MEMORANDUM FOR THE CLAIMANT UNIVERSITY OF QUEENSLAND AUSTRALIA TWELFTH ANNUAL INTERNATIONAL MARITIME LAW ARBITRATION MOOT COMPETITION 2011

Transcription

1 TWELFTH ANNUAL INTERNATIONAL MARITIME LAW ARBITRATION MOOT COMPETITION 2011 UNIVERSITY OF QUEENSLAND AUSTRALIA IN THE MATTER OF AN ARBITRATION HELD AT SINGAPORE MEMORANDUM FOR THE CLAIMANT ON BEHALF OF: Blue Sky Holdings Inc Level Greater South Street Panama City Panama CLAIMANT AGAINST: Neuland Petroleum Refinery Company Ltd 48 King Street Makai City Neuland RESPONDENT TEAM NO. 19 VENETIA BROWN BEN GRANT DANIELLE TAY CARL TESSMANN

2 TEAM 19 CLAIMANT II

3 TABLE OF CONTENTS TABLE OF CONTENTS LIST OF ABBREVIATIONS TABLE OF AUTHORITIES I IV V SUMMARY OF ARGUMENTS 1 SUMMARY OF FACTS 1 ARGUMENTS PRESENTED 3 A. THE TRIBUNAL HAS JURISDICTION TO HEAR THESE PROCEEDINGS Clauses 1 to 5 of the standard form Far East bill of lading are incorporated into the Bill of Lading dated 11 July Clause 5 gives this Tribunal jurisdiction to hear these proceedings. 5 B. NEULAND PETROLEUM WAS NEGLIGENT IN THE DISCHARGE OF CARGO, CAUSING DAMAGE TO THE ALPHA STAR Neuland Petroleum owed Blue Sky a duty of care to prevent reasonably foreseeably harm to the Alpha Star in the discharge of cargo Neuland Petroleum breached its duty of care, thereby causing loss and damage to Blue Sky Neuland Petroleum s breaches of duty caused the damage suffered by Blue Sky The loss and damage suffered by Blue Sky was not too remote to be recoverable. 11 C. BLUE SKY WAS NOT CONTRIBUTORILY NEGLIGENT IN THE DISCHARGE OF CARGO Blue Sky was not contributorily negligent In the alternative, even if Blue Sky was considered prima facie to have been contributorily negligent, it is entitled to rely on the immunity contained in Article IV Rule 2 of the Hague-Visby Rules. 13 I

4 D. NEULAND PETROLEUM S COUNTERCLAIM SHOULD BE STRUCK OUT FOR NON-COMPLIANCE WITH THE TIME LIMITATION WITHIN THE HAGUE- VISBY RULES The Bill of Lading is subject to the Hague-Visby Rules The counterclaim was not brought within the time limitation as found in Article III Rule 6 of the Hague-Visby Rules. 14 E. IN THE ALTERNATIVE, BLUE SKY RELIES ON THE ARTICLE IV RULE 2 IMMUNITY IN THE HAGUE-VISBY RULES The relevant cause of loss in this situation was a fire There was no actual fault or privity on the part of Blue Sky Reliance on the fire immunity is not precluded by any alleged unseaworthiness of the Alpha Star Neuland Petroleum cannot establish that the Alpha Star was unseaworthy Further, Neuland Petroleum cannot prove that the unseaworthiness caused its loss or damage. 19 F. BLUE SKY REJECTS THE CHARACTERISATION OF DAMAGES AS ASSERTED BY NEULAND PETROLEUM Neuland Petroleum did not acquire title to the loss LPG. It has not suffered loss and cannot claim damages for loss of the cargo The title of and risk to the entire cargo had not passed to Neuland Petroleum In the alternative, title and risk had only passed to Neuland Petroleum with respect to the goods that had passed the shore pipeline connection In the alternative, if title to all of the LPG had passed to Neuland Petroleum, Neuland Petroleum is limited in the quantum of damages that can be claimed. 23 II

5 15.1 The claim for damages brought under the Bill of Lading should be limited to the market value of goods at the port of discharge The loss of profits from and indemnity for penalties for not complying with forward sales are too remote. 23 PRAYER FOR RELIEF 25 III

6 LIST OF ABBREVIATIONS AMTAC Australian Marine and Transport Arbitration Commission Bill of Lading The bill of lading dated 11 July 2005 covering the shipment the subject of these proceedings. Blue Sky ESD System Far East The Hague-Visby Rules Blue Sky Holdings Inc Emergency shut-down system Far East Maritime Petroleum Transport Co Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading (Brussels 1968) IFIC ISGOTT Independent Fire Investigation Consultants International Safety Guide for Oil Tankers and Terminals LPG Liquified Petroleum Gas, a mixture of hydrocarbon gases containing mainly propane and butane Neuland Petroleum Summary Report Neuland Petroleum Refinery Co Ltd Summary Report into the Fire on Board the Vessel Alpha Star Time Charter Party The Charterparty concluded between Far East and Blue Sky dated 10 January 2005 IV

7 TABLE OF AUTHORITIES CASES Aegean Sea Traders Corporation v Repsol Petroleo S.A. and Another (The Aegean Sea) [1998] 2 Lloyd s Rep 39 Anticosti Shipping Co v Viateur St-Armand [1959] 1 Lloyd s Rep 352 Aries Tanker Corporation v total Transport Ltd (The Aries) [1977] 1 WLR 185 Atlantic Oil Carriers Ltd v British Petroleum Company Ltd (The Atlantic Duchess) [1957] 2 Lloyd s Rep 55 Barnett v Chelsea and Kensington Hospital Management Committee [1969] 1 AB 428 Bolton (Engineering) Co v Graham & Sons Ltd [1957] 1 QB 159 Bua International Ltd v Hai Hing Shipping Co Ltd (The Hai Hing) [2000] 1 Lloyd s Rep 300 Caparo Industries Plc v Dickman [1990] 2 AC 605 Captain v Far Eastern Steamship Co [1979] 1 Lloyd s Rep 595 Carisbrooke Shipping CV5 v Bird Port Ltd (The Charlotte C) [2005] 2 Lloyd s Rep 626 Customs and Excise Commissioners v Barclays Bank Plc [2007] 1 AC 181 Czarnikow (C) Ltd v Koufos (The Heron II) [1967] 2 Lloyd s Rep 457 El Greco (Australia) Pty Ltd & Anor v Mediterranean Shipping Co SA [2004] 2 Llody s Rep 537 Eridania SpA v Rudolf A Oetker (The Fjord Wind) 2 Lloyd s Rep 191 The Europa [1908] P 84. FC Bradley & Sons Ltd v Federal Steam Navigation Co [1926] 24 Lloyd s Rep 446. Galoo v Bright Grahame Murray [1994] 1 WLR 1360 Great China Metal Industries Co Ltd v Malaysian International Shipping Corp (The Bunga Seroja) [1999] 196 CLR 161. Hadley v Baxendale (1854) 9 Ex D 341 The Hellenic Dolphin [1978] 2 Lloyd s Rep 336 Hoenig v Isaacs [1952] 2 All ER 176 V

