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Emma_Bradshaw_phBrief Summary of background facts of case

The disastrous story of the vessel, the mv Global Santosh, began when the respondent ship-owner, NYK Bulkship, entered into a time charter for the vessel with the appellant charterer, Cargill International SA. A series of further contracts then followed:

  • Cargill sub-time-chartered the vessel to Sigma Shipping;
  • The facts are unclear, but Sigma seemingly entered into a sub-voyage charter with Transclear SA;
  • Transclear SA, as sellers, contracted with IBG Investments Ltd, as cargo receivers, for a cargo of bulk cement to be transported by the vessel to Nigeria.

The delivery of the cargo was delayed as IBG’s offloader broke down, leading to Transclear (in order to secure a demurrage claim) seeking to arrest the cargo. However, the arrest order mistakenly named the vessel itself rather than the cargo, prohibiting any offloading until the vessel was released. In response, Cargill withheld hire for this period, relying on the ‘off-hire’ clause of the time charter.

NYK asserted that Cargill was, in fact, liable to pay hire due to an alleged ‘carve-out’ in the ‘off-hire’ clause and the parties submitted the claim to arbitration pursuant to clause 17 of their charter party agreement.

Legal issues involved

The ‘off-hire’ clause  in contention (clause 49), read as follows (emphasis added regarding the alleged ‘carve-out’):

“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.” 

Here, two legal questions arose:

  1. Who were Cargill’s (the Charterer’s) agents? (i.e. could IBG and Transclear be considered agents of Cargill?); and
  2. Was the arrest occasioned by Cargill or its agents required to be occasioned in performance of the charterer’s obligations under the time charter?

Appellate History

Arbitration

During the arbitration hearing, NYK contended that IBG and Transclear were both agents of Cargill referring to the approach taken in The Doric Pride [2006] EWCA Civ 599 where a line was drawn within a charter to ascertain which matters were the owner’s or the charterer’s responsibility. NYK further stated that IBG’s failure to unload the cargo or pay the demurrage claim had been the cause of the arrest of the vessel.

The Tribunal made no reference to NYK’s argument that IBG was an agent, instead focusing on whether the arrest undertaken by Transclear was expressly or impliedly consented to by Cargill. Ultimately, the Tribunal found by a majority that there was no evidential basis for such a finding and, as such, held that Transclear was not acting as Cargill’s agent.

High Court of Justice Queen’s Bench Division Commercial Court

NYK successfully appealed against the Tribunal judgment pursuant to s.69 of the Arbitration Act 1996. Although the court upheld the tribunal’s decision in relation to Transclear, it reconsidered the position of IBG, again something that the Tribunal glossed over. In that respect, the court held that sub or sub-sub-charterers could, in fact, be considered agents of Cargill if all responsibilities had been delegated or sub-delegated to them.

However, the further question remained, namely whether the arrest occasioned by Cargill (or its agents) was required to be occasioned in performance of the charterer’s obligations under the time charter. In answering that question, two further factors needed to be considered by the court:

(A) had the acts, omissions or defaults taken place while IBG had been under an obligation as a delegate (and therefore an agent)?; and

(B) had these acts or omissions “occasioned” the arrest of the vessel?

Question A: Yes, the court stated that the duty to unload by reason of the sale contract was initiated by Cargill and therefore the delegation of the agreement (including any terms) was also passed to IBG as Cargill’s agent.

Question B: Yes, the court held that the words ‘occasioned by’ obligated a causal link that made commercial common sense. The failure to unload and the payment of demurrage had therefore ‘occasioned’ the application to the court leading to the wrongful arrest of the vessel.

Court of Appeal

Cargill then appealed against this decision, but was unsuccessful.

Although the court agreed that the delegates could, in fact, be considered agents (because there had been no specific wording in the ‘carve-out’ limiting the acts to have had occurred during the performance of the delegated task); there was no reason to read such wording into the clause.

In summary, the Court of Appeal held that the simple fact that the defaults leading to the arrest of the vessel had landed on Cargill’s ‘side of the line’ of responsibility, made it exactly that: their responsibility.

Legal issues the Supreme Court is being asked to consider

The Supreme Court is being asked to consider whether the conduct of cargo sellers/ receivers which leads to the arrest of the vessel can be considered to be the conduct of the “Charterers or their agents”, irrespective of whether the conduct takes place in performance of the Charterers’ obligations under the charter.

Should the appeal be upheld, there will be increased pressure on charterers to take more control of their sub-charterers and, ultimately, become more involved in their activities. In contrast, should the appeal be dismissed, prudent shipowners may seek to exercise greater control over their charters to ensure they are not left out of pocket.

This will require more stringent drafting of contracts, stipulating exactly what delegates and charterers can and cannot do without the consent of the charterer/ shipowner respectively. More shrewd parties should then ensure that any ‘carve-out’ of an off-hire clause strictly specifies whether it relates to conduct taking place in the performance of the charterer’s obligations, or not.

Any such clauses are likely to be fiercely negotiated by any discerning parties wanting to protect their interests, particularly in situations which are seemingly out of their control, possibly leading to a more ‘hands-on’ approach being taken by ship-owners.