5 March, 2020
Welcome to this month's edition of our shipping case digest, providing you with concise and useful summaries of recent legal decisions in the shipping market.
The "GRAND FORTUNE": correct counterparty under the recap
In this appeal from an arbitration award the court was required to identify the disponent owner where it was not named in a charter recap.
Background
COSCO was the disponent owner of the Grand Fortune (the Vessel). By a time charter dated 15 November 2007 (the Head Charter), Cosco chartered the Vessel to Britannia Bulkers A/S (Bulkers). Bulkers' obligations under the Head Charter were guaranteed by Britannia Bulk Plc (Bulk). Bulkers was a wholly owned subsidiary of Bulk.
The proceedings related to a sub-time charter of the Vessel (the Sub-Charterparty) contained in or evidenced by an email dated 16 May 2008 (the Recap). The Sub-Charterparty was negotiated between a freight trader employed by Bulk and ABT's exclusive broker. The Sub-Charterparty was made by reference to the Head Charter.
The Recap named ABT as charterer but did not identify the disponent owner. By an email of 12 September 2008, a draft Sub-Charterparty dated 16 May 2008 (the Draft Sub-Charterparty) was sent to ABT naming Bulk as owner and ABT as charterer. It was never finalised.
In October 2008 Bulk went into administration and shortly afterwards in November of the same year, Bulkers was placed into insolvent liquidation. Disputes arose between COSCO and Bulkers and as part of a settlement COSCO took an assignment of Bulkers’ rights against ABT. COSCO then brought a claim against ABT in arbitration.
ABT alleged that its counterparty was Bulk and therefore the tribunal had no jurisdiction. By a majority the tribunal held that the counterparty was Bulkers and therefore the tribunal had jurisdiction.
Legal analysis
In the appeal, ABT submitted that ascertaining the identity of the parties to a contract was a question of fact to be determined by reference to all the relevant evidence even if it post-dated the contract in issue and even if it was not something known to both parties but only to one of them. COSCO submitted that identification of a party to a contract was a matter of contractual construction, which might be supported by extrinsic evidence known to both parties at the time the contract was made, however, material coming into existence after that time was immaterial to the issue.
The judge summarised the applicable principles as follows:
(i) Where a contract is contained in a document, the first question is whether the document sufficiently unequivocally identifies the parties. If it does not, then the question is one of construction of the relevant document and there is no factual investigation.
(ii) Where a contract is contained in, or evidenced in writing, but the document(s) do not enable the parties to be ascertained, then recourse to extrinsic evidence is permitted of what the parties said to each other and what they did down to the point at which a contract was concluded for the purpose of determining who the parties to the agreement were intended to be.
(iii) The approach to be adopted under (ii) was objective: the question the court had to ask is what a reasonable person furnished with the relevant information would conclude.
The Recap was evidence of an underlying agreement but it did not contain it. It did not identify expressly, impliedly or by reference who the disponent owner was. Principle (i) was of no assistance in the circumstances.
It was next necessary to consider the extrinsic evidence of what the parties said to each other and what they did down to the point at which the contract was concluded for the purpose of determining who a reasonable person, furnished with the relevant information, would conclude was the disponent owner.
The judge found that down to the date when the Recap was sent and received, it was known to ABT's broker and the freight trader employed by Bulk that:
(a) Bulkers was charterer of the Vessel under the Head Charter;
(b) therefore Bulkers had the power to sub-charter the Vessel;
(c) the terms of the Head Charter as disclosed reinforced this view by providing that Bulkers' performance of its obligations under the Head Charter was guaranteed by Bulk;
(d) the trader had not suggested that any entity within the Britannia Group other than the entity that had chartered the Vessel under the Head Charter was to be disponent owner under the Sub-Charterparty, because he had not been instructed to that effect; and
(e) if there had been an internal charter of the Vessel from Bulkers to Bulk (something which in light of the evidence was implausible) that was not something known to the broker and, therefore to ABT.
With regard to the internal charter in particular, there was no evidence of there being any disclosure, or even suggestion in the course of the negotiations of the existence, of a sub-charter between Bulkers and Bulk. The judge further noted that Bulk guaranteed the liabilities of Bulkers under the Head Charter. It would have been far more straightforward for Bulk to had become charterer in place of Bulkers when the Head Charter was being negotiated rather than guarantee Bulkers' obligations if the intention was then to internally charter the Vessel from Bulkers to Bulk.
The fact that the trader was employed by Bulk and was based at Bulk's London office and used a Bulk email address and phone number was in the circumstances plainly outweighed by the other extrinsic evidence, as above.
In those circumstances, the extrinsic evidence of what the parties knew, said to each other and did down to the date when the Recap was sent and received would have led a reasonable person, furnished with the relevant information, to conclude that Bulkers was the disponent owner. Everything that was said and done thereafter was irrelevant and immaterial.
