On the distribution of the risk of delays in the execution of contracts for charter of a vessel on the principles of English law
Similarly, other agreements regulating the legal relations of the parties involved in commercial activities, lease agreements with the crew, as well as contracts of carriage and voyage charters should have provisions that distribute the risks of the parties arising in the process of their execution.
For the maritime industry this distribution is even more important, since the number of potential risks of delaying or disrupting the execution of the contract is large, and entire groups and chains of performers are often involved in fulfilling obligations: the shipowner, carrier, charterer, consignee, consignor, stevedores, port authorities, government agencies, surveyors.
Many charters are governed by the norms of English law, in connection with which the distribution of responsibility of the parties under such contracts is based on the findings of judicial practice, which forms the basis of regulation. In the case of The Doric Pride [2006] All ER (Comm) 188, the court established the basic rule of separation of shipowner and charterer’s responsibilities:
- Issues of ship management and its technical support are the responsibility of the owner.
- The commercial aspects of the operation of the vessel and the purpose of its use are included in the “responsibility area” of the charterer.
In practice, this allocation of responsibility is not always easy to qualify, especially if the written terms of the charter agreement clarify in which cases the parties will bear additional risks, or the risks pass from one side to the other.
In the case of the Global Santosh [2016] UKSC 20, the vessel was transferred to a time Charter charterer, which in turn concluded a voyage Charter with a third party, which in turn concluded a sub-voyage Charter with the shipper for the transportation of cement. Upon arrival at the port of discharge, the ship 2 months could not get up to the pier, and after obtaining admission to the unloading, the cargo on Board the ship was arrested. As a result of enforcement actions, the act of arrest included not only the cargo, but also, mistakenly, the ship itself, which led to an additional amount of downtime.
In the charter agreement, the parties agreed on a written clause stating that the time charter freight is not payable in the event of arrest or detention of the vessel for any legal reason. In addition, the provision provided that the exception to this rule are cases where the arrest or detention occurred “as a result of the action or inaction of the charterer or his agents”.
The arrest of the vessel was imposed at the request of the shipper, with whom a sub-scheduled charter was concluded with the approval of the charterer of the vessel. The task of the court was to determine whether the sub-regular charterer is a “charterer's agent” for the purposes of recovery in favor of the owner of the losses caused by the arrest.
The court of appeal in the case upheld the basic principle established in The Doric Pride [2006] All ER (Comm) 188, stating that the delay on the presumption, are always at the risk of the charterer, as the responsibility of the shipowner under the Charter, only the ship, its technical condition, seaworthiness and navigation issues.
Taking into account that the charterer took advantage of the commercial opportunity to deliver the ship to the sub-charter, the responsibility for the delay associated with such a sub-charter is charged to the charterer.
However, the Supreme Court reversed the appeal decision, in fact, adding to the “basic principle” of the division of responsibility in The Doric Pride [2006] All ER (Comm) 188 with a new rule.
The decision of the Supreme Court establishes that it is necessary to determine not only in whose "area of responsibility" lies the cause of the delay in the execution of the charter, but also the "sufficient relationship" between the violation and the actions of the party under the main contract, from which the claim for damages arises.
Considering that the actions of the sub-charter charterer were not controlled in any way by the main charterer on the charter party (who only concluded a third-party charter charter), the shipowner does not have the right to claim damages not caused by the charterer. Based on the above, the Supreme Court ruled that for the period of the arrest of the vessel, the freight is not paid.
An additional criterion for determining the liability of the parties on the charter, established in The Global Santosh [2016] UKSC 20 on the one hand protects the party from liability arising from the participants in the “chain” of commercial activities in the maritime industry. On the other hand, it blurs a fairly clear distribution of responsibility, introducing an element of uncertainty in the resolution of disputes on the violation of the charter.
Would the charterer be held accountable if the violation had been committed not by a sub-scheduled charterer, but by a third party who entered into a charter charter directly with the charterer?
The decision once again proves the essential importance of the detailed formulation of the written provisions of the charter, which, in the event of a dispute, prevail and are subject to literal interpretation.
f the owner intends to protect himself from the risks of delaying the vessel in full, he is recommended to indicate in the charter under English law all categories of persons whose violation of the charter is due to which he will be compensated for losses and paid for in idle time.
Senior partner Zhdanova Victoria
© Inmarine St. Petersburg Law Offices, 2018