Athens Cape Naviera S.A. v Deutsche Dampfschiffahrtsgesellschaft ‘Hansa’Athens Cape Naviera S.A. v Deutsche Dampfschiffahrtsgesellschaft Aktiengesellschaft (Barenbels, Destiny)

I will invite Lord Justice Robert Goff to read the judgment of the court.

There is before the court an appeal against a decision of Sheen J., in which he allowed an appeal by the respondents from an award made unanimously by three arbitrators in favour of the appellants. The appeal came before the learned judge under section 1 of the Arbitration Act 1979, by the prior consent of the parties; and the present appeal has come before this court by leave of the judge, who certified that the question of law to which his decision related was one of general public importance.

The dispute between the parties has arisen under a contract for the sale of a ship, dated 11th November 1980, on the Norwegian Saleform, by which the appellants sold to the respondents a ship called the "Barenfels", since renamed the "Barenbels". We shall for convenience refer to the appellants as "the sellers", and to the respondents as "the buyers". The sale of the ship was part of the closing down of the sellers' business activities; and, after her sale to the buyers, the ship was retained by them in the trading in which she had previously been employed by the sellers, in the course of which she called at Umm Said (Qatar) in February 1982. There the buyers' local agents were Qatar National Shipping & Transport Company of Doha ("Qatar National") who had previously acted for the sellers and who were owed a considerable amount of money by the sellers, most of the debts having been incurred before the delivery of the ship to the buyers on 10th December 1980. The arbitrators were unable to find that any of the indebtedness of the sellers to Qatar National had arisen in respect of the "Barenfels's" employment and operation, and so approached the matter on the basis that the indebtedness related to the employment and operation of other vessels owned or chartered in by the sellers.

Qatar National decided that they should endeavour to effect recovery of the sellers' indebtedness to them by starting proceedings in the Court of Qatar, Such proceedings were, the arbitrators inferred, commenced in early 1982; and on 6th February 1982 the Doha Court ordered the detention of the vessel pending provision of an appropriate guarantee of Qatar National's claim. Negotiations then took place between the buyers and the sellers, with a view to persuading the sellers either to settle the claims or to put up the necessary security. The buyers however obtained no satisfactory response from the sellers; and in the event security was provided on 20th February in the form of a guarantee furnished to Qatar National by the buyers' P. & I. Club. The arbitrators found that that was the only way left for the buyers to secure release of the ship.

At the date when the arbitrators made their award (16th January 1984), it appeared that the Doha Court proceedings were still pending, so the Club guarantee had not then been called on; but the guarantee remains operative until February 1988, and so until that date the Club remains on risk under the guarantee.

These events led to a dispute between the parties under clause 9 of the Norwegian Saleform, which reads as follows:

"9. The Sellers guarantee that the vessel, at the time of delivery, is free from all encumbrances and maritime liens or any other debts whatsoever. Should any claims which have been incurred prior to the time of delivery be made against the vessel, the Sellers hereby undertake to indemnify the Buyers against all consequences of such claims."

The buyers claimed that, in the circumstances, they were entitled to damages for breach of clause 9, or alternatively to an indemnity under the clause. The sellers denied liability. The arbitrators directed that the hearing before them be confined to the issue of liability as between the two parties. The award made by them was in form an interim award; at the request of both parties, reasons were given.

The arbitrators made a unanimous award, deciding that the sellers were under no liability to the buyers. First of all, they unhesitatingly rejected the buyers' case so far as it was advanced as a claim for damages for breach of the guarantee contained in the first sentence of clause 9. They expressed their reasoning in the following paragraph:

"Encumbrances and maritime liens normally attach to a vessel in respect of liabilities arising in relation to that particular vessel and we consider that the words 'any other debts', read in the context in which they here appear, are inappropriate to embrace indebtedness arising otherwise than in relation to the particular vessel the subject of transfer under the (Memorandum of Agreement)."

They then considered the buyers' alternative claim to an indemnity under the second sentence of the clause. They rejected an argument by the sellers that the second sentence did no more than provide the remedy available to the buyers in the event of a breach of the guarantee in the first sentence. But they held that the buyers could not bring their case within the second sentence, because they were unable to show that there was in this case any claim "made against the vessel" within the meaning of those words in the second sentence of the clause. In this connection, they referred to the evidence before them relating to the proceedings in Qatar; and they found that the detention of the vessel was effected on 6th February 1982 by means of an interlocutory order which was apparently made in the exercise of the court's power, under the relevant local law, to order "conservatory arrest" in respect of a "marine debt", with corresponding power to order release from such arrest when security had been provided. They expressed their conclusion in the following passage in their reasons:

"In our view the indemnity provided by the second sentence of clause 9 is expressed in language insufficiently clear to embrace a conservatory arrest of the kind which here took place. There is no evidence that any claim was made 'against the vessel'. The claim was brought against the Sellers and, under the local law, this involved an associated right to detain the vessel pending provision of security for the claim. We find that the vessel's detention was solely for that 'conservatory' purpose and that there could, in particular, have been no question of the Court, in the proceedings before it, having power to order the sale of the ship to satisfy the claims. Proceedings directed to the latter end would have taken a quite different course under the local law, in that the detention would have been followed by a summons to hear the arrestor's application for sale of the ship. Nothing of that kind occurred."

From that decision the buyers appealed to Sheen J. He first considered the buyers' claim that the sellers had committed a breach of the guarantee in the first sentence of the clause. Having described the nature of a maritime lien, and having expressed the opinion that the word "encumbrances" referred to claims, liens and liabilities attaching to the ship, he went on to consider the meaning of the words "any other debts whatsoever". He said:

"Turning to the words 'any other debts', it is apparent that the draftsman of the clause had adopted the parlance of the Admiralty Court and personified the ship. A vessel cannot be a debtor, but, as is known by anyone familiar with maritime law, a ship may be arrested in respect of certain debts of her owners. The second part of this guarantee means that the Sellers guarantee that at the time of delivery the vessel is free from the risk of being arrested in respect of any debts of the Sellers."

He then referred to the Brussels Convention of 1952, and pointed out that the concept of arresting a sister ship has been recognised by most of the maritime nations of the world for more than 30 years, effect having been given to the Convention in this country by the Administration of Justice Act 1956. He expressed his conclusion as follows (I quote...