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11 May 2016

The "GLOBAL SANTOSH" - off-hire during arrest?


In this alert, we report on the Supreme Court decision in NYK Bulkship (Atlantic) NV v Cargill International SA [2016] UKSC 20.

The Supreme Court today handed down judgment in this important case in relation to off-hire and the circumstances in which third parties will be regarded as charterers' agents.


NYK had time (trip) chartered the "Global Santosh" to Cargill. Cargill sub-voyage-chartered the vessel, and at the end of that charterparty chain stood the C&FFO sellers of the cargo, Transclear. Their buyers, the receivers IBG, incurred discharge port demurrage under the sale contract, and Transclear arrested the cargo (and so, effectively, the vessel) to compel payment or security.

Cargill withheld hire for the period of the arrest, under the below off-hire clause, and NYK challenged that, relying on the exception:

Should the vessel be captured or [seized] or detained or arrested by any authority or by any legal process ….. , the payment of hire shall be suspended until the time of her release, 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.”

The courts below

Awarding for Cargill, the Tribunal said there was no evidence that Transclear, in arresting, was performing any of Cargill's time charterparty obligations. Further, the arrest was for itself and not as Cargill's agent. The vessel was off-hire.

On appeal the parties did not dispute, and Field J decided, that "agents" could extend to sub-charterers, and also sub-sub-charterers and receivers, i.e. those directly or indirectly delegated to perform Cargill's responsibilities as time charterers. According to Field J, the precise contractual connection with the delegate did not matter, but the acts or omissions had to be in the course of performance of a delegated task. Transclear's arrest was not in the course of such performance, but IBG's delay (hence the demurrage claim) and their failure to pay or secure that claim, was, so the exception applied and the vessel had been on-hire throughout the arrest.

The Court of Appeal held that the agent's acts or omissions did not have to be in the course of performance of a delegated task, but declined to expand on that, considering instead whether (as regards sphere of responsibility) what had happened fell on owners' (vessel or crew matters) or charterers' (cargo and trading) side of the line. The Transclear/IBG dispute clearly fell on Cargill's side, as it derived from their trading arrangements, and their appeal was dismissed on that basis. The vessel was on-hire.

The Supreme Court

The Supreme Court allowed Cargill's appeal and reinstated the Tribunal's Award. The analysis was as follows:

  1. A time charterer performed some of its obligations, and exercised some of its rights, directly, but for others either employed third parties, or delegated, as outlined above, such that sub-charterers and receivers acted vicariously;
  2. In this way, Transclear exercised rights (calling for discharge) and IBG performed obligations (discharge) that were Cargill's, in each case as "agent" in the broader sense already considered;
  3. The central question was the ambit of that agency – what acts or omissions of Transclear and IBG did it cover?
  4. In asking whether matters had occurred in the course of performance of a delegated task, or considering, according to its nature, on which side of a line activity fell, the approaches of Field J and the Court of Appeal were wrong;
  5. The question was whether what Transclear or IBG did amounted to (vicarious) exercise of a right, or breach of an obligation, by Cargill under the time charterparty. IBG's delay in discharging was in no sense the exercise of a right of Cargill, nor was it a breach, because (unlike IBG under the sale contract) Cargill did not have to procure discharge within a given time. Any responsibility of Cargill under the time charterparty for IBG's involvement in cargo operations extended only to actual performance, not failure to do so. Similarly, IBG incurring, and Transclear enforcing, a liability under the sale contract was not the exercise of any time charterparty right by Cargill.

The Supreme Court did not here favour an approach based on sphere of responsibility. In particular, it disapproved of its application according to matters arising from charterers' trading arrangements, noting that this could mean time charterers' responsibility for any sub-charterer or receiver behaviour, merely because the occasion for it would not have arisen but for their appearing at the end of the sub-charterparty chain initiated by the time charterers.



Joanne Champkins

Joanne Champkins
Senior knowledge development lawyer

T:  +44 20 7809 2623 M:  +44 7825 625 900 Email Joanne | Vcard Office:  London