Mercuria Energy Trading Pte v Raphael Cotoner Investments Limited

Article IV rule 2(a) of the Hague Rules, or the equivalent provision in US COGSA, does not create an automatic defence whenever a charterer’s employment order has been breached. The relevant question is whether the loss was caused by a choice not to comply with the order, or by an act, neglect or default in the navigation or management of the vessel.

A master’s choice not to perform an employment obligation, without more, is not negligent navigation. However, the defence remains available where non-compliance results from an actual navigational error or failure of seamanship. The issue is fact-sensitive and depends on the proper characterisation of the master’s conduct.

The claimant charterer appealed under section 69 of the Arbitration Act 1996 from an arbitration award concerning the detention of the vessel AFRA OAK in Indonesian territorial waters.

The tribunal found that the charterer’s order to proceed to Singapore EOPL and wait for further orders required the master to use good navigation and seamanship and precluded waiting in Indonesian waters. The master nevertheless anchored there, contrary to local law. The tribunal held that the owner could rely on the Article IV rule 2(a) defence, as incorporated through US COGSA, because the failure to comply resulted from navigational oversight.

The central issue was whether that conclusion involved an error of law.

1. The appeal was dismissed. The court held that the tribunal had correctly construed the charterer’s order as requiring the vessel to wait in Singapore EOPL where it was safe to do so, using good navigation and seamanship. The order therefore precluded waiting in Indonesian territorial waters.

2. On a fair and reasonable reading of the award as a whole, the vessel’s anchoring in Indonesian waters constituted a failure to comply with the employment order. The tribunal’s findings showed that the master had selected the anchorage through a failure to take proper account of the risk of anchoring in territorial waters.

3. The court rejected the proposed categorical rule that the negligent-navigation defence is unavailable whenever an employment order has been breached. The Hill Harmony established that a choice not to comply with an employment order cannot, without more, be characterised as negligent navigation. In that case there had been no navigational error or issue of seamanship.

4. The present case was materially different. The tribunal had found an actual navigational mistake and failure of seamanship. That error caused the master to anchor where he should not have done so and thereby caused the breach of the charterer’s order. The three reasons why the defence failed in The Hill Harmony did not apply.

5. The earlier decisions concerning mistaken contractual interpretation or decisions unrelated to seamanship did not govern the present case. The tribunal was entitled to regard them as belonging to a different category. The court therefore found no error of law in applying section 4(2)(a) of US COGSA.

6. The court declined to treat the decision as expanding the defence. It merely applied the agreed contractual defence to the tribunal’s findings. The answer to the stated question was that the defence may or may not apply, depending on the facts.

• High Court (Commercial Court): Appeal under section 69 of the Arbitration Act 1996 dismissed.
• Arbitration tribunal: Award dated 29 March 2022. Permission to appeal was granted by Jacobs J on 8 August 2022.