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England and Wales Court of Appeal (Civil Division) Decisions
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  EWCA Civ 184 (14 March 2013)
Cite as:  WLR 3440,  2 Lloyd's Rep 38,  1 WLR 3440,  2 All ER (Comm) 295,  1 CLC 535,  EWCA Civ 184
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEENS'S BENCH DIVISION, COMMERCIAL COURT
Mr Andrew Smith
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE TOULSON
LORD JUSTICE TOMLINSON
| Dry Bulk Handy Holding Inc (a company incorporated in Panama) & Compania Sud Americana de Vapores SA
|- and -
|Fayette International Holdings Limited (a company incorporated in the British Virgin Islands) & Metinvest International SA
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Dominic Happé (instructed by Eversheds LLP) for the Appellants
Hearing date : 7 February 2013
Crown Copyright ©
Lord Justice Tomlinson :
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")  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".
The facts in outline
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
andtrim 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.
"All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated."
"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."
"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.
Fayettealso 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."
"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."
The owners' claim for bill of lading freight
Can owners require payment of freight to themselves?
"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)  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."
"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)  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"  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.
"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.
"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.
Were the Notices of 1 and 5 February apt to require payment of freight?
Can such a Notice be given before there exists a bill of lading?
The post-withdrawal claim
Lord Justice Toulson :
Lord Justice Pill :