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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Dry Bulk Handy Holding Inc & Compania Sud Americana De Vapores SA v Fayette International Holdings Ltd [2013] EWCA Civ 184 (14 March 2013)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2013/184.html
Cite as: [2013] 1 WLR 3440, [2013] 2 Lloyd's Rep 38, [2013] EWCA Civ 184, [2013] 1 CLC 535, [2013] 2 All ER (Comm) 295, [2013] WLR 3440

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Neutral Citation Number: [2013] EWCA Civ 184
Case No: A3/2012/2088

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEENS'S BENCH DIVISION, COMMERCIAL COURT
Mr Andrew Smith

[2012] EWHC 2107 (Comm)

Royal Courts of Justice
Strand, London, WC2A 2LL
14/03/2013

B e f o r e :

LORD JUSTICE PILL
LORD JUSTICE TOULSON
and
LORD JUSTICE TOMLINSON

____________________

Between:
Dry Bulk Handy Holding Inc (a company incorporated in Panama) & Compania Sud Americana de Vapores SA
Respondents
- and -

Fayette International Holdings Limited (a company incorporated in the British Virgin Islands) & Metinvest International SA
Appellants

____________________

(Transcript of the Handed Down Judgment of
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A Merrill Communications Company
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____________________

John Bignall (instructed by Hill Dickinson LLP) for the Respondents
Dominic Happé (instructed by Eversheds LLP) for the Appellants
Hearing date : 7 February 2013

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Lord Justice Tomlinson :

    Introduction

  1. Is a shipowner entitled to demand payment to himself of freight under his bill of lading when that contract stipulates for payment to another party, provided that he makes his demand before the freight has been paid to that other party?
  2. This was in substance the first of four questions posed by Rix LJ at the outset of his judgment in Tradigrain SA and Ors v King Diamond Shipping SA (The "Spiros C") [2000] 2 Lloyd's Rep 319 at page 322. In the event that question did not need to be answered in that case but having heard full argument on the point Rix LJ answered it in the affirmative, and Henry and Brooke LJJ agreed with him. In this case Andrew Smith J in the Commercial Court thought that it would be inappropriate for him to depart from such a view, even if he doubted it, which he did not. On this appeal we are asked to revisit the point. In one of the textbooks, Bills of Lading, Aikens et al, 2006, it is suggested that the view of Rix LJ "needs to be treated with some caution".
  3. A second issue determined by Andrew Smith J was whether two notices given by the shipowners to the shippers and bill of lading holders were effective to require payment of bill of lading freight to the shipowners, rather than to the disponent owners from whom the shippers had voyage chartered the vessel. Under the bills of lading issued with the shipowners' authority the freight was payable "as per charterparty dated 19.01.2011", which it is accepted was a reference to the voyage charterparty. This issue simply raises a question of the proper construction to be given to the two notices.
  4. In the present case these problems arose only because of the failure of an intermediate time charterer to whom the shipowners had chartered the vessel. The time charterers failed to pay hire, in consequence of which the vessel was withdrawn from their service whilst the vessel was performing the contracts of carriage evidenced by the bills of lading. A third and final question on this appeal is whether the judge was right to construe two messages from the disponent owners, one addressed to the shipowners and one addressed to the Master of the vessel, as amounting to an express or an implied request to the shipowners to complete the voyage, thereby generating in the disponent owners an obligation to pay reasonable remuneration to the shipowners for so doing.
  5. The facts in outline

  6. The facts are set out in detail in the judgment below, [2012] EWHC 2107 (Comm). The head owners of the Bulk Chile, a bulk carrier, are Dry Bulk Handy Holding Inc, "DBHH", by whom the vessel was time chartered to Compania Sud Americana de Vapores SA, "CSAV", on 25 January 2007 whilst still under construction. The time charter was for a period of minimum 35 maximum 37 months.
  7. On 7 June 2007 DBHH in their own name, but for the account of CSAV as undisclosed principals, time chartered the vessel to Korea Line Corporation, "KLC", for a minimum 35 maximum 37 months on terms which appear to have been essentially back to back with the charter between DBHH and CSAV. I shall call the charter from DBHH to KLC "the head charter". The vessel was delivered into service under both time charters on completion of construction in 2009. It is unnecessary to draw any practical distinction between DBHH and CSAV. It was DBHH who held themselves out to KCL and to all other relevant parties as owners of the vessel and with whom all relevant parties communicated. Judgment was ultimately given in favour of CSAV but again nothing turns on this.
  8. The head charter was on the New York Produce Exchange Form. Relevant terms included the following:-
  9. Clause 4 provided that Charterers were to give the Owners notice "as per clause 59 of vessel's expected date of re-delivery, and probable port." Clause 59 provided as follows:
    "At delivery and redelivery notices to be the same; 30 days range, 20/15 days approximate, 10 days approximate notices and probable port, 7/5 days approximate, 3/2/1 definite notices."
    Clause 8 was the standard NYPE employment clause, whereby it was agreed:
    "That the Captain shall prosecute his voyages with the utmost despatch, and shall render all customary assistance with ship's crew and boats. The Captain (although appointed by the Owners), shall be under the orders and directions of the Charterers as regards employment and agency; and Charterers are to load, stow and trim and discharge the cargo at their expense under the supervision of the Captain, who is to authorize Charterers or their agents to sign Bills of Lading for cargo as presented, in conformity with Mate's or Tally Clerk's receipts without prejudice to this Charter Party."
    Clause 18 was also in standard form:-
    "That the Owners shall have a lien upon all cargoes, and all sub-freights for any amounts due under this Charter, including General Average contributions, and the Charterers to have a lien on the Ship for all monies paid in advance and not earned, and any overpaid hire or excess deposit to be returned at once. Charterers will not suffer, nor permit to be continued, any lien or encumbrance incurred by them or their agents, which might have priority over the title and interest of the owners in the vessel."

