ENE 1 Kos Ltd v Petroleo Brasileiro SA
| Jurisdiction | England & Wales |
| Judge | Longmore,Smith L JJ,Sir Mark Waller |
| Judgment Date | 06 July 2010 |
| Date | 06 July 2010 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division)
Longmore and Smith L JJ and Sir Mark Waller.
Andrew Baker QC and Henry Byam Cook (instructed by Thomas Cooper) for the appellant.
Bernard Eder QC (instructed by Ince & Co) for the respondent.
The following cases were referred to in the judgments:
Athanasia Comninos, TheUNK [1990] 1 Ll Rep 277.
A-G of Belize v Belize Telecom LtdWLR [2009] 1 WLR 1988.
Cargo ex Argos, Gaudet v BrownELR (1872) LR 5 PC 134.
China-Pacific SA v Food Corp of India (The Winson)ELR [1982] AC 939.
Collingrove, TheELR (1885) 10 PD 158.
Gadsden v Strider (27 April 1990, NSW, Carruthers J).
Guildford Borough Council v HeinUNK [2005] EWCA Civ 979; [2005] BLGR 797.
Numida, TheELR (1885) 10 PD 158.
Societe Franco-Tunisienne d'Armement-Tunis v Sidermar SpAELR [1961] 2 QB 278.
Ullises Shipping Corp v Fal Shipping Co Ltd (The Greek Fighter)UNK [2006] EWHC 1729 Comm; [2006] 2 CLC 497.
Shipping — Time charter — VLCC chartered on Shelltime 3 form — No anti-technicality clause — Withdrawal of vessel for non-payment of hire — Claim by shipowner for remuneration and expenses during 2.64 days between notice of withdrawal and discharge of cargo — No entitlement to remuneration under employment and indemnity clause — Failure to make punctual hire payment not order as regards employment of vessel — Failure to pay hire not repudiatory — No quantum meruit — Exchanges after withdrawal did not give rise to new contract — In absence of accident, emergency or necessity, no entitlement to remuneration, which had not been expressly or impliedly agreed — Shipowner entitled to payment for bunkers consumed during actual discharge as gratuitous bailee — Shipowner entitled to expense of maintaining guarantee as part of costs of and incidental to counterclaim.
This was an appeal by charterers from a decision ([2009] EWHC 1843 (Comm)) that shipowners who had withdrawn their vessel from service for nonpayment of hire were entitled to remuneration and expenses while the cargo was being discharged.
The charter was of a VLCC on the Shelltime 3 form. Hire was payable monthly in advance, and if it was not paid the owners had the right to withdraw the vessel without prejudice to any other claim they might otherwise have on the charterers under the charter. The charterparty had no anti-technicality clause.
The charterers failed to make a payment of hire, presumably by oversight. When notice of withdrawal was given, the vessel was loading cargo in Brazil. Charterers asked owners to reconsider. Owners offered to reinstate the charter at the higher market rate. Charterers did not accept that offer and owners confirmed their decision to withdraw the vessel. Some 1.29 days after the vessel was withdrawn, the charterers arranged for discharge of the cargo.
The owners made a claim for 2.64 days at the market rate of $158,864 per day and for 80.11 mt bunkers consumed during the period of 2.64 days costing $40,415, of which 57 mt bunkers were consumed in discharging the cargo costing $28,756.
Andrew Smith J decided that there was no claim under the employment and indemnity clause (clause 13), or any other clause, of the charterparty, nor any claim under any implied term of the charter. He also rejected a claim that there was a request by the charterer for further services which created an agreement for remuneration and expenses; he also rejected a claim for a quantum meruit. He held, however, that the shipowner had a duty to care for the cargo while it continued to be on board the vessel which gave rise to a correlative duty on the charterer to remunerate the owner and pay his expenses while the cargo was being discharged.
Charterers had counterclaimed for wrongful withdrawal of the vessel. They threatened to arrest the vessel but accepted a bank guarantee in the sum of US$18 million. Summary judgment was ultimately entered against the charterers (see [2010] 1 WLR 1361). The expense of maintaining the guarantee had been considerable and the judge held that the costs of the guarantee were costs “of or incidental to” the counterclaim and thus recoverable as part of the costs awarded to the owners. He rejected an alternative claim that they could recover the same as damages for breach of an implied term of the charter. Charterers appealed.
