC 3381 (Comm) Sul America Cia Nacional De Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638 The Charlotte (1848) 3 Wm Rob 68 The City of Chester [1884] 9 P D 182 The Jane [1831] 2 Hagg. 338 The Super Servant Two [1990] 1 Lloyd's Rep 1 The Teh Hu [1970] P 106 The Vine [1825] 2 Hagg 1 The Wilhelmine [1842] 1 NoC 376 Union of India v Compania Naviera Aeolus S.A. (The Spalmatori) [1932] 2 Lloyd's Rep Walter Rau Neusser Oel und Fett AG v Cross Pac. Trading Ltd [2006] Aust Fed Ct 4

5 United Group Rail Services Ltd v Rail Corp New South Wales [2009] NSWCA 177 Francis Travel Mktg Pty Ltd v Virgin Atl Airways Ltd [1996] 39 NSWLR 160 XL Insurance Ltd v Owens Corning [2000] 2 Lloyd s Rep 500 C. OTHER SOURCES J Cooke, Voyage Charters (3 rd edn Routledge 2007) Kennedy and Rose, Law of Salvage (6 th edn Sweet and Maxwell 2002) L Oppenheim, II International Law: A Treatise 202 (H Lauterpacht edn Longman 1952) Redfern and Hunter, International Arbitration (6 th edn Oxford University Press 2015) 5

6 SUMMARY OF THE FACTS On 1 July 2014, Hestia Industries ( Charterers ) made a request to Zeus Shipping and Trading Company ( Owners ) for a proposal for a voyage charter to transport Charterers cargo of HLNG from Hades to Poseidon. On 14 July 2014 Owners sent their original offer. On 16 July 2014, Charterers accepted the terms of the contract bar one requested amendment. They stated that they were only prepared to arbitrate disputes in London which arise out of the provisions of the charterparty such as a dispute about demurrage. Clause 30 of the charterparty, the arbitration agreement, was duly amended with the phrase arising under, and was accepted by charterers on 22 July Protests to stop HLNG production were being planned on that 20 July When the Vessel arrived at the Port of Hades at 0914 on 3 October 2014, the Master noted troubling events including protests relating to the Charterer and the HLNG cargo. The loading was completed by 2350 on 6 October Following protests and public opposition to the Charterer s export of HLNG Opposition Leader of Hades, Jacqueline Simmons, seized control of the Parliament on 7 October 2014 and ordered the Coast Guard to intercept The Athena. The Coast Guard intercepted the Athena, at some time on 7 October It is unclear whether the Athena was still within the Port and the territorial waters of Hades. The Coast Guard, the Master and the Law Institute of Hades Journal are all uncertain as to whether this was within the Coast Guard s jurisdiction. The Athena returned to the Berth at Hades on 8 October

7 During the period that the Athena was detained at the Port of Hades, the Charterers sought other HLNG carries to undertake the voyage from Hades to Poseidon, but no ships available. The Athena was released 5 October 2015 upon which it resumed the voyage. On 5 October 2015 the vessel was released by the Coast Guard and subsequently towed by Hestug into open water. When the tow lines were released the vessel began to drift due to a defective propeller. The pilot tugs, which had previously towed the vessel, reconnected their lines and towed the vessel back to anchorage. 7

8 I. PRELIMINARY ISSUE OF JURISDICTION 1. Clause 30 of the Charterparty contains an arbitration agreement designating London as the place of arbitration. This is an express choice of venue, and it is submitted, expresses the contrary intention of the parties for the purposes of Section 2 of the Maritime Law Association of Australia and New Zealand Arbitration Rules ( The Rules ). Thus, the reference to arbitration in Clause 30 is not limited to the geographical locations listed in Section 2(a) or (b) of The Rules, and can therefore extend to arbitration in London, England. Since both Parties are signatories of the New York Convention States, international arbitral theory indicates that Art.V(1)(a),(d), and (e) of the Convention, and Article 1(2) of the UNCITRAL model law, both support a clear territorial link between the place of arbitration and the seat of arbitration, which in turn determines the lex arbitri. 1 Further, it is submitted that this territorial link has been similarly followed in English arbitral jurisprudence. See Enercon GmbH v Enercon (India) Ltd. 2 Therefore, it is submitted that the lex arbitri is the English Arbitration Act 1996 ( the Arbitration Act ), and pursuant to Section 30 of the Arbitration Act this Tribunal has jurisdiction to rule upon its own jurisdiction under the competence-competence principle. 1 Redfern and Hunter, International Arbitration, (6 th edn Oxford University Press 2015). 2 Enercon GmbH v Enercon (India) Ltd [2012] EWHC

