SINOKOR MERCHANT MARINE CO LTD v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL “MARCATANIA”

HCAJ 138/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 138 OF 2008

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Admiralty Action in rem against:
The ship or vessel “MARCATANIA” (Antigua & Barbuda Flag)

BETWEEN

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J U D G M E N T

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I. INTRODUCTION

1.  In June 2008 Sinokor entered into a Vessel Sharing Agreement (VSA) with C& Line and TS Lines.  By the VSA each party agreed to share its designated vessels and the capacity (slots) thereon for the carriage of containers consigned to the other party.   The VSA envisaged that the ships contributed by a party to the pool of available vessels could include ships which were chartered or owned by the party.

2.  C& Line contributed the Marcatania to the VSA pool.  C& Line had chartered the Marcatania from the Defendant Owners under an NYPE (1946) Time Charter dated 1 June 2005.

3.  In August 2008 Sinokor entered in a Slot Exchange Agreement (SEA) with Heung-A Shipping Co Ltd.  By the SEA Sinokor and Heung-A agreed to exchange slots on vessels between themselves.

4.  In September 2008 Sinokor shipped 433 containers on the Marcatania for carriage from Jakarta to Hong Kong, Shanghai and Busan. The 433 containers were so carried pursuant to the VSA.

5.  There were 2 batches of bills of lading.  292 bills of lading were signed by Sinokor as carrier in favour of various persons who had consigned goods with Sinokor for carriage on the Marcatania.  141 bills of lading were signed by Heung-A as carrier in favour of various other persons who had consigned goods with Heung-A for carriage for carriage on the Marcatania. Sinokor, acting on behalf of Heung-A, caused the containers corresponding to the 141 bills to be loaded the Marcatania in accordance with the SEA.

6.  When the Marcatania reached Hong Kong on 28 September 2008, containers could not initially be discharged from the Vessel. That was because C& Line had failed to pay charterhire to the Owners and the Owners had consequently withdrawn the Marcatania from the Time Charter. C& Line was no longer able to operate the vessel.

7.  Sinokor demanded that the Owners discharge the containers destined for Hong Kong.  It also required the Owners to carry the remaining containers to their intended destinations in the Mainland and South Korea.

8.  The Owners initially refused, requiring payment of the outstanding hire due from C& Line before the containers would be released.  But eventually the Owners agreed to release all the containers in Hong Kong.  All containers were discharged as at 18 October 2008.

9.  Sinokor now claims against the Owners for breach of terms of bailment and for conversion.

10.  As to bailment, Sinokor contends that the Owners were obliged to on-carry the containers to Shanghai or Busan in accordance with terms of bailment evidenced by the VSA or the Sinokor bills of lading.  Sinokor thus claims its own costs of trans-shipping the remaining containers from Hong Kong to Shanghai or Busan.

11.  Heung-A arranged on its own for on-carriage from Hong Kong of the cargo consigned under its bills of ladings.  As a result, Heung-A was entitled under the SEA to treat the voyage from Jakarta to Hong Kong as off-hire.  Sinokor thereby lost US$8,860 in slot hire.  Sinokor also claims that amount as damages for breach of bailment.

12.  As to conversion, Sinokor claims the hire which the 292 containers which were the subject of its bills of lading could have earned over the 20 days between the arrival of the Marcatania in Hong Kong 28 September 2008 and the release of the containers on 18 October 2008.

II.  DISCUSSION

A.  Bailment

13.  Mr. Douglas Lam (appearing for Sinokor) accepts that, although there was a contractual relationship between Sinokor and C& Line (namely, the VSA), there was no contractual relationship between Sinokor and the Owner.  

14.  No owner’s bills of lading were issued in respect of the 433 containers.  The Sinokor or Heung-A bills of lading which were issued, evidence contracts between Sinokor or Heung-A as carriers.  None of those bills were signed by the master.  In the premises, there cannot have been a contract between the Owners and Sinokor to carry the goods pursuant to the terms of the Sinokor or Heung-A bills. 

15.  Assume (without accepting) in Sinokor’s favour that Sinokor’s containers were bailed with the Owners.  Obviously, if there was no bailment relationship between Sinokor and the Owners, Sinokor’s claim for breach of terms of a bailment would fail from the outset.

16.  A bailee owes a duty to take such reasonable care of goods as the circumstances of a bailment warrant and to re-deliver the goods upon demand to a bailor having the right to immediate possession of the same.  That much is uncontroversial.

17.  Sinokor’s real difficulty is to show how as a matter of bailment the Owners came under an additional duty to carry the goods from Hong Kong to Shanghai or Busan and to deliver them there.  In my view, Sinokor fails to establish this additional duty.