The claim was dismissed.
Comments
It is important to note that the judge emphasised that the only admissible evidence relevant to the question who was the disponent owner was evidence of what the parties’ agents said to each other and what they did to up to the point at which the contract was concluded. ABT’s submission that post-contractual conduct was admissible to determine the parties to an agreement was rejected.
In any event, the judge noted that to the extent that evidence of conduct occurring after the event was relevant, then the terms of the letters of indemnity (with each having been issued by ABT and addressed to Bulkers) and the instructions to pay all hire due under the Sub-Charterparty to Bulkers was much more significant than the terms of the Draft Sub-Charterparty, which erroneously identified the wrong Britannia entity as the disponent owner and on which ABT was heavily relying.
The "TAI PRIZE": meaning of ‘clean on board’
This was an appeal by the claimant voyage charterer in respect of three questions of law arising out of a final award ordering the claimant to pay the defendant disponent owner's claim in the sum of US$500,000 and costs.
Factual background
The defendant was the time charterer of the motor vessel “TAI PRIZE”. By a voyage charterparty dated 29 June 2012, the defendant agreed to let the vessel to the claimant for the carriage of a cargo of heavy grains, soya and sorghum in bulk from Brazil to China.
Pursuant to the charterparty, the vessel arrived at Santos for loading. A Congenbill 1994 Bill of Lading (B/L) was drafted by the shipper and offered for signature by or on behalf of the master of the vessel. Under the heading ‘Shipper's description of Goods’ the cargo was described as ‘63,366.150 metric tons Brazilian Soyabeans Clean on Board’.
The B/L was executed by agents on behalf of the master without any reservations stating that the cargo had been ‘SHIPPED at the Port of Loading in apparent good order and condition on board the Vessel for carriage to the Port of Discharge …Weight, measure, quality, quantity, condition, contents and value unknown …’
The B/L incorporated the Hague Rules (HR) by operation of clause 2 on its reverse side. The contract of affreightment evidenced by the B/L was with the shipowner not the claimant.
The vessel arrived at Guangzhou and discharge commenced on 15 September 2012. On 17 September, discharge from two of the vessel's holds was suspended ‘Due to charred Cargo Found’. That cargo was discharged but the receiver maintained that the cargo in those holds had suffered heat and mould damage.
The shipowner contested the receiver’s claim for damages in China but lost at first instance and on appeal and was ordered to pay a sum equivalent to US$1,086,564.70. Subsequently, the shipowner commenced arbitration in London against the defendant which agreed to pay US$500,000 to the shipowner in full and final settlement. In further arbitration, the defendant claimed from the claimant the right to be indemnified for the amount paid to the shipowner and the associated costs. There was no express provision under which the defendant was entitled to an indemnity.
The arbitrator found as fact that the damaged beans had been loaded in a pre-existing damaged condition and that the damage was not reasonably visible to the master or crew or the stevedores or the attending surveyors or any agent of the claimant at or during loading. However, the arbitrator concluded that because the discolouration of the beans would have been visible on reasonable examination by the shipper, it followed that the cargo was not in apparent good order and condition when shipped notwithstanding her earlier conclusion that the damage from which the beans were suffering was not reasonably visible to the Master or crew or the stevedores or any agent of the claimant at or during loading. She held the claimant liable to the defendant because the shipper was the claimant's agent and therefore the claimant had impliedly warranted the accuracy of any statement as to condition contained in the B/L or had impliedly agreed to indemnify the defendant against the consequences of the inaccuracy of any such statement.
The claimant voyage charterer appealed.
Legal issues
i) Did the words ‘Clean on Board’ and ‘SHIPPED at the Port of Loading in apparent good order and condition’ in the draft B/L presented to the agents for signature on behalf of the master amount to a warranty by the shippers or the claimant as to the apparent condition of the cargo observable prior to loading or were they an invitation to the master to make a representation of fact in accordance with his own assessment of the apparent condition of the cargo; and
ii) In light of the answer to (i), on the findings made by the arbitrator was any statement in the B/L inaccurate as a matter of law.
When the charterer or shipper on his behalf tendered a bill of lading for signature by the master that contained a statement as to apparent condition in the same or similar terms to the wording in the B/L, the charterer or shipper was inviting the shipowner by its agent the master to make a representation of fact as to the apparent condition of the goods on shipment.
The obligation to record the apparent order and condition of the goods was owed by the shipowner to the shipper. The purpose of the representation was to record the carrier's evidence as to the apparent condition of the goods when placed aboard the ship. It could be relied on by the consignee and all subsequent holders of the bill of lading as reflecting the reasonable judgment of a reasonably competent and observant master.
