The Global Santosh: A game changer for off-hire disputes if a vessel is arrested?

The Supreme Court has recently handed down an important decision on NYK Bulkship (Atlantic) NV v Cargill International SA (The Global Santosh) [2016] UKSC 20. A majority of four to one (Lord Clarke dissenting) have held that the vessel was off-hire during the entire period of an arrest as a result of a security claim under the sale contract. This long awaited decision may have an impact on a number of Charterparties and the parties’ allocation of risk for arrest / off-hire clauses.

Background

Upon arrival at the discharge port in Nigeria, the Vessel was held at anchor due to the breakdown of IBG’s unloader. The Vessel lay idle for two months until she was called in to berth. In the interim, Transclear had obtained an Arrest Order on the cargo before the Vessel berthed in order to secure a claim for demurrage against IBG. The Order mistakenly named the Vessel as the object of the arrest. Discharge only began nearly a month later as a result of the arrest.

The dispute was whether Cargill were entitled to withhold hire against NYK for the period during which the Vessel was under arrest.

Charterparty terms

Clause 49 of the charterparty provided as follows:

“Should the vessel be captured or seizured or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended until the time of her release, unless such capture or seizure or detention or arrest is occasioned by any personal act or omission or default of the Charterers or their agents.”

In addition, under Clause 8, Cargill were to “perform all cargo handling at their expense”.

The decisive issue was whether the arrest was “occasioned by any personal act or omission or default of the Charterers or their agents”. In other words, the Tribunal had to determine if the arrest had been caused by the personal act or omission or default of Transclear or IBG as Cargill’s agents.

The Arbitration Tribunal issued an award where it was decided that neither Transclear nor IBG were acting as Cargill’s agents. Cargill was therefore entitled to put the vessel off-hire during the arrest period. This decision was reversed by Mr Justice Field in the Commercial Court and then unanimously upheld by the Court of Appeal. Cargill appealed to the Supreme Court.

Leading judgment

The Supreme Court allowed the appeal where Lord Sumption gave the leading judgment. The summary of the judgment is as follows:

• Clause 49 protects the Charterers and needs to be narrowly construed;
• Cargill had no personal fault on the arrest. Under the time charter Cargill had no duty imposed upon them to discharge at any particular time. For that reason NYK needed to rely on an act or omission of Transclear or IBG, who caused the arrest.
• Despite the fact that Transclear and IBG were Cargill’s agents for the purpose of calling for and carrying out the discharge operations, Cargill were not responsible for all of their acts. There must be a connection between the arrest and the function that they were performing as agents;
• Under the Charter terms, Cargill were obliged to carry out cargo handling at their expense, but they were not obliged to discharge at, or within, any particular time. On the other hand, Tranclear and IBG were obliged to discharge the cargo within a certain period under the contract of sale.
• There is a distinction between defective performance of cargo handling operations and absence of cargo handling operations. On this occasion, IBG were not performing any duty on behalf of Cargill. In other words, Cargill’s responsibility would only be for acts or omissions in the actual performance of the cargo handling operations at the discharge port.
• All in all, there was no sufficient nexus between the arrest and the function which the sub-contractor (Transclear or IBG) were performing as ‘agent’ of Cargill.

The recent judgment of the Supreme Court imposes the parties in a Charter to consider the connection between the acts leading to the arrest and the performance of functions under it. This judgment has now clarified the allocation of risk for arrest / off-hire clauses.

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