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Court finds ship off-hire whilst held by pirates. From @incelaw and sponsors @iDirectMaritime

By • Apr 30th, 2012 • Category: Shipping Law

Maritime Law Podcast from Coracle Online and international law firm Ince & Co

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In this podcast we look at how the Commercial Court finds ship off-hire whilst held by pirates

Osmium Shipping Corporation -vs- Cargill International SA (Captain Stefanos) [2012] EWHC 571 (Comm)

The background facts

The owners and the charterers entered into a charterparty on the NYPE 1946 form in respect of the Captain Stefanos. It undertook a voyage from South Africa to the continent/ Mediterranean. Whilst en route to the discharge port, the vessel transited the Suez Canal and, on or about 21 September 2008, was hijacked by pirates off the coast of Somalia. The vessel was released on or about 6 December 2008 after the owners paid a substantial ransom. The charterers contended that the vessel was off-hire for the period of the hijacking, i.e. between 21 September 2008 and 6 December 2008.
Off-hire

The London arbitration tribunal held that the vessel was off-hire under a rider clause to the charterparty which provided as follows at Clause 56:
“Should the vessel put back whilst on voyage by reason of any accident or breakdown, or in the event of loss of time either in port or at sea or deviation upon the course of the voyage caused by….capture/seizure, by detention or threatened detention by any authority including arrest, the hire shall be suspended….”

In view of the 2011 decision in The Saldanha, an Ince case reviewed in the July 2010 E-Brief, neither party contended that the vessel could have been off-hire pursuant to the unamended version of Clause 15 in the NYPE form. The charterers successfully contended in the arbitration that the hijacking came within Clause 56 as a “capture/seizure” of the vessel. The owners argued during the appeal hearing that the vessel was not off-hire during the period of the hijacking for the following reasons:

1. The off-hire event of a “capture/seizure” within Clause 56 was qualified by the words “by any authority”. By contrast, the charterers claimed that the words “capture/seizure” stood alone and it was only the words “detention or threatened detention” which were qualified by the words “by any authority”.

2. The charterparty included the Conwartime Clause 2004 and therefore, reading the charter as a whole, the risk of piracy was placed upon the charterers and not upon the owners. Any off-hire clause had to be read with this business purpose and allocation of risk in mind.

3. The ship was not off-hire because the owners were complying with the orders of pirates and this was deemed to be fulfilment of the charter service by virtue of Conwartime 2004.
The construction of Clause 56

The judge, Mr Justice Cooke, held that the starting point when construing Clause 56 of the charterparty was to look for the ordinary and natural or conventional meaning of the language used in the context of the agreement, the parties’ relationship and the relevant facts surrounding the transaction so far as known to the parties.

Mr Justice Cooke concluded that the wording used and the structure of the clause – including its punctuation and grammar – all supported the charterers’ submissions. Each separate off-hire event within Clause 56 was, by and large, separated by a comma. Therefore the words “capture/seizure” were separated from the words “detention or threatened detention by any authority”. In reaching this decision, the judge made it clear that the phrase “capture/seizure” encompassed any act of forcible possession, including a hijacking by pirates.

The owners had contended that Clause 56 had to be re-read by taking account of the overall allocation of risk in the charterparty. They submitted that the effect of incorporating the Conwartime clause was to allocate to the charterers all risks of piracy. This “allocation of risk” outweighed any reliance on the punctuation used in Clause 56. Mr Justice Cooke was not persuaded by this argument saying that it was Clause 56, in itself, which dealt with allocation of risks between the parties where hire is concerned.

Conwartime 2004

The owners submitted that Conwartime 2004 specifically deals with “War Risks”, which include “actual, threatened or reported” acts of piracy. Sub-clause (f) of Conwartime 2004 entitles the owners to comply with the orders of “any other Government, body or group whatsoever acting with the power to compel compliance with their orders or directions”. This phrasing, the owners argued, included orders of pirates and therefore, under sub-clause (h) of Conwartime 2004, compliance with orders of pirates was to be deemed “due fulfilment of the charterparty”. The vessel could not be off-hire when the owners were deemed to have fulfilled the service required of the vessel.

Mr Justice Cooke did not accept this argument, holding that Conwartime 2004 does not deal explicitly with off-hire periods. Conwartime 2004 relates to performance of the charterparty and to breach of the charterparty, not to off-hire. While Conwartime 2004 deals expressly with piracy situations, it is not directed to off-hire situations. While the judge did not have to decide the point, he doubted that sub-clause (f) of Conwartime 2004 was apt to include orders from pirates.

Comment

In this case, the court read the off-hire clauses in the charterparty in isolation. The 2011 decision of the Supreme Court in Rainy Sky SA & others v. Kookmin Bank, an Ince case reviewed in the January 2012 E-Brief, held that construction of a contract is a “unitary exercise”, i.e. it is necessary to read the contract as a whole. The court said that this approach was not appropriate when looking at an off-hire clause – off-hire provisions frequently stand alone from the rest of the charter. Mr Justice Cooke also did not accept arguments as to the “commercial construction”, adopting instead a reasonably strict linguistic approach when construing the clause.