8 Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha [1962] 2 QB 26 Kamilla Hans-Peter Eckhoff KG v A C Oerssleff s Eftf A/B (The Kamilla) [2006] 2 Lloyd s Rep 238. The Lady Gwendolen [1965] 1 Lloyd s Rep 335 Lennard s Carrying Co v Asiatic Petroleum Co [1915] AC 705 Lloyd s Bank Ltd v Ry Executive [1952] 1 All ER 1248 Manifest Shipping & Co Ltd v Uni-Polaris Insurance Co Ltd and La Reunion Europeene (The Star Sea) [1997] 1 Lloyd s Rep 360 Marc Rich & Co A.G. v Bishop Rock Marine Co Ltd [1996] AC 211 Maxine Footwear Co v Canadian Government Merchant Marine [1959] AC 589 Mobil Oil Hong Kong Ltd v Hong Kong United Dockyards Ltd [1991] 1 Lloyd s Rep 309 Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd (The Wagon Mound) (No. 1) [1961] AC 388 Papera Traders Ltd v Hyundai Merchant Marine (The Eurasian Dream) [2002] 1 Lloyd s Rep 719 Purcell v Bacon (1914) 19 CLR 241 Racing Drivers Club Ltd v Hextall Erskine & Co [1996] 3 All ER 667 Read v J Lyons & Co [1974] AC 156 Rey Banano Del Pacifico CA & Ors v Transportes Navieros Ecuatorianos & Anor (The Isla Fernandina) [2000] 2 Lloyd s Rep 15. Rohlig (UK) Ltd v Rock Unique Ltd [2011] EWCA Civ 18 Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SA (The Pegase) [1981] 1 Lloyd s Rep 175 Shell UK Ltd v Total UK Ltd; Total UK Ltd v Chevron Ltd [2010] 2 Lloyd s Rep 467 Sienkiewicz v Greif (UK) Ltd [2011] UKSC 10 (9 March 2011) Southampton Cargo Handling plc v Lotus Cars Ltd and others [2000] 2 All ER (Comm) 705 Smith Hogg & Co v Black Sea and Baltic General Insurance [1940] AC 997 Standard Oil of New York v Clan Line Steamers [1924] AC 100 VI

9 Tempus Shipping Co Ltd v Louis Dreyfus & Co [1930] 1 KB 699 The Toledo [1995] 1 Lloyd s Rep 40 Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61 Victoria Laundry v Newman [1949] 2 KB 528 William Thomas & Sons v Harrowing SS Co [1915] AC 58 ARBITRATIONS Unitramp Ltd, Isle of Man v Ypapadi Maritime Inc SMA 3102 (Arb at N.Y. 1994) STATUTES Carriage of Goods by Sea Act 1971 (UK) Carriage of Goods by Sea Act 1992 (UK) TREATIES International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading 1924, ( The Hague Rules ), opened for signature 25/08/1924, 120 LNTS 155 (entered into force 2 June 1931) Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading 1924 ( The Hague Visby Rules ), opened for signature 23/02/1968, 1412 UNTS 127 (entered into force 23 June 1977) RULES Australian Maritime and Transport Arbitration Commission Rules OTHER International Chamber of Shipping, Oil Companies International Marine Forum and International Association of Ports and Harbors, International Safety Guide for Oil Tankers Terminals (ISGOTT) (5 th ed, 2006) VII

10 SUMMARY OF ARGUMENTS Blue Sky Holdings Inc (Blue Sky) brings this action to recover damages for the loss of its vessel, the Alpha Star, and a declaration that it is entitled to be indemnified in respect of certain third party liabilities, following a fire which occurred during the discharge of cargo from the Alpha Star at Neuland Petroleum Refinery Co Ltd s (Neuland Petroleum) terminal. Blue Sky asserts that responsibility for the fire rests entirely with Neuland Petroleum on the basis that it failed to take reasonable care in and about the discharge of the cargo, including, inter alia, by supplying a defective manifold reducer. The jurisdiction of the Tribunal to determine the proceedings is based on an arbitration agreement which Blue Sky asserts is contained in the bill of lading dated 11 July 2005 (Bill of Lading) concerning the cargo on board at the time of the fire. SUMMARY OF FACTS 1. The Alpha Star is a vessel owned by the claimants, Blue Sky. On 10 January 2005, the Alpha Star was chartered by way of a Time Charter Party to Far East Maritime Petroleum Transport Company Ltd (Far East). 2. Neuland Petroleum, the respondents, issued a Tender and Contract invitation requesting a supply of LPG mixture to Makai Port, Neuland. On 10 April 2005, Far East made a Commercial Offer in relation to the tender invitation and was awarded the contract for supply on 27 April The contract for supply consisted of eight shipments of LPG. The first and fifth shipments were aboard the Alpha Star. The subject of these proceedings is the fifth shipment. 3. On 11 July 2005, LPG was loaded onto the Alpha Star and the Bill of Lading was issued to cover the shipment. It arrived in Neuland on 27 July 2005 and Captain Krygger issued a Notice of Readiness to Neuland Petroleum at 0400, stating that the Alpha Star was ready to discharge 1

