Logistics

October 2012 LOGISTICS BULLETIN

Welcome to the October edition of our Logistics Bulletin.

This edition focuses on a number of recent developments and current concerns which are of importance to the logistics industry. We consider a key recent decision of the English High Court, which has clarified the extent of the jurisdictions available as between cargo interests and carriers under Art 31 of the CMR. We also consider the recent appeals launched by freight forwarders found to have been involved in price fixing cartels by the European Commission. The large scale of the fines currently under appeal means that this case is of concern to the whole sector and beyond.

This edition also considers the likely impact of a Eurozone country crashing out of the common currency and how to minimise exposure to the relevant risks. We review recent case law as to when TUPE will be triggered in the context of a logistics operation and set out the importance of both considering carefully whether TUPE will apply and drafting relevant contractual provisions to cover potential TUPE issues. Finally, we analyse freight rate movements in container shipping, which will continue to be an important issue for logistics providers in the coming months.

Craig Neame, Partner, [email protected] CMR jurisdiction: a door BAT contended that the English b. The place where the defendant closed? Courts had jurisdiction under CMR is ordinarily resident or has its or if not, this meant that CMR was principal place of business (Art Facts less favourable than the Brussels 31.1(a)). Regulation (the “Regulation”), and Various British American Tobacco accordingly the Regulation should c. The place where the goods were entities (“BAT”), some of which were apply, meaning that Essers and taken over by the carrier or the English registered companies, issued Kazemier could be joined to the place designated for delivery (Art two separate sets of legal proceedings same proceedings as Exel by virtue 31.1(b). in England, both involving high value of Act 6.1 of the Regulation, which consignments of cigarettes which states: “A person domiciled in a The arguments were stolen in transit. Member State may also be sued: (i) where he is one of a number of BAT argued that it was necessary In both claims Exel Europe Ltd defendants, in the court of the place to consider not only Art 31, but also (“Exel”), an English registered where any one of them is domiciled, Articles 34, 36 and 39 CMR. Reading company, was named as a defendant. provided the claims are so closely these Articles together, BAT argued In one case, H. Essers Security connected that it is expedient to hear that England was an appropriate Logistics B.V., and H. Essers Transport and determine them together…”. jurisdiction not only as against Exel, Company Nederland B.V. (“Essers”) BAT’s submissions were based but also as against Essers and were the co-defendants and in heavily on the generally accepted Kazemier on two different bases: the other, Kazemier Transport B.V. public policy position which is (“Kazemier”) was the co-defendant. to avoid, wherever possible, a 1. The law and jurisdiction clause multiplicity of legal proceedings in in the Head Contract obliged In both cases BAT had contracted with different jurisdictions. BAT to sue Exel in England and Exel (the “Head Contract”), which in Essers and Kazemier were bound turn had sub-contracted in one case Essers and Kazemier contended by the clause even though they to Essers and in the other to Kazemier. that there was no such jurisdiction were not parties to the Head The Head Contract contained an available under CMR, or under the Contract. This was based, BAT English law and jurisdiction clause of Regulation, which would, in any said, upon the fact that by which both Essers and Kazemier were event, only be relevant if there was a virtue of Art 34, a successive unaware. Both Essers and Kazemier gap in CMR or to the extent that the road carrier becomes a party to were Dutch registered companies and provisions of CMR were in conflict the “contract of carriage” and neither had branch or agency offices with the policy of the Regulation. is deemed to be bound by its in the UK. Essers and Kazemier argued that terms, even those of which it was there was neither a gap nor a conflict unaware. In the Essers case the cigarettes and accordingly the Regulation was were stolen during transit from irrelevant on the facts of the case. Essers and Kazemier argued Switzerland to the Netherlands and in that it was not possible to bind the Kazemier case from Hungary to The law a party to an English law and Denmark. There was no dispute that jurisdiction clause, if it was not a CMR applied to the relevant contracts Art 31 CMR provides for jurisdiction, party to the contract concerned. of carriage. as between cargo interests and Furthermore, whilst it was carriers, in a number of different accepted that a successive Issues jurisdictions, namely: carrier became a party to the contract of carriage, Art 34 was Did the English Courts have a. A jurisdiction designated by clear when it said that such a jurisdiction to hear the claims brought agreement between the parties carrier became a party “under by BAT against Essers and Kazemier? (Art 31.1.). the terms of the consignment note” and in this case the law

