The Mookda Naree: on or off hire during an arrest?

Revisiting The Global Santosh with similar but different words.

In the same appeal case as The Mookda Naree: the meaning of common words, there was also a debate under clause 47 which provided:

 47. Capture, Seizure, Arrest

“Should the vessel be captured, seized or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended until the time of her release, unless such capture, seizure, detention or arrest is occasioned by any act or omission or default of the Charterers and/or sub-Charterers and/or their servants or their Agents. Any substantiated extra expenses incurred by and/or during the above capture or seizure or detention or arrest shall be for Owners’ account.”

A delay occurred in putting up security and resolving the arrest. Was the vessel on-hire or off-hire?

The Tribunal

The arbitrators approached the construction of clause 47 on the basis the main purpose of the clause overall was to protect the interests of the charterers by a prima facie rule that the ship would be off hire if she was arrested or detained by legal process. Therefore, they said that it was for the owner to persuade them that the arrest fell squarely within the proviso (“…unless such…arrest is occasioned by…”).

The charterers main argument was that “act or omission or default of … sub-Charterers” connotes, and is confined to, conduct in breach of a contractual obligation under the sub-charter in question. Charterers (and sub-charterers) said they had no contractual obligation to handle the arrest, so there was no omission and the vessel was off-hire.

In particular charterers sought to rely on the Supreme Court decision in “The Global Santosh” where the Court considered a clause with the same wording except the words underlined relating to sub-charterers.

In that case the Supreme Court found that where the charterers’ agent was not acting in a capacity related to the charterers’ obligation under the charter, the vessel remained off-hire.

In this case, the extension of the proviso to sub-charterers was crucial. The tribunal found as fact that Cerealis, as a sub-sub-charterer, should have appreciated that it would be expected to deal with SMG’s claim, and if Cerealis had acted promptly to settle or secure SMG’s claim, the vessel would have been released. The Tribunal found the failure by Cerealis to so act was an omission within the meaning of the clause. Therefore, the vessel was on-hire.

Appeal

On appeal charterers pressed the argument that for the proviso to apply “ … [there had to be] a failure on the part of the Sub-Charterer to do something which it was legally obliged to do and … that failure … be in respect of an obligation on the Sub-Charterer as sub-charterer”.

Mr Justice Baker confirmed the Tribunal’s decision. He held that charterers’ interpretation was “…far less [a] likely bargain to strike than one that aims simply to say that if the time charterer or a sub-charterer brings about the arrest or detention, the ship ought to remain on hire.”

Accordingly Mr Justice Baker held that Cerealis’ inaction in the circumstances was indeed an “act or omission or default of…sub-Charterers…” within the meaning of clause 47. He said the wording is not confined to conduct in breach of a contractual obligation under the sub-charter, but is a legal obligation in relation to a contractual agreement.

The judgment also provides an important analysis on the reasoning of the decision in The Global Santosh. The Judge found that the meaning of ‘act or omission’ was the same. The key difference was the facts in The Global Santosh added a layer of analysis only with respect to the notion of a charterers’ agent and what is meant by an act in that particular context. In The Global Santosh, the proviso did not extend to the acts, omissions or defaults of sub-charterers.

Conclusion

As the Judge found, “It will be a matter for negotiation in any given case whether to strike [the] bargain by reference to the time charterer only or by reference also to sub-charterers, as the difference between [the] clause[s] in this case and … in The Global Santosh shows. Ultimately, the owner’s difficulty in The Global Santosh was that charterer in that respect secured a better bargain than did charterers (under the head charter) or sub-charterers in the present case”.

The lesson from this case (and the Global Santosh) is for owners and charterers to consider very carefully the drafting of any off-hire clause relating to arrest or detention. A few additional words in clause 47 (relating to sub-charterers), made the difference in owners’ case for the vessel remaining on hire.

In addition, charterers should ensure that, if appropriate, their position under any sub-charter is back to back, as it was in this case.

Terry O’Regan and Alex Davey of Birketts acted for charterers/disponent owners and instructed Nevil Phillips of Quadrant Chambers.