Alpha Marine v Minmetals Logistics Zhejiang - The Smart
Alpha Marine Corp v Minmetals Logistics Zhejiang Co Ltd (The “Smart”)
English Commercial Court: Butcher J:  EWHC 1157 (Comm): 5 May 2021
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2021/1157.html
Charles Kimmins QC and Paul Toms (instructed by Mills & Co Solicitors Ltd) for Alpha (Owners)
Nicola Warrander QC (instructed by Ince Gordon Dadds LLP) for Minmetals (Charterers)
TIMECHARTER: OWNERS’ BILLS OF LADING ISSUED INCORPORATING (SUB) VOYAGE CHARTER TERMS: FREIGHT DEEMED EARNED ON LOADING CARGO AND TO BE PAID WITH 45 DAYS AND AFTER RECEIPT OF FREIGHT INVOICE: WHETHER IMPLIED TERM THAT OWNERS WOULD NOT DIRECT PAYMENT TO THEMSELVES OF FREIGHT DUE UNDER BILLS OF LADING WHERE NOTHING WAS DUE TO THEM UNDER THE TIMECHARTER: SECTION 69 APPEAL ON POINT OF LAW UNDER ARBITRATION ACT 1996
The High Court, in finding for Owners, held that there was no implied term in the charterparty or bills of lading in this case restricting the right of Owners to direct that freight payable under Owners’ bills of lading should be paid directly to Owners, subject to the obligation on Owners to account for any surplus to Charterers.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor of England & Wales, LMAA Supporting Member and International Contributor to DMC’s Case Notes
Alpha entered into a trip time charter trip of their bulk carrier “Smart” with Minmetals on an amended NYPE form for the carriage of a coal cargo from South Africa to the People’s Republic of China. Minmetals in turn voyage chartered the vessel to General Nice Resources (Hong Kong) Ltd (“GNR”) for the carriage of the coal cargo GNR were trading.
After the cargo was loaded at Richards Bay, two Owners’ bills of lading were issued. These provided for freight to be payable as per the voyage charter. The voyage charter provided that freight was to be deemed earned on loading and was to be paid within 45 days of the vessel sailing from the loadport and after receipt of the freight invoice.
On departing Richards Bay in August 2013, the vessel ran aground whilst passing through a channel to leave the port and broke her back. This casualty eventually led to a constructive total loss of the vessel and the cargo and gave rise to an unsafe port dispute between Alpha and Minmetals under the trip charter.
Shortly after the casualty, the Charterers issued their invoice for the freight to GNR but before payment was made Owners countermanded Charterers’ authority to do so and issued their own freight invoice to GNR. As a result of this state of affairs, GNR did not pay the freight to either party, pending agreement on what was to be done.
Eventually a part payment of the freight was made pursuant to a tri-partite escrow agreement between Alpha, Minmetals and GNR. The part payment amounted to about USD550,000 of the total freight due of USD1,860,390. Unfortunately, GNR was thereafter wound up by the Hong Kong High Court, as a result of which the balance of the freight was never paid into the escrow account and USD50,000 of the escrow funds were paid to the Official Receiver.
The dispute was submitted to London arbitration, in accordance with the trip charter terms, wherein Minmetals counterclaimed from Alpha the value of the balance freight that was not, and could not now, be paid to it by GNR.
The Tribunal held, in dismissing the unsafe port claim, that the cause of the casualty was the negligence of the Master of the vessel.
The Tribunal further held, in relation to Charterers’ counterclaim, that Owners were not entitled to revoke the right of the Charterers to obtain the bill of lading freight nor to direct it to be paid to Owners. The basis for this decision was that the trip charter contained an implied obligation that Owners would not revoke authority (to require that bill of lading freights be paid to them) unless hire and/or other sums were due from them to the Owners under the charter – which was not the case at the time the Charterers’ authority was revoked. In reaching this decision, the Tribunal had relied on the following proposition in Time Charters (7th Ed), par 30.68:
“… ordinarily under the terms of the New York Produce and similar forms of charter, there is an implied obligation on the owners to allow the charterers to collect the freight. That obligation is an implicit corollary of the obligation in clause 8 to allow the charterers to direct the ship's employment.”
As a result, the Tribunal concluded that Charterers were entitled to recover, as damages from Owners, the value of freight which was not paid by GNR, amounting to USD 1,860,390, less the amount held in escrow, together with interest and costs to be assessed.
Owners were thereafter granted the right to appeal the decision of the Tribunal on a point of law under section 69 of the Arbitration Act 1996, the question on appeal being:
“Did the Charterparty contain an implied obligation that the Claimant would not revoke the Defendant's authority to collect from GNR the freight payable under the Bills of Lading unless hire and/or sums were due to the Claimant under the Charterparty?”