9 A. THE LAW APPLICABLE TO THE ARBITRATION AGREEMENT 2. It is submitted that the law governing the Arbitration clause in the Charterparty, that is to say, the law governing the construction of Clause 30 itself, is English Law. 3. Following the doctrine of separability established under S.7 of the Arbitration Act, it does not necessarily follow that the law governing the main Charterparty should also govern the arbitration clause. The Court of Appeal held in Sul America v Enesa Engenharia 3 that in principle the proper law of an arbitration agreement which itself formed part of a substantive contract might differ from that of the contract as a whole 4. Although the Court thought it fair to start from an initial assumption that the parties may intend the substantive law of the contract to also govern the arbitration agreement, this could be displaced by any indication to the contrary The Court of Appeal in Sul America therefore established a three-stage test for determining the applicable law. 5. The Court held that The proper law of the arbitration agreement was to be determined in accordance with the established common law rules for ascertaining the proper law of any contract. Those required the court to recognise and give effect to the parties choice of proper law, express or implied, failing which it was necessary to identify the system of law with which the contract had the closest and most real connection. 6 3 Sul America Cia Nacional De Seguros SA v Enesa Engenharia SA [2012] EWCA Civ Ibid, Ibid, Ibid,

10 6. It is submitted that the Parties cannot satisfy the first stage, which requires an express choice of law clause governing the arbitration agreement itself. This is to be distinguished from a choice of law clause governing the substantive contract. The distinction is made clear in Sul America as the express choice of Brazilian law for the policy did not constitute an automatic express choice of law for the arbitration agreement, but rather, pointed towards a possible implied choice It is submitted that applying the second stage of the test there is an implied choice that English law should govern the arbitration agreement, on the basis that the choice of England as the seat of arbitration and importing its law as the lex arbitri, acts to displace the initial assumption that the substantive law of the contract was intended to apply Indeed, the Court of Appeal held that the place chosen for the arbitration proceedings, and the consequential lex arbitri, was an important factor which (where London was the seat ) tended to suggest that the parties intended English law to govern all aspects of the arbitration agreement, including matters touching on the formal validity of the agreement and the jurisdiction of the arbitrators. 9. It is submitted that Sul America confirms recent English jurisprudence on the matter, which has shown a strong trend towards the chosen lex arbitri being considered an implied choice of law governing the arbitration agreement, and/or being the law having the closest and most real connection. 7 Ibid., Ibid, 1(d). 10

11 10. Two relatively recent decisions are offered in support of the above proposition: XL Insurance Ltd v Owens Corning 9 ; and C v D Both cases involved contracts providing for London arbitration, but with New York choice of law clauses governing the substantive contract, which did not expressly extend to the arbitration agreement. 12. Toulson J held in XL Insurance, as summarized in Sul America, that by providing for arbitration in London under the provisions of the Arbitration Act 1996 the parties had chosen English law to govern matters falling within the scope of the Act, including the formal validity of the arbitration agreement and the jurisdiction of the arbitrators, and by doing so had by implication chosen English law as the proper law of the arbitration agreement. 11 Emphasis added. 13. Similarly, in consideration of the third stage, the Court of Appeal cited the speech of Longmore LJ in C v D who said, with reference to the observations made by Lord Mustill in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd. 12 and Black Clawson International 13 that: it would be rare for the law of the (seperable) arbitration agreement to be different from the law of the seat of the arbitration. The reason is that an agreement to arbitrate will normally have a closer and more real connection with the place where the parties have chosen to arbitrate than with the place of the law of the underlying contract in cases where 9 XL Insurance Ltd v Owens Corning [2000] 2 Lloyd s Rep C v D [2007] EWCA Civ Ibid (no 3), [19]. 12 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd. (HL) [1993] 1 Lloyd s Rep Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg [1981] 2 Lloyd s Rep

