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17TH ANNUAL INTERNATIONAL MARITIME LAW ARBITRATION MOOT COMPETITION 2016

King’s College London

Claimant’s Memorandum

Claimant: Zeus Shipping and Trading Company Respondent: Hestia Industries

Team No: 16

Daniel Ask Alex Braune

Cristina Harshman Joshua Thomson

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TABLE OF CONTENTS

LIST OF AUTHORITIES……………………...………….………………………………3

SUMMARY OF THE FACTS……………………………………………………..……..6

PART I - THE ARBITRATION AGREEMENT….....……..…………………...………..8

PART II - LAYTIME AND DEMURRAGE……………………………………………15

PART III – FRUSTRATION…………………………………………………………….20

PART IV - SALVAGE…………………………………………………………………..24

PART V - PRAYER FOR RELIEF……………………………………………………...29

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LIST OF AUTHORITIES

A. LEGISLATION

Admiralty Act 1988 (Cth) Admiralty Rules 1988 Crimes at Sea Act 2000 Navigation Act 2012

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

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

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United Group Rail Services Ltd v Rail Corp New South Wales [2009] NSWCA 177 Francis Travel Mktg Pty Ltd v Virgin Atl Airways Ltd [1996] 39 NSWLR 160 XL Insurance Ltd v Owens Corning [2000] 2 Lloyd’s Rep 500

C. OTHER SOURCES

J Cooke, Voyage Charters (3rd edn Routledge 2007) Kennedy and Rose, Law of Salvage (6th edn Sweet and Maxwell 2002) L Oppenheim, II International Law: A Treatise 202 (H Lauterpacht edn Longman 1952) Redfern and Hunter, International Arbitration (6th edn Oxford University Press 2015)

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SUMMARY OF THE FACTS

On 1 July 2014, Hestia Industries (“Charterers”) made a request to Zeus Shipping and

Trading Company (“Owners”) for a proposal for a voyage charter to transport Charterers’

cargo of HLNG from Hades to Poseidon. On 14 July 2014 Owners sent their original

offer. On 16 July 2014, Charterers accepted the terms of the contract bar one requested

amendment. They stated that they were “only prepared to arbitrate disputes in London

which arise out of the provisions of the charterparty such as a dispute about demurrage”.

Clause 30 of the charterparty, the arbitration agreement, was duly amended with the

phrase “arising under”, and was accepted by charterers on 22 July 2014.

Protests to stop HLNG production were being planned on that 20 July 2014. When the

Vessel arrived at the Port of Hades at 0914 on 3 October 2014, the Master noted

“troubling events” including protests relating to the Charterer and the HLNG cargo. The

loading was completed by 2350 on 6 October 2014.

Following protests and public opposition to the Charterer’s export of HLNG Opposition

Leader of Hades, Jacqueline Simmons, seized control of the Parliament on 7 October

2014 and ordered the Coast Guard to intercept The Athena. The Coast Guard intercepted

the Athena, at some time on 7 October 2014. It is unclear whether the Athena was still

within the Port and the territorial waters of Hades. The Coast Guard, the Master and the

Law Institute of Hades Journal are all uncertain as to whether this was within the Coast

Guard’s jurisdiction. The Athena returned to the Berth at Hades on 8 October 2014.

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During the period that the Athena was detained at the Port of Hades, the Charterers

sought other HLNG carries to undertake the voyage from Hades to Poseidon, but no ships

available. The Athena was released 5 October 2015 upon which it resumed the voyage.

On 5 October 2015 the vessel was released by the Coast Guard and subsequently towed

by Hestug into open water. When the tow lines were released the vessel began to drift

due to a defective propeller. The pilot tugs, which had previously towed the vessel,

reconnected their lines and towed the vessel back to anchorage.

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I. PRELIMINARY ISSUE OF JURISDICTION

1. Clause 30 of the Charterparty contains an arbitration agreement designating

London as the place of arbitration. This is an express choice of venue, and it is

submitted, expresses the “contrary intention” of the parties for the purposes of

Section 2 of the Maritime Law Association of Australia and New Zealand

Arbitration Rules (“The Rules”). Thus, the reference to ‘arbitration’ in Clause 30

is not limited to the geographical locations listed in Section 2(a) or (b) of The

Rules, and can therefore extend to arbitration in London, England. Since both

Parties are signatories of the New York Convention States, international arbitral

theory indicates that Art.V(1)(a),(d), and (e) of the Convention, and Article 1(2)

of the UNCITRAL model law, both support a clear territorial link between the

place of arbitration and the ‘seat’ of arbitration, which in turn determines the lex

arbitri. 1 Further, it is submitted that this territorial link has been similarly

followed in English arbitral jurisprudence. See Enercon GmbH v Enercon (India)

Ltd.2 Therefore, it is submitted that the lex arbitri is the English Arbitration Act

1996 (“the Arbitration Act”), and pursuant to Section 30 of the Arbitration Act

this Tribunal has jurisdiction to rule upon its own jurisdiction under the

competence-competence principle.

