If a shipowner withdraws his vessel from a charterer’s service for non-payment of hire while cargo is on board the vessel and the shipowner requires the charterer to remove the cargo from the vessel, is the shipowner entitled to remuneration outside the contract and/or to recover expenses incurred in that operation?
The Owners of a double hulled Very Large Crude Carrier (VLCC) chartered the vessel to the Charterers on Shelltime 3 form. Hire under the charterparty was payable monthly in advance, and if it was not paid, the Owners had the right to withdraw the vessel "without prejudice to any other claim Owners may otherwise have on Charterers under this charter". Clause 13, which has a side-note "Bills of Lading", a provision that, "The Master (although appointed by Owners) shall be under the orders and direction of Charterers as regards employment of the vessel, agency or other arrangements ... Charterers hereby indemnify Owners against all consequences or liabilities that may arise … from the Master otherwise complying with Charterers' or their agents' orders …".
The ship was withdrawn from the service of the Charterers while loading cargo because of a failure to pay hire (for a few days after its due date) under the time charter. There were exchanges after withdrawal in which the Charterers asked the Owners to cancel the withdrawal whereas the Owners would only agree to do so at the market rates (which had risen by then). The Parties could not agree on their respective positions and the cargo was finally off-loaded at the same port, 2.64 days after it was withdrawn by the Owners.
The Owners claimed compensation for:
(i) The detention or use of the ship for 2.64 days while the Charterers’ cargo remained on board after the ship was withdrawn;
(ii) Bunkers consumed while the Charterers’ cargo remained on board after the ship was withdrawn;
(iii) Bunkers consumed in unloading cargo; and
(iv) Expenses incurred in providing and maintaining a bank guarantee after the Charterers asserted that the withdrawal was wrongful and that they were entitled to security for their claim.
At first instance, Mr Justice Andrew Smith decided that there was no claim under the express employment and indemnity clause (or any other clause) of the charterparty nor any claim under any implied term of the charter. He also rejected a claim that there was a request by the charterer for further services which created an agreement for remuneration and expenses; he also rejected a yet further claim for a quantum meruit. He upheld, however, a fifth claim made on the basis that the shipowner had a duty to care for the cargo while it continued to be on board the vessel which gave rise to a correlative duty on the charterer to remunerate the owner and pay his expenses while the cargo was being discharged.
On appeal, the Court of Appeal dismissed the Owners’ claims in respect of remuneration for the 2.64 days and the balance of bunkers consumed during that period. However, it allowed Owners’ claim for (a) the bunkers consumed during discharge and (b) the reimbursement of bank guarantee expenses as a cost of action.
Case Reference:
E.N.E. 1 KOS LIMITED v PETROLEO BRASILEIRO S.A. [2010] EWCA Civ 772
English Court of Appeal (Civil): Longmore and Smith LJJ and Sir Mark Waller
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