Mercuria Energy Trading Pte v Raphael Cotoner Investments Ltd

Hearing dates: 16 November 2023

Approved Judgment

I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Thursday 23 November 2023 at 10:00am.

This is an appeal from an arbitration award dated 29 March 2022 pursuant to section 69 of the Arbitration Act 1996, permission to appeal having been granted by Jacobs J. on 8 August 2022. The appeal raises a question of law with regard to Section 4(2)(a) of the US Carriage of Goods by Sea Act 1936 (which is to the same effect as Article IV rule 2(a) of the Hague Rules) as incorporated into a voyage charterparty, and in particular its application to employment orders by the charterer.

The question of law is: “Does Article IV(2)(a) of the Hague Rules provide a defence where, in breach of an order of its charterers, a vessel proceeds into territorial waters and waits at anchor there in breach of local law?”.

Permission to appeal was granted on the grounds that the issue raised was of general importance and that the award was open to serious doubt. The award was issued by a tribunal with considerable familiarity with the law of charterparties and the Hague Rules, namely, David Owen KC, Sir Bernard Eder and Dominic Kendrick KC.

The Appellant was the Charterer of the vessel AFRA OAK and the Respondent was the Owner of the vessel.

The arbitration

The parties' disputes arose out of the detention of the vessel AFRA OAK (“the Vessel”) by the Indonesian Navy on 12 February 2019 when the vessel was in Indonesian territorial waters near Singapore. At the time of the detention the Vessel was laden with a cargo of fuel oil owned by the Charterer. The Master and Vessel were arrested on 12 February 2019 by the Indonesian Navy and detained for a period of 8 months until criminal proceedings concluded in October 2019 with the conviction of the Master. The Vessel was then released.

The detention of the Vessel gave rise to substantial claims by the Owner and to substantial counterclaims by the Charterer.

In the arbitration the Owner claimed that the Vessel had complied with the Charterer's orders by anchoring where she did, that the Vessel had been entitled under United Nations Convention on the Law of the Sea 1982 (“UNCLOS”) and Indonesian law to anchor there and that the Charterers had breached a warranty that the Vessel would only be ordered to safe ports/places, as the anchoring place was politically unsafe since the vessel was exposed to a risk of unlawful detention. The Tribunal rejected these claims. The Vessel was not entitled under UNCLOS to anchor in Indonesian waters (see paragraphs 42 to 46 of the Award), such anchoring was prohibited by Indonesian law (see paragraphs 47 and 50) and the Master was guilty of the criminal offence of which he was convicted (see paragraph 51). There had been no breach by the Charterer of the safe port/ place warranty (paragraphs 64–66). The relevant danger was the political danger of detention resulting from anchoring in Indonesian territorial waters contrary to UNCLOS but it was one which the master could and should have avoided (paragraphs 66–67). Accordingly, save only for some minor claims of modest value (which were largely admitted subject to set-off), the Owner's claims failed (see paragraphs 158.a.-158.e). There is no appeal against that decision.

The Charterers advanced a counterclaim on the grounds that the Vessel was unseaworthy on two grounds: (a) that the passage plan for the short voyage was defective as it failed to record that the Vessel should not anchor in territorial waters and (b) that the Master had a disabling lack of knowledge in relation to anchoring in territorial waters. These claims were dismissed (see paragraphs 83–84 of the Award). Permission to appeal was sought in relation to the Tribunal's decision on (b) but was refused. A related application pursuant to section 68 of the Arbitration Act was dismissed without a hearing on the grounds that it had no real prospect of success.

The Charterer also advanced a counterclaim pursuant to a term in the charterparty (the “Compliance clause”, clause 2 in the Exxonvoy Clauses) in which the Owner warranted that the vessel shall comply with the laws of the place to which she may be ordered. However, in counsel's closing submissions before the Tribunal the Charterer accepted that if their order to the vessel was not construed as an order to wait in Indonesian waters then this claim could not succeed (see paragraph 79 of the Award). Counsel for the Charterer told me that in that event the Charterer had an alternative claim based upon the Owner's failure to follow the employment orders of the Charterer. This claim is not expressly mentioned in the Award. However, counsel for the Owner accepted that these two alternative claims were advanced in the arbitration. He added that the claim based upon the compliance clause had been the primary claim.

With regard to the question whether the order was to be construed as an order to wait in Indonesian waters the Tribunal said, at paragraph 79 of the Award:

“79. We have already found and held that properly construed the order was ‘wait in Singapore EOPL where you consider it safe to do so, using good navigation and seamanship’ and that this precluded waiting in Indonesian waters i) due to UNCLOS and ii) since only vessels which had been cleared into Indonesia prior to proceeding to an Indonesian port could anchor in Indonesian waters. In short there was no way of making the vessel compliant with Indonesian law, because what the vessel was doing – waiting for orders in Indonesian territorial waters – was contrary to Indonesian law.”

This was a reference back to the Tribunal's findings in paragraph 70 with regard to the Owner's claim pursuant to the implied indemnity which was advanced in parallel with the unsafe port claim. This claim also failed. The Tribunal there said:

“70. On its true construction the gist of the order was not ‘anchor anywhere at all in EOPL’, it was ‘anchor wherever it is safe to do so in EOPL, using good navigation and seamanship’. To give an extreme example, if the vessel had anchored in a dangerous position in the Ship Traffic Separation lanes, it is obvious that no indemnity would be forthcoming. Equally, if the vessel anchors illegally in Indonesian waters, it cannot claim under the indemnity for the consequences of so doing. The order to proceed to Singapore EOPL and wait for further orders was entirely innocuous, provided only that the Master used good navigation and seamanship in complying with it. In short, the Master's conduct, not the order, caused the loss.”

Counsel for the Charterer submitted that the Charterer's claim (in the alternative to the claim based on the Compliance clause) in respect of the Owner's failure to comply with the Charterer's order was dismissed by the Tribunal in paragraph 85 of the Award in these terms:

“85. Finally, Charterers also argued that even if they did not establish a failure of due diligence by the Owners to make seaworthy, the Owners were still not entitled to rely upon the exception of “Act, neglect, default of the master… in the navigation or in the management of the ship” because on a true analysis, the Master was making a legal error, not an error in navigation or management. They relied upon cases such as Knutsford v Tillmans [1908] AC 406 where a Master misconstrued the terms of a bill of lading and therefore refused to enter a port on account of ice and the Hill Harmony [2001] 1 AC 638 where the Master chose wrongly in law not to perform his required obligations. It seems to us that these cases are in a different category from the present case, where the Master attempted to comply with the orders given but by simple oversight in the course of navigation anchored the vessel where he should not have done.”

It is this decision, that the Owners were entitled to rely upon the exception of “Act, neglect, default of the master… in the navigation or in the management of the ship” as a defence to the claim for breach of the Charterer's employment orders, that has given rise to the appeal.

The charterparty

The key terms of the Charterparty were as follows:

“ Recap

Charterer's option to discharge/reload part/full cargo within agreed ranges but maximum 2 operations.

…

Charterer has the option to discharge part/full cargo at one safe port within the agreed load/discharge range and reload same or different cargo in the same discharge range for final discharge within agreed discharge ranges. Maximum 4 ports total including the part discharge-reload port and always in geographical rotation. Charterer to be allowed only one part-discharge/reload operation and the port of discharge/reload to be considered as interim port.

Exxonvoy Clauses …

2. (c) COMPLIANCE.

Owner warrants that Vessel shall, during the period described in paragraph (a) of this Clause, be in full compliance with … all applicable law, regulations and/or other requirements of … the...