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HFW successfully appeals Court of Appeal’s interpretation on behalf of Cargill

Posted on: 15 June 2016

International law firm Holman Fenwick Willian (HFW) has successfully appealed the Court of Appeal’s interpretation of an off-hire clause on behalf of charter Cargill in the case relating to the construction of an off-hire clause in an amended NYPE form charterparty. HFW’s lawyers Brian Perrott, Alice Marques and Lee Forsyth acted for Cargill International S.A. (“Cargill”) at the hearings at the Supreme Court.

Under the charterparty, NYK Bulkship (Atlantic) N.V (“NYK”) time-chartered the MV Global Santosh (the “Vessel”) to Cargill, which was then subsequently sub-chartered and sub-sub-chartered. The sub-sub-charterer (“Transclear”) entered into a contract of sale as seller for a cargo of cement. The discharge of the cargo was delayed due, partly as a result of the breakdown of the buyer’s (“IBG”) off-loader. IBG was liable to pay demurrage under the contract of sale. Transclear arrested the cargo (and also accidentally the Vessel) for security for their demurrage claim – as a result of the arrest of the Vessel, there was a delay in the discharge of the cargo.

Cargill as time charterers withheld hire from NYK for the period of time the arrest order was in place, in accordance with the following off-hire clause in the charterparty: “Should the vessel be captured or seizure (sic) or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended until the time of her release, unless such capture or seizure or detention or arrest is occasioned by any personal act or omission or default of the Charterers or their agents…“.

NYK took the view that the proviso (in bold above) applied and so hire was payable for the duration of the arrest order. The case went first to London arbitration (where Cargill succeeded), right through to the Supreme Court on appeal.

The Court of Appeal held that the delay fell within Cargill’s “sphere of responsibility“, because the dispute which caused the delay did not involve NYK and arose out of Cargill’s “trading arrangements concerning the vessel” (per Lord Justice Gross).

The Supreme Court overturned the Court of Appeal’s decision and held by a majority that this was not an arrest occasioned by an “act or omission or default of the Charterers or their agents“. The Supreme Court approached the issue from a different angle to the Court of Appeal, focusing more on what occasioned the arrest and its connection to the functions performed under the charterparty (i.e. the “nexus test”) and held that in this case, there was an inadequate nexus.

Parties should therefore ensure that the off-hire clause in their charterparty properly captures the level and breadth of risk contemplated.

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