11 its cargo. Pre-Arrival Checklists were completed and signed by the Chief Officer of the Alpha Star and the Chemical/Gas Engineer of Neuland Petroleum. Captain Krygger sent Far East an Arrival Report stating, among other things, that these had been completed. 4. Within a few hours of discharge operations commencing, a small cloud of white gas escaped from the vessel s rail side of the manifold reducer. Both a terminal employee and a vessel crew member were in attendance by the manifold but neither attempted to report the leak. The crew member stepped away from the manifold on seeing the gas cloud but did not attempt to activate the remote shut off device. As the terminal employee approached the manifold reducer, a nonintrinsically safe metal cased torch fell from his overall pocket. The torch struck the manifold drip tray just as a large cloud of pressurised gas escaped, causing an explosion and subsequent fire. Both the terminal employee and the crew member died as a result. 5. Far East and Blue Sky were informed of the fire by facsimile from Neuland Petroleum. The Alpha Star was reported by experts at the scene to be a total constructive loss. 6. Far East terminated the Time Charter Party with Blue Sky, effective from 12 noon on 27 July Blue Sky gave Global Market Insurance Syndicates its notice of abandonment of the Alpha Star on 10 August 2005, which was rejected on 12 August Blue Sky initiated proceedings in Singapore and served its claim on Neuland Petroleum on 2 April Blue Sky asserts that Neuland Petroleum failed to take reasonable care in and about the discharge of cargo. This resulted in the loss of the Alpha Star and its future use, contingent losses for proceedings brought by the deceased employees, and claims by the Makai Port Corporation and Maritime Authority for maintenance work, salvage services and harbour and anchorage dues. 2

12 8. Neuland Petroleum contests the jurisdiction of Singapore as the seat of arbitration. It has also raised a counterclaim for the breach of contract and claimed losses for the value of the LPG cargo, loss of profits, and an indemnity for penalties incurred in its failure to supply LPG to third parties. ARGUMENTS PRESENTED A. THE TRIBUNAL HAS JURISDICTION TO HEAR THESE PROCEEDINGS 1. Rule 20 of the AMTAC Rules gives this Tribunal the power to rule on its own jurisdiction. Clauses 1 to 5 of the standard form Far East bill of lading are incorporated into the Bill of Lading dated 11 July 2005, and clause 5 gives this Tribunal the jurisdiction to hear these proceedings. 1.0 Clauses 1 to 5 of the standard form Far East bill of lading are incorporated into the Bill of Lading dated 11 July The clauses are incorporated despite the fact that the Bill of Lading does not appear to have printed clauses on its reverse page. Neuland Petroleum is experienced within the shipping industry and has had prior commercial dealings with Far East. The incorporation clause on the face of the Bill of Lading provided Neuland Petroleum with sufficient notice as to the existence of clauses In Captain v Far Eastern Steamship Co (Far Eastern Steamship), 1 the plaintiff s household effects were damaged during a voyage from Vancouver to Madras. The shipper sought to rely on limitation of liability clauses found on the back of the bill of lading, which the plaintiff claimed had never been discussed with him nor brought to his attention. He had not seen the 1 [1979] 1 Lloyd s Rep

13 bill of lading until after the damage had occurred and argued that those clauses were not incorporated into the contract. Justice MacDonald found that the terms were incorporated. He placed emphasis on the plaintiff s experience in the shipping industry and his familiarity with its procedures and processes. He knew that a bill of lading would be issued to cover the shipment and that it would contain terms on the reverse side The current proceedings are factually analogous to this case. Neuland Petroleum operates in the shipping industry, particularly in relation to the transport of LPG. It states clearly on the face of each Far East bill of lading that clauses contained on the reverse side of the bill are incorporated into the contract. In addition, unlike the case of Far Eastern Steamship where the plaintiff had not previously seen the bill of lading, Neuland Petroleum had a long history of business relationships 3 with Far East and is a regular purchaser of gas cargoes. 4 Prior to the issue of the Bill of Lading, it had received four identical bills of lading from Far East. 5 Applying the reasoning in Far Eastern Steamship, Neuland Petroleum s experience in the shipping industry and ongoing business relationship with Far East are sufficient to incorporate clauses 1 to 5 into the Bill of Lading. 5. Further, in the case of The Hai Hing, Rix J found it a powerful submission that the blank reverse of the bills of lading must in the view of any reasonable merchant be regarded as a mere error and that the reference on the front of the conditions overleaf must on the same basis be regarded as incorporating the standard terms. 6 In that case, the standard terms were those of a Congenbill; in the present proceedings, the relevant terms should be considered to be those present on a standard form Far East bill of lading. 2 Ibid Facts, pp 98 and Anticosti Shipping Co v Viateur St-Armand [1959] 1 Lloyd s Rep Dated 12 May 2005, 22 May 2005, 12 June 2005 and 24 June 2005 respectively. 6 Bua International Ltd v Hai Hing Shipping Co Ltd (The Hai Hing) [2000] 1 Lloyd s Rep 300,

14 6. Similarly, Neuland Petroleum is an experienced merchant and should have been aware that the omission of any terms on the reverse was a mere error when they were expressly referred to on the face of the Bill of Lading. A reasonable merchant concerned about the incorporation of such terms should have inquired as to their nature and content. Neuland Petroleum apparently shut its eyes to the existence of any relevant terms as it has denied in its preliminary submissions that it is, or ever was, familiar with the standard form Far East bill of lading Clause 5 gives this Tribunal jurisdiction to hear these proceedings. 7. Clause 5 8 is the relevant law and arbitration clause governing the proceedings under the Bill of Lading. It provides that the contract of carriage as evidenced by the bill of lading is governed by English law, with any disputes to be decided by arbitration in Singapore according to English law. 8. As such, these proceedings have been validly brought and this Tribunal has the jurisdiction to make a determination. B. NEULAND PETROLEUM WAS NEGLIGENT IN THE DISCHARGE OF CARGO, CAUSING DAMAGE TO THE ALPHA STAR 9. Neuland Petroleum owed a duty of care to Blue Sky to take reasonable care to avoid and prevent reasonably foreseeable risks of damage to the Alpha Star. It breached its duty of care and is liable for the loss and damage suffered by Blue Sky, being the loss of the Alpha Star and the future use of it, as well as the contingent losses incurred. 10. Blue Sky must prove four elements in order to succeed in this claim, namely that: (a) Neuland Petroleum owed Blue Sky a duty of care; 7 Facts, p Facts, p 65. 5