    There were the usual provisions for the payment of hire semi-monthly in advance and conferring upon the owners the right of withdrawal in the event of late payment. Hire was US$ 24,587.50 per day. There was also an anti-technicality clause preventing owners from exercising the right to withdraw for late payment, save on four banking days' notice to rectify the failure.

  10. On 19 January 2011 KLC let the vessel to Fayette International Holdings Limited, "Fayette", the First Appellants, for a time charter trip of 45 days duration, without guarantee, in order to carry a cargo including steel slabs and/or steel plates between the intended load ports of Sevastopol and Odessa and the intended discharge ports of Jakarta (Tanjung Priok) and Port Kelang. The daily hire was US$ 24,000. The charterparty was otherwise on terms back to back with the head charter.
  11. On the same day, 19 January 2011, Fayette entered into a voyage charterparty on the Gencon Form with Metinvest International SA, "Metinvest", the Second Appellants. The voyage charter was for the carriage of 47,000 tonnes of steel products from Sevastopol and Odessa to Jakarta and Port Kelang. The freight was $44.00 pmt for cargo carried from Sevastopol (or Avlita) to Jakarta and $61.04 pmt for cargo carried from Sevastopol or Odessa to Port Kelang: box 13. Box 14 of the standard Gencon form reads: "Freight payment (state currency and method of payment; also beneficiary and bank account) (Cl 4)", and it was completed, "See cl 31". Clause 4 stated that "The freight at the rate stated in box 13 shall be paid in cash calculated on the intaken quantity of cargo" but otherwise the standard wording of clause 13 was deleted and the words "(See cl 31)" were added. The rider to the voyage charterparty provided (by clause 30) that bills of lading were to be marked "Freight Prepaid", and the "Charterers are authorised to issue Bill(s) of lading on behalf of Master, subject freight payment". By clause 31 freight was to be paid within two banking days of the completion of loading, and bills of lading were to be marked "freight prepaid", and were "to be released after the receiving by the Owners Charterers' banking SWIFT".
  12. The judge found that the voyage charterparty had in turn been concluded pursuant to the terms of a Contract of Affreightment between Fayette and Metinvest dated 20 July 2009. The only significance, if any, of the earlier contract is that it provided that, as between Fayette and Metinvest, freight was deemed earned on loading and was non-returnable, vessel and/or cargo lost or not lost.
  13. The shippers of the cargo named in the bills of lading as such were Metinvest. Three bills of lading were issued, two in respect of cargo loaded at Sevastopol and one in respect of cargo loaded at Odessa. By far the greater part of the cargo, 39,358 tonnes of steel slabs, was loaded at Sevastopol for carriage to Jakarta and was covered by bill of lading No.1 BC/AV. Bill of lading No.2 was for 2,701 tonnes of steel slabs loaded at Sevastopol for Port Kelang. The third bill of lading, No. 1SO related to 4,500 tonnes hot rolled steel plates loaded at Odessa for Port Kelang. All three bills of lading are dated 4 February 2011 although we were told at the hearing that it was only the Sevastopol cargo which had by then been loaded. Loading at Odessa was completed on 6 February 2011. All three bills of lading were signed by Fayette as agent for and on behalf of the Master and it is common ground that they are owners' bills, i.e. that they evidence a contract of carriage concluded between the owners and Metinvest. Although all dated 4 February, the bills of lading were in fact issued on 8 February. Again, nothing turns on this. As noted above, all three bills of lading provided "freight payable as per charter-party dated 19.01.2011" which was a reference to the voyage charterparty between Fayette and Metinvest. On the reverse sides of the bills there was the standard Congenbill term:-
  14. "All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated."
  15. All three bills of lading, as stipulated in the voyage charterparty, stated on their face "freight prepaid". Freight had not in fact been pre-paid. Freight had not been paid by the time the owners served on Metinvest the notices which the judge regarded as effective to require payment of freight not to Fayette but to the owners. Those notices are dated 1 and 5 February 2011. No cargo had been loaded by 1 February. The judge found that loading at Sevastopol only started on 4 February, and we were told that it was completed on the same day. I should mention that the judge heard no evidence. The primary acts were largely uncontroversial, although as will appear one of the judge's findings is challenged on this appeal. The judge relied on the contemporary documents and made inferences where necessary.
  16. As the judge found at paragraph 27 of his judgment, Metinvest paid Fayette US$ 2,591,291.99 on 12 April 2011. Freight payable under the bills of lading and under the voyage charterparty was apparently US$ 2,183,797.73. The precise make-up of this payment by Metinvest to Fayette was not explained at trial. It can however be assumed for present purposes that Fayette in this manner received payment of freight in full.
  17. KLC failed to pay instalments of hire when they fell due under the head charter, initially on 18 January 2011 and subsequently on 1 February 2011.
  18. On 31 January 2011 the vessel was delivered into service under the timecharter trip between KLC and Fayette.
  19. The judge described what thereafter occurred as follows:-
  20. "14. By an email at 12.43 on 1 February 2011 and a fax at 12.58 on 1 February 2011, DBHH's managers, C Transport Maritime SAM of Monaco ("CTM"), sent to Fayette and Metinvest respectively a document called "Notice of Lien" (to which I shall refer as the "First Notice"). There are issues between the parties about whether it was a valid and effective notice, and I shall set it out in full:
    "This is [CTM], Managers acting for Dry Bulk Handy Holding Inc., the Disponent Owners ("Owners") of the m/v "BULK CHILE" ("the Vessel") pursuant to the above charter party [there was no charterparty mentioned "above"] by which the Vessel was time chartered to Korea Line Corporation (KLC).
    By the terms of the charter party, hire was payable punctually in advance to Owners. In breach of charter, KLC have failed to pay hire due and owing to Owners.
    The charter expressly provides that Owners have the right to a lien for any amounts due to them under the charter. The sum of at least US$742,875 is due and owing to Owners as at the date of this notice. In the circumstances, all addressees of this message are kindly required to treat this message as Notice of Lien over any balance of freight(s) and/or hire(s) due under any charters, bills of lading, or other contracts of carriage relating to the voyage(s) and cargo(es) covered by the above bills of lading.
    By this Notice of Lien, we therefore request that you now:
    1. Confirm to us the amount of freight(s) and/or hire(s) due from you under any charters, bills of lading, or other contracts of carriage relating to the voyage(s) and cargo(es) covered by the bills of lading; and
    2. Arrange payment of all such freight(s) and/or hire(s) in your hands directly to our account when due, as below:
    Dry Bulk Handy Holding Inc.
    [Details of an account at HSBC Monaco were set out.]
    In the event that sums are paid into the account which amount to more than the sums due to Owners, the monies shall be held in trust pending further accounting.
    Please take note that in the event you ignore the terms of this Notice of Lien and make payment of freight(s) and/or hire(s) to anyone other than us on behalf of Owners after the time and date of this fax and email, Owners reserve the right to recover such freight(s)/hire(s) from you and you run the risk of being required to pay twice.
    If you require further clarification on the effect of this Notice of Lien, or the sums due to Owners, you are urged to contact Giorgio Ferrari of this office before you take any steps which contradict its terms."
    I shall refer in this judgment to the two numbered paragraphs in the First Notice as the "first request" and the "second request" respectively.
    15. On 2 February 2011 Fayette confirmed receipt of the First Notice and stated that they were prepared to remit "future hire-payments" to DBHH subject to KFC confirming that they agreed to this procedure, receipt of the KLC charterparty and proof of the outstanding hire that DBHH claimed was due to them. In response DBHH sent to Fayette copies of the two invoices. (I infer this because, although the covering email refers attaching "a copy of the latest hire invoice", it apparently had two attachments, one with the reference "07.00001".) DBHH did not send a copy of the KLC charterparty because, they said, it was confidential as between them and KLC and they required KLC's permission to reveal its terms, but they informed Fayette that it contained "an express lien provision".
    . . .
    17. On 5 February 2011 DBHH sent to Fayette and Metinvest another copy of the First Notice under cover of what I shall call the "Second Notice". The Second Notice was headed "Notice of Lien on Cargo", and was as follows:
    "Disponent Owners refer to their notice of lien dated 1st February, copy below.
