Legal Dispute Between Ship Owner & Charterers Ends

522
  • The Claimant, Alpha Marine Corp (the “Owners”) were the owners of the vessel MV Smart (the “Vessel”).
  • A dispute between the Owners and the Charterers arose out of the loss of the Vessel which was submitted to arbitration in accordance with the terms of the Charterparty.
  • After a hearing over three weeks in November 2019, the arbitral tribunal, namely Mr Simon Gault, Sir David Steel and Mr Lionel Persey QC (the “Tribunal”), issued its first partial award on 12 June 2020 (the “Award”).

A recent legal news published in Bailii reveals the England and Wales High Court ( Commerical Court) decisions.

What happened?

The Claimant, Alpha Marine Corp (the “Owners”) were the owners of the vessel MV Smart (the “Vessel”). On 1 August 2013, the Owners chartered the Vessel to Minmetals Logistics Zhejiang Co. Ltd (the “Charterers”), for a time charter trip on an amended New York Produce Exchange form (the “Charterparty”).

On 19 August 2013, the Vessel departed the port of Richards Bay in South Africa and, shortly thereafter, ran aground in the course of passing through a channel to depart the port and broke her back.

A dispute between the Owners and the Charterers arose out of the loss of the Vessel which was submitted to arbitration in accordance with the terms of the Charterparty. After a hearing over three weeks in November 2019, the arbitral tribunal, namely Mr Simon Gault, Sir David Steel and Mr Lionel Persey QC (the “Tribunal”), issued its first partial award on 12 June 2020 (the “Award”).

The present arbitration claim is an appeal, pursuant to section 69 of the Arbitration Act 1996 (the “Act”), from the Award by the Owners, permission to appeal on a point of law having been granted by Order of Foxton J dated 13 October 2020.

Before turning to consider the question of law which arises from the Award, and the parties’ respective submissions thereon, it is necessary to set out the factual background to the dispute and the relevant parts of the Award.

Background

The contractual structure

The Charterparty contained the following terms:

a. Clause 8 was in materially unamended NYPE form and provided, in relevant part, that “… The Captain (although appointed by the Owners), shall be under the orders and directions of the Charterers as regards vessel’s employment and agency… [and the Captain] is to sign Bills of Lading for cargo as presented…”

b. Clause 16 provided that “should the Vessel be lost, money paid in advance and not earned (reckoning from the date of loss…) shall be returned to the Charterers at once.”

c. Clause 18 provided that “the Owners shall have a lien upon all cargoes and sub-hires and all sub-freights for any amounts due under this Charter…”

d. Clause 41 set out the quantity of bunkers which the Vessel would be provided with on delivery and required that the Vessel should be redelivered with about the same quantities of bunkers as provided on delivery. It was further provided that any minor difference in bunker quantities between delivery and redelivery “shall be settled with final hire” at a price of USD 600 per metric tonne for IFO and USD 920 per metric tonne for MGO.

e. Clause 101 provided that the Charterparty was to be governed by English law and that disputes would be resolved by arbitration in London.

The Arbitration and the Award

In the arbitration, the Owners claimed that the loss of the Vessel was caused by the failure of the Charterers to comply with the safe port warranty in the Charterparty. The Owners advanced various heads of claim and the total quantum of their claim was in excess of USD 100 million.

The Charterers denied that they had provided a safe port warranty in respect of Richards Bay. In the alternative, the Charterers denied that the grounding was caused by any unsafety of the port, contending, instead, that it was caused by negligent navigation by those on board the Vessel. The Charterers also pursued a number of counterclaims, seeking recovery of:

a. A sum of USD 1,860,390 in respect of lost freight which the Charterers argued would have been paid by GNR if it were not for the Owners’:

i. Wrongful revocation of the Charterers’ authority to collect freight under the Bills of Lading by way of the First Notice. In this regard, the Charterers argued that the Charterparty contained an implied term that the Owners would not revoke their authority to collect freight unless hire and/or sums were due under the Charterparty and that no such sums were due on 12 September 2013 (the “Implied Term Basis”);

ii. Wrongful exercise of the lien contained in clause 18 of the Charterparty by way of the Second Notice. In this regard, the Charterers submitted that there was no “amount due under” the Charterparty as at 2 March 2015 and, as such, the Owners were not entitled to exercise a lien when they purported to do so (the “Lien Basis”); and/or

iii. Tortious actions, in procuring breach of contract by GNR and/or knowingly and/or unlawfully interfering with the Voyage Charter (the “Tortious Basis”).

b. A sum of USD 207,408 in respect of hire which the Charterers had paid in advance for the period after loss of the Vessel and which the Owners were required, pursuant to clause 16 of the Charterparty, to repay “at once” upon loss; and

c. Costs and expenses incurred by the Charterers in dealing with the freight claims, in an amount of GBP 227,136.40 plus USD 80,726.35 (including sums of GBP 13,924.50 and USD 21,550 which were incurred prior to the Owners’ issue of the Second Notice).

