The termination of a demise charter pursuant to the shipowner’s right of withdrawal is a more complex process than with an ordinary time charter. The charterer still has its crew on board the vessel and some time may elapse before the shipowner is able to retake physical possession of the vessel. In the interim charterers may have entered into commitments with bunker suppliers and with cargo owners, pursuant to bills of lading.
In The Chem Orchid Lloyd’s Law Reports ,  1 Lloyd’s Rep. 520, the High Court of Singapore had to decide whether the bareboat charterer, the “relevant person” who would be liable in personam, was the demise charterer when the cause of action arose, so as to found jurisdiction under s.4(4) of the Singapore High Court (Admiralty Jurisdiction) Act, which is in identical terms to s.21(4) of the UK Senior Courts Act 1981. The Assistant Registrar struck out the writs in rem on the grounds that the charter had been terminated prior to the issue of the writs. Accordingly, the vessel could not be arrested in relation to claims arising in the interim between the notice of termination being given and physical redelivery of the vessel to the shipowners.
The decision has now been reversed by Steven Chong J,  2 Lloyd’s Rep. 666, who held that the charter had not been validly terminated, but even it had, there was no concept of constructive delivery applicable to the termination of bareboat charters which continue until physical redelivery. Therefore, at the time the in rem writs were issued by the bunker suppliers and the cargo claimants, the vessel was still in the possession of the charterers.
On 20 January 2016 the Singapore Court of Appeal held that it had no jurisdiction to hear an appeal from this decision.  SCGA 04.
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Corporations, Globalisation and the Law series
We are all familiar with the ‘Italian Torpedo’ where a party to a contract containing an arbitration clause commences proceedings in a jurisdiction which will not recognise its effect. The Africa Reefer  EWHC 1950 (Comm), provides a salutary lesson against overconfidence that one’s chosen court will, indeed, determine that arbitration does not apply.
Pears were carried from Argentina to Antwerp under a bill of lading incorporating a charterparty subject to London arbitration. The bill of lading was subject to the Hague-Visby Rules and a one year time limit. The claimants commenced proceedings in Belgium and the parties awaited the final report of the court surveyor. After this was produced the defendant, in November 2012, served a defence objecting to the jurisdiction of the Belgian courts on the grounds that the dispute was subject to London arbitration. The claimants took no steps to commence arbitration, confident that it would succeed on this point under article 96 of the Belgian Private International Code and article 91 of the Belgian Maritime Law. Much to their surprise, in 2014 the Belgian court found for the defendant.
In 2015 the claimants sought an extension of time of three years and eight months for commencing arbitration relying on s.12(3) (b) of the Arbitration Act 1996 which provides for the court to order that an extension be given where: “the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question”. Burton J declined to grant the requested extension. There was no conduct by the defendants upon which the claimants could rely which made it unjust to hold the claimants to the one year time limit. The defendants had been entitled under Belgian law to participate in the Belgian proceedings up until the time when they raised the jurisdiction objection in November 2012, and it was common ground that by doing so the defendants had not waived their right to claim arbitration. Thereafter, the claimants took no steps to commence arbitration until their rude awakening in 2014 when the Belgian court found for the defendant.
The Bao Yue  EWHC 2288 (Comm), is another case of nobody wanting to take delivery of the cargo when it gets to its destination. What’s a shipowner to do?
The case involved a shipment of iron ore from Iran to China under a bearer bill of lading. Due to a dispute between the seller and the buyer nobody came forward to take delivery in China and the shipowner arranged for the cargo to be discharged into a warehouse under a contract which gave the warehousekeeper a lien for unpaid storage charges. The shipper, who had retained the original bill of lading, sued the shipowner for conversion, in allowing the creation of a lien over the cargo in favour of a third party, the warehousekeeper, alternatively for denying it access to the cargo.
Both claims failed. The bill of lading expressly provided for the discharge and storage of the cargo and in any event there would have been an implied right on the part of the shipowner to do so if delivery was not taken by the bill of lading holder. It was a foreseeable incident of the right to store the cargo that a lien would be created in favour of the warehousekeeper. The shipper had therefore impliedly authorised the creation of the lien. The Commercial Court also held that there was no denial of access as the shipper could still obtain the cargo by presenting the bill of lading and by paying the storage charges which by now amounted to US$2m.
The shipowner successfully counterclaimed the cost of the storage charges and obtained an order that the shipper deliver an original bill of lading to it to enable it to sell the cargo.
A small footnote. The summary on Westlaw is inaccurate in that it refers to the defendant being the shipper, rather than the shipowner.
On 15 October 2015 BIMCO released their 2015 revision to the NYPE form. It contains the following provisions which will improve owners’ position against defaulting charterers.
Clause 11 dealing with withdrawal has been amended as follows.
- The grace period no longer refers to ‘oversight, negligence, errors or omissions on the part of the charterers or their bankers’ and now refers simply to a failure to make punctual payment of hire due.
- Owners are now given a right to damages, if they withdraw the Vessel, for the loss of the remainder of the Charter Party. There are currently two conflicting first instance decisions as to whether owners can claim damages for the loss of the remainder of the charter following the exercise of their right to withdraw. In 2013 in The Astra  EWHC 865 (Comm);  2 Lloyd’s Rep. 69, Flaux J held that there was such a right as the obligation to make punctual payment of hire was a condition, but in 2015 in Spar Shipping v Grand China Logistics v Spar Shipping  EWHC 718 (Comm),  2 Lloyd’s Rep. 407 Popplewell J held that there was no such right, as hire was not a condition. The new clause makes it clear that owners do have such a right.