12 the parties have deliberately chosen to arbitrate in one place disputes which have arisen under a contract governed by the law of another place. 14 Emphasis added. 14. The Court concluded in Sul America that [t]he arbitration clause had its closest and most real connection with English law, as the law of the place where the arbitration was to be held and which would exercise the supporting and supervisory jurisdiction necessary to ensure that the procedure was effective. 15 B. THE TRIBUNAL S JURISDICTION TO DECIDE THE FRUSTRATION CLAIM 15. It is submitted that the scope of the arbitration agreement, on its proper construction, includes claims for frustration under English law. 16. Lord Hoffmann made clear in the House of Lords decision Fiona Trust v Privalov 16 that the construction of an arbitration clause should start from the assumption that the parties, as rational business men, are likely to have intended any dispute arising out if the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator s jurisdiction. 17. The House of Lords concluded that whatever fine distinctions had been judicially drawn in the past between phrases such as arising out of and arising under, 14 Ibid (No 3), [21]. 15 Ibid (No 3), [32]. 16 Fiona Trust & Holdings Corporation v Privalov [2008] 1 Lloyd s Rep

13 such distinctions reflected no credit upon English law, and that the time has come to draw a line under the authorities to date and make a fresh start Thus, the House of Lords held that the two phrases were to be deemed mutually interchangeable, and their scope would be construed broadly in line with the modern philosophy of arbitration acting as a one-stop-shop to support rational business expectations. This approach has been followed in subsequent cases 18, and it is submitted is also in line with current English jurisprudence to construe terms in accordance with business common sense and commercial sense Therefore, it is submitted that since the Charterers at no stage objected to the difference in wording between their requesting arising out of, and the final amended Charterparty stating arising under, their intention is similar to that of the draftsman of the Shelltime 4 standard form, as analysed by the House of Lord in Fiona Trust, and they may be deemed to have intended the two phrases to be mutually interchangeable. 20. Further, it is submitted that any clear language used to define the scope of the arbitration clause must be found within the contract, or in a document incorporated by the contract. Extrinsic evidence, in the form of pre-contractual negotiations, are excluded from the judicial analysis of the construction of contractual terms. This was confirmed by the House of Lords in Chartbrook Ltd v 17 Ibid, [12-13]. 18 Skype Technologies SA v Joltid Ltd [2009] EWHC 2783 (Ch); Starlight Shipping Co v Allianz Marine & Aviation Versicherungs AG [2011] EWHC 3381 (Comm). 19 Rainy Sky SA v Kookmin Bank [2011] UKSC 50; Napier Park Europe Credit Opportunities Fund Ltd v Harbourmaster Pro-Rata CLO BV [2014] EWCA Civ

14 Persimmon Homes Ltd 20, where Lord Hoffmann supported its continued exclusion on pragmatic grounds. 21. In conclusion, following Fiona Trust, it is submitted that there is now a strong business assumption that no distinction is to be drawn between phrases such as arising out of and arising under, and that claims for frustration will fall within the remit of the phrase arising under, as established in modern commercial jurisprudence, on a pure language analysis Finally, it is submitted that in any event any claim for demurrage would not be barred from the scope of the arbitration agreement simply on the basis that a defence which may be raised is itself outside the scope of the arbitration agreement. 23. In the alternative, if the tribunal finds the correct law applicable to the arbitration agreement to be the law of Western Australia, it is submitted that following recent Australian jurisprudence claims for frustration would fall within the scope of the arbitration clause. 24. As highlighted by the words of a recent Australian Federal Court decision, arbitration agreements are governed by the ordinary rules of contract interpretation and a liberal approach to their meaning should be given, without any policy attempting to restrict their scope the court will assume that the 20 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL Arnold v Britton and Others [2015] UKSC

