Charter parties are crucial legal contracts in the realm of international shipping. These agreements define the rights and responsibilities of both shipowners and charterers, ensuring smooth operations during voyages. Drafting a well-written and comprehensive charterparty agreement is crucial for ensuring smooth operations in the shipping industry. This legally binding document establishes the terms and conditions of a charterparty, which is an agreement between a shipowner (or charterer) and a cargo owner for the use of a vessel.
In this article, we explore one of the three types of charter types that primarily exist in the shipping industry. Voyage Charters- these charters deal with hiring a vessel for a single journey, and the payment is made for transporting goods from one port to another.
ALINA II was a Bulk Carrier registered and sailing under the flag of Saint Vincent and The Grenadines. ALINA II was built in 1986. The ship’s registered owner, Pompey Shipping Corp, had chartered the MV Alina II, a bulk carrier to Prima Shipping Company Limited, which in turn had sub-chartered her to Kumba Shipping Hong Kong Limited, for the carriage of iron ore on a voyage basis from Saldanha Bay to China.
On 29 October 2009, MV Alina II, berthed at one of the two berths at the Langebaan terminal at the port of Saldanha Bay, nearly some 150 km north-west of Cape Town, South Africa and commenced loading a cargo of about 1,75, 902 MT of Sishen iron ore fines. The vessel had completed her loading on 31 October 2009. It was then observed that it had taken on a port list, and it was down by the head by about 50 cm. After this discovery, the vessel remained at the berth until her cargo had been transhipped. This took time and it could finally leave Saldanha Bay on 27 March 2010. Investigations revealed that the Alina II was fractured in the hull and was taking water into the port side double-bottom ballast tank.
The Port of Saldanha evidently operates two adjacent quays which are dedicated to the export of iron ore from Sishen in the Northern Cape. One of those quays was rendered inoperative for several months because of the fact, that the vessel could not be moved. This resulted in delays in the export of ore for a lengthy period and the knock-on effects of the calamity were of epic proportions.
On 13 January 2010, the port authority Transnet caused the Alina II to be arrested in two actions in rem (against a property) with a view to recovering those damages. Transnet Ltd, claimed damages of some US$6m in contract and delict (tort) for the vessel’s extended occupation of the berth. Transnet contended that it had suffered damages in consequence of the vessel’s occupation of the berth during this period. There was no significant difference between the two and henceforth the court treated them as a single action. The owner of the vessel caused a notice of intention to defend to be delivered on 27 January 2010, and on 19 February 2010, Transnet delivered its particulars of claim. It sufficed for present purposes to note that it advances claims in both contract and delict. The contractual claim was said to arise from a contract between Transnet and the owner of the vessel. The delictual claim was based on a legal duty allegedly owed by the owner to Transnet and a negligent breach of that duty by the owner, either personally or acting through the master and crew for whom the owner is said to be vicariously liable. Accordingly, Transnet’s claims were squarely based on the personal liability of the owner and are pursued in rem by virtue of the provisions of s 3(4)(b) of the Admiralty Jurisdiction Regulation Act 105 of 1983 (the Act).
Transnet’s claims were initially pursued by the arrest of the vessel in actions in rem. Under that procedure in South Africa, and elsewhere, the plaintiff is entitled to security only up to the value of the vessel even if the claims exceed that amount. Crucially, the owner of the vessel entered appearances to defend those actions. When it became apparent that Transnet’s claims taken together with other claims against the vessel – which were asserted at US$275m – might exceed its value, Transnet sought to commence an in personam action against the owner of the Alina II. Under South Africa’s Roman-Dutch common law, such an action against a foreigner can be commenced by the attachment of an asset of the foreigner’s to found or confirm the jurisdiction of the court. The plaintiff in the action would then be entitled to security for the full value of its claim before the asset could be released from attachment, even if that exceeded the value of the asset. That is the advantage that Transnet sought to achieve by attaching the vessel in the in personam(against the individual) proceedings.
The result was therefore that by entering appearances to defend the actions in rem, the owner of the Alina II submitted to the jurisdiction of the court in respect of the in personam claim against it which underlay the action in rem. The attachment was therefore impermissible, and the appeal was dismissed. The practical result is that although Transnet could still pursue its claims against the owner in personam, it could not get pre-judgment security for those claims unless it arrested some other property in the same or associated ownership that might be found within the jurisdiction.