- The right of owners to suspend performance of their obligations under the charter has been extended. This was first introduced in NYPE 1993 and was not a right which owners would otherwise have, as seen in The Agios Georgis  2 Lloyd’s Rep. 192. Under NYPE 1993 the right of suspension operated after the expiry of the grace period for as long as hire was outstanding. Hire would continue to run during this period and charterers were to indemnify owners for any consequences resulting from the owners’ suspension of performance, and to pay for any extra expenses resulting from the suspension. NYPE 2015 now provides that the owners’ right of suspension now exists ‘at any time while hire is outstanding’ and deletes the reference to the expiry of the grace period.
Clause 23 dealing with liens has been amended so as to create a lien on sub-hires and sub-freights due to any sub-charterers. This is in accordance with the interpretation of the effect of a lien on sub-freights in cases such as The Cebu  1 Lloyd’s Rep 302, QB, and The Western Moscow  EWHC 1224 (Comm);  2 Lloyd’s Rep. The lien on sub-freights and or sub-hires is also extended to deadfreight and demurrage.
Demurrage is a provision for liquidated damages for breach of the charterer’s obligation to load or discharge the vessel within the agreed laytime. Demurrage provisions are also to be found in carriage contracts in respect of detention of containers supplied by the carrier. In MSC Mediterranean Shipping Company S.A. v. Cottonex Anstalt  EWHC 283 (Comm), we have the first case considering container demurrage, which is of general interest in its treatment of the carrier’s right to keep a repudiated contract alive and continue claiming demurrage.
In the summer of 2011 the carrier made several contracts with the shipper to carry containers of raw cotton by sea from Middle East ports to Chittagong in Bangladesh. However, the goods were never collected and the containers still remain in a yard in the port at Chittagong and the customs authorities have at all material times refused to allow the containers to be released.
The carrier claimed demurrage from the shipper pursuant to cl.14.8 of the bill of lading which provided for a period of free time for the use of containers and providing that the responsibility of the “Merchant”, defined as including the shipper, was “to return to a place nominated by the Carrier the Container and other equipment before or at the end of the free time allowed at the Port of Discharge or the Place of Delivery”. Demurrage on a daily basis was to be payable by the Merchant thereafter in accordance with the carrier’s tariff. As at 1 January 2015 the total demurrage claimed, from the expiry of free time in 2011, exceeded US$1m.
Leggatt J held that the shipper was liable to pay demurrage under cl. 14 (8) and that there was no scope for reducing the amount payable for this breach on the grounds that the carrier had not taken reasonable steps to mitigate its loss. A liquidated damages clause made proof of the claimant’s actual loss unnecessary and irrelevant.
However, demurrage would not run forever. On 27 September 2011 the shipper had committed a repudiatory breach of the contracts of carriage by sending an email to the carrier in which it indicated that there was no realistic prospect of it being to arrange for any of the containers being collected. The question now arose as to whether the carrier should accept the repudiation and sue for damages or whether it could keep the contract alive.
Following a repudiation, the innocent contracting party may decide to keep the contract alive, unless it has no legitimate interest in doing so which will be the case when: (a) damages are an adequate remedy and; (b) maintaining the contract would be “wholly unreasonable”. Here, the carrier had no legitimate interest in maintaining the contract of carriage. It was restricted to a claim for damages, which would be subject to the mitigation principle. If the containers were in its possession it could mitigate by unpacking them. If, as was the case here, the containers were not in its possession, it could mitigate by buying replacements. Had cl. 14 (8) purported to give the carrier an unfettered right to ignore the shipper’s repudiation and carry on claiming demurrage indefinitely, the clause would have been treated as penal and would be unenforceable.
Volcafe v CSAV  EWHC 516 (Comm);  1 Lloyd’s Rep 639.
Loading of a cargo of coffee inland by the carrier into its containers has been held to fall within the temporal scope of the Hague Rules. This may seem somewhat surprising in the light of Article 1 (e) of the Rules which provides: “(e) “Carriage of goods” covers the period from the time when the goods are loaded on to the time they are discharged from the ship.” However, David Donaldson QC in the London Mercantile Court has held that the initial loading into the carrier’s containers and the subsequent loading of the container onto the vessel were to be regarded as part of a single loading process. Even if this were not the case, the parties had exercised their freedom to agree what constituted loading under art 1. (e) which they had done by providing that the carrier would stuff the cargo into its own containers.
SDTM-CI v Continental Lines N.V.  EWHC 1747 (Comm)
Cargo claims were brought against the shipowner under two bills of lading incorporating the terms of a charterparty which contained a clause providing “Cargo shall be loaded, spout trimmed and/or stowed at the expenses and risk of Shippers/Charterers … Cargo shall be discharged at the expenses and risk of Receivers/Charterers at the average rate of 1,500 metric tons per weather working day ……Stowage shall be under Master’s direction and responsibility…” Flaux J has held that the incorporated provision has the effect of transferring responsibility for loading and discharging away from the shipowner. To the extent that it was established that the cargo was damaged by bad loading and/or discharge, as opposed to bad stowage, the cargo interests could not recover such damages from the shipowner.