Mercuria Energy Trading-v-Raphael Cotoner Investments - The Afra Oak

DMC/SandT/24/01

England

Mercuria Energy Trading Pte Ltd v Raphael Cotoner Investments Limited (The “Afra Oak”)

English Commercial Court: Sir Nigel Teare: [2023] EWHC 2978 (Comm): 23 November 2023

Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2023/2978.html

John Russell KC and Joseph Gourgey (instructed by Squire Patton Boggs (UK) LLP) for Mercuria Energy (Charterers)

Timothy Hill KC and Socrates Papadopoulos (instructed by Stann Law Limited) for Raphael Cotoner (Owners)

VOYAGE CHARTER: EXXONVOY FORM: US COGSA INCORPORATED: CHARTERERS ORDERED VESSEL ONCE LADEN TO AWAIT FURTHER ORDERS AT SINGAPORE EOPL*: MASTER CHANGED ANCHORAGE LOCATION AFTER DEPARTING LOADING PORT AND ANCHORED ILLEGALLY IN INDONESIAN TERRITORIAL WATERS CAUSING PROLONGED DETENTION: WHETHER SECTION 4(2)(A) OF US COGSA/ARTICLE IV(2)(A) OF HAGUE RULES PROVIDED A DEFENCE IN SUCH CIRCUMSTANCES: APPEAL FROM FINAL AWARD ON QUESTION OF LAW UNDER SECTION 69 OF ARBITRATION ACT 1996

• See text for meaning of this acronym

Summary

In dismissing Charterers’ appeal, the Judge held that whether Section 4(2)(a) of US COGSA/Article IV(2)(a) of Hague Rules provides a defence when, in breach of charterers’ orders, a vessel proceeds into territorial waters and waits at anchor there in breach of local law, depends upon the particular facts of the case.

In this case the defence applied because the Master’s decision to anchor the vessel where he should not have done, contrary to the passage plan prepared before departing the loading port (which if followed would have led to the vessel anchoring lawfully), was caused by his error in navigation and seamanship.

Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes

Background

Owners voyage chartered their crude oil tanker “Afra Oak” to Charterers for the carriage of a cargo on the Exxonvoy form, which included an English law and London arbitration clause, and incorporated the United States Carriage of Goods by Sea Act 1936 (“US COGSA”). Section 4(2)(a) of US COGSA provided (being to the same effect as Article IV(2)(a) of Hague Rules):

“Section 4…

2. Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from:

(a) Act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship.”

Under the voyage charter, Charterers were also entitled to order the vessel to safe location(s) to await further orders. Owners warranted that the vessel would be in full compliance with all applicable laws, regulations and requirements of the countries to which the vessel might be ordered and that they would be responsible for any adverse consequences of not complying with Charterers’ voyage instructions.

Charterers ordered the vessel to load a cargo and then to proceed to Singapore “EOPL” (Eastern Outer/Off/Outside Port Limits) to await further orders as to where to discharge the cargo. The passage plan prepared before the vessel departed the loading port had designated an anchorage at Singapore EOPL that would have caused no problem but during the voyage the Master decided to change the place of anchorage to a location within the territorial waters of Indonesia, which the Tribunal (in the arbitration) found "was within the range of ordinary practice for Singapore EOPL" at the relevant time.

That decision was contrary to Indonesian law, because only vessels intending to call at ports in Indonesia were allowed to anchor in Indonesia territorial waters. This would not necessarily have led inevitably to the Indonesian authorities taking action against the vessel. However, in the event, the Indonesian authorities did take action, by detaining the vessel and prosecuting the Master. This caused substantial delay to the vessel and cargo and resulted in a dispute between the parties, which they submitted to arbitration for resolution.

The Tribunal dismissed Charterers’ claim, on the basis that the Master’s decision to change the anchorage location was an error in navigation and seamanship within the US COGSA defence.

Charterers appealed to the High Court, on the grounds that the Tribunal had been wrong in law to conclude that Owners were entitled to rely upon the navigational error defence, in view of the decisions in the cases of Knutsford v Tillmans (fn.1) and The “Hill Harmony” (fn.2).

