NYK Bulkship (Atlantic) NV v Cargill International SA [2016] UKSC 20

A bulk cement vessel was arrested in Nigeria due to a demurrage dispute between sub-contractors. The Supreme Court held the arrest was not occasioned by the charterer's 'agents' within clause 49, so the vessel was off-hire during the arrest period.

Facts

By a time charter-party dated 11 September 2008 on the Asbatime form, NYK chartered the Global Santosh to Cargill for a single time charter trip carrying bulk cement from Sweden to Port Harcourt, Nigeria. Cargill had previously voyage-chartered the vessel (as disponent owner) to Sigma Shipping Ltd. The cargo had been sold by Transclear SA to IBG Investments Ltd on C&FFO terms, under which IBG was responsible for discharge and liable to Transclear for demurrage.

The vessel arrived at Port Harcourt on 15 October 2008 and tendered notice of readiness. Owing to congestion (caused partly by the breakdown of IBG’s off-loader) she waited at anchorage. When she finally moved towards a berth on 18 December 2008, she was turned away pursuant to an order of the Federal High Court of Nigeria obtained the previous day by Transclear, seeking to secure its demurrage claim against IBG. By an obvious mistake the order arrested the vessel rather than the cargo. The arrest was lifted following settlement between Transclear and IBG, and discharge took place between 15 and 26 January 2009.

Cargill withheld hire during the arrest, relying on clause 49 of the charter. NYK invoked the proviso that hire continued where the arrest was “occasioned by any personal act or omission or default of the Charterers or their agents.” Arbitrators held by majority that the proviso did not apply. Field J allowed NYK’s appeal in part; the Court of Appeal substantially affirmed. Cargill appealed to the Supreme Court.

Issues

The question, as framed by Hamblen J granting leave, was whether the arrest or detention of a time chartered vessel by or because of the acts or omissions of sub-contractors engaged to perform the time charterer’s obligations fell within the proviso to clause 49 excluding off-hire where the arrest is “occasioned by any personal act or omission or default of the Charterers or their agents.” The real dispute concerned the scope of the concept of “agents” in the proviso and whether the conduct of Transclear and IBG fell within it.

Arguments

NYK (Owners)

NYK argued that Cargill’s liberty to sub-let generated the chain of contracts which enabled Transclear and IBG to perform discharge functions delegated down the line. IBG’s failure to discharge within laydays under the sale contract led to the demurrage claim and arrest. Since Transclear and IBG were performing functions delegated by Cargill, their acts and omissions occasioning the arrest fell within the proviso, keeping the vessel on-hire.

Cargill (Charterers)

Cargill argued that although Transclear and IBG were “agents” for limited cargo handling purposes, the arrest was not occasioned by any act performed in that capacity. The dispute concerned demurrage owed under a sale contract to which neither NYK nor Cargill was party, and incurring or enforcing that liability was not a vicarious exercise of any right or performance of any obligation under the time charter.

Judgment

The Supreme Court (Lord Sumption, with Lord Neuberger, Lord Mance and Lord Toulson agreeing; Lord Clarke dissenting) allowed Cargill’s appeal.

Scope of “agents”

Lord Sumption accepted that “agents” in clause 49 is not confined to agents in the strict legal sense. Where rights under a time charter are exercised, and obligations performed, vicariously by sub-charterers and receivers further down the chain, those parties may be “agents” of the time charterer for relevant purposes. He drew on The Mediolanum, The Arctic Trader, and particularly Colman J’s analysis in The Goodpal, observing that sub-contractors performing cargo handling are “availing themselves of the facility contractually derived either directly or indirectly from the charterers.”

Nexus requirement

However, not every act of a sub-contractor that leads to arrest engages the proviso. There must be a nexus between the occasion for the arrest and the function performed as “agent” of the charterer. Although Transclear and IBG were agents of Cargill for the purpose of exercising the right to call for discharge and performing the discharge operation, the question was the scope of that agency.

Application to the facts

Lord Sumption identified two problems for NYK. First, Cargill had no obligation as between itself and NYK to procure discharge at any particular time. IBG’s failure to discharge between 15 October and 15 January could not meaningfully be regarded as the vicarious exercise by IBG of any right of Cargill under the time charter — IBG were doing nothing on the vessel in that period. Responsibility under the time charter for IBG’s acts or omissions in cargo handling extended only to acts or omissions in the actual performance of those operations while in progress.

Secondly, the arrest was occasioned by a dispute about demurrage under a sub-contract to which neither NYK nor Cargill was party. Incurring or enforcing a liability for demurrage under a sub-contract could not be regarded as the vicarious exercise of any facility made available to Cargill under the time charter.

Rejection of the Court of Appeal’s analysis

Lord Sumption rejected the broader test adopted by Gross LJ based on the “sphere of responsibility” dichotomy drawn from The Doric Pride. To treat anything arising out of Cargill’s “trading arrangements concerning the vessel” as within the scope of the agency would make the time charterer responsible by reason only of the status of those further down the chain, without any necessary nexus to performance of functions under the time charter. That, he held, was impossible to justify.

Dissent

Lord Clarke would have dismissed the appeal. He considered the agency extended throughout the period when the vessel was complying with charterers’ orders concerning discharge — from tendering notice of readiness through to completion of discharge — and that the failure to discharge within the sub-sale laydays, leading to the arrest, was an omission of Cargill’s “agents.” He saw no commercial reason for the vessel to go off-hire for matters wholly unconnected with the owners.

Implications

The decision clarifies, in the context of a clause 49-type detention/arrest off-hire provision, that the concept of “agents” of the time charterer is broader than strict legal agency and extends to sub-charterers and receivers exercising rights or performing obligations derived from the time charter. However, it imposes an important limit: there must be a real nexus between the act or omission occasioning the arrest and a function performed vicariously under the time charter.

The Supreme Court rejected a wide test based on whether the matter falls within the charterer’s general “sphere of responsibility” or arises from the charterer’s “trading arrangements concerning the vessel.” Mere causation in the sense that the chain of contracts was made possible by the time charterer’s sub-letting is insufficient. The acts must be done in the capacity of vicarious exercise of the time charterer’s rights or performance of its obligations.

In practical terms, the decision favours time charterers where a vessel is arrested due to disputes between sub-contractors that are unconnected with anything the vessel has done or any obligation the time charterer owes the owner. Owners cannot recover hire under such a proviso merely because the dispute arose somewhere within a chain of contracts initiated by sub-letting. Disputes about demurrage or other liabilities under sub-contracts to which the head parties are not privy will typically fall outside the proviso.

The decision is significant for the drafting and interpretation of capture, seizure and arrest off-hire clauses in time charters, and confirms a narrow construction of provisos protecting owners from off-hire consequences. It leaves open how exactly the nexus test will apply in other factual configurations and recognises that issues of causation in this area will often be difficult.

Verdict: Appeal allowed. The orders of the courts below were set aside and NYK’s appeal under section 69 of the Arbitration Act 1996 was dismissed. The vessel was off-hire during the period of arrest, as the arrest was not occasioned by Cargill or its ‘agents’ within the meaning of clause 49.

Source: NYK Bulkship (Atlantic) NV v Cargill International SA [2016] UKSC 20