18.  First, Mr. Lam argues that the Owners fell under the additional duty as bailees, because the master supervised the loading of the containers on the Marcatania.  The master directed where the containers ought to be stowed, while presumably knowing that the containers were destined for Hong Kong, Shanghai or Busan.

19.  I am unable to accept the submission. 

20.  I do not see how merely directing where on board ship containers were to be placed the master can be regarded as accepting on behalf of the Owners an obligation to carry given containers to particular destinations.  All the master would be doing by supervising stowage was ensuring that containers were loaded in a safe and efficient manner, such that they could be discharged from the vessel in an equally safe and efficient manner.

21.  Second, Mr. Lam suggests that the Owners accepted the containers on board the Marcatania subject to the terms of the VSA.

22.  I disagree. 

23.  The Owners were not party to the VSA. 

24.  It is true that the VSA allowed its parties to employ ships which were chartered or owned by them.  But this fact can hardly support the conclusion that, where a party X to the VSA contributed a chartered vessel, owners of the vessel would be bound to carry out the terms of the VSA if (say) X should become insolvent. 

25.  It would be the parties to the VSA which took upon the risk of one of their number becoming insolvent.  It would be odd if a complete stranger to the VSA (such as the Owners) should be deemed to have taken the risk of C& Line becoming insolvent. 

26.  On Mr. Lam’s argument, the Owners would be liable to Sinokor simply because C& Line chartered their vessel and then became insolvent.  On Mr. Lam’s submission, the Owners would be obliged to confer a benefit on Sinokor (by fulfilling C& Line’s obligation under the VSA to on-carry goods from Hong Kong to Shanghai or Busan) without themselves being able to demand that Sinokor pay for the transit.  Having lost charterhire through C& Line’s default, the Owners on this scenario would stand to lose even more, because of the obligations which C& Line undertook under the VSA.  That cannot be a right result.  It violates the principle of privity of contract.

27.  Here it seems to me that the better analysis is that of Mr. Colin Wright (appearing for the Owners). 

28.  Mr. Wright points out that, insofar as a chartered vessel is employed pursuant to the VSA, NYPE (1964) would be the likely (if not, the most likely) form of charterparty for such a vessel.  NYPE (1964) in keeping with other forms of time charterparty includes a provision (see for instance cl.5) allowing a shipowner to withdraw a vessel from the charterer’s service where hire is unpaid. 

29.  In this particular case, the Time Charter included a rider cl.70 affirming the Owners’ right under cl.5 to withdraw the Marcatania in the event of non-payment by C& Line of charterhire.

30.  Further, it would be common knowledge in the shipping world (Mr. Wright stresses) that ships are not chartered for free and, if hire is not paid, shipowners are likely to withdraw chartered vessels from service.  

31.  In those circumstances, the parties to the VSA (Mr. Wright reasons) must have envisaged that, insofar as a chartered vessel was or could be employed, there was a risk that the ship might be withdrawn as a result of non-payment of charter hire.  In other words, parties to the VSA undertook the risk that a given vessel employed as part of the VSA might be withdrawn if a member to the pool became insolvent or failed to pay charterhire. 

32.  I think that is right. 

33.  Far from the Owners taking on board goods subject to the terms of the VSA, the more natural and commercial interpretation of events is that Sinokor loaded containers on the Marcatania subject to the risk of that ship being withdrawn by the Owners.  Contrary to Mr. Lam’s submission, the terms of the Time Charter (especially, cls. 5 and 70) qualify the terms of carriage.  It is not the VSA which qualifies the terms of the Time Charter.

34.  Third, Mr. Lam suggested that cls. 5 and 70 of the Time Charter were overridden by cls. 8 and 58 of the same.  Cl.8 states that the Captain shall prosecute the voyage with utmost dispatch.  Rider cl. 58 authorises charterers to sign bills of lading on master’s or owners’ behalf.

35.  I am unable to see how Mr. Lam’s suggestion can be the case. 

36.  It is the captain’s obligation to prosecute a voyage with dispatch, but that must be subject to the prompt and timely payment by charterers of hire.  Cl.58 authorises charterers to sign bills of lading on owners’ behalf.  However, in fact, that did not happen here.  In any event the charterer’s authority to sign was expressly limited by the Time Charter.  Any bills of lading signed must be “without prejudice to this Charterparty”.

37.  Fourth, Mr. Lam referred me to Elder Dempster & Co. Ltd. v. Paterson Zochonis & Co. Ltd. [1924] AC 522 and The “Pioneer Container” [1994] 2 AC 324.  I do not see how either case assists Mr. Lam. 

38.  Both cases deal with bailment on terms.  The question is to determine what terms govern a bailment.

39.  There is no good reason why the terms of the Sinokor or Heung-A bills of lading should govern the bailment to the Owners. There is no evidence that the Owners had sight of those bills or gave authority to Sinokor or Heung-A to issue such bills on behalf of the Owners.

