Maritime Law Module 3 PDF

Diploma in Maritime Business Management Module 3 – Maritime Law Susan Hawker Adjunct Professor World Maritime University Executive Member of the London Maritime Law and Policy Group (LUMPL) CONTENTS 1. INTRODUCTION...................................................................................

Diploma in Maritime Business Management Module 3 – Maritime Law Susan Hawker Adjunct Professor World Maritime University Executive Member of the London Maritime Law and Policy Group (LUMPL) CONTENTS 1. INTRODUCTION..................................................................................................................... 7 1.1 Welcome to the “Law Part” of the Course!............................................................................7 1.2 Aims of the Module................................................................................................................9 1.2.1 Contracts................................................................................................................. 12 1.2.2 Torts (Civil Wrongs)................................................................................................. 12 1.2.3 Bailment.................................................................................................................. 12 1.2.4 Criminal Offences.................................................................................................... 12 1.3 Learning Outcomes from Study of the Course.................................................................... 13 1.4 Case Study 1 - The Red Sea.................................................................................................. 14 1.4.1 The Contract and the Issues.................................................................................... 14 1.4.2 The Preliminary Issues before the Commercial Court............................................ 14 1.5 Acknowledgements............................................................................................................. 15 2. AN OVERVIEW OF MARITIME LAW........................................................................................16 2.1 Introduction......................................................................................................................... 16 2.2 There is No “International” Maritime Law.......................................................................... 16 2.3 But Why English Law?......................................................................................................... 17 2.4 The Nature of English Law................................................................................................... 17 2.5 Sources of English Law........................................................................................................ 17 2.5.1 The Common Law................................................................................................... 17 2.5.2 Trade Custom and Usages...................................................................................... 19 2.5.3 National Legislation................................................................................................ 20 2.5.4 EU Law..................................................................................................................... 21 2.6 The Distinction Between Criminal and Civil Law................................................................. 23 2.7 English Private Commercial Law.......................................................................................... 24 2.8 The Relationship Between English and Foreign Commercial Law....................................... 26 Module 3 – Maritime Law 2  2.9 The Nature of “International” Law...................................................................................... 27 2.10 Public International Law...................................................................................................... 28 2.11 International Limitation of Liability..................................................................................... 29 2.11.1 The International Carriage Regimes....................................................................... 30 2.11.2 Global Limitation.................................................................................................... 30 2.12 Case Study 2 – Scruttons Ltd v Midland Silicones Ltd.......................................................... 31 3. PUBLIC INTERNATIONAL LAW AND ITS REGULATION OF SHIPPING – AN INTRODUCTION........34 3.1 Regulatory Bodies................................................................................................................ 34 3.2 The International Maritime Organisation (the IMO)........................................................... 34 3.2.1 Introduction............................................................................................................ 34 3.2.2 IMO Work................................................................................................................ 35 4. THE FUNDAMENTALS OF ENGLISH CONTRACT LAW...............................................................41 4.1 Introduction......................................................................................................................... 41 4.2 What is a Contract?............................................................................................................. 41 4.3 Requirements of a Binding Contract................................................................................... 41 4.3.1 Offer........................................................................................................................ 41 4.3.2 Acceptance.............................................................................................................. 42 4.3.3 Consideration.......................................................................................................... 42 4.3.4 Capacity................................................................................................................... 43 4.3.5 Intention to Create Legal Relations........................................................................ 45 4.4 The Terms of a Contract...................................................................................................... 45 4.4.1 Conditions............................................................................................................... 46 4.4.2 Warranties.............................................................................................................. 46 4.4.3 Innominate Terms................................................................................................... 46 4.4.4 Exclusion Clauses.................................................................................................... 47 4.5 Vitiating Factors................................................................................................................... 48 4.5.1 Misrepresentation.................................................................................................. 48 Module 3 – Maritime Law 3  4.5.2 Mistake................................................................................................................... 49 4.5.3 Duress..................................................................................................................... 49 4.5.4 Undue Influence...................................................................................................... 50 4.5.5 Illegality................................................................................................................... 50 4.6 Discharge of Contractual Obligations.................................................................................. 51 4.6.1 Frustration.............................................................................................................. 51 4.6.2 Anticipatory Breach................................................................................................ 51 4.6.3 Breach of Contract.................................................................................................. 51 4.7 Remedies for Breach of Contract........................................................................................ 51 4.7.1 Damages.................................................................................................................. 51 4.7.2 Equitable Remedies................................................................................................ 52 4.8 Case Study 3 – Howard Marine & Dredging Ltd v A Ogden & Son (Evacuations) Ltd......... 54 4.8.1 The Contract and the Issues.................................................................................... 54 4.8.2 Ogden’s Contention that there were No Express Contracts................................... 54 5. THE BASICS OF TORTS...........................................................................................................57 5.1 What is a “Tort”?................................................................................................................. 57 5.2 The Tort of Negligence........................................................................................................ 58 5.2.1 Duty of Care............................................................................................................ 58 5.2.2 Breach of Duty........................................................................................................ 61 5.2.3 Causation................................................................................................................ 62 5.2.4 Contributory Negligence......................................................................................... 62 5.3 Case Study 4 – The Nicholas H............................................................................................. 63 5.3.1 Remoteness of Damage.......................................................................................... 65 5.4 Vicarious Liability................................................................................................................. 66 6. LITIGATION AND DISPUTE RESOLUTION................................................................................67 6.1 Introduction......................................................................................................................... 67 6.2 Litigation.............................................................................................................................. 67 Module 3 – Maritime Law 4  6.2.1 Litigation in the English Courts............................................................................... 67 6.2.2 The Civil Procedure Rules........................................................................................ 68 6.2.3 Parties to the Action............................................................................................... 68 6.2.4 Choice of Court....................................................................................................... 69 6.2.5 The Commercial Court............................................................................................ 69 6.2.6 The Present Day...................................................................................................... 70 6.2.7 What Is a “Commercial Claim”?.............................................................................. 70 6.2.8 The Admiralty Court................................................................................................ 71 6.2.9 The Exercise of Jurisdiction..................................................................................... 