    Please take note that that lien is extended to cargo now loaded on board m/v BULK CHILE to be carried under bills of lading numbers 1BC.AV and 2 and we require you, as in the case, of the earlier notice of lien to provide us with the information at numbered paragraph 1 and to comply with the request made at numbered paragraph 2.
    Please take note that in the event you ignore the terms of this Notice of Lien disponent owners reserve their rights, inter alia, to refuse to deliver the cargo to the receivers of it at the port of destination until you have fully complied with its terms.
    If you require further clarification as to the effect of this Notice of Lien, or the sums due to disponent owners, you are urged to contact Giorgio Ferrari of this office before you take any steps which contradict its terms."
  21. On 18 February 2011 DBHH sent to KLC a notice pursuant to the anti-technicality provision warning that the vessel would be withdrawn if the unpaid hire was not paid within four banking days.
  22. Reverting to the judge's account:-
  23. "19. On 19 February 2011 DBHH sent Fayette the following email:
    "Please be advised that KLC have failed to pay the latest instalment of hire due to owners. Owners have served KLC with an anti-technicality notice requiring KLC to rectify the position within 4 banking days, failing which the vessel will be withdrawn from KLC's service. If KLC do not comply and pay the outstanding hire by 24 February, the vessel will be withdrawn from KLC's service. In the event that the vessel is withdrawn from KLC's service, sub-charterers should rest assured that discharge of the cargo presently aboard the vessel will take place in the usual way, provided that sub-charterers comply fully with owners' notices of lien already served on them. In that event, owners will also require sub-charter hire from the date of withdrawal to be paid direct to CSAV (sub-charterers are aware that CSAV are the principals of DBHH) and will require sub-charterers to confirm to CSAV that they will do so.
    To be clear, in the event the vessel is withdrawn from KLC's service, owners will cooperate to ensure matters proceed smoothly but will also expect full cooperation from sub-charterers to avoid delays and problems. Owners trust charterers fully understand their position."
    20. In their reply on 23 February 2011 Fayette did not accept DBHH's offer made on 19 February 2011, but wrote as follows:
    "Fayette note that DBHH have served a notice of withdrawal on KLC. If not complied with, DBHH indicate this will provide them with the right to withdraw the vessel from KLC, which right Fayette understand DBHH intend to exercise.
    Fayette also note DBHH's confirmation that they will comply with their bill of lading obligations to deliver the cargo on board the vessel to the destinations stated in the bills of lading, subject to compliance with the lien notices served.
    The validity of the lien notices served remains in dispute.
    Unless/until the validity of DBHH's liens is established, Fayette's position must remain that they are willing and able to pay hire, subject to being provided with a mechanism by which they can safely do so.
    In this regard, Fayette have previously suggested that the parties set up an escrow account into which Fayette's hire can be paid. Such hire can then be distributed pursuant to agreement, arbitration award etc. Now that a court receiver has been appointed to run KLC's affairs, Fayette encourage the parties to make the necessary arrangements.
    In the meantime, DBHH can rest assured that hire due to date and any hire falling due in the future, will not be paid to KLC, while the dispute between DBHH and KLC remains unresolved."
    21. On 23 February 2011 DBHH again wrote to Fayette about the notices of lien as follows:
    "Owners refer to their notices of lien dated 1 February 2011 and 5 February 2011.
    Owners require Fayette and Metinvest Holding to advise them by return the amount of freight intercepted by their notices of lien on freight and cargo and for them to arrange for that sum to be paid forthwith without deduction to the following account.
    Owners would remind Fayette and Metinvest Holdings of two things. First, the liens on freight and cargo have intercepted freight, not hire otherwise payable to KLC. Unlike the aforementioned hire, this freight would not be payable to KLC in any event and therefore the developments in Korea concerning KLC are irrelevant as regards this freight. Therefore the freight must be paid forthwith to owners. Second, as has already been pointed out in the notice of lien dated 1 February, if you ignore the terms of the liens and do not pay the freight to owners, owners will exercise their right to recover such freight from you and you run the risk of being required to pay the freight twice.
    Owners repeat what they said in their message of 18 February about the need for full cooperation in this to avoid problems with discharge of cargo."
    The reference to a message of 18 February 2011 was apparently to that sent (at 1.38am) on 19 February 2011. Although the email refers to the Owners "reminding" Metinvest, as well as Fayette, of the matters stated, Mr Bignall acknowledged that there is no evidence that it was sent to Metinvest or that Metinvest received it, and he did not contend that it was. I find that it was sent only to Fayette."
  24. It would seem that on 15 February 2011 KLC had gone into a process of rehabilitation in Korea which is similar to US Chapter 11 bankruptcy proceedings. Receivers were appointed.
  25. Reverting again to the judge's description of events and his findings:-
  26. "23. On 26 February 2011 DBHH withdrew the vessel from KLC's service. On 1 March 2011 in an email headed "m/v Bulk Chile – redel[iver]y notice" Fayette advised DBHH of the vessel's itinerary, asked that their email be taken as five days' redelivery notice and stated "The chrts will inform owrs immediately if the vsl's schedule is changed". It is clear, and was not disputed, that Fayette were referring to themselves as the "charterers" and to DBHH as "owners".
    23. Mr Happé submitted that there is no evidence that Fayette knew that the vessel had been withdrawn from KLC's service when they sent the redelivery notice at 14.17, but I reject that submission. At 11.48 Fayette had asked that their operations department send a message to KLC that DBHH had informed them that the vessel was withdrawn, and asked whether the information was correct. I accept that there is not evidence whether their operations department sent the message and received a reply before 14.17, but the inference is that Fayette understood that the vessel had been withdrawn from KLC's service. I add that by this time both parties had engaged London solicitors, and at 10.34 on 1 March 2011 Hill Dickinson on behalf of the claimants (or one of them) had told Eversheds on behalf of the defendants (or one of them) that $945,016.88 was owed by KLC (that sum apparently being the total of $373,187.50 and $369,687.50 together with $228,151.52 by way of hire from 17 February 2011 to 26 February 2011).
    24. On 3 March 2011 DBHH asked Fayette by email that they be given up-dated advice about the "vessel's prospects and best [estimated time of completion] from Jakarta". On 5 March 2011 Fayette sent the master an email stating that they understood that the vessel had stopped in her approach to Jakarta on DBHH's instructions, and asked him urgently to contact the owners so as to resume the voyage. Later that morning they sent this message to the master:
    "Kindly asking you to proceed to the port and fulfil the contractual obligations to discharge the cargo of value more than 23 MIO USD.
    Pls note that chrtrs irrevocably confirmed to the owners that all hire due to the vessel under their CP be transferred to the owners DBHH.
    DBHH also aware that the subject of the amount in dispute (which is less than 1pct of cargo value) is at owners/chrtrs solicitors hands and be sorted out upon ships redelivery. In order do not complicate the issue even more, pls proceed to the port and fulfull the contractual obligations."
    Again Fayette referred to themselves as "charterers" and to DBHH as the "owners". There is no document that could be described as an irrevocable confirmation such as Fayette describe, or any other evidence of such confirmation. It is unclear on what basis Fayette could have calculated that the amount in dispute was less than 1% of the total value of the cargo - as I have said, on 1 March 2011 Hill Dickinson had advised Eversheds that $945,016.88 was owed by KLC - but nothing turns on that."
  27. Mr Dominic Happé for the Appellants on this appeal challenges the judge's finding by way of inference that when at 14.17 on 1 March 2011 Fayette sent to DBHH the "redelivery notice" Fayette knew that the vessel had been withdrawn from KLC's service. It is true that the message sent by Fayette by their operations department at 11.48 on that day did not say in terms that it was DBHH who had informed them that the vessel had been withdrawn, but I agree with Mr John Bignall for the Respondents that it is difficult to see from what other source they would have received this information. It is natural that Fayette should have sought confirmation from KLC with whom they had contracted, but Fayette can have had no reason to doubt the accuracy of the information which they had received and by this time London solicitors were also on the scene, as the judge describes.
  28. It is against this background that the questions which I posed at the outset of this judgment fall to be answered.
  29. The owners' claim for bill of lading freight

