Marine & Transit - September 2009
Charter termination and compensating waiting time
ENE Kos v Petroleo Brasileiro S.A. – Commercial Court
(Andrew SmIth J.) - [2009] EWHC 1843 (Comm)
Recent months have seen a number of premature
charter terminations. This Commercial Court decision concerns a
common situation of a time charter terminating due to charterer
default, but the vessel being “detained” thereafter pending removal
of cargo. On what basis (if at all) can owners be compensated
for their loss of use?
The “Kos” was a VLCC chartered by her owners
to Petroleo Brasileiro on a Shelltime 3 charter for 36
months. There was delay in payment of initial hire and owners
gave notice of termination and subsequently, notice of
withdrawal. Owners initially obtained a declaratory judgment
as to the validity of withdrawal, and now sought damages,
corresponding to the 2.64 days holding the cargo post termination,
or about US$410,000 based on the daily market rate for the
vessel.
A number of varied and interesting submissions
were put to the court by the owners.
Owners’ principal argument was that their loss
was a direct result of owners agreeing to load cargo onboard
pursuant to the charter. As such under clause 13 owners were
entitled to indemnity. However, the court held there was
insufficient nexus between compliance with the order to load and
the loss resulting. The indemnity clause had to be
restrictively applied, and here the order to load was too remote
from owners’ losses. Instead it flowed from owners’ decision to
withdraw the vessel, over which charterer had no control and the
result of which they could not quantify (The “Achilleas”
[2008] UKHL 48).
Owners alternatively argued their entitlement
to damages was a consequence of charterers’ breach in failing to
pay hire. Again, the court was unimpressed, since the effective
cause of the loss was not the failure to pay hire, but was instead
owners’ decision to withdraw the vessel which was effective to
break the chain of causation.
Nor did the court agree the existence of an
implied term that following a valid withdrawal of the vessel the
charterers would pay owners for the use of the vessel at the market
rate until completion of discharge and for the cost of bunkers
consumed for the period. Adopting the approach of the Privy Council
in AG of Belize v Belize Telecom Ltd [2009] UKPC
11, where a contract did not expressly provide for what
was to happen when a foreseeable event occurred, the most usual
inference in such cases is that nothing was to happen. Applying
that approach, because the charterer was silent on the point, it
should be inferred that the parties did not intend there should be
any such obligation.
Owners next submitted that at charterers’
request they undertook fresh contractual commitments post
termination, and were entitled to be paid appropriately. Doubtful,
held the court, since the vessel remaining off Brazil was because
the vessel was lumbered with charterers’ cargo and there was no
practical alternative but to await its removal. There was no
suggestion of charterers requesting services.
Despite these arguments falling short, owners
were finally successful in persuading the court that when the
vessel was withdrawn from hire, the contract under which owners
were bailees of the cargo came to an end, but owners remained
bailees of it and as such were entitled not only to recovery of
expenses incurred in preserving the cargo but also “reasonable
remuneration” for providing – effectively - a floating warehouse
(The “Winson” [1982] AC 939). Therefore,
owners were entitled to recover the daily market rate for the
vessel as corresponding to fair compensation.
The decision therefore provides a sensible
answer to a common problem, and perhaps shows that faced with a
series of alternative arguments, it is often the most
straightforward reasoning - here one of simple bailment - rather
than technical arguments of charter construction – which the
Commercial Court (and for that matter London maritime arbitrators)
tend to follow.
Mike Burns,
Partner
Weightmans LLP