                                                                                                               1 Redfern and Hunter, International Arbitration, (6th edn Oxford University Press 2015). 2 Enercon GmbH v Enercon (India) Ltd [2012] EWHC 689.

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A. THE LAW APPLICABLE TO THE ARBITRATION AGREEMENT

2. It is submitted that the law governing the Arbitration clause in the Charterparty,

that is to say, the law governing the construction of Clause 30 itself, is English

Law.

3. Following the doctrine of separability established under S.7 of the Arbitration

Act, it does not necessarily follow that the law governing the main Charterparty

should also govern the arbitration clause. The Court of Appeal held in Sul

America v Enesa Engenharia3 that “in principle the proper law of an arbitration

agreement which itself formed part of a substantive contract might differ from

that of the contract as a whole”4. Although the Court thought it fair to start from

an initial assumption that the parties may intend the substantive law of the

contract to also govern the arbitration agreement, this could be displaced by “any

indication to the contrary”.5

4. The Court of Appeal in Sul America therefore established a three-stage test for

determining the applicable law.

5. The Court held that “The proper law of the arbitration agreement was to be

determined in accordance with the established common law rules for ascertaining

the proper law of any contract. Those required the court to recognise and give

effect to the parties’ choice of proper law, express or implied, failing which it was

necessary to identify the system of law with which the contract had the closest

and most real connection”. 6

                                                                                                               3 Sul America Cia Nacional De Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638. 4 Ibid, 672. 5 Ibid, 679. 6 Ibid, 671.

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6. It is submitted that the Parties cannot satisfy the first stage, which requires an

express choice of law clause governing the arbitration agreement itself. This is to

be distinguished from a choice of law clause governing the substantive contract.

The distinction is made clear in Sul America as the express choice of Brazilian

law for the policy did not constitute an automatic express choice of law for the

arbitration agreement, but rather, pointed towards a possible implied choice.7

7. It is submitted that applying the second stage of the test there is an implied choice

that English law should govern the arbitration agreement, on the basis that the

choice of England as the seat of arbitration and importing its law as the lex arbitri,

acts to displace the initial assumption that the substantive law of the contract was

intended to apply.8

8. Indeed, the Court of Appeal held that the place chosen for the arbitration

proceedings, and the consequential lex arbitri, was an “important factor” which

(where London was the ‘seat’) “tended to suggest that the parties intended English

law to govern all aspects of the arbitration agreement, including matters touching

on the formal validity of the agreement and the jurisdiction of the arbitrators”.

9. It is submitted that Sul America confirms recent English jurisprudence on the

matter, which has shown a strong trend towards the chosen lex arbitri being

considered an implied choice of law governing the arbitration agreement, and/or

being the law having the closest and most real connection.

                                                                                                               7 Ibid.,672. 8 Ibid, 1(d).

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10. Two relatively recent decisions are offered in support of the above proposition:

XL Insurance Ltd v Owens Corning9; and C v D10.

11. Both cases involved contracts providing for London arbitration, but with New

York choice of law clauses governing the substantive contract, which did not

expressly extend to the arbitration agreement.

12. Toulson J held in XL Insurance, as summarized in Sul America, that “by

providing for arbitration in London under the provisions of the Arbitration Act

1996 the parties had chosen English law to govern matters falling within the

scope of the Act, including the formal validity of the arbitration agreement and

the jurisdiction of the arbitrators, and by doing so had by implication chosen

English law as the proper law of the arbitration agreement”.11 Emphasis added.

