Case Summary: The “Global Santosh” 26 May 2014
/NYK BULKSHIP (ATLANTIC) N.V. V CARGILL INTERNATIONAL S.A. (THE GLOBAL SANTOSH) [2014] EWCA CIV 403
Overview
This article summarises the Court of Appeal decision on the proper construction and application of additional clause 49 of an amended NYPE form, which provided that the vessel would be off-hire in the event of being captured, seized, detained or arrested “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”.
The Facts
The vessel was time chartered from its Owners, NYK Bulkship (Atlantic) N.V. (NYK) by the appellant charterer, Cargill International SA (Cargill), for one time charter trip from Sweden to West Africa on an amended NYPE form dated 11th September 2008.
Cargill sub-chartered the vessel to Sigma Shipping Ltd (Sigma) by way of a voyage charter. The vessel seemed also to be sub-sub-chartered under a voyage charter by Transclear SA (Transclear). However, it is not known whether Transclear sub chartered the vessel directly from Sigma, or indirectly from other sub charterers.
The cargo shipped on board the vessel was one of six shipments of cement, which was sold by Transclear to IBG Investments Ltd (IBG) on C&FFO terms under a contract of sale dated 14thDecember 2007. Pursuant to the ‘FO’ (‘free out’) part of the sale terms, IBG were responsible for the unloading of the cargo, and were also liable to pay Transclear demurrage if discharge was delayed.
The vessel arrived at the discharge port (Port Harcourt), but was held at anchor due to congestion partly caused by the breakdown of IBG’s unloader. After, more or less, two months she was called in to berth but was sent back because, on the previous day, Transclear had obtained an arrest order issued by the Federal High Court of Nigeria on the cargo to secure their demurrage claim of US$1,560,000 against IBG. The order also mistakenly named the vessel as the object of the arrest. Discharge of the cargo finally began on 15th January 2009, and was completed on 26th January 2009 after an agreement on the demurrage due had been reached and the court had issued the release order.
Cargill withheld hire under clause 49 of the charterparty in respect of the period for which the vessel was under arrest.
The Arbitration
The issue before the arbitrators was
“Whether Cargill was entitled to put the vessel off-hire while the cargo was under the arrest at the instance of Transclear.”
This issue was addressed by the tribunal in two parts:
(i) The general scheme of clause 49:
A mistaken arrest was still an arrest for the purpose of clause 49, and accordingly, by reason of both detention and arrest, the vessel was prima facie off-hire.
(ii) The proviso to clause 49:
The majority of the tribunal concluded that the detention or arrest of the vessel had not been caused by the personal act or omission or default of Transclear as Cargill’s agent, and that the vessel was accordingly off-hire for the period claimed by Cargill. The tribunal based its decision on the fact that there was
“no evidence that Transclear was performing Cargill’s obligation to load or discharge …[the vessel]… it is clear that …Cargill had no interest in an arrest of either ship or cargo. Transclear was therefore acting on its own behalf to secure Transclear’s claim against IBG for demurrage”
The tribunal failed to address NYK’s alternative case that IBG was Cargill’s agent (in addition to or in the alternative to Transclear) for the purposes of clause 49.
The Commercial Court (on NYK’s appeal)
Field J upheld the tribunal’s rejection of the submission that Transclear was Cargill’s agent in discharging the vessel, as there was no evidence that Transclear was performing Cargill’s obligation to discharge. However, he then went on to decide that sub-charterers or sub-sub-charterers or receivers to whom Cargill, by sub-letting the vessel, had delegated or sub-delegated the performance of their obligations, can be deemed to be Cargill’s agents for the purpose of the proviso, irrespective of their precise contractual relationship.
Field J held that IBG was Cargill’s agent, as IBG “became Cargill’s delegate of the obligation to unload under clause 8 by reason of the sale contract”
Turning to causation, the Court decided that
“the causal relationship between the act, omission or default within the postulated clause 49 event …. has to be such that it can be said as a matter of commercial sense that the latter was caused or brought about by the former”
On the above basis Field J held that it was ‘plainly arguable’ as a matter of commercial sense that the mistaken arrest of the vessel was caused or brought about by IBG’s failures; and he exercised his discretion under s.69(7)(c) of the Arbitration Act to remit the question of causation back to the arbitrators.
The Court of Appeal (on Cargill’s appeal and NYK’s cross-appeal)
Cargill argued that the proviso to clause 49 applied only when the ‘agent’ concerned was carrying out a delegated obligation of the charterer. Furthermore, Cargill submitted that it followed that the proviso only applied when the act (or omission, etc.) of the ‘agent’ under the separate contract could be matched with an obligation of Cargill under the charterparty. Unlike IBG, Cargill was not under any obligation to discharge within a specified time period. Counsel for Cargill also raised the question as to whether the mistaken arrest of the vessel broke the chain of causation.
On the other hand, NYK submitted that the liberty to sub-let provision was central to the commercial scheme of time charterparties. In that context, the word ‘agent’ in the proviso to clause 49 was to be broadly construed. The proviso matched the broad and familiar risk allocation between shipowners and time charterers in respect of delay. Where an arrest had been occasioned by the act of a party on the time charterer’s side of the line, the proviso applied and the vessel remained on hire.
