Dry Bulk Handy Holding Inc & Compania Sud Americana De Vapores SA v Fayette International Holdings Ltd

A shipowner who has authorised a bill of lading stating that freight is payable as per a charterparty may, before payment, countermand the direction to pay a nominated third party and require payment to himself. As between owner and shipper, that right is not conditional on default by an intermediate time charterer, although separate contractual restraints may arise between owner and head charterer. A notice is effective where, read as a whole, it identifies the freight and clearly requires direct payment, even if the bill of lading has not yet been issued. A charterer’s communications may amount to an express or implied request for the owner to continue the voyage after withdrawal from an intermediate charter, creating an obligation to pay reasonable remuneration, including for the intervening period where seamless continuation was intended.

The appeal arose from the failure of an intermediate time charterer to pay hire. The head owners had authorised bills of lading for cargo carried under a voyage charter, which stated that freight was payable as per that charterparty and were marked freight prepaid. Before the freight was paid, the owners served notices requiring the shippers and bill of lading holders to pay freight directly to them.

Andrew Smith J in the Commercial Court held that the notices were effective and that later communications from the sub-charterers amounted to a request that the owners continue the voyage after withdrawal from the intermediate charter. The appeal concerned whether the owners could demand the bill-of-lading freight, whether the notices were effective, and whether reasonable remuneration was payable for the post-withdrawal service.

1. The appeal was dismissed unanimously. The Court of Appeal agreed with Andrew Smith J on the principal issues.
2. Where an owner’s bill of lading provides for freight to be paid as per a charterparty, the freight is ordinarily the shipowner’s freight, with payment directed to the nominated recipient. The nominated recipient may be regarded as the owner’s agent, or as a person to whom the owner has directed payment. Before payment is made, the owner may countermand that direction and require payment to himself. The right, as between owner and shipper, is not conditional upon default by an intermediate charterer. The direct claim is distinct from a contractual lien over sub-freights. The owner must account for any surplus collected, although the precise accounting position was not decided.
3. The First and Second Notices were sufficient. Read together, they required confirmation of the freight due, demanded direct payment to the owners, and warned of the risk of double payment. Their principal reliance on the contractual lien did not prevent them from operating as notices requiring payment of bill-of-lading freight.
4. The point concerning a notice given before a bill of lading existed did not strictly arise, but the court saw no basis for preventing an owner from stipulating in advance the terms on which it would enter into a contract of carriage.
5. Fayette’s redelivery notice and later message to the Master constituted at least an implied request, and possibly an express request, that the owners continue the voyage. A request can generate an obligation to pay reasonable remuneration even where the requested services are also owed under the owner’s contract with a third party. The request covered the whole period from withdrawal from KLC’s service until completion of the voyage because the communications sought seamless continuation. Remuneration was therefore payable at the agreed reasonable rate.

The owners’ contractual right to recover the freight was upheld, subject to their undertaking limiting enforcement to the amount of unpaid hire and remuneration found due.

• Court of Appeal (Civil Division): On appeal from [2012] EWHC 2107 (Comm), the appeal was dismissed.
• High Court, Commercial Court: Andrew Smith J held that the owners’ notices effectively required direct payment of freight and that the sub-charterers’ communications generated an obligation to pay reasonable remuneration for continued performance after withdrawal.