UK: Does A Vessel Arrested For A Claim Under A Sale Contract Remain On-Hire?

Last Updated: 11 April 2013
Article by Daniel Jones and Catherine Pavey

NYK Bulkship (Atlantic) N.V. v. Cargill International S.A. (The Global Santosh) [2013] EWHC 30 (Comm)

Time charterers, Cargill, withheld hire from disponent owners, NYK, pursuant to a period off-hire clause in a time trip charter on amended NYPE terms. The vessel was delayed for a prolonged period at Port Harcourt, Nigeria, where she was to discharge cement: first, because the unloader at the discharge port owned by the buyer of the cargo was broken and the vessel was held at anchor and, subsequently, because the sellers of the cargo arrested the cargo and inadvertently the vessel in order to secure their substantial claim for demurrage under the sale contract arising from the period of delay at the discharge port. Transclear were the sellers and IBG the buyers. Under the sale contract, IBG were responsible for discharging the cargo. Transclear were also a sub-charterer of the vessel pursuant to a voyage charter.

NYK brought a claim for payment of the hire which was withheld by Cargill for the period when the vessel was subject to the Arrest Order. Their claim was rejected by the majority of a panel of three arbitrators. NYK successfully appealed to the Commercial Court.

The off-hire clause

The relevant off-hire clause in the time charter between NYK and Cargill provided as follows:

"Should the vessel be captured or seizured (sic) 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. Any extra expenses incurred by and/or during the above capture or seizure or detention or arrest shall be for the Owners' account."

The Tribunal's decision

The majority of the Tribunal held that the arrest of the vessel did not fall within the off-hire provision in clause 49. They rejected NYK's claim for hire and held that this was not a case falling within the proviso "unless such ... arrest is occasioned by any personal act or omission or default of the Charterers or their agents". They quoted the classic definition of agency under English law, requiring that one party expressly or impliedly consents that the other should act on his behalf. They concluded that Cargill did not expressly or impliedly consent to Transclear detaining or arresting the vessel or her cargo. They further found that Transclear were not performing Cargill's obligation to discharge and, even if they were, they were not doing so as Cargill's agent but as their sub-contractor or sub-sub-contractor. Further and in any event, in arresting the vessel or cargo, Transclear were not acting as Cargill's agent but on their own behalf. Transclear had a claim for demurrage against IBG, but Cargill did not.

In the alternative, NYK argued that IBG, as receivers of the cargo, were Cargill's agents in respect of unloading the cargo, and the arrest of the vessel had been occasioned by IBG's (i) failure to unload within the stipulated time (in part because their unloader broke down) giving rise to a claim for demurrage against them by the sellers, Transclear; and (ii) failure to pay and/or secure the resulting demurrage claim. The Tribunal noted this argument, but did not refer to it when giving their reasons for finding against NYK.

The Commercial Court decision

The Court allowed NYK's appeal. The Judge observed that he had to determine the meaning of the words "occasioned by any personal act or omission or default of the Charterers or their agents". He held that, in the context of a charter which provided for many acts to be operated through the parties' "agents", the proviso in clause 49 was not limited to cases where parties who are specifically instructed by the charterers to carry out functions which are charterers' responsibility "occasion" an arrest or detention. He accepted NYK's submission that sub-charterers or sub-sub-charterers or receivers to whom Cargill, by subletting the vessel, had delegated or sub-delegated the performance of its responsibilities under the charter can be Cargill's agents, irrespective of the precise relationship between the delegate and the party above him in the contractual chain. The Judge did, however, also accept Cargill's submission that the act, omission or default of such a delegate must have occurred in the performance by the delegate of the delegated task. It was not enough that there was an act which was causally linked to the seizure or arrest.

Applying these findings to the particular facts of this case, the Judge found that the arrest of the cargo and (by mistake) the ship by Transclear was not an act done by Transclear in carrying out any responsibility delegated to them by Cargill. He found therefore that, although the arbitrators were wrong to reject NYK's claim on the grounds that Transclear were a subcontractor rather than an agent, they were correct in rejecting the claim on the grounds that there was no evidence Transclear were performing Cargill's obligation to discharge.

The Judge then turned to the part of the case that the arbitrators failed to consider, relating to IBG. He considered whether the acts, omissions and defaults of IBG occurred whilst IBG were under an obligation as a delegate of Cargill to unload the vessel so that they occurred in the course of IBG's performance of their obligation. The Judge found that they did. IBG became Cargill's delegate of the obligation to unload cargo under clause 8 of the NYK/Cargill charter by reason of the relevant sale contract including its demurrage regime and, therefore, 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 IBG by Cargill. The same applied to IBG's failure to pay or secure Transclear's demurrage claim.

The Judge then turned to consider causation: did the act, omission or default "occasion" the arrest of the vessel at the material time?He held that the test for causation was that the relationship between the act and the arrest has to be such that it can be said as a matter of commercial common sense that the latter was caused or brought about by the former. The Judge rejected Cargill's submission that, since the arrest of the vessel (as opposed to the cargo) by the third party Transclear was a mistake, plainly the arrest was not "occasioned" by IBG's acts, on the ground that it was the failure to unload in time and the failure to pay or secure the demurrage claim which led to the application resulting in the arrest of the vessel. At Cargill's request, the Judge decided with some hesitation to remit the causation issue back to the arbitrators, because he found it to be a matter of commercial common sense and the tribunal being "three commercial men conversant with shipping matters" as required by the charterparty, were very well placed to decide it.

Comment

The decision is perhaps surprising in that the obligation to unload within the lay days under a sale contract between third parties was held to be a relevant delegated act under clause 8 of the time charter. It appears that the decision will be reviewed by the Court of Appeal. We will report on the appeal decision in due course.

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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