Physical Redelivery of a Vessel is a Must to Bring an End to a Demise Charter
13 March 2025
In the case of New World P&I Service Co Ltd v The Disponent Owner and/or The Demise Charterer of The Ship and/or Vessel “Es Valor” of The Port of Monrovia, Liberia (Huihong (Tianjin) Shipping Lease Co Ltd, intervener) [2024] MLJU 3653 (“The Valor”), the High Court decided that physical redelivery of a vessel (i.e. transfer of both possession and control of a vessel back to the owner) is required to effectively bring an end to a demise charter.
Brief Facts
The Plaintiff invoked the admiralty jurisdiction of the Court pursuant to section 24(b) of the Courts of Judicature Act 1964 (“CJA 1964”) read together with sections 20 and 21 of the United Kingdom Senior Courts Act 1981 (“SCA 1981”) and proceeded to arrest the vessel, ES Valor (“Vessel”), as security for its claim in arbitration in Singapore. The Plaintiff’s cause of action was for breach of a time charterparty it had entered into with the Defendant (“Eversea CP”).
Subsequently, the Defendant (as the demise charterer of the Vessel) and the Intervener (as the registered owner of the Vessel) applied to set aside the Warrant of Arrest and sought damages on the basis that the Plaintiff had wrongfully arrested the Vessel. The Defendant also sought a declaration that the issuance of the Warrant of Arrest was wrongful, while the Intervener sought a declaration that the Plaintiff had wrongly commenced and invoked the admiralty jurisdiction and/or that the Court had no in rem jurisdiction over the Vessel in respect of the subject matter of the said claim due to their collective contention that:
- the Intervener had already issued a Notice of Termination to the Defendant which was not objected to, thereby terminating the demise charterparty between the Intervener and the Defendant (“Huihong CP”) prior to Plaintiff’s cause of action arising. Thus, the Defendant was purportedly no longer the demise charterer of the Vessel when the Plaintiff’s cause of action arose; and
- pending physical repossession of the Vessel, in accordance with Clause 29 of the Barecon 20011 in the Huihong CP, the Defendant was holding the Vessel as gratuitous bailee only to the Intervener. The Defendant’s continued use of the Vessel to perform its obligations under a charterparty with Cargill International Trading Pte Ltd (“Cargill CP”) in breach of its obligations to redeliver possession and control of the Vessel was purportedly without the authority and consent of the Intervener and further did not alter the Defendant’s status which was alleged to be nothing more than that of a mere gratuitous bailee.
The Decision of the High Court
After considering expert legal opinions from three King’s Counsel engaged by the respective parties, the learned High Court Judge, Ong Chee Kwan, J, found that the approach which would likely represent English law on the termination of a demise charter in the context of the jurisdictional issue under section 21(4) of the SCA 1981 is Steven Chong J’s obiter dictum in The Chem Orchid [2015] SGHC 50. In holding that the Defendant continued to be the demise charterer of the Vessel at the time of the filing of the Writ in Rem, thus satisfying section 21(4) of the SCA 1981, His Lordship held that:
- The Court must look at the actual relationship between an owner and the charterer at the commencement of proceedings.
- The twin ingredients of possession and control would have to be transferred from charterer to owner to effectively terminate a demise charter2.
- If the owner has served a notice of termination but the charterer had continued with possession and control of the vessel, the nature of the relationship between the owner and the charterer would not be altered at all.
- The Court should strike a balance in favour of third parties as opposed to the owner so a third party can deal with the vessel safe in the knowledge that they can arrest the vessel should they have a claim regardless of whether the party whom they directly transact with is the owner of the demise charter as otherwise they would be left with no effective remedy at all. This would be consistent with what was envisaged under Article 3(4) of the Arrest Convention and section 21(4) of the SCA 1981.
- The mere constitution of the charterer as ‘gratuitous bailee’ upon the issue of a notice of termination pursuant to Clause 29 of the Barecon 2001, cannot without more amount to the transfer of control and possession back to the owner as it does not reflect the reality of the situation, in that the demise charterer remains in possession and in control of the vessel.
Justice Ong Chee Kwan further held that, based on their respective actions, neither the Intervener nor the Defendant treated the Defendant as a gratuitous bailee due to the following:
- As a gratuitous bailee under Clause 29 of the Barecon 2001, the Defendant would have to hold the Vessel for the sole use and benefit of the Intervener owners. However, the Defendant continued to trade using the Vessel as if there was no termination of the Huihong CP.
- The Defendant made no attempts to liaise with the Intervener on the redelivery of the Vessel or in respect of the use of the Vessel.
- The Defendant was the employer and issued orders to the Master and crew on board the Vessel. The Defendant was also managing the Vessel.
- The Defendant did not terminate the Cargill CP and was instead in the midst of performing the same when the Writ in Rem was filed.
- The Intervener did not provide instructions to the Defendant nor the Master of the Vessel to redeliver her to the Intervener, thereby acquiescing to the continuation of the Huihong CP.
The High Court, however, allowed the Defendant’s and Intervener’s application to set aside the writ on other grounds related to the substantive merits of the claim, which is now the subject of an appeal to the Court of Appeal.
Comments
Based on
The Valor, an owner of a vessel under a demise charter should ensure that it has received factual redelivery of the vessel from the demise charterer. Otherwise, a third party with an
in rem claim against the demise charterer would be well within its rights to invoke the admiralty jurisdiction of the Court to arrest the vessel as security for its claims even if the demise charter has been contractually terminated.
Case Note by Siva Kumar Kanagasabai (Partner), Louise Azmi (Partner) and Pavidren Sivananda Ratnam (Associate) of the Maritime & Shipping Practice of Skrine.
For advice and assistance on arresting and resisting arrest of a vessel contact
skk@skrine.com,
louise.azmi@skrine.com or
pavidren@skrine.com.
1 Clause 29 of the Barecon 2001 provides as follows: In the event of termination of this Charter in accordance with the applicable provisions of this Charter, unless the Owners are obliged to transfer title to the Vessel to the Charterers in accordance with this Charter, the Owners shall have the right to repossess the Vessel from the Charterers at her current or next port of call, or at a port or place convenient to them without hindrance or interference by the Charterers, courts or local authorities. Pending physical repossession of the Vessel in accordance with this Clause 29, the Charterers shall hold the Vessel as gratuitous bailee only to Owners, and the Charterers shall procure that the master and crew follow the orders and directions of the Owners.
2 Para 70 of
The “Chem Orchid” [2015] SGHC 50.
This article/alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.