On 19 March 2010, the vessel was again arrested in an action by four companies in the Kumba Mining group advancing claims of nearly $275 million. This prompted the attorney acting for the owner to send an e-mail to all the other parties having actual or potential claims against the vessel saying:
Please be advised that:
• Any security which the owners may put up should be limited to the value of vessels.
• Let us know what you need in order to make a valuation of the vessel before she departs.
• Be informed that any security which we provide to enable the vessel to depart is without prejudice to our rights to apply in due course to (1) reduce the security and/or (2) substitute it for security to cover all the claims against the vessel.’
The reason, as explained by Transnet’s attorney in the founding affidavit, was that it believed that if it attached the vessel to commence an action in personam against its owner, the vessel could only be released against the provision of security for the full amount of Transnet’s claims. The application was brought ex-parte and without notice to the owner or its attorney in order to forestall a submission to the jurisdiction. The attachment order was made on 23 March 2010 and served on the master of the vessel the same day, the sheriff recording in his return of service that he explained ‘the contents, nature and exigency thereof’ to the master. He also affixed a copy to the windscreen of the superstructure of the vessel.
On 26 March 2010, the vessel’s P & I club provided a letter of undertaking in respect of the full amount of Transnet’s claims and in respect of both the in rem and the in personam actions. This allowed the vessel to sail.
Thereafter, the owner opposed the confirmation of the attachment order. It did so on essentially two grounds. The first was that the attachment constituted an abuse of the process of the court. The second was that such an attachment was impermissible because, prior to the grant of the order, or at least prior to the vessel being attached pursuant to that order, the owner had submitted to the court’s jurisdiction and such submission precluded an attachment. It advanced this second contention on three bases.
• First it said that there had been an express submission in a letter of undertaking (‘LOU’) relating to potential pollution and wreck claims drafted and agreed between the owner’s P & I club, Transnet, the South African Maritime Safety Association and the Department of Environmental Affairs, but never implemented because the need for it fell away.
• Second it relied on its having entered appearance to defend the in rem actions and the procedural steps it had taken pursuant thereto.
• Third it contended that, while the sheriff served the attachment order, he did not attach the vessel, and there was a clear submission to the jurisdiction immediately the owner learned of the existence of the order.
The judgment of the Honourable Mr Justice Wallis was handed down in the matter of Transnet Ltd versus The Owner of the Alina II on 15 September 2011. On September 2011, the Supreme Court of Appeal in South Africa delivered a judgment in the case of Transnet Ltd v The Owner of the MV Alina II. This case raised an important question of admiralty law and practice. The Supreme Court of Appeal held that the attachment of the vessel to found and confirm jurisdiction in separate proceedings against the owner was permissible. The owner’s defense in the in rem action unequivocally indicated its willingness to submit to the South African court’s judgment on the issues raised by Transnet. The appeal was dismissed, and the attachment of the vessel was upheld.
The vessel’s charterer, Prima Shipping Company Limited, brought an application in the Western Cape High Court to set aside an arrest of bunkers aboard the vessel in South Africa as security for contemplated London arbitration proceedings by Kumba Shipping Hong Kong Limited, a subsidiary of Anglo-American plc (one of the world’s largest mining companies). Applications of this nature are usually decided on the basis of affidavits filed by both parties, followed by argument. It is noteworthy in that the initial hearing on the papers led to a referral of the matter to oral evidence in order to determine whether there was sufficient evidence to demonstrate that the arrestor was entitled, on a balance of probabilities, to maintain the arrest. Referrals to oral evidence are a rarity in South African arrest applications and it is significant that in the first round of the hearing the judge found that Kumba’s version “could not be described as fanciful or untenable and in fact had persuasive value”.
As often happens with bunker arrests, the case turned on whether Kumba could prove that Prima owned the bunkers on the strength of the underlying charter arrangements among the parties in the contractual chain. If not, the arrest would fall to be set aside. Prima was described in the sub-charterparty as the disponent owner and, taking this to mean that Prima had the ship on demise or time charter, Kumba arrested her bunkers in Saldanha Bay on the grounds that ownership vested in Prima. The crux of Prima’s defence was that it had on the contrary, chartered the ship on a voyage basis and that the bunkers had been stemmed by the managers (Polembros) on behalf of Pompey Shipping.