72 6.2.10 Arrest...................................................................................................................... 73 6.2.11 Provision of Security............................................................................................... 74 6.2.12 Failure to Provide Security..................................................................................... 74 6.2.13 Liens........................................................................................................................ 74 6.2.14 “Sister Ship” or “Alternative Ship” Arrest............................................................... 76 6.2.15 Priorities................................................................................................................. 77 6.2.16 Freezing Order........................................................................................................ 78 6.2.17 Enforcement of Judgment...................................................................................... 78 6.3 Alternative Dispute Resolution (ADR)................................................................................. 78 6.3.1 Introduction............................................................................................................ 78 6.3.2 Arbitration............................................................................................................... 79 6.3.3 What Is Arbitration?................................................................................................ 80 6.3.4 Arbitration Procedure............................................................................................. 80 6.3.5 Duties of Parties Agreeing to Arbitration............................................................... 80 6.3.6 Who Can Act as an Arbitrator?............................................................................... 80 6.3.7 What are the Powers of an Arbitrator?.................................................................. 80 6.3.8 Types of Arbitration Rules and the Curial Law........................................................ 81 6.4 Mediation and Conciliation................................................................................................. 81 Module 3 – Maritime Law 5  6.5 Alternative Forms of ADR.................................................................................................... 82 6.5.1 Judicial Appraisal..................................................................................................... 82 6.5.2 Adjudication............................................................................................................ 82 6.5.3 Expert Determination............................................................................................. 82 6.5.4 Early Neutral Evaluation......................................................................................... 82 6.6 Which Jurisdiction?............................................................................................................. 82 6.7 Case Study 5 – The Front Comor.......................................................................................... 84 Supplementary Reading and How to Study the Law............................................................................. 87 Please Note Directed Learning questions have been provided periodically throughout this module. These questions are designed for your personal study only. You are not required to provide any answers. © Copyright IIR Limited 2020. All rights reserved. These materials are protected by international copyright laws. This manual is only for the use of course participants undertaking this course. Unauthorised use, distribution, reproduction or copying of these materials either in whole or in part, in any shape or form or by any means electronically, mechanically, by photocopying, recording or otherwise, including, without limitation, using the manual for any commercial purpose whatsoever is strictly forbidden without prior written consent of IIR Limited. This manual shall not affect the legal relationship or liability of IIR Limited with, or to, any third party and neither shall such third party be entitled to rely upon it. All information and content in this manual is provided on an “as is” basis and you assume total responsibility and risk for your use of such information and content. IIR Limited shall have no liability for technical errors, editorial errors or omissions in this manual; nor any damage including but not limited to direct, punitive, incidental or consequential damages resulting from or arising out of its use. Module 3 – Maritime Law 6 1. INTRODUCTION 1.1 Welcome to the “Law Part” of the Course! The management of any business involves myriad issues to consider. Hopefully, the day-to-day business operations and dealings will run smoothly and not invoke dispute situations. If they do, as any good lawyer will tell you, generally the best approach is to endeavour to strive to resolve any dispute without recourse to litigation. Litigation is both time consuming and expensive and, especially within the English legal system which is based on an adversarial approach, stressful and often acrimonious. It is highly unlikely that parties who have faced each other across a court room will be able or want to do business together again. It is a truism that one does not “need the law” so much when things are going well, but as a backdrop safety net when things go wrong. I always tell my students this, asking them to think why people need contract law (which is at the heart of all business relationships). A contract provides a framework representing what the parties intended from the relationship, both in terms what they expected to get out of that relationship and, crucially (if the contract has been drafted well), what action should be taken and remedies be available should things go wrong. This module is designed to introduce you to and familiarise you with the legal issues that arise in the management of any business, in order that you gain some appreciation of the rights and liabilities that parties involved with the business will face. The module will introduce you to some basic ideas about the way that law is used to create and regulate obligations in our private and commercial dealings with others, the very different natures of civil and criminal liability, and will also introduce you to the concept of public international law and its regulation of shipping activities. To this extent the module has three main aims, which are to provide: A consideration of the substantive law, i.e. “the law”, or, the obligations and breaches thereof that arise. This will show how the law provides a machinery for “putting right a wrong”, through the establishment of such obligations and remedies for breach thereof. It is important to appreciate how the substantive is applied, as this is the starting point for all liability; if no legally recognised wrong has been committed, then no liability arises from the incident; and A consideration of how liability can arise in criminal law, and the very different jurisprudence (legal culture and expectation of the law) of such liability; and An understanding of how international conventions are used to regulate shipping in the international arena. The module has been written with the aim of making the law palatable to non-lawyers, and it will, hopefully, ignite your interest in the law! Each chapter is self-contained, and aims to introduce to a sensible working level the topic on which it focuses. You should, then, be able to work through the module on a chapter-by-chapter basis, coming out of each with an understanding of the issues therein. Module 3 – Maritime Law 7 It is, however, important to think of the law in a holistic, rather than “topic by topic” basis, as this will enable you to develop what we lawyers call the “legal way of thinking”. Over the years the law will, of course, develop and change. There will be new law to meet demands which have not yet arisen. Some of you will be working in non-English jurisdictions, and will be looking at other systems of law. You may come across contracts which apply another and not English law. You will undoubtedly come across specialist areas of contract law outside the maritime sphere, such as employment contracts. But the “legal way of thinking” is a transferable skill, and having some idea of what this is will enable you to recognise the basics of legal issues for any relationship and in any part of the world, and will equip you to deal with lawyers from anywhere. Crucially, you will also hopefully emerge with the understanding that a little knowledge is a dangerous thing, and know when to call a halt to self-determination of the issues in preference of engaging specialist legal advice! You should bear in mind when studying this module that the law is much more than a “set of rules”. The rules are what we see on the surface, but underpinning them is a “legal culture”, or way of thinking. You should try to develop this way of thinking when studying the law. This will enable you to understand how, when we are aiming to establish that a wrong has been committed, the law can often be applied in different ways. Thus, the “answer” to whether or not the wrong was committed lies not in any one definitive application of a legal principle. Rather, the answer lies in the court’s willingness to accept a persuasive argument as to how the concept of law should be construed and applied. So, for example, it may be that notwithstanding a defendant carrier’s carelessness in loading and stowing a consignment of steel coils on board the vessel (stowing the coils with damp timber loaded on top), the court may decide on the basis of underlying policy reasons that the carrier has not committed the tort of negligence. Notwithstanding the carrier’s (obvious, some would say) actual negligence, which undoubtedly caused the receiver’s loss and damage, the Supreme Court (formerly the House of Lords) might conclude that in the particular case no duty of care (one of the three elements of the tort of negligence) was owed by the carrier to the receiver. Thus, no liability can arise: The Aliakmon AC 785. In this case the underlying policy considerations were concerned with restricting the circumstances in which “pure economic loss” (i.e. that financial loss which arises without damage which the claimant does not either own or has the right of possession in his own name) can be recovered in negligence. This approach can initially be quite daunting to students coming to the law for the first time. Do not panic – an understanding of how the law “works” does come with time, and it is all good fun, and certainly intellectually very stimulating! You should not, though, think that the aim of this module is to turn you into a lawyer – far from it! The purpose of this module is to introduce you to the concepts of law that underlie the management of shipping business. Hopefully this will give you a better understanding of the problems and situations that give rise to legal issues and, thus, how to avoid formal dispute resolution arising. Hopefully, you will also emerge from the module with an appreciation (or firmer appreciation!) of the circumstance in which assistance from a lawyer is necessary. Module 3 – Maritime Law 8 I agree with FN Hopkins (FN Hopkins: Business and Law for the Shipmaster (7th edition, 1989 Brown, Son & Ferguson) ISBN 0 85174 537 7 – sadly, this excellent book is currently out of print) when he said that the temptation of “every man to be his own lawyer” was in his opinion “a possible disastrous policy”. Needless to say, as I point out whenever I cite this quote (and do quote it in almost everything I write!), I am not so