E.N.E. Kos v Petroleo Brasileiro S.A. (Petrobas)

A shipowner who lawfully withdraws a vessel for non-payment of hire may recover reasonable remuneration and expenses from the cargo bailor for holding the cargo available and co-operating in its discharge. Recovery is based on the bailee’s correlative right, not on the charterparty, an implied contractual term, or a requested service where no request caused the owner’s conduct. A contractual indemnity for consequences of charterers’ orders is limited by causation, remoteness and objectively assessed intention. Loss caused by withdrawal is not damages for a non-repudiatory failure to pay hire. Reasonable security expenses may be recoverable as costs incidental to proceedings, subject to assessment.

The claimant owners chartered the vessel Kos to the defendant charterers under a 36-month time charter. The owners lawfully withdrew the vessel after hire was not paid. Charterers’ cargo and bunkers remained on board, and the owners kept the vessel at the discharge port until the cargo was removed.

The owners claimed compensation for use or detention of the vessel, bunkers consumed, and the cost of a bank guarantee furnished after the charterers threatened proceedings and security measures. The court considered contractual indemnity, damages for non-payment of hire, implied terms, quantum meruit, bailment and recovery of litigation-related costs.

1. The claims for use of the vessel and bunkers succeeded in the sum of US$450,689. After lawful withdrawal, the owners remained gratuitous bailees of the cargo. Their duty was to make it available to the charterers and not prevent its recovery. That duty carried a correlative right to recover reasonable expenses and reasonable remuneration for providing the vessel as a floating warehouse.

2. The claims were not covered by clause 13. Although the cargo had been loaded pursuant to the charterers’ order, the detention and bunkers were too remote from that order. They resulted from the owners’ independent decision to withdraw, which the charterers could not control or quantify. Broad words such as all consequences were therefore confined by causation, remoteness and the parties’ objectively assessed intention.

3. The claims were not damages for failure to pay hire. The breach was not treated as repudiatory, and the owners’ withdrawal broke the chain of causation. Any damages for termination would also have been measured by the contractual rate, rather than the market rate claimed.

4. No implied term required payment for post-withdrawal use or bunkers. The charterparty implied an obligation to arrange discharge and redelivery free of cargo, but not an obligation to pay in the circumstances. The post-withdrawal communications did not create a contractual request which caused the owners to keep the vessel at the port.

5. The quantum meruit claim failed. The services were not performed under the charterparty and were not rendered in response to a request. The successful claim rested instead on the owners’ duties as bailees.

6. The expense of providing and maintaining the RBS guarantee was recoverable as costs incidental to the charterers’ counterclaim, subject to reasonableness and, where relevant, proportionality on assessment. It was not recoverable as substantial damages. The proposed implied term restricting invalid claims or demands for security was rejected, and permission to amend was refused.

7. The court left open whether a time charterer may owe a contractual obligation to unload cargo or arrange its discharge after withdrawal, and whether damages for breach would be measured by the detention period without proof of financial loss.

This was a first-instance Commercial Court trial. An earlier declaration by Field J that the withdrawal was lawful and valid was treated as binding for the purposes of this judgment; the charterers had permission to appeal that determination.