Dry Bulk Handling & CSAV v Fayette International & Metinvest - The Bulk Chile
Dry Bulk Handy Holding Inc and Compania Sud Americana de Vapores SA v Fayette International Holdings Ltd and Metinvest International SA (The “Bulk Chile”) English Commercial Court: Andrew Smith J:  EWHC 2107 (Comm): 24 July 2012
CHAIN OF CHARTERPARTIES: HEAD TIME CHARTER, SUB-TIME CHARTER, TIME TRIP CHARTER AND VOYAGE CHARTER: OWNERS’ BILLS OF LADING: RIGHT TO INTERVENE IN COLLECTION OF FREIGHT: RIGHT TO LIEN SUB-FREIGHT AND SUB-HIRE: RIGHT TO HIRE OR REASONABLE REMUNERATION FOR COMPLETION OF VOYAGE FOLLOWING TERMINATION OF TIME CHARTER
John Bignall (instructed by Hill Dickinson LLP) for DBHH and CSAV, Head Owners/Disponent Owners
Dominic Happé (instructed by Eversheds LLP) for FIH and MI, Time Trip Charterers and Voyage Charterers/Shippers
There was a chain of four charterparties (head time charter, sub-time charter, time trip charter and voyage charter). Head Owners’ bills of lading were issued to Shippers for the carriage of goods on a voyage from Odessa to Jakarta. The Sub-Time Charterers failed to pay hire on time. Disponent Owners terminated the sub-time charter with (and withdrew the vessel from) Sub-Time Charterers’ service during the course of the voyage. Head Owners/Disponent Owners gave notice to and sought freight and hire from Time Trip Charterers/Voyage Charterers/Shippers. The Commercial Court held that:
(1) Head Owners, as contractual carriers under the bills of lading, were entitled to claim freight from Shippers because the freight had not been paid by Shippers at the time notice to intercept the freight was given to Shippers by Head Owners;
(2) Disponent Owners under the sub-time charter, as equitable assignees of the right to claim freight under the voyage charter, were entitled to give notice of lien in advance of freight being earned under the voyage charter in order to claim freight directly from Voyage Charterers once the freight was earned under the terms of the voyage charter; and
(3) Disponent Owners, by way of a claim for reasonable remuneration, were entitled to claim hire at the market rate from Time Trip Charterers for the period between withdrawal of the vessel under the sub-time charter until completion of the voyage, because Time Trip Charterers had impliedly accepted the services of Disponent Owners in completing the voyage.
Case note by Jim Leighton, BSc (Hons), LLB (Hons), LLM (Maritime Law), Solicitor of England & Wales, Foreign Qualified Lawyer (Practising Foreign Law) in Singapore, Associate at Hill Dickinson LLP and International Contributor to DMC’s CaseNotes 
Head Owners, Dry Bulk Handy Holding Inc (“DBHH”), agreed a time charter with Disponent Owners, Compania Sud Americana de Vapores SA (“CSAV”). Head Owners, as undisclosed agents of CSAV, agreed a sub-time charter with Sub-Time Charterers, Korea Line Corporation (“KLC”). KLC later agreed a time trip charter for carriage of cargo from Odessa to Jakarta with Time Trip Charterers, Fayette International Holdings Ltd (“FIH”). FIH in turn agreed a voyage charter for carriage of cargo from Odessa to Jakarta with Voyage Charterers/Shippers, Metinvest International SA (“MI”).
The time charter and time trip charters were based on an amended NYPE 1946 form on substantially back to back terms. The voyage charter was on an amended Gencon 1994 form.
Before and during the course of the voyage, KLC failed to pay charter hire under the sub-time charter. DBHH, as disponent owners under that charter, gave two notices of lien on freight, hire and cargo to MI and FIH, before freight and hire were paid, requiring payment of freight and hire to be redirected to DBHH.
After MI shipped the cargo, FIH, as agent for and on behalf of the master, signed and issued three Congenbill 1994 form bills of lading marked “freight prepaid” to MI. The freight had not however been prepaid.
KLC went into administrative protection under South Korean law. DBHH/CSAV terminated the sub-time charter and withdrew the vessel from KLC’s service.
MI paid freight directly to FIH instead of DBHH, pursuant to the two notices, and contested the right of DBHH/CSAV to claim freight. FIH contested the right of DBHH/CSAV to directly claim freight or hire.
Bills of lading claim
There was no dispute that the bills of lading (“bills”) evidenced a contract of affreightment between DBHH and MI. The fact that the bills were marked “freight prepaid” did not show that MI were not in fact liable to pay freight, as those words did not negative a pre-existing, undischarged, contractual liability to pay freight (fn.1).
The bills provided that the freight payable by MI was "payable as per [the voyage] charterparty". This meant the terms of the voyage charter governed not only the amount of freight payable by MI but also the time, the method and to whom payment was to be made (fn.2). The voyage charter did not however expressly state to whom payment was to be made. MI submitted that freight to be paid by MI under the bills was to be paid to FIH, and that DBHH, accordingly, were and are not entitled to require that freight be paid to DBHH.
The judge noted that it had long been established that a shipowner can intercept to claim freight directly from the shipper at any time before the freight has been paid (fn.3). The provision in the bills that freight should be payable "as per charterparty" did not exclude a shipowner’s right to intercept freight.