sure that I agree with his next sentiment, which was that “no sympathy for ‘sea lawyers’ is to be implied. They are better left ashore.” If a dispute should arise which cannot be resolved by the parties, a good lawyer will be an invaluable player in formal resolution, and is more likely to keep the parties out of court than will their own endeavours. One’s lawyer will not be emotionally involved with the case in the way that the parties inevitably will be; it is the case, then, that the lawyer is better able to negotiate and, if necessary, plead his client’s position in court. I do, therefore, very much agree with Hopkins’s first sentiment. Hopefully the module will convince you to share the sentiment. No system of law exists in a vacuum away from trade practice and business. My approach when teaching the “shipping” legal subjects is to show students how the trade and the law should be seen as going “hand in hand”, rather than as being two distinct and polarised elements. Better, then, that we should think in terms of this module bringing the “law to the traders” (and the trade to any lawyers on board!), rather than to think that we are looking at legal principles divorced from any business reality. Hopefully you will come to see in the chapter that introduces maritime law that the commercial backdrop against which shipping business operates is highly influential in the way that English courts determine disputes, adopting an approach that generally appears to “keep trade moving” in a “commercially sensible” way. It is important to appreciate the distinction between civil or private liabilities (e.g. contract disputes, claims for negligence etc) and criminal liability. Put simply, it is essential to be able to see the legal ramifications of one’s business dealings, and of the incidents that arise within the context of those dealings. 1.2 Aims of the Module The overall aim of the course is to provide you with the foundation business blocks of maritime management. The study throughout the course so far has introduced you to the essential elements of maritime economics, planning and strategy, international regulation of shipping, and ship operations and administration. Subsequent modules complete the picture by looking at marine insurance, financial management and logistics. In studying this legal module, the question we are asking is: What are the legal consequences of the relationships and situations dealt with in the other modules? It might be necessary to bring a claim against a party or parties dealing with our company and, equally, we may find that we face a claim. In both cases it is essential to know where we stand. It is also a salutary reality in this day and age that we might well be the subject of criminal proceedings. Module 3 – Maritime Law 9 The module aims to enable us to be able to assess potential liability. To this end, then, the module aims to help us understand: How a claim may arise: this is what we call “the cause of action”: All claims brought by one party against another (i.e. a private/civil law claim, as opposed to a criminal law action) must come from some recognised wrong, i.e. what lawyers call a “cause of action”. This often surprises commercial people, who see things more in terms of commercial rights and wrongs. It is not enough that I cause you loss and damage, if you are to sue me for compensation, that loss and damage must come from some cause of action, which is the legally recognised wrong, such as a breach of contract or loss in one of the torts, e.g. in the tort of negligence. That a private law claim is different from a criminal prosecution: Of course, one incident may give rise to both criminal and private liability. Nonetheless, the two wrongs are viewed by English law as quite different, reflected by the very different aims of private remedies from the sanctions that may be imposed by a criminal court. It may come as a shock to some of you to learn that English law almost never, and certainly never in commercial claims, awards damages on a punitive basis. “Punishment” is generally seen as the province of criminal law. This difference can also be seen in the level to which private and criminal actions must be proved: in private law the claimant must prove the wrong and loss on a balance of probabilities (i.e. more likely than not), whilst in criminal proceedings, as most people know, the prosecution must prove the wrong beyond reasonable doubt. That all wrongs comprise “elements”, all of which must be proved for a successful action: Many students initially find this difficult, but it is absolutely the case that not only must there be a recognised wrong, but also that all the elements of that wrong must be proved to the requisite standard/level in order for a successful action. So, if I am charged with murder, the prosecution must prove beyond reasonable doubt that: (a) I did kill the person; and (b) that I intended to cause death or serious injury. These are the elements of murder. If I wish to sue you for breach of contract, I must show, on a balance of probability, that: (a) I was in a contract with you; (b) that you breached the contract; and (c) that your breach caused my loss and damage. If you sue me in the tort of negligence, you must prove, on a balance of probability, that: Module 3 – Maritime Law 10  (a) we were in a legally recognised proximity, which is known as the “duty of care”; (b) that I breached that duty, i.e. I was careless; and (c) that my carelessness caused your loss and damage. As pointed out in The Aliakmon above, if the claimant cannot show all the elements of the tort, he loses the claim. It may well be, as in this case, that the reasoning for not recognising the claim is really the result of backdrop policy considerations. Another example of this can be seen in The Nicholas H, AC 211, where the court likewise refused to recognise that the defendants owed the claimants a duty of care. Notwithstanding that the defendant Class Society had been careless in their survey of the interim repairs to the vessel (the careless act), and that this carelessness did cause the claimant’s loss, the House of Lords held that the Class Society owned no duty of care to the claimant. Thus, the claimant did not prove all the elements of the tort, and so lost the case. In Perrit v Collins (The Popular Flying Association) 2 Lloyd’s Rep 255, however, the Court of Appeal held that the Class Society did owe a duty of care to the injured claimant. Whilst it might seem at first sight that the legal issues raised by the two cases were the same, and that, therefore, the Court of Appeal would be bound by the decision of the House of Lords (which is the higher court), the Court of Appeal felt able to distinguish the case to hand from The Nicholas H. There are often no “hard core” definitive reasons for such a distinction, but, instead, a cultural expectation from the law. There are concerns about the “floodgates of litigation” opening in the tort of negligence, and the courts appear resolved not to encourage commercial loss to be recovered outside of a contractual matrix. In addition, and critically in The Nicholas H, the claimant only sued the Class Society in light of the anticipated defendant disappearing (“doing a runner”!), and the Class Society could not limit its liability against the claimant. The Lordships were concerned that to allow the claim would be to disturb the balance of international trade. In Perrit, the claimant’s loss was that for which the tort of negligence has developed in modern law: personal injury or death. The Nicholas H is the focus of a case study in Chapter 5, below. The different types of liabilities that arise: Basically, there are two main types of liability: fault based and no-fault based. No-fault liability is known as “strict liability” and comes in two forms: “strict liability”, which allows certain prescribed defences, and “absolute strict liability” for which there is no defence at all. This often comes as a surprise to hitherto non-law students from commercial backgrounds. People can be quite taken aback to find themselves liable notwithstanding their lack of fault. But lawyers tend to think in terms of liability rather than fault, or “badness”. Sale contracts, for example, are the classic example of contracts of strict liability. Whereas it is highly likely that the seller of goods is not in any way at fault for defective or non-conforming goods, or for late delivery, it is certainly his liability. If, on the other hand, I cause you injury, but was not careless, you will not be able to sue me in the tort of negligence. It is useful here to highlight the nature of liability for the main legal relationships that arise under English law in the shipping industry. Module 3 – Maritime Law 11 1.2.1 Contracts Contracts for the sale of goods (which include ship sale and purchase contracts) are contracts of strict liability. Contracts for the supply of services are generally ones of due diligence, i.e. fault based in respect of negligence. We must be careful though to investigate the liability of all obligations in any one contract: e.g. whereas the shipowner’s obligations under a charter are generally fault-based, the charterer’s liability to pay hire or freight is always one of strict liability! Likewise, a carrier’s obligations under a contract of carriage are mostly fault-based, but the shipper’s/consignee’s liabilities of payment of freight, full declaration of the nature of the goods, payment of any general average that might arise are strict. Employment contracts (a human resources issue) are based on due diligence. 1.2.2 Torts (Civil Wrongs) The tort of negligence is, obviously, a fault-based tort. Product liability (supply of defective products which cause harm) is strict: the Consumer Protection Act 1987. Many land-based torts, developed to protect a man’s land, e.g. nuisance, are strict liability. 1.2.3 Bailment Bailment is a fault-based relationship, being based on the due diligence of the bailee. Bailment is the name given to transactions under which goods are delivered by one party (the “bailor”) to another party (the “bailee”) on terms which normally require the bailee to hold the goods for a time and then to deliver them back to the bailor, or to another person specified by the bailor. The bailee must act with due diligence to ensure that the goods are delivered to the bailor in the same condition as he received them. Bailment usually arises because the parties have agreed to it under a contract, but there does not have to be a contract between the parties for one person to become the bailee of the other’s property (see The Pioneer Container 2 AC 324). For this reason, bailment is an important cause of action in international trade. 