Shipowners' claim for damages after withdrawal of ship for non-payment of hire
ENE 1 Kos Limited v Petroleo Brasileiro SA
English Court of Appeal (Civil): Longmore and Smith LJJ and Sir Mark Waller:  EWCA Civ 772: 6 July 2010
Andrew Baker QC and Malcolm Jarvis, instructed by Ince & Co, for the Claimant shipowner, ENE 1Kos Limited
David Allen QC and Michael Collett, instructed by Clyde & Co, for the Defendant charterer, Petroleo Brasileiro SA
TIME CHARTERPARTY: SHIP WITHDRAWN FOR NON-PAYMENT OF HIRE WHILST LOADING CARGO: CARGO DISCHARGED BACK TO SHORE TWO DAYS LATER: WHETHER SHIPOWNER COULD CLAIM REMUNERATION AT MARKET RATE FOR STORING THE CARGO DURING THAT PERIOD: WHETHER REMUNERATION DUE UNDER IMPLIED TERM OR AS QUANTUM MERUIT: WHETHER DUE AS RIGHT CORRELATIVE TO DUTY OF LOOKING AFTER GOODS: WHETHER SHIPOWNER COULD RECOVER COSTS OF PROVIDING BAIL BOND
Although the Charterer’s cargo remained on board the ship for several days after the Shipowner legitimately withdrew the vessel from the charterparty for non-payment of hire, the Court of Appeal rejected the Shipowner’s claim for remuneration at the market rate for storing the cargo. There was no element of accident, emergency or necessity in the present case. By storing the cargo as it had done, the Shipowner had done no more than what a gratuitous bailee would have done. But the Shipowner was allowed to recover the costs of bunkers consumed in pumping the cargo ashore.
As for the issue of costs, the Court overruled The Collingrove (1885) 10 PD 158 and held that the costs of providing and maintaining a bail bond could be awarded to a Shipowner as costs “incidental to” the proceedings.
This note has been contributed by Ken To-ching Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon).
The present case concerned a time charterparty on the Shelltime 3 form between the claimant shipowner, ENE 1 Kos Ltd (“the Shipowner”), and the defendant charterer, Petroleo Brasileiro SA (“the Charterer”). Hire was payable monthly in advance, and if it was not paid, the Shipowner had the right to withdraw the vessel “without prejudice to any other claim Owners may otherwise have on Charterers under this Charter”.
Clause 13 of the charterparty was the standard employment and indemnity clause, which provided that the Charterer would indemnify the Shipowner “against all consequences or liabilities that may arise… from the Master [of the vessel] otherwise complying with Charterers’ or their agents’ orders”.
The Charterer failed to make a hire payment which was due by midnight of 31 May 2008. Loading operations continued, however, so that by the time the Shipowner gave notice, on 2 June 2008, of the withdrawal of the vessel from hire, a parcel of cargo had been loaded on board. The notice called “upon [the] Charterers to make arrangements for receipt ashore at [the current loading port] their cargo presently on board the vessel”.
At the time notice of withdrawal was given, the market rate of hire was considerably higher than the contractual rate of hire. The Charterer tried to persuade the Shipowner to revoke the withdrawal of the vessel, but the Shipowner insisted that any continuation of the charter should be at market rates. Faced with this situation, the Charterer then arranged for the discharge of the cargo, which was finally completed on 5 June 2008.
The Shipowner claimed for the detention of the ship, by reason of the Charterer’s cargo being on board. This claim was based upon the market rate for a period of 2.64 days, that is, between 2 June 2008 when the vessel was withdrawn, and 5 June 2008 when the cargo was completely discharged. The claim was presented in various ways: (i) under the express indemnity under Clause 13 of the charterparty; (ii) as damages for failing to make punctual hire payment; (iii) under an implied term; (iv) as a quantum meruit; (v) under a new contract, on the grounds that the Charterer allegedly made an express or implied request that the vessel remain in the port pending a decision on the future of the contract and discharge of the cargo; and (vi) as a right correlative to the Shipowner’s duty to look after the goods as bailee.
The Shipowner also claimed for the cost of bunkers consumed during those 2.64 days.
There was originally a counterclaim by the Charterer for wrongful withdrawal of the vessel. It threatened to arrest the vessel, but accepted a guarantee of US$18million from the Royal Bank of Scotland which was procured by the Shipowner. Summary judgment was ultimately entered against the Charterer, and the Shipowner claimed the costs of maintaining the guarantee as part of the costs of the counterclaim awarded to it.
