Admiralty Law Part 4

Pursuant to the earlier topic of Introduction to Maritime Law in Malaysia, published on 22 February 2021, in the coming series the basis and elements of Admiralty Law will be explored.

Ship Arrest And Jurisdiction On The Merits

1. Outline Legal Framework For Obtaining Jurisdiction On The Merits

   The starting point for approaching the question whether the English courts have jurisdiction on the merits is by identifying whether one of the EU jurisdictional instruments is applicable to the dispute. Currently the starting point is Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) (‘the Recast Regulation’).

   This has replaced Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (‘the Jurisdiction Regulation’), which in turn replaced various pre-existing EU-wide conventions on jurisdiction and enforcement. There are significant differences between the various versions, and this is important when you study the relevant case-law. However, with respect to Norway, Denmark, Switzerland and Iceland the revised 2007 Lugano Convention applies.

   The common law rules will only apply where the aforementioned conventions do not apply to a dispute or where they apply to a dispute but they instruct the court to refer to national law.

2. Disputes under the Recast Regulation

   Note that this chapter covers both Regulation 44/2001 and the currently applicable Recast Regulation. However, although the emphasis is on the Recast Regulation, it is also important to understand how the treatment of arbitration and exclusive jurisdiction clauses has evolved between the two regulations and the way this evolution has taken place.
   The Recast Regulation applies in civil and commercial matters (Art.1). When a dispute concerns a civil and commercial matter is not always easy to assess. In Netherlands State v Rüffer (Case 814/79) a port authority sued a shipowner for wreck removal under a national law. The European Court of Justice (ECJ) held that The concept of ‘civil and commercial matters’ … does not include actions brought by the agent responsible for administering public waterways against the person having liability in law in order to recover the costs incurred in the removal of a wreck carried out by or at the instigation of the administering agent in the exercise of its public authority.
   The fact that the agent responsible for administering public waterways is seeking to recover those costs by means of a claim for redress before the civil courts and not by administrative process cannot be sufficient to bring the matter in dispute within the ambit of the Convention.

   For example, a claim for damages due to negligence in navigation caused on a buoy or a dock will be subject to the Recast Regulation if brought under ordinary negligence. If, however, the claim is based on statutory rights provided exclusively to the harbour authority, like those in the Harbours, Docks and Piers Clauses Act 1847, then it is likely that the dispute will not be subject to the Recast Regulation but to the common law system of establishing jurisdiction.

   There are several exceptions to the scope of the Recast Regulation (Art.1). The major exception for the shipping industry is the one referring to arbitration. Generally, all legal proceedings before, during or after the arbitration (and of course arbitration proceedings themselves) are excluded from the scope of the Regulation. The parties cannot avoid this conclusion even where they deny the existence of the arbitration agreement. The reason for this exception is the protection of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

   Consequently, the dispute resolution rules of the Recast Regulation are not applicable in a claim involving arbitration. For example, in a salvage situation where one party claims English arbitration under a Lloyd’s Open Form salvage contract and the other party denies it and seeks foreign jurisdiction, the English courts have jurisdiction and discretion under common law rules, despite the fact that judicial proceedings have already started elsewhere (The Lake Avery).

   The Recast Regulation has clarified its interaction with arbitration arrangements in two respects:

   1. It expressly states in Art.73(2) that its provisions do not affect the application of the New York Convention on Arbitration 1958.
   2. In its preamble it states that decisions by a court of a member state regarding the validity of an arbitration clause will not be subject to the rules of enforcement and recognition of the Recast Regulation. This in essence deprives such rulings from EU-wide recognition.

3. Outline Of The Jurisdictional Rules Under The Recast Regulation

   A defendant domiciled in a member state must be sued in the courts of that state (Art.4). The use of the word ‘defendant’ indicates that whoever sues first has to go to (in the general case) a foreign court.
   The Recast Regulation defines the domicile for individuals as being determined by the national law (Art.62). In England the defendant is domiciled in the country if they reside there and the nature and circumstances of residence indicate a special connection with the UK (Civil Jurisdiction and Judgments Order 2001 (SI 2001/3929), Sch.1, 9.2). For legal persons and companies the Recast Regulation sets the domicile under Art.63 as where a statutory seat, central administration or principal place of business is established.
   Article 4 in essence sets the fall-back provision. Other sections of the Recast Regulation include provisions which override the default position by prescribing the court that has jurisdiction for a dispute in an exclusive manner or which provide for additional jurisdiction options.