13. Similarly, in consideration of the third stage, the Court of Appeal cited the speech

of Longmore LJ in C v D who said, with reference to the observations made by

Lord Mustill in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd.12

and Black Clawson International13 that: “it would be rare for the law of the

(seperable) arbitration agreement to be different from the law of the seat of the

arbitration. The reason is that an agreement to arbitrate will normally have a

closer and more real connection with the place where the parties have chosen to

arbitrate than with the place of the law of the underlying contract in cases where

                                                                                                               9 XL Insurance Ltd v Owens Corning [2000] 2 Lloyd’s Rep 500. 10 C v D [2007] EWCA Civ 1282. 11 Ibid (no 3), [19]. 12 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd. (HL) [1993] 1 Lloyd’s Rep 291. 13 Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg [1981] 2 Lloyd’s Rep 446.

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the parties have deliberately chosen to arbitrate in one place disputes which have

arisen under a contract governed by the law of another place”.14 Emphasis added.

14. The Court concluded in Sul America that “[t]he arbitration clause had its closest

and most real connection with English law, as the law of the place where the

arbitration was to be held and which would exercise the supporting and

supervisory jurisdiction necessary to ensure that the procedure was effective”.15

B. THE TRIBUNAL’S JURISDICTION TO DECIDE THE FRUSTRATION

CLAIM

15. It is submitted that the scope of the arbitration agreement, on its proper

construction, includes claims for frustration under English law.

16. Lord Hoffmann made clear in the House of Lords decision Fiona Trust v

Privalov16 that “the construction of an arbitration clause should start from the

assumption that the parties, as rational business men, are likely to have intended

any dispute arising out if the relationship into which they have entered or

purported to enter to be decided by the same tribunal. The clause should be

construed in accordance with this presumption unless the language makes it clear

that certain questions were intended to be excluded from the arbitrator’s

jurisdiction”.

17. The House of Lords concluded that whatever fine distinctions had been judicially

drawn in the past between phrases such as “arising out of” and “arising under”,

                                                                                                               14 Ibid (No 3), [21]. 15 Ibid (No 3), [32]. 16 Fiona Trust & Holdings Corporation v Privalov [2008] 1 Lloyd’s Rep 254.

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such distinctions reflected no credit upon English law, and that “the time has

come to draw a line under the authorities to date and make a fresh start”.17

18. Thus, the House of Lords held that the two phrases were to be deemed “mutually

interchangeable”, and their scope would be construed broadly in line with the

modern philosophy of arbitration acting as a ‘one-stop-shop’ to support rational

business expectations. This approach has been followed in subsequent cases18,

and it is submitted is also in line with current English jurisprudence to construe

terms in accordance with “business common sense” and “commercial sense”.19

19. Therefore, it is submitted that since the Charterers at no stage objected to the

difference in wording between their email requesting “arising out of”, and the

final amended Charterparty stating “arising under”, their intention is similar to

that of the draftsman of the Shelltime 4 standard form, as analysed by the House

of Lord in Fiona Trust, and they may be deemed to have intended the two phrases

to be mutually interchangeable.

20. Further, it is submitted that any clear language used to define the scope of the

arbitration clause must be found within the contract, or in a document

incorporated by the contract. Extrinsic evidence, in the form of pre-contractual

negotiations, are excluded from the judicial analysis of the construction of

contractual terms. This was confirmed by the House of Lords in Chartbrook Ltd v

                                                                                                               17 Ibid, [12-13]. 18 Skype Technologies SA v Joltid Ltd [2009] EWHC 2783 (Ch); Starlight Shipping Co v Allianz Marine & Aviation Versicherungs AG [2011] EWHC 3381 (Comm). 19 Rainy Sky SA v Kookmin Bank [2011] UKSC 50; Napier Park Europe Credit Opportunities Fund Ltd v Harbourmaster Pro-Rata CLO BV [2014] EWCA Civ 984.

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Persimmon Homes Ltd20, where Lord Hoffmann supported its continued exclusion

on pragmatic grounds.

21. In conclusion, following Fiona Trust, it is submitted that there is now a strong

business assumption that no distinction is to be drawn between phrases such as

‘arising out of’ and ‘arising under’, and that claims for frustration will fall within

the remit of the phrase ‘arising under’, as established in modern commercial

jurisprudence, on a pure language analysis.21

22. Finally, it is submitted that in any event any claim for demurrage would not be

barred from the scope of the arbitration agreement simply on the basis that a

defence which may be raised is itself outside the scope of the arbitration

agreement.

23. In the alternative, if the tribunal finds the correct law applicable to the arbitration

agreement to be the law of Western Australia, it is submitted that following recent

Australian jurisprudence claims for frustration would fall within the scope of the

arbitration clause.