At first instance, Andrew Smith J allowed the Shipowner’s claim for market rate remuneration for the period of detention arising from the cargo being on board, but only under heading (vi) as a right correlative to the shipowner’s duty to look after the goods as bailee. Its claim for the cost of the bunkers was also allowed, and the Court further awarded the costs of maintaining the guarantee as part of the costs of the counterclaim awarded to the Shipowner.
The Charterer appealed against the award of market rate remuneration for the period of detention arising from the cargo being on board, and the award of costs of maintaining the guarantee.
The Court of Appeal allowed the Charterer’s appeal on the award of market rate remuneration, but rejected the appeal on the award of costs of maintaining the guarantee.
Longmore LJ, delivering the leading judgment on the Shipowner’s claim for market rate remuneration, agreed with the trial court judge that the claim failed on grounds (i) to (v). The Charterer’s failure to make a punctual payment was not “an order as regards employment of the vessel” under the employment and indemnity clause in Clause 13 of the charterparty. Further, the true cause of the Shipowner storing the cargo on board was its decision to withdraw the vessel, and not the breach of the charterparty. Thus, no remuneration for storage could be claimed as damages for the breach.
As remuneration for storage was not expressly dealt with in the charterparty, loss should lie where it fell and, applying the principles laid down by Lord Hoffmann in AG of Belize v Belize Telecom  1 WLR 1983, no term should be implied to remunerate the Shipowner for the detention of the cargo.
The claim for quantum meruit was rejected on the basis that the Charterer had received no, or only very little benefit, from the cargo remaining on board the vessel; it had not been carried to its contractual destination or to any intermediate port. The case of Société Franco-Tunisienne v Sidermar  2 QB 278 was thus distinguished.
It was also too artificial to construe the exchanges that had taken place between the parties between 2 and 4 June as evidencing any request from the Charterer for the vessel to remain at the loading port together with the cargo. The request to discharge the cargo came rather from the Shipowner. Therefore, no new contract could be found to support the claim.
The main issue in the appeal turned, therefore, on whether the Shipowner could recover market rate remuneration as a right correlative to the duty to look after the cargo as a bailee. Longmore LJ observed that English law does not generally impose any obligation on a party, on whom a benefit has been conferred, to pay for that benefit, except in cases where an agency of necessity exists. This exception includes cases where a contract of carriage or a contract to render salvage services has come to an end but the carrier or the salvor has a duty to take reasonable steps to avoid damage or deterioration to the goods, and the goods owner - for whatever reasons - gives no instructions to the Master. Cases like Cargo ex Argos, Gaudet v Brown (1872) LR 5 PC 134; and The Winson  AC 939 have held that in such circumstances, the carrier or the salvor has the right to claim remuneration as a bailee.
However, the Court of Appeal distinguished these cases from the present. It noted that in both Cargo ex Argos, Gaudet v Brown and The Winson , there was “no practical alternative” for the claimant but to continue handling the cargo. This contrasted with the present case where there was no element of accident, emergency or necessity. Further, there was no obvious injustice in the Charterer retaining the comparatively small benefit that the stay of the cargo on board the ship represented.
Allowing the Shipowner’s claim would go against both authority and principle. It would be also be “a contradiction in terms” for the Shipowner to claim remuneration for the detention of the cargo, which was the result of its decision to terminate the charterparty.
However, the Shipowner could recover the expenses it had incurred for the bunkers consumed after the Charterer had decided to discharge the cargo from the vessel: The Winson. However, bunker expenses incurred whilst the parties were discussing whether or not to make a new contract were not recoverable, as the vessel was idle for the benefit of both parties in case a new agreement were made.
Sir Mark Waller gave the leading judgment on the issue of costs. He first noted that it was decided in The Collingrove (1885) 10 PD 158 that where a party was not liable for wrongful arrest and thus the costs incurred by arresting the vessel, he should not bear the costs of maintaining the bail bond incurred by the other party. Such expenses was not awarded as part of the costs according to practice at that time.
However, the rules changed in 1900 to allow for the recovery of the costs of providing a bail bond, subject to a maximum rate of one percent of the amount of the bond. This rule subsisted for 80 years. Although the relevant provision disappeared from the notes of the Supreme Court Practice in 1981, the courts continued to allow bail fees to be awarded as costs but without the constraint of the one percent rate.
Sir Mark therefore concluded that as the costs of maintaining the bail bond had been awarded as costs for many years, such costs were clearly to be regarded as costs “incidental to the proceedings” which the court could award in the exercise of its general discretion on costs set out in s.51 of the Superior Courts Act 1981.