Arrest of ships and insolvency: the “affaire Hanjin”

The Hanjin debacle, like the previous Pan Ocean collapse, looks set fair to occupy marine lawyers for some time to come. Hanjin, one of the top ten container lines of the world, finally filed for bankruptcy protection in its home jurisdiction of Seoul 9 days ago, on 31 August. This has immediately led to a scramble to issue arrest proceedings against its ships (reportedly carrying over $14 bn worth of other people’s goods): in turn, the story is that a number of Hanjin vessels have been told to circle the seven seas, rather like the Flying Dutchman, rather than put into a port where they might be seized.

All this raises one of the currently sexy issues in ship arrest: how far can foreign bankruptcy proceedings stymie the right a creditor otherwise has to pay himself from the proceeds of the vessel arrested ahead of the owner’s other creditors? The point is particularly important in the Korean context, since Korean law is notoriously unwelcoming towards maritime claims in rem.

In many jurisdictions, including Australia, New Zealand, the US and the UK, this depends on the interpretation of the UNCITRAL Model Law on cross-border insolvency, and in particular how each jurisdiction has taken advantage of Art.20.2 of that provision. It has been decided in Australia (Yu v Pan Ocean (2013) 223 FCR 189, see too Kim v SW Shipping Co Ltd [2016] FCA 428) that maritime lien claimants continue to be able to thumb their noses at general creditors. In New Zealand the courts have gone further and said the same about in rem claimants generally (eg irate cargo claimants or bunker suppliers), provided they issue proceedings before the foreign bankruptcy is recognised (see Kim v STX Pan Ocean [2014] NZHC 845). One suspects the same would follow in England. But the US may well be different: Evridiki Navigation, Inc v Sanko SS Co, 880 F.Supp.2d 666 (2012).

An unanswered question in Australia and New Zealand is what happens to in rem claimants relying on claims — notably by repairers or bunker suppliers — which by local law do not create a maritime lien, but which give rise to such a lien under the law governing the original supply (see The Sam Hawk [2015] FCA 1005).

One place one suspects Hanjin masters may have been told to avoid like the plague is Hong Kong, which applies the old common law rules and which is not in the UNCITRAL system. There the authority seems to say that no account at all is taken of bankruptcy elsewhere as regards priorities: see The Convenience Container [2007] 3 HKLRD 575. Singapore, doubtless, which applies similar principles, will also be given a wide berth.

One is tempted to say that this is a ship’s dog’s dinner. Is it too much to hope that the IMO or some similar body could sponsor a convention to deal with the priorities arising from rights of arrest?

 

The Global Santosh and the Vicarious Performance of Third Parties

The Supreme Court today (11 May 2016) handed down its decision in NYK Bulkship (Atlantic) NV v Cargill International SA (The Global Santosh) [2016] UKSC 20.

Simon Rainey QC, visiting fellow of the IISTL, was brought in to argue the SC appeal and represented the successful appellants, Cargill.

The decision of the Supreme Court is a landmark one in relation to a contracting party’s responsibility for the vicarious or delegated performance by a third party of its contractual obligations, both in the common charterparty and international sale of goods contexts.

Overview

The Global Santosh was time chartered on terms that the vessel should be off-hire during any period of detention or arrest by any authority or legal process, unless the detention or arrest was “occasioned by any personal act or omission or default of the Charterers or their agents.” She was arrested as a result of a dispute between the receiver of the cargo and a party who appears to have been a sub-sub-charterer, and which had nothing to do with the owners or the ship. The question which arises on this appeal is whether the arrest can be regarded as having been occasioned by the time charterer’s “agents” in the sense in which that word is used in the proviso.

The meaning of the common term “or their agents” in this charter context raised far-reaching issues as to the extent of a party’s responsibility under a contract for the acts of a third party who vicariously performs some aspect of the party’s contractual obligations or to whom performance of the obligation has been delegated by the creation and operation of a series of sub-contracts.

These issues, previously only canvassed at first instance and open to debate, have now been addressed in full by the Supreme Court.

Summary of the Supreme Court’s Decision

  1. In general terms, in deciding whether a contracting party is liable or responsible for some act or omission done by a third party in performing that party’s obligation under a contract, the correct approach is to define what obligation has been delegated to the third party and to what extent that party is vicariously acting as the contracting party in acting or omitting to act.
  1. In the specific context of a time charterparty off hire clause, the question as to who bears responsibility for delay occasioned by an arrest by or involving such a third party is one of construction of the clause.
  1. But the use of the concept of charterer’s “agents” in such a provision (and others) is to be approached in just the same general way.
  1. In particular, there is no over-arching concept of ‘spheres of responsibility’ which would treat any party who becomes involved in the chain of contracts around the charterparty which result from the charterer’s trading of the vessel and its commercial or trading arrangements (such as a sub- or sub-sub- charterer or a buyer or seller of cargoes) as its “agent” by being on the charterer’s ‘side of the line’.

Ship arrest in Singapore

Cases of liability for wrongful arrest in Admiralty are rare: successful claims, which require a showing of malice or gross negligence, even more so. We now have an account of one at the end of last year in Singapore. Bunker suppliers sold bunkers to the (now-very-bankrupt) OW Group; they were passed on paper through other OW companies, one of which fuelled the vessel. It’s elementary law that if A sells to B and B to C, then A has no claim against C: it was also plain to any third-year law student that the suppliers hadn’t a cat in hell’s chance of showing agency in any of the OW companies. Nevertheless, having voluntarily given credit to the uncreditworthy, the suppliers blithely went and arrested the ship in Singapore. Not surprisingly they were held liable in damages. The case is The Xin Chang Shu [2015] SGHC 308. The judgment, worth a look, is here; a useful note on it can be found here.

With thanks to Prof E Macdonald for the tip-off.

AT

Keep right on to the end (of the charter). No constructive redelivery under bareboat charter.

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 , [2014] 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, [2015] 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. [2016] SCGA 04.

 

Arrest of Ships

An interesting decision of the Federal Court of Australia in The Sam Hawk [2015] FCA 1005. For the purpose of determining if a claimant has a maritime lien for a contractual claim (here the supply of bunkers), the law of the contract under which the bunkers were supplied controls. The court refused to follow the Privy Council in The Halcyon Isle [1981] AC 221 .

More details at http://www.hfw.com/Arrest-of-the-SAM-HAWK-October-2015

Andrew Tettenborn