“CV STEALTH” – Off-hire and Breach

April 2016

Following the detention of the vessel in Venezuela, Disponent Owners claim an indemnity for losses from Sub-Charterers

This case was an appeal from an arbitration award brought under s.69 (2) Arbitration Act 1996 on a point of law and which also concerned whether the Claimants needed permission to appeal where the charterparty provided for appeals to the High Court on a point of law

ST Shipping and Transport Pte Ltd v Space Shipping Ltd [2016] EWHC 880 (Comm)

Lax & Co LLP acted for the Respondent, Space Shipping Ltd (Disponent Owners, Claimant in the arbitration) and Clyde & Co LLP acted for the Claimant, ST Shipping and Transport Pte Ltd (Sub-Charterers, Respondent in the arbitration)

The vessel "CV STEALTH" was on time charter to Sub-Charterers when she was detained by the authorities in Puerto La Cruz, Venezuela, in September 2014. By an arbitration award, Sub-Charterers were held to be liable to Disponent Owners for the financial consequences of the vessel's detention. Sub-Charterers appealed the award.

Sub-Charterers had further sub-chartered the vessel to AS Capital for the carriage of a cargo of crude oil from Guaraguao Terminal, Puerto La Cruz, Venezuela. Pursuant to Sub-Charterers' orders, the vessel proceeded to Puerto La Cruz in September 2014. After initial notification of AS Capital's agent's details, there was a change in the agents, as notified to the Master. He was subsequently ordered by Sub-Charterers to communicate with the new agent, Grupo Acosta Marine Services. A document containing loading details for the cargo which purported to come from the Venezuelan state oil company Petroleos De Venezuela ("PDVSA") was then sent to Sub-Charterers and further sent by Grupo Acosta Maritime Services to the Master. That document was found to be forged.

A Venezuelan citizen, Mr Barbosa, was arrested on criminal charges relating to an attempt to steal cargo and as part of that, the forgery of the PDVSA authorisation document. A few days later, the Venezuelan Court issued a precautionary measure prohibiting the vessel from sailing pending the criminal investigation into Mr Barbosa.

Clause 13 (a) of the charter provided as follows:

"13. The Master (although appointed by Owners) shall be under the orders and directions of Charterers as regards employment of the vessel agency and other arrangements… Charterers hereby indemnify Owners against all consequences or liabilities that may arise (i) from signing bills of lading in accordance with the directions of the Charterers, or their agents…or… from the Master otherwise complying with Charterers' or their agent's orders (ii) from any irregularities in papers supplied by Charterers or their agents."

Clause 21, provided as follows:

"21.(a) On each and every occasion that there is loss of time for more than 6 (six) hours……

(v) due to the detention of the vessel by authorities at home or abroad attributable to

legal action against… the vessel, the vessel’s owners or Owners (unless brought about by the act or neglect of Charterers)

… the vessel shall be off-hire…

Clause 27 provided:

“27.(a)… Further, neither the vessel, her master or Owners, nor Charterers shall, unless otherwise in this charter expressly provided, be liable for any loss or damage or delay or failure in performance hereunder arising or resulting from… arrest or restraint of princes, rulers or people”

Clause 28 provided:

“28. … No voyage shall be undertaken, nor any goods or cargoes loaded, that would expose the vessel to capture or seizure by rulers or governments.”

Clause 41 stated that the Charterparty was to be governed by English law and provided for dispute resolution by arbitration in accordance with the BIMCO Dispute Resolution and Law clause set out at Clause 111 of the Charterparty, which provided for the Arbitration Act 1996 to apply. Clause 41 went on at paragraph 41(c) (ii) to provide:

"The parties hereby agree that either party may –
(a) appeal to the High Court on any question of law arising out of an award.."

In the arbitration, Disponent Owners claimed from Sub-Charterers:

A balance of hire on the basis of hire running from the time of the vessel’s detention to the date of redelivery under the charter on 1 April 2015, plus expenses and costs.
Compensation under the indemnity under clause 13 (a) (i) and or (ii) and or damages for Sub-Charterers’ breach of clause 28 up until July 2015.

As to the hire claim, Sub-Charterers contended that the vessel was off-hire under clause 21 due to the detention. As to the indemnity claims, Sub-Charterers relied on, amongst other arguments, clause 27 (a) and the exception to Sub-Charterers’ liability where the loss was caused as a result of the “arrest or restraint of princes, rulers or people”.

Disponent Owners succeeded in their claims in the arbitration and Sub-Charterers’ defences failed. The arbitrator found that:

Disponent Owners were entitled to an indemnity under clause 13(a)(i) because the detention arose from compliance with the orders of Sub-Charterers or their agents;
Disponent Owners were entitled to an indemnity under clause 13(a)(ii) because the detention arose from irregularities in the authorisation supplied by Sub-Charterers or their agents;
Sub-Charterers were in breach of clause 28 in that the voyage involved the increased risk of detention resulting from Mr Barbosa's intention to export cargo unlawfully;
clause 27(a) provided no answer to these liabilities because they fell within the proviso "unless otherwise in this charter expressly provided";
the vessel was not off-hire under clause 21(a)(v) because the detention was "brought about by the act or neglect of Sub-Charterers" in breaching clause 28 and/or giving the orders and supplying the authorisation which triggered the obligation to indemnify under clause 13.

On appeal to the High Court at a hearing before Mr Justice Popplewell, Sub-Charterers sought to argue that the arbitrator had made an error of law when he decided that the voyage had increased the risk of detention. They argued that the arbitrator should have considered whether there was an increase in risk prospectively i.e. looking forward at the time of the voyage orders, rather than with the benefit of hindsight. Sub-Charterers further argued that clause 28 would only apply where there were factors increasing the risk beyond the vessel's normal employment.

Sub-Charterers did, however, accept that they could not succeed on their arguments on clauses 13, 21 and 27 if it was held that the detention was caused by their breach of clause 28. The Court held that there was no error of law. The arbitrator had found as a fact that Sub-Charterers’ orders were the effective cause or at least an effective cause of the detention and therefore the loss, and that they were in breach of clause 28.

The remaining issue related to clause 41 and because Sub-Charterers had maintained that they did not need permission from the Court to appeal, since they were appealing on a point of law. The Court held that the agreement in the charter was only to appeal questions of law arising from the award, and the Court had found that Sub-Charterers’ argument on clause 28 did not involve questions of law. The remaining points under clauses 13, 21 and 27, even if they were points of law, would not substantially affect the rights of the parties and therefore did not satisfy the requirement of s.69 (3)(a) Arbitration Act 1996.

Accordingly, Sub-Charterers did require permission to appeal, and such permission was refused.

Issued by

Catriona Lewis

Associate

Lax & Co LLP

Dir: +44 (0) 20 7397 0542

catriona.lewis@lax.micco.co.uk

May 12th, 2018