1.2.4 Criminal Offences Most crimes are fault-based, having both a “guilty act” (known as the actus reus) and a “guilty mind” (known as the mens rea). The mens rea generally requires that the defendant intended to commit the act, or was reckless as to its commission. Some offences, often the regulatory offences, are crimes of strict or even absolute strict liability. With these offences the prosecution only has to prove the actus reus. Why we are looking at English law and not “international” law? We will see below in Chapter 2 that there is no such thing as “international law” which can govern our private disputes. Thus, all claims must be governed by some national law. Module 3 – Maritime Law 12 What do we mean by public international law and its impact on shipping activities? This is the one type of law that may be thought of as “international”, in that it does operate on a global basis and does regulate how countries act between themselves. It is “public” international law as it regulates the relationship between countries, in the same way that national public law regulates the relationship between the individual and the state. Put simply, public international law is said to have originated from an internationally accepted way of doing things, and an acceptance that transgression from this accepted way by members of one country could be dealt with by any other jurisdiction (international jurisdiction). The accepted ways of doing things was known as customary public international law. Most public international law is now recognised as being enshrined in internationally accepted conventions, which are incorporated into national jurisdictions. We will look more at public international law in Chapter 2, below. And, lastly, how does the law “work”? Whilst it is true that this module does not intend to turn you all into lawyers, it does aim to open your eyes to the way in which lawyers think. To this extent, then, we do have to understand the basics of what to expect from the law in terms of its substantive nature, what to expect from those conducting the investigation, and the procedural process of going to court. We also need an awareness of when it might be better not to go to court, and what alternatives to litigation exist. We should also understand the basics of marine insurance, as it is generally to our insurers that we will almost inevitably have to go in the wake of an incident, and in risk management terms it is vital to understand the limits of such insurance. 1.3 Learning Outcomes from Study of the Course Broadly speaking, after studying this module you should be able to: recognise within your dealings with others the circumstances that give rise to contractual and other civil/private law obligations and liabilities; understand the distinction between civil and criminal law liabilities; understand how public international law regulates shipping; examine the legal framework of the maritime industry; understand the concept of “international law” and how it is used to regulate shipping; explain the concept of private and public law; distinguish between civil and criminal law liabilities; and identify situations that give rise to contractual and other civil/private law obligations and liabilities. Module 3 – Maritime Law 13 1.4 Case Study 1 - The Red Sea The Red Sea 1 Lloyd’s Rep 610 This is a good case with which to start our progress through the module, as it highlights the dangers of commercial negotiations conducted without a proper realisation of the need for proper – lawyerly! – drafting of contracts. It is a salutary lesson in how poor contract drafting can itself contribute to the time and costs of litigation. It is, of course, the case that commercial parties negotiate their contracts at a time when they are at a good point in their relationship, and in a situation where the thought of litigation is far from their minds. At this point, each party will be confident in the performance of the other, and in this mood unlikely to put their minds to the extent to which the contract provides for any failure by the other to perform. A lawyer, on the other hand, has breach as well as required obligations in mind when drafting. A well-drafted contract will be a clear framework of what the parties’ obligations are and of the consequences of their breach. 1.4.1 The Contract and the Issues This contract was for the sale of 22,500 tonnes minimum to 25,000 tonnes maximum of jet aviation fuel. The contract was stated as being on “Cost, Insurance and Freight” terms (CIF), under which the seller delivers the goods when he puts them on board the vessel, i.e. on shipment. The contract provided that, amongst other things, any terms not specifically covered were to be governed by the International Chamber of Commerce’s (ICC) codified rules for international sale terms (Incoterms). The contract provided for Incoterms 1990 plus amendments. The relevant Incoterms (A5 and B5) together provided for the risk of loss and damage to pass from the seller to the buyer on shipment. Additional terms in the contract as amended related to the product, and its quality and origin, and included a fuel specification. This was intended, amongst other things, to provide a code for use. A products clause required the seller to make “best endeavours” to have a static dissipator additive (the SDA) placed on board in drums, to be added to the fuel after shipment. At the time of shipment no SDA had been added to the fuel. Following shipment, too much SDA was added. The fuel was, therefore, outside the contract specification at the time of shipment and also after admixture. 1.4.2 The Preliminary Issues before the Commercial Court Mr Justice Rix (as he then was, he later became a Court of Appeal judge, becoming Mr Lord Justice Rix) had to determine whether the contract was actually on CIF terms, and, if so, whether it was subject to Incoterm B5, the crux of that issue focusing on whether the risk of the post-shipment SDA fell on the seller or the buyer. Whether it could be said that there was any “contractual description” of the goods and what were the seller’s obligations in relation to the additive, as well as whether the sellers were in breach of any terms of the contract, also fell to be considered. In looking at both the buyer’s and seller’s understanding of the fuel specification, his Lordship commented that he was “faced essentially by a choice between two constructions, neither of which is wholly satisfactory, and both of which have difficulties”. A more careful drafting of the contract would have obviated the need for the Commercial Court to have to deal with these preliminary issues, leaving instead the parties free to spend their time and money on the determination of the substantive issue of whether or not the seller was in breach of the products clause. Module 3 – Maritime Law 14 Getting to the decision that the sellers were in breach, but that the buyers had an obligation to mitigate their loss by adding for themselves the SDA on board, was more time-consuming and costly than it would have been if a clear contract had been drafted. It is also the case that had the contract been clear, it is highly likely that the parties would not have had to proceed to court at all, both being clearer about their respective duties and where the risk of damage lay. 1.5 Acknowledgements I have been greatly assisted in writing this module by not only my own previous writings, but also from relying on materials written by colleagues for a distance learning course (run by the World Maritime University in collaboration with Informa) leading to a postgraduate diploma in Maritime Law (of which I am the course director), in particular Archie Bishop (Consultant and former senior partner Holman Fenwick Willan, and legal advisor to the International Salvage Union UK). Any mistakes are, of course, my own. Directed Learning 1 1. Why is it important to distinguish between the commercial aspects of a relationship and the elements of a legal wrong? 2. What advantages might there be in instructing a lawyer when drafting a contract and in advising on pre-contract negotiations? Module 3 – Maritime Law 15 2. AN OVERVIEW OF MARITIME LAW 2.1 Introduction In this chapter, we look at the development and application of substantive maritime law, i.e. the law that governs how we conduct our trading relationships, and from which obligations arise. This will enable us to understand what lawyers mean when they question what liabilities may face their clients. 2.2 There is No “International” Maritime Law You may be surprised that in this very international trading environment we will be concentrating on English law, i.e. the law of one jurisdiction, rather than on “international” law. This is because there is no autonomous body of internationally agreed law which governs our relationships and liabilities. So, for example, when we talk about “European law”, what we really mean by this is that in order for European law to become effective, it must be incorporated into the national law of each Member State. Private relationships (i.e. those which concern only the parties between themselves, as opposed to the relationships we have with the state, i.e. public law) and liabilities are governed by private domestic law (the machinery of law provided by a state for individuals to put right a wrong – e.g. by suing for breach of contract, or in tort etc). Criminal liability arises from our relationship with the state, and is likewise governed by areas of public domestic law. This means that the law must come from some national domestic source. We must, however, realise that shipping has an international aspect, and there must be some international uniformity in the rules and regulations that apply to contracts for sales, carriage etc, conducted on the international market, and regulation of how we use the seas and operate ships thereon. A breach of these international regulations may lead to private and criminal liability. In the international market, some uniformity regarding liability is necessary so that we know how to conduct our shipping business and obtain marine insurance for our ventures. Such uniformity is created partly by the fact that many countries involved in international trade/shipping will have incorporated the same international conventions into their domestic law, and partly by the fact that the parties to international transactions may have agreed between themselves to incorporate certain international trade customs into their contracts (for example by contracting on a “standard form” drafted by one of the international trade associations). It should be remembered, however, that national courts in different countries may adopt very different approaches when interpreting the provisions of an international convention or the customs of international trade. This means that, in reality, international conventions and trade customs may not go very far towards creating international uniformity in the law. This will frequently lead to the parties embarking on “forum shopping”, in the hope that a particular jurisdiction will determine the dispute more favourably to them than another would. A well drafted contract will seek to exclude this attempt, by setting out where the dispute should be heard and what national domestic law should be applied to the contract. Module 3 – Maritime Law 16 As there is no “international” law as such to study, we will be looking at English law in this module. 2.3 But Why English Law? This is a question frequently asked by students of mine who study and work in the environment of international sales and carriage contracts. We will first, however, look at the nature of English law, be it private or public, as this is fundamental to both how it is applied in any marine investigation, and why it might be chosen to govern private law relationships in shipping. 2.4 The Nature of English Law The legal system in England and Wales is known as a “common law” system. The distinguishing feature of a “common law” system is that it relies heavily on previous decisions of judges to decide what the law is. This reliance is known as the “doctrine of judicial precedent”. The “common law” system is very different from the systems used in other European countries such as France or Germany, which have a “civil law” system based on Roman law. These countries derive their laws largely from “civil codes” (lengthy documents detailing the letter of the law), and the decisions of judges do not have the same significance as they do in English law. Moreover, these countries have written constitutions, set down at a specific point in their history. England does not have a written constitution, and no-one has ever attempted to write down all its laws in one document. 