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Dera Commercial Estate v Derya Inc [2018] EWHC 1673 (Comm)

Updated: May 5

What happens to the cargo interest's rights when a carrier deviates?




The recent case, Dera Commercial Estate v Derya Inc (“Dera”) clarifies two key points in relation to shipping law and arbitral procedure, respectively. These are: (1) whether, in a contract evidenced by a bill of lading subject to the Hague Rules, a geographic deviation precludes a carrier from relying on the one-year time bar created by Article III Rule 6; and (2) what is the applicable burden and standard of proof for the application of s.41(3) of the Arbitration Act 1996 (“AA 1996”)? S.41(3) permits a tribunal to dismiss a claim (or counter-claim) where there has been ‘inordinate’ and ‘inexcusable' delay in prosecuting the claim. This article takes each point in turn.

Where a carrier geographically deviates from a prescribed route, the innocent party (shipper/consignee/endorsee/lawful holder of a bill of lading) can elect to terminate the contract and be bound by none of its terms

Dera holds that where a carrier geographically deviates from a prescribed route, the innocent party (shipper/consignee/endorsee/lawful holder of a bill of lading) can elect to terminate the contract and be bound by none of its terms, or elect to affirm the contract and continue to be bound by all of its terms [paras. 81-88 of the judgment]. As an example, where the parties have contractually provided for a limitation period that is shorter than the statutory 6-year limitation period (for instance, 1-year under the Hague Rules), if the innocent party elects to terminate they are not bound by that shorter contractual limitation period. Carr J made clear that, unconstrained by authority, she would not have so held, but she considered herself bound by the decision of the House of Lords in (Hain Steamship Company Ltd v Tate & Lyle Ltd [1936] 41 Com Cas, 350) to reach that conclusion.

The decision constitutes a controversial exception to the abolition of the doctrine of fundamental breach outlined in Suisse Atlantique Societe d'Armement Maritime SA v Rotterdamsche Kolen Centrale [1967] 1 AC 361 (“Suisse Atlantique”) and Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 (“Photo Production”). In those cases the House of Lords explained that prohibiting a party who had committed a ‘fundamental breach’ from relying on exemption/limitation clauses in a contract, directly militated against freedom of contract, and there was ‘no trace of [the doctrine]' in older cases. Accordingly, the doctrine should be abolished. Yet, in Photo Production, Lord Wilberforce expressed the view (obiter) that the rule as set out in Hain Steamship should potentially survive the abolition of fundamental breach: “It may be preferable that [deviation cases] should be considered as a body of authority sui generis with special rules derived from historical and commercial reasons." [paras. 89-106].

Accordingly, in the present case Carr J explained that: (a) she was bound by Hain Steamship which was a House of Lords authority which has not been directly reconsidered at the highest level; (b) contrary to owners’ submissions, Hain Steamship had not been impliedly overruled by either Suisse Atlantique or Photo Production; quite the opposite – deviation cases had been specifically referred to by Lord Wilberforce as being sui generis; and (c) given their sui generis status Hain Steamship is not irreconcilable with Suisse Atlantique or Photo Production [paras. 107-118]. Although Carr J considered that the difference between geographic deviation and deck stowage was one of degree rather than principle [para. 107], her judgment does not fully explain how, if Hain Steamship is indeed determinative of the question pending reconsideration by the Supreme Court, the Court of Appeal in “The Antares” [1987] 1 Lloyds Rep 424 and “The Kapitan Petko Voivoda” [2003] 2 Lloyds Rep 1 was able to reach the conclusion that for (unauthorised) deck stowage, a carrier did not lose the benefit of the Article III Rule 6 limitation period, either under the Hague Rules or the Hague-Visby Rules. The answer would appear simply to be a matter of judicial precedent rather than clear principle.

Arguably, this decision does not sit easily with any of the principal shipping commentaries, none of which put forward an analysis along the lines followed in Carr J’s judgment (though she did also cite Lewison on the Interpretation of Contracts (6th ed.) (2017) [para. 115] where a similar analysis is set out). The decision may also cause practical difficulties in maritime claims handling. P&I Clubs are all currently set up to administer, investigate and close their files in cargo claims on the basis of a one-year limitation period being applicable. If it is possible for cargo claimants to allege geographic deviation for the first time almost six years after the event, and be in time to make the cargo claim, the implications are profound.

s.41(3) of the Arbitration Act 1996


The court also addressed questions relating to the applicable burden and standard of proof

as regards s.41(3). S.41(3) provides:

(3) if the tribunal is satisfied that there has been inordinate and inexcusable delay on the part of the claimant in pursuing his claim and that the delay;


(a) gives rise, or is likely to give rise, to a substantial risk that it is not possible to have a fair resolution of the issues in the claim; or


(b) has caused, or is likely to cause, serious prejudice to the respondent, the tribunal may make an award dismissing the claim.


Carr J explained that the question of burden and standard of proof should not be over complicated. Rather, the burden lies with the, “the applying party [to] prove [-] that the (inordinate) delay was (probably) inexcusable in circumstances where the responding party is the party from which the evidence relevant to that issue is likely to emanate.” [para. 141]. There is no shifting of the burden of proof and it would not be helpful to lay down any hard and fast rule on what the standard of proof should be [para. 140].

What was the background?

Dera purchased 18,000MT of maize from charterers of the vessel MV Sur, which was due to be carried from Diamond Harbour and Vizag, India to Aqaba, Jordan. When the vessel arrived in Aqaba Jordan on 16 August 2011 Jordanian authorities prohibited the ship from discharging, due to defects in the cargo [para. 10]. Thereafter, the vessel remained at Aqaba for around three months as owners and Dera attempted to remedy the problem in different ways [paras. 16-17].

On 8 November, without permission from the Jordanian authorities or Dera, the Vessel sailed to Mersin, Turkey and, after a 5-month delay at Mersin, owners finally managed to discharge and sell the cargo following to a sale order from the Turkish courts. The proceeds of that sale were not passed on to Dera.By contrast, owners claimed the vessel had incurred demurrage while at Aqaba during transit to Turkey and during discharge at Mersin (demurrage is a form of

Dera purchased 18,000MT of maize from charterers of the vessel MV Sur, which was due to be carried from Diamond Harbour and Vizag, India to Aqaba, Jordan. When the vessel arrived in Aqaba Jordan on 16 August 2011 Jordanian authorities prohibited the ship from discharging, due to defects in the cargo [para. 10]. Thereafter, the vessel remained at Aqaba for around three months as owners and Dera attempted to remedy the problem in different ways [paras. 16-17].

On 8 November, without permission from the Jordanian authorities or Dera, the Vessel sailed to Mersin, Turkey and, after a 5-month delay at Mersin, owners finally managed to discharge and sell the cargo following to a sale order from the Turkish courts. The proceeds of that sale were not passed on to Dera.By contrast, owners claimed the vessel had incurred demurrage while at Aqaba during transit to Turkey and during discharge at Mersin (demurrage is a form of

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© 2020 by Francis Hornyold-Strickland.