15 (b) Neuland Petroleum breached its duty of care; (c) the breach of duty was the cause of the loss and damage; and (d) the loss and damage was not too remote to be recoverable. 3.0 Neuland Petroleum owed Blue Sky a duty of care to prevent reasonably foreseeable harm to the Alpha Star in the discharge of cargo. 11. The tripartite test for establishing a duty of care was enunciated in Caparo Industries Plc v Dickman. 9 First, the harm must be foreseeable; secondly, there must be sufficient proximity between the parties; and finally, the imposition of a duty of care must be fair, just and reasonable. 12. In cases where one party has directly caused physical harm to another s property, the requirements of foreseeability and proximity are merged and a duty may readily be established by showing foreseeability and nothing else The acts and omissions of Neuland Petroleum directly caused physical harm to the Alpha Star, rendering it a constructive total loss and causing other contingent losses to Blue Sky. That such losses might be suffered by Blue Sky was reasonably foreseeable by Neuland Petroleum. The circumstances of the present case are analogous to those in Southampton Cargo Handling plc v Lotus Cars Ltd and others, 11 where the owners and operators of a dock were found to owe a duty of care to owners of goods stored within its compound to safeguard them from theft. Their exercise of control over the premises was an important factor in the court s decision [1990] 2 AC Mobil Oil Hong Kong Ltd v Hong Kong United Dockyards Ltd [1991] 1 Lloyd s Rep 309; Customs and Excise Commissioners v Barclays Bank Plc [2007] 1 AC 181, [31]. 11 [2000] 2 All ER (Comm) Ibid

16 14. In the present case, the Alpha Star was berthed at Neuland Petroleum s terminal, over which Neuland Petroleum exercised full control. Neuland Petroleum specified the port of discharge and included in its Special Tender Conditions the requisite vessel specifications. 13 It was issued a Notice of Readiness 14 by Far East, after which several pre-arrival checklists 15 were completed to ensure that discharge could be carried smoothly. A Before Discharge Agreement 16 was also entered into with clear specifications concerning the discharge operations. At all times when the Alpha Star was berthed at the terminal, Neuland Petroleum exercised complete control over the terminal. It was thus reasonably foreseeable that negligent acts on the part of Neuland Petroleum could result in damage to the Alpha Star. 15. There are no policy considerations that would make the imposition of a duty of care in the present circumstances unfair, unjust or unreasonable The scope of Neuland Petroleum s duty extended to what a reasonable terminal operator would have done in the circumstances. 18 This duty is dictated by the use to which the terminal is put. In The Charlotte C, 19 the court found that the operator of a berth owed a duty to users of the berth to have in place a regular system of dredging and inspection to ensure vessels could use it without suffering damage. The only requirement of the operator was to keep the berth free of obstructions to ensure vessels could use it safely. 17. In the current proceedings, the terminal was used for the unloading of LPG and other flammable gases. The scope of Neuland Petroleum s duty was therefore to do what a reasonable terminal operator would have done in the unloading of flammable goods in order to prevent harm to 13 Facts, p Facts, p Facts, pp Facts, p Cf Marc Rich & Co A.G. v Bishop Rock Marine Co Ltd [1996] AC The Lady Gwendolen [1965] 1 Lloyd s Rep 335, Carisbrooke Shipping CV5 v Bird Port Ltd (The Charlotte C) [2005] 2 Lloyd s Rep

17 vessels. Neuland Petroleum ought to have ensured that all precautions were taken ensure the safe discharge of cargo and to prevent damage to the Alpha Star. 18. The scope of this duty included: (a) ensuring compliance with all relevant regulations; 20 (b) supplying suitable, reliable and safe equipment to be used in and around the discharge of cargo; 21 (c) having a system of inspection and maintenance to ensure that equipment was suitable, reliable and safe; 22 and (d) incorporating adequate safety checks and safeguards to avoid damage Neuland Petroleum breached its duty of care, thereby causing loss and damage to Blue Sky. 19. Neuland Petroleum breached its duty of care in three ways which, individually and collectively, render Neuland Petroleum liable in negligence to Blue Sky. In considering each of these breaches, a balance must be struck between the magnitude of the risk and the burden to Neuland Petroleum in doing what Blue Sky asserts it should have done. 24 According to Lord Denning in Lloyd s Bank Ltd v Ry Executive, as the danger increases, so must the precautions increase First, Neuland Petroleum breached their duty in failing to supply suitable equipment, in particular a manifold reducer that was free of defects. 26 Evidence of this failure is found in the Summary Report into the Fire on Board the Vessel Alpha Star ( Summary Report ) 20 International Chamber of Shipping, Oil Companies International Marine Forum and International Association of Ports and Harbors, International Safety Guide for Oil Tankers Terminals (ISGOTT) (5 th ed, 2006), Ch Ibid Ch 17.1 and Ibid Ch Ibid Ch Read v J Lyons & Co [1974] AC 156, [1952] 1 All ER 1248, Unitramp Ltd v Ypapadi Maritime SMA 3102 (Arb at N.Y. 1994). 8

