The judgment handed down recently by the Supreme Court in Petroleo Brasileiro SA v ENE Kos 1 Limited [2012] UKSC 17 considers the rights of the Owner of a timechartered ship after the vessel has been lawfully withdrawn for non-payment of hire, but where they have no right to claim damages for repudiatory breach of charter.

Owners promptly withdrew the vessel for non-payment. Charterers tried to broker a deal with Owners but, in the absence of this, Charterers had to make arrangements for the discharge of their cargo. The issue before the Supreme Court was whether Owners were entitled to be paid for the service of the vessel during the period of 2.64 days during which the negotiations and/or discharge of the cargo took place, and for the bunkers consumed during that period.

Owners were successful, there being a difference of opinion as to whether their claim could succeed under the indemnity cause in the charterparty, or only by way of bailment.

With the exception of one of the judges, the Court held that the sums were recoverable under the indemnity clause. It held that the scope of the indemnity clause was very wide, and was subject only to two provisos, namely (i) that Owners were not entitled to an indemnity against things for which they were being remunerated by the payment of hire and (ii) that the clause limited the indemnity to losses which were caused by complying with Charterers’ orders.

It was held that the relevant order of Charterers was the order to load the parcel of cargo which was on board the vessel when she was withdrawn. In a decision overturning the decisions of the Commercial Court and Court of Appeal, the Court found that the withdrawal of the vessel was not an independent cause of the loss breaking the chain of causation between the order to load the cargo and the detention of the vessel after withdrawal.

It was held that the whole of the 2.64 days during which the vessel was detained resulted from the cargo being on board pursuant to Charterers’ orders at the time of withdrawal. Owners were therefore entitled to recover their loss at the market rate of hire for 2.64 days, together with the value of bunkers consumed during the whole period of the detention.

It was also held, unanimously, that Owners were entitled to succeed at common law as non-contractual bailees of the cargo after the withdrawal of the vessel. The fact that the original bailment of the cargo had occurred under a previous contractual relationship meant that it was consensual, although no longer contractual, once the vessel had been withdrawn. The authorities are clear that Owners have a continuing duty to take reasonable care of the cargo, which they cannot escape except by retaining it until arrangements are made to discharge it. In this case, the only reasonable or practical option open to Owners once the charterparty had come to an end was to retain the cargo until it could be discharged at the port where the vessel was then located.

In Lord Mance’s dissenting judgment as regards the scope of the implied indemnity, he considered the proximate cause of the loss, and therefore preferred to deal with the issue purely by way of bailment. However, Lord Clarke’s judgment responds to the points made by Lord Mance concerning the proximate or determining cause. In a compelling judgment, he held that the cause was the order to load the cargo in the ordinary way. The consequence of that order was that the cargo was indeed loaded and therefore had, sooner or later, to be discharged.

It is notable that Owners’ notice for exercising the right to terminate was held to be irrelevant.