Shipping and International Trade News Bulletin The Supreme Court Decision in THE GLOBAL SANTOSH: defining responsibility for vicarious contractual performance The Supreme Court handed down its decision in NYK Bulkship (Atlantic) NV v Cargill International SA (The Global Santosh) [2016] UKSC 20 on 11 th May 2016. Simon Rainey Q.C., who was brought in to argue the case on the Supreme Court appeal, represented the successful appellants, Cargill. The decision of the Supreme Court is a landmark one in relation to a contracting party s responsibility for the vicarious or delegated performance by a third party of its contractual obligations, both in the common charterparty and international sale of goods contexts and more generally. Overview The case concerned the meaning of a common form of off hire provision in a time charterparty which provided that the vessel should be off-hire during any period of detention or arrest by any authority or legal process, unless the detention or arrest was occasioned by any personal act or omission or default of the Charterers or their agents. The meaning of the common term or their agents in this context raised far-reaching issues as to the extent of a party s responsibility under a contract for the acts of a third party who vicariously performs some aspect of the party s contractual obligations or to whom performance of the obligation has been delegated by the creation and operation of a series of sub-contracts.
These issues, previously only canvassed at first instance and open to debate, have now been addressed in full by the Supreme Court. As Lord Sumption (giving the majority decision) stated, the issue on the appeal raised wider implications of some importance. Summary of the Supreme Court s Decision 1. In general terms, in deciding whether a contracting party is liable or responsible for some act or omission done by a third party in performing that party s obligation under a contract, the correct approach is to define what obligation has been delegated to the third party and to what extent that party is vicariously acting as the contracting party in acting or omitting to act. 2. In the specific context of a time charterparty off hire clause and the question who bears responsibility for delay occasioned by an arrest by or involving such a third party, the question is one of construction of the clause. But the use of the concept of charterer s agents in such a provision (and in others) is to be treated and approached in just the same general way. In particular, there is no over-arching concept of spheres of responsibility which would treat any party who becomes involved in the chain of contracts around the charterparty which result from the charterer s trading of the vessel and its commercial or trading arrangements (such as a sub- or sub-sub- charterer or a buyer or seller of cargoes) as its agent by being on the charterer s side of the line. The Facts and the Issue in More Detail NYK, as disponent owners under a time charter with the head owners, chartered the vessel to Cargill. Cargill sub-chartered her to a sub-charterer. The vessel was employed to carry a cargo which had been sold by Transclear SA ( Transclear ), to IBG Investments Ltd ( IBG ) under a contract of sale on C&FFO terms. Transclear was possibly a sub-sub-charterer; IBG was not a sub-charterer of any sort. Vis-à-vis Cargill, Transclear and IBG were third parties with whom it had no direct contractual relationship. Following a dispute between Transclear and IBG as to IBG s performance of the sale contract and liability thereunder for demurrage following a failure to unload within the permitted time, Transclear arrested the cargo in support of its claim against IBG. By some error, the arrest order as issued named the vessel and the cargo. The arrest prevented the vessel getting into berth for discharging. The dispute was then sorted out between Transclear and IBG and the vessel was discharged without incident. Cargill contended that the vessel was off-hire under Clause 49 during the period of the arrest. Clause 49 provided: Should the vessel be captured or seizured [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 relied on the proviso on the ground that Transclear and IBG were agents of the Charterers and their conduct fell within the proviso. Cargill succeeded by a majority before a LMAA tribunal who held that at the time of arrest and in arresting the vessel, neither were acting as agent, vicariously discharging some obligation of Cargill. On NYK s appeal Cargill succeeded in part before Field J but lost in the Court of Appeal.
The Court Decisions Below Field J. held that the term agents in the context of the proviso to Clause 49 would apply to parties such as sub-charterers or sub-sub-charterers or receivers to whom Cargill, by subletting the vessel, had delegated or sub-delegated the performance of its responsibilities under the charterparty, but, by reason of that, would only apply where the act or omission or default of such a delegate occurs in the course of the performance by the delegate of the delegated task. Transclear in arresting the vessel was not doing anything on Cargill s behalf. IBG was, because it was entrusted with discharging the vessel and therefore doing that for Cargill, even though its failure to discharge was not a breach of the charterparty by Cargill but only a breach of its sale contract with Transclear. The Court of Appeal reversed Field J and applied a four step approach. First, as a matter of language, the proviso identified the relevant actors, namely Cargill or its delegates. Secondly, the proviso said only that the relevant act, omission or default must be such as occasioned the detention of the vessel. Thirdly, the proviso was not open-ended; it applied only to the actors and acts outlined in steps one and two. Fourthly, the proviso said nothing as to restricting the acts in question to those occurring in the course of the performance by the delegate of the delegated task; the approach of Field J required such wording to be read into the proviso. It held, in a far-reaching decision that if a party (e.g. a sub-charterer) is a delegate of Cargill flowing from the sub-letting of the vessel, that party remains a delegate for the purposes of the proviso regardless of the legal nature of the act or omission (etc). Not every act or omission of the delegate will or need be in the course of performance of the delegated task. Its approach was said to be was supported by the commercial context of the contract, which was the need to distinguish between those matters which fell on owners side of the line and those which fell on charterers side of the line. This was said to follow from the decision of Rix LJ in The Doric Pride [2006] 2 Lloyd s Rep. 175. The Decision of the Supreme Court The Court held, by a majority, as follows: 1. References in a time charter to acts of the charterer s agents in the course of performance cannot necessarily be limited to persons doing those acts on his behalf in the strict legal sense of the term, or indeed to those standing in any direct legal relationship with him. As between the owner and the time charterer, the rights of the time charterer are made available to those further down the contractual chain, and some at least of the time charterer s obligations are satisfied by the acts of subcontractors. 2. In the context of a charterer s obligation to discharge, persons ultimately carrying out the relevant cargo handling operation (loading or discharging) are availing themselves of the facility contractually derived either directly or indirectly from the charterers. They are, to that extent, the agents of the time charterers in the sense in that word is employed is a provision such as clause 49.