02 Logistics Bulletin and jurisdiction clause was not notwithstanding the English law all of the defendants to be sued in the entered into the consignment and jurisdiction clause in the Head same jurisdiction and the claimant, note. The Court agreed and Contract, BAT had the option under if it chooses to base jurisdiction on said a, “...successive carrier Art 31.1(b) of suing all carriers in one Art 31.1(a), will have to commence cannot be bound by a jurisdiction jurisdiction, i.e. the place where the separate proceedings, against the clause to which it cannot be goods were taken over or the place various defendants, in different said individually to have given designated for delivery. This point jurisdictions. However, the claimant its consent, by acceptance of a was fatal to BAT’s argument, the can avoid doing so by commencing Consignment Note with such a Court said, “The choice [of where to one set of legal proceedings against clause in it, or otherwise.” sue] lies with the claimant and if it all of the defendants in the place chooses to sue in a jurisdiction where where the goods were taken over or 2. BAT argued that if a purposive it can only meet the requirements the place designated for delivery (as reading was given to Art 31.1(a) of Article 31.1(a) in respect of one specified in the primary contract of CMR (by reference to Articles 34, defendant, as opposed to suing in carriage between the goods owner 36 and 39 CMR) all appropriate a jurisdiction falling within Article and the first carrier). defendants could be joined as 31.1(b), where it could join all carriers, parties to the same proceedings, it cannot validly complain about the HFW was instructed by Van based on the ordinary residence effect of its own choice.” Rossenberg Advocaten, Rotterdam to or principal place of business of represent Essers and Kazemier. one of them. The Court also concluded that, “... the CMR code is sufficient and does For further information, please Essers and Kazemier argued that not conflict with or give a result less contact Justin Reynolds, Partner, on the language of Art 31.1(a) was favourable than the Regulation...”. +44 (0)20 7264 8470 or clear and did not provide that the [email protected], or your ordinary residence or principal Conclusion usual HFW contact. place of business of one carrier could be used as an anchor The Court’s decision does not close to join the other carriers to the the door on a particular avenue of European Commission finds same proceedings. The Court jurisdiction, rather it clarifies the existence of freight forwarders agreed and said, “as a matter of extent of the jurisdictions available cartel straightforward construction of as between cargo interests and Article 31 and Article 39, Esser’s carriers under Art 31; although this Six freight forwarders are appealing and Kazemier’s submissions may have the effect of limiting, to fines totalling €169 million are unanswerable... Article 31 some extent, the practice of forum currently imposed by the European expressly limits the courts in shopping, whereby parties try to Commission (the “Commission”) for which a claim can be brought establish jurisdiction, by commencing alleged involvement in price fixing by a plaintiff (whether a goods proceedings quickly, in the place cartels in the international air freight owner or a carrier, against a most favourable to their cause. forwarding services sector. defendant)...there is nothing in Article 36 which entitles the It is important to note that a On 28 March 2012, the Commission claimant goods owner to do so jurisdiction clause can never be decided that 16 freight forwarding [sue all the carriers] in one and “exclusive” under CMR as Art companies had participated in four the same jurisdiction when Article 31 permits actions in the further allegedly distinct and illegal cartels 31 specifically limits the courts specified jurisdictions which are which sought to fix the price of in which he can pursue any such “in addition” to the jurisdiction specific surcharges and charging defendant.” “designated by agreement”. Unless mechanisms on important trade lanes the defendants all share the same in international air freight services The Court found, as Essers place of domicile or principal place of between 2002 and 2007 (when dawn and Kazemier had argued that, business Art 31.1(a) does not permit raids were carried out by antitrust

