NYK Bulkship (Atlantic) v Cargill International - the Global Santosh Supreme Court Decision

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England

NYK Bulkship (Atlantic) NY v Cargill International SA, The “Global Santosh”

Supreme Court; Lords Neuberger, Mance, Clarke, Sumption, Toulson; [2016] UKSC 20; 11 May 2016

Timothy Young QC and Belinda McRae (instructed by Maritime Law Office Skinitis) for NYK Bulkship (Atlantic) NY, Owners/Respondent

Simon Rainey QC and Daniel Bovensiepen (instructed by Holman Fenwick Willan LLP) for Cargill International SA, Charterers/Appellant

OFF-HIRE CLAUSE RE DELAY ARISING FROM ARREST OF VESSEL: WHETHER ACTS OF RECEIVERS AND SUB-CHARTERERS WERE TO BE CONSIDERED “DEFAULT OF THE CHARTERERS OR THEIR AGENTS”

Summary

The charter of the “GLOBAL SANTOSH” (“Vessel”) contained a period off-hire clause for delays due to arrest. The clause did not apply if the arrest was “occasioned” by acts of the charterers or their agents (proviso to Clause 49 of the charter). Cargo discharge was delayed by cargo receivers, and the Vessel was (mistakenly) arrested by a sub-charterer as security for a demurrage claim against receivers. Charterers contended that the Vessel was off-hire during the arrest, and were successful before the arbitration Tribunal. On appeal, the Award was not upheld by either the High Court or, on subsequent appeal, by the Court of Appeal.

The Supreme Court overruled the decisions of the Court of Appeal and the first instance Judge, and supported the initial decision of the arbitration Tribunal. It held that the proviso to Clause 49 did not apply to the circumstances of this case.

For the notes on the Court of Appeal ([2014] EWCA Civ 403) and High Court ([2013] EWHC 30 (Comm)) decisions, click here [1] and here [2] respectively.

This note has been contributed by Justin Gan Boon Eng, Solicitor (Hong Kong), Advocate & Solicitor (Singapore, non-practising)

Background

The Vessel was chartered on a modified NYPE 46 form by NYK Bulkship (Atlantic) N.Y. (“Owners”) as disponent owners to Cargill International S.A. (“Charterers”), and ultimately chartered to Transclear S.A. (“Transclear”). The Vessel carried a cement cargo which Transclear had sold to IBG Investment Ltd (“IBG”) C&F free out; IBG was responsible for unloading and would pay demurrage to Transclear if unloading were delayed. Commencement of unloading (at Port Harcourt, Nigeria) was delayed partly due to port congestion arising from the breakdown of IBG’s unloader. Transclear arrested the cargo to secure its demurrage claim. By error, the Court order arresting the cargo also directed the arrest of the Vessel. Charterers, in reliance upon Clause 49, put the Vessel off-hire for the period she was under arrest.

The critical Clause 49 read: “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…”

At first instance, it was decided that “agents” in Clause 49 was not used in the strict legal sense, and included parties to whom obligations of the Charterers under the charter were delegated. This was not challenged on appeal.

The Court of Appeal considered that potentially the acts of both or either IBG and Transclear (breakdown of IBG’s unloader causing delay, Transclear’s arrest of the cargo after IBG failed to provide security for the resulting demurrage claim) could have “occasioned” (per Clause 49) the detention of the Vessel – but remitted questions of causation to the Tribunal.

The Supreme Court reversed the High Court and Court of Appeal, and restored the Tribunal’s initial decision. The proviso to Clause 49 did not apply and the Vessel was off-hire during the period of arrest.

Judgment

Lord Sumption delivered the judgment of the majority. He opened by explaining that clauses like Clause 49 are intended to protect Charterers – and its proviso would be construed very narrowly. He also confirmed that references to the acts of charterer’s “agents” in a time charter are not limited to the acts of “agents” in a strict legal sense. The time charterer’s rights under the charter “are made available to those further down the contractual chain, and at least some of the time charterer’s obligations are satisfied by the acts of subcontractors.”

IBG and Transclear were therefore Charterers’ “agents” for the purpose of Clause 49. However, before their acts could trigger the proviso, those particular acts would have to be within the scope of that “agency”. Lord Sumption explained “…not everything that a subcontractor does can be regarded as the exercise of a right or the performance of an obligation under the time charter.”

For three reasons, Lord Sumption held that the acts of IBG and Transclear fell outside the scope of that “agency”. In consequence, the proviso to Clause 49 was not triggered, and the Vessel was off-hire.

1. Charterers were responsible for the performance of cargo operations (but had no obligation to undertake them at any particular time), which were carried out by IBG on Charterers’ behalf. As mentioned, the breakdown of IBG’s unloader contributed to port congestion, which in turn delayed the commencement of unloading. Thereafter the Vessel was (mistakenly) arrested by the Nigerian authorities for Transclear’s demurrage claim (Transclear had only sought to arrest the cargo and not the Vessel). So, cargo operations never commenced – and there was no performance of cargo operations on Charterers’ behalf to speak of: “…the defective performance of cargo handling operations is one thing. An absence of cargo handling operations is another.”

2. The arrest arose from Transclear prosecuting its demurrage claim under the IBG-Transclear sale contract. That was not a vicarious exercise of Charterers’ rights, or vicarious performance of Charterers’ obligations, under the charter party.

3. While Clause 49 “is broadly concerned with matters for which the time charterer may be regarded as responsible”, that begs the question of what precisely those “matters” are. It is too broad to suggest that a timecharterer is responsible for all matters arising out of a vessel’s trading arrangements, that is, a timecharterer’s sub-chartering and subsequent links in the charter chain that became possible because of the initial sub-chartering.

Lord Clarke dissented:

1. The breakdown of IBG’s unloader led to port congestion, delaying the commencement of cargo operations. In other words, the breakdown of sub-charterers’ discharging equipment delayed cargo operations. The difference drawn between defective performance and non-performance of cargo operations by the Charterers’ delegate was too narrow.

2. IBG failed to discharge the Vessel properly (within the laytime provided for in the sale contract), and then failed to discharge the lien on the cargo for the resulting demurrage claim – leading to the arrest of the cargo and (by mistake) the Vessel.

3. The congestion, arrest, and resulting delays had nothing to do with Owners.

Comment

There is a great deal of force in Lord Clarke’s dissent. In a timecharter, hire is payable unless otherwise agreed, and indeed it is difficult to see why a charterer who does not start cargo operations (during which period of time hire was payable for the Vessel) should be treated differently from one who does not perform cargo operations properly, indirectly leading to delay.

However, on balance Owners in The Global Santosh could not escape the express wording of Clause 49, and the (correct) focus on the precise obligations delegated instead of a broader approach encompassing all acts of a delegate. Some discomfort is also felt with Lord Clarke (at [43]) equating IBG’s failure to discharge within the laytime stipulated in the sale contract with a failure by IBG, presumably as delegate of the Charterers, to discharge “properly” – surely what is proper or otherwise for the purpose of Clause 49 can only be considered from the perspective of the charter party and not a sale contract, the content of which could be unknown to owners and charterers higher up the charter chain. (At [45] Lord Clarke did mention that he felt it a reasonable inference that Charterers were aware of the “real possibility of similar [demurrage] provisions down the line of sub-charters...”)