  30. The first question is whether the head owners were entitled to require Metinvest to pay bill of lading freight direct to them. Mr Happé submits that they were not because the bill of lading issued with their authority directed payment to Fayette as per the voyage charterparty. Mr Happé also submits that the "Notice of Lien" dated 1 February 2011 and the "Notice of Lien on Cargo" dated 5 February, which the judge called the First and Second Notices, did not on their true construction require payment of bill of lading freight by Metinvest to owners. Those notices, he submitted, asserted only such rights of "lien" as are afforded to the owners by clause 18 of the head charter. They did not require or purport to require payment of bill of lading freight direct to owners on the basis that it was owed to the owners. Whilst Mr Happé acknowledged that the notices were effective as an exercise by owners of their "lien" over the sub-freight due from Metinvest to Fayette under the voyage charterparty, this was no empty distinction because the "lien" could only be exercised up to the amount owing from KLC to the owners under the head charter, and that was considerably less than the voyage charter and the bill of lading freight. The amount outstanding from KLC was US$ 945,000, the bill of lading and voyage charter freight was of the order of US$ 2.18M. Finally, Mr Happé submitted that an owner cannot in any event "intervene" in order to require payment of bill of lading freight directly to himself at a time when no bill of lading is in existence at all, as was the position on 1 February. In view of the fact that the two notices have to be looked at together, and bearing in mind that by 5 February the overwhelming majority of the cargo had been loaded, I doubt if this point is ultimately determinative, but it does inform another of Mr Happé's arguments concerning the ability of an owner to require payment of freight in a manner other than that directed by a bill of lading issued with his authority.
  31. Can owners require payment of freight to themselves?

