Mediation and Cargo Claims

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Mediation and Cargo Claims
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Different to most mediations

• P I Clubs act for shipowners
• What are they?
• Non-profit corporations whose members are
  shipowners and charterers
• Clubs governing body represents club
  members/shipowners
• Principle of mutuality
• Club members are both insurers and insureds
• Risks covered mutual to all club members
• Cover is contingent on compliance with clubs
  rules

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Marine Cargo Insurers

• Cargo claimants are generally insured against
  loss or damage to the cargo during transit
• Insurers will instruct marine cargo surveyors to
  prepare a report regarding, amongst other things,
  the cause of the loss
• Should insurers pay out the claim they will
  simultaneously take over the insureds legal
  rights of recovery by way of subrogation
• Insurers will then attempt to recover the loss or
  damage from the responsible party
• Legal proceedings are, however, instituted by the
  cargo claimant/insured
• Costs of the litigation are ordinarily borne by
  the insurer

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What flows from this?

• Shipowners, Charterers and cargo claimants
  commercial interest in the action is often
  relatively small (extending only to any
  applicable deductible or excess)
• Having commercially orientated negotiating
  parties present at the mediation conference (eg.
  insurers and companies)
• Negotiating parties are invariably seasoned
  litigators who have a good understanding of the
  risks and costs involved in litigation

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Pre-mediation conferences

• Conferences can be conducted by way of a joint
  session or separately with each party
• More cost effective to hold by way of a telephone
  conference
• Assists in
• ensuring that all necessary documentation is
  exchanged amongst parties prior to the mediation
  conference
• clarifying whether all parties have been joined
  to the action
• obtaining a sense of what lies at the heart of
  the claim and what the respective parties
  expectations are in relation to the claim

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The potential for delay and the importance of
active case management

• Be aware a potential problem associated with
  matters in the mediation track is that they can
  become bogged down
• The fact that the parties, the ship, the cargo
  and the documents may often be in diverse
  geographic locations may result in delays
• Greater vigilance is required and any delays
  should be brought to the docket Judges attention
  

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High Litigation Costs

• Quantum may be relatively small, however,
  litigation costs remain high
• Reasons
• ? several parties involved
• ? factually and legally complex
• ? time consuming and expensive to
  obtain evidence
• In depth reality testing in relation to fees
  incurred and costs expended (past and future)
  should be undertaken

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Factors relevant to mediating cargo claims

• Sound understanding of the modified Hague-Visby
  Rules, in particular, Articles III and IV is
  required
• Gaining an overall perspective of the matter
• ? consider all documentation carefully
• ? be aware of issues like charter parties and
  bills of lading being in use at the same
  time, identity of the carrier clauses
  and who has title to sue
• Technical nature of the industry consider
  obtaining expert reports to avoid speculation and
  position taking by unqualified negotiating
  parties

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Limitation of Liability

• Schedule 1A Article 4 (5)
• (a) Unless the nature and value of such goods
  have been declared by the shipper before shipment
  and inserted in the sea carriage document,
  neither the carrier nor the ship shall in any
  event be or become liable for any loss or damage
  to or in connection with the goods in an amount
  exceeding 666.67 units of account per package or
  unit or 2 units of account per kilogram of gross
  weight of the goods lost or damaged, whichever is
  the higher. (emphasis added)
• (b) The total amount recoverable shall be
  calculated by reference to the value of such
  goods at the place and time at which the goods
  are discharged from the ship in accordance with
  the contract or should have been discharged

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The Modified Rules and Limitation of Liability
contd

• (c) Where a container, pallet or similar article
  of transport is used to consolidate goods, the
  number of packages or units enumerated in the sea
  carriage document as packed in such article of
  transport shall be deemed the number of packages
  or units for the purpose of this paragraph as far
  as these packages or units are concerned. Except
  as aforesaid such article of transport shall be
  considered the package or unit. (emphasis added)
• (d) The unit of account mentioned in this Article
  is the Special Drawing Right as defined by the
  International Monetary Fund ...

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El Greco (Australia) Pty Ltd Ano v-
Mediterranean Shipping Co SA 209 ALR 448

• Commercial Background
• The 2nd applicant purchased a poster business
  consisting of approximately 200,000 posters from
  Mr Theodorakopoulos for 945,545
• Neither the 2nd applicant nor Mr T had any idea
  of the value of the posters
• Two invoices were generated but there was no
  allegation that the sale transaction was not at
  arms length
• The posters were consolidated into 2000 packages
  and were stuffed into a container

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El Greco contd

• Payment of the sum of 883,390 was subsequently
  made to El Greco under a policy of insurance
• Underwriters, by way of subrogation, commenced
  recovery proceedings against MSC for the
  loss/damage of the insured, El Greco
• Shortly before trial independent evidence was
  filed placing the market value of the posters at
  approximately 40,000
• The applicants relied on the invoice value of the
  posters or alternatively on the alleged value of
  the posters in Greece - 20 each (i.e. 20 x
  130,000 2,6 million)

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El Greco Judgment at first instance

• Kiefel J found that
• the posters had been damaged by seawater and MSC
  was liable for the damage
• The invoice value of the posters was unreliable
  and the independent evidence was to be preferred
• S63,570 was the assessed value of the posters
• In relation to limitation on liability the
  description of 200,495 posters on the face of the
  bill of lading was an enumeration for the
  purposes of the limitation clause

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El Greco The Appeal

• The appellants submitted that
• (a) in the absence of a direct finding that the
  sale contract was not at arms length the correct
  value of the posters was the invoice value (i.e.
  956,545)
• (b) In the alternative, that a 3 wholesale price
  per poster also mentioned by the person providing
  the independent evidence as to the market value
  of the posters was a truer evidence of value
  than that found by Her Honour

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El Greco The Cross Appeal

• The respondent submitted that
• (a) for the purposes of limitation and
  considering the bill of lading as a whole as well
  as the 1968 Protocol only 1 package (the
  container) had been agreed
• (b) Her Honour had erred in finding that the
  words and numbers 200,495 pieces posters and
  prints amounted to an enumeration of units for
  the purposes of limitation

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El Greco The Full Court (by majority) Judgment

• Their Honours Black CJ and Allsop J (Beaumont J
  dissenting) found that
• the cross-appeal be upheld, albeit on different
  grounds to those raised by the respondent
• an enumeration for the purposes of the limitation
  on liability provision must set out the number or
  packages or units as packed in the container
• in this case, on the face of it, one was not told
  into how many packages or units the goods were
  made up for packing into the container

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El Greco The Full Court (by majority)
Judgment contd

• an enumeration for the purposes of the limitation
  provision consists of setting out of the sea
  carriage document numbers on the face of the bill
  
• it need not be contractually agreed to constitute
  an enumeration
• a clause like clause 21 purporting to prevent an
  enumeration (by making it subject to contractual
  agreement) is therefore of no effect and will be
  struck down under Art 3 r 8 of the Modified Rules
• as a consequence of the cross-appeal succeeding
  the appeal necessarily failed

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Summary - What makes mediation attractive?

• Negotiating parties generally do not have a
  personal interest in the matter. Its just
  business.
• Post El Greco more meaningful settlement
  negotiations should be possible as assessing
  quantum should now be simplified
• Mediation conferences can assist in narrowing the
  issues in dispute in the event that a resolution
  of the entire matter is not possible
• The potential of substantially reducing costs