MI further submitted that DBHH did not effectively intervene to demand payment of the freight and so did not prevent the payment from MI to FIH from discharging any obligation MI might have to pay freight to DBHH. This was on the basis that DBHH could give notice only when money was overdue to it under its contractual arrangements. The judge rejected that argument because there was no principle that the right to intervene should be restricted in the way suggested. In any event, freight was overdue by the time the second notice of intervention was given.
CSAV made a lien claim against MI for freight payable under the voyage charter. CSAV also made a lien claim against FIH for hire under the time trip charter (which failed for reasons noted in the Comment below).
The parties accepted that a lien over sub-freights operates by way of an equitable assignment of the right to be paid them or, in the case of sub-sub-freights, by a chain of such assignments. The judge also noted that the weight of first instance authority would also have required him to come to the same conclusion. The judge endorsed the statement in Time Charters (fn.4): “The right of the owners under … the [NYPE] form to intercept sub-freights extends to sub-freights due to sub-charterers – and not therefore payable to the time charterers direct – if, under the terms of the sub-charter, the time charterers have similar rights of lien to those given to the owners under the head charter”. The judge concluded that the condition was met here.
MI challenged the right of CSAV by submitting that the lien notices were defective because they (i) mis-stated the amount due, and (ii) did not explain how the sum claimed was made up. The judge noted that there was ample authority on the need to give notice to exercise the lien. The judge rejected the submission of MI. Having considered the relevant law, the judge held that – in the case of a simple charterparty chain of one time-charter and one voyage charter - effective notice to invoke a lien was given where the sub-charterers were informed (in one or more communications) (i) that the owners were assignees of debts owed (or to be owed) by the sub-charterers, (ii) what debts were so assigned, (iii) that an amount was due to the owners under the head charterparty, and (iv) that the owners required that the assigned debts be paid directly to them. The judge considered that no particular form of words were required for conveying the information.
The judge held that the first and second notices met those requirements.
Charter hire claim
CSAV relied on The “Tropwind” (No.2) (fn.5) for the proposition of law that they were entitled to reasonable remuneration, where the vessel had been withdrawn under the time charter, because FIH had either expressly or impliedly requested the services of the vessel (to complete the voyage and deliver the cargo). That position accorded with the judge’s own decision in The “Kos” (fn.6) and also found support from the Australian judgment of The “Lakatoi Express” (fn.7). It also accorded with the statement in a leading practitioners’ work (fn.8). Accordingly, the question was whether or not FIH had in fact expressly or impliedly requested the services. The judge decided that as a matter of fact FIH had impliedly requested the services. This was on the basis that after the withdrawal of the vessel, while DBHH had obligations under the bills of lading contracts, they were under no contractual or other obligation to FIH to continue the voyage and to deliver the cargo. However, FIH would on the face of it have been in breach of their obligations under the voyage charter if cargo was not delivered to Indonesia and Malaysia. FIH had given instructions to the vessel (or purported to do so). The implication was that they were calling upon the vessel to provide her services to complete the voyage.
The judge concluded that CSAV were entitled to be paid by FIH reasonable hire or remuneration at the agreed market rate of USD23,000 per day for the period from 26 February 2011 (withdrawal of the vessel under the time charter) to 10 March 2011 (completion of delivery of the cargo).
This judgement has since been upheld by the Court of Appeal:  EWCA Civ 184 This judgment adds to recent developments that have begun to explore and further develop the rights of owners when a time charter comes to an end prematurely due to charterers’ failure to pay hire. The other cases are The “Kos”  UKSC 17 (indemnity for consequences of repudiation by charterers when cargo loaded) and, just reported on 18 April, The “Astra”  EWHC 865 (Comm) (charterers’ obligation to pay hire on time is a condition, breach of which entitles owners to damages for loss of bargain).
The noticeable point on which CSAV did not succeed was for a lien on sub-hire, despite success on the lien on sub-freight claim. This was based on the lien provisions in clause 18 of the NYPE 46 form, which expressly includes a lien on “sub-freight” but not on “sub-hire”. Earlier first instance authority suggested there was no reason to distinguish between “hire” and “freight”, for which there was no historic distinction made by commerce or law. More recent first instance authority, however, decided that a narrow reading of “sub-freight” was correct. That position is backed by considerations on judicial decision making laid down by the Court of Appeal. This led the judge to hold that a lien on “sub-freight” did not extend to or include “sub-hire”.
Such a conclusion justifies amending clause 18 by adding “sub-hire” to close the lacuna for future fixtures.
Footnote 1: Cho Yang Shipping Co Ltd v Coral (UK) Ltd  2 Lloyd’s Rep 641, 643, per Hobhouse LJ.
Footnote 2: India SS Co v Louis Dreyfus Sugar Ltd (The “Indian Reliance”)  1 Lloyd’s Rep 52.
Footnote 3: Tradigrain SA v King Diamond Shipping SA (The “Spiros C”)  2 Lloyd’s Rep 319, 331-332, per Rix LJ.
Footnote 4: Time Charters (2008, 6th Ed), para 30.11.
Footnote 5: Tropwood AG v Jade Enterprises Ltd  1 Lloyd’s Rep 45, 53, per Robert Goff J.
Footnote 6: ENE Kos 1 Ltd v Petroleo Brasileiro SA  EWHC 1843 (Comm), at .
Footnote 7: Mutual Export Corp v Australian Express Ltd (1990) 19 NSWLR 285, 304, per Carruthers J.
Footnote 8: Time Charters (2008, 6th Ed), para 16.111-112.