24. As highlighted by the words of a recent Australian Federal Court decision,

arbitration agreements “are governed by the ordinary rules of contract

interpretation” and “a liberal approach to their meaning should be given, without

any policy attempting to restrict their scope…the court will assume that the

                                                                                                               20 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38. 21 Arnold v Britton and Others [2015] UKSC 36.

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parties did not intend the inconvenience of having possible disputes from their

transaction being heard in two places”.22

II. LAYTIME AND DEMURRAGE

C. THE CHARTERERS’ CARGO CONSTITUTED DANGEROUS GOODS

25. The shipowner submits that the shipping of HLNG amounted to a dangerous good

and therefore may claim damages for detention.

26. In any contract for carriage, it is an implied obligation of the shipper that he will

not ship dangerous goods without communicating to the owner facts indicating

that there is such a risk 23.

27. A cargo falls within the scope of the implied term relating to dangerous goods not

only if it is physically hazardous, but also if it is unlawful cargo and likely to

subject the ship to delay24.

a. Here, the presidential decree instructing the Coast Guard to intercept The

Athena caused unusual delay in shipping the goods and directly related to

the carriage of the specific cargo.25

b. It is reasonable to infer that Hestia knew of the risk of legal obstacles. At

the time of contracting, The Hades Advocate published an article detailing

the significant protests around the commissioning of the Charterers HLNG

                                                                                                               22 Walter Rau Neusser Oel und Fett AG v Cross Pac Trading Ltd [2006] Aust Fed Ct; United Group Rail Services Ltd v Rail Corp. New South Wales [2009] NSWCA 177; Francis Travel Mktg Pty Ltd v Virgin Atl. Airways Ltd [1996] 39 NSWLR 160. 23Mitchell Cotts v Steel (The Kaijo Maru ) [1916] 2 K.B 610 at page 610 per Lord Atkin. 24 Ibid. 25 Page 53.

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plant, indicating that protesters would not rest until gas exports from

Hades were stopped26. Furthermore, the fact that the protesters “did not

want to give too much away”27 when discussing their plans to stop HLNG

production and that the Hades economy had experienced a “traumatic

twelve months”28–which invariably affects the political stability of any

nation- emphasizes the possibility of political action being taken,

including the risk of a military coup resulting in a presidential decree to

stop HLNG production. This does take place (page 55). Consequently,

Hestia owed a duty to communicate this risk to the shipwoner. The fact

that Hestia did not communicate this to the shipowner means that the

charterer breached its obligation in relation to the safety of the goods

c. Moreover, the existence of the obstacles was not known by the shipowner,

and there is no reason they ought to have known. Although the shipowner

was aware of the “protests”29, these did not amount to the legal obstacles

that made the goods unlawful and dangerous. Rather it was the risk of a

presidential decree that posed a danger of delay. The shipowner, a

company based in Poseidon30, could not reasonably be expected to have

had such detailed and intimate knowledge of current affairs of Hades.

D. THE VESSEL NEVER LEFT THE PORT OF HADES

                                                                                                               26 Page 26. 27 Page 26. 28 Page 26. 29 Page 53. 30 Page 2.

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28. The claimant submits that the Athena never left the Port of Hades and therefore

laytime continued to run.

29. Little case law discusses the test for a “departed ship”. However, it is possible to

analogize from the test for an arrived ship.

30. In port charters a vessel reaches its destination when: 1) It arrives within the port

and; 2) It is at the immediate and effective disposition of the charterer.31

a. In the case of a “departed ship”, only the first limb of the test should be

considered: the ship must no longer be within the port. It is unnecessary to

consider the second limb of the test because the moment that the charterers

finish loading their cargo, there is no more that they can do. It is irrelevant

to decide whether the ship is at their immediate and effective disposition,

since there is no need for it to be.

31. A port may extend beyond the place of loading and the place of unloading.32 This

means that a ship may be within the port and not yet be in the loading place.

32. The test that determines how far the port extends is the following: when the port

authorities are exercising administrative control over ships and shippers are

submitting to this control.33. “Administrative control” means “powers which

regulate the movement and conduct of the ship.”34

a. It is clear that by intercepting the Athena and directing the master35 , the

Coast Guard was exercising de facto administrative control.

                                                                                                               31 El Oldendorff & Co GmbH v Tradax Export SA [1974] AC 479 at 535 per Lord Reid, HL. 32 Sailing Ship Garston Co v Hickie (1885) 15 QBD 580 page 587 per Brett MR. 33 Ibid. 34 Ibid (No 16), p 535. 35 Page 57.

