A Rajah & Tann Publication Volume 4 Issue 4

Admiralty & Shipping Problem Areas In The Identification Of Parties To By Toh Kian Sing & Loh Wai Yue

Introduction

The issue of the identity of parties to agreements is of great practical significance today, bearing in mind that very often, one has to ascertain the identity of the contracting parties so as to know whether the potential defendant is a substantial entity from whom monies may be recovered, and whether the plaintiff may be able to arrest the defendant’s vessel(s) to obtain security for their claim.

It is with the above considerations in mind that this article examines several judicial decisions that throw light on the above issue. This article was adapted from a lecture delivered by Toh Kian Sing in September 2002 for a course on Practical Shipping Matters.

Impact Of Agency Law On The Identity Of Contracting Parties - The Issues

Very often, agents are employed either by shipowners or charterers to enter into contracts on their behalf. Although this practice alleviates the burden of shipowners or charterers, it comes with several risks. In particular, parties may be left to decipher the identity of the parties to a contract and complications arise when the parties come to different conclusions as to who are the actual parties to the contract.

For instance, a charterer’s agent may find himself liable under a charterparty to perform what were originally intended to be the charterer’s obligations; for example, the payment of freight or . Similarly, a shipowner’s agent may find himself personally liable for obligations which the shipowners were otherwise to perform.

The latter scenario brings about additional complications when the charterer attempts to arrest the shipowner’s vessel to secure a claim against the shipowners for breach of the charterparty. The charterer may find himself liable in damages for wrongful arrest by arresting a ship which is owned by a person who is not liable under the contract of !

This article examines four English decisions involving ambiguity as to the identity of the charterers and the shipowners.

Ambiguity In Relation To Identity Of Charterers

In the relatively old case of Universal Navigation Co Ltd v James Mckelvie & Co (1923), the difficulty faced by the House of Lords in identifying the charterer was that although the charterparty described James McKelvie & Co as charterers in the opening words of the charterparty, the charterparty was signed by James McKelvie & Co as follows: ‘For and on behalf of James McKelvie & Co (as Agents), (sd.) J.A. McKelvie’

When the owners brought an action against James McKelvie & Co, the alleged charterers, for demurrage, they denied that they were the principals under the charterparty and argued that the signature they had affixed on the charterparty was qualified by the terms ‘as agents’. Hence, they were not a party to the charterparty and it did not

Lawlines matter that they were described as ‘charterers’ earlier in the charterparty. The House of Lords agreed that they were not personally liable under the charterparty.

The above decision may be contrasted with that of The Sun Happiness (1984) where the English High Court held that the charterers were personally liable under the charterparty. That case involved charterers who had signed the charterparty without any qualification. The charterparty named them both as charterers and shippers.

As there was a delay in the discharging of at the port, the shipowners commenced arbitration against the charterers, claiming for demurrage or damages for detention.

The charterers, concerned that they would be personally liable, applied to court for a declaration that they had entered into the charterparty as agents for the receivers, and were therefore not liable for any demurrage or damages which may be found due to the owners under the charter. The charterers relied on a clause in the charterparty stating that the contract was signed ‘for and on behalf of the receivers...and to be accompanied by the...telex from receivers confirming their authority to Charterers to sign Charter Party on their behalf.’

The court concluded, however, that the above clause did not make it sufficiently clear in the context of the whole charterparty that the charterers were contracting only as agents. In this respect, the court held that it was possible for a person to contract in two capacities, both as principal and agent. The present case was one such case, and hence the charterers were personally liable.

Thus, where a party intends to contract as an agent for and on behalf of a principal, this must be stated clearly throughout the charterparty so as to avoid situations of ambiguity as seen above.

Ambiguity In Relation To Identity Of Shipowners

In the English Court of Appeal case of The Frost Express (1996), it was the identity of the shipowners for the purpose of the charterparty, that had to be resolved by the court. In that case, a time charterparty was concluded between the managers of the vessel and the charterers.

At the top of the charterparty, there was a box headed ‘Owners / Place of Business’. The managers were described in this box ‘as Agents to Owners or as Disponent Owners’. At the bottom of the charterparty, however, the managers’ Managing Director signed his name without any qualification.

