UK: Court Of Appeal Finds Sub-Charterers And Receivers To Be Charterers’ "Agents" For Purposes Of Proviso To Off-Hire Clause

In NYK Bulkship (Atlantic) NV v Cargill International SA (The Global Santosh) [2014] EWCA Civ 403 the Court of Appeal considered the true construction and application of a proviso to an off-hire clause dealing with the capture, seizure, detention or arrest of the vessel.

Background

Pursuant to a charterparty on an amended NYPE form (the "Charterparty"), the claimant owner ("Owners") agreed to let and the defendant charterer ("Charterers") agreed to hire the "The Global Santosh" (the "Vessel") for one time charter trip from Sweden to West Africa.  Charterers sub-chartered the Vessel to Sigma Shipping Ltd ("Sigma"), who sub-sub-chartered the Vessel to Transclear SA ("Transclear").

Transclear entered into a sale contract ("Sale Contract") with IBG Investments Ltd ("IBG"), on 'free out' terms, for a shipment of cement, with discharge to take place at 'Port Harcourt (Ibeto jerry)'.  Pursuant to the free out terms, IBG were responsible for unloading the cargo.  IBG were also liable to pay Transclear demurrage if unloading of the cargo was delayed.

Due to congestion at the discharge port, Transclear obtained an arrest order against the cargo, and (by mistake) the Vessel, in order to secure their claim against IBG for a two month period of demurrage due to congestion when the Vessel arrived at the port.

Charterers withheld hire during the period of the arrest on the basis of Clause 49 of the Charterparty, which included the following provision:

"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."

Owners argued that the underlined proviso applied and Charterers were not entitled to withhold hire. Owners' claim against Charterers for the withheld hire was dismissed in arbitration. On appeal at first instance, the court remitted the award to the Tribunal for consideration of a question of causation.

The Court of Appeal's Decision

The Court of Appeal held that the proviso in Clause 49 applied (ie. the arrest or detention was occasioned by a personal act or omission or default of the Charterers' agents) and Charterers were not entitled to place the Vessel off-hire.

The Court held that "agents" was not to be limited to agents strictly so called and delegates of the Charterers were agents for the purposes of the proviso, irrespective of the precise contractual relationship existing between the delegate and the party above him in the contractual chain.  Accordingly, "agents" was held to include sub-sub-charterers and receivers.

Both Transclear and IBG were held to be Charterers' agents for the purposes of Clause 49 on the basis that they were performing activities which fell within the Charterers' sphere of responsibility, with responsibility for all matters relating to the discharge of the cargo falling on the Charterer under the Charterparty.  IBG's failure to unload the cargo within the lay days stipulated in the Sale Contract and its subsequent failure to pay demurrage and/or to provide security following the arrest "occasioned" the detention and IBG were held to be Charterers' agents in this respect.

The Court noted that this outcome gives effect to the "familiar division between owners' and charterers' spheres of responsibility".

Comment

The allocation of risks and responsibilities as between an owner and time charterer is an important issue, particularly in respect of the risk of delay, which is fundamentally on the time charterer.  The time charterer remains liable to pay hire in all circumstances unless he can bring himself within a clearly defined off-hire clause.

The inclusion of acts, omissions and defaults of the charterer's delegates as agents, even if such delegates are not the charterer's "agents" within the strict legal meaning of that term and are not performing a delegated task, offers significant protection to Owners who permit the sub-letting of their ship.

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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