Kinetics v. Cross Seas

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Kinetics Technology v. Cross Seas Shipping, the "Mosconici"
English Commercial Court: Steel J.: [2001] 2 Lloyd's Rep 313: 16 February 2001

Simon Rainey QC, instructed by Clyde & Co, for the claimant cargo interests
Timothy Young QC, instructed by More Fisher Brown, for the defendant carriers.

No adjustment should be made to the gross rate of interest on damages to reflect the fact that the limitation of the defendant's liability was measured in Special Drawing Rights. Where the currency in which the claimants’ loss was measured was the US Dollar, interest should be awarded at the prime rate, namely the Fed rate (or US base rate) plus 3%.

DMC Category Rating: Confirmed

This case arose out of the loss of three large convection modules - parts of a pyrolytic furnace for an ethylene plant being built by the US company, Brown and Root, in Kuwait – during a voyage from Venice to Kuwait in July 1996 on board the defendants’ ship, "Mosconici". The modules, which had been carried on deck, had been lost overboard when the ship encountered heavy weather in the Gulf of Aden. Shortly before trial, the parties had agreed to settle the case on the basis of the carrier’s limitation fund under the Hague-Visby Rules, in the amount of SDRs414,000.

At trial, four issues arose.
1. What was the appropriate currency into which the limit should be converted, US dollars as contended by cargo interests, or Italian lira as contended by the carrier? The carrier based its argument on the fact that replacement modules for those lost overboard were manufactured in Italy and paid for in Italian Lira.
2. What was the gross rate of interest that should be applied to an award of damages in that currency?
3. What,if any, adjustment ought to be made to that gross rate of interest to reflect the fact that the fund constituted a conversion from special drawing rights and therefore already contained protection against inflation?
4. From what date should the interest run – from the date of the loss, as claimed by the cargo interests, or from the date that expenditure was incurred in obtaining replacement modules, as claimed by the carrier?

These points were contested for reasons of costs recovery. If all four issues were answered in the claimants' favour they would recover slightly more than the Civil Procedure Rules Part 36 offer made by the carrier five months before trial. In that event, the court would have a discretion as to how costs should be awarded. If, on the other hand, cargo interests did not recover more than the Part 36 offer, the court would be bound to award the defendants their costs from the date at which payment under the the Part 36 offer should have been made.

On the four issues before him, the judge ruled as follows.

1. Although the replacement equipment was manufactured in Italy and paid for in Italian Lira, and the claimants were an Italian company, they were part of a substantial US group. The equipment in question formed part of a contract for the purchase of a furnace system, entered into between Brown and Root and the US corporation of which the claimants formed part. Under that contract, the purchase price was expressed and paid in US dollars. The contract also provided for damages for non-delivery and contractual penalties for late delivery to be paid in US dollars. The claimants’ participation in the contract was based primarily on the availability of Italian national export credit financing. Accordingly, the currency "which most truly expressed" the cargo interests’ loss, in accordance with the House of Lords decision in the "Texaco Melbourne" [1994] 1 Ll. Rep. 473, was the US dollar.

2. The gross rate of interest applicable to the US dollar was the US prime rate, which was the Federal rate plus the customary 3%.

3. The argument regarding the SDR discount was that "interest reflects both the value of money and the cost of it and that, since the limitation fund, as expressed in SDRs, affords protection against loss of value, the rate of interest must be discounted so that it only protects the claimants against the cost of money and not the value of it as well."

Applying the principles established by the Court of Appeal in the case of Polish Steam Ship Co. v. Atlantic Maritime [1985] 1 QB 41, the judge held that no adjustment needed to be made to the gross rate of interest to reflect the fact that the fund constituted a conversion from SDRs.

4. Based on the decision at first instance in the case of Kuwait Airways v. Kuwait Insurance [2000] 1 AER (Commercial), there was no good reason for departing from the date of loss as the date at which the interest should run, that is, July or August 1996.

Although as a result of these findings, the claimants had recovered marginally more than the amount of the Part 36 offer made by the defendant carrier, they had not succeeded on a key issue in the litigation, namely that the carrier had no right to limit its liability in accordance with the provisions of the Hague-Visby Rules. Accordingly, in the exercise of his discretion, the judge ordered that, as from the date of the Part 36 offer, claimants should pay two third’s of the defendants’ costs but would recover their costs incurred prior to that date.


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