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b. Section 6 (1) (a) of the Crimes at Sea 2000 imposes the substantive

criminal law of Australia on Australian ships in international waters. Since

a presidential decree may amount to a legislative act, refusing to comply

with it may amount to a criminal offence. The Coast Guard accordingly

has the authority to apply its jurisdiction on board ships registered in

Australia.

c. The Athena is a Hades flagged vessel36, which allows the Hades Coast

Guard to exercise jurisdiction and apply administrative control over the

vessel and direct it to return37.

d. Moreover, the Navigation Act 2012 gives power to the Australian

Maritime Safety Authority (AMSA) to detain a ship. AMSA may detain a

vessel and may also bring it to a port, if they reasonably suspect that the

vessel has been, is or will be involved in a contravention, either in or

outside Australia, of the Navigation Act 2012.38 Consequently, by having

the power to detain a ship and exercising that power, the Coast Guard was

exercising administrative control of the Athena.

E. CLAUSE 9(e) OF THE CHARTERPARTY DOES NOT APPLY

33. Clause 9 (e) provides that laytime will not count and demurrage will not accrue in

the event of delay or hindrance by reason of arrests or war.

                                                                                                               36 Page 3. 37 Page 55. 38 Section 248 (1) (b) Navigation Act 2012.

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34. The interception of the Athena was not an arrest. If it were, it would be a claim

for the carriage of goods on the ship39

a. The Admiralty Rules 1988 set out the requirements for an arrest.40

b. Clearly none of the Admiralty Rules 1988 were complied with and

therefore the interception of the Athena cannot amount to an arrest.

35. Legally, a war amounts to “a contention between two or more States through their

armed forces, for the purpose of overpowering each other and imposing such

conditions of peace as the victor pleases”41

a. The interception of the Athena does not amount to war. Clearly, there is

no contention between two or more States through their armed forces. At

its highest, the coup in Hades involved a struggle between two domestic

interests.

b. Even if that can be characterised as a coup, the detention of the Athena

occurred after the cessation of the coup and the installation of a new

President42.

36. Furthermore, the interception by the Hades government amounts to a restraint of

princes, which is not provided for in Clause 9 (e).

37. A restraint of princes refers to the “forcible interference of a State or of the

government of a country taking possession of the goods forti and covers persons

                                                                                                               39 Admiralty Act 1988 (Cth) section 4(3)(d)(vi). 40 These include: a writ in rem (rule 19), an application for an arrest warrant (sub-rule 39(1)), an affidavit in support (39(3)) and a draft arrest warrant (sub-rule 40(2)). 41 L Oppenheim, II International Law: A Treatise 202 (H Lauterpacht edn Longman 1952), p 202. 42 Page 56.

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acting even with quasi-governmental authority.43 A restraint of princes is an order

backed by the powers of the executive, preventing contractual performance.44

38. A restraint of princes must be expressly and clearly worded to be held as an

exception to an interruption to laytime.45

a. The presidential decree was clearly an exercise of executive power that

prevented performance of the shipowner’s contractual obligations, and

therefore a restraint of princes46 Since such a cause was not expressly

included in Clause 9 (e) it therefore doesn’t apply as an interruption to

laytime exception.

III. FRUSTRATION

A. THE CHARTERPARTY WAS NOT FRUSTRATED BY THE DELAY

39. The Charterparty was not frustrated by delay because the commercial purpose of

the venture was not frustrated.

40. The test as to whether the delay is such to frustrate the contract is to determine

whether it frustrates the commercial purpose of the venture.47 Alternatively, it

must make the venture impossible to perform48 or render the venture “radically

different” from what was contracted for.49 The effect of frustration is to relieve

                                                                                                               43 Finlay v Liverpool and Great Western Steamship Co. (1870) 23 LT 251 per Martin B. 44 Julian Cooke, Voyage Charters (3rd edn Routledge 2007), [85.307-317]. 45 Ellis Shipping Corpn v Voest Alpine Intertrading (The Lefthero) [1992] 2 Lloyd's Rep 109. 46 Page 55. 47 Universal Cargo Carriers v. Citati [1957] 2 QB 401 at page 983 per Lord Devlin. 48 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at page 52 per Lord Atkin. 49 Codelfa Construction v State Rail Authority of New South Wales [1982] HCA 24.per Lord Aickin.

