In the high court of justice queen's bench division commercial court



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Neutral Citation Number: [2006] EWHC 1729 (Comm)

Case No: 2003 FOLIO NO. 627

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT
Royal Courts of Justice

Strand, London, WC2A 2LL
Date: 14/07/2006
Before:
MR JUSTICE COLMAN

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Between :





Ullises Shipping Corporation

Claimant




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Fal Shipping Co Ltd
The “Greek Fighter”

Defendant

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Mr Thomas Raphael (instructed by Hill Taylor Dickinson) for the Claimant

Mr Michael Davey (instructed by Hextalls) for the Defendant
Hearing dates: 13 June 2005 - 2 August 2005, 21-22 September 2005, 8 March 2006,

11 May 2006 and 16 June 2006



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Judgment

Mr Justice Colman :

Introduction

  1. Ullises Shipping Corporation (“Owners”) were owners of a tanker called the Greek Fighter which in December 2001 was under time charter to Fal Shipping Company Limited (“Fal”). This is a claim by Owners against Fal for damages for breach of that time charter or alternatively for an indemnity in respect of their losses. The basis of the claim is that in December 2001 the vessel and its cargo were detained by the Coastguard of the United Arab Emirates (“UAE”) at Khorfakkan and, having been under detention, the vessel was then confiscated by the UAE authorities and sold at public auction on 12 March 2003. The detention and subsequent confiscation and sale of the vessel and its cargo were said by the UAE authorities to be justified by the fact that the vessel had on board oil of Iraqi origin which Fal and/or its holding company, Fal Oil Company, were in the course of attempting to smuggle or deal with in contravention of the UN Sanctions then applicable to Iraq. Owners claim US$3,761,180 in respect of the loss of the vessel. They further claim a total of US$2,539,256 for (i) unpaid hire and (ii) in respect of the amount by which payment of hire was reduced under agreements made between Owners and Fal on 17 April 2002 (“the First Hire Agreement”) and in July 2002 (“the Second Hire Agreement”) together with various fees and disbursements of Hill Taylor Dickinson (“HTD”) in Dubai (AED 674,183.30) and Piraeus (US$5,000) and of Gulf Agency Company, Owners’ port agents in UAE (US$28,393.07).

  2. Fal were using the vessel as an oil storage facility at anchor off Khorfakkan. They have consistently denied that they caused any Iraqi oil to be transferred to the vessel in breach of the United Nations prohibitions. During the period of detention of the vessel they pursued a number of claims in the UAE courts designed to bring about the release of the cargo. Owners, although they did not bring court proceedings in UAE, also attempted by negotiation to persuade the UAE authorities to release their vessel. They too challenged the Coastguard’s allegations that Fal had transferred Iraqi oil to the vessel. However, by the time they commenced these proceedings in July 2003, Owners had taken the view on the evidence then available to them that at least part of the cargo transferred into the vessel by Fal was of Iraqi origin and was being unlawfully dealt with by Fal in contravention of the UN embargo and Oil for Food Programme and of UAE law. Whether the oil transferred into the vessel by Fal was indeed of Iraqi origin thus became the central issue in the case.

  3. Owners further advance an alternative case. They submit that, even if Fal never illegally transferred Iraqi oil into this vessel, their other oil movements involving other vessels, both before and after the Coastguard first detained the vessel in December 2001, were such as to demonstrate or at least to arouse a justifiable suspicion on the part of the UAE authorities and the UN Maritime Intervention Force (“MIF”) that Fal was involved in smuggling Iraqi oil. In this connection Owners say that Fal demonstrated an elaborate exercise in deception designed to give the appearance of innocence, including their conduct in commencing the various proceedings in the UAE courts and that they created an entirely fictitious transaction apparently involving their introducing on board the vessel quantities of oil acquired by a company called Palatex which was said to have purchased the oil at public auction in UAE. This transaction further involved the blending of the oil emanating from Palatex with oil which Fal had already transferred to the vessel. Fal does not admit that the Palatex cargo originated in Iraq. It goes no further than adducing evidence that Palatex had acquired that oil at public auction in UAE. It does not challenge the proposition that there would be a high probability that oil sold at public auction would have been confiscated by the UAE authorities because, having originated in Iraq, it was being smuggled in breach of the Oil for Food Programme. It will be necessary to consider later in this judgment whether the Palatex cargo or the underlying transaction ever existed. Owners’ case is that Fal invented the transaction and the cargo transfer to the vessel in order to cover themselves against a finding that part of the cargo on board the vessel originated in Iraq and that it was aware of that origin. It is said that by ascribing the origin to the public auction with Palatex as purchaser and by introducing the blending operation, Fal’s object was to provide itself with cover in case it should be suggestion that it was complicit in storing and then exporting Iraqi oil.