The judge first outlined the facts (above) and then, before determining the issue in light of the parties’ respective contentions, set out the features of contractual arrangements such as the present one, as established by authority.
First, in the case of an owner’s bill of lading, the owner has the right to demand the bill of lading freight from the holder of the bill as the consideration for the agreed carriage, because the contract is the owner’s contract.
Second, where a bill contains a provision that freight is payable as per a charter and directs payment to a charterer, in such a case, ordinarily, the nominated recipient is, as between the owner and the shipper, the agent of the owner, and the authority of such agent can be countermanded by the owner provided that this is done before the shipper makes payment as initially directed. This right to countermand, as between the owner and the shipper, is not conditional on default by an intermediate charterer.
Third, if the owner “intervenes” in this way, and requires payment of the freight to himself, he will generally have to account to a time charterer for any amount which he receives over and above that which is due in respect of the hire of the ship under the time charter.
Against that background, the judge identified that the issue which arises is whether the terms of a time charter such as the NYPE charter, qualify or restrict, as between the owner and the time charterer, the circumstances in which the owner is entitled to revoke a time charterer’s authority to collect the freight and to direct that freight under the bill of lading should, instead, be paid to him.
The judge noted that the origin of the contention relied on by Charterers was an obiter suggestion of the Court of Appeal in The “Bulk Chile” (fn.1), which had been taken up and developed, on the basis of an implied term, by the authors of Time Charters and relied on by the Tribunal.
The judge, accordingly, turned to consider the requirements to imply a term into a contract, whereby a term may be implied on the basis of business necessity or its being “obvious”, with a lack of commercial or practical coherence being required for the former and the “officious bystander” (fn.2) test being applied to the latter. It was also necessary for such a term to be clear and capable of clear expression.
In applying the legal tests to the case, and with the benefit of the issue having been fully debated in a way in which it was not in The “Bulk Chile”, the judge concluded that no term of the sort found by the Tribunal or contended for by the Charterers was to be implied into the charter, for the following reasons.
First, on the question of necessity, in light of the obligation of the owner to account to the charterer for any excess in the amount of freight collected over the amount due under the charterparty, the judge did not consider that the present charter, or other time charters in similar form, lacked commercial or practical coherence without an implied term restricting the owner’s right to intervene, as such charters worked satisfactorily without such a term.
Second, on the question of obviousness, the judge did not consider that it was clear that the parties would have given the same answer to the officious bystander’s question (fn.2). In particular, the judge thought that Owners would probably have said that, if they were to be committed to owners’ bills, with attendant obligations under the contract of carriage, there should be no restrictions on their entitlement to intervene to collect freight.
Third, a right on the part of an owner to intervene to collect freights under an owner’s bill of lading, if the employment of the vessel should involve the issue of such a bill, when coupled with an obligation on the owner to account to the charterer for any amount over and above that due by way of hire or otherwise under the charter, did not interfere with the charterer's employment of the vessel or deprive it of the benefit of the vessel's earning capacity.
Fourth, the objections to the implication of a term were, to the judge’s mind, considerably increased when attention was given to what any such term might be. The Charterers’ case was that it did not make any significant difference which of three possible implied terms was the right one. That ambivalence was, in the judge’s view, itself suggestive of there not being a term which met the tests for implication, such as clarity and certainty. Furthermore, there were significant difficulties with the formulation and practicability of each of the implied terms which had been suggested.
Accordingly, the judge found that the Tribunal was wrong to consider that there was an implied term of the Charterparty which prevented the Owners from intervening and withdrawing the Charterers' authority to collect the freight, and answered the question in the appeal “no”.
This judgment confirms the position as understood to be the case, that owners have an unfettered right to collect freight under owners’ bills of lading, prior to the apparent confusion caused by the obiter remarks in The “Bulk Chile”.
As the judge highlighted, the clearer it is to all in the market that an owner is ordinarily entitled to collect bill of lading freight under an owner’s bill without restriction, the less likely it is that there will be disputes between owners and charterers on this issue, and the less likely that shippers will be, faced with competing claims in that regard.
The obvious solution to this issue for charterers is either to issue charterers’ bills of lading, under which owners are unable to intervene, as they then have no direct contractual relationship with the shippers, or to make clear and express provision in the charter and any owners’ bills of lading issued thereunder, that owners’ unfettered right to revoke charterers’ authority and to collect freight directly under owners’ bills of lading is excluded.
Footnote 1:  2 Lloyd’s Rep 38, per Tomlinson LJ, -, pp 47-48
Footnote 2: The “officious by-stander” test is part of the legal test applied by courts in contract law disputes to determine whether a term should be implied into a contract, even though that term was not written into the contract expressly; if the hypothetical officious bystander suggested to the contracting parties that a particular term be included in the contract and they replied “oh, of course”, that term can be implied into the contract.