The Court’s ruling
The Court of Appeal followed the guidance provided in the judgment of Lord Clarke of Stone-cum-Ebony in Rainy Sky v Kookmin Bank. In doing so, the Court initially examined the language of the proviso, and thereafter considered it in light of the charterparty as a whole and finally the commercial context. Where a there is more than one construction or interpretation of a clause the court should follow the interpretation which is consistent with business common sense
The Court of Appeal ruled that under clause 49, if the vessel is arrested/detained she is prima facie off-hire. The burden is then on Owners (NYK) to show that the arrest was occasioned by any personal act or omission or default of the Charterers or their agents. The word “agents” in the proviso was not limited to actual agents but could include “delegates” of Cargill irrespective of the precise contractual relationship. The Court of Appeal did not agree with Field J’s decision that Transclear (the sub-sub charterer) was not Cargill’s agent and decided that Transclear was a delegate of Cargill along with IBG, and it remained a delegate even if the act or omission was not in the course of performance of the delegated task:
“If a party (e.g. a sub-charterer) is a delegate of Cargill flowing from the sub-letting of the vessel, that party remains a delegate for the purposes of the proviso, regardless of the legal nature of the act (or omission, etc.). Not every act omission of the delegate will or need be in the course of performance of the delegated task”
The Court of Appeal took a broad commercial approach and decided that while Cargill was indeed under no obligation to discharge the cargo in a given time, the dispute between Cargill’s delegates, Transclear and IBG arose from Cargill’s trading arrangements concerning the vessel, “and fell clearly on Cargill’s side of the line, with the result that hire continued to run over the relevant period (always of course subject to questions of causation) … the acts or omissions of both Transclear and IBG led to this result…”.
Their Lordships held that “hire will continue to run where the act, omission (etc.) is that of Cargill or its delegates – and thus, in a broad sense, on Cargill’s rather than NYK’s side of the line”
The Court of Appeal upheld the decision of Field J that the question of causation (and any break in the chain of causation) was to be remitted back to the arbitrators.
Discussion
The Court of Appeal took a very commercial broad brush approach and, in its own words, its decision “gives effect to the familiar division between owners’ and charterers’ spheres of responsibility”. This was very much in line with the views of the dissenting arbitrator who focused on the general division of risk between owners and charterers concerning arrests.
The Court of Appeal read the terms of the charterparty as a whole in order to give effect to the intention of the parties. Accordingly the word ‘agents’ in the proviso to clause 49 was read in the context of the liberty to sub-let to include delegates of the charterer irrespective of the precise contractual relationship or whether the delegate was performing a delegated obligation of the charterer. Henceforth it is probable that the use of the word ‘agents’ in such provisos may be read to include all sub charterers, shippers and receivers.
Clause 8 of the time charterparty, which provided that “charterers are to perform all cargo handling at their expense under the supervision of the Captain…” clearly intended to place responsibility for cargo handling on the Charterer, Cargill. Cargill was generally responsible for all matters relating to the discharge of the cargo, even though they were not obliged to discharge the cargo within a specified time period. The Court did not consider what the position would have been had the words ‘and responsibility’ been added to clause 8: would those words have been adequate enough to lead the court to a different conclusion: would IBG’s failure to discharge in time fall on Owners’ side of the line?
Had the vessel been off-hire under clause 49 for more than 30 consecutive days, then under additional clause 66 Cargill would have been entitled to cancel the charterparty, and the Court of Appeal found it ‘implausible’ that this was what the parties had intended.
The decision appears fair on the basis that Owners could not be said to have been prepared to take the risk of having their vessel detained by third parties whom they could not control, and with whom they had no contractual relation or link. Although Cargill equally did not have a direct contractual link with Transclear or IBG, the court was influenced by the fact that these parties were introduced to the voyage as a result of Charterers’ (not Owners’) trading arrangements.
Both Owners and Charterers must be aware when negotiating their charterparty terms that any such terms will be read and interpreted in light of all the other clauses and the commercial context of the contract.
It is not clear whether Cargill received any demurrage from Sigma under their sub charter or whether Transclear paid any demurrage to their disponent owner (whether that was Sigma or another entity). Furthermore, it is not known whether Cargill was effectively left out of pocket: whether and to what extent the hire that should have been paid by Cargill to NYK during the arrest was in fact covered by any demurrage payable to Cargill by Sigma.
From a time charterers/disponent owners’ point of view they must ensure that when they are sub chartering the vessel they must either have back to back off-hire clauses if they are sub-letting the vessel on a time charter basis, or adequate demurrage provisions if they are sub chartering the vessel on a voyage basis so that they receive adequate compensation for any hire paid to owners during such periods. It is much more difficult to achieve this when the charters are not back to back, particularly when one charter is a time charter trip and the other a voyage charter.
Their Lordships left open the question of whether an act of a Charterers’ delegate who was wholly unrelated or extraneous to the sub charter party chain or inconsistent with its scheme would fall outside the ambit of the proviso, even if it did cause the detention of the vessel. The broad risk allocation/line might not assist in such a case, as it would not necessarily be clear which side of the line the third party actions fall. It is expected that such a case will be decided on the terms of the charterparty contract as a whole in light of its own particular facts and commercial context.
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