  4. The Palatex cargo forms the basis of only one of a very large number of allegations advanced by Owners that Fal have presented bogus evidence to the MIF and in proceedings in the UAE courts and in these proceedings to cover up its true conduct in dealing in contraband cargo. Indeed, Owners have challenged the authenticity of a total of no less than 57 separate documents disclosed by Fal. These challenges have presented the court with unique problems of trial management and with difficult issues of evidential analysis.

  5. It will be necessary to investigate Owners’ allegations in some detail later in this judgment. This process unavoidably involves matters of considerable complexity.

  6. The contractual basis of Owners’ claim can be outlined as follows.

  7. The time charter which was entered into on 23 January 2001 incorporated the Shelltime 4 form and was for an initial period of 3 months with charterers’ option to extend for one or two additional periods of 4 months. In the event it was extended until 30 January 2002.

  8. The brokers’ fixture message of 18 January 2001 to Fal confirmed that the vessel was to be fixed on

“3 MONTHS TIMECHARTER FOR TRADING ALWAYS AFLOAT WITHIN IWL VIA SAFE PORTS/ANCHORAGES AG/GULK OF OMAN AREA EXCL. IRAN/IRAQ WITH LAWFUL CARGOES OF FUEL OIL/CRUDE OIL”

  1. This was subsequently accepted. The fixture also incorporated the terms, conditions and exceptions of an immediately preceding time charter of the vessel between the same parties dated 16 March 2000. That time charter in turn incorporated the Shelltime 4 form which included the following:

“Owners agree to let and Charterers agree to hire the vessel for a period of ……. commencing from the time and date of delivery of the vessel for the purpose of carrying all lawful merchandise (subject always to Clause 28) including in particular…..”

  1. Owners say that on various occasions during the period from October to December 2001 Fal caused various cargoes of smuggled Iraqi oil to be loaded on board the vessel in breach of UAE law and that the loading of these unlawful cargoes caused the detention and ultimate sale of the vessel.

  2. Clause 28 of Shelltime 4 provided:

“No voyage shall be undertaken, nor any goods or cargoes loaded, that would expose the vessel to capture or seizure by rulers or governments.”

  1. Owners say that, even if the cargoes did not include oil that was contraband in the sense that it was being moved unlawfully in relation to the Oil for Food Programme, it exposed the vessel to seizure because the Palatex cargo was Iraqi origin oil but Fal was unable to demonstrate its legitimacy. In particular, its documents in relation to the previous sale of that oil at auction were forgeries and, even if it had been sold at auction, it was illegal to blend that oil with non-Iraqi oil. Further, Fal’s cargoes were or were about to be transferred into the vessel from vessels called Gulf Prince and Julia II. There were suspicious features of those vessels, their cargoes and the circumstances in which they came alongside Owners’ vessel. Fal did not have a convincing and coherent set of unforged documents capable of establishing the origin of their cargoes and its submissions to the Courts of Khorfakken and Abu Dhabi were therefore suspicious to the Coastguard. Further, some of Fal’s previous cargo operations were such as to arouse the suspicions of the UAE authorities. Accordingly, in view of this background, there were characteristics of the cargo - namely its association with Fal – which presented a real risk of seizure by the UAE authorities. Consequently, even if the cargo on board at the time of seizure was not Iraqi, the fact that previous cargoes of Fal had been Iraqi and that Fal had made false submissions in court caused the loading of the cargoes in this case to present a risk of seizure. As to the burden of proof, since the UAE authorities claimed that it was the presence of Fal’s cargo on board which brought about the seizure, the evidential burden of proving that the arrest of the vessel was in reality unrelated to that cargo rests on Fal which is in possession of knowledge of far more of the relevant facts than Owners.