2.5 Sources of English Law There are now four important sources of English law: the common law, that is to say case law developed principles of law; trade custom and usage (in private commercial law); national legislation; and EU law. Each of these is considered below. 2.5.1 The Common Law The common law developed piecemeal over the centuries. As society developed, laws and courts emerged to regulate its conduct. Gradually, a court system and a set of laws and constitutional principles came into being. There was not a court system resembling the one we have today until the Industrial Revolution, in the 19th century, centralised society in towns and cities. However, as early as 1154, during the reign of Henry II, attempts were made to ensure that justice reached the furthest corners of the land. The king sent travelling judges up and down the country to administer royal justice. These judges accumulated experience as they travelled between towns and villages. The judges would meet together in inns and hostelries and would share their stories and legal experiences. Module 3 – Maritime Law 17 They borrowed legal ideas and solutions from one another, and there soon developed a body of legal principles which became known as the “common law”, i.e. the law which was “common” to all the people of England and Wales. (For historical reasons, Scotland has a mixture of common law and Roman law.) The words of the judges began to be written down and gathered together into a body of “case law”. Case law is the collection of reported cases which embody the law. It is cited by judges, lawyers and writers to establish what the law is. Eventually, certain principles of law contained in case law were incorporated into Acts of Parliament (“statutes”). It is important to note that the translation of case law into statute law did not really begin in earnest until well into the 19th century. The 19th century also saw the first moves towards professional, independent, law reporting. The Incorporated Council of Law Reporting began in 1865, and today it provides the most independent and authoritative set of law reports. These reports are the Weekly Law Reports, and the more detailed official reports, known simply as the Law Reports. These official reports include the Queen’s Bench Reports (QBD), the Chancery Reports (Ch) and the Family Reports (Fam). Together with the Appeal Cases Law Reports (AC), these official reports form the series of reports that should be used in a court in preference to any others. Other reports, however, are sometimes used, including the comprehensive All England Law Reports (All ER), published by Butterworths. There are many other law reports on specific legal subjects, ranging from local government law to family law. Of particular interest to students of maritime law, however, are Lloyd’s Law Reports (Lloyd’s Rep), which deal with shipping and international trade cases. In modern times, statute law is increasingly replacing case law as the primary source of English law, although the latter remains very important. Statutes are often passed to give effect to (or to overrule) principles recently established by case law. (An example of this is the Misrepresentation Act 1967, which came about as a direct result of the case of Hedley Byrne & Co v Heller & Partners AC 465.) The impact of statute law is most noticeable in the area of criminal law, where the overwhelming majority of offences are now set out in statutes. The most notable exception to this is murder, which at the present time is still only a common law crime. Parliament has felt less obligation to use statute law to regulate civil law matters such as contract and tort. For example, in the law of tort, although there are a few relevant statutes, the law is still largely based upon the words of Lord Atkin in Donoghue v Stevenson AC 562, who enunciated the famous “neighbour principle”, giving voice to the idea that if we act carelessly, so that someone may suffer as a result, we should be legally responsible. Similarly, when we look at the law of contract, we can see that although there are nowadays some very important statutes, the modern law is still to be found in reported cases. We will also see that there is in fact very little statutory regulation of shipping contracts and so nearly all of the law relating to these disputes is determined by case law. Because commercial law is concerned with rights and duties arising from the supply of goods and services, it is inevitably dominated by the common law rules of contract. The sale of goods contract and the contract of carriage lie at the heart of commercial law. But international trade can give rise to disputes going beyond contract law which require the application of the common law rules of tort, restitution and bailment. Module 3 – Maritime Law 18 It is important to remember that the flexibility of the common law allows it to develop continually to meet the needs of a developing society. Common law decisions are, therefore, at the cutting edge when it comes to modernising and adapting commercial law. For example, in Petrotrade v Smith 1 Lloyd’s Rep 486, the Commercial Court showed its unwillingness to allow the defendants to escape liability for evasive behaviour, committed in the spirit of fraud, even though this required a fresh look at existing rules. In this case, the former operations manager of the claimant companies, together with a port agency services company and its associate company, were found liable in tort in respect of money paid to the operations manager. The money was paid as a secret commission, intended to secure a contract for the defendants’ port agency services in Antwerp. At Antwerp, the fees charged by port agents were fixed by a tariff at above the market rate. It was, therefore, common practice for port agents to agree to pay a rebate or, as appropriate, a commission to the party responsible for nominating the port agents. This practice is both legal and widespread. Here, however, it was agreed between the operations manager and the port agents that a commission would be paid to him in secret via a company set up in Jersey. The claimants knew nothing about the secret payments and, indeed, had been told by the defendants that no rebates or commission had been paid in respect of port agency fees in respect of their ships. The defendants’ actions of bribery did not fit within any existing nominate tort, but the court did not allow this to stand in its way, asserting that the “short answer” was that bribery was a “special form of fraud”. The court rejected the argument that, as the payments had not induced the contract between the agent’s principal and the donor, they could not constitute an actionable bribe. In its ordinary meaning, the word “bribe” included any money given with a view to perverting the judgment or conduct of the recipient, and the court would adopt the same approach. To focus on the contract between the donor and the recipient’s principal was to misapprehend the key distinguishing feature of a corrupt payment, namely that the making of it gives rise to a conflict of interest on the part of the agent. Likewise, the court rejected the argument that bribery is a species of the tort of deceit – which requires some representation to the principal that the transaction was at arm’s length with no secret profit. Here, the whole premise of the action was that no representation at all had been made to the principal: “the real evil is not the payment of money but the secrecy attending to it”. The defendants’ arrangements resulted in the conclusion by illegitimate means of a contract that they were authorised to conclude by legitimate means. It was the fraud in those illegitimate means for which they would be liable. This decision, then, shows how the courts are prepared to adapt the common law to do justice in novel cases, and stands as a salutary warning against dishonesty in shipping practice. 2.5.2 Trade Custom and Usages The customs and usages of merchants have an impact on the content and interpretation of their contractual obligations. However, English law is reluctant to regard mercantile custom as being a binding force upon a contract unless it has been expressly included by the parties, or it is shown as being universally recognised in the trade. This is particularly the case when such custom or usage is unwritten, because its meaning and content may be understood differently by different people. Module 3 – Maritime Law 19 In order to avoid variations in the interpretation of trade customs, many national and international trade associations have drafted relevant customs into published codes or sets of rules. Such codes or rules may be given effect by making adherence to them in one’s contractual dealings a condition of membership of the relevant association, or by the parties electing to incorporate them into their individual contracts. Those of you involved with international sales will no doubt have come across Incoterms (the International Chamber of Commerce’s rules relating to international sale contracts on shipment terms). Professor Goode (Roy Goode: Commercial Law (4th edition, Penguin, 2010) ISBN 9780141030227) refers to these rules as being “soft” law, meaning that they are rules which are not imposed upon people by law, but which in practice will normally be adhered to because of pressure within the trade, or because of a fear that more stringent rules might be imposed by legislation if the trade’s self-imposed rules are not complied with. A good example of such rules is the shipping industry’s Codes of Practice published by the International Chamber of Shipping. These codes require shipowners to address a wide variety of environmental concerns, including: energy conservation; carriage of chemicals and liquefied gases in bulk and the carriage of dangerous goods in bulk or in packaged form; protection of air quality; ship recycling; a prohibition on carrying certain marine organisms from one state to another (including controls on the discharge of ballast water at sea); and a prohibition on the use of certain anti-fouling hull coatings which might have an adverse effect on marine life. Such rules contribute to the international flavour of English commercial law because they are adhered to by parties in many states. 