UK: The Global Santosh: The Supreme Court Provides Guidance On A Charterer's Responsibility For Its Agents

NYK Bulkship (Atlantic) NV (Respondent) v Cargill International SA (Appellant) ("The Global Santosh") [2016] UKSC 20 (overturning the Court of Appeal [2014] EWCA Civ 403)

The Supreme Court last week handed down an important decision concerning the issue of when a charterer will be held responsible for its agents under a charterparty.

Contractual position

NYK was the disponent owner of the m.v. Global Santosh ("the Vessel"). NYK time chartered the Vessel to Cargill on an Asbatime form, which is a variation of the NYPE 1946 form. Cargill sub-chartered the Vessel to Sigma Shipping Limited under a voyage charter. The Vessel carried a cargo of cement in bulk from Sweden to Nigeria under a sale contract between Transclear SA ("Transclear") and IBG Investments Ltd ("IBG"). It is likely that Transclear was a further sub-charterer of the Vessel.

The charterparty between NYK and Cargill contained the usual array of off-hire clauses, including an additional clause 49, which read:

Under clause 8 of the charterparty, Cargill were to "perform all cargo handling at their expense". They were at liberty to sublet the Vessel, but they remained responsible for fulfilment of the charterparty.

Under the sale contract between Transclear and IBG, discharge operations were ultimately to be carried out by IBG, and demurrage was payable by IBG to Transclear for any delay in discharge beyond the agreed laytime.

Factual background

The Vessel arrived at the discharge port on 15 October 2008 and tendered notice of readiness. Due to congestion in the port, however, she did not proceed to berth until 18 December 2008; over 2 months later. The congestion was caused at least in part by the breakdown of IBG's off-loader.

When the Vessel tried to berth on 18 December 2008, she was turned away by the port authority and ordered to return to anchorage. A dispute had arisen between Transclear and IBG in relation to demurrage, and Transclear sought to secure their claim for demurrage by arresting the cargo. Mistakenly, however, the Court's order also directed the arrest of the Vessel, which was therefore prevented from berthing and discharging.

Transclear and IBG eventually came to an agreement, and the Vessel berthed and commenced discharge on 15 January 2009.

Cargill continued to pay hire to NYK under the time charter while the Vessel was delayed due to congestion in the port. They also paid hire during the period of discharge. Cargill withheld hire, however, during the period that the Vessel was under arrest, in reliance on clause 49. NYK disputed the withholding of hire on the basis of the proviso "unless such capture or seizure or detention or arrest is occasioned by any personal act or omission or default of the Charterers or their agents" in clause 49; their argument being that Transclear and IBG were the charterer's agents and it was their conduct that occasioned the arrest.

Supreme Court

After NYK's successful arbitration appeal and an adverse decision in the Court of Appeal, Cargill appealed to the Supreme Court, where the question before the Court was whether the arrest can be regarded as having been occasioned by the time charterer's "agents" in the sense in which that word is used in the proviso.

Before the Supreme Court it was accepted that the proviso does not apply only to agents in the strict legal sense, and that in the sense that Transclear and IBG were the parties ultimately entitled to the facility that Cargill enjoyed of directing where and when to discharge, Transclear and IBG were, for that purpose, the agents of Cargill.

Leading judgment

The Supreme Court allowed the appeal, disagreeing with the reasoning of both the Commercial Court and Court of Appeal and accepting the conclusion of the arbitrators. Lord Sumption gave the leading judgment, which was approved by Lord Neuberger, Lord Mance and Lord Toulson. In summary it was held that:

• The main purpose of clauses such as clause 49 is to protect the time charterer; therefore, the proviso in respect of the situation where the arrest or detention is caused by the charterer or their agents should be narrowly construed.
• There was in this case no personal default on the part of Cargill as time charterer, as there was no duty to discharge at any particular time under the charterparty. In order to rely on clause 49, NYK must therefore rely on an act or omission of Transclear or IBG, as the parties to the dispute that caused the arrest.
• The rights of the charterer are made available to those further down the contractual chain, and at least some of the charterer's obligations are satisfied by the acts of subcontractors. To the extent that they are "availing themselves of the facility contractually derived either directly or indirectly from the charterers" such subcontractors are the "agents" of the time charterer for the purposes of clause 49.
• Transclear and IBG were Cargill's "agents" under the time charter for purposes of calling for and carrying out the discharge operations. That did not mean, however, that Cargill were responsible for everything that Transclear and IBG might do which resulted in detention of the Vessel. There must be some nexus, i.e. connection, between the reason for the arrest and the function that they were performing as "agent" of Cargill.
• The question was therefore to what acts or omissions did the "agency" extend.
• Under the time charter, Cargill were required to carry out (or procure the carrying out of) cargo handling at their expense, but there was no obligation to discharge at or within any particular time. Transclear and IBG did have obligations as to the timing of discharge under the sale contract, but neither Cargill nor NYK were parties to that contract.
• Cargo handling operations were carried out on Cargill's behalf, but the issue here was not, for example, the defective performance of cargo handling operations, but rather an absence of cargo handling operations. During the period of delay, IBG were doing nothing on behalf of Cargill. IBG's inactivity would only be relevant for the purposes of clause 49 if it amounted to the vicarious breach of the time charter by Cargill, which it did not. Cargill's responsibility was only for acts or omission in the actual performance of the cargo handling operations at the discharge port.
• Incurring or enforcing a liability for demurrage under the sale contract could not be regarded as the vicarious exercise of any facility made available to Cargill under the time charter.
• Consideration should always be given to the connection between the acts leading to the arrest and the performance of functions under the time charter.
• It was concluded that the arrest could not be regarded as having been occasioned by the time charterer's "agents" in the sense in which that word is used in the proviso, and Cargill's appeal was upheld.

This approach involves a much more detailed analysis than the broad brush review of the owners' and charterers' spheres of responsibility adopted by the Court of Appeal, and means that each case will need to be looked at carefully on the basis both of the wording of the relevant clause/(s), and the facts involved.

A more detailed review including a consideration of the earlier decisions and the dissenting judgment of Lord Clarke will follow shortly.

The full judgment of the Supreme Court can be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.