ENE 1 Kos Ltd v Petroleo Brasileiro SA (Rev 1)

A shipowner who validly withdraws a vessel from a time charterparty is not generally entitled to market-rate remuneration for the period during which cargo remains aboard pending discharge. Where no express or implied contractual term provides for payment, remuneration is unavailable unless the owner performs a distinct service or circumstances of accident, emergency or necessity justify recovery. A bailee may recover reasonable expenses properly incurred in caring for or preserving goods, but that principle does not create a right to remuneration for time spent negotiating or maintaining the status quo. Expenses directly incurred in cooperative discharge operations may be recoverable, including bunkers consumed in discharging cargo. The reasonable costs of a guarantee obtained to secure release of an arrested vessel are costs incidental to the proceedings and may be recovered as costs, subject to assessment.

The owners chartered a VLCC to the charterers under a Shelltime 3 charterparty. When hire was not paid on time, the owners withdrew the vessel while one parcel of the charterers’ cargo was aboard. The owners required the charterers to arrange its receipt ashore, while the parties discussed either reinstatement or a new arrangement at market rates. The cargo was discharged about 2.64 days after withdrawal.

The Commercial Court decision, reported at [2010] 1 Lloyd's Rep. 87 and cited as [2009] EWHC 1843 (Comm), rejected most contractual, restitutionary and quantum meruit bases for recovery, but awarded remuneration for detention and allowed a claim for bunkers consumed during discharge. It also held that the costs of a guarantee provided in connection with the charterers’ counterclaim were costs of or incidental to that counterclaim. The charterers appealed, and the owners cross-appealed on other issues. The central questions were whether remuneration or expenses were recoverable after withdrawal, and whether guarantee costs were recoverable as costs.

1. Appeal on remuneration and expenses. The charterers’ appeal was allowed in part. The owners were not entitled to hire or market-rate remuneration for the 2.64 days between withdrawal and the vessel’s departure. The owners had terminated the charterparty by exercising a contractual right and had not performed the contemplated voyage or provided a distinct service warranting remuneration.
2. Clause 13 of the charterparty was an employment and indemnity clause. It was subject to ordinary principles of remoteness and proximity. The need to discharge the cargo arose from the owners’ withdrawal and demand for discharge, not from an order concerning the employment of the vessel or other arrangements. The charterers’ failure to pay hire therefore did not fall within the clause.
3. The loss claimed was caused by the owners’ decision to terminate and withdraw, rather than by the late payment of hire. The claim could not be recast as damages for breach of the payment obligation. The implied-term argument was no longer pursued. A quantum meruit was also unavailable because the cargo was discharged at the loading port and the owners had not carried it to its contractual or an intermediate destination.
4. The principles in Cargo ex Argos (1872) LR 5 PC 134 and The Winson [1982] AC 939 concerned duties arising after a pre-existing relationship to protect or preserve goods, particularly where accident, emergency or necessity left no practicable alternative. They supported recovery of reasonable expenses properly incurred in caring for cargo, but not remuneration for a gratuitous bailee or for time spent negotiating a fresh contract. Guildford Borough Council v Hein [2005] L.G.R. 797 likewise treated necessity as important and, at most, contemplated reasonable remuneration for a reasonable carer.
5. Expenses incurred while the vessel was idle pending negotiations were not incurred in caring for or preserving the cargo. Once discharge was decided, however, the operation required cooperation and the owners’ bunkers were used in taking care of the cargo during discharge. The cost of bunkers consumed in that operation, agreed at $28,756, was recoverable; any bunkers consumed at other times were not.
6. Guarantee costs. Sir Mark Waller held that the reasonable costs of providing a guarantee to secure release of an arrested vessel were costs “of or incidental to” the proceedings. They were materially different from damages for the detention of the vessel and were analogous to expenditure protecting the subject matter of the action. The amount was left to the Costs Judge. The owners’ alternative claim in damages was therefore unnecessary.
7. Lady Justice Smith agreed with both judgments. The costs order concerning the guarantee was upheld, while the charterers’ appeal otherwise succeeded to the extent stated above.

• Court of Appeal (Civil Division): [2010] EWCA Civ 772. The charterers’ appeal was allowed in part. The owners’ remuneration claim was rejected, but the recoverable bunker expense incurred during discharge and the guarantee costs as costs of the counterclaim were upheld.
• Commercial Court, Queen’s Bench Division: [2009] EWHC 1843 (Comm). Andrew Smith J rejected the contractual, implied-term, request and quantum meruit claims, but upheld a claim based on the owners’ duty to care for cargo and awarded remuneration and expenses. He also held that the guarantee costs were costs of or incidental to the counterclaim.