  2. Clause 13(a) and (b) of Shelltime 4 provided:

“(a) The master (although appointed by Owners) shall be under the orders and direction of Charterers as regards employment of the vessel, agency and other arrangements, and shall sign bills of lading as Charterers or their agents may direct (subject always to Clause 35(a) and 40) without prejudice to this charter. Charterers hereby indemnify Owners against all consequences or liabilities that may arise.

        1. from signing bills of lading in accordance with the directions of Charterers or their agents, to the extent that the terms of such bills of lading fail to conform to the requirements of this charter, or (except as provided in Clause 13(b)) from the master otherwise complying with Charterers’ or their agents’ orders:

        2. from any irregularities in papers supplied by Charterers or their agents.

      1. Notwithstanding the foregoing. Owners shall not be obliged to comply with any orders from Charterers to discharge all or part of the cargo

        1. At any place other than that shown on the bill of lading and/or

        2. Without presentation of an original bill of lading unless they have received from Charterers both written confirmation of such orders and an indemnity in a form acceptable to Owners.”

  1. Further, as Fal accepted, the charter was subject to the usual implied indemnity against the consequences of complying with charterers’ orders unless the loss was caused by some subsequent intervening event or arose from a risk which under the charterparty the Owner had agreed to bear. For that purpose, it was necessary only to show that the chain of causation between the charterers’ orders and seizure was unbroken and “directness” of causation was unnecessary.

  2. Owners submit that the orders to load the cargo caused the seizure and eventual sale of their vessel, whether or not that cargo included unlawfully traded Iraqi oil. Their primary case is that the cargo was wholly or partly Iraqi oil and it consequently attracted suspicion, whether or not it was in truth contraband. Further, part of the cargo which Fal caused to be loaded on the vessel came from two vessels the Gulf Prince and the Julia II, which were suspected of smuggling as shown by their subsequent arrest, confiscation and sale. The instructions by Fal that oil should be transferred into Owners’ vessel from those two vessels and the commencement of that transfer were the immediate reason for the arrest of that vessel by the Coastguard.

  3. Further, the nature of the cargo which Fal ordered the vessel to load was such that its untainted origins could not be effectively proved or documented and Fal was driven to falsifying documents in order to prove its innocence.

  4. Even if the authorities in UAE victimised Fal without any proof of unlawfulness with regard to that cargo, or any other cargo, the clause 13(a) indemnity or the implied indemnity were still engaged, because it was the orders to load the cargo which caused Owners’ loss of the vessel. In this connection, Owners strongly challenge the charterers’ submission that, if the cargo were lawful, the indemnity could not be engaged. They say that, so confined, the indemnity would be in effect no more than an unlawful cargo term. They rely on The Island Archon [1994] 2 Lloyd’s Rep 227 and contend that unjustifiable conduct by the Iraqi authorities would not necessarily break the chain of causation. In particular, if those authorities raised objection in advance to particular cargo being loaded on the vessel and those objections were ignored by the charterers, the indemnity would be engaged. Nor did it make any difference that the Iraqi authorities would not necessarily subject the vessel to false accusations, but only did that sort of thing on a random basis. In both cases it was the order to the vessel to load in a port where there was a substantial risk of intervention by the authorities which caused an indemnifiable loss. In this connection, Owners refute Fal’s reliance on clause 27(a) of the Charterparty. This provided:

“Further, neither the vessel, her master or Owners, nor Charterers shall, unless otherwise in this charter expressly provided, be liable for any loss or damage or delay or failure in performance hereunder arising or resulting from act of God, act of war, seizure under legal process, quarantine restrictions, strikes, lock-outs, riots, restraints of labour, civil commotions or arrest or restraint of princes, rulers or people.”