Logistics Bulletin 03 authorities in the United States and specific concealment measures, that have not been fined – but to EU). including the use of private yahoo whom a decision is addressed - may email accounts and code words bring appeals to limit their exposure The Commission said it had identified (such as the “Gardening Club”). to follow-on damages actions the following four cartels: (against which they do not enjoy any The Commission imposed fines immunity) or to limit their exposure • The New Export System (“NES”) ranging from €319,000 to €54 to higher fines in future, if they are cartel - after the introduction million. Kuehne + Nagel faced the investigated in other alleged cartels. of electronic declaration for heaviest fines, totalling €53.7 million. UK exports in 2003, a group Deutsche Post (including subsidiaries The appellants submit that the of forwarders allegedly agreed DHL and Exel) received full immunity Commission erred both in assessing a fixed surcharge by size of from fines under the Commission’s the duration and scope of the customer on this service. 2006 Leniency Notice, as it was the infringements and in calculating the first company to report the issues fines imposed in March 2012. They • The Advance Manifest System to the Commission. Deutsche Bahn also submit that the Commission (“AMS”) cartel - an advanced (including Schenker and BAX), had no power prior to 1 May 2004 declaration is required when Ceva, Agility and Yusen received to impose fines in relation to air shipping goods to the US. A reductions of fines ranging from 5% transport between the EU and third group of forwarders allegedly to 50% in exchange for the timely countries. In particular, the appellants agreed to introduce a surcharge provision of additional evidence and allege that: for the service and not to use in accordance with the European the surcharge as a tool for Commission’s 2006 Guidelines on • The Commission erred in law competition. Fines. and/or assessment of the facts by failing to define the relevant • The Currency Adjustment Factor The appeals process market affected and failing to (“CAF”) cartel - when the Chinese establish that the arrangements currency (RMB) appreciated EGL and Kuehne + Nagel were the had an appreciable effect on against the US Dollar in 2005, first to challenge the Commission’s trade between EU Member a group of forwarders allegedly decision (in July 2012). They were States. agreed to shift contracts from followed by UTI, then Schenker, USD to RMB or, if this was not Deutsche Bahn and Panalpina • The Commission breached the possible, on the introduction of a Welttransport in August 2012. principle of equal treatment CAF surcharge and on its level. in relation to treatment of Under EU law, any company which is the immunity applicant, • The Peak Season Surcharge the subject of a Commission decision determination of fine reductions (“PSS”) cartel - a group of can bring an appeal against the and its refusal to initiate talks forwarders allegedly agreed on decision before the General Court under the Settlement Notice. a surcharge for peak season of the European Union. Companies services offered in the build up to Christmas and also discussed its level. “Since 2000, 50% of appeals to the The Commission found that the cartels operated on routes from the General Court have been successful in UK to outside the EEA, from the EEA to the US, from China to the EEA some part, leading to decisions being and from Southern China/Hong Kong annulled (17%), or a reduction in the level to the EEA. Some of the forwarders involved were said to have used of the fine imposed (33%).”

04 Logistics Bulletin • In imposing fines, the Competition compliance training is Firstly, there is the internationally Commission wrongly determined key to ensuring staff understand the recognised principle of lex monetae, the relevant turnover, as the dangers inherent in discussions with by which the choice in a contract of turnover relied upon bore no competitors. a particular currency is taken to imply direct or indirect relationship a choice of the law of the country of to the alleged infringement. For further information, please that currency to determine, where In addition, the Commission contact Daniela Bowry-Blum, necessary, what that currency is infringed the principle of Associate, on +44 (0)20 7264 8775 or or may re-denominate into. In the proportionality by failing to take [email protected], or current context of the risk of re- account of applicable mitigating your usual HFW contact. denomination into a replacement factors, the particularities of local currency (e.g. Euros back to the case and the nature of the Spanish Pesetas), issues may arise industry in question. Eurozone crisis as to whether an English court, in applying this principle, should regard • The Commission breached the The Eurozone debt crisis has the choice of the Euro in a contract appellants’ rights of defence, prompted careful consideration of the as a choice of the law of a particular the principles of a fair trial and potential consequences of the exit of Member State or a choice of the law sound administration as a result a Eurozone state from the Euro and a of the Eurozone as a whole. To avoid of various procedural errors. re-denomination into a replacement such difficulties, currency fluctuation local currency. or conversion clauses, which provide What lies ahead? either that the contract will be in Any withdrawing state would be Euros only or will be converted While it affords the Commission a likely to enact new laws making into other harder currencies such wide margin of discretion, the General compulsory the re-denomination US Dollars or GB Pounds on Court is prepared to review the of contractual payment obligations any re-denomination, should be Commission’s substantive analysis. governed by local law into a new incorporated into potentially affected It will consider whether the evidence replacement local currency, as well contracts. Such clauses should also relied on by the Commission is as requiring payments into that state address what rate of exchange will reliable, accurate and consistent, and to be in the new local currency. The apply. whether the appropriate conclusions governing law and jurisdiction which have been drawn from it. The General applies to such contracts will be Secondly, there is the principle Court is entitled to substitute its crucial in determining the impact of known as lex loci solutionis, whereby own appraisal of the facts for the such re-denomination provisions. under Rome I Regulation, art 9(3), Commission’s, which may lead to English courts may give effect to an annulment of the Commission’s Contracts governed by express the overriding mandatory rules of infringement decision, or a reduction local law and jurisdiction clauses the law of the place of performance in the amount of the fine. will be subject to any local laws of a contract (i.e. the “lex loci on re-denomination into any new solutionis”). In doing so, courts have Since 2000, 50% of appeals to the currency, which will be difficult to the discretion to render performance General Court have been successful avoid as they are likely to trump unlawful if payment of a claim under in some part, leading to decisions any currency conversion or re- a contract in, for example, Euros being annulled (17%), or a reduction denomination clauses providing for is unlawful in the country in which in the level of the fine imposed (33%). other harder currencies (e.g. Euro, GB payment must be made. Possible Pounds, US Dollar). However, even solutions here include incorporating The scale of the fines currently under where contracts incorporate express clauses which require payment to appeal will remind those involved English choice of law and jurisdiction be made to a party (e.g. a broker or with the logistics sector of the clauses, issues may nonetheless other intermediary) outside of the need to remain alert to the risk of arise because of two conflict of laws country of the Member State which is allegations of antitrust infringements. principles. at risk of currency re-denomination.