18 produced by Independent Fire Investigation Consultants ( IFIC ) dated 27 July The Summary Report states that the leak was observed coming from the forward end of the reducer, or the 8 inch side (the same being supplied by the terminal). 27 The explanation provided for this leak is grooving found on the 8 inch face of the manifold reducer. The grooving allowed gas to escape where an otherwise undamaged manifold reducer would have provided a perfect seal at the point of connection. Given the flammable nature of the substance involved, even a small defect on the manifold reducer is highly dangerous. A reasonable terminal should have ensured that the reducer was checked, not only before being brought onto the Alpha Star, but also immediately prior to commencing discharge operations. It was the terminal s responsibility to ensure that a vital piece of equipment provided by them was thoroughly checked. Consequently, Neuland Petroleum breached its duty of care in failing to take such precautions as to ensure the manifold reducer was safe and free of defects immediately before the unloading of cargo began. 21. Secondly, Neuland Petroleum breached its duty in allowing a non-intrinsically safe item into the terminal and on board an oil tanker, particularly during the ship / shore interface. A reasonable terminal would have ensured that a non-intrinsically safe torch was prohibited in the vicinity of the berth where discharge operations were about to take place. This standard industry practice is reflected in the International Safety Guide for Oil Tankers and Terminals (ISGOTT) 28, and section states only torches that have been approved by a competent authority for use in flammable atmospheres may be used on board tankers. Neuland Petroleum therefore breached its duty to Blue Sky by allowing its employee to have a non-intrinsically safe torch in his possession in a hazardous area Facts, p 91, para 11(i). 28 International Chamber of Shipping, Oil Companies International Marine Forum and International Association of Ports and Harbors, International Safety Guide for Oil Tankers Terminals (ISGOTT) (5 th ed, 2006). 29 Facts, p 90, para 10(vi). 9

19 22. Finally, Neuland Petroleum failed to connect a shore side stop to the emergency shut-down system (ESD System) on the ship despite the availability of such a facility. 30 Had such a facility been connected, the ESD system could have been activated from the terminal, preventing the further discharge of LPG. Given the danger of the interface period, a reasonable terminal would have connected a shore side stop to the ship as an added precaution. It is conceivable that terminal personnel overseeing the discharge operation from the terminal would have seen the gas cloud and activated the ESD system, preventing any further gas leaks. Neuland Petroleum s failure to connect a shore side stop despite this facility being available therefore constituted a breach of their duty. 5.0 Neuland Petroleum s breaches of duty caused the damage suffered by Blue Sky. 23. The relevant test is whether, but for the respondent s breaches, the claimants would have suffered the loss claimed. 31 In the present circumstances, the question is whether but for the three above breaches of duty, Blue Sky would have suffered the losses claimed. 24. Causation is a question of fact. According to the Summary Report, the material causes of the fire were the deficient reducer which permitted LPG gas to escape and the ignition by a a non-intrinsically safe item of equipment which was permitted to make a spark when in the presence of an uncontrolled LPG cloud Blue Sky asserts that but for the deficient reducer and the spark caused by a non-intrinsically safe torch, the explosion would not have occurred. As the manifold reducer had been provided by Neuland Petroleum and the torch carried by an employee of Neuland Petroleum, Neuland Petroleum s breaches were the direct cause of the damage to the Alpha Star. 30 Facts, pp 89 90, para 8(i)-(ii). 31 Barnett v Chelsea and Kensington Hospital Management Committee [1969] 1 AB 428; Sienkiewicz v Greif (UK) Ltd [2011] UKSC 10 (9 March 2011). 32 Facts, p 91, para 12(ii). 10

20 6.0 The loss and damage suffered by Blue Sky was not too remote to be recoverable. 26. The question of remoteness is one of law and Neuland Petroleum will be liable for any type of loss and damage that is reasonably foreseeable as likely to result from its actions. 33 This is a wider test than that which applies in cases of breach of contract The three heads of damage claimed in these proceedings are: (a) loss of the Alpha Star (USD 5,350,000); (b) loss of use of the Alpha Star under the Time Charter Party (USD 955,967); and (c) contingent losses of USD 7,172,840 being: i. claims made by families of the deceased crew member and terminal employee; ii. claims made by the Makai Port Corporation for maintenance works and salvage services, and iii. claims by the Makai Maritime Authority for harbour and anchorage dues. 28. All the heads of damage claimed by Blue Sky are of a kind which would have been reasonably foreseeable to an experienced LPG terminal such as Neuland Petroleum, and should not be considered too remote. 29. The loss of the Alpha Star was reasonably foreseeable due to the flammable nature of LPG and the danger generally present at the ship / shore interface. Explosions on ships carrying oil and gas are not uncommon 35 and damage to a ship caused by an explosion is of a kind that is reasonably foreseeable. 33 Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd (The Wagon Mound )(No. 1) [1961] AC 388; Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61, Czarnikow (C) Ltd v Koufos (The Heron II ) [1967] 2 Lloyd s Rep 457 (Lord Reid). 35 See e.g. Atlantic Oil Carriers Ltd v British Petroleum Company Ltd (The Atlantic Duchess) [1957] 2 Lloyd s Rep 55; Shell UK Ltd v Total UK Ltd; Total UK Ltd v Chevron Ltd [2010] 2 Lloyd s Rep

21 30. Secondly, as a consequence of damage to a ship, the loss of use of the ship is also reasonably foreseeable. Thomas J in The Aegean Sea 36 considered the loss of freight to be a direct loss resulting from the explosion of a vessel. Similarly, Blue Sky has suffered the loss of the use of the Alpha Star under the Time Charter Party to Far East, which was terminated after the incident occurred Finally, the contingent losses in the current proceedings are also reasonably foreseeable as a result of the breaches by Neuland Petroleum. It is to be expected that during the discharge of LPG, both ship and terminal employees would be working in the manifold area. As such, where it is reasonably foreseeable that an explosion could occur on an LPG tanker, it is also reasonably foreseeable that this is likely to result in injury or loss of life to personnel. The claims by the family members for the deaths of the employees are not too remote. In addition, the contingent costs of maintenance work, salvage services and claims by the maritime authority are foreseeable consequences of a ship having been damaged and the resulting work required to restore the surrounding area to its original state. C. BLUE SKY WAS NOT CONTRIBUTORILY NEGLIGENT IN THE DISCHARGE OF CARGO 32. Blue Sky denies that it was contributorily negligent in the discharge of cargo. First, Neuland Petroleum was wholly responsible for the substantive causes of the explosion. Secondly, even if Blue Sky was prima facie contributorily negligent, the Hague-Visby Rules provide it with immunity against liability. 7.0 Blue Sky was not contributorily negligent. 36 Aegean Sea Traders Corporation v Repsol Petroleo S.A. and Another (The Aegean Sea) [1998] 2 Lloyd s Rep 39, Facts, p

