Australia: Rights of a vessel owner in relation to bunkers and sub time charter hire

In brief - Sub charterer awarded damages on basis of interference with contractual relations

The decision of the Full Federal Court in Daebo Shipping Co Ltd v The Ship Go Star [2012] FCAFC 156 (7 November 2012) involved a number of interesting issues concerning the rights of an owner in relation to bunkers and sub time charter hire, in circumstances in which it had withdrawn the vessel under the head charter.

Vessel chartered and further sub-chartered

The facts were that Go Star Maritime Co (SA) had time chartered, on Absatime NYPE (1981) terms, the vessel to Breakbulk Marine Services Ltd (BMS) for 36-40 months in June 2007. On 14 July 2007 BMS had further sub-time chartered the vessel on virtually back to back terms for 23-25 months to Bluefield Shipping Co Ltd (Bluefield).

Bluefield had further sub-time chartered the vessel to Daebo Shipping Co Ltd (Daebo) on similar terms for the same period from 27 July 2007. Daebo had then sub-chartered the vessel to Daeyang Shipping Co Ltd (Daeyang) in January 2008.

On 3 January 2009 the ship was redelivered by Daeyang and Daebo sub-time chartered to Nanyuan Shipping Co Ltd (Nanyuan).

Owners' intention to withdraw ship under head charter

On 4 January 2009 Daebo invoiced Nanyuan for the first hire payment and value of the bunkers.

Prior to payment Nanyuan was informed by the head owners' agents that the owners intended to withdraw the ship under the head charter, as BMS had fallen into arrears of payment of hire. The owners' agents requested that Nanyuan not make any payments under the sub-time charter.

On 8 January 2009 Nanyuan purported to cancel or withdraw from its sub-charter with Daebo and did not pay the invoice. On 15 January 2009 the owners withdrew the ship from BMS and entered into a further charter on 16 January with Medstar Lines Inc, which ordered the vessel to sail to Albany, WA.

Sub-charterer claims that owners interfered with its contractual relations

Daebo demanded redelivery of the bunkers. The owners refused and credited the value of the bunkers as an offset against BMS' unpaid hire. Daebo commenced proceedings by arresting the vessel in Albany. Daebo claimed damages in conversion and detinue in respect of the bunkers and for loss of hire under the sub-charter party and loss of payment for the bunkers on the grounds that owners had unlawfully interfered with its contractual relations with Nanyuan.

Did Daebo have any right to the bunkers on board the vessel?

The first issue was whether Daebo had any right to the bunkers or board the vessel. The Full Court determined that issue in favour of owners on the basis that Nanyuan had taken over the vessel when it had been placed at its disposal on 3 January 2009 and had a liability to pay for the bunkers on board from that time. (Its sub-charter permitted it 3 days thereafter to pay, which it was held did not affect the fact of delivery at the earlier date).

Accordingly Daebo had no entitlement to the bunkers. The Court followed well known English precedents (such as the Span Terza (No. 2) [1984] 1 WLR 27 and Madeleine [1967] 2 Lloyds Rep 234) in reaching that conclusion.

Had the owners interfered in Daebo's contractual relations with Nanyuan?

The second issue concerned the allegation by Daebo that owners had interfered in its contractual relations with Nanyuan. As the court explained, the essence of this tort is committed if owners intended to induce or procure the breach of contract by Nanyuan in the knowledge that it would interfere with Daebo's contractual rights. The Full Court held that owners had engaged in such conduct and had done so when notifying Nanyuan that they would be withdrawing the vessel under the head time charter and in urging Nanyuan not to pay charter hire or any other money due under the sub-charter.

It was held that the owners had not requested or required payment of any sub-freight due by Nanyuan. The lien under clause 18 of the NYPE form of charter applied to "sub-freights" and although notice was given by owners of its right to lien sub-freights the owners did not assert the right to receive sub-freights.

Whilst not necessary to the decision, the Full Court discussed the old dispute between Lloyd J and Steyn J in the Cebu cases ([1983] QB 1005 and [1993] QB 1), as to whether sub-freight applied to both bills of lading and voyage charter freight as well as time charter hire. Lloyd J had favoured the extensive interpretation, whilst Steyn J had favoured the more limited interpretation. The Full Court did not express its view as to which interpretation it favoured but did point to the curiosity, in Steyn J's reasoning, of the omission to consider US law on the subject, which it said might be considered to be a more relevant guide to what such a charter party was intended to cover.

Rights of head owner who withdraws the vessel from hire from principal charterer

In the English High Court decision last year of Dry Bulk Handy Holding Inc v Fayette International Holdings Ltd (the Bulk Chile (2012) 2 Lloyds Rep 594) it was held by Smith J that sub-freights in clause 18 of a NYPE charter did not extend to hire. However this decision is also of interest in its consideration of the rights of the head owner in circumstances in which it withdraws the vessel from hire from the principal charterer.

It was held that the owners were entitled to intervene to claim freight due under bills of lading (being owners' bills) directly from the shipper at any time before it had been paid, this right in the owners being distinct from any right to lien under the head charter party. The bills of lading were subject to the terms of the voyage charter party which the shipper under the bills of lading had entered into.

Smith J also held that the sub-charterers had impliedly requested the continued performance of the voyage, after the withdrawal from the head charterers, and were therefore liable to pay reasonable remuneration for the continued use of the vessel, (following the "Tropwind" (No 2) (1981) 1 Lloyds Rep 45) and he held against the shipper on the basis of unjust enrichment - had he decided the bill of lading claims did not succeed. Similar issues were considered by Carruthers J in the NSW Supreme Court in J. Gadsen Pty Ltd v Strider 1 Limited [1990] 20 NSWLR 57.

Daebo awarded damages

Therefore the Full Court allowed the appeal on the interference with contractual relations argument and awarded Daebo damages in respect of the value of the bunkers on delivery, as well as loss of hire under its sub-time charter.

Application for leave to appeal to the High Court

On 20 December 2012 McKerracher J ordered a stay of the Full Court orders pending an application for leave to appeal to the High Court.

Stuart Hetherington
Trade and transport
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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