Should Owners Be Liable for Charterparties Signed by the Vessels’ Managers?

Eric Woo, Senior Associate, ONC Lawyers

Introduction

In the shipping industry, it is common that a charterparty is agreed between a managing owner or agent on behalf of the vessel owner, and a shipbroker on behalf of the charterer. These practices might lead to questions in relation to the parties’ respective rights and liabilities.

In Navig8 Inc. v South Vigour Shipping Inc. and Others [2015] EWHC 32 (Comm.), the English Commercial Court decided that the vessel owners were not liable under the charterparties signed by the vessels’ managers for breach of charterparties by withdrawing the vessels from service.

Background

The Claimant in the Navig8 case was the charterers of four Aframax vessels (the “Charterers”). The 1st to 4th Defendants were respectively the registered owners of the four vessels (collectively, the “Registered Owners”). The Registered Owners were a group companies of the Nan Fung Group. The 5th Defendant, Star Maritime Management Co. Pte. Ltd. (“SMMC”), was alleged to be the agent of the Registered Owners.

On 13 April 2012, the charterparties were signed by SMMC (allegedly on behalf of the Registered Owners) and Poten & Partners, brokers of the Charterers (on behalf of the Charterers) (the “Charterparties”). In particular, each charterparty contained the phrase of “Disponent Owners Signatory in Contract: SMMC”.

The four vessels were withdrawn from service prior to the termination of the Charterparties. The Charterers thus sued the Registered Owners and SMMC for breach of contract.

The Charterers claimed that SMMC was the agent of the Registered Owners and, as such, both SMMC (ie, agent of the Registered Owners) and the Registered Owner (ie, principal of SMMC) were legally bound by the Charterparties and should be held liable in breach of the Charterparties by withdrawing the vessels from service.

However, the Registered Owners denied that: (i) they were parties to the Charterparties; and (ii) they gave authority to SMMC to enter into the Charterparties.

Issue in Dispute

One of the major issues that arose in the Navig8 case was whether the Registered Owners gave authority to SMMC in order to enter into the Charterparties.

The Court considered that there was a powerful case that the Registered Owners disagree with SMMC that it could manage the four vessels on the Registered Owners’ behalf on account of:

  1. no formal commercial management agreements were signed between the parties during a meeting conducted on 21 September 2011 which both representatives of the Registered Owners and the SMMC attended (the “Meeting”).
  2. in the absence of written confirmation of the commercial management agreement during the Meeting, there was no correspondence afterwards between the Registered Owners and SMMC in securing the commercial management agreement;
  3. the internal memorandum of the Meeting made by the Registered Owners did not record the commercial management agreement; and
  4. there were documents prepared by Mr. Pal (the representative of SMMC) for the subsequent meetings with the Registered Owners that showed no commercial management agreement had been agreed between SMMC and the Registered Owners.

Having considered the testimony made by the witnesses (in which Mr. Pal did not give oral evidence in court), the Court concluded that, on the balance of probabilities, there was no evidence showing the Registered Owners expressly authorised SMMC to enter into the Charterparties with the Charterers on behalf of the Registered Owners.

In the circumstances, the English Commercial Court decided that the Charterers failed to establish that SMMC was authorised by the Registered Owners to fix the four vessels on its behalf.

The Decision

In the Navig8 case, the Charterers’ claims against the Registered Owners were dismissed.

As for the claims against SMMC, the Court held that SMMC was liable in damages to the Charterers for breach of an implied warranty of authority. The measure of damages was the difference between the charterparty rate and the market rate to be assessed from the date of breach.

Implications

Navig8 is an important case which highlights the requirement that clear and explicit authority must be given to agents or managers to enter into agreements on behalf of vessel owners. For agents or managers, they should ensure that they have express authorities (eg, a written confirmation from the owners) to act on behalf of vessel owners, otherwise they might be liable for damages under a charterparty which was purportedly agreed on behalf of their “principal”.