Mitsui OSK Lines Ltd v Salgaocar Mining Industries Private Ltd (2015) (Unreported)

After extensive negotiations, London brokers fixed a 10-year charterparty on behalf of their principals, the Charterers. The Charterers were named as a nominee with their performance guaranteed by the Defendant.

Three years into performance, Charterers terminated, alleging that the vessel was unsuitable for the carriage of iron ore. Owners commenced arbitration in London against both Charterers and the Defendant as guarantor, claiming damages (equivalent to the daily rate of hire from the date of repudiation).

The Court was asked to decide inter alia: (i) whether the Defendant had agreed to guarantee Charterers’ performance of the charterparty; (ii) whether the guarantee satisfied the Statute of Frauds Act 1677, namely the requirement that it be in writing and signed by the guarantor; and (iii) whether the Defendant was in breach of the guarantee.

On all three issues the Court found in Owners’ favour.

First, the brokers were well-established and London based, and the course of correspondence leading to the fixture satisfied the Court that they had actual authority to enter into both the charterparty and guarantee on behalf of their principals (Charterers). The correspondence between the brokers and Owners – at all times evidencing authority – gave rise to a binding guarantee.

Secondly, a guarantee can be contained in writing over several documents and not just confined to one. In this case, the correspondence taken as a whole evidenced an agreement in writing. Although no copy of the guarantee as signed by the Defendant was ever produced, other evidence could be relied on in its absence. The Court found that on the balance of probabilities the guarantee had been signed by the brokers acting with authority.

Thirdly, Charterers had wrongfully repudiated the charterparty and their defences were without merit. Accordingly, Owners were entitled to damage from the date of repudiation until the end of the hire period, with credit given for the off-hire periods contained in the charterparty. The Defendant guarantor was only liable to the extent that Charterers were liable under the charterparty.

This case demonstrates the importance of knowing the extent and limits of brokers’ authority, where too much (or too little) authority can expose a party to costly and far-reaching contractual obligations and claims. It is perhaps a further lesson in the value of performing adequate due diligence on contractual counterparties – a guarantee is only as good as the company / entity giving it. In this case, the fact that the neither Charterers nor the Defendant entered an appearance in the English proceedings means that the road ahead for enforcement in India is likely to be a long one for the successful Owners.