Held allowing the appeal in part:
1. The judge was right that the owners could not succeed on the basis of the employment and indemnity clause. The true cause of the necessity for the discharge of the cargo was the fact that, in the light of the withdrawal, the owners required the charterers to discharge the cargo. That occurred because the charterers failed to pay hire on time, but failure to make a punctual hire payment was not “an order as regards employment of the vessel…or other arrangements”.
2. A claim for damages for late payment of hire, failed on the grounds of causation. The cause of the owners' loss was not the late payment of hire but rather the owners' decision to terminate the charterparty and withdraw the ship from the charterers' service. The fact that the owners were, under the contract, entitled to take that course did not mean that, in the absence of any accepted repudiation of the charter, they could recover damages by way of lost remuneration or expenses for taking that course. The judge was right that it was their own action that had caused the loss not the charterers' breach of contract.
3. The cargo had not been carried to its contractual destination; it had not even been carried to an intermediate port. At the owners' insistence it was discharged at the port of loading. In the circumstances it could not be right to award a quantum meruit to the owners who, although entitled to cancel the contract, had never purported to perform or even partially perform the voyage contemplated by the contract when the cargo was loaded.
4. The exchanges between the parties after withdrawal of the vessel did not amount to a new contract. The vessel stayed where it was just as much because the owners were asking the charterers to pay the market rate for the rest of the charter period as because the charterers were asking for the withdrawal to be cancelled. In the circumstances it could not be said that the vessel stayed at the port in response to any express or implied request of the charterers. Nor was there any express or implied request by the charterers for the owners to discharge the cargo. On the contrary, it was the owners who required the charterers to discharge the cargo as they were entitled to do.
5. To accede to the suggestion that an owner who withdrew his ship from the charterers' service should be remunerated at market rates from the time of withdrawal until the cargo was discharged would go much further than existing authority. Owners performed no service for the charterers in this case. The cargo's existence on board the vessel was a useful lever for the owners in their attempt to negotiate a fresh contract. In no sense were they doing any more than required of a gratuitous bailee by way of caring for the cargo during the 2.64 days which elapsed before they sailed away. To remunerate them for that period at a market rate would not only go beyond any existing authority but would also be unjustifiable as a matter of principle which required remuneration to be subject to express or implied contractual agreement. Where there was no element of accident, emergency or necessity, there was not entitlement to remuneration, which had not been expressly or impliedly agreed. On that aspect of the case the judge was wrong and the owners were not entitled to hire at the market or, indeed, the contract rate for the 2.64 days before they sailed away. (Cargo ex Argos, Gaudet v BrownELR(1872) LR 5 PC 134 and China-Pacific SA v Food Corp of India (The Winson)ELR[1982] AC 939 distinguished.)
6. Expenses incurred during the first period when the parties were discussing whether to make a new contract at the market rate or not, were not expenses incurred in taking care of the cargo let alone in preserving the cargo. During that period the vessel was idle for the benefit of both parties in case a further agreement could be made. Once the decision to discharge was finally made, that discharge required co-operation between the owners and the charterers. Owners did have to use bunkers in the course of that co-operative endeavour. The expenses of those bunkers were expenses incurred in taking care of the cargo during actual cargo operations. The cost of those bunkers could be recovered from charterers. (The Winson applied.)
7. The costs of providing the guarantee were “incidental to the proceedings”, quantum to be left to the costs judge. It was unnecessary to consider the owners' fall back position seeking to recover such costs as damages.
Longmore LJ:
1. If a shipowner withdraws his vessel from a charterer's service for non-payment of hire while cargo is on board the vessel and the shipowner requires the charterer to remove the cargo from the vessel, is the shipowner entitled to remuneration outside the contract and/or to recover expenses incurred in that operation? Surprisingly this is not a matter which seems to have been decided in any previous case, of which counsel are aware. Andrew Smith J decided that there is no claim under the express employment and indemnity clause (or any other clause) of the charterparty, nor any claim under any implied term of the charter. He also rejected a claim that there was a request by the charterer for further services which created an agreement for remuneration and expenses; he also rejected a yet further claim for a quantum meruit. He upheld, however, a fifth claim made on the basis that the shipowner had a duty to care for the cargo while it continued to be on board the vessel which gave rise to a correlative duty on the charterer to remunerate the owner and...
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