The decision in The Sea Master [2020] EWHC 2030 (Comm) raises an interesting point concerning who (owner/charterer/receiver) is contractually responsible for discharging and taking delivery of cargo as well as liability for any delays caused by a failure to do so. William Stansfield provides more.
The facts
In June 2016, the Owners chartered their vessel “SEA MASTER” to voyage charterers on the Norgrain ‘89 form (“the Charterparty”). Pursuant to the Charterparty, the vessel loaded corn and various soya cargoes from different Argentine ports for intended discharge at Morocco.
The vessel sailed to Morocco, and in August 2016, the corn cargo and some of the soya cargoes were discharged.
The remaining cargo was eventually discharged at Tripoli, Lebanon, in February 2017. The reasons for this are not explained in this judgment. The court’s judgment simply says: “the arrangements that made this possible were complicated and took a substantial period to finalise”, but it involved a switched bill of lading (“the Bill of Lading”). However, there is an earlier jurisdictional challenge reported at [2018] EWHC 1902 (Comm) involving the same parties and the same ship, where it was explained that the voyage charterer was also the FOB purchaser of the cargo and chartered the vessel to carry the goods, but then lost its on-sale and found a new buyer at a different discharge port.
Owners’ claims
The Owners claimed demurrage or damages for detention. Ordinarily, such a claim would have been brought against the voyage charterer under the Charterparty. Unfortunately for the Owners, the voyage charterer had since fallen into insolvency and so no claim could sensibly be pursued against them.
Instead, claims and counterclaims were commenced in London arbitration by the Owners, the cargo receivers and the bank that financed the cargo under the Bill of Lading. The tribunal decided as a preliminary issue that neither the financing bank nor the cargo receiver was liable for demurrage under the Bill of Lading, and the Owners did not appeal on that point. Accordingly, the Owners were left with pursuing an alternative claim for damages for detention against the bank/cargo receiver under the Bill of Lading.
To bring such a claim, the onus is on the Owners to prove that the bank/cargo receiver were in breach of a term of the Bill of Lading and that the breach caused the loss of time.
In the arbitration, the tribunal was asked to consider as a preliminary issue whether the Bill of Lading contained an implied term to:
- Take all necessary steps to enable the cargo to be discharged and delivered within a reasonable time (“the First Implied Term”); and/or
- Discharge the cargo within a reasonable time (“the Second Implied Term”)
The tribunal ruled as a preliminary issue that neither term was to be implied into the Bill of Lading. It was on this preliminary issue that the Owners appealed to the court as a point of law.
The terms of the Charterparty
It was undisputed by all the parties that the Bill of Lading incorporated the terms of the Charterparty. The Charterparty was on the Norgrain ‘89 form, and included the following relevant provisions:
"10(a) Cost of loading and discharging
…
Cargo is to be discharged free of expense to the vessel …
11 Stevedores at Loading Port(s) and Discharging Port(s)
…
Stevedores at … discharging port(s) are to be appointed and paid for by Charterers/Receivers
The Owners’ appeal against the tribunal’s preliminary issues award failed. To understand why, it is more logical to consider the two proposed implied terms in reverse order.
The Second Implied Term
The court held that a term requiring the charterers to “discharge the cargo in a reasonable time” could not be implied in the Charterparty because under the Norgrain ‘89 charterparty form, it is the Owner who is contractually responsible for discharging cargo.
The position at English common law is that it is the Owners’ responsibility to discharge in the absence of a contractual provision to the contrary effect – see the decision in The Jordan II where it was also held that clear words are required before a court or tribunal can conclude that the general rule has been ousted by agreement.
The court noted that clause 10 of the Charterparty is clear. The cargo is to be discharged free of expense to the vessel. It is therefore the Charterer who pays for the discharge operation, and clause 11 requires the charterers to appoint and pay for stevedores at the discharge port. However, the two clauses do not shift the responsibility for discharging from the Owners to the Charterers. As the court put it:
“in my judgment the Owner is mistaken when it asserts that the Defendants were under an obligation to discharge the Vessel. They were under an obligation to pay but only to pay for the operation and in connection with that obligation to meet the cost of the exercise by appointing stevedores who were then to carry out the exercise on behalf of the Owner
The First Implied Term
As for the other proposed implied term that the receivers would “Take all necessary steps to enable the cargo to be discharged and delivered within a reasonable time”, it is necessary to draw a distinction between “discharge” and “delivery”. Discharge is the landing of the cargo from the vessel. Delivery is the transfer of possession of the cargo from the carrier to the receiver once the cargo is discharged.
As for whether there is an implied term on the receiver to take all necessary steps to enable the cargo to be discharged, the court said that this proposed implied term was an attempt to avoid the difficulty discussed above with the Second Implied Term that discharge was an obligation that rested exclusively on the Owner. This was therefore rejected by the court.
As for whether there is an implied term on the receiver to take all necessary steps to enable the cargo to be delivered, the court also considered this to be unnecessary for a number of reasons, including:
- The receivers were already under an express duty to appoint and pay for stevedores and possibly were under a separate implied duty to provide a berth (although the court made no decision on whether there was a separate implied duty to provide a berth);
- The demurrage regime in the Charterparty would normally compensate the Owners for any delay in the receiver taking delivery of their cargo, although of course that was of little practical use to Owners in this case. The court noted that the Owners took the risk of the Charterers’ insolvency and it was not the job of the court to re-write a contract to make it more favourable to one party by reference to an event that occurred after the contract had been entered into.
- The receiver is already under a duty to take delivery of their cargo. Where a receiver fails to take delivery of their cargo, English law provides a remedy to the Owner in the form of allowing the Owner to land and warehouse the cargo and charge the cargo owner with the expenses properly incurred in doing so.
Summary
The court’s decision was that neither of the proposed terms were to be implied into the bill of lading, and the owners’ appeal failed. This was an appeal on a preliminary issues award and the bank/cargo receivers are reportedly bringing their own counterclaims for mis-delivery, so the case will presumably continue in arbitration for some time yet.
More generally, the case is a reminder of the general rule of English law that it is the Owner who is responsible for discharging cargo and that clear words will be required to shift the obligation on to the charterer. The express terms of the Norgrain ’89 charterparty form do not displace this general presumption. The case also serves as a reminder that a term will not be implied into a contract lightly. The court in this case followed the well-established line of case law which, in summary, is that a term will only be implied if it is necessary to make the contract work and does not contradict an express term. Finally, this case shows that things can and do go wrong in contracts for the carriage of goods by sea where multiple parties have a role to play, and the risk of one party falling into insolvency is one that should never be forgotten.