  1. They argue that under Shelltime 4 it was “otherwise … expressly provided” by clause 13(a) set out above.

  2. In the alternative, Owners argue that the charterparty included a safe port warranty by reason of the express terms in the exchange of fax messages between the parties’ representatives on 20 January 2001 as follows:

Charterers proposed:

“TRADING AREA: TRADING ALWAYS AFLOAT WITHIN IWL VIA SAFE PORTS/ANCHORAGES ARABIAN GULF/CHINA RANGE EXCLUDING IRAQ AS LONG AS SANCTIONS IN FORCE, INCLUDING RED SEA ALWAYS EXCLUDING AUSTRALIA AND NEW ZEALAND.”

which Owners accepted.

Owners argue that, contrary to Fal’s submission, the addendum agreed on 16 February 2001 by which it was provided:

“Vessel only to perform storage operations in the Khorfakkan area.”

Did not displace the express safe port warranty. Further, the express safe port warranty superseded the qualified safe port warranty in clause 4 of Shelltime 4 which provided:



“Charterers shall use due diligence to ensure that the vessel is only employed between and at safe places (which expression when used in this charter shall include ports, berths, wharves, docks, anchorages, submarine lines, alongside vessels or lighters, and other locations including locations at sea) where she can safely lie always afloat. Notwithstanding anything contained in this or any other clause of this charters. Charterers do not warrant the safety of any place to which they order the vessel and shall be under no liability in respect thereof except for loss or damage caused by their failure to exercise due diligence as aforesaid.”

  1. Owners submit that there was a breach of the express safe port warranty because:

    1. the actions of the UAE Coastguard were unlawful under UAE law;

    2. the UAE courts should therefore have been able to order the release of the vessel;

    3. however, the failure of the courts to do so was due to their being subject to the decisions of Sheikh Hamdan, the Minister of Foreign Affairs, the son of Sheikh Zayed, the President of the UAE, and to the decision of Sheikh Hamdan to have the vessel arrested and subsequently, when Fal had commenced proceedings to obtain release of its cargo, to his causing there to be issued a decree – Decree 41/2002 – the purpose of which was to deprive the courts of jurisdiction over allegations of violation of the UN resolutions creating an Iraqi oil embargo and transfer to a ministerial committee under the chairmanship of Sheikh Hamden all such jurisdiction and which decree was reinforced by a letter dated 6 October 2002 from Sheikh Hamdan to the Minister of Justice of the UAE stating that the courts should be instructed not to accept and register any cases regarding importation of smuggled Iraqi oil as that fell outside their jurisdiction.

    4. the element of unsafety was therefore the inability of the judicial system to give adequate relief where a vessel was unlawfully detained by the Executive.

  1. As to this submission, the lack of facilities for obtaining release of a vessel was not an abnormal occurrence but an intrinsic feature of the UAE judicial system. Further, the fact that all ports in UAE were similarly affected could not, contrary to Fal’s submission, involve that Khorfakkan could not be unsafe: there was no general principle that if all the ports in one country were subject to political or legal unsafety no single one of them would be an unsafe port.

  2. It is to be noted that Owners’ unsafe port point operates even if Fal was completely innocent of shipping contraband oil.

  3. Owners further submit that Fal was in breach of its re-delivery obligation under the time charter:

“Redelivery I safe anchorage Khorfakkan free of cargo”

  1. The vessel was never redelivered. She was lost on 12 March 2003 when the UAE Ministry of Finance sold her at auction. The charterparty had not been frustrated, as submitted by Fal, as at the date when the obligation to redeliver first arose, namely 30 January 2002, the vessel being under arrest at Abu Dhabi and could not be redelivered in the same good order and condition and free of arrest as when delivered or at Khorfakkan. The notification received from Fal on 25 November 2002 was not an effective notice of redelivery, as Fal contended, because the vessel was on that date incapable of being redelivered in the same good order and was not at Khorfakkan.

  2. Owners’ claim for unpaid hire is calculated up to the date of sale of the vessel at auction on 12 March 2003, that being the date on which she was lost for the purposes of clause 20 of the charterparty:

“Should the vessel be lost, this charter shall terminate and hire shall cease at noon on the day of her loss.”