22 33. As indicated in para 24 above, the Summary Report points to the defective manifold reducer and the spark caused by the non-compliant torch as the primary causes of the explosion. The defective reducer was supplied by Neuland Petroleum and it was Neuland Petroleum s employee who carried the non-compliant torch on board the Alpha Star. Given that the substantive causes of the explosion are both solely attributable to Neuland Petroleum, Neuland Petroleum is wholly responsible for the ensuing loss and damage and there is no basis for a plea of contributory negligence against Blue Sky. 8.0 In the alternative, even if Blue Sky was considered prima facie to have been contributorily negligent, it is entitled to rely on the immunity contained in Article IV Rule 2 of the Hague-Visby Rules. 34. Blue Sky relies on Article IV Rule 2(b) of the Hague-Visby Rules, which provides immunity to the carrier where loss or damage arises from fire, unless caused by the actual fault or privity of the carrier. This fire immunity is discussed further in paras below. As the fire was not caused by actual fault or privity of Blue Sky, Blue Sky is entitled to rely on the immunity in a plea of contributory negligence. D. NEULAND PETROLEUM S COUNTERCLAIM SHOULD BE STRUCK OUT FOR NON-COMPLIANCE WITH THE TIME LIMITATION WITHIN THE HAGUE-VISBY RULES 9.0 The Bill of Lading is subject to the Hague-Visby Rules. 35. Section 1(2) of the Carriage of Goods by Sea Act 1971 and section 5(5) of the Carriage of Goods by Sea Act 1992 give the Hague-Visby Rules the force of law in the United Kingdom. 36. Article II of the Hague-Visby Rules imposes obligations and confers rights on carriers under every contract of carriage of goods by sea. Pursuant to the definitions found in Article I, a 13

23 contract of carriage of goods by sea exists between Blue Sky and Neuland Petroleum, and Blue Sky must necessarily be the contractual carrier. 37. Accordingly, any counter-claim brought under the bill of lading by Neuland Petroleum is subject to the provisions of the Hague-Visby Rules The counterclaim was not brought within the time limitation as found in Article III Rule 6 of the Hague-Visby Rules. 38. The counterclaim brought by Neuland Petroleum should be struck out as it was not brought within the applicable limitation period for actions regarding goods. Article III Rule 6 of the Hague-Visby Rules fixes a limitation period of one year after goods were delivered or the date on which they should have been delivered. As the relevant date of delivery was 27 July 2005, Neuland Petroleum should have brought its counterclaim in respect of the loss of the goods by 27 July Its preliminary submissions were filed on 29 August 2010, well outside the limitation period. This is a substantive bar and not merely a procedural limitation. The effect, as Lord Wilberforce put it in the The Aries 38 (at page 188F), is that once the prescribed time has expired any claim has not merely become unenforceable by action, it [has] simply ceased to exist. 39 Accordingly, Neuland Petroleum s counterclaim should be struck out and Blue Sky discharged from all liability in respect of the goods. E. IN THE ALTERNATIVE, BLUE SKY RELIES ON THE ARTICLE IV RULE 2 IMMUNITY IN THE HAGUE-VISBY RULES 39. Article IV Rule 2(b) of the Hague-Visby Rules states that, [n]either the carrier nor the ship shall be responsible for loss or damage arising or resulting from fire, unless caused by the 38 Aries Tanker Corporation v Total Transport Ltd (The Aries) [1977] 1 WLR Röhlig (UK) Ltd v Rock Unique Ltd [2011] EWCA Civ 18, [17] (Moore-Bick JL). 14

24 actual fault or privity of the carrier. Blue Sky is entitled to rely on this immunity as the loss was caused by fire and there was no fault or privity on the part of Blue Sky The relevant cause of loss in this situation was a fire. 40. The Summary Report clearly indicates at para 12(i) that there was an explosion and ensuing fire. Further, para 10(viii) states that immediately preceding the explosion, a large bright orange flame (explosion) was seen. 40 This is not a case where there was mere heat damage not caused by a fire There was no actual fault or privity on the part of Blue Sky. 41. The phrase actual fault or privity under Article IV Rule 2 does not refer to the fault resulting from the actions of a mere servant or agent. In Lennards Carrying Co v Asiatic Petroleum Co Viscount Haldene LC stated that the actual fault / privity which is required to exclude the fire immunity is: the fault or privity of somebody who s not merely a servant or agent for whom the company is liable upon the footing respondeat superior, but somebody for whom the company is liable because his action is the very action of the company itself. 42 It has been suggested that, in order to satisfy this requirement, the fault would have to be that of someone who is the directing mind of the company There is no evidence that Blue Sky, its master or a person of a directing mind caused the fire by their fault or privity. Even if the Tribunal finds that the cause of the fire was the fault of a crew member, this would be insufficient to preclude Blue Sky s reliance on the fire immunity as crew members are employees and therefore merely servants. 40 Facts, pp Cf Tempus Shipping Co v Louis Dreyfus [1930] 1 KB Lennard s Carrying Co v Asiatic Petroleum Co [1915] AC 705, Bolton (Engineering) v Graham [1957] 1 QB 159, 172 (Denning LJ). 15