Logistics Bulletin 05 It would be sensible to incorporate Will TUPE apply at the end of and two of these decisions involved such clauses before any re- the contract? logistics services. denomination takes place. Recent case law indicates that it is In Eddie Stobart Ltd v Moreman & The prospect of re-denomination not that clear cut. Others, the judge concluded that it presents various uncertainties, was not enough for the employees to and parties to potentially impacted The Transfer of Undertakings (principally) carry out the activities for contracts may wish to act now to (Protection of Employment) there to be an “organised grouping mitigate any future impact. With a Regulations 2006 (TUPE) are of employees”, something more was view to avoiding exposures, parties designed to safeguard employee needed. In this case the employees should consider revising their rights in the event that the business were divided into nightshift contracts as above so as to avoid or undertaking the employees work employees and dayshift employees. those EU states which are perceived for is transferred to a new employer. Because of the operational as higher risk. In the case of existing In the logistics sector, where requirements of the customers contracts, this may be achievable contracts quite often go from one Eddie Stobart Ltd serviced from by endorsement. In the case of new logistics provider to another or where the site, it just so happened that contracts, by express provision. logistics buyers sometimes decide the nightshift employees worked Where necessary, standard market to take their logistics operations principally on tasks required by clauses can be modified for these back in-house, it is inevitable that the one customer contract, whereas purposes. They should also consider issue of whether or not TUPE applies the dayshift worked principally on including contract continuity arises. tasks required by another customer clauses, which maintain the validity contract. The judge decided that of the contracts in the event of a TUPE applies where there is a there was no “organised grouping” Eurozone re-denomination. “relevant transfer”, which can mean for the purposes of the legislation either a transfer of an undertaking, because the reasons why some of Whilst re-denomination could impact business or part of an undertaking the employees worked principally contractual obligations, it will also to another person(Reg. 3(1)(a)) or a on one customer contract were of course affect counter-party and service provision change (Reg. 3(1) circumstantial (as opposed to as investment risks. In that context, (b)). a result of deliberate planning or parties must consider minimising intent). their exposure through careful When a company decides to negotiation of their future and outsource its logistics operation for In Seawell Ltd v Ceva Freight existing contracts, with a particular the first time, or when it decides (UK) Ltd and Mr Craig Moffat, focus on governing law, jurisdiction, to change logistics providers or to the Employment Appeal Tribunal currency conversion, validity and take its logistics operation back in- followed the decision in the Eddie place of performance provisions. house, this will give rise to a service Stobart case, and stated that “the provision change which may mean description “organised grouping of For further information, please that TUPE will apply. employees” connotes a deliberate contact Costas Frangeskides, putting together of a group of Partner, on +44 (0)20 7264 8244 or One of the key conditions for TUPE employees for the purposes of the [email protected], or to apply in the event of a service relevant client work - it is not a Ben Atkinson, Associate, on provision change is that immediately matter of happenstance.” +44 (0)20 7264 8238 or before the change there was an [email protected], or your organised grouping of employees, What these decisions imply is usual contact at HFW. the principal purpose of which was that in the context of a multi-user to carry out the activities concerned. warehouse for instance, for TUPE The Employment Appeal Tribunal has to apply at the end of a contract, recently considered the meaning of it will be necessary to show that “organised grouping of employees”, the logistics provider deliberately

