Supreme Court Rules On Owners' Rights Of Remuneration Post-Withdrawal Under A Time Charter

Petroleo Brasileiro S.A. v. E.N.E. Kos 1 Limited [2012] UKSC 17

E.N.E. 1 Kos Limited v. Petroleo Brasilero S.A. [2010] EWCA Civ 772

In a judgment handed down on 2 May 2012, the UK Supreme Court has made a significant ruling on the rights of remuneration of the owners of a time-chartered ship after the ship has been lawfully withdrawn for non-payment of hire. The decision is particularly interesting for ship-owners and time charterers, since there is no previous direct authority on the issue in question.

The Supreme Court (Phillips, Walker, Mance, Clarke, Sumption LLJ) has held that the owners were entitled to compensation for the detention of the ship while the charterers' cargo remained onboard and for bunkers consumed after the ship was withdrawn, although Lord Mance differed from the remaining Law Lords as to the basis on which the owners were entitled to bring their claim.

The background facts

The M/T Kos was time chartered by her owners to the charterers for 36 months plus or minus 15 days at the charterers' option. The charterparty was on the Shelltime 3 form, containing a standard form of withdrawal clause providing that if hire was not paid when due (in this case, monthly in advance), the owners had the right to withdraw the vessel. Unusually, the charterparty contained no anti-technicality clause, requiring notice to be given before the right of withdrawal was exercised.

The vessel was delivered into the charterparty in July 2006. In June 2008, the owners withdrew the vessel when that month's hire instalment was not received in time. At the time of withdrawal, the vessel was at Angra dos Reis, Brazil, where she had been ordered to proceed by the charterers for discharge and back loading and where she had already taken on bunkers and loaded a parcel of cargo. Following withdrawal, there were a number of exchanges between the parties to try to resolve the situation to the satisfaction of both sides but these proved fruitless. Ultimately, the charterers made arrangements with the terminal to receive back the cargo which had just been loaded on board, which was then discharged. Had the charterers made arrangements for the discharge of their cargo as soon as they had received the owners' notice of withdrawal, the vessel would have been detained at Angra dos Reis for one day. Instead, she was detained there for 2.64 days (at a cost to the owners of US$410,274.00) and consumed some 80.11 mts of IFO at a cost of US$504.50/mt (US$40,415.00) before she was cargo free and sailed.

The owners claimed for the service of the vessel for those 2.64 days and for bunkers consumed during that...