In Mercuria Energy Trading Pte v Raphael Cotoner Investments Limited, the High Court handed down a decision that revisits the question of when an owner can rely upon the Hague / Hague-Rules exception from liability for an “Act, neglect, or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship”. Summary by David Owens and Deven Choudhary.

Mercuria Energy Trading Pte v Raphael Cotoner Investments Limited (the “AFRA OAK”)^[1] – Revisiting the defence of “error in navigation”

The High Court has handed down a decision that revisits the question of when an owner can rely upon the Hague / Hague-Rules exception from liability for an “Act, neglect, or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship”, in this case in relation to the illegal anchoring of the vessel in territorial waters, in breach of Charterers’ voyage instructions.

Facts

This was an appeal by the Charterers of the vessel, MT AFRA OAK (the “vessel”), following an arbitration award.

The Charterers had ordered the vessel to wait in Singapore EOPL, leaving the precise place to the discretion of the master. The place chosen by the master was within Indonesian waters, leading to the detention of the vessel by the Indonesian Navy. At the time of the detention the vessel was laden with a cargo of fuel oil owned by the Charterers. The Indonesian Navy detained the vessel for a period of 8 months until criminal proceedings concluded with the conviction of the master.

The Owners commenced arbitration against the Charterers, claiming their losses arising out of the detention. The Charterers counterclaimed for their own losses. The Tribunal held (amongst other findings) that the master’s choice of a place to anchor was both (1) a prohibited action under the United Nations Convention of the Law of the Sea 1982 and Indonesian law, and (2) a breach of Charterers’ employment orders.

Nevertheless, the Charterers were unable to recover damages, as the Tribunal held Owners were entitled to rely upon the exception of “Act, neglect, default of the master….in the navigation or in the management of the ship” under Section 4(2)(a) of the US Carriage of Goods by Sea Act 1936, which was incorporated into the charterparty, and is to the same effect as art. IV(2)(a) of the Hague Rules.

The Charterers had argued that the Owners should not be entitled to rely upon this exception, on the basis that the master’s choice of a place to anchor was a legal error, not an error in the navigation or management of the vessel. However, the Tribunal found the master had attempted to perform his obligations but made an oversight and anchored the vessel where he should not have done. This was the basis of the appeal. The question of law for the Court was:

“Does Article IV(2)(a) of the Hague Rules provide a defence where, in breach of an order of its charterers, a vessel proceeds into territorial waters and waits at anchor there in breach of local law?”.

Charterers arguments before the court mainly were,

1. Charterer’s order was an order as to the employment of the vessel which they were entitled to give pursuant to the Charterparty; and

2. Where owners fail to comply with the employment orders of their charterers and thus breach the charterparty, the Hague Rules' negligent navigation defence under article IV(2)(a) is not available to the owners, relying upon the case of The Hill Harmony.

Owners’ case was that, where an employment order is breached, Owners have a defence if they can show either a good reason (under the master’s general discretion as regards matters of seamanship), or an act, neglect or default of the master in navigation or management of the ship.

Held

The Court dismissed the appeal and upheld the arbitration award. The Court did not consider that The Hill Harmony was authority for the proposition that the Charterers claimed. In that case, the master had breached the obligation of proceeding on the voyage with utmost despatch without any rational justification. A choice not to comply with employment orders, without more, cannot be described as negligent navigation.

However, in the current case, the Tribunal found the master did act negligently in the navigation of the vessel. There was not a ‘decision’ not to follow employment orders without any error of judgment in navigating the vessel; further, the error found by the Tribunal of anchoring in a place where the vessel should not anchor was an error in the navigation of the vessel. As such, Owners were entitled to rely upon the exception.

Comment

This case is a welcome reminder for Owners and highlights the importance of incorporating the paramount clauses in a Charterparty, which can provide protection for Owners in a wide variety of circumstances.

Further, it highlighted the overriding importance of a careful consideration of the underlying facts of any matter. In relation to the actual question of law asked, i.e. whether article IV(2)(a) provides a defence where, in breach of orders, a vessel proceeds into territorial waters and waits at anchor in breach of local law, the Court answered, “It may or may not do so depending upon the facts of the particular case”. Had the Tribunal made different findings of fact, the result could have been different.

Practically speaking, it should also not be forgotten that the underlying issue was that the Master’s negligent choice of where to anchor led to an eight-month detention of the vessel, and the criminal conviction of the master himself. It is an important reminder to owners that a master should always ensure a vessel can be permitted to anchor at any waiting place before anchoring a vessel within a state’s territorial waters.

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