06 Logistics Bulletin decided to organise the employees Freight rate movement in recent fall in spot rates continues in so that they would be principally container shipping response to the dropping utilisation engaged in providing services in levels and fall in traffic towards the respect of one customer contract. Freight rate movement in container end of the year. How a company organises its shipping will continue to be an workforce is influenced by a important issue for logistics providers There are a number of measures multitude of factors. It may be in the remaining months of 2012. that container lines may employ to difficult from an operational and cost Logistics providers will therefore ensure that freight rates remain both point of view to organise a workforce be aware of united calls from a profitable and sustainable rather in a way that is more likely to ensure number of container lines to maintain than moving toward rate erosion. that the grouping of employees will freight rate levels, despite the recent Rationalisation tools may be used by fall within the meaning of “organised traditional peak season being quieter lines to generate a supply-demand grouping of employees” for the than expected in the containerised balance in the medium-term. Some purposes of TUPE. trade between Asia and Europe. container lines have intimated Container lines have suggested that that they may take the decision to This means that it is not a given lower traffic levels could instead suspend some sailings, keep ships that TUPE will apply at the end of generate a need to increase freight on berth for longer than usual, delay a contract and the services either rates in order for container lines departures or slow ships down transfer to another service provider to maintain profit levels. This will further. Other container lines have or are taken back in-house. This is come as a surprise to those in the advocated a shift away from a focus not necessarily a bad thing from the logistics sector, who are hoping to on ship utilisation and the need to point of view of the incoming service see a repeat of the rate erosion that sail close to full capacity on every provider or the customer who is emerged as competing container voyage, maintaining that freight rates taking the services back in-house, lines flexed for market share in the may not be cut in the face of reduced as where TUPE applies it means that first quarter of 2012. utilisation. Of course, container lines the employees transfer with their will also continue to push for more rights and liabilities. However, from The beginning of 2012 was favourable contract terms when the point of view of the outgoing dominated by oversupply in the seeking to protect freight rates in the logistics provider, the one which market following a combination of future. lost the contract, it will mean that newbuildings entering service and it retains the liability for employees uncertainty amongst importers as a Potential factors that may cause it may no longer require. This is result of the Eurozone crisis. These rates to continue to fall remain the something buyers and providers of factors caused substantial carrier same. New capacity entering the logistics services need to consider losses. container shipping sector will still carefully when deciding what should have an effect but the extent in the happen on termination of a contract Rate restoration was notable however medium and long run will depend on and how the termination costs in the second quarter of 2012 with the level of restraint shown by banks (including employee termination spot rate increases seen universally and whether they back the projects costs) should be apportioned across container lines. Average rates of those in the sector promoting between the parties. Careful drafting increased around fifteen per cent. further newbuildings. Continued flat of relevant contractual provisions is between first and second quarters, consumer demand in Europe and a essential to cover potential TUPE aided partly by an improvement fallout from the Eurozone crisis will issues. in demand, but also reflecting a also play their part in causing freight concerted effort on the part of rates to lower. For further information, please container lines to focus strategy contact Catherine Emsellem-Rope, toward profits. The logistics sector will always seek Associate, on +44 (0)20 7264 8279 or lower rates, but at the same time, the [email protected], Those involved in the logistics sector sector would welcome a strategy that or your usual contact at HFW. will be watching closely to see if the creates certainty. Logistics providers

Logistics Bulletin 07 will be aware that constant fluctuation News Conferences & Events in freight rates may lead to strained relationships in the supply chain as HFW Partner Craig Neame spoke Marine Insurance Seminar they struggle to predict prices for at the 8th International Colloquium HFW London future months, potentially leading of the Institute of International (13 November 2012) importers to consider sourcing their Shipping and Trade Law at Swansea Craig Neame, Jonathan Bruce and cargo from other markets. It is hoped University last month. This year’s Toby Stephens that the decrease in traffic levels will event was devoted to Carriage of lower rates for logistics providers but Goods and offered comprehensive Multimodal Seminar Series if not, providers will be hoping for discussion on emerging issues and HFW London certainty in freight rate levels at the unresolved questions in the law In early 2013 the HFW Logistics very least. relating to carriage of goods, with team will host the next part of this particular reference to carriage of seminar program, which will focus For further information, please goods by sea, land and air and on a number of the latest key legal contact Matthew Gore, Associate, on international conventions attempting developments affecting the logistics +44 (0)20 7264 8259 or to regulate different legs of transport. industry. Further details will follow in [email protected], or your The position of market participants, the next Logistics Bulletin. usual contact at HFW. such as freight forwarders, multimodal transport operators, terminal operators and insurers, was also considered. The event was sponsored by Informa Publishing and the speakers were drawn from legal practice, academia and industry and were all leading authorities in their respective fields.

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