ENE 1 Kos Ltd v Petroleo Brasileiro SA

Factual and Procedural Background

This opinion concerns a dispute arising from a time charterparty under Shelltime 3 form dated 2nd June 2006, whereby the Plaintiff Owners chartered a Very Large Crude Carrier to the Defendant Charterers. The charterparty required monthly hire payments in advance, with the Owners entitled to withdraw the vessel for non-payment. The Defendant failed to pay hire due by 31st May 2008, and the Owners exercised their right to withdraw the vessel while cargo was on board at Angra dos Reis, Brazil. The Owners instructed the Charterers to remove the cargo from the vessel, leading to a dispute over whether the Owners were entitled to remuneration or reimbursement of expenses for the period during which the cargo remained on board and was discharged. The Owners claimed detention fees at market rates and bunker consumption costs for the 2.64 days between withdrawal and completion of discharge. The court below ruled on various claims, and this appeal addresses the correctness of those rulings and the legal principles applicable to the claims.

Legal Issues Presented

1. Whether a shipowner who withdraws a vessel from a charterer’s service for non-payment of hire while cargo remains on board is entitled to remuneration outside the contract or to recover expenses incurred in the cargo removal operation.
2. Whether any express or implied terms of the charterparty entitle the Owners to remuneration or indemnity for the cargo discharge period post-withdrawal.
3. Whether a new contract for remuneration arose from post-withdrawal communications and conduct between the parties.
4. The applicability of principles of agency of necessity, bailment, and quantum meruit in this context.
5. Whether the costs of providing a guarantee related to a counterclaim are recoverable as costs incidental to the proceedings.

Arguments of the Parties

Plaintiff's Arguments

• The Owners contended that the employment and indemnity clause (Clause 13) of the charterparty entitled them to remuneration or indemnity for expenses incurred while the cargo remained on board after withdrawal.
• They argued that the Owners had a duty to care for the cargo during discharge, entitling them to remuneration or recovery of expenses under a bailor-bailee relationship, relying on authorities such as Cargo ex Argos and The Winson.
• They submitted that post-withdrawal communications from the Charterers requesting continued vessel services created an implied contract for remuneration on a quantum meruit basis.
• The Owners claimed detention fees at market rates for the 2.64 days between withdrawal and cargo discharge, plus bunker consumption costs.
• They sought recovery of costs incurred in providing an $18 million guarantee related to the Charterers’ counterclaim, arguing these costs were incidental to the proceedings and recoverable.

Defendant's Arguments

• The Charterers denied that Clause 13 or any other express or implied term entitled the Owners to remuneration or indemnity for the period after withdrawal.
• They argued that failure to pay hire was not a repudiation of the charterparty and that the Owners’ decision to withdraw the vessel caused any loss, negating claims for damages or remuneration.
• They submitted there was no new contract or implied request for services after withdrawal, and the vessel’s remaining at port was inevitable given the circumstances, not at their request.
• They contended that principles of agency of necessity and emergency did not apply because the situation was not an accident or emergency but a commercial decision by the Owners.
• Regarding the guarantee costs, they challenged their recoverability as costs incidental to the proceedings, citing historical and procedural authorities.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by addressing the express contractual provisions, specifically Clause 13, and found no entitlement to remuneration or indemnity for cargo discharge post-withdrawal because the clause did not encompass consequences remote from the Charterers’ orders. Non-payment of hire was not an order regarding vessel employment and thus fell outside indemnity scope.

Regarding implied terms, the court adopted the established test from A.G. of Belize v Belize Telecom Ltd, concluding no implied term existed to support the Owners’ claims.

The court rejected the argument that a new contract arose from post-withdrawal communications, finding the vessel’s remaining at port was inevitable and not at the Charterers’ request. Similarly, there was no express or implied request to discharge the cargo by the Charterers; rather, the Owners insisted on cargo removal.

The court then examined principles of bailment and agency of necessity, relying heavily on Cargo ex Argos and The Winson. It distinguished the present case from these authorities by noting the absence of accident, emergency, or lack of communication, which were essential to those cases. The Owners’ decision to withdraw due to late payment was a commercial choice, not an emergency.

Accordingly, the Owners were not entitled to market-rate remuneration for the 2.64 days before departure, as the Owners acted as gratuitous bailees caring for the cargo, not as remunerated carriers. However, the court allowed recovery of reasonable expenses incurred during actual discharge operations, specifically bunker costs consumed in the process, as these were proper expenses related to the duty of care owed to the cargo.

On the issue of costs related to the guarantee procured in connection with the Charterers’ counterclaim, the court undertook a detailed historical and statutory analysis. It concluded that costs of providing such a guarantee are recoverable as costs incidental to the proceedings, consistent with longstanding practice and statutory provisions governing costs, subject to the discretion of the Costs Judge regarding quantum.

Holding and Implications

The court’s final decision was to ALLOW IN PART AND DISMISS IN PART the appeal. Specifically:

• The Owners are not entitled to remuneration at market or contract rates for the period between withdrawal and cargo discharge, as no express or implied contractual basis or legal principle justified such payment.
• The Owners are entitled to recover reasonable expenses properly incurred in discharging the cargo, including the cost of bunkers consumed during discharge operations.
• The Owners are entitled to recover the costs of providing the guarantee related to the Charterers’ counterclaim as costs incidental to the proceedings, with quantum to be determined by the Costs Judge.

The implications of this decision are primarily confined to the parties. The court clarified that absent accident, emergency, or agency of necessity, a shipowner withdrawing a vessel for non-payment of hire does not continue as a remunerated bailee of cargo. The ruling delineates the limits of recovery post-withdrawal and emphasizes the need for express or implied contractual agreement to justify remuneration. No new precedent was established beyond the application of existing principles to the facts.