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the parties of any further obligations under the contract after the frustrating

event.50

a. Hestia chartered the Athena “to facilitate commissioning [of HLNG]

[Hestia] require an LNG tanker capable of transporting our unique LNG

from Hades to Poseidon”51. It is difficult to say with certainty that the

commercial purpose of the venture became radically different or

impossible to carry out, as it was still possible for the charterer as a “new”

producer of HLNG52 to start a new business.

b. There is no evidence whatsoever of a decrease in the value of the cargo

(HLNG), nor a third party relying on the shipment of LNG. The sole

purpose of the contract was to transport HLNG from Hades to Poseidon.

This demonstrates that the delay did not render Hestia’s venture radically

different. Once the Athena was released by the Coast Guard on 5th

October 201553, commissioning HLNG was still possible.

41. Moreover, during the disputed period, the Athena was the only ship available to

undertake this voyage in the specific circumstances54. Consequently, on 30th

April 2015 when the charterer claimed the Charterparty was frustrated55, the

Athena remained the sole ship able to carry out the commercial purpose of the

venture. Consequently, declaring the contract frustrated does not change the

                                                                                                               50 Hirsch v The Zinc Corp Ltd (1917) 24 CLR 34 at page 61 Lord Issacs. 51 Page 2. 52 Page 2. 53 Page 68. 54 Page 66. 55 Page 65.

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charter’s position, other than in relation to increased costs, which is not a

frustrating event.56

42. The doctrine of frustration seeks to vindicate justice.57. “The object of

[frustration] was to give effect to the demands of justice, to achieve a just and

reasonable result, to do what is reasonable and fair, as an expedient to escape

from injustice where such would result from enforcement of a contract in its

literal terms after a significant change in circumstance”.58

43. Under this Charterparty, arbitrators may determine any questions by reference to

considerations of general justice and fairness59. The issue of frustration should

also be considered in light of general justice and fairness.

44. The reason that the Athena was held in the port of Hades because of President

Simmons’ opposition to HLNG production60 and the Athena was stranded in

Hades for almost a year 61 , meaning that the shipowner was unable to charter its

ship for over a year. Because the length of the charter party was supposed to be

approximately one month62 it is clear that the shipowner may have suffered

significant additional repercussions by the inability to re-charter the Athena for

over a year. On the other hand, unlike the shipowner, the charterer, as a new

industry63 who has yet to start exporting HLNG, does not have a business to

maintain. Furthermore, although the only reason the boat was retained in Hades

                                                                                                               56 National Carriers Limited v Panalpina (Northern) Ltd [1981] AC 675. 57 Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 at 510 per Lord Simon. 58 The Super Servant Two [1990] 1 Lloyd's Rep 1 at 8 per Lord Bingham. 59 Page 21. 60 Page 55. 61 Page 67. 62 Page 2. 63 Page 2.

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was because the cargo on board64 , it was the shipowner’s vessel that was unable

to leave the port, causing serious damage for the ship-owner because of a cargo

they had no particular interest in.

45. Consequently, the interests of justice favour the claimant. “The purpose of the

doctrine [of frustration] is to do justice […] its application cannot be divorced

from considerations of justice.”65 Finding the contract frustrated would mean that

not only would the shipowener have to manage the financial loss caused by the

impossibility to re-charter the Athena for over a year, but also pay for demurrage

costs which were caused by the charterer’s cargo. This, it is submitted, would be

incompatible with any considerations of justice and fairness

46. In any event, the restraint of princes placed by the Hades government would

amount to a suspension event, not a frustrating event.

47. This was a restraint of princes.

a. The parties must submit to whatever inconvenience may arise therefrom,

unless they have provided against it by the terms of their contract.66

b. However, where the cargo is perishable, or its market value diminished

because of the delay, it would be “monstruous” to say that the contract is

merely suspended since it would make the contract “ruinous”.67

c. The presidential decree was a restraint of princes.68 There is no indication

that the cargo is perishable, nor that a decrease in market value has

                                                                                                               64 Page 55. 65 Edwinton Commercial Corp and another v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The “Sea Angel”) [2007] EWCA Civ 547, [112] per Rix LJ. 66 Hadley v Clarke 101 ER 1377 at 1381 per Lord Kenyon. 67 Geipel v Smith (1872) LR 7 QB. 404 at 410 per Lord Cockburn. 68 Page 55.