Judgment

Having set out the background to the dispute, the relevant charter terms, the parties’ respective arguments and reviewed the case law, the Judge proceeded to address the issue of law that arose under the section 69 appeal.

There was no dispute that the order given by Charterers was as to the vessel’s employment and that they were entitled to give it under the charter. However, Charterers considered on the authorities, that – when an employment order has been given and breached – the navigational error defence would not apply in the absence of a good reason for departing from the order. Owners, on the other hand, were of the view that it was a defence for them if they could provide either a good reason for the departure or establish that there had been an act, neglect or default of the master in the navigation or management of the ship.

The Judge thought there would be little room in the established legal landscape for the suggested proposition that, where an owner fails to comply with an order as to the vessel’s employment, he can never avail himself of the negligent navigation exception. The Judge did not consider that The “Hill Harmony” established that proposition, save in the sense that, if there is a choice not to comply with employment orders, that choice cannot, without more, be described as negligent navigation. In that case, there was no negligent navigation; the master simply chose not to comply with the routing order given, and so the owner was unable to rely upon the defence of negligent navigation.

Turning to the facts of the present case, the Judge noted that the Tribunal regarded the Master as having acted negligently in the navigation of the vessel. That finding was supported by expert evidence and by the vessel’s passage plan. The Tribunal also found that the gist of Charterers’ order was to anchor wherever it was safe to do so in EOPL using good navigation and seamanship. The Tribunal had considered whether the relevant danger was one which could have been avoided by good navigation and seamanship, and concluded it could have been avoided. Consequently, the Judge was satisfied that the Tribunal had considered the issue with care and also reached a clear conclusion.

Charterers were critical of the Tribunal having stated, with reference to Knutsford v Tillmans and The “Hill Harmony”, that “these cases are in a different category from the present case, where the master attempted to comply with the orders given by simple oversight in the course of navigation and anchored the vessel where he should not have done”. However, the Judge highlighted that in neither case relied on by Charterers was there an error of navigation. In the former judgment, the master had a mistaken understanding of the clause which permitted the vessel to discharge elsewhere, if the port was inaccessible on account of ice. By contrast, in the present case the Master failed to exhibit good navigation and seamanship when he failed to take due account of the risk of anchoring in Indonesian territorial waters. It was, in the Judge’s view, that failure which caused him to fail to comply with Charterers’ order, and there was no appeal against those findings.

On the above basis, the Judge was unable to detect any error of law in the Tribunal’s comment that cases such as Knutsford v Tillmans and The “Hill Harmony” were in a different category. As such, the Tribunal did not err in law in the manner suggested by Charterers when holding that Owners were entitled to rely upon section 4(2)(a) of the US COGSA as a defence to the claim that Owners had failed to comply with Charterers’ orders.

Accordingly, for the reasons he had given, the Judge held that whether the navigational error defence applied depended on the facts of the case. In this case, the defence applied, as the Tribunal had held, because the detention of the vessel had been caused by the Master’s error in navigation and seamanship in anchoring where he should not have done.

Comment

This judgment provides a helpful insight into when the navigational error defence in the Hague Rules, Hague-Visby Rules and US COGSA applies. It should also assist vessels that anchor in this busy area, consisting of international waters and territorial waters of Malaysia, Indonesia and Singapore, which are in part contested, to appreciate the need to be cautious to avoid being caught out.

Notably, this defence was available because the Master’s error had been made after the vessel had departed on the cargo-carrying voyage. Had the error been made “before and at the beginning of the voyage” the defence may not have been available, given the UK Supreme Court’s judgment on a passage planning error before the vessel commenced on the voyage in The “CMA CGM Libra” (fn.3).

Footnote 1: [1908] AC 406

Footnote 2: [2001] 1 AC 638

Footnote 3: [2021] UKSC 51 – case note available at https://www.onlinedmc.co.uk/index.php/Alize_1954_and_CMA_CGM_SA_v_Allianz_Versicherungs_AG_and_Ors_-_the_CMA_CGM_Libra