15 parties did not intend the inconvenience of having possible disputes from their transaction being heard in two places. 22 II. LAYTIME AND DEMURRAGE C. THE CHARTERERS CARGO CONSTITUTED DANGEROUS GOODS 25. The shipowner submits that the shipping of HLNG amounted to a dangerous good and therefore may claim damages for detention. 26. In any contract for carriage, it is an implied obligation of the shipper that he will not ship dangerous goods without communicating to the owner facts indicating that there is such a risk A cargo falls within the scope of the implied term relating to dangerous goods not only if it is physically hazardous, but also if it is unlawful cargo and likely to subject the ship to delay 24. a. Here, the presidential decree instructing the Coast Guard to intercept The Athena caused unusual delay in shipping the goods and directly related to the carriage of the specific cargo. 25 b. It is reasonable to infer that Hestia knew of the risk of legal obstacles. At the time of contracting, The Hades Advocate published an article detailing the significant protests around the commissioning of the Charterers HLNG 22 Walter Rau Neusser Oel und Fett AG v Cross Pac Trading Ltd [2006] Aust Fed Ct; United Group Rail Services Ltd v Rail Corp. New South Wales [2009] NSWCA 177; Francis Travel Mktg Pty Ltd v Virgin Atl. Airways Ltd [1996] 39 NSWLR Mitchell Cotts v Steel (The Kaijo Maru ) [1916] 2 K.B 610 at page 610 per Lord Atkin. 24 Ibid. 25 Page

16 plant, indicating that protesters would not rest until gas exports from Hades were stopped 26. Furthermore, the fact that the protesters did not want to give too much away 27 when discussing their plans to stop HLNG production and that the Hades economy had experienced a traumatic twelve months 28 which invariably affects the political stability of any nation- emphasizes the possibility of political action being taken, including the risk of a military coup resulting in a presidential decree to stop HLNG production. This does take place (page 55). Consequently, Hestia owed a duty to communicate this risk to the shipwoner. The fact that Hestia did not communicate this to the shipowner means that the charterer breached its obligation in relation to the safety of the goods c. Moreover, the existence of the obstacles was not known by the shipowner, and there is no reason they ought to have known. Although the shipowner was aware of the protests 29, these did not amount to the legal obstacles that made the goods unlawful and dangerous. Rather it was the risk of a presidential decree that posed a danger of delay. The shipowner, a company based in Poseidon 30, could not reasonably be expected to have had such detailed and intimate knowledge of current affairs of Hades. D. THE VESSEL NEVER LEFT THE PORT OF HADES 26 Page Page Page Page Page 2. 16

17 28. The claimant submits that the Athena never left the Port of Hades and therefore laytime continued to run. 29. Little case law discusses the test for a departed ship. However, it is possible to analogize from the test for an arrived ship. 30. In port charters a vessel reaches its destination when: 1) It arrives within the port and; 2) It is at the immediate and effective disposition of the charterer. 31 a. In the case of a departed ship, only the first limb of the test should be considered: the ship must no longer be within the port. It is unnecessary to consider the second limb of the test because the moment that the charterers finish loading their cargo, there is no more that they can do. It is irrelevant to decide whether the ship is at their immediate and effective disposition, since there is no need for it to be. 31. A port may extend beyond the place of loading and the place of unloading. 32 This means that a ship may be within the port and not yet be in the loading place. 32. The test that determines how far the port extends is the following: when the port authorities are exercising administrative control over ships and shippers are submitting to this control. 33. Administrative control means powers which regulate the movement and conduct of the ship. 34 a. It is clear that by intercepting the Athena and directing the master 35, the Coast Guard was exercising de facto administrative control. 31 El Oldendorff & Co GmbH v Tradax Export SA [1974] AC 479 at 535 per Lord Reid, HL. 32 Sailing Ship Garston Co v Hickie (1885) 15 QBD 580 page 587 per Brett MR. 33 Ibid. 34 Ibid (No 16), p Page