  32. Rix LJ dealt with this point in The Spiros C as follows:-
  33. "52. Mr Males submitted that in his judgment below Mr Justice Colman failed to distinguish between the case of the direct claim to bill of lading freight and the claim to lien, and that it was that failure which led him to hold that the owner could directly enforce a freight payable to INC. Thus Mr Justice Colman said (at 96):
    "Any shipper and sub-charterer entering into a bill of lading contract with the shipowner knows that, as an everyday incident of international commerce, if a disponent owner defaults under the head charter the freight identified in the bill of lading may be intercepted at any time before it has been paid in accordance with the sub-charter. Until such payment has been made, the shipper's obligation to the shipowner is to pay the freight to him upon notice to do so having been properly given. Whether or not it has been properly given depends as between the shipowner and the disponent owner upon whether the shipowner is entitled to exercise his so-called lien on sub-freights under the head charter. That being the contractual regime involved, I conclude it can make no difference in principle whether the payee designated under the sub-charter is the disponent owner or some other party."
    I do not agree that Mr Justice Colman was there confusing the direct claim with the claim by way of lien: but he was seeking to demonstrate the regime under one by analogy with the other, and the question is whether that is legitimate. He was right of course to say that it has long been established and recognised that a shipowner can intercept to claim his freight directly from the shipper at any time before it has been paid. Although the word "intercept" is perhaps more redolent of a claim by way of lien, it, or its equivalent "intervene" has traditionally been used to describe the direct claim as well: see Molthes Rederi v. Ellerman's. In that case Mr Justice Greer said this (at 715):
    "That he can intervene successfully before receipt of the freight by the agent seems to me to be the necessary consequence of holding as Channell J did in the case cited, that the bill of lading contract is a contract between the shipowner and the shipper, and not a contract between the charterers and the shipper. If this be so, the legal right to the freight is in the owner and not in the charterer, and the former can intervene at any time before the agent has received the freight, and say to him, "I am no longer content that the charterer should collect the freight. If you collect it at all, you must collect it for me."
    53. It is not clear from the facts of that case whether the bill of lading there provided for freight to be payable as per charterparty, or whether it was simply the practice of the shipowner to allow the sub-charter freight to be paid in the ordinary way to the time charterer. There is a similar uncertainty about the facts in Wehner v. Dene. In India Steamship Co v. Louis Dreyfus Sugar Ltd (The Indian Reliance) [1997] 1 Lloyd's Rep 52, however, I had to consider a case where the bill of lading did state that freight was payable as per charterparty. That charterparty nominated an account of the time charterer (Cosemar) for payment of the freight. I said this (at 57/58):
    "In my judgment the expression "Freight payable as per charterparty" did incorporate cl.9 of the sub-charter, so as to make freight payable to the nominated account. Whether that is to be treated as a payment due to Cosemar, or due to the owners but payable to Cosemar does not, I think, for present purposes matter, but I would be inclined to say the latter."
    54. Mr Justice Colman relied on that passage in the present case to conclude that payment to a third party, whether the time charterer or some other third party, did not prevent the shipowner's intervention, if it be in time.
    55. If that is the law, and I think that it has been believed to be the law for a long time, the analysis needs some clarification. As I suggested above, the direct claim cannot just be conflated with the claim by way of lien, because in the latter case, unlike the former, the freight is due to the time charterer but (as authority suggests) is assigned to the shipowner. In the former case, however, the freight is the shipowner's freight, but directed to be paid to a third party. In The Indian Reliance I did not need to determine the question whether a shipowner could make a direct claim to freight which under the bill of lading was payable to the time charterer, because I found that the freight in question had already been paid at the time of the shipowner's intervention. I expressed the tentative view, however, that the bill of lading's incorporation of the voyage charter's freight terms meant that the payment of freight was to be treated as due to the shipowner but payable to the time charterer. I did not need to take the analysis further in that case.
    56. In the present case, however, the argument has been squarely taken by Mr Males that a debt payable to a third party cannot be sued for as a debt by the promisee. Prima facie that might seem to be correct, but as Chitty remarks in the passage at 19-044 cited by Mr Males –
    "The objection loses much of its force if the promisor would not in fact be prejudiced by having to pay the promisee rather than the third party."
    There is then a reference in footnote 97 to para 19-060, where the following appears:
    "But the question whether the promisee [the owner] can unilaterally (ie without the consent of the promisor) [Tradigrain] demand that payment be made to himself depends once again on the construction of the contract. If the contract can be construed as one to pay the third party "or as the promisee shall direct" then the promisee is entitled to demand payment to himself."
    57. In my judgment the typical case of the bill of lading in which freight is payable as per charterparty is probably such a contract. The freight is due to the shipowner, as his consideration for the agreed carriage, but the shipowner directs that it be paid in the manner set out in the sub-charter. The construction which I propose would also be entirely consistent with the regime under the time charter, under which the lien over sub-freights indicates that the sub-charter freight is, in the event of a default under the time charter, to be subject to the shipowner's claim. In such circumstances, it would seem to make no difference whether the payee under the time charter is the time charterer himself, or some other third person, unless perhaps that third person has been given a secured right to the freight which clashes with the time charterer's and shipowner's rights. If that had happened in the present case, however, it might seem likely that INC would have come onto the scene."
  34. I would first note Rix LJ's endorsement of Colman J's view that it has long been established and recognised that a shipowner can intercept to claim his freight directly from the shipper at any time before it has been paid. This view expressed by two judges of great experience in the field is entitled to respect and is amply borne out by the authorities cited. There is also nothing inherently surprising about the proposition. If the head owner permits his charterer to commit him to contracts of carriage made with cargo interests, it is hardly surprising that the head owner should reserve to himself the right to receive the contractual remuneration for the obligations which he has undertaken. Those obligations are different in kind from those undertaken by entering into the head charterparty. The head charterparty contains obligations relating to the seaworthiness of the vessel, but it is a contract "for services to be rendered to the charterer by the shipowner through the use of the vessel by the shipowner's own servants, the Master and the crew", not a contract of carriage – cf per Lord Diplock in The Scaptrade [1983] 2 Lloyd's Rep 253 at pages 256-257. The contract of carriage with the shippers involves an assumption of responsibility for the safe carriage of the cargo. The analysis therefore that the contract contained or evidenced by an owner's bill of lading directing payment to a third party is to be construed as one to pay the third party or as the owner may direct seems intuitively correct.
  35. With respect to his thoughtful arguments, Mr Happé supplied no convincing reason to question that analysis, although he did point to some possible difficulties which might arise if shipowners were routinely to demand payment of freight to themselves notwithstanding having authorised their charterers to issue bills of lading directing payment to a third party. For my part I think that it should not be inferred that by giving that authority the shipowner has given up his right to receive bill of lading freight. No doubt in the ordinary way he will not wish to involve himself with collection of bill of lading freight, not least because it will give rise to questions of accounting as pointed out by Channell J in Wehner v Dene [1905] 2 KB 92 at 99:-
  36. "Now, although the owner has the right to demand the bill of lading freight from the holder of the bill of lading because the contract is the owner's contract, yet the owner has also, of course, contracted by the charterparty that for the use of his ship he will be satisfied with a different sum, which will also in the great majority of cases be less than the total amount of the bills of lading freights; and, therefore, if the owner were himself to demand and receive the bills of lading freight, as he might do if he chose, he would still have to account to the charterer or the sub-charterer, as the case might be, for the surplus remaining in his hands after deducting the amount due for hire of the ship under the charterparty. Of course, in practice an agent is usually appointed to receive the bill of lading freight, although not necessarily because the captain may receive it himself; and under the charterparty the captain has to appoint any person whom the charterer may select, which is a very reasonable arrangement, because if the business goes smoothly and the charterparty hire is duly paid, the charterers are the persons really interested in receiving the bill of lading freight. But, if I am right as to the bill of lading contract being with the owner, then it seems to me to follow that the agent appointed to receive the bill of lading freight becomes by the very act of appointment the agent of the shipowner to receive the freight for him, and the agent's receipt binds the shipowner."