   Section 2 of the Recast Regulation provides for additional jurisdictional options. The options depend on the legal basis of the claim concerned. Two of the legal bases will be considered here.

   Matters relating to contract

   In ‘matters relating to contract’ a defendant domiciled in a member state may be sued in the courts of the place ‘of the obligation in question’ (Art.7(1)).

   The European Court of Justice (ECJ) has given the term ‘matters relating to contract’ an autonomous meaning, and it therefore does not coincide with the relevant English term (see, for example, Shenevai v Kreischer (Case 266/85); Definitely Maybe (Touring) Ltd v Marek Lieberberg Konzertagentur, GmbH (No. 2).

   Where there is more than one obligation in question, the principal obligation will determine the court’s jurisdiction. If, however, there is more than one main obligation performed in different places then the clause provides options for more than one forum – with respect to each separate obligation. If the claimants wish to have all claims considered by the same court they have to go for the courts of the domicile of the defendant (i.e. under Art.4). See Union Transport Group plc v Continental Lines SA [1992] 1 All ER 161; Leathertex Divisione Sintetici SPA (Case C-420/97 5.10.99).

   For contracts of services and for sales of goods the place for the performance of the obligation in question is determined to be, respectively, where the services were provided or should have been provided, and where the delivery of goods has taken place or should have taken place (Art.7(1)).

   Where goods are carried by sea and then by rail through different EU countries and arrive damaged the jurisdictional options are:

   1. the courts of the domicile of the defendant (assuming it is in a member state)
   2. the place of the performance of the contract in question. For understanding how this is done see Reunion Europeenne SA v Spliethoff’s Bevrachtingskantoor (Case C-51/97).

   The parties can agree the place of performance but the agreed place must be related to the actual performance of the contract (see Mainschiffahrts-Genossenschaft eG v Les Gravières Rhénanes (Case C-106/95; EU:C:1997:70, which concerned an oral agreement for chartering an inland waterway vessel. The ECJ decided that the oral agreement that Germany was the place of performance was not valid because the performance was actually in France. The Recast Regulation does provide for exclusive jurisdictional clauses but these need to have specific prerequisites and could not be overridden by an oral agreement of the kind made in this case).

   Matters relating to tort

   The second legal basis which is of relevance to shipping claims concerns claims in tort. The wording under Art.7(3) is ‘in matters relating to tort, delict or quasi-delict’ and the additional option for a claimant is to go to the courts of the place where the harmful event occurred which have jurisdiction in addition to Art.4. All obligations not related to tort fall under this section (see Kalfelis v Schröder, Münchmeyer, Hengst and Co (Case 189/87)).

   Difficulties arise where, for example, financial losses have occurred (Marinari v Lloyds Bank plc (Case C-364/93); Mecklermedia Corporation v DC Congress GmbH; Reunion Europeenne SA v Spliethoff’s Bevrachtingskantoor BV (Case C-51/97); Domicrest Ltd v Swiss Bank Corp).

   The ECJ has held that: Where the place of the happening of the event which may give rise to liability in tort , delict or quasi delict and the place where that event results in damage are not identical , the expression ‘place where the harmful event occurred’ … must be understood as being intended to cover both the place where the damage occurred and the place of the event giving rise to it. (Bier v Mines de Potasse d’Alsace (Case 21/76)).

   The result is that the defendant may be sued, at the option of the plaintiff, either in the courts of the place where the damage occurred or in the courts of the place of the event which gives rise to the damage.

   As explained, the jurisdictional options for contract and tort are additional to Art.(4) jurisdiction. In addition, the Recast Regulation provides special rules, excluding Art.(4) jurisdiction in several occasions. For insurance (excepting marine insurance as well as other large risks) under Section 3, consumer contracts under Section 4 and employment contracts under Section 5 special jurisdictional arrangements are provided.

   Furthermore, Article 24 prescribes exclusive jurisdiction for particular claims (immovable property, constitution and dissolution of companies, public registers, patents, enforcement of judgments) to a specific court linked with that claim.

   Article 26 provides that a court of a member state before whom a defendant enters an appearance shall have jurisdiction. Article 26 will apply even where there is a valid jurisdiction agreement, as entering an appearance will constitute a variation of the agreement (Elefanten Schuh v Jacqmain). However, this rule does not apply where the appearance was entered solely to contest the jurisdiction, or where another court has exclusive jurisdiction under Art.24 (Marc Rich & Co AG v Societa Italiana Impianti PA (The Atlantic Emperor (No. 2)).
   Article 71

   Perhaps one of the two most important articles for shipping claims is Article 71 of the Recast Regulation, which permits the operation of jurisdictional rules contained in other conventions which are in force in the member state. Many maritime conventions have some type of jurisdictional arrangement, and these arrangements remain active.

