The Global Santosh was arrested in Nigeria in support of a demurrage claim between parties below the time charter, in a dispute that had nothing to do with the owners. The owners contended that hire continued because the arrest was occasioned by the time charterers’ agents. The Supreme Court held by a majority that it was not, so the proviso to the off-hire clause did not apply and the vessel was off-hire.
NYK time-chartered the Global Santosh to Cargill on the Asbatime form for one trip carrying cement from Sweden to Nigeria. Clause 49 suspended hire if the vessel was captured, seized, detained or arrested by any authority or legal process, unless that event was occasioned by any personal act or omission or default of the charterers or their agents. Cargill had liberty to sublet but remained responsible for fulfilment of the charter, and by clause 8 was to perform all cargo handling at its expense. The master was under Cargill’s orders as regards employment and agency.
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Cargill voyage-chartered the vessel to Sigma Shipping Ltd and nominated the Global Santosh. The cement had been sold by Transclear SA to IBG Investments Ltd on free-out terms. IBG was to unload and to pay Transclear demurrage for delay beyond the laytime in the sale contract; Transclear was purportedly given a lien for unpaid demurrage. As between NYK and Cargill, discharge was Cargill’s responsibility. In fact it was left to parties further down the chain, and ultimately appeared to be IBG’s obligation to Transclear.
The vessel arrived at Port Harcourt on 15 October 2008, tendered notice of readiness, and was kept at anchorage by congestion caused at least in part by the breakdown of IBG’s off-loader. No discharge took place and she remained on hire. On 18 December she was ordered to a berth but was turned away under an order of the Federal High Court of Nigeria made the previous day. The majority arbitrators found that Transclear had applied to secure a demurrage claim against IBG, that the cargo rather than the vessel should have been arrested, and that the vessel was arrested by an obvious mistake. The order prohibited interference with or discharge of the cargo. Cargill instructed the master not to commence discharge without written confirmation. After Transclear and IBG agreed the demurrage claim, the court authorised release and discharge took place from 15 to 26 January 2009. Cargill withheld hire for the period of arrest and relied on clause 49. NYK relied on the proviso.
Decisions below
A majority of the arbitrators held that the proviso did not apply and that the vessel was off-hire. Hamblen J gave NYK leave to appeal under section 69 of the Arbitration Act 1996 on whether an arrest caused by the acts or omissions of subcontractors engaged to perform the time charterer’s obligations fell within the proviso. Field J held that Cargill was responsible for an act, omission or default in the course of performance of the delegated discharging task. He treated Transclear’s arrest as irrelevant to that performance, but treated IBG’s failure to discharge within the sale-contract laydays and to pay the resulting demurrage as omissions in the course of discharge, and remitted causation. The Court of Appeal dismissed the appeal and cross-appeal. Gross LJ, with whom Gloster LJ and Sir Stanley Burnton agreed, rejected the requirement that the causative act or omission occur in the course of the delegated task, and also rejected reliance on the demurrage terms between Transclear and IBG. He treated the delay as falling within Cargill’s sphere of responsibility because it arose from Cargill’s trading arrangements and not from anything the ship was alleged to have done.
Who counts as an agent
Lord Sumption, with whom Lord Neuberger, Lord Mance and Lord Toulson agreed, noted that neither Transclear nor IBG was Cargill’s agent in the strict sense: they had no legal relationship with Cargill. Both sides accepted that the proviso is not confined to agents in that sense. Where a time charterer sublets, rights are enjoyed and obligations performed vicariously. Drawing on The Mediolanum, The Arctic Trader and The Goodpal, Lord Sumption held that persons carrying out loading or discharging may be the time charterer’s agents to the extent that they avail themselves of a facility derived directly or indirectly from the charterer. It was common ground that Transclear and IBG were Cargill’s agents for the purpose of calling for and carrying out discharge.
That did not make Cargill responsible for everything they did. There had to be a nexus between the occasion for the arrest and the function they were performing as agents. An arrest in support of a proprietary claim to the vessel, or a cargo claim against a sister ship, would not engage the proviso. The same principle explained The Goodpal, where the receiver’s agency did not extend to the particular acts that caused the problem.
Why the arrest fell outside the proviso
Lord Sumption identified two difficulties in treating this arrest as occasioned by Cargill’s agents. Under clause 8 Cargill had to perform or procure whatever cargo handling occurred, and could direct the vessel in accordance with the requirements of parties further down the chain. Cargill had no obligation to NYK to procure discharge at any particular time and no contractual interest in its timing; hire was payable regardless. The off-hire event in clause 49 was the capture, seizure or arrest itself, not an effect on discharge. Transclear and IBG had timing obligations under their sale contract, but neither NYK nor Cargill was party to it.
Cargo handling that actually occurred, though carried out by IBG, was carried out on Cargill’s behalf. An absence of cargo handling was different. IBG’s failure to discharge between notice of readiness and 15 January could not meaningfully be regarded as the vicarious exercise of a right of Cargill, or as the vicarious breach of an obligation of Cargill. IBG was doing nothing as regards the vessel and therefore nothing on Cargill’s behalf. Cargill’s responsibility for acts or omissions in cargo handling therefore extended only to the actual performance of those operations while they were in progress. The laytime provisions of the sale contract did not alter that conclusion, because the question depended on the time charter, not on whether the delay breached the sale contract.
The second difficulty was that the relevant loss of time was caused by the arrest, and the arrest was occasioned by the demurrage dispute between Transclear and IBG. Incurring or enforcing demurrage under a subcontract could not be the vicarious exercise of any facility made available to Cargill under the time charter.
The Court of Appeal’s division between the owner’s and charterer’s spheres of responsibility did not answer the contractual question. The proviso turned on the capacity in which the parties had acted.
Lord Clarke’s dissent
Lord Clarke would have dismissed the appeal. He accepted that Transclear and IBG were agents for some purposes and that the relevant right and obligation concerned discharge, but he would have treated the agency as extending from notice of readiness until completion of discharge, throughout the time the vessel was complying with Cargill’s orders. An arrest during actual discharge would plainly have been within the agency; he saw no difference in an arrest while the vessel was waiting to discharge. He considered that the charter scheme kept the vessel on hire unless the cause was associated with the vessel or her owners, and that the arrest here had nothing to do with NYK.
In his view, Cargill could delegate performance but not responsibility, and the arrest was intimately linked to discharge functions delegated through Sigma, Transclear and IBG. He did not accept that Cargill had no contractual interest in timing, because delay increased the hire payable. He also rejected a sharp distinction between defective performance and an absence of cargo handling: the earlier delay caused by IBG’s off-loader had left the vessel on hire, and waiting after notice of readiness was itself part of compliance with clause 8, as was obedience to Cargill’s instruction not to discharge. Clause 49 expressly covers omissions and defaults and does not require a positive breach of the time charter. The failure to discharge within laydays further down the chain was, on this view, an omission of the charterers’ agents, and the arrest resulted from that failure. Unrelated arrests, such as those supporting a proprietary claim or a sister-ship cargo claim, would still fall outside the proviso because they would not be made in the capacity of Cargill’s agents.
Verdict: The Court allowed Cargill’s appeal by four votes to one and dismissed NYK’s appeal from the arbitration award. The vessel was off hire throughout the arrest. Lord Clarke would have held that hire remained payable.
Source: NYK Bulkship (Atlantic) NV v Cargill International SA [2016] UKSC 20