  1. Alternatively, on 25 November 2002, Mr Ramzy Zakaria, in-house, legal adviser to Fal, wrote to Owners’ solicitors, Hill Taylor Dickinson, Dubai (“HTD”) asserting that Fal was not liable for hire from the first date of seizure of the vessel – 17 December 2001. Owners do not accept that this message was an informal redelivery of the vessel, but, if it did have that effect, they contend that hire is to be calculated up to the date of that letter – 25 November 2002.

  2. If hire remains due, it runs from 25 April 2002 to 12 March 2003 and totals US$1,296,000, being the difference between that which became payable and was paid under the First Hire Agreement of 17 April 2002 and the Second Hire Agreement of July 2002 and the charter rate of hire.

  3. Owners claim damages in respect of the loss of their vessel, expenses and, if necessary, loss of hire.

  4. As to loss of the vessel, Owners rely on the evidence of their expert, Mr Kingham, who put the market value on 14 March 2002 at US$200 per lightweight ton, delivered at Alang. Making allowance for the cost of commission to the brokers, at about 2 per cent the price payable to owners net of commission would be $3,788,680 and the vessel would have cost $17,500. Accordingly Owners’ net loss would be US$3,761,180. If the vessel would have needed to purchase bunkers to get from the Gulf to Alang, the cost would have to be deducted from the otherwise recoverable damages. However, it appeared probable that the vessel already had sufficient bunkers on board for that voyage.

  5. Fal strongly denies that it was or ever had been in any way concerned with shipping contraband Iraqi oil. The foundation of its case is that there was absolutely no substance in the coastguard’s claim. In particular, it contends that none of the laboratory tests demonstrates the presence of Iraqi oil and that in particular the ITS Caleb Brett survey report had been falsified and did not evidence the carriage of contraband.

  6. The Palatex cargo, even if it did originate in Iraq, was not illegal because it had been sold at auction and was being blended and stored for the purchaser. In any event, it played no part in the coastguard’s decision to detain the vessel. Nor did the presence of the Gulf Prince or The Julia II.

  7. Although the analysis of the cargo on board those vessels was consistent with Iraqi origin, there was no other evidence that the oil was indeed of Iraqi origin.

  8. Fal’s case is that the coastguard simply had no legal basis for detaining the vessel or its cargo.

  9. Fal further submits that Owners failed to mitigate their loss by failing to pursue proceedings in the local courts to obtain the release of the vessel. Owners’ decision-taker was in reality their solicitor, Mr Edward Newitt of Hill Taylor Dickinson, Dubai. They alone could obtain the release of their own vessel, not Fal, yet they took an unduly passive line with the Coastguard and with MOFA and were generally of no assistance to Fal and indeed withheld from them relevant information. Owners were content merely to keep in formal touch with the Coastguard rather than to press MOFA, as they should have done because it would be at MOFA that the relevant decisions as to the fate of the vessel would be taken. Owners could have negotiated a deal with the coastguard in August 2002 whereby the vessel would have been released against payment by Owners of the coastguard expenses of the detention, yet Owners failed to conclude the deal. Owners should have commenced proceedings for the release of the vessel by reliance on the forged ITS Caleb Brett report. Such proceedings would not have been futile as submitted by Owners – on the grounds of Federal Decree 41/2002. That decree was never published and therefore was never brought into effect. Even if it had been published it would have been unconstitutional as an ouster of the jurisdiction of the courts. It had never been sanctioned by the Supreme Council of the UAE. The suggestion advanced by Owners’ expert, on UAE law, Mr Ian Edge, that, in the face of that decree and of the letter from Sheikh Hamdan of 6 October 2002 to the Minister of Justice, any proceedings would have been stayed was wrong, as demonstrated by the continuance of the proceedings in Fal’s action 204/2002 against the coastguard in the Abu Dhabi Federal Court of First Instance in which the court appeared to be continuing to hear evidence after October 2002 and since that decree was published had appointed a committee of experts for the purpose of finding facts with regard to what the analyses showed and with regard to the measurement of the value of the confiscated cargo.
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