In the recent case of Uniteam Marine Shipping GMBH v MS “United Tenorio” Schiffahrtsgesellschaft (2018), the High Court had to determine whether six materially identical crew management agreements on an amended BIMCO Crewman B form (the Contracts) were terminated pursuant to clause 14 (Duration of the Agreement) or clause 15 (Termination) of the contracts.
Under the Contracts the crew managers supplied crew to the owners of three vessels.
On 30 January 2015, the owners of the vessels gave notice to terminate the Contracts under clause 14. This clause provided for a 3 month notice period and for crew wages to be payable for the full notice period. The 3 month notice period was due to expire on 30 April 2015. However, before that date, the owners sold the vessels.
The crew managers invoiced the owners for lump sum payments (covering crew wages) of 2 months under clause 15 of the Contracts, a clause containing provisions applicable in the event of the sale of the vessel, and the owners paid the invoiced amounts. Subsequently the owners claimed repayment of the lump sums, arguing that they had been paid by mistake. The crew managers refused to repay the lump sums and the owners referred the dispute to arbitration.
Issue: Clause 14 (Duration of the Agreement) v Clause 15 (Termination) of Crewman B form
The arbitral tribunal concluded that the crew managers were not entitled to retain the lump sum payments because the Contracts had been terminated by the owners' notice under clause 14, and accordingly clause 15 was of no application, as the Contracts had already been terminated. The crew managers appealed against the arbitration award.
The issue for determination by the High Court was whether, under clause 14, the Contracts continued until the notice period expired, or whether they were automatically terminated upon the sale of the vessels.
The High Court decided that clause 14 was a duration clause, while clause 15 was a termination clause; both were separate and independent of each other and should be read as such.
If the owners' interpretation of the Contracts was accepted, the crew managers would not be entitled to terminate the Contracts for breach by the owners because of notice being given under clause 14. That was not a sensible commercial position and cannot have been the parties' intention when entering into the Contracts.
Reading clauses 14 and 15 together, and looking at the potential consequences of the owners' interpretation of the interplay between clauses 14 and 15, it was implausible that the clause 15 rights would be taken away where notice to terminate the Contracts was given under clause 14. The Court therefore allowed the crew managers' appeal.
The BIMCO Crewman B form is a widely used standard contract and the above case provides some welcome clarity for ship owners, crew managers and crew, regarding the payment of crew wages in the context of the sale of the vessel.
Buyers and sellers of vessels would also be well advised to keep the “United Tenorio” decision in mind, along with the following non-exhaustive list of considerations:
Typical vessel sale terms include a warranty that, at the time of the vessel's delivery to buyers, the vessel is free from maritime liens or other debts, and an obligation for sellers to indemnify buyers against the consequences of all claims made against the vessel after delivery, which were incurred before delivery.
Under English law, and under the laws of many other jurisdictions around the world, claims for unpaid crew wages will give rise to maritime liens on the vessel in respect of which the wages were owed. Maritime liens will survive a change of ownership and therefore the crew would be entitled to arrest and bring claim proceedings against the vessel after its delivery to buyers. Such claims would trigger the warranty and indemnity provisions referred to above.
When negotiating vessel sale terms, buyers may wish to require sellers to procure a letter from the Master of the vessel confirming that all crew wages, and other crew outstandings, have been fully paid as at the date of the completion of the sale.
Buyers may also wish to negotiate some form of security to fortify sellers' warranty and indemnity promises, bearing in mind that many sellers will be one-ship companies with no visible assets after sale completion.