25 43. Blue Sky is therefore entitled to rely on the Article IV Rule 2 immunity Reliance on the fire immunity is not precluded by any alleged unseaworthiness of the Alpha Star. 44. The Hague-Visby Rules impose a duty of due diligence on ship owners to ensure its vessel is seaworthy, 44 and this is not an absolute obligation. In order to preclude Blue Sky from relying on the fire exception, Neuland Petroleum must first prove that the vessel was unseaworthy and secondly, that the unseaworthiness was causative of Neuland Petroleum s loss. Neuland Petroleum is unable to prove either of these requisite elements on the facts Neuland Petroleum cannot establish that the Alpha Star was unseaworthy. 45. The burden of proof is on Neuland Petroleum to prove, pursuant to Article III Rule 1 of the Hague-Visby Rules, that the vessel was unseaworthy before and at the beginning of the voyage Seaworthiness, as defined by Scrutton LJ in FC Bradley v Federal Steam Navigation, is that degree of fitness which an ordinary owner would require his vessel to have at the commencement of her voyage having regard to all the probable circumstances of it. 46 The requisite standard was formulated as [w]ould a prudent owner have required it (the defect) be made good before sending the ship to sea, had he known of it? Maxine Footwear Co Ltd v Canadian Government Merchant Marine [1959] AC Papera Traders Ltd v Hyundai Merchant Marine (The Eurasian Dream) [2002] 1 Lloyd s Law Reports 719, 735 (Creswell J); Eridiania SpA v Rudolf A Oetker (The Fjord Wind) (2000) 2 Lloyd s Rep 191, 199, 205; The Hellenic Dolphin [1978] 2 Lloyd s Rep 336, 339 (Lloyd J); The Toledo [1995] 1 Lloyd s Rep 40, FC Bradley & Sons Ltd v Federal Steam Navigation Co [1926] 24 Lloyd s Rep 446, Ibid

26 47. Seaworthiness is not an absolute concept and the requirements are to be assessed having regard to the conditions the vessel will encounter. 48 The vessel must be fit to encounter the ordinary perils of the voyage ; it must be in a fit state as to repairs, equipment, and crew, and in all other respects, to encounter the ordinary perils of the voyage. 49 (a) State of the vessel and equipment 48. There is no evidence that the condition or state of the vessel and its facilities were unseaworthy. The Summary Report states that there was no damage, rupture or leakage in way of any of the vessel s cargo structures, fittings or pipe work. 50 (b) The crew of the vessel 49. It has been accepted that the incompetence of the master or crew may deem a ship to be unseaworthy. 51 This requires a disabling want of skill or knowledge, or incompetence going beyond mere negligence. 52 The latter may arise from an inherent lack of ability, a lack of adequate training or instruction, or a lack of knowledge about the particular vessel or its systems. 53 The question for the tribunal is whether a reasonably prudent owner, knowing the relevant facts, [would] have allowed the vessel to be put to sea with this master and crew, with their state of knowledge, training and instruction? Incompetence or inefficiency is a question of fact. 55 In The Star Sea, Leggatt LJ accepted that one mistake or multiple mistakes do not necessarily render a crew member incompetent. 56 He 48 Great China Metal Industries Co Ltd v Malaysian International Shipping Corporation, Berhad (The Bunga Seroja) (1998) 196 CLR 161, The Bunga Seroja (1998) 196 CLR 161, Facts, p Standard Oil v The Clan Line Steamers [1924] AC 100, (Lord Atkinson). 52 Papera Traders Co & Ors v Hyundai Merchant Marine Co Ltd & Anor (The Eurasian Dream) [2002] 1 Lloyd s Rep 719, The Eurasian Dream [2002] 1 Lloyd s Rep 719, Ibid, 737; quoting from Hong Kong Fir Shipping v Kawasaki Kisen Kaisah [1962] 2 QB 26, Manifest Shipping & Co Ltd v Uni-Polaris Insurance Co Ltd and La Reunion Europeene (The Star Sea) [1997] 1 Lloyd s Rep 360, (Leggatt LJ). 17

27 further stated anyone can make a mistake without the conclusion being drawn that he has either a disabling want of skill or a disabling lack of knowledge There is no evidence to support an inference that Blue Sky has put the Alpha Star to sea with a master and crew who have been inadequately trained. The actions of one crew member alone are not enough to support such an inference. Evidence that one crew member who was supervising the discharge of the LPG and who, upon seeing a small gas emission, failed to act in a manner that may have prevented the ensuing fire, is not evidence of a systemic failure to properly train the crew. 52. Such an inference is especially weak in light of clause 2 of the Time Charter Party. 58 Blue Sky had contracted with Far East that: (ii) all shipboard personnel shall hold valid certificates of competence (iii) all shipboard personnel shall be trained in accordance with the relevant provisions of the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers This clause suggests that Blue Sky s crew would have been sufficiently trained to be competent to handle the voyage. There is insufficient evidence for Neuland Petroleum to discharge their burden of proving that the crew as a whole embodied a disabling want of skill or disabling want of knowledge or was incompetent beyond the level of mere negligence. 56 Ibid Ibid Facts, p

28 13.2 Further, Neuland Petroleum cannot prove that the unseaworthiness caused its loss or damage. 53. In order to rely on Article III Rule 1, Neuland Petroleum also bears the onus of proving that the unseaworthiness was the legal cause of its loss. 59 This onus cannot be discharged on the facts. 54. Even if it is found that the crew was inadequately trained, thus rendering the vessel unseaworthy, this was not necessarily causative of the loss. In Smith Hogg & Co v Black Sea and Baltic General Insurance Co, Lord Wright stated the question is whether the disaster would not have happened if the ship had fulfilled the obligation of seaworthiness. 60 Applying this test, Blue Sky asserts that even if properly trained, a crew member may still have acted irrationally under a high-pressure situation such as during an LPG leak and failed to activate the ESD System. As a matter of common sense, adequate training and general competence does not necessarily lead to the perfect discharge of one s duties. Accordingly it cannot be definitively proven that the crew member s actions were a result of incompetence due to inadequate training. 55. Alternatively, even if the Tribunal finds that such an omission by a crew member does flow naturally from inadequate training, his actions were not legally causative of Neuland Petroleum s loss. Further in Smith Hogg & Co v Black Sea and Baltic General Insurance Co, Lord Wright approved Carter s view that if [the ship s] unfitness becomes a real cause of loss or damage to the cargo, the shipowner is responsible. 61 Similarly, The Kamilla required the unseaworthiness to be a proximate cause of the loss. 62 The real or proximate causes of the loss of LPG were two acts of Neuland Petroleum. 59 The Europa [1908] P 84, 97 98; Maxine Footwear Co v Canadian Merchant Machine [1959] 2 Lloyd s Rep 105, Smith Hogg & Co v Black Sea and Baltic General Insurance [1940] AC 997, Ibid. 62 The Kamilla [2006] 2 Lloyd s Rep 238, 242 (Morrison J). 19

