Category: Charterparties

Disponent owners’ liens on cargo

Can disponent owners lien cargo for sums due under their sub-charter? Dicta in The Clipper Monarch [2015] EWHC 2584 (Comm); [2016] 1 Lloyds’ Law Rep 1, suggests that they can. The sub-charterers, Silver Rock, had failed to pay freight, deadfreight, and demurrage to disponent owners, CCS, and the vessel waited outside Chinese territorial waters. CCS obtained and order to sell the cargo under CPR Part 25.1(1)(c)(v), which provided for the gross proceeds of sale to be held by the claimant’s solicitors to the order of the court and “treated as if subject to the same rights (if any) as [CCS] had in respect of the goods prior to their sale”.

The cargo had been purchased by Silver Rock from Max Coal and sold on to Grupo Minero, the original consignee. Silver Rock found a new purchaser and the vessel berthed to discharge the cargo. The cargo was sold and its proceeds held by CCS’s solicitors pursuant to the High Court’s order. CCS obtained arbitration awards against Silver Rock for sums due under the voyage charter, and against Grupo Minero, claiming as assignee of the head owner’s right to claim an almost identical amount as carrier under the bill of lading. The awards were converted into judgements. His Honour Judge Waksman QC held that the sale proceeds representing the cargo clearly belonged to one of the two judgment debtors and CCS was entitled to the monies as judgment creditor against whichever of them was the appropriate owner.

His Honour Judge Waksman QC then considered, obiter, a second ground on which CCS would be entitled to the proceeds of the sale – by way of its rights on a lien on the cargo which arose prior to the sale. If the cargo was owned prior to sale by Grupo Minero, CCS relied on the voyage charter “lien” clause as incorporated into the bills of lading, CCS having taken an assignment of the carrier’s rights. If the cargo was owned by Silver Rock, CCS relied on the voyage charter “lien” clause as giving it a right with similar effect to a possessory lien, namely a right to procure that the cargo be withheld from Silver Rock by directing the employment of the vessel in its capacity as time charterer.

This second ground assumes that the time charterer has the right, under the employment clause, to direct the shipowner to lien the cargo by not unloading it. Such an order would only be lawful if the shipowner had the right to lien the cargo under the bill of lading, as was the case in The Clipper Monarch. It is worth noting that a similar argument was rejected  in The Mathew [1990] 2 Lloyd’s Law. Rep 323 where Steyn J held that there was no implied term that the time charterers could direct the shipowners to lien cargo.

Speed warranties. “Good weather” need not last for 24 hours (and often doesn’t).

In December 2013 the Ocean Virgo [2015] EWHC 3405 (Comm) was trip chartered on the NYPE form. The charter contained speed and performance warranties on the basis of “good weather/smooth sea, up to max BF SC 4/Douglas sea state 3, no adverse currents, no negative influence of swell”. The charterers claimed damages, alleging that the vessel had failed to meet the warranties. The owner’s response was that for a period to be considered as being admissible “good weather” it had to constitute a period of 24 consecutive hours running from noon to noon. Lesser periods had to be excluded. The tribunal agreed.

However, Teare J. has now held that this constituted an error in law. The charterparty merely referred to “good weather” and contained no words which justified construing good weather as meaning good weather days of 24 hours from noon to noon. The award disclosed a further error of law by stating: “had the AWT report correctly identified the period of admissible ‘good weather’ charterer’s claim would have been restricted to the initial, leg 1, period”. Once a breach was established by looking at performance in good weather the consequential damages claim was assessed by having regard to the whole of the charter period, excluding any periods of slow steaming on charterers’ instructions excluding any periods of slow steaming on charterers’, whatever the weather, as had been stated by Bingham LJ in The Didymi [1988] 2 Lloyd’s Rep. 108 and by Lloyd LJ in The Gas Enterprise [1993] 2 Lloyd’s Rep. 352.

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.

 

No loss, no damages: latest from the CA

Christmas reading from the English CA for charterparty buffs and damages enthusiasts. In The New Flamenco [2015] EWCA Civ 1299 , decided a couple of days ago, a cruise ship under time-charter at a highish rate was wrongfully redelivered a couple of years early. That’s OK, said the owners: we’ll just have those two years’ lost profits, please (there being no relevant market). Not so fast, say the charterers. You sold the ship on redelivery for a very tidy sum: had we given her back at the proper time the market would have collapsed and you’d have got many millions of dollars less for her — a figure that dwarfs any profits lost. In fact you should be d****d grateful to us for breaking our contract, since you’re actually a great deal better off than if we’d kept it.

Arbitrators hold for the charterers; Teare J on appeal for the owners. In a rare reversal of Teare J, the CA restore the arbitrators’ decision. Whatever the case where there is a market rate, in non-market cases where the claimant claims on the basis of profits lost, the general British Westinghouse rule applies and any gains resulting are in account. A salutary reminder from Longmore LJ at [29]: “compensation for actual loss is the underlying principle and … in this connection, it is the available market rule that is a gloss on that underlying principle.” Verb sap.

Happy Christmas to all.

AT

NYPE 2015. New rights for owners against defaulting charterers.

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 [2013] EWHC 865 (Comm); [2013] 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 [2015] EWHC 718 (Comm), [2015] 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 [1976] 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 [1983] 1 Lloyd’s Rep 302, QB, and The Western Moscow [2012] EWHC 1224 (Comm); [2012] 2 Lloyd’s Rep. The lien on sub-freights and or sub-hires is also extended to deadfreight and demurrage.

Implied terms — again

These days cases at the highest level about implied terms in commercial contracts seem to appear like London buses. Another today, in the Supreme Court, was Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd & Anor [2015] UKSC 72 (available on BAILII). The issue was of little interest except to landlord and tenant enthusiasts: namely, if a tenant exercises a break clause having paid a whopping quarter’s rent shortly beforehand, is there an implied term allowing him to get back a proportionate part of it? (the answer, if you must know, is No).

What matters is that their Lordships showed a distinctly conservative trend, emphasising that business necessity, or something close it it, had to be shown: the cases requiring it, said Lord Neuberger at [21], represented “a clear, consistent and principled approach”. Distinct scepticism was shown towards any attempt to move to “just and reasonable” or some similar formulation, on the basis of suggestions in the Belize Telecom case that implication of terms and interpretation of contracts were really just different sides of the same Rubik’s cube.

For the benefit of shipping enthusiasts, Bingham LJ’s statements in The APJ Priti [1987] 2 Lloyd’s Rep 37, on implications of a prospective safe port warranty in a voyage charterparty, received the imprimatur of Lord Neuberger (with whom Lords Sumption and Hodge agreed).

AT

Demurrage is not just for ships – and cannot last for ever.

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 [2015] 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.