A claim was then brought by the charterers for damage to their cargo. They sued the managers as ‘owners’. The managers sought a declaration from the court that they were not liable under the charterparty, claiming that: • they were not parties to the contract; and • they had contracted merely as agents for the disponent owners. The English Court of Appeal disagreed and held that on the true construction of the charterparty, the managers had undertaken personal liability even though they had ‘contracted on behalf of the disponent owners’. The managers were liable as ‘owners’ because: • they were named in the charterparty without any reference to agency; and • their Managing Director had signed the charterparty without any qualification. He had in fact signed at the bottom of the charterparty in a space marked for signature by ‘owners’.

Significantly, this decision was followed in the recent case of Internaut Shipping Ltd Gmbh v Sphinx Navigation Ltd Of Liberia, ‘The Elikon’ (2002), heard by the English High Court.

In that case, the vessel ‘Elikon’ was time chartered by her registered owner, Sphinx, to the charterers, a company called Primary. Primary had a joint venture partner, Internaut who, under the joint venture agreement, was to fix the remaining space on the vessel. By this arrangement, Internaut entered into a voyage charter with Fercorizetal SA.

Subsequently, demurrage was owed to the ‘owners’ of the vessel and arbitration proceedings were commenced by Internaut against Fercorizetal. In the course of the arbitration proceedings, the arbitrator noted that the ‘Claimants’ to the arbitration were described as ‘Sphinx Navigation Ltd Liberia c/o Internaut Shipping GmbH’. The issue then arose as to the identity of the ‘owners’ for the purposes of the voyage charterparty.

Lawlines The solicitors for Internaut explained that this was a misnomer, and the ‘Claimants’ were actually Internaut. Their application to rectify this misnomer in the arbitration proceedings was opposed and the matter was referred to court.

The court readily came to the conclusion that it was Internaut who were the owners for the purpose of the voyage charterparty, based on the reasons listed below: • The fact that there was a box in the charterparty which referred to Sphinx as being ‘c/o Internaut’ fell far short of indicating clearly or plainly that Internaut were not a party to the charterparty. It did not even suggest that Internaut was merely an agent for Sphinx. Instead, it suggested that Sphinx purported to conduct its business on Internaut’s behalf. • There was unchallenged evidence showing that Internaut had signed as principal and not as agent. Internaut had no instructions to sign on behalf of Sphinx, had no contract with Sphinx, and Sphinx was one party removed from the voyage charterparty, bearing in mind that the vessel had been time chartered to Primary. The court was also influenced by the fact that Internaut nominated their own bank account to receive the freight. • Additionally, the factual matrix including pre-fixture telexes suggested that Internaut were the disponent owners for the purposes of the voyage charterparty.

This decision once again sounds a caution to shipowners and charterers to be careful in the description of their identities on charterparty forms.

Conclusion

As the above cases illustrate, the effects of agency law on shipping practice can be far reaching. The mistake of arresting a vessel for a charterparty claim under which the owners of the vessel are not the persons who would be personally liable may potentially result in significant sums being payable to such owners in the form of damages for wrongful arrest. On the other hand, agents such as shipbrokers or charterers may find themselves personally liable under contracts purportedly entered into on behalf of their principal shipowners. In the light of this, charterers, shipbrokers and shipowners should always take care to ensure consistency in describing the parties in their contracts.

It is also important to bear in mind that the mere use of the term ‘agent’ may be insufficient to qualify an agent’s capacity where an agent intends to sign a contract in that capacity. Instead, appropriate terms such as ‘for and on behalf of’ should always be used in such a case.

Toh Kian Sing is a Partner, and Loh Wai Yue is an Associate, with the Admiralty & Shipping Practice Group. For advice on charterparties and other matters relating to shipping law, contact Kian Sing at kian.sing.toh@sg. rajahandtann.com or Wai Yue at wai.yue.loh@sg. rajahandtann.com.try allows ownership of its vessels by non-citizens and companies incorporated outside the country of the registry.

This article was extracted from LawLines Volume IV, Issue IV - December 2002.

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