Further, the HR drew a clear distinction between the position in relation to information that appeared in the B/L that was provided by the charterer or shipper on the charterer's behalf, which the carrier or master on its behalf was obliged to accept at face value and representations as to the apparent condition of cargo at shipment. HR, Art. III, Rule 3 provided for the inclusion within a bill of lading to which the HR applied of the ‘leading marks necessary for identification of the goods’ and ‘the number of packages or pieces or the quantity or weight’ of the goods constituting the cargo to which the relevant bill related, critically, in each case, as that information was ‘furnished in writing by the shipper’. Insofar as the bill set out this information, it was recording information supplied by the shipper. In that case the rule applied to the information that the cargo consisted of ‘63,366.150 metric tons Brazilian Soyabeans’.
Critically, the rule went on to provide that the bill should also set out ‘the apparent order and condition of the goods’. However, that was not something that was to be ‘furnished in writing by the shipper’. That was exclusively an assessment by the carrier (or the master on its behalf) of the goods at the point of shipment. Everyone in the shipping trade knew that the master need not sign a clean bill just because one was tendered; everyone knew that it was the master's task to verify the condition of the goods before he signed.
By HR, Art. III, Rule 5 a warranty was deemed to have been supplied by the shipper to the carrier in respect of the information ‘furnished in writing by the shipper’ pursuant to HR, Art. III, Rule 3 but no such guarantee was deemed to be given in respect of the apparent order and condition of the goods. In making that assessment, the master did not act on the basis of the information provided to him by the shipper but made his own independent assessment.
There was no finding by the arbitrator that the master failed to carry out an independent assessment. To the contrary, the arbitrator found the damage to be pre-existing and not reasonably visible to the master or any agent of the claimant at or during loading. In those circumstances, the shipowner and defendant complied with their prime obligation to deliver the goods at the contractual destination in the apparent good order and condition they were in when shipped. It was difficult to see how there could be any causal link between the loss suffered by the defendant in settling with the shipowner and the making of the alleged representation by the claimant because the signature of the bill of lading did not preclude the defendant from establishing the true condition of the goods in the arbitration as between it and the shipowner.
Therefore, in answer to questions (i) and (ii) by presenting the draft B/L for signature by or on behalf of the master, in relation to the statement concerning apparent good order and condition, the shipper was doing no more than inviting the master to make a representation of fact in accordance with his own assessment of the apparent condition of the cargo. In light of the finding by the arbitrator that the damage was not reasonably visible to the master etc. the B/L was not inaccurate as a matter of law. It contained no more than a representation of fact by the master as to apparent condition.
iii) Was the claimant obliged to indemnify the defendant against any consequences of that statement whether pursuant to an implied indemnity arising by operation of law or an implied contractual warranty or term.
The claimant and defendant's contract was contained in the charterparty. It incorporated the HR. The HR made specific provision for what indemnities applied. The scheme of the HR was to impose on a charterer an express indemnity obligation in respect of information furnished by the charterer. The scheme did not provide for such an obligation in relation to statements concerning apparent order and condition of cargo. That was a deliberate omission. In those circumstances there was no room for the implication of a guarantee or warranty.
Terms were to be implied only if to do so was necessary in order to give the contract business efficacy or was so obvious that it went without saying. Recent caselaw had emphasised the need for particular care when considering implying terms into a sophisticated and professionally drawn and negotiated agreement between well-resourced parties. The reason was obvious. Where an issue has been left unresolved, it was much more likely to be the result of choice rather than error. This applied to contracts that incorporated standard forms or wordings contained in provisions such as the HR, which were the result of careful consideration over a number of years by experienced industry professionals.
Applying those principles to the charterparty led to the conclusion that it would be wrong to attempt to imply into the contract a provision that made the claimant liable by implication to indemnify the defendant when the drafters of the HR could have but decided not to provide expressly for such a provision.
Comment
This judgment makes clear that it is the master (on behalf of the carrier) who is to make a representation of fact in accordance with his own assessment of the apparent condition of the cargo and it is the master's task to verify the condition of the goods before signing any bill of lading presented by the charterer/shipper.
In his judgment HHJ Pelling QC emphasised the need for particular care when considering implying terms into a sophisticated and professionally drawn and negotiated agreement between well-resourced parties.
It is also interesting to note that with regard to the arbitrator's concern that the defendant would be left without recourse, if no indemnity was implied, the court found that there was nothing unfair, unjust, uncommercial or unconscionable about an outcome that left ultimate liability with the defendant because there was no misrepresentation, no evidence or finding that the master had acted on the alleged misrepresentation rather than being unable reasonably to verify the condition of the goods and because it decided to pay the shipowner.
For further information, please contact:
Damien Laracy, Partner, Hill Dickinson Hong Kong
damien.laracy@hilldickinson.com