2.5.3 National Legislation Legislation plays an important role in modern commercial and criminal law. Modern commercial law has to a great extent been “internationalised” by the incorporation into national systems of law of international conventions, such as the Vienna Sales Convention (which is not in force in English law) and the Hague-Visby Rules (incorporated into English law by the Carriage of Goods by Sea Act 1971). The aim of such international conventions is to harmonise international commercial law. The regulation of shipping is also achieved through the implementation of international conventions, e.g. SOLAS is incorporated into English law under the Merchant Shipping Act 1995. It should be remembered, however, that international conventions only have the force of law in England if they have been incorporated into our national law by legislation. Module 3 – Maritime Law 20 2.5.4 EU Law The impact on English law of the United Kingdom’s entry into the European Community in 1973 has been and at this stage remains important. The impact on the UK’s relationship with EU law in this immediate post-Brexit environment is far too early to predict. To date, the most sensible approach is to understand EU law from its current perspective and await changes as they occur in the next few years. The EC is now known as the European Union, which is a union of the independent states which formed the former EC/EEC (European Economic Community). EU law is a body of treaties, law and court judgments that operate alongside the legal systems of the European Union’s member states. It has direct effect within the EU’s Member States, and where conflict between a Member State and EU law takes place, EU law takes precedence. The principle of European uniformity is achieved through the national implementation of EU legislation. There are two forms of EU legislation: regulations; and directives. Regulations become law in all Member States from the moment they come into force (without the requirement for any initial implementation measures), and automatically over-ride conflicting national domestic law provisions. Directives require Member States to achieve a certain result, while leaving the Member State discretion as to how to achieve the result. EU law is today an important source of commercial law. In Shanning International Ltd v Rasheed Bank 3 CMLR 450, for example, the Court of Appeal was faced with difficult questions concerning the interpretation of an EC Regulation. The Regulation applied to claims likely to arise following the implementation of the UN Resolution lifting the trade sanctions against Iraq, which had been imposed in 1990 by the United Nations Security Council and the European Community. It prohibited anyone within the Community from satisfying any claim made in connection with a transaction that had been affected by the sanctions. The gist of the case was that Rasheed Bank suggested that there was nothing in the Regulation which amounted to a permanent prohibition against payment, and that, in any event, the Regulation was invalid because it had been adopted for foreign or security objectives, which were not legitimate objectives of the EC. The court rejected these arguments, stating that it would have regard to the political considerations underlying the sanctions, the European Community’s common commercial policy, and to “common sense”. This judgment was upheld by the House of Lords: 1 WLR 1462. One of the fundamental aims of the Community is to ensure that competition within the common market is not distorted. The court heard evidence that the European banking sector, as well as international contractors, had predicted that the lifting of the sanctions might give rise to an avalanche of claims for payment. Without uniformity in the implementation of the lifting of sanctions, some operators would have faced massive claims from Iraq, while others would not. The Regulation was intended to prevent this distortion of competition. Module 3 – Maritime Law 21 In these circumstances, the Community was not pursuing an objective outside the scope of the Treaty of Rome, and the Regulation was, therefore, valid. The court held that political events could well give rise to a legitimate need for Community action in the economic field, and concluded that it had no doubt about the validity of the Regulation. Since, in the court’s opinion, it had properly interpreted the Regulation in accordance with its purpose, the court did not consider itself bound to seek a ruling from the European Court of Justice. The court had no doubt that the Regulation was of permanent effect – the political considerations underlying the sanctions dictated “as a matter of common sense” that no claims could ever be made for the effects of the sanctions. In respect of commercial activities that take place within the European Union, decisions of the European Court of Justice are, of course, also sources of the law governing commercial transactions under English law. For example, in R v Minister for Agriculture, Fisheries and Food, ex parte SP Anastasiou (Pissouri) Ltd and Others 3 CMLR 339, the European Court was concerned with the acceptability of phytosanitary certificates covering imports from outside the European Community. The questions before the Court in this case were raised in proceedings between a number of producers and exporters of citrus fruits. They concerned the importation into the United Kingdom of citrus fruit originating in the northern part of Cyprus, known as the “Turkish Republic of Northern Cyprus”. The background to the case was that in Anastasiou I 1 CMLR 569, the European Court of Justice had held that authorities within Member States were not entitled to accept phytosanitary certificates issued by authorities other than “competent authorities”. The Turkish Republic of Northern Cyprus is not recognised by the Community or by any of its Member States, and this meant that Community law precluded Member States from accepting certificates issued by authorities there. Following this ruling, the respondents made arrangements to ship citrus fruit from the region via the Turkish port of Mersin, where recognised competent authorities would issue the required certificates for importation into the Community. The appellants (producers and exporters of citrus fruit from Southern Cyprus), who had initiated the proceedings in Anastasiou I, argued that such importation was contrary to the Directive in question (Directive 77/93), unless the produce was accompanied by certificates issued by a competent authority within the country of origin. This argument would have made importation impossible for the respondents. Rejecting the argument, the Court had regard to the objectives of the rules and to the practical circumstances of compliance. The aim of Directive 77/93 was to ensure a common system of protection from harmful organisms in products imported from non-Member States. This aim was shown to be satisfied by the issuing of certificates in the consignor country, where competent authorities had carried out the necessary checks. Since the purpose of the Directive had been met, it was not for a Member State to impose further conditions relating to the reasons why a certificate had not been issued in the country of origin. Therefore, phytosanitary certificates issued by a competent authority in the consignor country, rather than country of origin, were acceptable when goods were imported from non-Member States into the Community. The Court was concerned only with the purpose of the Directive, and not with the political tensions created by the manner in which the Directive was complied with. Module 3 – Maritime Law 22 We will see further the impact of EU law, in our final case study at the end of the module. 2.6 The Distinction Between Criminal and Civil Law Public law is that law which governs our relationship with the state. Criminal law is one example of public law. The distinction between criminal and civil law exists in most jurisdictions and should, therefore, be familiar to most people. It should be noted, however, that under English law, the distinction between civil and criminal wrongs depends not on the wrongs in question, but on the nature of the legal consequences that follow. The same wrong can have both criminal and civil consequences. Thus, if I were to take your property without your consent, you (or more usually the state) might bring criminal proceedings in order to have me punished. But you might also bring a civil action to recover compensation for your lost property. It is also important to note the differences in the terminology used when discussing the different types of proceedings. In a criminal trial, the “accused” (or “defendant”) is “prosecuted”. If he or she is “found guilty”, the court passes a “sentence”. By contrast, in a civil trial, the “defendant” is “sued” by the “claimant”. If the court “holds” that the defendant is “liable”, the claimant will be entitled to a “remedy” (usually monetary compensation, called “damages”). It is important to appreciate that whilst the parties to a contract can choose which national law should govern their contract, this is not the case with situations giving rise to the application of criminal law. For the purposes of this module, it suffices to say that where the offence has been committed within the jurisdiction of the English courts (usually because the offence was committed in England or Wales, or on board a British-flagged ship), English law will apply to determine the elements of the offence. The shipping world has become concerned about the criminalisation of seafarers. The cases to date, such as The Prestige, The Tamsin Spirit, The Hebei Spirit, and The Zim Mexico, illustrate the very different approaches that port states can take. The approach to the criminalisation of activities may be quite different in one jurisdiction from that taken in another: underlying cultural, economic and religious factors all contribute to the jurisprudence (the philosophy of the law) of a state’s national law. In the EU we are faced with the highly controversial EU directive which criminalises pollution caused even unintentionally (go back to Chapter 1, which highlights the importance of understanding what we mean by the elements of a wrong and the distinction between strict and fault-based liabilities), the EU Directive on Ship Source Pollution 2009/123/EC (amending EC Directive 2005/35/EC). The directive introduces what to English law lawyers is a vague concept of “serious negligence” (which is not at all part of the jurisprudence of English law to date, either in civil or criminal law wrongs). The impetus driving certain states towards increased prosecution of seafarers, the disparity of underlying jurisprudence between one state and another, and the very different cultures of criminal and civil law wrongs must surely be a salutary warning to include one’s lawyer on the investigation team immediately an incident occurs. The directive was challenged by a coalition from the UK shipping industry, successfully before the English High Court EWHC 1577 Admin, but then unsuccessfully before the European Court of Justice: Intertanko and Others v Secretary of State for Transport ECJ Case C-308/06, 3 June 2008. Module 3 – Maritime Law 23 2.7 English Private Commercial Law Having come to terms with the fact that there is no such thing as an international law that could regulate our private dealings, my students wonder why we are so concerned with English law. Well – “maritime” contracts frequently specify that English law will govern the contract: But why do they choose English law? In his article “Contract law: Fulfilling the Expectations of Honest Men” LQR 433, Lord Steyn observed: “The commercial advantage of the English approach is that it promotes certainty and predictability in the resolution of contractual disputes. And, as a matter of principle, it is not unfair to impute to contracting parties the intention that in the event of a dispute a neutral judge should decide the case applying an objective standard of reasonableness. That is then the context in which in English law one should interpret the proposition that effect must be given to reasonable expectations of honest men.” Roy Goode (Roy Goode: Commercial Law in the Next Millennium (Sweet & Maxwell, 1998) ISBN 0 421 63650 5) continues this theme when he says that there is one feature above all that distinguishes English commercial law from that of civil law jurisdictions – namely the relative absence of “mandatory” law. He points out that, under English law, the contracting parties are largely left to themselves to agree on remedies – such as the right of stoppage in transit in sales of goods contracts (Sections 44 to 46 of the Sale of Goods Act 1979), or the seller’s right to retain title so as to reclaim goods that have not been paid for (Section 19 of the Sale of Goods Act 1979). These provisions can come into effect without the need to have recourse to the courts. Professor Goode points