NYK Bulkship (Atlantic) NV v Cargill International SA

In a time charter, an “agent” may include a subcontractor or cargo interest which exercises the charterer’s rights or performs its obligations down a contractual chain. The charterer is responsible only where there is a sufficient nexus between the act occasioning an arrest and the function delegated under the time charter.

Responsibility does not extend merely because the subcontractor’s involvement resulted from trading arrangements initiated by the charterer. An absence of cargo handling falls within the agency only if it constitutes a vicarious breach of the charterer’s obligation. A downstream demurrage dispute does not become an exercise of rights under the time charter merely because it concerns delay in discharge.

A time-chartered vessel was arrested in Nigeria because of a demurrage dispute between a cargo seller and receiver. The arrest order, apparently by mistake, restrained the vessel as well as the cargo. The charterer withheld hire under an off-hire clause, while the owner relied on a proviso excluding an arrest occasioned by an act, omission or default of the charterer or its agents.

By a majority, the arbitrators found that the proviso did not apply. Field J allowed the owner’s appeal under section 69 of the Arbitration Act 1996 and remitted causation issues: [2013] 1 Lloyd’s Rep 455. The Court of Appeal dismissed the parties’ appeal and cross-appeal, substantially affirming the order on different grounds: [2014] EWCA Civ 403; [2014] 2 Lloyd’s Rep 103. The central issue was whether the downstream parties occasioned the arrest while acting as the time charterer’s “agents” within the proviso.

1. Appeal allowed by a majority. Lord Sumption, with whom Lord Neuberger, Lord Mance and Lord Toulson agreed, held that the arbitrators had reached the correct conclusion. The orders below were set aside and the owner’s appeal under section 69 of the Arbitration Act 1996 was dismissed.

2. An “agent” in a time charter is not confined to an agent in the strict legal sense. A time charter may operate through a chain of sub-charters, bills of lading and other contracts. Persons further down that chain may exercise the charterer’s rights or perform its obligations vicariously. A shipper or receiver undertaking cargo handling can therefore be the charterer’s agent to the extent of the function delegated to it.

3. The status of a person as agent for one function does not make the charterer responsible for everything that person does. There must be a nexus between the event occasioning the arrest and the function performed as agent. The scope of responsibility therefore depends on the rights and obligations created by the head time charter, rather than the mere existence of downstream trading arrangements.

4. The charterer had undertaken to perform cargo handling at its expense, but had no obligation to the owner to discharge at any particular time. The receiver’s inactivity before discharge was not the vicarious exercise of a charter right. Nor was it the vicarious breach of an obligation owed by the charterer under the time charter. Responsibility for cargo handling extended only to acts or omissions in the actual performance of those operations while they were in progress.

5. The arrest arose from the incurring and enforcement of demurrage under a downstream sale contract. Neither the owner nor the time charterer was party to that contract. That dispute could not be characterised as the vicarious exercise of a facility made available under the time charter. The Court of Appeal’s wider distinction between the owner’s and charterer’s spheres of responsibility did not identify the extent of the delegated function and was inappropriate for this clause.

6. Lord Clarke dissenting would have dismissed the appeal. In his view, the delegated discharge function extended from notice of readiness until completion of discharge, including the period of waiting. The arrest was closely connected with the receiver’s failure to discharge within the downstream laytime and was therefore occasioned by the charterer’s agents.

1. United Kingdom Supreme Court: By a majority, allowed the charterer’s appeal, set aside the orders below and dismissed the owner’s appeal under section 69 of the Arbitration Act 1996: [2016] UKSC 20.
2. Court of Appeal: Dismissed the appeal and cross-appeal, substantially affirming Field J’s order on different grounds and varying the remission: [2014] EWCA Civ 403; [2014] 2 Lloyd’s Rep 103.
3. High Court: Field J allowed the owner’s appeal and remitted the award to the arbitrators to determine whether failure to pay demurrage caused the arrest and resulting delay: [2013] 1 Lloyd’s Rep 455.
4. Arbitration: The majority arbitrators held that the proviso did not apply and that the vessel was off-hire during its arrest.