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Navision Shipping A/S v. Precious Pearl Ltd and Conti Lines Shipping NV v. Navision Shipping A/S [2021] EWHC 558 (Comm)
The Facts
The facts of this case were complicated but played an interesting part in the uniqueness of the judgment.
In early December 2018, m.v MOOKDA NAREE (hereafter referred to as “the Vessel”) arrived at Conakry, Guinea, to discharge a cargo of milling wheat, where she was arrested by a Guinean company, Societe Moulin d’ Or Guinea, which will be referred to as “SMG”. The arrest took place on 15 December 2018 and the Vessel was released on 12 January 2019.
This is where the facts get complicated: SMG arrested the Vessel for an alleged cargo claim. However, the alleged cargo claim did not concern cargo being discharged from the Vessel at the time and neither did it relate to any other cargo claim against the Owners of the Vessel. In fact the cargo on the Vessel was not even destined for SMG at the time of the arrest- it was destined for another buyer. SMG had a claim in June/July 2018 (that is, about 6 months earlier) which was carried on another vessel ( the MV Supertramp). The ownership of MV Supertramp was completely unrelated to that of the Vessel. So, one may ask, how did this arrest come about?
This is where the puzzle vaguely comes together:SMG’s cargo claim was for short delivery of a cargo of wheat carried to Conakry in June/July 2018, where Cerealis was the seller (the shipper) and SMG were the buyer. Cerealis was also the sub-charterer of MV Supertramp. The cargo on board the Vessel in December 2018 was destined for another Cerealis buyer, namely Moulin Moderne du Mali Segou or “MMMS”.
So, how did the Vessel come into play?
The Vessel arrived at Conakry under the following charterparty chain:
- Precious Pearls Ltd (“PPL” or “the Owners”) was the head owner and had a time charterparty with Navision Shipping A/S ( hereafter referred to as “Navision”).
- Navision (as disponent owner) had a sub- charterparty agreement with Conti Lines Shipping NV ( hereafter referred to as “Conti”).
- Conti (as disponent owner) had a sub-sub- charterparty with Cerealis.
Therefore Cerealis was the last charterer in a charterparty chain.
All of the above-mentioned charterparties, although not back-to-back, contained Clause 47 which stated the following:
“ Clause 47:Capture, Seizure, Arrest
Should the vessel be captured, seized or detained or arrested, by any authority or by any legal process during the currency of this charterparty, the payment of hire shall be suspended until the time of her release, unless such capture, seizure, detention or arrest is occasioned by any act or omission or default of the Charterers and/or sub-charterers and/or their servants or their agents. Any substantiated extra expenses incurred by and/or during the above capture or seizure or detention or arrest shall be for Owners account”.
It is to be noted that in the context of both the head charterparty and the sub-charterparty, Cerealis was a sub-charterer for the purposes of that Clause.
There was an additional provision, Clause 86, which was included in the head charterparty but not in the sub charterparty which provided as follows:
“Clause 86: Trading Exclusions
[………..]
When trading to West African ports, Charterers to accept responsibility for cargo claims from third parties in these countries (except those arising from unseawothiness of the vessel ) including putting up security, if necessary, to prevent arrest/ detention of the Vessel or to release the Vessel from arrest or detention and vessel to remain on hire”.
The Dispute
The Vessel remained off-hire for the whole duration of her arrest, which lasted 29 days. The Owners in the head charterparty sued the charterers, Navision and in turn, Navision sued Conti for unpaid hire. Even though the charterparty between Conti and Cerealis was a voyage charterparty (as stated above) Cerealis was considered a sub-charterer in the proceedings.
The Arbitration Awards
By separate Arbitration Awards, each dated 11 February 2020 (supported by a single set of reasons for both), the Tribunal (consisting of Simon Croall QC, Mark Hamsher and Professor Charles Debattista) held that Clause 47 applied and the Vessel remained on hire for the entire period of her arrest. This was decided on the basis that the Vessel’s arrest and detention thereafter was caused by Cerealis’ failure to promptly deal with (and/or secure) SMG’s claim, so as to procure the Vessel’s release.