    On this analysis the contract between the shipowner and the shipper is not a contract by which the shipowner contracts to provide a service to the shipper in consideration of the shipper promising to confer a benefit (in the form of payment of freight) on an independent third party, but rather that the nominated recipient is, as between the shipowner and the shipper, to be regarded as the shipowner's agent. If that is a correct analysis, as I think that it is, I cannot see why the shipowner's contract with the shipper should be taken to preclude the shipowner from cancelling his nominated agent's authority to act on his behalf in receiving the freight, before such payment has been made, and requiring it to be made to himself. I can also think of no reason why the shipowner should wish to divest himself of his valuable right to recover freight in the event that his charterer defaults. I will return to the contractual position as it may obtain as between shipowner and charterers, but as between himself and the shipper, I can see no basis upon which it can plausibly be suggested that the shipowner's right to require payment of the bill of lading freight to himself, as the person obliged to render the contractual services in consideration of receipt thereof, can be regarded as conditional upon an intermediate charterer having defaulted in his obligations. I would also note that where bills of lading are marked freight prepaid the owner's lien on cargo for unpaid freight (not to be confused with the "lien" afforded by clause 18 of the head charter and by similar clauses in other forms of time charter) may be of little value against endorsees of the bill of lading – cf the observation of Hobhouse LJ in Cho Yang Shipping v Coral (UK) [1997] 2 Lloyd's Law Reports 641 at 643 to the effect that the inclusion of the words "freight prepaid" in the bill of lading does not of itself show that the shipper is not to be under any liability for freight if it has not in fact been paid. See also the discussion in Federal Commerce v Molena Alpha, The "Nanfri" [1979] AC 757. It follows that I see no difficulty in the shipowner countermanding his direction to the shipper to pay freight to a third party provided of course that he does so before the shipper has made the payment as initially directed. In my view it is the converse position which would require to be justified, and as at present advised I can see no basis upon which it could be.
  37. Mr Happé's arguments were arguments of practicality and convenience rather than of principle. In the first place he noted that it was unclear to whom and in what circumstances the shipowner must account for any bill of lading freight collected which exceeds the hire due and unpaid under the head charterparty. I agree with Mr Happé that this is not something which has been worked out in detail in the authorities, but the inference which I would derive from that is that in practice this has not proved to be a real problem. The obligation in principle to account for the surplus is clear. No doubt the need to do so arises most typically in cases of insolvency which can of course introduce its own complications. The accounting difficulty in the present case was forestalled by the owners giving an undertaking to the court that they would not enforce their judgment against Metinvest for the full amount of the freight, US$2.18M, for a sum greater than US$1,339,625.93, which was the combined total of hire due and unpaid under the head charter and the amount of remuneration to which the judge held the owners were entitled from Fayette consequent upon Fayette's implied request that the owners should continue to make the vessel available to Fayette following its withdrawal from the service of KLC. Ordinarily, as it seems to me, the owner should account to the head charterer for the surplus, if any, remaining after deducting the amount due to the owner under the charterparty, and that was the view of Channell J in the passage which I have cited from Wehner v Dene, but it is unnecessary to determine that question and I can see that insolvency might introduce particular difficulties. However I am quite clear in my view that such potential difficulties cannot of themselves be a bar to the existence of the shipowner's contractual right, a right to which the shipowner is likely to have a need to resort in precisely the circumstances in which accounting difficulties may be expected.
  38. Mr Happé's main objection to the analysis espoused by Rix LJ was that it would permit a shipowner to intervene to require payment of freight to himself without being obliged to wait for a default by his charterer, and he contrasted this with the position which obtains under the contractual lien clause, here clause 18. Mr Happé suggested that in such circumstances shipowners would be likely to perceive it as in their best interests always to require payment of freight themselves. The right to intervene to claim freight should, he suggested, be regarded as a right of security exercisable only after a default by the time charterer. Adopting the expression used by Rix LJ in The Spiros C, Mr Happé suggested that as the time charter represents the shipowner's real interest in the venture, so too his entitlement should be tied to the fate of that charter.
  39. The principal answer to this point was I think supplied by Toulson LJ in the course of the argument, who observed that it was not to be expected that shipowners would routinely act in a manner which would damage their commercial reputation. I have already explained how the direct contractual relationship brought about between the owners and the shippers is inconsistent with the owner's entitlement to require payment of the contractual remuneration being contingent upon default by a third party. As I then noted, the position as between the owners and the time charterers may be different. At paragraph 39 of his judgment in The Spiros C Rix LJ said this:-
  40. "In my judgment, when a shipowner contracts that his freight should be payable as per a charterparty, he intends, and it is common ground with his shipper that he does so, that, at any rate until he steps in to claim his freight upon the failure of his time charterer, the whole manner or mode of the collection of the freight should be delegated to the time charterer."
    This passage is contained in a discussion of a quite different problem, the extent to which payment of freight may be effected by offsets of other payments in a manner agreed between the time charterer and others beneath him in the contractual chain. It was because of the efficacy of arrangements of this sort to accomplish the payment of freight by the shippers by those to whom they were directed to pay it that the broader issue of principle, whether owners could require payment to themselves, did not arise for decision in The Spiros C. So Rix LJ was not discussing the question whether charterers may prevent shipowners from making such a demand. However it is to my mind arguable that a time charterer who is not in default of his obligation to pay hire, and other amounts, under the head charter could restrain a shipowner from demanding payment of bill of lading freight to be made directly to himself, on the simple ground that until such time as the charterer is in default the shipowner has, by reason of clause 8 of the NYPE Form, or a similar employment clause, agreed to delegate collection of freight to the charterer. Whether such an argument would succeed must await decision on another occasion when it arises. It suffices to say that I am far from convinced that a charterer would be without a remedy in the event that a shipowner took the unusual course of intervening in an attempt to collect freight in circumstances where the charterer was duly performing his obligations under the head charterparty. Such an attempt by a shipowner to interfere with the charterer's exploitation of the vessel for the purposes of his trade might even be regarded as repudiatory, as was the direction to the Master to refuse to sign bills of lading marked freight prepaid in The Nanfri, above.
  41. I turn finally to the reservations expressed by Aikens et al in this passage at paragraph 12.50 of their work:-
  42. "If the freight has not been paid by the party to the bill of lading, it might be thought to follow that the shipowner could not direct its payment to himself, on the basis that if C makes a promise to A to pay B, A cannot require C then to pay A instead. However in "The Spiros C" Rix LJ considered, obiter, that as a matter of construction of the bill of lading contract the obligation might be (to use the lettering above) to pay B or as A may direct. Rix LJ acknowledged that this might cause problems where B had a security interest in receiving the freight. It is also unclear from this dictum whether on this analysis A can redirect payment of freight at any stage or, if not, what events trigger such a right. The law on this point is unclear and it is respectfully suggested that the dictum needs to be treated with some caution.
    The learned authors do not explain why Rix LJ may be wrong, and I have I hope in the preceding paragraphs addressed the two particular uncertainties to which reference is there made. When answering the question what events trigger such a right it must of course be borne in mind that there are two separate questions, is the shipowner entitled so to act vis à vis the shipper, and is the shipowner entitled so to act vis à vis the head time charterer. As to any security interest in the freight which a third party may have been given, presumably by an intermediate charterer, that interest cannot be more extensive than that enjoyed by the grantor. If the grantor's entitlement to receive the freight is conditional, defeasible, revocable, or however else it may be described, so too must be any security interest created by the grantor.
  43. For all these reasons I agree with the judge on the main point which arises on this appeal. I can deal more shortly with the subsidiary questions which with one exception are questions of construction of the documents.
  44. Were the Notices of 1 and 5 February apt to require payment of freight?