40.  Instead, the Owners only authorised C& Line to accept cargo subject to the terms of the Time Charter.  Sinokor was able to load goods on board the Marcatania in consequence of C& Line’s charterparty with the Owners.  C& Line (as it was obliged to do under the VSA) permitted Sinokor to use C& Line’s available slots on board the Marcatania. 

41.  In the premises, the bailment of goods by Sinokor on board the Marcatania must equally have been subject to the terms of the Time Charter binding on C& Line.  Absent a representation or holding out by the Owners to the contrary, C& Line could not (vis-à-vis Sinokor) have undertaken on behalf of the Owners something more than C& Line was permitted to do under the Time Charter.  

42.  There was no obligation on the Owners to carry containers free of further charge to Sinokor from Hong Kong to Shanghai or Busan.  Sinokor’s claim for breach of terms of bailment fails.

B.  Conversion

43.  The claim arises because the Owners did not immediately deliver containers to Sinokor upon arrival of the Marcatania in Hong Kong.

44.  Unlawful keeping may constitute conversion.  A demand by a bailor entitled to the immediate possession of goods followed by a refusal of delivery by a bailee may evidence an unlawful keeping.  However, in the event of doubt as to a bailor’s entitlement to the delivery of goods, a bailee is entitled to a reasonable time to make relevant enquiries.  See Clerk & Lindsell on Torts (20th ed.)  at paras. 17-26 and 17-27. 

45.  Sinokor appears to have demanded delivery of containers from the Owners by a fax dated 6 October 2008.  Even then, Sinokor was only demanding the immediate delivery in Hong Kong of the containers destined here.  It asked for on-carriage to Shanghai and Busan of the remaining containers.  Further, at the time, there was a dispute between the parties as to whether the Owners were entitled to exercise a lien over all of the containers on board pending payment of outstanding hire (about US$676,000) due from C& Line.

46.  Negotiations ensued between Sinokor and the Owners.   Owners were insisting on payment of outstanding charterhire as a condition of releasing any containers. Sinokor offered to pay no more than US$200,000, but was insistent that the Shanghai and Busan bound containers had to be on-carried by the Marcatania.  The Owners rejected the offer of US$200,000.

47.  In the event, the Owners by a letter to the Chief Bailiff dated 16 October 2008 evinced an intention to berth the Marcatania so as to release all containers in Hong Kong.  The Owners then discharged all containers (both those under Sinokor bills and those under Heung-A bills) by about 1400 hours on 18 October 2008.

48.  It seems to me that the Owners and their lawyers were entitled to a reasonable amount of time to consider whether the Owners were entitled to exercise a lien on some or all of the containers and whether the Owners should exercise any lien which they might have.  I do not think that the answer to the question of a right of lien over the containers can be said to have been self-evident.

49.  The Owners and their lawyers were also entitled to a reasonable time to consider the question whether there was an obligation to carry the Shanghai and Busan containers onwards as claimed by Sinokor.  This is particularly the case since, even on 16 October Sinokor by letter from its solicitors was pressing the Owners to carry the non-Hong Kong bound containers to subsequent ports.

50.  I do not think that it was unreasonable for the Owners to take 10 days (that is, from 6 to 16 October 2008) before finally deciding not to exercise any lien, but instead to release all containers in Hong Kong.  Having decided to discharge the containers by 16 October, the Owners took immediate steps to do so and all containers were discharged 2 days later.  Accordingly, I do not find that there has been an unlawful keeping on the facts of this case.

51.  Even if there had been conversion, then contrary to Mr. Lam’s submission, I do not think that the correct measure of damages is the cost of hiring the containers over 12 days (that is, from 6 to 18 October 2008). 

52.  The normal measure of damages for conversion is the value of the converted goods at the date of conversion.  But that cannot be the measure here, since Sinokor obtained the containers from the Owners. Sinokor has therefore not lost the value of the goods.  To compensate Sinokor with the value of the containers as at some date before 18 October 2008 would give Sinokor a windfall. 

53.  Subject to issues of remoteness, Sinokor may be entitled to consequential loss which it suffered as a result of an alleged conversion.   Nonetheless, as Mr. Wright points out, there is no evidence that, as a result of the Owners’ conduct, Sinokor had to hire alternative containers or Sinokor had to turn away persons who wished to hire the containers on board the Marcatania. Consequently, even if it were assumed that there was a conversion, I disagree that Sinokor would be entitled to the hire value of the containers on board.  Sinokor has not shown that it has suffered loss as a result of the alleged conversion.

54.  Sinokor’s claim in conversion fails.

III.  CONCLUSION

55.  Sinokor’s claim is dismissed.  There will be an Order Nisi that Sinokor pay the Owners’ costs of this action.