out that the ability of the parties to fashion “security rights” of their choice, to decide on other rights and remedies, and to exercise them without the need to go to court is peculiar to the common law. He suggests that a lawyer from a civil law jurisdiction might find “truly astounding” the extent to which such out-of-court rights and remedies are so freely available in English law. English commercial law, then, is undoubtedly held in high regard by the international shipping community. But this very fact may at times produce the accusation that those responsible for its development are somewhat chauvinistic in their approach. English law’s rather piecemeal approach to statutory regulation – dictated by the fact that the law is an amalgam of statutory and common law rules – has created a complexity that sometimes causes confusion for foreign lawyers, who ask: Where is your uniform commercial code? For example, until the Arbitration Act 1996 was passed, the law on arbitration was contained in the Arbitration Acts of 1950, 1975 and 1979. The 1996 Act was passed as a response to concerns that London would cease to be a major international arbitration centre because English arbitration law was seen as unwieldy and unattractive by foreign lawyers. Module 3 – Maritime Law 24 Similarly, one might ask what prevents the United Kingdom from ratifying the United Nations Convention on Contracts for the International Sale of Goods 1980 (the Vienna Sales Convention, which was intended to harmonise international sales; the Convention does not regulate all aspects of the international sale contract; it provides specific rules on the formation of the contract, and on the rights and obligations of the seller), which has proved to be one of the world’s most successful commercial law conventions. It can be argued that our reluctance denies an international outlook, and suggests that we are not truly responsive to calls for greater harmonisation of commercial law. The application of English law in shipping cases is exciting, the law having been developed to meet the needs of traders. This area of law grew up from the mercantile courts, which developed the law merchant in response to disputes that arose between parties who were frequently trading from different countries and who needed a speedy resolution of their disputes. The law merchant was made up of a mixture of local trading customs and law and foreign rules – recognised trading practice. Although the law merchant no longer really exists (it being doubted that it was at all assimilated into the early common law), the Commercial Court can be seen to be the modern equivalent of the former mercantile courts in that the common law is applied as a response to modern trading relationships. It is through case law that we see the extent to which judicial “creativity” can arise, which gives rise to lawyers saying “well on the one hand…but on the other…” when asked for an opinion on how the courts may determine a legal dispute. For example, in The Hansa Nord 2 Lloyd’s Rep 445, buyers of citrus pulp pellets under a CIF sale contract purported to reject the entire quantity of goods sold, on the basis that some of the goods had not been “shipped in good condition” such as required by the contract. The matter went to arbitration in accordance with the contract, where the arbitrator found that the buyers were not entitled to reject. The buyers appealed to the Board of Appeal under the arbitration rules of the contract. The Board of Appeal held that the buyers were entitled to reject the goods as the sellers were in breach of: (i) the express obligation to ship the goods in “good condition”; and (ii) the implied obligation as to merchantability in section 14(2) of the Sale of Goods Act (1893). This was upheld by the court of first instance, and the sellers appealed to the Court of Appeal, which unanimously allowed their appeal. In reality, the buyers’ rejection was driven purely by a fall in the market rate for the goods rather than any inability to use the goods for the usual and intended use of cattle feed. Having purported to reject as against the sellers, the buyers then, however, proceeded to re-purchase all the goods at the lower market rate, and then use them for the originally intended purpose, in the manufacture of cattle feed. The buyers concealed the entirety of their actions in doing this from the Board of Appeal, which recorded in its award that it “was not satisfied that we have been presented with the full account of how the goods were disposed of in Rotterdam after rejection of the Buyers”. Lord Denning MR thought this to be a “devastating comment”, and was clearly unimpressed by the conduct of the buyers, making the somewhat salutary point that the fall in the market rate “may give an explanation” for what happened subsequent to the goods arriving in Rotterdam. Module 3 – Maritime Law 25 His Lordship was of the view that “the fair” way to determine the issue was to ask a commercial man what “merchantable quality” meant and whether a breach of the obligation would entitle a buyer to reject. He noted that the Board of Appeal had found that whilst the goods might not be of “merchantable quality” within the meaning of the phrase used in the Sale of Goods Act, they were, notwithstanding the damage, “merchantable” in a commercial sense. His Lordship held that the Board of Appeal had been incorrectly advised to interpret the meaning of “merchantable quality” within the statutory sense as being different from the commercial sense. His Lordship’s opinion was that as the statute used the words “merchantable quality” in a commercial sense the Board of Appeal should not have been persuaded to give them some other “statutory sense”. Thus, in his Lordship’s view, no breach of the implied condition under section 14(2) had occurred. This, of course, meant that the buyers could not reject the goods on the basis of breach of this obligation. In his Lordship’s view, the separate obligation to ship the goods in “good condition” was an intermediate stipulation, i.e. an innominate term, giving no right to reject unless the breach went to the root of the contract. His Lordship was of the view that as a “matter of good sense”, the buyer should accept the goods unless there was a serious and substantial breach fairly attributable to the seller. On the facts, this was not the type of breach that had occurred here: the breach did not go to the root of the contract and the buyers were not entitled to reject. Put simply, the buyers had got what they originally contracted for, but now wanted them at the subsequent much lower price. To look at the case from a commercially pragmatic view, that the market rate had fallen sharply was not fairly attributable to the sellers, and should not, therefore, be the propelling force behind the interpretation of the law. It is clear from the critical tone in Lord Denning’s language that his Lordship clearly thought that the buyers had acted “sharply” and without regard to commercial expectation and awareness of the risks thrown up by this relationship, such as a changing market rate. That there was this risk would not have been unknown to the parties when they entered into the contract. In the absence of any term in the contract apportioning the effect of a rising or falling market, the Court’s approach here was to allow the risk to lie where it fell, i.e. at the buyers’ feet, so to speak. It is worth making the point at the conclusion of this section, that whilst we have been concerned here at looking at English commercial law, the same policy considerations and judicial creativity exist in the criminal courts as they apply and develop substantive criminal law. 2.8 The Relationship Between English and Foreign Commercial Law English commercial law is very different from the commercial law of other countries. Fundamentally, it has little in common with foreign law, even though its rules are sometimes the same as those applied in other jurisdictions. As we have seen above, there is no autonomous body of internationally agreed law which governs commercial liabilities. Commercial liabilities are governed by private domestic law (the machinery of law provided by a state for individuals to put right a wrong – e.g. by suing for breach of contract, or in tort etc). This means that all commercial law must come from some national domestic source. It is, however, the case that commercial law has an international aspect. Module 3 – Maritime Law 26 This is created partly by the fact that many countries involved in international trade will have incorporated the same international conventions into their domestic law, and partly by the fact that the parties to international transactions may have agreed between themselves to incorporate certain international trade customs into their contracts (for example by contracting on a “standard form” drafted by one of the international trade associations). It should be remembered, however, that national courts in different countries may adopt very different approaches when interpreting the provisions of an international convention or the customs of international trade. This means that, in reality, international conventions and trade customs may not go very far towards creating international uniformity in the law. The question of which nation’s domestic law governs an international trade contract is decided by national courts, under the rules of “private international law” (also known as “conflict of laws”). This is the case in all national jurisdictions. In other words, all national courts have their own rules by which they determine this question. It is sufficient to note here that there is no uniform “international” law which dictates when one country’s laws, as opposed to another’s, will govern a contract. We should also note that the question: “which country’s law governs the dispute?” is in fact quite separate from the question: “which country’s court has jurisdiction to settle the dispute?”. In other words, it is quite possible for, say, an English court to rule on a contract governed by French law, or vice versa. 2.9 The Nature of “International” Law It is important to recognise that the concept of “international law” has only a very limited effect on the domestic legal provisions of a nation-state. Certain sets of common rules (e.g. EU directives) are incorporated into the national laws of a number of nations, in order to facilitate some aspect of the entire “community” (e.g. the free movement of goods and people within the EU). These rules, however, are not to be regarded as “international law”, but rather as “incorporated law”. Where many nations have incorporated the same common rules (e.g. as some of you might know, the Hague-Visby Rules, which impose minimum level of carrier liability in respect of bills of lading contracts, are incorporated into English law) into their national law, it is not true to say that people in different nations relying on those rules are governed by “international law”. This is because the term “international law” implies law which is common to, and binding upon, all nations, and is enforceable only by or on behalf of a nation against another nation or an individual. The true position with respect to these common rules is that people in their respective nations are governed each by their own national laws (the incorporating Act in respect of the Hague-Visby Rules being the Carriage of Goods by Sea Act 1971), but, because of the incorporation of the rules in question, those national laws happen to be the same. In the context of international trade and shipping contracts, the parties will frequently choose which nation’s laws are to govern their agreement. If they have not done this, it will fall to the courts in the nation where the dispute is heard to decide which national laws govern the contract. In either case, it will never be true to say that the contract is governed by “international law” (there simply is no “international law of contract”) – it will be governed by the laws of one country or another. Module 3 – Maritime Law 27 This law, that is relied upon to regulate the relationship between the parties to that contract, is “private law”, i.e. it forms part of the machinery of law provided by the state which enables the parties to seek redress between themselves should there be a breach of the contract. (The law of torts is also part of private law.) For historical and commercial reasons, the parties to international trade and shipping contracts frequently choose English law to govern their agreements. 