Hong Kong Court of First Instance: Reyes J: HCAJ No.138 of 2008: 2 December 2011
Mr Douglas Lam, instructed by Messrs Holman Fenwick Willan, for the Plaintiff, Sinokor Merchant Marine Co Ltd
Mr Colin Wright, instructed by Messrs Ince & Co, for the Defendants, Owner of the vessel “Marcatania”
CONTRACT: AGREEMENT TO EXCHANGE SLOT FOR USE: SLOT ON VESSEL CHARTERED BY THIRD PARTY: FAILURE TO PAY HIRE: VESSEL WITHDRAWN BY SHIPOWNER: WHETHER SHIPOWNER OBLIGED TO ON-CARRY CARGO UNDER BAILMENT: WHETHER LIABLE IN CONVERSION FOR DELAY IN RELEASING CARGO
Pursuant to a vessel sharing agreement, Sinokor was entitled to and did carry containers variously destined for Hong Kong, Shanghai and Busan on board a vessel chartered by a third party. The third party failed to pay hire and the vessel was withdrawn by the Shipowners in Hong Kong. The Shipowners refused to on-carry the containers and only released them 10 days after demand. Reyes J held that even if Sinokor had bailed the containers with the Shipowners, the latter were not obliged to on-carry the containers. They were not in any contractual relation with Sinokor and no such obligation could be found under bailment. The Shipowners were also entitled to take time to consider whether they were entitled to any lien over the containers and were accordingly not liable in conversion.
This note has been contributed by Ken To-ching Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and barrister-at-law in Hong Kong.
In June 2008, Sinokor Merchant Marine Co Ltd (“Sinokor”) entered into a Vessel Sharing Agreement (VSA) with C&Line whereby the parties agreed to share slots on designated vessels for the carriage of containers. It was contemplated that the vessels to be contributed would include chartered vessels. C&Line contributed “The Marcatania” (“the Vessel”) which was chartered from the Defendant Shipowners under NYPE 1946.
In August 2008, Sinokor entered into a Slot Exchange Agreement (SEA) with Heung-A Shipping Co Ltd (“Heung-A”) under which they agreed to exchange slots on their respective vessels.
In September 2008, Sinokor exercised its right under the VSA and shipped 433 containers on the Vessel for carriage from Jakarta to Hong Kong, Shanghai and Busan. Some of the containers were carried pursuant to bills of lading signed by Sinokor as carrier. Others were carried pursuant to bills of lading signed by Heung-A as carrier and were loaded by Sinokor on behalf of Heung-A under the SEA.
The Vessel reached Hong Kong on 28 September 2008. However, the containers could not initially be discharged from the Vessel because C&Line failed to pay hire under the charterparty. The Shipowners then withdrew the Vessel from C&Line’s service.
On 6 October 2008, Sinokor demanded that the Shipowners discharge the containers destined for Hong Kong, and carry the remaining containers to their intended destinations in Shanghai and Busan. The Shipowners initially refused, requiring payment of outstanding hire before the releasing the containers but, on 16 October 2008, they finally agreed to release all containers in Hong Kong. The containers were discharged on 18 October 2008.
Sinokor sued the Shipowners in bailment, claiming the costs of trans-shipping the remaining containers to their destination, alleging that the Shipowners were obliged to on-carry the containers in accordance with terms of bailment evidenced by VSA or the Sinokor bills of lading. Sinokor also claimed as damages the loss of US$8,860 in slot hire, as Heung-A was entitled to treat the voyage from Jarkata to Hong Kong as lost hire under the SEA.
Sinokor contended further that, as the containers which were the subject of its bills of lading were wrongfully retained by the Shipowners for 20 days between their arrival in Hong Kong on 28 September 2008 and their release on 18 October 2008, the Shipowners were liable for conversion.
Reyes J rejected Sinokor’s claim for breach of bailment. He noted firstly that there was no contractual relationship between the Shipowners and Sinokor. The bills of lading were only issued by Sinokor or Heung-A in their capacity as carriers. They were not signed by the master and could not evidence any contract between the Shipowners and Sinokor to carry the containers pursuant to the terms therein.
Even assuming that Sinokor’s containers were bailed with the Shipowners, the latter’s obligation as bailee was only to take reasonable care of the containers and redeliver them to Sinokor upon demand. Sinokor had not shown that the Shipowners had the additional duty to on-carry them to Shanghai or Busan. That the master supervised the loading of containers on the Vessel and directed where they ought to be stowed did not mean that the Shipowners had accepted any such duty; it was only to ensure that the containers could be loaded and discharged in a safe and efficient manner.
Further, the Shipowners had not accepted the containers on board subject to the terms of the VSA for they were not a party to the agreement. Rather, it was common knowledge in the shipping world that vessels were not chartered for free, and if hire were not paid, shipowners were likely to withdraw the vessels from service. Thus, under the VSA, Sinokor must be taken to have loaded containers onto the Vessel subject to the risk of it being withdrawn in case the timecharterers failed to pay hire. Any carriage on board the Vessel or bailment with the Shipowners should be subject to the terms of the time charter, in particular Clauses 5 and 70 which allowed the Shipowners to withdraw the Vessel in case of non-payment of hire.
The Court also rejected Sinokor’s claim for conversion. While a bailee’s refusal to re-deliver goods to the bailor upon demand may constitute unlawful keeping and thus conversion, a bailee was entitled to a reasonable time to make relevant enquiries in case of doubt as to a bailor’s entitlement to delivery of the goods. In the present case, the Shipowners decided to release all the containers ten days after a demand was made by Sinokor. Reyes J was of the view that this was not an unreasonable period for the Shipowners and their lawyers to decide whether the Shipowners were entitled to exercise a lien on some or all of the containers due to the non-payment of hire and whether the lien should be exercised. Thus, there was no unlawful keeping and therefore no conversion.