Admiralty Court delivers one of the first judgments relating to COVID-19 and its impact on shipping
The COVID-19 pandemic has had a profound impact on the shipping industry and led to many disputes. However, owing to the prevalence of arbitration in resolving shipping disputes, and the time taken for cases to progress through the courts, there have been few reported cases detailing the pandemic's impact on the industry.
In January 2021, the Admiralty Court handed down one of the first judgments dealing with this matter in P&O Princess Cruises International Ltd v The Demise Charterers of the Vessel "Columbus" ( EWHC 113 (Admlty)).
Two cruise ships, the Columbus and the Vasco da Gama ("Vessels"), formed part of the Cruise and Maritime Voyages ("CMV") fleet and were demise chartered to single purpose companies within the CMV Group (Lyric Cruise Ltd ("Lyric") and Mythic Cruise Ltd ("Mythic"), respectively).
In March 2020, owing to the COVID-19 pandemic, CMV was forced to suspend operations and needed a place for the Vessels to be laid up until trading could resume. Accordingly, CMV contacted the Port of Tilbury. Following exchanges between the Port and the Vessels' manager, a rate of £3,000 per vessel per week was agreed ("Original Tariff"). This rate did not provide a good return for the Port but was offered due to a longstanding commercial relationship between the Port and the CMV Group.
Due to the prolonged suspension of operations, on 20 July 2020, some of the CMV Group companies went into administration. Crucially, these companies did not include Lyric or Mythic. In light of the administration, the Port emailed CMV and the Vessels' manager to inform them that as of 10:00am the following day, the Original Tariff would end and the Vessels would be charged as per the Port's published tariffs. On the same day, the Vessels' manager terminated their appointment. As the Vessels were no longer being managed, the Port personally delivered letters outlining the change in the tariff to the Vessels on 23 July 2020.
The published tariffs calculated the lay-up charge by reference to the overall length of a vessel for each 12 hour period or part thereof. The charge per meter was stated to be £29 ("Updated Tariff").
On 21 August 2020 the Vessels were arrested for claims by another creditor. Accordingly, the Admiralty Judge made an order for the appraisement and sale of the Vessels. Together, they were sold for $15,969,278.27.
The Judge's order was a "Queen of the South Order". This meant that, in exchange for an undertaking from the Port that they would not exercise their statutory right to detain and sell the Vessels, the Port's fees were to be treated as an expense of the sale and the Port was given priority over other creditors.
In calculating the amount due to the Port, the Court had to determine whether fees calculated with the Updated Tariff could be recovered. The Vessels' other creditors ("Cautioners") claimed that the Port had no entitlement to vary the Original Tariff. As noted by the Admiralty Registrar, the difference between the two charges was "dramatic". If the Updated Tariff applied, the Port's claim was approximately £2.493 million as opposed to £78,000 if the Original Tariff was maintained.
The "standard terms" of the contract between the Port and the Vessels were contained in the Port of Tilbury's General Trading Regulations 2005. Regulation 5.6 of these regulations provides:
"The Charges may be subject to adjustment at any time for extraordinary items and/or significant increases or decreases in volume and/or significant changes in the delivery profile or storage characteristics. The Company may also vary Charges at any time upon giving reasonable prior notice to the Customer."
The Port argued that its fees could be varied on reasonable prior notice pursuant to Regulation 5.6, and such notice had been given by the email of 20 July and the letters of 23 July. The Port also argued that the Updated Tariff did not need to be reasonable. Instead, pursuant to the Harbours Act 1964, it was free to charge harbour dues as it saw fit; subject to the right of objection to the Secretary of State (which was not exercised in this situation).
The Cautioners argued that reasonable notice was not given by the Port and, on the true construction of Regulation 5.6, the Port could only vary the rate by a reasonable amount. The Cautioners stated that the thirtyfold increase to the Updated Tariff was not reasonable and should not be recoverable.
Lastly, reference was also made to section 233B of the Insolvency Act 1986 ("IA 1986"). This section was inserted by the Corporate Insolvency and Governance Act 2020 to give companies "breathing space" during the pandemic. It prevents a counterparty to a contract for goods and services from exercising contractual rights (such as termination or variation) because the other counterparty has entered into a "relevant insolvency procedure". The Cautioners argued that an interpretation which recognised the purpose of section 233B should apply and the Port should be prohibited from recovering fees calculated by the Updated Tariff; notwithstanding that Lyric nor Mythic were themselves in administration. Finally, the Cautioner's argued that if they were wrong and the email to CMV and letters to the Vessels were effective to give notice of the Updated Tariff, it could only take effect after a reasonable period.
Admiralty Court's Decision
The court held that:
- The email of 20 July 2020 and the letters of 23 July 2020 operated as notices to vary pursuant to Regulation 5.6.
- Section 233B of the IA1986 did not prevent an upward adjustment of port fees. Following the administration of the CMV Group companies and the termination of the manager, services were no longer being provided to CMV. From 20 July 2020, the Port's services were being directly provided to Lyric and Mythic and the contracts for the berths were between the Port and these entities. As they were not in a "relevant insolvency procedure" themselves, section 233B IA 1986 could not apply.
- Reasonable prior notice had not been given and, considering all of the circumstances of the case (including the fact that alternative berthing arrangements could not have easily been found), the reasonable notice period was 28 days.
- The increase itself did not have to be reasonable and the legislation permitted the Port to charge such fees as it thought fit;
- The Updated Tariff had been brought fairly and reasonably to the attention of the vessels; and
- The Port was entitled to recover its charges at the Updated Tariff rate from 20 August 2020 (i.e. 28 days from their letter to the Vessels) to 16 October 2020 which was the date of delivery to the Vessels' purchasers.
The court noted that the charges were high and that by increasing the rate to the updated tariff, the port would advance its already privileged position at the expense of other creditors. However, the port's legal rights were clear and the court had no jurisdiction to lower the amount payable thereto.
This is likely to be one of the first of many judgments from the High Court on the COVID-19 pandemic's impact on shipping. Legal professionals and those in the industry can expect to see more judgments filtering through in the near future. Like this case, many of these judgments will likely deal with novel and complex legal issues which are sure to garner significant interest.