Share it

Introduction

In a decision awaited by the shipping community because of its potential impact on the obligations of ship owners and/or time charterers seeking to protect themselves from liability stemming from loss of time in cases of arrest, the Supreme Court clarified both the extent to which sub-constanty_okolie_phcharterers (and indeed sub-sub-charterers) could be considered ‘agents’ of the time charterer and the extent to which the time charterer may be liable for the acts or omissions of their ‘agents’.

The Supreme Court by a majority of 4 to 1, allowed the appeal, finding that the ‘Global Santosh’ had been off-hire during the period of arrest and that the proviso contained in the charter party agreement purporting to hold the time charterer liable for the acts and omissions of sub-charterers as his agents was not applicable because there lacked the necessary proximity between their function and the time charterer’s obligations under the charter party agreement.

Background

In this case, NYK Bulkship, the owners of the ship ‘Global Santosh’, entered into a charter party agreement with Cargill International SA. The Vessel was sub-chartered to Sigma Shipping Ltd, who directly or indirectly allowed the Vessel to be used, pursuant to a contract of sale between Transclear SA and IBG Investments Ltd to deliver cement from Sweden to Port Harcourt, Nigeria.

At Port Harcourt, the Buyer’s off-loader broke down, delaying the unloading of the cargo. Consequently, the Seller in seeking to obtain demurrage from the Buyer arrested the cargo by virtue of a Nigerian court order which mistakenly named the Vessel and not the cargo as the subject of the order.

Cargill withheld hire for the period of the arrest, relying on Clause 49 of the Charter, which provided that:

“Should the vessel be captured or seizured [sic] or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended until the time of her release, unless such capture or seizure or detention or arrest is occasioned by any personal act or omission or default of the Charterers or their agents. Any extra expenses incurred by and/ or during the above capture or seizure or detention or arrest shall be for Owners’ account.” (Emphasis added)

Before the arbitration tribunal, NYK argued that the Buyer and Seller were agents of Cargill and as such the proviso in Clause 49 applied, entitling them to hire. The tribunal decided against NYK, finding no express or implied consent by Cargill to the arrest effected by the Buyer and as such no relationship of agency between them (seemingly failing to consider any possible agency between Cargill and the Seller).

Appeal to Commercial Court

NYK successfully appealed to the Commercial Court, which considered that Cargill, by sub-chartering, had delegated its responsibilities under the Charter and was responsible for the acts and omissions of its delegates in discharging delegated tasks. Accordingly the Seller had not been carrying out any responsibility devolved to it by Cargill (so could not be considered an agent), however the Buyer had been delegated Cargill’s obligation under Clause 8 of the Charter to “perform all cargo handling at their expense” and that Cargill bore liability because the failure to unload and/or pay demurrage, had caused the mistaken arrest of the Vessel.

The Court of Appeal went on to determine that the acts and omissions of the Buyer, relied upon by NYK, did take place during the time that the Buyer acted as Cargill’s agent and that these acts and omissions “occasioned” the arrest.

Court of Appeal

Cargill were unsuccessful in their appeal from the Commercial Court; the Court of Appeal finding that Cargill, while obliged to discharge Clause 8, was not required to unload the cargo within a particular time and was not obliged to ensure that a third party did not prevent cargo handling from being performed, consequently neither Buyer nor Seller were performing a delegated obligation of Cargill. Notwithstanding, the Court of Appeal asserted that generally, Clause 49 would “cover matters either on NYK’s side of the line [of responsibility] or the acts or omissions (etc.) of third parties, unconnected to either NYK or Cargill – for example, governmental authorities“, but that the dispute between Buyer and Seller flowed from Cargill’s “trading arrangements concerning the vessel” and as such “fell clearly – on Cargill’s side of the line“.

Supreme Court

The legal issues before the Supreme Court were those that had been present throughout the history of the case, namely:

  • Who can be considered an ‘agent’ of the time charterer? (i.e. were the Buyer and Seller agents of Cargill); and if so
  • How far does the scope of agency extend? (i.e. was the arrest occasioned by Cargill or its agents required to have been occasioned in the performance of the time charterer’s obligations under the Charter)

Issue One

Lord Sumption, giving the lead judgment and in citing (1) Mediolanum Shipping Co v Japan Lines Ltd (The Mediolanum) [1984] 1 Lloyd’s Rep 136, (2) Merit Shipping Co Inc v T K Boesen A/S (The Goodpal) [2000] 1 Lloyd’s Rep 638 and (3) Trade Star Lines Corp v Mitsui & Co Ltd (The Arctic Trader) [1996] 2 Lloyd’s Rep 449, noted that for the purposes of a time charter, the term ‘agent’ could not be limited to those acting for the time charterer in a strict legal sense or having a direct legal relationship with him.

Lord Sumption observed that “in shipping contracts of this kind ‘agent’ has a special and extended meaning, the rights of the time charterer at the head of the chain are made available to parties down the chain and the obligations of the time charterer are vicariously performed by the parties down the chain, they are referred to as the time charterer’s agents for the purpose of performing the contract and the time charterer may be liable if they fail to do it or do it badly“.

In summary, a sub-charterer or sub-sub-charterer could be considered the agent of the time charterer when discharging the time charterer’s obligations under charter party agreement.

Issue 2

As regards issue two, the Supreme Court opined that only those acts that serve to (and those omissions that fail to) discharge the obligations of the time charterer under the Charter to which he is party, may be attributed to the time charterer, in the present case, Cargill.

The Supreme Court held that the arrest had been occasioned by the failure to unload in time; however this was not an obligation under the Charter, so the Buyer could not have been vicariously exercising any obligation on the time charterer’s behalf.  The court disagreed with the Court of Appeal’s stance that Cargill was liable because it had, by sub-chartering, set in motion events leading up to the arrest. The court was of the view that the connection between the sub-chartering and the arrest was too wide and that there required a “sufficient nexus” between the arrest and the function which the Buyer and Seller were performing as ‘agents’ of Cargill.

It would appear then, that the relationship of agency between the time charterer and those to whom he sub-charters, is to be confined to those rights and responsibilities of the time charterer under the charter party agreement.

Dissenting opinion

Lord Clarke gave a dissenting opinion: while conceding that there was no obligation on Cargill to unload the cargo within a particular time, he asserted that it remained responsible for the discharge of their obligations under the Charter, notwithstanding that the Vessel had been sub-chartered. Lord Clarke considered that having regard to “the true construction of the charter [and the] commercial purpose of the clause“, the Vessel was to be on-hire throughout the period of charter, but for some reason associated with NYK or the Vessel.

Comment

The reasoning of the arbitration tribunal and the appellate courts (and indeed the dissenting opinion of Lord Clarke) shows the difficulty often had in determining where liability lies within shipping contracts. Following this decision, there is now at least greater clarity regarding where responsibility lies in respect of ‘agents’, in what is a standard contractual provision in an NYPE time charter.

For time charterers and ship owners, the ‘line’ (to borrow from the Court of Appeal) has been drawn, ship owners seeking to protect themselves will likely look to include stricter clauses in charters. While this may seem like a win for time charterers, prudent time charterers may still seek to exert more contractual control over the activities of sub-contractors/’would-be agents’.