Reed Smith (Charles Weller and Nick Wright) recently acted for the successful claimants (“WFS”) in two in rem claims against cruise ships “Columbus” and “Vasco da Gama”. The claims derived from WFS providing multiple bunker stems to the cruise ships, for which WFS remained unpaid.
The decision of the Admiralty court provides useful guidance on recovery under secondary contractual obligations in a claim for the supply of necessaries to a ship.
The two vessels were arrested at Tilbury and ultimately sold by judicial auction.
When WFS applied for judgment against the proceeds of sale from the two vessels, the vessels’ former owners, Carnival Plc, and the arresting creditor, P&O Princess Cruises International Ltd, (together, “Carnival/P&O”) intervened challenging certain aspects of the WFS’s claims.
While Carnival/P&O had no objection to WFS obtaining judgment for the base price for the bunkers of US$ 3.7 million, they challenged WFS’s right to recover:
i. contractual interest at 2% per month (24% per year) or, on invoices of US$500,000 or less, 1.5% per month (18% per year);
ii. a further “administrative fee” of 5% on all invoice amounts; and
iii. a contractual indemnity in respect of enforcement costs/expenses (beyond the usual “costs in the action” in English court proceedings).
Each of these disputed claims derived from secondary contractual obligations under WFS’s standard terms and conditions, which only took effect on a failure to pay the invoice amounts within the agreed payment terms. The total judgment amount in dispute was about US$800,000.
WFS’s terms were subject to general maritime law/Federal law of the US, alternatively, Florida law. WFS’s Miami counsel provided evidence that WFS could recover these sums under the relevant US law.
Carnival/P&O’s arguments derived from the words of the necessaries jurisdiction under Section 20(2)(m) of the Senior Courts Act 1981, i.e. a claim “in respect of goods or materials supplied to a ship for her operation or maintenance”.
Carnival/P&O argued that the words “in respect of” only caught the primary obligation to pay the base price for the bunkers, not secondary obligations contingent on a breach of that primary obligation.
In support of this position, they relied by analogy, upon a Hong Kong decision in The “Oriental Dragon” HCAJ 162/2012. In that case, certain claims under the relevant contract fell within the equivalent in rem jurisdiction and certain claims did not. Where claims fell out of the in rem jurisdiction, the claimants had to claim in personam against their counterparty, not against the ship.
Carnival/P&O argued that was the case in respect of the disputed claims. WFS could claim in personam against their contractual counterparty, but not against the vessels or proceeds of sale.
Decision of the Admiralty Court
The Court accepted submissions on behalf of WFS and held:
(a) Carnival/P&O sought to apply an inappropriate gloss to the statutory language of Section 20(2)(m).
(b) The words “in respect of” have long been held to be “wide words which should not be unduly restricted”: The “Edinburgh Castle”  2 Lloyd’s Rep 362.
(c) In The “Kommunar” 1 Lloyd’s Rep 1, Clarke J held that a party advancing finance for bunkers could recover contractual interest in a necessaries claim. By supplying bunkers prior to receipt of payment (WFS had traded on 90-day terms), WFS was in exactly the same position.
(d) The Hong Kong case, The “Oriental Dragon”, offered no real support for Carnival/P&O’s submissions and had no bearing on the meaning of “in respect of”. In that case, the claimant had contracted to supply a wide variety of goods and services, some of which fell within the relevant in rem jurisdiction and some of which did not. The case was distinguishable because WFS supplied only bunkers to the vessel.
(e) It would be wrong to “unpick” or “slice and dice” the invoice amounts from the terms on which the bunkers were supplied. The interest, administrative charge and costs provisions were as much a part of the contractual bargain as the base price – all incidents of the supply of bunkers. The Court acknowledged that collection costs were “further removed” from the price than the interest or administrative fee, but were no less part of the contractual bargain.
(f) The result sought by Carnival/P&O, that a bona fide supplier of necessaries would have to bring two separate claims, one against the ship and one against the operator, made no sense at all in terms of fairness or procedure. It would bypass the consequences of the contractual bargain and would lead to wasteful multiplicity of actions.
Thus, permission to appeal was refused.
Counsel for WFS was Paul Henton (instructed by Reed Smith) and counsel for Carnival/P&O were John Kimbell QC and Celine Honey (instructed by Watson Farley & Williams).
- It is reassuring that the Admiralty Court did not permit an erosion of a necessaries supplier’s right to rely on all of the relevant contractual provisions in the event they are left unpaid.
- The Admiralty Court will respect and give effect to a choice of governing law in the relevant contract. Had the administrative fee been considered under English law, it would almost certainly have been held to be an unenforceable penalty. However, it was recoverable under Florida law and so was recoverable in the English Admiralty proceedings.
- It remains to be seen how the Courts approach other words of causation/connection present in Section 20(2) of the Senior Courts Act 1981, including “for”, “arising out of” and “in the nature of”. Each of those provisions will have to be construed on their own terms and in accordance with established precedent.