Permission to Appeal

On 10 July 2020, the Owners applied to Court for leave to appeal, pursuant to section 69 of the Act, on the following question of law arising out of the Award:

“Did the Charterparty contain an implied obligation that the Claimant would not revoke the Defendant’s authority to collect from GNR the freight payable under the Bills of Lading unless hire and/or sums were due to the Claimant under the Charterparty?”

On 13 October 2020, Foxton J granted permission to appeal on that point of law, on the basis that it was a point of general public importance and that the conclusion of the Tribunal was at least open to serious doubt.

Foxton J was also satisfied that the determination of this question would substantially affect the rights of the parties, the Tribunal having relied on the correctness of the Implied Term Basis in granting the Charterers’ counterclaim for unpaid freight, by reference to its finding, at paragraph 157 of the Award, that it was the purported, and on the Tribunal’s view wrongful, revocation of the Charterers’ authority to collect freight by the First Notice which had caused GNR to fail to pay freight.

The Parties’ Submissions on Appeal

The Owners’ contention was that the Tribunal was wrong to find that there was any implied obligation on them not to revoke the Charterers’ authority to collect freight. The Owners submitted that they had an unfettered right to collect freight under the Bills of Lading. Further, the Owners argued, the term which the Tribunal had found was implied into the Charterparty was neither necessary for business efficacy, nor so obvious that it went without saying.

In the alternative, the Owners contended that, if any term was to be implied, the formulation of that term had to be considered with care. They submitted that, if there was any implied term, it would provide that, if the Charterers were in default of their obligations under the Charterparty, then the Owners would be entitled to collect the entirety of the freight, even if it exceeded the amount of the Owners’ claim against the Charterers arising out of their default. This was referred to in argument as the “All Freight Implied Term”. The significance of this, the Owners said, was that if it was the All Freight Implied Term which fell to be implied, then the appeal would still succeed, as the Owners would not have been in breach of that term. This was because the Charterers had been in default, in the sense that a sum had been outstanding from the Charterers under the Charterparty, at the time of the First Notice; namely, the amount due in respect of bunkers, as found by the Tribunal in paragraph 153 of the Award.

Therefore, the Owners submitted that the Tribunal must have proceeded on the basis that the term to be implied was not the All Freight Implied Term, but rather a term whereby the Owners were only entitled, in the event of a default by the Charterers, to revoke the Charterers’ authority to collect freight in respect to an amount up to, but no more than, the amount due from the Charterers under the Charterparty. This was referred to in argument as the “Dollar for Dollar Implied Term”. What the Tribunal must have found, without articulating the precise term involved, was, the Owners contended, that there had been a breach of the Dollar for Dollar Implied Term, as the Owners had revoked the Charterers’ authority to collect freight of a greater value than the amount which was due to them under the Charterparty in respect of bunkers. The Owners submitted that there was no basis on which such a Dollar for Dollar Implied Term could be implied. In particular, the Owners argued, the implication of such a term would render the established obligation on owners to account to charterers for the surplus of any freight due, after deducting amounts owed to them, redundant and would therefore be inconsistent with the authorities.

For the Charterers it was submitted that a term preventing the Owners from revoking the Charterers’ authority to collect freight should indeed be implied, as the Tribunal had found. There were a number of possible ways in which that term could be formulated. The Charterers identified three: (1) the All Freight Implied Term; (2) a term by which the Owners were not entitled to revoke the Charterers’ authority to collect any freight unless a sum was due to the Owners under the Charterparty and the relevant sum was identified at the time of any revocation of the Charterers’ authority (termed in argument the “All Freight (Sum Identified) Implied Term”); and (3) the Dollar for Dollar Implied Term.

Disposal

The appeal is allowed. The question of law on which permission to appeal was given is answered: No, the Charterparty did not contain an implied obligation that the Owners would not revoke the Charterers’ authority to collect from GNR the freight payable under the Bills of Lading unless hire and/or sums were due to the Owners under the Charterparty.

The Award is set aside insofar as it awarded damages for breach of the implied term found by the Tribunal; and the matter is remitted to the Tribunal for reconsideration of the Charterers’ freight counterclaim on the alternative Tortious Basis, having regard to this judgment.

Did you subscribe to our daily newsletter?

It’s Free! Click here to Subscribe!

Source: Bailii

LEAVE A REPLY

This site uses Akismet to reduce spam. Learn how your comment data is processed.