18 b. Section 6 (1) (a) of the Crimes at Sea 2000 imposes the substantive criminal law of Australia on Australian ships in international waters. Since a presidential decree may amount to a legislative act, refusing to comply with it may amount to a criminal offence. The Coast Guard accordingly has the authority to apply its jurisdiction on board ships registered in Australia. c. The Athena is a Hades flagged vessel 36, which allows the Hades Coast Guard to exercise jurisdiction and apply administrative control over the vessel and direct it to return 37. d. Moreover, the Navigation Act 2012 gives power to the Australian Maritime Safety Authority (AMSA) to detain a ship. AMSA may detain a vessel and may also bring it to a port, if they reasonably suspect that the vessel has been, is or will be involved in a contravention, either in or outside Australia, of the Navigation Act Consequently, by having the power to detain a ship and exercising that power, the Coast Guard was exercising administrative control of the Athena. E. CLAUSE 9(e) OF THE CHARTERPARTY DOES NOT APPLY 33. Clause 9 (e) provides that laytime will not count and demurrage will not accrue in the event of delay or hindrance by reason of arrests or war. 36 Page Page Section 248 (1) (b) Navigation Act

19 34. The interception of the Athena was not an arrest. If it were, it would be a claim for the carriage of goods on the ship 39 a. The Admiralty Rules 1988 set out the requirements for an arrest. 40 b. Clearly none of the Admiralty Rules 1988 were complied with and therefore the interception of the Athena cannot amount to an arrest. 35. Legally, a war amounts to a contention between two or more States through their armed forces, for the purpose of overpowering each other and imposing such conditions of peace as the victor pleases 41 a. The interception of the Athena does not amount to war. Clearly, there is no contention between two or more States through their armed forces. At its highest, the coup in Hades involved a struggle between two domestic interests. b. Even if that can be characterised as a coup, the detention of the Athena occurred after the cessation of the coup and the installation of a new President Furthermore, the interception by the Hades government amounts to a restraint of princes, which is not provided for in Clause 9 (e). 37. A restraint of princes refers to the forcible interference of a State or of the government of a country taking possession of the goods forti and covers persons 39 Admiralty Act 1988 (Cth) section 4(3)(d)(vi). 40 These include: a writ in rem (rule 19), an application for an arrest warrant (sub-rule 39(1)), an affidavit in support (39(3)) and a draft arrest warrant (sub-rule 40(2)). 41 L Oppenheim, II International Law: A Treatise 202 (H Lauterpacht edn Longman 1952), p Page

20 acting even with quasi-governmental authority. 43 A restraint of princes is an order backed by the powers of the executive, preventing contractual performance A restraint of princes must be expressly and clearly worded to be held as an exception to an interruption to laytime. 45 a. The presidential decree was clearly an exercise of executive power that prevented performance of the shipowner s contractual obligations, and therefore a restraint of princes 46 Since such a cause was not expressly included in Clause 9 (e) it therefore doesn t apply as an interruption to laytime exception. III. FRUSTRATION A. THE CHARTERPARTY WAS NOT FRUSTRATED BY THE DELAY 39. The Charterparty was not frustrated by delay because the commercial purpose of the venture was not frustrated. 40. The test as to whether the delay is such to frustrate the contract is to determine whether it frustrates the commercial purpose of the venture. 47 Alternatively, it must make the venture impossible to perform 48 or render the venture radically different from what was contracted for. 49 The effect of frustration is to relieve 43 Finlay v Liverpool and Great Western Steamship Co. (1870) 23 LT 251 per Martin B. 44 Julian Cooke, Voyage Charters (3 rd edn Routledge 2007), [ ]. 45 Ellis Shipping Corpn v Voest Alpine Intertrading (The Lefthero) [1992] 2 Lloyd's Rep Page Universal Cargo Carriers v. Citati [1957] 2 QB 401 at page 983 per Lord Devlin. 48 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at page 52 per Lord Atkin. 49 Codelfa Construction v State Rail Authority of New South Wales [1982] HCA 24.per Lord Aickin. 20

