UK: "GLOBAL SANTOSH" - Supreme Court Overrules Court Of Appeal In Favour Of Charterers

The Supreme Court recently handed down the long awaited decision in the "GLOBAL SANTOSH" case. By a majority of four to one (Lord Clarke dissenting), the Supreme Court allowed the appeal of the charterers (Cargill) and reversed the decision of the Court of Appeal, thereby reinstating the original arbitrators' decision of 2012. The Supreme Court held that the vessel was off hire throughout the period of an arrest by the sub-charterer, aimed at securing a claim against its counterparty (the buyers/receivers) under a sale contract, on the basis that an exception in the off hire clause did not apply.

Facts

Cargill chartered the ship from the owners, NYK, on an amended Asbatime form (a variation of the NYPE 1946 form), for a one time charter trip. The ship was then sub-chartered to Sigma to carry a cargo of bulk cement. The cargo was one of six shipments of cement sold by Transclear SA to IBG Investment on C&FFO terms. Transclear appeared to be the sub-charterer of the vessel. Under the sale contract, IBG was liable to pay Transclear if the discharge of cargo was delayed beyond the agreed laytime. The vessel was delayed at Port Harcourt, owing to congestion which was caused, at least in part, by a breakdown of IBG's off-loader. Transclear obtained an arrest order to secure a claim for demurrage, and the ship was ordered to return to Bonny Town inner anchorage. The ship was included in the arrest order by a clear mistake as only the cargo should have been arrested; nonetheless, Cargill put the ship off hire until the arrest was lifted and actual discharge began.

The Supreme Court was asked to determine whether the arrest fell within the terms of the off hire provision of the charter so that Cargill could justify non-payment of hire for the period of the arrest. 

Key clause

Clause 49 of the charter provided:

"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. . . ." (emphasis added)

It was, thus, for the Supreme Court to determine whether the act of Transclear in arresting the vessel was the act of an agent of Cargill, in which case the vessel would have remained on hire throughout the period of arrest.

By the time the appeal reached the Supreme Court, it was common ground that the term "agent" could not be limited to its strict legal definition, i.e. a person authorised by the principal to perform some act on his behalf. There were many parts of the charter where it was possible to envisage that the charterers would have an act performed by third parties, and indeed the charterers had preserved their right to sublet the vessel to sub-charterers.

Supreme Court Judgment

Whilst Transclear and IBG might have been acting as agents along the charter chain, the Supreme Court held that there must be some connection between the reason behind the ship arrest and the function Transclear and IBG were performing as agents. In the present case, the right under the time charter said to have occasioned the arrest was the right to call for the cargo to be discharged, and the relevant obligation under the time charter was the duty to carry out discharge operations.

The time charter did not, however, specify what cargo handling operations were to occur.  Clause 8 of the charter required Cargill to perform, or procure to be performed, whatever cargo operations occurred. This imported a right to direct the ship as per Sigma's (sub charterers') requirements and, indirectly, those of Transclear and IBG. It also imported an obligation to ensure that cargo handling was carried out properly, and to pay for it. Between NYK and Cargill, there was no contractual obligation to ensure the cargo was discharged at any particular time, and there was no contractual interest in the timing of the operation. 

There was, however, an obligation on Cargill to pay hire to NYK regardless of when the operation occurred; essentially, provided there was no fault on the part of NYK, any delay at load or discharge ports would have no financial consequence for them. IBG and Transclear did have obligations regarding the timing of the discharge, but neither NYK nor Cargill were parties to that contract. IBG's failure to discharge the cargo could not, therefore, meaningfully be regarded as the vicarious exercise of some right of Cargill's. 

Cargill's inactivity could only be relevant to the question of responsibility under clause 49 if it amounted to the vicarious breach of some obligation of Cargill under the time charter, which it did not. Cargill's responsibility only extended to those acts or omissions in the actual performance of those operations while they were actually in progress.

The terms of IBG's purchase contract were deemed of no relevance to the issue at hand. The question was whether IBG were vicariously exercising rights or infringing obligations under the NYK/Cargill time charter. Incurring or enforcing a liability for demurrage under a sub-contract could not possibly be regarded as the vicarious exercise of any facility made available under the time charter.

If the Court of Appeal reasoning had been followed, the Supreme Court contended, it would allow anything that sub-charterers or receivers may choose to do, which resulted in the arrest of the vessel, to become the responsibility of the time charterer if the occasion for doing it would not have arisen but for their having come in at the tail end of a chain of contracts which the time charterer initiated. This test would be impossible to justify as it would simply depend on the status of the sub-charterer or receiver, and would not necessarily require any nexus between the acts leading to arrest and the performance of functions under the time charter.

Comment

When negotiating charters, owners must now take care to ensure that the contracts agreed by their charterers with sub-charterers do not leave them exposed to lengthy off-hire periods. The off-hire provisions need to be drafted attentively to ensure that there is adequate protection for periods of arrest that were the fault of neither the owner nor the charterer. Clear and prudent drafting of the off-hire clause should seek to ensure that all periods of detention resulting from contractual disputes down the charterparty chain, entitle owners to hire or, perhaps, put in place some form of risk sharing arrangement.

"GLOBAL SANTOSH" - Supreme Court Overrules Court Of Appeal In Favour Of Charterers

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