UK: Ship-Owners Under No Duty In Bailment To Complete The Original Voyage Following Termination Of Time Charter

Sinokor Merchant Marine Co Ltd v. The Owners and/or Demise Charterers of the Ship or Vessel "Marcatania" HCAJ 138/2008

In this case, the High Court of Hong Kong was asked to determine whether the ship-owners were under any duty in bailment to complete the original voyage and deliver cargo following withdrawal of the vessel by the ship-owners part way through a voyage for non-payment of hire. The court ruled that the ship-owners did not owe such an obligation.

The background facts

The claimant shipped a number of containers (which the claimant received from its customers) on the vessel Marcatania pursuant to a vessel-sharing agreement with the time charterer of the vessel. Due to the collapse of the shipping market in late 2008, the time charterer became insolvent and failed to pay charter hire to the ship-owners. The owners consequently terminated the time charter while the vessel was in Hong Kong. The claimant demanded that the owners carry the containers to their intended destinations in Mainland China and South Korea but the owners refused. The claimant arranged for transhipment of the containers themselves and sought to recover, inter alia, the costs of transhipping and lost slot hire from the owners.

The owners did not issue any bills of lading in respect of the subject containers. All the bills were issued by the claimant as carriers. Therefore, it was common ground that there was no contractual relationship between the claimant and the owners and no damage to the cargo.

The claimant's case

It was disputed that a bailee's duty includes taking reasonable care of goods and to re-deliver them when asked by a bailor having the right to immediate possession. In the absence of a contractual relationship, the claimant argued that the owners fell under the additional duty to complete the original voyage because the Master supervised the loading of the containers on the vessel. The Master directed where the containers ought to be stowed, while presumably knowing that the containers were destined for Mainland China and South Korea.

The claimant's second argument was that there was a bailment on terms, the terms being the vessel-sharing agreement between the claimant and the time charterer, which required delivery to the final destinations.

The court's decision

The judge was not persuaded by the claimant's arguments. The court held that by merely directing where the containers were to be placed on board the ship, the Master could not be regarded as accepting on behalf of the owners an obligation to carry the containers to particular destinations. All the Master would be doing by supervising stowage was ensuring that containers were loaded in a safe and efficient manner, such that they could be discharged from the vessel in an equally safe and efficient manner.

Rejecting the argument that the terms of the bailment were that of the vessel-sharing agreement, the court found that it would be odd if the owners, complete strangers to the vessel-sharing agreement, should be deemed to have taken the risk of the time charterer becoming insolvent. The judge further said that it would violate the principle of privity of contract if the owners would be obliged to confer a benefit on the claimant by completing the original voyage without themselves being able to demand that the claimant pay for the transit. Having lost charter hire through the time charterer's default, the owners on this scenario would stand to lose even more, because of the obligations which the time- charterer undertook under the vessel-sharing agreement.

The judge found that the correct analysis should be that the parties to the vessel-sharing agreement must have envisaged that, insofar as a chartered vessel was or could be employed, there was a risk that the ship might be withdrawn as a result of non-payment of charter hire. The judge agreed with the owners' submission that insofar as a chartered vessel is employed pursuant to the vessel-sharing agreement, NYPE (1946) would be the likely (if not, the most likely) form of charterparty for such a vessel. NYPE (1946), in keeping with other forms of time charter, includes a provision allowing a ship-owner to withdraw a vessel from the charterer's service where hire is unpaid. 

As regards the terms of the bailment, the judge found that there was no good reason why the terms of the claimant's bills of lading should govern the bailment to the owners. There was no evidence that the owners had sight of those bills or gave authority to the claimant to issue such bills on behalf of the owners. Instead, the owners only authorized the time charterer to accept cargo subject to the terms of the time charter. The claimant was able to load goods on board the vessel in consequence of the time charterer's charterparty with the owners. The time charterer (as it was obliged to do under the vessel-sharing agreement) permitted the claimant to use the time charterer's available slots on board the vessel. As a result, the bailment of goods by the claimant on board the vessel must have been subject to the terms of the time charter binding on the time charterer. Absent a representation or holding out by the owners to the contrary, the time charterer could not (vis-à-vis the claimant) have undertaken on behalf of the owners something more than the time charterer was permitted to do under the time charter.

Further, the judge also dismissed the claimant's ancillary claim for damages for conversion by reason of the time lag of 12 days between the claimant's demand for delivery of the containers and the owners' discharge of the same.

While a demand by a bailor entitled to the immediate possession of goods followed by a refusal of delivery by a bailee may evidence an unlawful keeping, the court held that there had been no conversion by the owners. The principle is that a bailee is entitled to a reasonable time to make relevant enquiries in the event of doubt as to a bailor's entitlement to the delivery of goods. In this case, the owners and their lawyers were entitled to a reasonable amount of time to consider whether the owners were entitled to exercise a lien on some or all of the containers and whether the owners should exercise any lien which they might have. The owners and their lawyers were also entitled to a reasonable time to consider the question whether there was an obligation to carry the containers onwards as maintained by the claimant.

Comment

The court in this case confirmed and applied the well-founded principles of bailment and refused the claimant's request to extend the bailee's duties. It highlights that, in cases where a claimant cannot establish a contractual or tortious claim against the defendant, the law of bailment will generally not assist the claimant.

Ince & Co acted for the successful defendant in this case.

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