21 the parties of any further obligations under the contract after the frustrating event. 50 a. Hestia chartered the Athena to facilitate commissioning [of HLNG] [Hestia] require an LNG tanker capable of transporting our unique LNG from Hades to Poseidon 51. It is difficult to say with certainty that the commercial purpose of the venture became radically different or impossible to carry out, as it was still possible for the charterer as a new producer of HLNG 52 to start a new business. b. There is no evidence whatsoever of a decrease in the value of the cargo (HLNG), nor a third party relying on the shipment of LNG. The sole purpose of the contract was to transport HLNG from Hades to Poseidon. This demonstrates that the delay did not render Hestia s venture radically different. Once the Athena was released by the Coast Guard on 5th October , commissioning HLNG was still possible. 41. Moreover, during the disputed period, the Athena was the only ship available to undertake this voyage in the specific circumstances 54. Consequently, on 30th April 2015 when the charterer claimed the Charterparty was frustrated 55, the Athena remained the sole ship able to carry out the commercial purpose of the venture. Consequently, declaring the contract frustrated does not change the 50 Hirsch v The Zinc Corp Ltd (1917) 24 CLR 34 at page 61 Lord Issacs. 51 Page Page Page Page Page

22 charter s position, other than in relation to increased costs, which is not a frustrating event The doctrine of frustration seeks to vindicate justice. 57. The object of [frustration] was to give effect to the demands of justice, to achieve a just and reasonable result, to do what is reasonable and fair, as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstance Under this Charterparty, arbitrators may determine any questions by reference to considerations of general justice and fairness 59. The issue of frustration should also be considered in light of general justice and fairness. 44. The reason that the Athena was held in the port of Hades because of President Simmons opposition to HLNG production 60 and the Athena was stranded in Hades for almost a year 61, meaning that the shipowner was unable to charter its ship for over a year. Because the length of the charter party was supposed to be approximately one month 62 it is clear that the shipowner may have suffered significant additional repercussions by the inability to re-charter the Athena for over a year. On the other hand, unlike the shipowner, the charterer, as a new industry 63 who has yet to start exporting HLNG, does not have a business to maintain. Furthermore, although the only reason the boat was retained in Hades 56 National Carriers Limited v Panalpina (Northern) Ltd [1981] AC Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 at 510 per Lord Simon. 58 The Super Servant Two [1990] 1 Lloyd's Rep 1 at 8 per Lord Bingham. 59 Page Page Page Page Page 2. 22

23 was because the cargo on board 64, it was the shipowner s vessel that was unable to leave the port, causing serious damage for the ship-owner because of a cargo they had no particular interest in. 45. Consequently, the interests of justice favour the claimant. The purpose of the doctrine [of frustration] is to do justice [ ] its application cannot be divorced from considerations of justice. 65 Finding the contract frustrated would mean that not only would the shipowener have to manage the financial loss caused by the impossibility to re-charter the Athena for over a year, but also pay for demurrage costs which were caused by the charterer s cargo. This, it is submitted, would be incompatible with any considerations of justice and fairness 46. In any event, the restraint of princes placed by the Hades government would amount to a suspension event, not a frustrating event. 47. This was a restraint of princes. a. The parties must submit to whatever inconvenience may arise therefrom, unless they have provided against it by the terms of their contract. 66 b. However, where the cargo is perishable, or its market value diminished because of the delay, it would be monstruous to say that the contract is merely suspended since it would make the contract ruinous. 67 c. The presidential decree was a restraint of princes. 68 There is no indication that the cargo is perishable, nor that a decrease in market value has 64 Page Edwinton Commercial Corp and another v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The Sea Angel ) [2007] EWCA Civ 547, [112] per Rix LJ. 66 Hadley v Clarke 101 ER 1377 at 1381 per Lord Kenyon. 67 Geipel v Smith (1872) LR 7 QB. 404 at 410 per Lord Cockburn. 68 Page