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occurred. More importantly, on the facts, suspension does not seem to

make the contract ruinous since there is no indication that there is a pre-

existing market for HLNG.69

d. Although the parties must submit to whatever inconvenience may arise

therefrom, unless they have provided against it by the terms of their

contract70 “the loss must fall on someone, and one would think business

people who made the contract would regard it as reasonable that the man

whose fault it is should pay for it”.71

e. This case is a clear instance where the sole reason for the detention of the

ship was the HLNG on board72 making the fault plainly more attributable

to the charterer than the shipowner. Thus, although the general effect of

suspension would mean that the demurrage claim would be suspended, the

shipowner submits that, due to the special and specific circumstances of

this case, where fault should be attributed to the charterer, and in

considerations of justice and fairness, the demurrage claims should not be

suspended.

IV. DEFENCE TO SALVAGE COUNTERCLAIM

48. FIRST DEFENCE:

                                                                                                               69 Page 2. 70 Hadley v Clarke 8 TR 259, p 1379. 71 Union of India v Compania Naviera Aeolus S.A. (The Spalmatori) [1932] 2 Lloyd's Rep 179 per Lord Reid. 72 Page 55.

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49. It is submitted that the Respondents, Hestia Industries, are not entitled to claim

salvage for services rendered by their own subsidiary, Hestug, if Hestug owned

the tugs which performed the salvage service.

50. Rose writes “It is suggested, therefore, that the cases and the principle of success -

which confines claims to services which have made a real contribution to salvage

which in fact proves to be successful - justify the following threefold description,

rather than definition, of persons entitled to claim salvage. A person providing a

service is entitled to claim a salvage reward if he was at the time when the salvage

service was provided: 1) personally engaged in a salvage service; or 2) entitled to

possession of a vessel used to provide salvage service; or 3) the owner or the

person entitled to possession of other property which was used to provide a

salvage service."73

51. Firstly, in any event, it is submitted that the Respondents cannot satisfy (1) above,

as Hestug performed the salvage services. Secondly, in the event that Hestug own

the tugs, the Respondents cannot satisfy (2) or (3).

52. In the event that the tugs are owned by the Respondents, but operated by Hestug,

then the Respondents may be able to satisfy element (3) above.

53. However, it is submitted that following the dictum of Dr Lushington in The

Charlotte, the Respondents have not shown that they were in anyway ‘personally

engaged’ in the salvage operation, and so may only be eligible for ‘equitable

compensation’ qua tug owners. It is submitted that the magnitude of this

compensation should be zero, or an absolute minimum value, on the basis that

                                                                                                               73 Kennedy & Rose, Law of Salvage, (6th edn Sweet and Maxwell 2002), [441].

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although Lord Stowell in The Vine74 acknowledged that delay or loss could justify

the award of ‘equitable compensation’, the Respondents cannot show that they

suffered any such loss. Indeed, the tugs, in any event, would very likely have had

to return to port and cannot be said to have been inconvenienced in any significant

respect warranting compensation. Sir Christopher Robinson stated in The Jane:

“the general principle of law is, that the claim of [ship] owners generally is very

slight, unless, from the circumstances of the case, their property becomes exposed

to danger, or they incur some real loss or inconvenience”.75

54. SECOND DEFENCE:

55. It is submitted that any counter claim for salvage reward by the Charterers

constitutes a wholly separate claim, which bears no relationship whatever to the

Charterparty, and is consequently outside the scope of the arbitration agreement.

If the Respondents are to succeed on their construction of the arbitration

agreement, it is submitted a corollary is that the Tribunal also has no jurisdiction

to hear its salvage claim.

56. Indeed, it is submitted that if the counterclaim for salvage is a claim ‘arising

under’ the charterparty, then, a fortiori, the claim is a result of there being an

underlying contractual relationship, which will act to immediately bar any claim

for salvage reward by the Respondents for falling to act as ‘volunteers’.

                                                                                                               74 The Vine [1825] 2 Hagg 1 at 2. 75 The Jane [1831] 2 Hagg 338 at 343.

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57. THIRD DEFENCE:

58. In the alternative, if the counterclaim falls within the scope of the arbitration

agreement, it is submitted that the Claimants do not owe salvage reward to the

Respondent tug owners.