The judge observed that the categorisation of the type of charter party between Prima and Pompey was critical to Kumba’s case, since the ownership of the bunkers would generally follow from that categorisation. Against this background, both parties produced oral evidence before Judge Gamble. In Prima’s case, the judge took a dim view of testimony given on its behalf by Polembros’ in-house counsel and its operations manager. While the witnesses sought to justify the unusual voyage charter arrangements on the grounds that they had been concluded on a back-to-back basis for tax purposes, it became apparent during cross-examination that the document presented to the court as evidence of the Pompey/Prima charter had been created and signed in Polembros’ offices only after Kumba’s lawyers had asked for proof of its existence. It was conceded in oral testimony that there had never been a contemporaneous written fixture, and that the document tendered on the affidavit had in fact been backdated and was simply a ‘cut and paste’ from the Kumba charter. Highlighting the stark contrast between allegations advanced on paper and oral evidence given in court, the judge stated:
“I consider Mr. Gare’s evidence [in-house counsel for Polembros], firstly, in light of his demeanour in the witness box. I found him to be a smug witness who was most economical in the use of language. My overall impression was that, as a seasoned maritime lawyer, he was pointedly cautious with his answers, so much so that I have to agree with Mr. Gordon SC’s complaint in argument that Mr. Gare was singularly lacking in candour.”
“The Pompey/Prima charterparty, as a document that was sent out into the world as evidence of a written agreement having been concluded and signed on 21 September 2009 [after the arrest] is nothing but a fraud. It is a fraud into which Prima’s local attorneys, no doubt unwittingly, were inveigled when they were instructed by Mr. Gare to put up the document as a genuine instrument in the founding affidavit in the set aside application.”
On the probabilities, the judge rejected Prima’s version of events and upheld the arrest.
The Alina II judgment handed down by the Western Cape High Court under case number AC47/2010 in January 2013 is important as it highlights the robust approach taken by our courts with regard to evidence of ownership when it comes to arrests.
Notably, the judgment extensively explored the conclusions that can be drawn from a charterer describing itself as disponent owner. Kumba Shipping Kong Hong (“Kumba”) arrested the bunkers of Prima Shipping Company Limited (“Prima”) on board the Alina II for security for a London arbitration. In Prima’s application to set aside the arrest, it was alleged that Prima had voyage chartered the vessel and the bunkers were accordingly owned by Pompey Shipping (“Pompey”). The judge, Gamble J, at the outset, noted that the Prima/Kumba charter party did not contain an express term that Prima was liable to pay for the bunkers on board the vessel, furthermore, that the type of charter party (voyage/time/bareboat) was not apparent ex facie the document and, lastly, that Prima was described therein as “disponent owner”. The type of charter party under which Prima had chartered in the vessel from Pompey, prior to then chartering the vessel out to Kumba, was critical to determining the ownership of the bunkers. Charterers under a time charter normally are obliged to supply and therefore usually own the bunkers, whereas charterers under a voyage charter do not (bunkers being owned by the “owner” under their charter party.)
As to the veracity of there ever being an oral agreement, as alleged by the Prima witness, the court found:
To suggest that a contract as important as a charter party (the very life blood of such an enterprise) is concluded orally and is only reduced to writing when called for by lawyers in a distant jurisdiction, was a fraud in itself.
Thus, we understand that a charter party agreement serves as the foundation for a successful shipping venture. It outlines the rights, responsibilities, and obligations of the shipowner and the charterer. A poorly drafted charter party agreement can lead to ambiguities, misunderstandings, and expensive disputes. Hence, it’s crucial to invest time and effort into drafting a clear and comprehensive document. A well-drafted charter party agreement is a vital ingredient for successful shipping operations. By understanding the importance of clarity, including essential clauses, and following best practices, one can minimize potential disputes and protect the interests of all parties involved. One should always seek professional legal advice when necessary to ensure compliance with applicable laws, regulations, and industry standards. In summary, charter parties play a vital role in international trade, shaping our interconnected global economy. They establish responsibilities, protect interests, and enable the seamless movement of cargo by sea.
