The Global Santosh: Off-hire, arrest and the limits of agency

The Supreme Court has recently handed down judgment in NYK Bulkship (Atlantic) NV v Cargill International SA (The Global Santosh), finding the vessel was off-hire during an arrest occasioned by sub-charterers.

The decision clarifies the meaning of “agency” in respect of the acts under a charterparty for which a delegate can be held responsible. It may come as a surprise to ship owners to find that their vessel could be placed off-hire in circumstances where an arrest is occasioned by a party down the line in respect of a dispute to which they have no connection or control over.

NYK Bulkship (“Owners”) chartered the vessel to Cargill International (“Charterers”) under a time charter. The charterparty contained a clause placing the vessel off-hire throughout any period the vessel was under arrest, subject to the proviso “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”.

Charterers voyage-chartered the vessel to Sigma Shipping Ltd (“Sigma”), who in turn sub-chartered her.

The vessel was arrested in Nigeria by Transclear SA (“Sub-Charterers”), who were understood to be sub-charterers somewhere down the line. The arrest was in respect of a claim Sub-Charterers had against the receivers of the cargo, IBG Investments Ltd (“Receivers”), for demurrage incurred under the sale contract. As it happens, Sub-Charterers actually sought to arrest the cargo but due to a mistake, the vessel was also included in the arrest order.

Charterers withheld hire relying on the first part of the off-hire clause, which provided for hire to be suspended during any period the vessel was under arrest. Owners disputed this, claiming hire on the basis that the arrest was occasioned by Sub-Charterers and Receivers, both of whom were Charterers’ agents for the purpose of the proviso in the off-hire clause.

Earlier Decisions
In the London Arbitration (2011), the Tribunal found in Charterers’ favour, that the situation did not fall within the proviso to the off-hire clause. The Tribunal focused on the relationship between Sub-Charterers (the arresting party) and Charterers and not that of Receivers and Charterers, concluding that Charterers had not consented to the arrest of the vessel and that Sub-Charterers were not performing discharge operations on Charterers’ behalf, but even if they were, they would be doing so as a sub-contractor and not as their agent.

In the Commercial Court (2013), Field J found in favour of Owners, allowing the appeal. Field J accepted that Charterers’ agents could include those further down the line to whom responsibilities under the charterparty had been delegated. Although Field J accepted the arrest of the vessel by Sub-Charterers was not something which had been done in the course of carrying out any delegated responsibilities, he went on to also consider the role of Receivers finding that the arrest was occasioned by an act (discharge) which had been delegated to Receivers.

In the Court of Appeal (2014), the Court focused on the need to apportion which side of the fence matters fell, owners or charterers. The Court held that to fall within the proviso, there was no need for the arrest to have been occasioned in the course of an agent actually performing a delegated responsibility. All that was required was for the cause of the arrest to be something that fell on Charterers’ side.

Supreme Court Decision
The Supreme Court re-examined the agency issue, recognising that the clause was not concerned with agency in the strict legal sense, but that not everything a sub-charterer does can be considered to be the exercise of a right/performance of an obligation under the time charter. Here, Charterers had delegated discharge operations to Receivers. However, it was necessary to look at the issue under the terms of the time charter in question, which did not include any obligations as to when discharge should take place. Charterers continued to pay hire regardless. The Receivers’ failure to discharge prior to expiration of laytime was not, therefore, something for which Charterers had any responsibility.

The Supreme Court drew a distinction between the Receivers’ failure to carry out discharge operations and a defective performance of such discharge. Whereas Charterers would not be responsible for the former (a failure to discharge cannot be described as the performance of a delegated obligation), they could be responsible for the latter. In performing discharge, Receivers are carrying out an obligation of Charterers, making Charterers responsible for any acts or omissions during the course of such performance.

Impact of the Decision
Whether or not a vessel is off-hire during an arrest occasioned by parties down the line will always depend on the wording of the specific clause. However, the Supreme Court’s decision has clarified the limits of agency, requiring there to be a connection between the act or omission that was the cause of the vessel’s arrest and the function the agent was performing in his role as agent for the charterer.