24 occurred. More importantly, on the facts, suspension does not seem to make the contract ruinous since there is no indication that there is a preexisting market for HLNG. 69 d. Although the parties must submit to whatever inconvenience may arise therefrom, unless they have provided against it by the terms of their contract 70 the loss must fall on someone, and one would think business people who made the contract would regard it as reasonable that the man whose fault it is should pay for it. 71 e. This case is a clear instance where the sole reason for the detention of the ship was the HLNG on board 72 making the fault plainly more attributable to the charterer than the shipowner. Thus, although the general effect of suspension would mean that the demurrage claim would be suspended, the shipowner submits that, due to the special and specific circumstances of this case, where fault should be attributed to the charterer, and in considerations of justice and fairness, the demurrage claims should not be suspended. IV. DEFENCE TO SALVAGE COUNTERCLAIM 48. FIRST DEFENCE: 69 Page Hadley v Clarke 8 TR 259, p Union of India v Compania Naviera Aeolus S.A. (The Spalmatori) [1932] 2 Lloyd's Rep 179 per Lord Reid. 72 Page

25 49. It is submitted that the Respondents, Hestia Industries, are not entitled to claim salvage for services rendered by their own subsidiary, Hestug, if Hestug owned the tugs which performed the salvage service. 50. Rose writes It is suggested, therefore, that the cases and the principle of success - which confines claims to services which have made a real contribution to salvage which in fact proves to be successful - justify the following threefold description, rather than definition, of persons entitled to claim salvage. A person providing a service is entitled to claim a salvage reward if he was at the time when the salvage service was provided: 1) personally engaged in a salvage service; or 2) entitled to possession of a vessel used to provide salvage service; or 3) the owner or the person entitled to possession of other property which was used to provide a salvage service." Firstly, in any event, it is submitted that the Respondents cannot satisfy (1) above, as Hestug performed the salvage services. Secondly, in the event that Hestug own the tugs, the Respondents cannot satisfy (2) or (3). 52. In the event that the tugs are owned by the Respondents, but operated by Hestug, then the Respondents may be able to satisfy element (3) above. 53. However, it is submitted that following the dictum of Dr Lushington in The Charlotte, the Respondents have not shown that they were in anyway personally engaged in the salvage operation, and so may only be eligible for equitable compensation qua tug owners. It is submitted that the magnitude of this compensation should be zero, or an absolute minimum value, on the basis that 73 Kennedy & Rose, Law of Salvage, (6 th edn Sweet and Maxwell 2002), [441]. 25

26 although Lord Stowell in The Vine 74 acknowledged that delay or loss could justify the award of equitable compensation, the Respondents cannot show that they suffered any such loss. Indeed, the tugs, in any event, would very likely have had to return to port and cannot be said to have been inconvenienced in any significant respect warranting compensation. Sir Christopher Robinson stated in The Jane: the general principle of law is, that the claim of [ship] owners generally is very slight, unless, from the circumstances of the case, their property becomes exposed to danger, or they incur some real loss or inconvenience SECOND DEFENCE: 55. It is submitted that any counter claim for salvage reward by the Charterers constitutes a wholly separate claim, which bears no relationship whatever to the Charterparty, and is consequently outside the scope of the arbitration agreement. If the Respondents are to succeed on their construction of the arbitration agreement, it is submitted a corollary is that the Tribunal also has no jurisdiction to hear its salvage claim. 56. Indeed, it is submitted that if the counterclaim for salvage is a claim arising under the charterparty, then, a fortiori, the claim is a result of there being an underlying contractual relationship, which will act to immediately bar any claim for salvage reward by the Respondents for falling to act as volunteers. 74 The Vine [1825] 2 Hagg 1 at The Jane [1831] 2 Hagg 338 at

