Borvigilant, owners of the Ship v Romina G, owners of the Ship

In a contract for tug services, a clause stating that owners of substitute tugs receive the same benefits and obligations as the contracting company can show that the company contracted as their agent. The agreement is construed as a whole in its factual and commercial setting; an express use of the word agency is unnecessary. Implied actual authority may arise from established dealings, operational control, standard terms, repeated use and the owner’s knowledge. Ratification retrospectively validates an unauthorised act, subject to unfair prejudice and reasonable timing. There is no inflexible rule preventing ratification because an accrued cause of action or other property right is affected. An unseaworthiness proviso qualifying an indemnity may also qualify the related exclusion of liability and payment obligation.

The owners of the tug BORVIGILANT and the tanker ROMINA G were involved in a collision off Kharg Island. Before berthing, the tanker’s master signed NIOC’s tug requisition form, which contained liability exclusions and indemnities and provided that owners of non-NIOC tugs would receive the same benefits and be bound by the same conditions.

The High Court, on preliminary issues, held that the form operated for the benefit of the tug owner and that the protection applied unless the loss was caused by want of reasonable care to make the tug seaworthy. The tanker owner appealed on agency and ratification. The tug owner cross-appealed on the construction of the unseaworthiness proviso. The central issues were whether NIOC had authority to contract for the tug owner, whether the contract was subsequently ratified, and whether the proviso qualified both the exclusion and the indemnity.

The court unanimously dismissed the tanker owner’s appeal on the first preliminary issue and dismissed the tug owner’s cross-appeal on the second, subject to a precise variation of the answer.

1. Agency and construction. Clause 7 showed that the owners of non-NIOC tugs were intended to have the benefit of, and be bound by, the conditions. In the absence of a trust, the only way to give effect to that intention under English law was for NIOC to contract both on its own behalf and as agent for the relevant tug owners. The court construed the form as a whole, in its factual matrix and commercial setting. The requirements identified by Lord Reid in Midland Silicones Ltd v Scruttons Ltd [1962] AC 446 did not require an express statement that NIOC was acting as agent.
2. Authority. The court accepted that the necessary agency requirements were satisfied. Implied actual authority was established by the circumstances taken together: the lack of direct negotiation with tug owners, NIOC’s operational control, standard industry conditions, the repeated use of the same process and the probability that Borkan’s Kharg Island manager knew the form and its operation. The existing charterparty was not inconsistent with authority. The later insertion of clause 31.3 reinforced that conclusion without itself proving authority at the earlier date.
3. Ratification. Ratification is equivalent to antecedent authority and operates retrospectively, but remains subject to the principle that it must not unfairly prejudice a third party and must be effected within a reasonable time. The authorities did not establish an absolute rule that ratification cannot affect an accrued property right. Here, Monsoon had contracted on the basis that the owners of all assisting tugs would receive the stated protections. Ratification after the casualty therefore caused no unfairness. Borkan’s reliance on the form in its letter before action was in principle sufficient and was not shown to be too late.
4. Unseaworthiness proviso. The reference to such loss in clause 2(b) covered the loss described in both parts of that clause. Clause 4(a) therefore removed not only the indemnity but also the related obligation to pay for loss or damage to the hirer’s vessel and associated personal injury or death where caused by want of reasonable care to make the tug seaworthy. Any ambiguity would in any event be construed against the tug owners as proferens. The court expressed no view on whether the proviso required actual fault or privity.

The alternative trust and duty of care arguments were left undecided because agency and ratification were established.

• Court of Appeal (Civil Division): [2003] EWCA Civ 935, 8 July 2003. Monsoon’s appeal was dismissed. Borkan’s cross-appeal was also dismissed, subject to a slight alteration to the answer on the unseaworthiness issue.
• High Court of Justice, Queen’s Bench Division, Admiralty Court: David Steel J, 4 November 2002. The first preliminary issue was answered yes. The second was answered yes unless the loss was caused by want of reasonable care to make the tug seaworthy.