   Thus, the following conventions remain active:

   1. the provisions of the Arrest Convention 1952 (Art.7), which provide for the establishment of jurisdiction on the merits where the ship is arrested, if under the national law arrest establishes jurisdiction on the merits
   2. the Collision (Civil Jurisdiction) Convention 1952
   3. the Athens Convention 2002
   4. the 1992 Civil Liability Convention 1992 (CLC)
   5. the Bunker Oil Pollution Convention 2001.

   This, however, does not mean that establishing jurisdiction on the merits under one of the specialised conventions makes the Recast Regulation completely inactive. The Recast Regulation remains active in the background and fills in any gaps left by the specialized convention.

   As an example, consider a situation where English jurisdiction has been established through the Arrest Convention 1952 while competing proceedings have started in another European court. Establishing English jurisdiction by the Arrest Convention does not mean that the English courts can then rely on national law to resolve the conflict; they have to use the Recast Regulation provisions and methodology (The Maciej Rataj (Case C-406/92); The Anna H; The Po).

   See also TNT Express Nederland BV v AXA Versicherung (C-533/08) [2011] RTR 11, and for limitation of liability proceedings see Maersk Olie & Gas A/S v Firma M de Haan en W de Boer (C-39/02).

   Article 25

   The second very important article for shipping provision is Article 25. This provides for exclusive jurisdiction where there has been a choice of jurisdiction by the parties. This provision and its significance has changed considerably between the Recast Regulation and its predecessor (Regulation 44/2001). Under the Recast Regulation the requirement that at least one party should be domiciled in a member state has been removed. Thus, the rule will apply irrespective of the domicile of the parties.

   The agreement on jurisdiction must be in writing or evidenced in writing, or in a form reflecting established practice between the parties or in a form used in international trade. This can be problematic for oral agreements which are valid under English law. The supremacy given to jurisdictional clauses under the Recast Regulation over the ‘court first seised’ rule under Art.31(2) applies irrespective of the domicile of the parties.

   Article 25 defines a valid jurisdictional agreement and is independent of any validity test which each national court may have applied (see Trasporti Castelletti Spedizioni Internazionaii SPA v Hugo Trumpy SPA (Case C-l59/97 16.3.99)).

   The present understanding of the wording indicates that the term ‘evidenced in writing’ refers to the need to prove agreement to a jurisdiction clause rather than a signed version of the clause. Indeed, the reference to international trade practices significantly widens the scope of Art.23, and allows for jurisdiction clauses in unsigned or signed by only one party documents to be valid provided that this is customary in the particular branch of international trade (see Mainschiffahrts-Genossenschaft eG (MSG) v Les Gravières Rhénanes Sarl (Case C-106/95); Trasporti Castelletti Spedizioni Internazionaii SPA v Hugo Trumpy SPA (Case C-159/97 16.3.99)).

   Special difficulties are encountered when one has to examine the validity of jurisdiction clauses in documents transferred to third parties (for example a bill of lading). Are these clauses which have been agreed by the original parties still binding on the third parties? Provided that the jurisdictional agreement between the original parties is valid under Art.23 then it is a question of whether the national law provides that the third party succeeds to the rights and obligations of the original party (see Partenreederei Ms Tilly Russ v Haven & Vervoebedriif Nova NV; Corek Maritime v Handelsveem BV (Case C-387/98); The Poseidon).