  45. Like the judge I see the force of Mr Happé's argument to the effect that the principal thrust of the First Notice and thus of the Second, which repeated the First and extended its scope to cover the cargo, was its reliance upon the contractual lien. That point was I think the more strongly made in relation to the Second Notice, the focus of which was, as Mr Happé aptly put it, the cargo, not the freight for the cargo. Nonetheless, I agree with the judge that the Notices were sufficient to put Metinvest on notice that they were required to pay freight to the owners, and not to Fayette. Such was achieved in what the judge called the second request, read in the light of the first request. The first request required confirmation of any amount due from Metinvest under any bills of lading or other contracts of carriage relating to the voyage and cargo(es) covered by the bills of lading. The second request required payment of any such freights due directly to owners. The Second Notice expressly repeated both of these requests. Together with the warning of the risk of being required to pay twice, this could scarcely have been more explicit.
  46. Can such a Notice be given before there exists a bill of lading?

  47. This point does not strictly here arise, and I am not sure that it was taken below. Certainly the judge does not deal with it. By the time of the 5 February Notice the overwhelming majority of the cargo had already been loaded. It had been loaded pursuant to a contract of carriage between the owners and the shippers which was in due course evidenced by the first two bills of lading. However there is in any event nothing in Mr Happé's point. Subject to the reservations which I have expressed above concerning the situation which obtains before a default under the head charter has occurred, I can see no basis upon which the shipowner can be prevented from stipulating in advance the terms upon which he would be prepared to enter into a contract of carriage with the shippers. Indeed, that might be thought less objectionable than countermanding after their issue the direction given in the bills of lading.
  48. The post-withdrawal claim

