Security clauses in charters — by hook or by crook they will be enforced

Behind Teare J’s decision today in Trafigura Maritime Logistics PTE Ltd v Clearlake Shipping PTE Ltd (Rev 1) [2020] EWHC 995 (Comm) lies a fairly standard series of shipping lawyer’s nightmares.

Trafigura time-chartered the Miracle Hope, a big (320,000 dwt) VLCC, from Ocean Light. They voyage-chartered her to Clearlake and Clearlake sub-voyage-chartered to Petrobras, both charters being back-to-back under Shellvoy 6. Petrobras demanded that the cargo be delivered without production of the bill of lading; the demand was passed up the chain and the cargo (worth, before the recent oil debacle, something over $70 million) released.

Thereupon Natixis, a Dutch bank which had financed Petrobras’s buyers, emerged brandishing a bill of lading apparently issued by Ocean Light, demanded the value of the cargo, and arrested the ship in Singapore. Ocean Light immediately demanded an indemnity from Trafigura: Trafigura, relying on a duty in the charterer in such cases to “provide an LOI as per Owners’ P&I Club wording”, demanded an LOI from Clearlake and Clearlake did the same from Petrobras. Following clear practice (e.g. The Laemthong Glory [2004] EWHC 2738 (Comm); [2005] 1 Lloyd’s Rep. 632), Henshaw J granted mandatory orders down the line requiring the charterers to provide such bail or other security required to secure the release of the vessel.

Unfortunately at this point problems arose. Clearlake and Petrobras negotiated with Natixis; the result was deadlock. Furthermore, owing to the worldwide contagion the Singapore courts could not break the deadlock for some weeks. And, of course, all the time the Miracle Hope was mewed up in Singapore: something which, with tanker hire rates now sky-high, would not do.

In other words, Henshaw J’s order was unworkable. As a result the matter came back to the Commercial Court. To order the provision of a guarantee satisfactory to Natixis would be unsatisfactory: furthermore, since the matter was likely eventually to reach the Singapore courts, it risked prejudging the issue in that forum.

The solution reached was workmanlike. The court had to do something. Security to obtain the release of a vessel could take the form of a payment into court; and, faute de mieux, Teare J ordered just that. Clearlake and Petrobras were ordered to arrange for payment into the Singapore court of $76 million within 8 days, no doubt with Petrobras bound to indemnify Clearlake, who in the circumstances were little more than piggy-in-the-middle. If this was necessary to secure the release of the vessel, this would be what was ordered.

And rightly so, in our view. As the title of this blogpost implies, an obligation to secure the release of a vessel has to be given effect. As with Coronavirus, so with the release of a ship: it is a case of doing all that it takes. Even if that takes a slightly unorthodox form.

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