4. Prioritisation And Conflicts Between Jurisdictional Rules

   Where there is an arrest of a ship in England based on a contractual claim, for example a bill of lading, this establishes English jurisdiction through the operation of Art.71 of the Recast Regulation which permits Art.7.1 of the Arrest Convention 1952 to define jurisdiction. However, if the contract contains a valid jurisdiction clause for another court then Art.25 of the Recast Regulation gives jurisdiction to the agreed court.
   How would, then, the English courts resolve the conflict? If Art.25 establishes exclusive jurisdiction then any jurisdiction established through arrest is in direct conflict. The English courts have held that Art.71 (and therefore the specialised convention) prevails and it does not matter whether there is a jurisdictional agreement. Thus, the English courts have discretion (under common law) to stay the proceedings and at this second stage the existence of the jurisdictional agreement is one of the factors that influences the decision of the court (The Bergen (No. 1); The Bergen (No. 2)).
   The Recast Regulation deals with multiple proceedings. The major objective is to avoid multiple judgments being given. Article 29 of the Recast Regulation provides for a ‘first come first served’ arrangement.
   Where proceedings on the same cause of action, between the same parties, are brought in courts of different EU member states, the court first seised is entitled to examine whether it has jurisdiction. All other courts have to stay their proceedings and dismiss them if the court first seised decides it has jurisdiction on the merits. However, where there is an exclusive jurisdiction clause this rule does not apply and only the selected court has jurisdiction on the merits.

   There are also rules where the actions before different courts are related (Art.30). Actions are ‘related’ where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings – for example, proceedings on the merits and limitation of liability proceedings. See Art.32 to find out when a court is seised.

   Under the Recast Regulation a valid jurisdiction clause is not subject to the ‘first come first served’ arrangement, although under its predecessor the position was different (Eric Gasser GmbH v MISAT Srl (Case C-116/02)). The Recast Regulation effectively overrules Gasser v MISAT.

   If the defendant is not domiciled in an EU member state, Art.6 of the Recast Regulation provides that English national law will apply to determine the jurisdiction of the English courts, except where they concern consumer or employment contracts or exclusive jurisdiction and jurisdiction clauses.

5. Stay of proceedings on the ground of a foreign jurisdiction agreement or arbitration agreement

   The Recast Regulation does not cover claims which are not for civil and commercial matters, or where Art.6 permits the operation of national rules or where there is an arbitration clause in the contract. In all such cases the English rules for establishing jurisdiction will apply.
   At common law jurisdiction is founded as of right for in personam proceedings where a defendant is served with proceedings within the jurisdiction in accordance with Part 6 of the Civil Procedure Rules (this includes in rem jurisdiction).Where the defendant is not within the jurisdiction, the claimant can require the permission of the court in order to serve proceedings on the defendant outside the jurisdiction. Note that for cases falling under the Recast Regulation as well as the other European instruments service outside of the jurisdiction does not need the permission of the court.
   For a common law claim the court will only allow service out of the jurisdiction if one of the conditions described in Practice Direction 6B(3.1) are met. These conditions include cases where a contract:

   1. was made within the jurisdiction, or was made by or through an agent trading or residing within the jurisdiction
   2. is governed by English law
   3. contains a term to the effect that the High Court shall have jurisdiction to determine any claim in respect of the contract.

   The claimant must have a good arguable case that the claim falls under one of the categories in Practice Direction 6B(3.1) (Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran).

   The claimant does not have to prove their version of the case: it suffices to show that there is a serious issue to be tried (Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran).

   The question then is whether the English court chooses to assume this jurisdiction. This depends on whether the English court is the appropriate court for the case (including the forum non conveniens test) (Spiliada Maritime Corp v Cansulex Ltd (The Spiliada)).

   Where a claim has been served within or outside the jurisdiction then the English courts have jurisdiction on the merits. In such a case the defendant can either challenge the formality of the service or rely on the general discretion of the courts to stay proceedings. This latter discretion has been developed judicially since 1974. In general the court has discretion to grant a stay.

   A stay will only be granted on the ground of forum non conveniens where the court is satisfied that there is some other forum with competent jurisdiction where the case may be tried more suitably for the interests of all the parties and the ends of justice (Spiliada Maritime Corp v Cansulex Ltd (The Spiliada)).

   There is a difference in the test applied under Practice Direction 6B (permission to serve outside the jurisdiction) and when applying for staying an action. In the permission for service outside the jurisdiction the claimant attempts to persuade the court to exercise its discretionary power to permit service on the defendant outside the jurisdiction, and the proof rests on the claimant. In the application for a stay that burden of proof rests on the defendant.

   When there is no jurisdiction clause involved the test applied is whether justice will be served better by a stay of the English proceedings. The party that is asking for a stay must show that there is an alternative forum which is more appropriate than the English court, and if the party successfully shows this then the other party still has an option to persuade the court that there is some reason why it should not stay the proceedings (Spiliada Maritime Corp v Cansulex Ltd (The Spiliada)).

   The principles applied are not concerned with the strength of the plaintiff’s claim (see Connelly v RTZ Corporation, where on the facts the existence of legal aid in England was considered by the House of Lords by majority as a reason sufficient not to order a stay of the English proceedings, even though there was clearly a more appropriate forum in Namibia).