2.10 Public International Law Now that we have discovered what “international law” is not, it is possible to say something about what it is. International law consists of a set of fairly broad principles that are either contained in treaties, or have developed because of long observance by very many countries in the world. Thus, for example, it can be said that piracy on the high seas, waging war against another nation without just cause, or perpetrating “crimes against humanity” are breaches of international law. Lawyers sometimes refer to this sort of international law as “public” international law, to differentiate it from the body of law known as “Conflict of Laws” or “private” international law. This is the law, which comes into play where there is a dispute about which nation’s domestic laws should govern an international transaction. It should never be confused with public international law, and, to avoid confusion, should never be referred to simply as “international law”. Areas of modern public international law (true “international law”!) which regulate shipping include the Law of the Sea Convention 1982 (“UNCLOS III”) and the Safety of Life at Sea Convention 1974 (“SOLAS” – under which the ISM and the ISPS Codes arise), and the International Regulations for the Prevention of Collisions at Sea 1972 (“COLREGS” – otherwise known, in the vernacular, as the Collision Regulations) are incorporated into English law! International efforts to provide regulatory provisions to supress piracy, which is an especially topical issue in today’s shipping market, is a further example of public international law. Public international law is a difficult beast to understand. It cannot really be said to exist unless all jurisdictions adopt the conventions and comply with them to the same extent. There can be no internationalism unless all jurisdictions “sing to the same hymn sheet”, so to speak. There is no international “law maker”, national law is made by each state’s law making procedures, and comes into force in that state in accordance with those procedures. There is no such entity to make law on an international basis. The recognition, then, of an internationally accepted way of doing things and international jurisdiction is totally dependent upon the collective will of individual states. When a major player in the international market (e.g. the USA) does not adopt an international convention (e.g. as is discussed below, the US has not adopted the Law of the Sea Convention), one could argue that the convention does not successfully create public international law on that issue. The most successful example to date, to my mind, of true public international law is the Safety of Life at Sea Convention (SOLAS), as this has been adopted by just about all jurisdictions, including the US. Having said that, it will be interesting to see the impact that the Maritime Labour Convention 2006 (MLC) has in international shipping, as this promises to be yet another success on the international public law forum. Module 3 – Maritime Law 28 The MLC was adopted by the Security Council of the International Labour Organisation (ILO) on 23 February, 2006. It entered into force on 20 August 2013, and as of March 2015 has been ratified by 66 countries (it came into force in the UK on 7 August 2014), representing more than 80% of the world gross tonnage of ships. As a final comment in this introduction to public international law, we should very much remember, as just stated above, that there is no international law-making entity. Sympathy, then, should be had for the International Maritime Organisation (the IMO, discussed below) and ILO, which strive for the international regulation of safety in shipping and well-being of seafarers. The IMO and ILO have no “teeth” in that neither is a law-making body. Their success lies in the persuasion of participating sovereign states (all with very different political agendas) to adopt their regulations. A short discussion on public international law is contained in Chapter 3 of this module, to help put the comprehensive discussion on the international regulation of shipping, which is in Module 5, into context within the overall “legal picture”. 2.11 International Limitation of Liability A critical issue in shipping and in maritime law is limitation of liability. This means that in any claim or liability resulting incident, the final quantum of damages will be limited by one of the international limitation conventions, one or more of which all maritime jurisdictions have adopted into their national legislation. Limitation may, broadly speaking, be divided into two categories: (a) limitation for cargo claims under the international carriage regimes; and (b) global limitation for other liabilities arising in international shipping under international convention. Much is said and written about limitation of liability for shipping adventures, and it suffices here to be fairly brief. That a carrier or shipowner can limit his liability for loss and damage caused by his carelessness is the subject of much heated debate. Indeed, Lord Mustill wrote a compelling article entitled “Ships are different – or are they?” in 1993, in the Lloyd’s Maritime and Commercial Law Quarterly (LMCLQ, at page 490), in which he vociferously advocated that times were now different and that such widely available limitation should be reviewed. This was immediately followed in the same journal by an equally vociferous refutation of that suggestion, by David Steele, saying that “Ships are different” and that limitation is essential to the survival of shipping and international trade. Whatever one’s view, it appears that for policy reasons, the international community is wedded to the idea of allowing limitation, justified on the basis that it provides the shipowner with a calculable risk before embarking upon a trading venture. The argument is that if the maximum liability of the shipowner can be assessed in advance, it should be easier and cheaper to obtain insurance. According to Lord Denning MR, limitation “is a rule of public policy which has its origins in history and its justification in convenience”: The Bramely Moore P 200 at 220. Module 3 – Maritime Law 29 What is important to appreciate, in the context of the management of damages, is that the limitation covering a claim may be so low as to render the expense of litigation disproportionately high when viewed against what the claimant is likely to come out with in monetary terms. It is also worth noting that a canny defendant will be aware of this, and will use this as a stick to negotiate a settlement, or to play a waiting game in the hope that the claimant will abandon any action. It should also be appreciated that whilst it is possible to break limitation, in reality this rarely happens, as the claimant is in the position of having to show that the defendant intended or was reckless as to the damage occurring. “Recklessness” for the purposes of determining a carrier’s right to limit is judged on a subjective, rather than objective basis, i.e. that reckless included “with knowledge that the result would probably result”: Goldman v Thai Airways 1 WLR 1186. It is also important to understand that we are not here talking about exclusion of liability, which is where the carrier or owner removes/excludes his private law liability (generally in contract, although exclusion can arise in certain tortious liabilities) to pay damages for his wrongs. Thus, successful exclusion means exactly what it says: no compensation to the injured party for the loss arising out of the breach or tort. Limitation in shipping incidents is one step further, in that we are, effectively saying, that we will allow the carrier/owner to put a limit on how much his financial liability will actually be in those circumstances where he could not (usually by law) exclude that liability. 2.11.1 The International Carriage Regimes The Hague, Hague-Visby and Hamburg Rules all provide for carrier limitation (as will the Rotterdam Rules, if they come into force). Whilst there are important differences between the regimes, it suffices here to say that limitation is generally based on a package or unit, or on a gross weight basis. The Hague Rules have the lowest level of limitation, the Hague-Visby Rules have a higher limit, with the Hamburg Rules having the highest to date. A fourth regime, the Rotterdam Rules, may come into force at some point in the future. This is not the place to indulge in an in-depth discussion of the contracts to which the regimes apply. Broadly speaking, though, it is safe to say that the three regimes all apply to goods carried under bill of lading type contracts, where the goods are shipped out of a jurisdiction which is a signatory to the particular regime. Some of the regimes, however, also apply on the discharge of the goods within that jurisdiction. So, goods may be shipped out of, say a Hague jurisdiction (e.g. the US) and be discharged in a Hamburg jurisdiction (e.g. Egypt). This can result in a forum shopping venture, with the claimant aiming to found jurisdiction where he will gain the higher damages. The UK is a party to the Hague-Visby Rules, which are applied on a mandatory basis on shipment from, but not on discharge within, the UK. 2.11.2 Global Limitation Shipowners may rely on a global limitation based on the vessel’s tonnage. This tonnage-based figure provides the maximum financial liability of the shipowner in respect of all (including cargo and pollution-related) liabilities arising out of one incident. Tonnage limitation may be invoked in one of two ways: Module 3 – Maritime Law 30 (i) by way of a defence to an action brought by a claimant; or (ii) by the shipowner initiating limitation proceedings to set up a limitation fund in a particular jurisdiction. This has the advantage of ensuring that the fund will cap the owner’s liability to all possible claimants and not just to the particular claimant who has commenced proceedings against him. By invoking limitation the owner is not admitting liability, he is merely claiming that if liable, the maximum total liability for all claims arising out of the incident will not exceed the amount of the applicable limitation figure. The two most important international conventions relating to limitation are: (i) The 1957 International Convention Relating to the Limitation of Liability of Owners of Seagoing Ships (the 1957 Convention); and (ii) The 1976 Convention on Limitation of Liability for Maritime Claims (the 1976 London Convention, which also applies to charterers and salvors). From 1 December 1986, the UK has applied the 1976 Convention, now under section 185 Schedule VII of the Merchant Shipping Act 1995. The principal difference between the two conventions is that the 1976 Convention calculates limitation in a differen