  49. The judge considered that Fayette's "Notice of Redelivery" and their message of 5 March to the Master constituted an implied request to the owners to continue the voyage, generating in Fayette an obligation to pay a reasonable remuneration therefor, which it is agreed would be US$ 23,000 per day. I agree with the judge. The redelivery notice, advising the vessel's itinerary and noting that charterers, here meaning Fayette, will inform owners immediately if the vessel's schedule is changed, is consistent only with Fayette treating themselves as entitled to give instructions as to the employment of the vessel. Sent in the knowledge, as the judge found, that the vessel had been withdrawn from the service of KLC, this notice shows Fayette putting themselves into the shoes of KLC as the party with the entitlement to give such instructions. I note incidentally that this message was not copied to KLC. Had Fayette been in any doubt whether the vessel had been withdrawn from the service of KLC I consider it inconceivable that the notice would not have been copied to them. The message of 5 March is still more explicit. Both messages need to be read in the context of owners having already made it clear on 19 February that whilst they would carry the cargo to destination and there discharge it in the usual way in the event of withdrawal from KLC, they would expect the sub-charter hire to be paid to them. I also agree with Mr Bignall that it is no impediment to the judge's analysis that the owners were in any event under a contractual obligation to the shippers to carry the cargo to destination and there discharge it. I agree with Mr Bignall that there is no reason why a request, giving rise to a right to remuneration, cannot be made for performance of services some, or even all of which, the recipient of the request is obliged to perform under a contract with a third party, and that that is the rational commercial interpretation of the parties' communications in this case. I also agree with him that an analogy may be drawn with the position regarding consideration, where it is now generally accepted that actual performance of a contractual duty owed to a third party can constitute consideration – see Chitty on Contracts, 30th Edition, paragraph 3-073. My only quibble with the judge is whether in all the circumstances the request contained in the message of 5 March might not be regarded as express, but nothing turns on that.
  50. Mr Happé had a last point, which had been neither pleaded nor taken before the judge, to the effect that the request, if there was one, could only relate to the period after it was made and not to the period elapsed before then subsequent to the withdrawal of the vessel from KLC. The point thus relates to the period between 10.29 on 26 February and 14.17 on 1 March. There is nothing in this point. In the context of owners' earlier communication it is plain that the requests made by Fayette were for a seamless continuation of the provision of the vessel's services as from the moment when it ceased to be at the disposal of KLC. The shipowners were entitled to assume that compliance would result in payment of reasonable hire or remuneration for the entirety of the period after withdrawal until completion of the carrying voyage. The position might have been different had the period elapsed since withdrawal been longer (as it is 26/27 February was a weekend) or had the vessel temporarily ceased her voyage, which she had not.
  51. I would dismiss the appeal.
  52. Lord Justice Toulson :

  53. I agree.
  54. Lord Justice Pill :

  55. I also agree.


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