Sea Master Shipping v Arab Bank (Switzerland) and Yousef Freiha and Sons - The Sea Master
Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd and Yousef Freiha & Sons SAL (The “Sea Master”)
English Commercial Court: HHJ Pelling QC:  EWHC 2030 (Comm): 28 July 2020
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2020/2030.html
Michael Collett QC (instructed by Jackson Parton) for Sea Master Shipping (Owners)
John Russell QC (instructed by HFW) for Arab Bank (Financiers) and Yousef Freiha (Receivers)
CONTRACT OF CARRIAGE: BILL OF LADING INCORPORATING VOYAGE CHARTER: CARGO TO BE DISCHARGED FREE OF EXPENSE TO VESSEL: CHARTERERS/RECEIVERS TO ARRANGE AND PAY FOR STEVEDORES: CHARTERERS TO PAY DEMURRAGE: CHARTERERS BECAME INSOLVENT: OWNERS CLAIMED DAMAGES IN LIEU OF DEMURRAGE AGAINST CARGO INTERESTS FOR DELAYED CARGO DISCHARGE: WHETHER CARGO INTERESTS UNDER AN OBLIGATION (1) TO TAKE ALL NECESSARY STEPS TO ENABLE THE CARGO TO BE DISCHARGED AND DELIVERED WITHIN A REASONABLE TIME OR (2) TO DISCHARGE THE CARGO WITHIN A REASONABLE TIME: ARBITRATION ACT 1996 SECTION 69 APPEAL ON POINT OF LAW
In dismissing Owners’ appeal, on a question of law under section 69 of the Arbitration Act 1996, the High Court held that there was – in the context of a claim by Owners for damages in lieu of demurrage from Cargo Interests – no implied term in the bill of lading that Cargo Interests would (1) take all necessary steps to enable the cargo to be discharged and delivered within a reasonable time or (2) discharge the cargo within a reasonable time. There was no necessary and reasonable basis for doing so when, amongst other reasons, Cargo Interests were only obliged to pay for the discharge operations, Owners were responsible for the discharge operations and there was already an implied term in the bill of lading that if Cargo Interests did not claim delivery within a reasonable time, the Master could land and warehouse the cargo at Cargo Interests’ cost.
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
Sea Master Shipping (“Owners”) voyage chartered the bulk carrier “Sea Master” to Agribusiness United DMCC (“Charterers”) for a laden voyage carrying grain cargoes from Argentina to Morocco and Lebanon. The charter was on a Norgain 89 form and included, amongst others, the following clauses:
“10(a) Cost of loading and discharging … Cargo is to be discharged free of expense to the vessel …
11 Stevedores at Loading Port(s) and Discharging Port(s) … Stevedores at … discharging port(s) are to be appointed and paid for by Charterers/Receivers In all cases, stevedores shall be deemed to be the servants of the Owners and shall work under the supervision of the Master. …
20. Demurrage at loading and/or discharge ports is to be paid at the rate of [blank] per day or pro rata for part of a day and shall be paid by Charterers in respect of loading port(s) and by Charterers/Receivers* [the word "Receivers" was struck through] in respect of discharge ports. Despatch money to be paid by Owners at half the demurrage rate of all working laytime saved at loading and/or discharging ports.
Any time lost for which Charterers/Receivers are responsible, which is not excepted under this Charterparty, shall count as laytime, until same has expired, thence time on demurrage.”
A bill of lading was issued for the cargo which incorporated all the “terms, conditions, liberties and exceptions” of the voyage charter. Arab Bank (“Financiers”) financed the cargo and Yousef Freiha (“Receivers”) were the receivers who took delivery of the cargo in Lebanon.
Charterers became insolvent. As a result, there were delays in discharging the cargo in the Lebanon, as part of which a switch bill of lading was issued to Financiers and delivery of the cargo was later made to Receivers. Owners pursued Financiers and Receivers in arbitration for demurrage for the delays at the discharge port or, in the alternative, damages in lieu of demurrage.
The Tribunal decided that only Charterers were liable to pay demurrage under the voyage charter, as incorporated into the switch bill of lading, on the basis of clause 20 (which expressly provided for Charterers exclusively to be liable for demurrage for delay for which Receivers were responsible), a point on which Owners did not appeal.
However, the Tribunal also decided that there was no implied term in the switch bill of lading that Financiers and/or Receivers would either (1) take all necessary steps to enable the cargo to be discharged and delivered within a reasonable time (“First Implied Term”), or (2) discharge the cargo within a reasonable time (“Second Implied Term”), the point on which Owners appealed.
The judge first summarised the material facts and the Tribunal’s decisions (above), referred to the relevant voyage charter clauses as incorporated into the switch bill of lading (above), and considered the approach to implying terms into a contract.
The judge noted, in particular, that it is only after the process of construing the express words of the contract is completed that the issue of an implied term falls to be considered. The reason is that it is only after the construction exercise has been undertaken that the necessity to imply a term and the allied question, whether the term sought to be implied contradicts the express terms of the contract concerned, can be answered.
The judge also noted that Cargo Interests’ position was that Owners entered into contracts pursuant to which their only remedy for delay in discharge was a claim in demurrage against Charterers. However, due to Charterers’ subsequent insolvency, Owners were out of pocket and now sought to pin liability on Cargo Interests, despite that being inconsistent with the express contractual regime they entered into, and the credit risk that they took.
