Charterparty: limited meaning of ‘agent’ in off-hire provision

NYK Bulkship (Atlantic) NV v Cargill International SA (The Global Santosh) [11.05.16]

Date published

12/08/2016

Sectors

Locations

Supreme Court clarifies the meaning of charterers’ ‘agents’ in an off-hire provision following mistaken arrest of vessel at discharge port.

Implications

The Supreme Court’s majority decision provides useful guidance on the scope of a contracting party’s vicarious responsibility for the actions or delegated performance of third parties under a charterparty.

Charterers will be relieved at the rejection of the Court of Appeal’s general ‘sphere of responsibility’ concept. This could have meant time charterers assuming responsibility for any sub-charterer’s or receiver’s behaviour, merely because the occasion for that behaviour arose by reason of the fact that the time charterers had sub-chartered the vessel.

The case essentially boiled down to the issue of which of two innocent parties under the time charter should bear the loss of time under arrest. In circumstances where a time charterer who had sub-voyage chartered the vessel could recover demurrage/detention for the delay, it might be thought that the parties would allocate that risk to the charterers. This could of course be achieved by clear terms, and parties may wish to make amendments to bespoke clauses dealing with off-hire in the event of an arrest.

Background

Cargill International SA trip time chartered the Global Santosh from NYK Bulkship (Atlantic) NV. Clause 49 of the charterparty contained an additional off-hire clause. This provided that, in the event that the vessel was arrested during the charterparty, payment of hire would be suspended until her release, unless the arrest was “occasioned by any personal act or omission or default of the Charterers or their agents.”

Cargill sub-chartered the vessel to Sigma Shipping Ltd on voyage charter terms. The vessel carried a cargo of 30,324 metric tons of bulk cement sold by Transclear SA, to IBG Investment Ltd on C&FFO terms. Congestion and the breakdown of IBG’s off-loader delayed discharge of the cargo. Transclear obtained an arrest order over the cargo, which also mistakenly named the vessel, to secure its claim for demurrage against IBG. Cargill withheld hire for the period of arrest, stating that the vessel had been off hire within the meaning of clause 49.

An LMAA tribunal found in favour of Cargill on the basis that the arrest was not in performance of any of Cargill’s obligations, and was carried out by Transclear for itself. NYK appealed to the High Court. Mr Justice Field held that those, such as IBG, who were directly or indirectly engaged to perform any delegated task, such as Cargill’s responsibility to discharge the vessel, were an ‘agent’ within the meaning of the proviso. While Transclear’s actions were not in the course of performing such a task, the failure to pay demurrage or secure the claim was, so the vessel was on-hire during the arrest.

Cargill’s appeal was dismissed by the Court of Appeal, which held that while the agents’ acts or omissions did not have to be in performance of a delegated task they had to fall within the charterers’ sphere of responsibility for cargo and trading the vessel.

Decision

Lord Sumption delivered the majority judgment of Lord Neuberger, Lord Mance and Lord Toulson, which allowed Cargill’s appeal (Lord Clarke dissenting).

The correct approach was to ask whether what the third party did amounted to the vicarious exercise of a right, or was a breach of an obligation, which the charterer had under the time charter.

Cargill’s responsibility for the acts or omissions of IBG under the time charter only extended to the actual delegated performance of the cargo handling operations. There was no nexus between the arrest occasioned by the actions of Transclear and the performance of the cargo handling operations which Transclear and IBG undertook to perform as Cargill’s ‘agent’. This was because Cargill was under no obligation to procure that the cargo was discharged at any given time. IBG’s failure to discharge cargo within the allotted laytime could not be considered to fall within the exercise of some vicarious right of Cargill under the charterparty with NYK.

Read other items in the Shipping and Commodities Brief - September 2016