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Court declines to imply delivery and discharge terms into contract of carriage

Insights / 08-09-2020

Sea Master Shipping Inc v. (1) Arab Bank (Switzerland) Limited and (2) Yousef Freiha & Sons SAL (Sea Master) [2020] EWHC 2030 (Comm)

The Court has dismissed an appeal in a dispute in which the Owner sought to imply a term into the contract of carriage that the financing Bank and/or Receiver should: (1) take all necessary steps to enable the cargo to be discharged and delivered within a reasonable time; and/or (2) discharge the cargo within a reasonable time.

The decision reflects the courts’ unwillingness to re-write contracts that might, with the benefit of hindsight, suggest that one of the parties had agreed potentially unfavourable terms.

The background facts

The Claimant Owner was the assignee of the registered owners of the vessel, in respect of which a voyage charter had been concluded. The contract of carriage contained in the bill of lading incorporated all the "… terms, conditions, liberties and exceptions …" of the voyage charter. The First Defendant was the Bank that financed the purchase of the cargo in question. The Second Defendant was the Receiver who took delivery of the cargo.

In arbitration proceedings, the Tribunal held that, as a matter of contractual construction, neither the Bank nor the Receiver were liable for discharge port demurrage under the contract of carriage. The Owner appealed.

The Court considered whether there were any implied terms that shifted liability for the discharge and delivery of the cargo onto the Bank and/or the Receiver or imposed on the Receiver (or Charterer) any obligations in respect of delivery and discharge except those expressly set out in the voyage charter and contract of carriage (such as the obligation to appoint and pay stevedores).

For this purpose, the Court assumed that the Receiver and the Bank had become subject to the same liabilities under the contract of carriage pursuant to section 3(1) of the Carriage of Goods by Sea Act (COGSA) 1992 and it was, therefore, as if both had been a party to the contract of carriage.

In summary, in order for the English Court to imply a term into a contract:

  1. The proposed term must be necessary to give the contract business efficacy. It must be shown that, without the implied term, the contract would lack commercial or practical coherence. It is not sufficient that an implied term would merely improve the contract;
  2. The implied term must be fair. Alternatively, the Court must consider that the parties would have agreed that the term should be implied if this had been suggested to them at the time of contracting; and
  3. The term must be capable of clear expression and must not contradict the express terms of the contract.

Applying the relevant principles, the Court firstly rejected the second proposed implied term, namely that the Bank and/or the Receiver would discharge the cargo within a reasonable time.

The voyage charter expressly provided at clause 10 that “…Cargo is to be discharged free of expense to the Vessel…" and at clause 11 “…Stevedores at discharging ports are to be appointed and paid for by the Charterers/Receivers". The Owner contended that the effect of these provisions was to allocate contractual responsibility for discharge exclusively to the Charterer and the Receiver. The Owner further maintained that, at common law, responsibility for discharge is shared between the owner of a vessel and the charterer (or receiver).

The Court, however, held that in the absence of clear contractual provisions to the contrary, the responsibility for discharge rests with the owner of a vessel. Furthermore, the language of clause 10 was clear and was concerned solely with who was to pay for the operations. The Court stated that there was no presumption that the responsibility for the cost of operations, the responsibility of carrying out operations, and liability for such operations should fall on the same party. Furthermore, such a term should not be implied in any event because the contract of carriage did not lack commercial or practical coherence without it.

The Court referred to clause 20 of the voyage charter, which provided that “(a)ny time lost for which Charterers/Receivers are responsible, which is not excepted under this Charterparty, shall count as laytime, until same has expired, thence time on demurrage". In the Court’s view, the Tribunal had been correct in finding that the contract worked perfectly well with this clause, and without the implied term, on the basis that such demurrage should be payable by the Charterer, and not the Bank or the Receiver.

The Court also rejected the argument that there should be an implied term that the Receiver would take all necessary steps to enable the cargo to be discharged and delivered within a reasonable time. Discharge was an obligation that rested exclusively on the Owner. Alternatively, it was entirely unnecessary to imply such a wide and general term into the contract of carriage.

The Court highlighted that, under the terms of the contract of carriage, discharge was not a collaborative process between the Owner, Charterer and third parties save that there was an express agreed contractual mechanism which governed the appointment of stevedores (and which included a recourse mechanism for the Owner in the event that this appointment led to delay). Therefore, an implied term would be superfluous – the process had already been contractually agreed between the parties.

The Owner’s arguments in respect of an implied term in respect of delivery were similarly rejected. To the extent that delivery is a collaborative process (which, on the facts, was limited) there is a long-established, more nuanced, common implied term that would provide a solution to the Owner – namely that, in the event that a receiver does not claim delivery within a reasonable time, the master may land and warehouse the cargo and the owner of the vessel is entitled to charge the cargo owner with expenses properly incurred in doing so. This made a wide and ambiguous implied term unnecessary and inappropriate.

Overall, the Court criticised the Owner’s approach in this regard. There was no need to imply a wide, generally expressed and unqualified term where collaboration is not required, in circumstances where the general law already provides a solution in the absence of an express term and where the contract of carriage does not lack commercial coherence without the implication of such a term.

Comment

Given the courts’ clear reluctance to imply terms that are not strictly necessary to make the contract work effectively, parties to any contract of carriage should ensure that its express terms clearly reflect their intentions as regards the allocation of contractual responsibilities.

Hope Wilkins

Hope Wilkins Associate

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Maritime