The judge considered that the first issue to be resolved was whether, as a matter of construction of clauses 10 and 11 of the voyage charter, “Charterers/Receivers” were responsible for performing the task of discharging the cargo from the vessel. Owners contended that the effect of these provisions was to allocate contractual responsibility for discharge exclusively to Charterers and Receivers, as the springboard from which Owners launched their implied term arguments. These the Cargo Interests denied, on the basis that the provisions were only concerned with allocation of cost, not responsibility.
By reference to The “Jordan II” (fn.1), the judge rejected Owners’ contention that at common law the responsibility for discharging the cargo ashore is shared by Owners and Charterers or Receivers, and held that Cargo Interests were correct in contending that the main responsibility for discharge rests with Owners at common law absent a clear express contractual provision to the contrary.
The judge held that the meaning of clause 10 was clear and did not imply that the responsibility for the task of discharging the cargo had been transferred to Charterers or Receivers, with clause 11 being one way in which effect was given to the cost shifting in clause 10. In particular, the words could not be read in isolation, with the words "In all cases, stevedores shall be deemed to be the servants of the Owners and shall work under the supervision of the Master" making clear that the control of the discharge exercise remained where it is as a matter of general law – with the Master on behalf of Owners.
Having considered the meaning of the express words of the contract, the judge next considered the proposed implied terms.
As Receivers were under an obligation to pay – but only to pay – for the discharge operation and, in connection with that obligation, to meet the cost of the exercise by appointing stevedores who were then to carry out the work on behalf of Owners, the judge considered that, in those circumstances, the question whether the Second Implied Term ought to be implied simply did not arise. In any event, the contract of carriage did not lack commercial or practical coherence without the Second Implied Term; it worked perfectly well without it. Further, as the charter provided for Charterers alone to pay demurrage, to imply the Second Implied Term would contradict the express terms of the contract of carriage.
As to the First Implied Term, the judge noted, first, that this was an attempt to avoid the difficulty that discharge was an obligation that rested exclusively on Owners. Second, it was entirely unnecessary to imply such a wide and general express term into the contract of carriage, as discharge of the cargo is not a collaborative process, other than Receivers’ obligation to appoint stevedores under clause 11. However, that obligation did not make the First Implied Term necessary or reasonable because (a) the express obligation to appoint stevedores was absolute in its terms, and (b) there was an express agreed contractual mechanism contained in clause 20 of the charter that applied in the event that discharge was delayed by the failure to appoint stevedores (namely, Charterers were liable to pay demurrage for any delay for which Receivers were responsible).
As to delivery of the cargo, there was plainly no need to imply a term in the general and unqualified terms for which Owners contended in order to give the contract of carriage commercial coherence. Delivery no more depended on collaboration than did discharge. Following, or perhaps as part of, discharge, the carrier offers the goods for delivery to the receiver. If the receiver fails to take delivery the consequences are those provided by the general law by the implication of a long established, much narrower and more nuanced obligation, referred to in The “Bao Yue” (fn.2):
“It has been established for many years that if the bill of lading holder does not claim delivery within a reasonable time, the master may land and warehouse the cargo; that in some circumstances it may be his duty to do so; and that as a correlative right, the shipowner is entitled to charge the cargo owner with expenses properly incurred in so doing … “
In summarising the general principle, the judge concluded that there was no necessity to imply the wide, generally expressed and unqualified term contended for by Owners in this case because:
(a) to the extent Receivers were under an obligation to provide a berth, that could be provided for by a narrowly expressed implied term focused exclusively on that assumed obligation;
(b) the provision of stevedores was the subject of express provision;
(c) the contract of carriage contained a demurrage regime that rendered Charterers liable to pay demurrage for any "… time lost for which the… receivers are responsible which is not excepted under this Charterparty …" and to the extent that it applied there was no necessity to imply terms imposing similar obligations on other parties and/or any such implied term would be inconsistent with what had been expressly agreed;
(d) delivery did not require collaboration between carrier and receiver in any legally relevant sense;
(e) the general law already provided a solution where the receiver does not accept delivery; and
(f) the contract of carriage did not lack commercial coherence without the implication of the First Implied Term.
The judge, accordingly, dismissed Owners’ appeal on the above basis.
This judgment is a reminder of the difficulties that can be faced in seeking to imply terms into contracts where express contractual terms are inapt to achieve the desired purpose of one party, there are express terms that are inconsistent with such a term being implied and there is already a term that is implied into the contract that provides a different solution to the same underlying problem.
The fundamental problem Owners faced was that the charter provided solely for Charterers to be liable for demurrage that accrued as a result of delays for which Receivers were responsible and which were not excepted by the charter. The charter provided for discharge to be made free of expense to the vessel and for the stevedores to be provided and paid for by Charterers and/or Receivers. By contrast, the position at common law is that Owners are solely responsible for the physical process of discharging the cargo ashore unless the contract of carriage expressly provided otherwise, which it did not do in this case.
Owners had, apparently, looked to Receivers to make and undertake the required arrangements, which led to substantial delays to the vessel at the discharge port. However, the implied term that already existed within the switch bill of lading entitled Owners to take matters into their own hands to arrange for the discharge and holding ashore of the cargo, subject to Cargo Interests having to pay for the expenses incurred in so doing, where Cargo Interests themselves did not make the necessary arrangements within a reasonable time.
Footnote 1:  UKHL 49,  1Lloyd’s Rep. 57
Footnote 2:  EWHC 2288 (Comm),  1 Lloyd’s Rep. 320, per Males J (as he then was) at