29 56. The first cause of the explosion was a gas leak resulting from a deficient manifold reducer, supplied by Neuland Petroleum. Evidence of this is found in the Summary Report by IFIC. It states that, the leak was observed coming from the forward end of the reducer, or the 8 inch side (the same being supplied by the terminal). 63 The second cause was the terminal employee s act of carrying a dangerous item. When he bent over, a non-intrinsically safe metal cased torch fell from his top pocket, striking the pipe and quickly causing the gas to ignite. By holding such a torch, he breached the ISGOTT regulations Based on the information available to the Tribunal, the real or proximate causes of the loss of LPG cargo were two positive acts of Neuland Petroleum as outlined above, and not the single omission of the crew member. These two acts were causative as they were positive acts, which together caused the gas to ignite. 58. It is notable that the Summary Report by IFIC does not suggest that the failure of the crew member to activate the ESD system was a cause of the explosion. 65 In addition, there is no conclusive evidence that the crew member could have acted quickly enough to prevent the fire. A common sense approach 66 would attribute causation to the cause of the leak and the ignition of the gas cloud, rather than conjecture about an intermediary omission that may perhaps have prevented further leakage. 63 Facts, p Facts, p Facts, p Galoo v Bright Graham Murray [1994] 1 WLR 1360; see Racing Drivers Club Ltd v Hextal Erskine & Co [1996] 3 All ER 667, ,

30 59. Accordingly even if the Tribunal finds that the crew received inadequate training amounting to unseaworthiness of the vessel, Blue Sky may nevertheless rely on the immunity under Art IV Rule 2 as the unseaworthiness was not causative of the loss claimed. 67 F. BLUE SKY REJECTS THE CHARACTERISATION OF DAMAGES AS ASSERTED BY NEULAND PETROLEUM 14.0 Neuland Petroleum had not acquired title to the LPG cargo. It has not suffered loss and cannot claim damages for loss of the cargo. 60. Clause 8.1 of the contract of affreightment between Far East and Neuland Petroleum governs the passing of title. Neuland Petroleum s claim of damages with respect to cargo to which they did not have title is against Far East, not Blue Sky The title of and risk to the entire cargo had not passed to Neuland Petroleum. 61. Clause 8.1 of the contract between Far East and Neuland Petroleum states: each delivery of product sought under this contract shall be deemed completed and title shall vest to the buyer, and the seller s responsibility shall cease when product passes the shore pipeline connection if connected by hoses, if, delivered in the Makai Sea Port. 62. This clause indicates title to the LPG does not vest in Neuland Petroleum until it has passed the shore pipeline connection. As the shipment is an entire contract, clause 8 should be construed as referring to the entire shipment of LPG having to pass the shore pipeline connection. 63. Whether the contract is entire is a matter of construction. 68 The fact that a lump sum payment for this shipment of LPG has been made is a strong indication that it is an entire contract Rey Banano Del Pacifico CA & Ors v Transportes Navieros Ecuatorianos & Anor (The Isla Fernandina) [2000] 2 Lloyd s Rep

31 Further, no provision has been made for an adjusted payment amount if only a partial amount of LPG is delivered. Accordingly, the single shipment supply of LPG (delivered 27 July 2005) should be construed as an entire contract The Arrival Report indicates discharge operations were commenced at 09:27 on 27 July 2005 and were not expected to be completed until 22:00 on 28 July As the explosion occurred on 27 July, the entire product had not passed to the terminal. Therefore, title had not passed to Neuland Petroleum in accordance with clause 8.1, and as such they have not suffered loss and accordingly cannot claim for loss of cargo against Blue Sky In the alternative, title and risk had only passed to Neuland Petroleum with respect to the goods that had passed the shore pipeline connection. 65. If the Tribunal finds that the contract is a severable contract, any loss claimed by Neuland Petroleum should only be in reference to the quantity of LPG that had actually passed the shore pipeline connection. There is no evidence that the product that passed the pipeline connection was destroyed. As the LPG that was destroyed had not passed the pipeline connection, title had not passed to Neuland Petroleum in respect of that quantity and they have therefore suffered no loss. 68 Hoenig v Isaacs [1952] 2 All ER 176, 180 (Denning LJ). 69 Purcell v Bacon (1914) 19 CLR 241, William Thomas & Sons v Harrowing SS Co [1915] AC 58, Facts, p

32 15.0 In the alternative, if title to all of the LPG had passed to Neuland Petroleum, Neuland Petroleum is limited in the quantum of damages that can be claimed The claim for damages brought under the Bill of Lading should be limited to the market value of goods at the port of discharge. 66. The total amount of damages recoverable by a cargo owner should be determined by reference to Article IV Rule (5)(b) of the Hague-Visby Rules. 72 It states that the total amount recoverable should be measured by reference to the value of the said goods at the time and place the goods should have been discharged according to the contract. Accordingly, the damages should be measured by reference to the market value of LPG at Makai Port on 27 July 2005, rather than an over-estimated valuation which includes profits from forward sales The loss of profits from and indemnity for penalties for not complying with forward sales are too remote. 67. The rule limiting liability for damages that are too remote was set out in Hadley v Baxendale. 73 It precludes recovery for damages that are either not sufficiently proximate or not within the reasonable contemplation of the parties. Therefore, the potential loss within the reasonable contemplation of the parties in the current proceedings should be limited to the value of the LPG at the time and place of delivery. 68. The degree of foreseeability required for damages to be sufficiently proximate was discussed by the House of Lords in The Heron II. 74 Their Lordships unanimously agreed that a higher degree of foreseeability is required under contract than in tort. No single test was agreed upon, but formulations included not unlikely or serious possibility. 75 It could not have been a serious 72 El Greco (Australia) Pty Ltd & Anor v Mediterranean Shipping Co SA [2004] 2 Lloyd s Rep 537, [36] and [312]. 73 Hadley v Baxendale (1854) 9 Ex D Czarnikow (C) Ltd v Koufos (The Heron II ) [1967] 2 Lloyd s Rep Ibid 475, 478 and