59. Professor Rose notes in ‘Law of Salvage’76 the “equitable bases” as an underlying

principle for the render of salvage reward. He writes: “The jurisdiction of the

Admiralty Court has consistently been described throughout history as being of a

peculiarly equitable character, seeking to do what is fair and just both to salvors

and to the owners of property which is saved”.77

60. Dr Lushington made clear in The Wilhelmine78 and The Charlotte79, that the

foundation for a salvage claim is the exposure to danger, and/or risk of loss, of the

salved property. Rose writes, “Danger of loss or damage to the subject matter of

the service is the very foundation of a claim to salvage”80.

61. However, a further requirement is that the salvor acted as a volunteer, and that

“[t]he degree of danger will affect the salvor’s ability to claim where he falls

outside the traditional classification of volunteer, particularly where he is

habitually engaged in the performance of services in order to avoid danger to

shipping”.81

62. It is submitted that following the Court of Appeal’s analysis in Akerblom v Price,

Potter, Walker & Co82 the Respondents do not qualify as volunteers, since their

                                                                                                               76 Ibid (No 74). 77 The Teh Hu [1970] P 106 at 124 per Lord Denning MR. 78 The Wilhelmine [1842] 1 N o C 376. 79 The Charlotte (1848) 3 Wm Rob 68 at 71. 80 Ibid (No 73). 81 Ibid (No 9). 82 Akerblom v Price, Potter, Walker & Co [1881] 7 QBD 129.

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act of towing the stricken vessel constituted an activity which was materially

identical to their ordinary duties of towage as pilot tugs.

63. The Court stated “When a pilot has assisted in navigating a vessel from a

dangerous situation to a safe anchorage, the test, whether he is entitled to be

remunerated for salvage services, is not, on the one hand, whether the vessel was

at the time of succour in distress, or, on the other hand, whether she was then

damaged; but the test is whether the risk attending the services to the vessel was

such, that the pilot could not be reasonably expected to perform them for the

ordinary pilot's fees, or even for extraordinary pilotage reward”.83

64. Thus, as summarized by Rose “in order to entitle a pilot to salvage reward he

must not only show that the ship was in some sense in distress, but that she was in

such distress as to be in danger of being lost and such as to call upon him to

provide such a service as to make it unfair and unjust that he should be paid

otherwise than upon the terms of salvage reward”.84 It is submitted that the vessel

was not in “such” distress as to place the pilot tugs at a risk which was outside the

usual duties that they could reasonably be expected to perform for the ordinary

pilot fee, and that, therefore, it would be inequitable to render salvage reward

especially given the tugs were in such close proximity to the vessel and only

required to reconnect their tow lines. It is submitted that the Respondents are

unable to show that by reconnecting the tow lines they were called upon to run

“such unusual danger, or incur such unusual responsibility, or exercise such

                                                                                                               83 Ibid, [129]. 84 Ibid (No 73).

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unusual skill, or perform such an unusual kind of service, as to make it unfair and

unjust that he should be paid otherwise than upon the terms of salvage reward”.85

65. FOURTH DEFENCE:

66. In the alternative, it is submitted that any reward due should be set at a minimum

level.

67. The International Salvage Convention 1989, Article 13.1 sets out specific “criteria

for fixing the award”. Further, in the classification of material circumstances to

be taken into account in assessing salvage reward L.J. Lindley stated in The City

of Chester86 that “the court has for its guidance a long course of judicial decision

to assist in coming to a proper conclusion in each particular case”.87

68. It is submitted that on an analysis of the specific criteria a number of factors act to

minimise the magnitude of the reward.

69. These include:

(a) minimal degree of danger to human life regarding the vessel’s crew;

(b) minimal degree of danger or risk to the salvors or their equipment,;

(c) minimal time occupied and/or work done in performance of salvage;

(d) minimal expense incurred by salvors;

(e) minimal loss incurred by salvors; and

(f) minimal effort required to prevent damage to the environment.

70. Finally, it is submitted that it would be inequitable for the value of the salved

cargo to play any part in the calculation of salvage remuneration since to do so

                                                                                                               85 Ibid. 86 The City of Chester [1884] 9 PD 182. 87 Ibid, [202].

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would afford the Respondents, as owners of the cargo, a double recovery. This

effective ‘windfall’ would be wholly inequitable.

V. PRAYER FOR RELIEF

For the reasons set out above, the Respondent requests the Tribunal to:

DECLARE that the tribunal has jurisdiction to hear the demurrage claim.

AWARD the Owners US $17.9 million + interest.

DECLARE that the tribunal does not have jurisdiction to hear salvage claim

DECLARE that the Owners do not owe salvage reward.

DECLARE that the Owners owe absolute minimum value only.