The Tribunal further decided that Clause 86 (the part quoted above) applied not only to cargo carried under the head charter, but also under the charterparties in the same chain, and as such, the Vessel remained on hire under the term “Charterers to accept responsibility for cargo claims from third parties in these countries [……] including putting up security, if necessary to prevent arrest/ detention of the Vessel or to release the vessel from arrest or detention and the vessel to remain on hire”.
The Appeal to the High Court
Conti and Navision objected to the Tribunal’s decision, contesting the reasoning on the basis that the arbitrators erred in law in the interpretation of Clauses 47 and 86.
Foxton J granted the Charterers’ leave to appeal by order dated 23 June 2020, and set out the following questions of law to be determined by the High Court:
1) Under Clause 47, what is the test of whether or not there has been an omission by a sub-charterer such that the Vessel remains on hire during the period of arrest? That is, whether the arbitrators misconstrued Clause 47 in deciding that there was such an omission by the sub-charterers.
2) Under Clause 86, whether SMG’s claim against Cerealis (a claim relating to a vessel other than the chartered vessel (i.e. MOOKDA NAREE ) was a “cargo claim” so that the sub-charterers were obligated to put up security to prevent the arrest (or enable the release) of the Vessel? That is, what was meant by a “cargo claim” under Clause 86?
The Position of the Appellants
The arguments of Navision and Conti to the above-mentioned questions of law were the following:
a) On Clause 47 (both Conti and Navision) argued that: upon its proper construction, there was only an “omission” by a sub-charterer when it fails to do something that its particular charterparty obliged it to do. There was therefore no obligation for Cerealis under its sub- charterparty to deal with or secure SMG’s claim or otherwise to procure the release of the “MOOKDA NAREE ” from arrest.
b) On Clause 86 Navision argued that: “Cargo claims in that Clause are limited to claims connected with cargo carried under the head charter or other contract of carriage entered into pursuant to the head charter…..”. ThereforeClause 86 had no application here.
Owners’ counter-arguments, in brief were that:
Cerealis’ failure to promptly deal with the arrest and/or settle SMG’s claim meant that they omitted to act as per Clause 47, and as such the Vessel remained on hire.
With regards to Clause 86, they argued that “cargo claims” meant “any claims” made in respect of cargo (irrespective of whether the cargo claim here related to cargo carried on a completely different and unrelated vessel to the MOOKDA NAREE ), given that the party liable for the cargo claim (ie Cerealis) was the sub-charterer in the charterparties of both vessels.
The High Court Decision
It is to be noted that this decision has raised a lot of controversy but as it has not been subject to appeal at the Court of Appeal it remains good law to date.
In terms of money, the award in the head charter was US$266,946.38 for the unpaid hire and damages to be assessed (plus interest and costs) and in the sub-charter reference is was US$419,198.55 (for the unpaid hire) plus interest and costs. Please note that SMG’s claim against Cerealis (which was the subject of the arrest) was for US$150,726.24.
Mr Justice Andrew Baker based his decision on the following undisputed facts which had been determined by the Arbitration Tribunal:
(i) Both the head charterparty and the sub- charterparty incorporated Clauses 8, 43 and 47 of the Asbatime 1961 form.
(ii) The MOOKDA NAREE was arrested by SMG on the basis that she was “either owned by the company Cerealis or are chartered by them” and on that basis, both the MOOKDA NAREE and the Supertramp had a contractual relationship with Cerealis. It was not relevant that Cerealis was neither the owner of the MOOKDA Naree nor the owner of the Supertramp. Therefore, the only basis of the arrest was that Cerealis was the sub-charterer of the MOOKDA Naree, irrespective of the fact that the cargo claim to which the arrest related had nothing to do with the cargo on board the Vessel.
(iii) Clause 86 of the head charterparty was not part of the sub-charterparty.
(iv) On 15 December 2018, the Vessel was served with an arrest order. From that day onwards, there were communications between PPL (the Owners of the Vessel), Navision, Conti and Cerealis. However, Cerealis showed no interest in dealing with the matter or in putting up security – they instead took the position that only the Owners of the Vessel could take action to obtain her release.
(v) At the end, the Vessel was released upon a Court Order (by the local Court) dated 11 January 2019, whereby the Owners of the Vessel had to put up security, by way of bank guarantee in the amount of US$80,000. The Vessel was released from arrest on 12 January 2019.
