The Commercial Court has dealt with the issue of whether a guarantee given by sub-charterers to the Master was given to and accepted by the Master in his capacity as a representative of the head owners or on behalf of the intermediate charterers.  The guarantee was intended as an indemnity against any damage caused by the vessel loading a cargo quantity on the basis of a maximum draft of 13.3 m. The head owners brought a claim directly against the sub-charterers on the basis of an alleged grounding of the vessel. The Court held that the guarantee was given to and accepted by the Master on behalf of the intermediate charterers, not the head owners, with the result that the claim brought by the head owners failed. The judgment highlights the importance of obtaining any indemnities/guarantees on a back to back basis throughout the charterparty chain.

The background facts

The vessel, Yong Jin, was the subject of a chain of charterparties. KDB Capital Corporation were the owners who demise chartered her to Kingsway Shipping Co Ltd (Kingsway), who in this case were also the deemed head owners since they employed the Master. Kingsway time chartered the vessel to intermediate charterers, Victory Shipping Sbn Bhd (“Victory”). Victory sub-chartered her to sub-charterers, STX Gulf Shipping DMCCO (“STX”), for a time charter trip from Sohar to one safe port Persian Gulf. Finally, STX voyage chartered the vessel to an unknown voyage charterer from one safe port one safe berth Sohar to one safe port one safe berth Jubail to carry a cargo of 70,000 mt, 10%, more or less in owners’ option, of iron ore pellets in bulk.

On 17 November 2011, STX sent standard operational instructions to the Master. The Master replied the next day with a stowage plan for a total of 64,945 mt of cargo on the basis that this was the maximum loadable quantity consistent with a safe draft of 12.6m at the discharge port. STX replied to the Master, insisting on loading on the basis of 13.3m maximum draft. A series of exchanges ensued between the Master and STX (with copies to both Kingsway and Victory) in which the Master requested a “guarantee letter” for the vessel to load on the basis of 13.3m maximum draft. STX eventually sent the requested guarantee by email to the Master in the following terms:

"Dear Captain

… Chtrs guarantee the vsl is safety at disport with loading cargo bss max draft 13.3m at high water for disch cargo, and also chrtrs STX Gulf Shipping will take all responsibilities for the problems occurred caused by loading cargo with max draft 13.3m high water at the disport, if any."

Following the alleged grounding of the vessel on 2 December 2011, Kingsway brought a claim directly against STX for alleged losses arising out of the grounding pursuant to the “guarantee” contained in the email STX sent to the Master. STX’s defence was that the guarantee was given to Victory, not to Kingsway, because STX sent it to the Master in his capacity as Victory’s agent and it was Victory who were STX’s contractual counterparty under the sub-charter.

The Commercial Court decision

The Court analysed the exchanges between STX and the Master and found that the Guarantee was given to the Master as a representative of Victory, not Kingsway. It was common ground between the parties that the loading instructions were given by STX to the Master in his capacity as a representative of Victory and the Court decided that the natural conclusion would be that the Master requested the guarantee in the same capacity. The fact that Victory, as an intermediate time charterer, had no commercial interest in the quantity of cargo loaded did not alter the charterparty chain of rights and obligations where Victory, not Kingsway, were STX’s contractual counterparty.

The Court accepted that the Master asked for the guarantee to protect his employers, Kingsway, as well as Victory, but the Court commented that, as far as STX were concerned, they may have expected that Victory would pass on the guarantee on the same terms to Kingsway, but that they were not privy to all communications between the Master, Kingsway and Victory. Based on the exchanges between the parties, the Court concluded that STX did not know and were not concerned with the rights and obligations between Victory and Kingsway. The Court also commented that STX were free to assume that Kingsway and Victory had reached an agreement regulating such rights and obligations between themselves. STX’s right to load a larger quantity of cargo lay solely against Victory. By giving the guarantee, STX had resolved this issue with Victory, rather than with head owners. Therefore, it was only Victory, not Kingsway, who had the right to claim against STX under the guarantee.

Comment

This decision of the Commercial Court highlights that, where the vessel is subject to a chain of charterparties, it is important to be careful to ensure that any indemnities and/or guarantees given by one party are provided on a back to back basis and across the charterparty chain. In this case, the head owners could not rely on the guarantee given by the sub-charterers to the Master because the guarantee was given to the Master in his capacity as the representative of the intermediate charterers and not of the head owners.

This article was co-written by Anna Fomina