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Case law: ALPHA MARINE CORP V MINMETALS LOGISTICS ZHEJIANG CO LTD (THE MV “SMART”)  EWHC 1157 (Comm)
News & Insights 31 May 2021
Key words: Freight
Charterparties (time) – Vessel lost after grounding while departing port – Owners purporting to exercise lien on freight – Whether charterparty containing implied term obliging owners to allow charterers to collect freight – Whether charterer may prevent shipowner from directing payment of freight to owner – Implied terms – Business necessity – Shipowner's obligation to account to charterer for excess freight collected.
The MV SMART owned by the claimants, Alpha Marine Corp, time-chartered to Minmetals Logistics Zhejiang Co Ltd, on an amended New York Produce Exchange form (NYPE) and sub-chartered on a voyage charter to General Nice Resources (Hong Kong) Ltd, ran aground shortly after departing from Richards Bay port, South Africa and was subsequently lost, resulting in the total loss of the vessel and the cargo.
A dispute arose with regards to the payment of freight.
After the incident, the time charterers invoiced the sub-charterers for freight, which under the terms of the voyage charterparty was payable, even if the vessel or cargo were lost. The owners contested this by claiming that freight should not be paid to charterers and that the owners were entitled to exercise a lien over the voyage charter freight under the terms of the head charterparty.
It was agreed between the parties that freight would be placed into escrow but later in the year the sub-charterer was wound up.
The owners commenced arbitration against charterers for various heads of claim in excess of $100m on the basis that the loss of the vessel was due to the charterers’ breach of the safe port warranty. The charterers denied this or alternatively claimed that the grounding was caused by negligent navigation.
The tribunal held that:
- Under the terms of the NYPE, there is an implied obligation that charterers would be allowed to collect freight and that owners could not revoke this right under the charterparty; and,
- The grounding which resulted in the loss of the vessel was caused by the Master’s negligence, and, although, the port had some shortcomings, the Master’s action had broken the chain of causation.
The owners appealed the tribunal’s decision using section 69 of the Arbitration Act 1996 on the following question of law:
“Did the charterparty contain an implied obligation that the claimant would not revoke the defendant’s authority to collect from the sub-charterers the freight payable under the bills of lading unless hire and/or sums were due to the claimant under the charterparty”.
Permission to appeal was granted and the Court held that:
- there was no implied term in the head charterparty which would limit the owners’ right to revoke the charterer’s authority to collect freight payable under the bills of lading, and.
- the owners’ unfettered right to collect freight did not interfere with the charterers’ employment of the vessel. The owners had an implied right under the head charterparty to collect freight under the bills of lading.
The decision provides clarity regarding the owners’ right to collect freight under bills of lading, even if hire had been paid. Following this judgment, the parties and specifically charterers may seek to introduce express terms into charterparties limiting the owners’ right to collect freight under the bills.
- Link to article on the Standard Club website can be found here
- Link to i-law can be found here
- Link to commentary by Quadrant Chambers can be found here