(vi) The Vessel was treated as being off-hire between 15 December 2018 (at 12:00hrs) and 12 January 2019.
(vii) Thereafter, Cerealis agreed to settle the cargo claim (for the cargo carried on board the Supertramp) brought by SGS, and which was the subject of the arrest, by paying SGS the full amount of US$150,726.54, via a settlement agreement dated 15 January 2019.
(viii) The Court accepted the fact that Cerealis was not on notice by SMG that they were going to arrest the MOOKDA NAREE to obtain security for its cargo claim against Cerealis. In addition, it was accepted that Cerealis could not have known that by not providing security to SMG, the latter would arrest the Vessel.
Upon consideration of the above facts, Baker J. decided in favour of the owners in the sub charter in that the Vessel remained on hire for the duration of the arrest period. He therefore upheld the Tribunal’s decision on the reasoning fo Clause 47.
However in relation to Clause 86 he overturned the Tribunal’s decision and held that “cargo claims” had to be limited to cargo claims relating to cargo carried by the Vessel under the charter only. The charterers were therefore not in breach for the purposes of Clause 86.
More particularly, he held the following:
On Clause 47 and the test for there being an omission to act by the sub-charterers:
Baker J held that Cerealis’ indifference and inaction constituted an omission to act. Upon notice of the arrest, which was given to them on 15 December 2019, they should have known that the arrest was a result of the cargo claim that SMG had against them and by failing to deal with and/or secure SMG’s claim the Vessel would remain under arrest. If Cerealis had dealt with the claim earlier, the Vessel would not have remained under arrest until 12 January 2019.
Therefore Cerealis’ inaction in those circumstances was an “act or omission or default of ….sub-charterers …” within the meaning of Clause 47.
It is notable, that in Andrew Baker’s judgment, it mattered not that the breach of the contractual obligation by Cerealis was not in relation to the sub-charterparty (with Conti) to which it was a party. On a strict interpretation of Clause 47, Cerealis’ “inaction in circumstances where a sub-charterer should reasonably appreciate that it would be expected to act, is naturally and fairly characterized as a failure to act, ie an omission” and as such the Vessel remained on hire during the period of arrest (at paragraphs 28 and 33-34 of the judgment).
With regards to Clause 86 and the interpretation of “cargo claims” in that Clause:
The main issue to be addressed was whether the Vessel could be arrested in relation to a cargo claim which arose from cargo not carried on the arrested vessel, or under the charterparty in question.
Andrew Baker J. in overturning the Tribunal’s decision in this respect held that the arbitrators erred in their interpretation of Clause 86. He held that SMG’s cargo claim, although it related to a cargo that had been carried to a West African port, was not a “cargo claim” within Clause 86 between the Owners and Navision (under the head charterparty) because it did not concern MOOKDA NAREE’s West African trading pursuant to that charterparty, but a different vessel altogether (ie the Supertramp). Navision was therefore not in breach of Clause 86 and as such it did not have liability to pay hire under the head charterparty or to pay damages to PPL for breach of contract.(Paragraphs 50 and 53 of the jujment)
Important Points to take away from this case
- One of the most important lessons to be learned is for the head owners to be minded to know the terms of a sub-charter under which their vessel is entered into. Clause 47 in the present case worked in favour of the disponent owners in the sub-charterparty but not the head owners who were held not to earn hire under the head charter by application of clause 86.
- By careful drafting it is possible to shift responsibility for the handling of arrest proceedings arising from cargo claims to sub-Charterers as per the wording of Clause 47. In this respect, please note that Baker J. followed the interpretation of the term “act or omission” in the Supreme Court decision of “The Global Santosh” but distinguished the wording in that clause with respect to the meaning of the term “Charterers’ agents”. You may read further on that decision by accessing the following case citation: The Global Santosh [2016] UKSC 20, [2016] 1 WLR 1853.
- It i important that henceforth an arrest of a vessel with respect to a cargo claim is to be confined to cargo claims relating to the particular vessel and under the charterparty which is the subject of the dispute. Cargo claims have therefore been interpreted in a strict and narrow manner.
You may find a copy of the High Court judgment on The MOOKDA NAREE in the following link.
Maria Stavropoulou
Solicitor (England & Wales), Greek Lawyer (Athens Bar Association)