Wednesday, 24 September 2014

Court of Appeal gives broad meaning to “charterers’ agents” in off-hire clause


September 24, 2014.
NYK Bulkship (Atlantic) N.V. v. Cargill International S.A. (Global Santosh) [2014] EWCA Civ 403.
The Court of Appeal recently considered the meaning of “charterers’ agents” for the purposes of a proviso to an off-hire clause in a case involving the arrest of a vessel that was time chartered on the NYPE form.

The background facts

By a charterparty dated 11 September 2008 on an amended NYPE form, NYK time chartered the Global Santosh to Cargill. Cargill sub-chartered the vessel to Sigma, by way of a voyage charter, for a shipment of cement sold by Transclear, also a sub-charterer of the vessel under a voyage charter, to IBG. Under the contract of sale, IBG was responsible for the unloading of the cargo and was liable to pay Transclear demurrage if unloading of the cargo was delayed.

Upon arrival at the discharge port, the vessel was held at anchor due to the breakdown of IBG’s unloader. Over two months later, she was eventually called in to berth. However, Transclear had obtained an Arrest Order on the cargo the day before to secure a claim for demurrage against IBG for $1,560,000. The Order prohibited any attempt to remove the cargo from the vessel, but also mistakenly named the vessel as the object of the arrest. Discharge only began nearly a month later.

Cargill withheld hire for the period during which the vessel was under arrest. NYK sought the payment of hire and the dispute was submitted to arbitration.

Arbitration and Commercial Court decisions

Clause 49 of the charterparty provided as follows:

“Should the vessel be captured or seizured 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.”

The question in issue was therefore whether the arrest was “occasioned by any personal act or omission or default of the Charterers or their agents”, i.e. whether it had been caused by the personal act or omission or default of Transclear or IBG, as Cargill’s agents. If the answer was ‘yes’, then Cargill was not entitled to put the vessel off-hire under Clause 49. If the answer was ‘no’, the proviso did not apply and Cargill was right to put the vessel off-hire for the period in question.

The arbitral Tribunal, by a majority, found that neither Transclear nor IBG were acting as Cargill’s agents and therefore the proviso did not apply. This decision was reversed by Mr Justice Field on appeal. The Judge found that IBG had become Cargill’s delegate of the obligation to unload under the charterparty by reason of the sale contract. For the purposes of Clause 49, the failure to unload within the lay days was an act, omission or default that occurred in the course of performing the obligation to discharge as delegated to it by Cargill.

The Court of Appeal

The Court of Appeal was unanimous – 3:0. The judgment was given by Lord Justice Gross, a judge with long experience of shipping law. He dismissed the appeal and upheld Mr Justice Field’s ruling in favour of NYK. The ship was on-hire for the period of the arrest. The proviso did apply. However, he reached his view on a different basis from Mr Justice Field.
He agreed that the proviso applied to agents in the broad sense. As he put it, you look at who the actors are. Delegates of cargo can be agents for the purpose of the proviso, irrespective of the precise contractual relationship between them. They can include sub-charterers, sub-sub-charterers and receivers.

But Lord Justice Gross took a different line from Mr Justice Field on the relevance of the acts covered by the proviso to Clause 49. In his view, there was nothing there to restrict the application of Clause 49 to acts occurring in the course of the performance by the delegate of the delegated task. It was enough that the act of the delegate occasioned the arrest or detention of the vessel.

The Court of Appeal was in no doubt that on the act/actor analogy, the vessel’s arrest had been occasioned by an act or default of an agent of Cargill. The relevant actors were Transclear as well as IBG. Lord Justice Gross approached things by looking at which side of the line the problem fell on. Was it on NYK’s side or Cargill’s? He concluded that it fell on Cargill’s side of the line. It involved Cargill’s delegate. NYK was not involved in the dispute between Transclear and IBG about the delay. True, Cargill was under no obligation either to discharge the vessel in a given time – their charter was a time charter. However, the proviso was not limited to Cargill’s contractual obligations; what mattered was that the dispute arose out of their trading arrangements for the vessel.  The general scheme of Clause 49 provided for the vessel to be on-hire or off-hire depending on which side of the line things fell.

Comment

This decision gives a broad meaning to “charterers’ agents” under a clause like this. It can include the whole chain of parties, down to the sub-charterers and the receivers. It remains to be seen how and to what extent this broad reading will be adopted for other provisions of dry time charters.

The decision will be welcomed by shipowners. Each case will depend on its facts, but the balance now seems to have shifted towards a more equal approach. The risks of the arrest will be borne by the party who is the most closely related to it – depending on which side of the line the matter falls.

The Court of Appeal’s reasoning was based on the approach of the Supreme Court recently in the Rainy Sky case, in which Ince acted for the successful shipowners. The Supreme Court ruled that where a contract term is capable of two meanings, you should prefer the meaning which is more consistent with business commonsense – and that, in doing so, you should look at (a) the clause; (b) the contract as a whole; and (c) its commercial context. That is what Lord Justice Gross did in the Global Santosh.

Article authors: Florence Preux

Source: http://incelaw.com

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