3. Not everything that a subcontractor does can be regarded as the exercise of a right or the performance of an obligation under the time charter. Where the range of matters for which the time charterer is responsible depends on what functions he has delegated to a subcontractor, it is therefore always necessary to identify the precise extent of the delegation. 4. The correct question was whether IBG, by omitting to discharge at any time before 15 January 2009, were vicariously exercising rights or vicariously infringing obligations under the time charter between NYK and Cargill. That could only depend on the terms of the time charter and Field J. was wrong to treat, as if applicable in some way, the terms of the IBG-Transclear sale contract. 5. In the present case, the only thing delegated by means of the chain of sub-contracts to Transclear and then on to IBG was the carrying out of Cargill s obligation to discharge the vessel. That obligation needed to be analysed carefully: under clause 8, Cargill was required to perform or procure to be performed whatever cargo handling operations occurred which imported an obligation to ensure that cargo handling was done properly and to pay for it. But, as between themselves and NYK, Cargill had no contractual obligation to procure the vessel to be discharged at any particular time, and no contractual interest in the timing of the operation, being obliged to pay hire regardless of when discharge occurred. 6. As between NYK and Cargill, such cargo handling operations as occurred, although carried out by Transclear or IBG, were carried out on Cargill s behalf, at their orders and expense under clause 8 of the time charter. It was the vicarious exercise of a right of Cargill under the time charter, which Cargill indirectly made available; Cargill would be responsible for the defective performance of cargo handling operations but not for a failure (by IBG) to discharge the cargo as that was not the vicarious exercise by IBG of some right of Cargill under the time charter. IBG were doing nothing in this period, as far as the vessel was concerned, and were therefore doing nothing on behalf of Cargill under the charterparty. 7. In the context of the arrest proviso, the Court stressed that there must be some nexus between the occasion for the arrest and the function which Transclear or IBG are performing as agent of Cargill. (The Court gave the examples of Transclear or IBG causing the vessel to be arrested in support of a claim to a proprietary interest in it in support of a cargo claim in connection with a sister-ship). There was none here. 8. The Court was wholly unpersuaded by the Court of Appeal s attempted distinction between matters falling with the owner s or the time charterers spheres of responsibility or on one or other s side of the line. This was akin to treating the delegation by a time charterer such as Cargill as extending to everything that arose out of Cargill s trading arrangements concerning the vessel and amounted to saying anything that the sub-charterers or receivers may choose to do which results in the arrest of the vessel, becomes the responsibility of the time charterer if the occasion for doing it would not have arisen but for their having come in at the tail end of a chain of contracts which the time charterer initiated. That approach was held to be impossible to justify. 9. The Supreme Court confined the application of The Doric Pride to the specific context in which Rix LJ had made his remarks. Practical Consequences The Court of Appeal s sphere of responsibility approach, dividing up the risk and allocation for responsibility for, inter alia, delay to a vessel under time charter based on some notional
appreciation of what it is that an owner and a charterer should bear given their respective commercial interests in the use of the vessel has been a pervasive one. The same approach divided the LMAA tribunal. Lord Clarke (dissenting), while ostensibly eschewing the wide approach of the Court of Appeal, preferred a wider approach than looking simply at the obligation delegated. He considered it was appropriate to have regard to discharge in general having been delegated by Cargill such that Cargill were in charge of the discharging operations, which they then arranged though Transclear and IBG. Since the arrest related to discharge in some sense by one or other, in his view, there was still the necessary nexus for the purposes of Clause 49. The decision of the Supreme Court has brought welcome clarity to the concept of vicarious performance and the definition of the limits on responsibility for the delegate. It has provided an interpretation of charterer s agents which confirms the earlier approach in first instance decisions which avoids a potentially open-ended responsibility for, and meaning of, agents which threatened to impact upon other common charterparty provisions using the same expression, e.g. as to the responsibility to put up security in the case of vessel arrest (cf. clause 18 of the NYPE form). The Supreme Court s decision confirms that allocation of risk for, for example, delay due to arrest is always a matter of drafting (as the variety of bespoke arrest clauses used in practice, ranging from always off hire to never off hire, demonstrate) not resort to assumed or notional spheres of responsibility. SIMON RAINEY Q.C.