27 57. THIRD DEFENCE: 58. In the alternative, if the counterclaim falls within the scope of the arbitration agreement, it is submitted that the Claimants do not owe salvage reward to the Respondent tug owners. 59. Professor Rose notes in Law of Salvage 76 the equitable bases as an underlying principle for the render of salvage reward. He writes: The jurisdiction of the Admiralty Court has consistently been described throughout history as being of a peculiarly equitable character, seeking to do what is fair and just both to salvors and to the owners of property which is saved Dr Lushington made clear in The Wilhelmine 78 and The Charlotte 79, that the foundation for a salvage claim is the exposure to danger, and/or risk of loss, of the salved property. Rose writes, Danger of loss or damage to the subject matter of the service is the very foundation of a claim to salvage However, a further requirement is that the salvor acted as a volunteer, and that [t]he degree of danger will affect the salvor s ability to claim where he falls outside the traditional classification of volunteer, particularly where he is habitually engaged in the performance of services in order to avoid danger to shipping It is submitted that following the Court of Appeal s analysis in Akerblom v Price, Potter, Walker & Co 82 the Respondents do not qualify as volunteers, since their 76 Ibid (No 74). 77 The Teh Hu [1970] P 106 at 124 per Lord Denning MR. 78 The Wilhelmine [1842] 1 N o C The Charlotte (1848) 3 Wm Rob 68 at Ibid (No 73). 81 Ibid (No 9). 82 Akerblom v Price, Potter, Walker & Co [1881] 7 QBD

28 act of towing the stricken vessel constituted an activity which was materially identical to their ordinary duties of towage as pilot tugs. 63. The Court stated When a pilot has assisted in navigating a vessel from a dangerous situation to a safe anchorage, the test, whether he is entitled to be remunerated for salvage services, is not, on the one hand, whether the vessel was at the time of succour in distress, or, on the other hand, whether she was then damaged; but the test is whether the risk attending the services to the vessel was such, that the pilot could not be reasonably expected to perform them for the ordinary pilot's fees, or even for extraordinary pilotage reward Thus, as summarized by Rose in order to entitle a pilot to salvage reward he must not only show that the ship was in some sense in distress, but that she was in such distress as to be in danger of being lost and such as to call upon him to provide such a service as to make it unfair and unjust that he should be paid otherwise than upon the terms of salvage reward. 84 It is submitted that the vessel was not in such distress as to place the pilot tugs at a risk which was outside the usual duties that they could reasonably be expected to perform for the ordinary pilot fee, and that, therefore, it would be inequitable to render salvage reward especially given the tugs were in such close proximity to the vessel and only required to reconnect their tow lines. It is submitted that the Respondents are unable to show that by reconnecting the tow lines they were called upon to run such unusual danger, or incur such unusual responsibility, or exercise such 83 Ibid, [129]. 84 Ibid (No 73). 28

29 unusual skill, or perform such an unusual kind of service, as to make it unfair and unjust that he should be paid otherwise than upon the terms of salvage reward FOURTH DEFENCE: 66. In the alternative, it is submitted that any reward due should be set at a minimum level. 67. The International Salvage Convention 1989, Article 13.1 sets out specific criteria for fixing the award. Further, in the classification of material circumstances to be taken into account in assessing salvage reward L.J. Lindley stated in The City of Chester 86 that the court has for its guidance a long course of judicial decision to assist in coming to a proper conclusion in each particular case It is submitted that on an analysis of the specific criteria a number of factors act to minimise the magnitude of the reward. 69. These include: (a) minimal degree of danger to human life regarding the vessel s crew; (b) minimal degree of danger or risk to the salvors or their equipment,; (c) minimal time occupied and/or work done in performance of salvage; (d) minimal expense incurred by salvors; (e) minimal loss incurred by salvors; and (f) minimal effort required to prevent damage to the environment. 70. Finally, it is submitted that it would be inequitable for the value of the salved cargo to play any part in the calculation of salvage remuneration since to do so 85 Ibid. 86 The City of Chester [1884] 9 PD Ibid, [202]. 29

30 would afford the Respondents, as owners of the cargo, a double recovery. This effective windfall would be wholly inequitable. V. PRAYER FOR RELIEF For the reasons set out above, the Respondent requests the Tribunal to: DECLARE that the tribunal has jurisdiction to hear the demurrage claim. AWARD the Owners US $17.9 million + interest. DECLARE that the tribunal does not have jurisdiction to hear salvage claim DECLARE that the Owners do not owe salvage reward. DECLARE that the Owners owe absolute minimum value only. 30