Ullises Shipping Corp v FAL Shipping Co Ltd Rev 1

A time charterer gives an absolute warranty that cargo loaded will be lawful and will not expose the vessel to capture or seizure. The relevant risk is assessed objectively by reference to the cargo and its characteristics, including origin, documentation and intended voyage. The charterer’s knowledge of the cargo’s unlawful origin is immaterial. Liability also requires proof that the breach caused the loss. A named port does not displace an express safe-port warranty. Hire remains payable until actual redelivery, but a clear communication treating the charter as ended may amount to redelivery even where the vessel is at the wrong location, subject to damages for the resulting delay.

Ullises Shipping Corporation owned the tanker Greek Fighter, which was under time charter to Fal Shipping Co Ltd. The vessel was detained by the UAE Coastguard in December 2001 while oil was being transferred from Gulf Prince. It was later confiscated and sold at auction.

Owners claimed damages for breach of the charter’s lawful-cargo and seizure-risk provisions, an indemnity, unpaid hire and related losses. Fal denied responsibility, disputed the origin of the oil, relied on frustration and off-hire provisions, and alleged failure to mitigate. The central issues were whether Fal’s cargo operations breached the charter, whether they caused the detention and sale, and when the charter and hire obligations ended.

1. Liability for unlawful and seizure-risk cargo. The lawful-merchandise obligation in clause 4 was an absolute warranty. Clause 28 reinforced it by prohibiting cargo which would expose the vessel to capture or seizure. The charterer’s ignorance of the cargo’s origin did not avoid liability.
2. The question under clause 28 was objective. The court had to examine the cargo in its broader sense, including its physical attributes, origin, documentation and intended voyage. For cargo-loading operations, the characteristics of the charterer were not themselves characteristics of the cargo. Fal had directed the transfer of approximately 130 tons of Iraqi-origin contraband from Gulf Prince. That operation caused the Coastguard’s justified suspicion and initiated the chain leading to detention, confiscation and sale.
3. The mutual exception for restraint of princes did not protect Fal against liability arising from breach of clauses 4 and 28. Owners therefore established liability for the vessel’s loss, expenses and associated losses.
4. Indemnity. On the alternative hypothesis that the cargo was lawful, the express and implied indemnities would not have been engaged. An order must be the proximate or predominant cause of the loss. Here the authorities’ extraordinary and unforeseeable conduct, including reliance on fabricated analysis evidence, would have been the predominant cause.
5. Safe port. The express safe-port warranty survived the agreement that the vessel should perform storage operations at Khorfakkan. A named port did not displace the warranty. However, Owners failed to establish that Khorfakkan was prospectively unsafe because of an objectively foreseeable risk of arbitrary confiscation without judicial remedy.
6. Redelivery and hire. The charter was not frustrated by January 2002. The 15 January fax did not vary the charter, but the subsequent hire agreements were binding variations. Hire accrued until Fal’s letter of 25 November 2002, which clearly treated the charter as at an end and operated as redelivery, notwithstanding that the vessel was detained at Abu Dhabi rather than at Khorfakkan. Fal remained liable for the resulting loss and expenses.
7. Fal could not rely on the off-hire clause because the detention was brought about by its loading of contraband. The court rejected the mitigation defence. Owners recovered the vessel’s value, proven expenses and losses of hire, with the post-redelivery hire loss assessed at US$8,000 per day.