   The fact that the foreign jurisdiction has some disadvantages for the claimant is not enough to refuse a stay – they must show that substantial justice cannot be done in the appropriate forum.

   To that extent there are cases where procedural or even substantive law issues have led the court to deny a stay to an otherwise more appropriate forum.

   Thus, in a collision case, where the Limitation Convention 1957 was in force in Singapore and the Limitation Convention 1974 was in force in the UK, the Court of Appeal rejected statements of the High Court that this difference was sufficient to justify a stay. Nevertheless, where the Hague-Visby Rules have the force of law they strike out a foreign jurisdiction clause and therefore the refusal to stay follows suit (The Herceg Novi and The Ming Galaxy; The Morviken).

   The applicable limitation provisions were also not considered of relevance in Al Khattiya v Jag Laadki based on the Herceg Novi and the Western Regent. However, the dismissal of the limitation proceedings by the foreign court was of relevance in that there were no multiple proceedings as a matter of fact.

   The alternative forum must be available. So where the claimant’s liberty or safety are threatened in the alternative forum that is not an available forum and a stay is not ordered (Mohammed v Bank of Kuwait).

   Where proceedings are pending in a foreign court (not a party to the Recast Regulation or Lugano Convention) and proceedings are starting in the English courts, one party will be seeking permission to serve the claim form outside the jurisdiction while the other party will be arguing that even if permission is given the proceedings should be stayed.

   The criteria applied are set out in The Spiliada. The existence of other proceedings is taken into account in considering whether the foreign forum is distinctly more appropriate, but is not conclusive. Only where the foreign proceedings have advanced significantly does this appear to be particularly important. This situation is very different from that under the Recast Regulation where the court first seised is entitled to decide on jurisdiction on the merits.

   Where there is a jurisdiction agreement then the situation is different in at least one aspect: there is a potential breach of contract and the purpose of the claim is to force the parties to fulfil the agreement. For this to be applicable the party that claims the protection of the clause must show that on the correct construction the clause is valid, covers the matter in dispute and obliges the other party to submit to the jurisdiction of the English courts.

   These issues raise difficulties in identifying the proper law of the jurisdiction clause. At common law there are no formal requirements for a jurisdiction agreement. It could be an oral agreement. It is necessary to consider whether the jurisdiction clause is valid. It could be invalid, for example, where it cannot be disentangled from a floating proper law clause which is invalid (The Iran Voydan) or where the jurisdiction clause would have the effect of lessening the carrier’s liability under an international convention which has the force of law, such as the Hague-Visby Rules (The Morviken).

   Where the parties have agreed a choice of jurisdiction the English court will usually give effect to that choice, as the court chosen would be the appropriate forum, unless there are multiple proceedings (lis alibi pendens) between multiple parties (Citi-March Ltd v Neptune Orient Lines Ltd; The MC Pearl; and Bouygues Offshore SA v Caspian Shipping Co).

   Where the bill of lading contains an exclusive foreign jurisdiction clause there is a strong prima facie case for a stay, and the plaintiff can avoid a stay only if it shows strong cause for keeping the proceedings in the English courts, having regard to all the circumstances of the case (Aratra Potato Co Ltd v Egyptian Navigation Co (The El Amria)). Where the foreign jurisdiction clause is valid the English courts will respect it unless it would be unjust to do so.

   In The Benarty the Court of Appeal gave a stay on the basis of an exclusive jurisdiction clause in favour of the court of Djakarta unless the carrier elected otherwise, on the ground that the carrier sought the benefit of lower tonnage limitation in Indonesia and not lower package limitation, a situation expressly permitted by Art.VIII of the Hague-Visby Rules. In that case the defendants had given an undertaking not to rely on the lower package limits applicable in
   Indonesia.

   Time bars may also be relevant in deciding whether a stay will be granted (Baghlaf Al Zafer Factory Co v Pakistan National Shipping Co (No. 2)) but not where there was negligence in missing a time bar (The Pioneer Container).

   Where a claimant has failed to issue protective proceedings in the contractual forum, a stay will not be ordered or service set aside unless strong cause is shown why English jurisdiction should be maintained (Citi-March Ltd v Neptune Orient Lines Ltd and the decision of Rix J in The MC Pearl, a multi-party litigation case).

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This article is written by our Principal Associate, Chakaravarthi