Case Summary: The "GLOBAL SANTOSH" - Off-hire whilst under arrest due to Charterer's agent's fault
/NYK Bulkship (Atlantic) NV (Respondent) v Cargill International SA (Appellant) (“ The Global Santosh”) UKSC 20
The Supreme court judgment in the Global Santosh has given rise to much debate.
The Judgment
The decision, briefly, was as follows:
- The purpose of the arrest off hire clause 49 is to protect the time charterer and therefore the words: “unless such … arrest is occasioned by any personal act or omission or default of the Charterers or their agents” must be construed/interpreted narrowly;
- Cargill was not personally at fault as there was no duty on Cargill to discharge within a particular time – the time charterparty contained no such provision/duty. The issue was whether Transclear or IBG (who were responsible for the arrest) were acting as Cargill’s ‘agents’ within the terms of clause 49: i.e. central to the decision was the scope of that agency: i.e. to what functions did the ‘agency’ extend?
- The rights of the charterer, Cargill, under the time charter are made available to those further down the contractual chain (Trasclear and IBG). To the extent that Transclear/IBG are availing themselves of these rights they are the agents of Cargill. Therefore in assessing the scope of the agency one must look to the rights and obligations in the time charter. The time charter did not impose a duty on Cargill to discharge within a specific time period and, while Transclear and IBG did have obligations to discharge within a particular time under the sales contract, Cargill was not a party to that sales contract.
- While Transclear and IBG were Cargill’s agents for the purposes of calling for and carrying out discharge operations there was not enough nexus/connection between the arrest for outstanding demurrage and the scope of Transclear and IBG’s agency. The demurrage claim for which the vessel was arrested related to a period of delay in which IBG were doing nothing on behalf of Cargill. Their Lordships drew a distinction between defective performance of cargo operations (which would fall within the scope of ‘agency’ under clause 49) and the absence of cargo handling operations which, in their view, did not. Their Lordships decided that the responsibility of Cargill/the charterers after the service of the notice of readiness was limited to acts or omissions in the actual performance of cargo handling operations. An arrest occasioned by incurring or enforcing a liability for demurrage under the sale contract could not be regarded as a vicarious exercise by Transclear or IBG of any facility/right made available to Cargill under the time charter.
The Court of Appeal had looked at the matter in simpler terms of whether the arrest was caused by a party on ‘Charterers’ side of the line’: Transclear and IBG being clearly on ‘Charterers’ side of the line’. Some may argue that the Court of Appeal judgment was too broad brush and gave too wide a definition of agency and that the Supreme Court was correct to look at the scope of the agency and limit it accordingly.
The Dissenting View
Lord Clarke’s dissenting judgment is of particular interest as he too looks at the scope of the agency, only he interprets it more widely, but at the same time (see para 55 of the judgment) less widely than the Court of Appeal:
- It was agreed by all the judges (including Lord Clarke) that Transclear and IBG were for some purposes the ‘agents’ of Cargill within clause 49. It was also agreed that Transclear/IBG exercised the right to call for discharge of the cargo as ‘agent’ for Cargill. What Lord Clarke disagreed on was the ‘scope’ of that agency. The majority of their Lordships decided that the scope of the agency did not include a period in which there was ‘inactivity’ when the vessel was waiting to discharge. Lord Clarke believes (para 36) “that it [the scope] extends to the operation of the vessel from the time that notice of readiness was given (or perhaps earlier) until the completion of discharge. Throughout that time the vessel was complying with the orders of the Charterers (i.e. Cargill) as to proceeding to a berth, waiting to discharge and subsequently discharging. If she had been arrested by Transclear or IBG in the course of the discharging operations themselves there could surely be no doubt that they would be treated as the ‘agents’ of Cargill. To my mind the same is true of an arrest during the period during which she was waiting to discharge”.
- Lord Clarke agreed with the other Lordships that it was necessary for NYK to show that the acts which caused the vessel to be arrested were done in the capacity as Cargill’s agents i.e. by way of vicarious enjoyment of Cargill’s contractual rights (para 42), and his Lordship agreed that Cargill had no contractual obligation to NYK to discharge the vessel within a particular time period, but his Lordship added that Cargill did have a contractual interest in the timing of the discharge operation, as it affected the amount of hire Cargill would have to pay.
- Lord Clarke did not agree with the distinction between defective performance of cargo handling operations and the absence of cargo handling operations as in his view it is too narrow a distinction. Lord Clarke said that the whole period of waiting to discharge falls within the time charter clause 8 as the obligation to wait to discharge the cargo is in accordance with the orders and directions of Cargill/charterers as regards employment and agency under clause 8. His Lordship’s view was that therefore the delay arose out of the vicarious exercise of the discharging operations by IBG carried out on Cargill’s behalf. At paragraph 50 Lord Clarke states: “I respectfully disagree with Lord Sumption when he says that the responsibility of the charterers after the service of the notice of readiness was limited to acts or omissions in the actual performance of cargo handling operations. It extended throughout the period when the vessel, ..., was acting under the ‘orders and directions of Cargill as regards employment and agency’”.
- Lord Clarke also disagreed with the conclusion that an arrest occasioned by incurring or enforcing a liability for demurrage under the sale contract could not be regarded as a vicarious exercise by Transclear or IBG of any facility/right made available to Cargill under the time charter. Lord Clarke’s opinion is that the arrest was caused by action taken by Transclear as a result of IBG’s failure to discharge within the laydays and that failure, per Lord Clarke, was a failure on the part of an ‘agent’ of Cargill.
Comment
As Owners were not at fault at all the Supreme Court judgment may arguably appear ‘unjust’, particularly to those who come from jurisdictions where fault is an important element in finding liability. Comparatively, under English contract law the interpretation of the contract takes priority, and there may be cases such as this where a party who is not actually at fault ends up footing the bill because the allocation of risk under the express terms of the contract places the risk in question on that party.
Following this decision, Owners may wish to expressly include a wider proviso/exception to any off-hire clause in their charterparty.
View full judgment text of the "GLOBAL SANTOSH"
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