ENE 1 Kos Ltd v Petroleo Brasileiro SA (Rev 1)

If a shipowner withdraws his vessel from a charterer’s service for non-payment of hire while cargo is on board the vessel and the shipowner requires the charterer to remove the cargo from the vessel, is the shipowner entitled to remuneration outside the contract and/or to recover expenses incurred in that operation? Surprisingly this is not a matter which seems to have been decided in any previous case, of which counsel are aware. Andrew Smith J decided that there is no claim under the express employment and indemnity clause (or any other clause) of the charterparty, nor any claim under any implied term of the charter. He also rejected a claim that there was a request by the charterer for further services which created an agreement for remuneration and expenses; he also rejected a yet further claim for a quantum meruit. He upheld, however, a fifth claim made on the basis that the shipowner had a duty to care for the cargo while it continued to be on board the vessel which gave rise to a correlative duty on the charterer to remunerate the owner and pay his expenses while the cargo was being discharged. To achieve this result, the judge relied on what may fairly be called a slender stream of authority beginning in 1873 but utilised by the House of Lords as recently as 1982 in The Winson in order to entitle salvors to recover expenses incurred in storing cargo for cargo-owners between the time when the salvage contract had come to an end and the time when the shipowner notified the cargo-owner that he had abandoned the voyage.

I can take the facts largely from the judgment below which is now reported at [2010] 1 Lloyd’s Rep. 87.

By a charterparty on Shelltime 3 form dated 2nd June 2006, the claimant Owners chartered the M/T KOS to the defendant Charterers for 36 months (plus or minus 15 days at Charterers' option). She is a 300,965 mt, double hulled Very Large Crude Carrier (VLCC) built in 2001, and is of high quality.

Hire under the charterparty was payable monthly in advance, and if it was not paid the Owners had the right to withdraw the vessel "without prejudice to any other claim Owners may otherwise have on Charterers under this charter". The charterparty had no anti-technicality clause. It did have in clause 13, which has a side-note "Bills of Lading", a provision that,

"The Master (although appointed by Owners) shall be under the orders and direction of Charterers as regards employment of the vessel, agency or other arrangements ... Charterers hereby indemnify Owners against all consequences or liabilities that may arise … from the Master otherwise complying with Charterers' or their agents' orders …".

Clause 14 provided that the Charterers should accept and pay for all bunkers on board at the time of delivery of the vessel and "Owners shall, on the expiry of this charter, pay for all bunker oil then remaining on board at actual purchase price …".

The relevant hire payment was due to be paid by midnight on Saturday 31^st May 2008. It was not paid (presumably by oversight). When notice of withdrawal was given, the vessel was at Angra dos Reis, Brazil, where she had been ordered to proceed by the Charterers for discharge and backloading of a cargo of oil. She had tendered Notice of Readiness on 30th May 2008 to backload two parcels of cargo owned and nominated by the Charterers and to take on bunkers arranged by the Charterers. She began to load the first parcel on 31st May 2008, and completed loading it on 1st June 2008. She also took on bunkers on 1st June 2008. The second parcel was not available for loading until (at the earliest) 2nd June 2008 and in the event was not loaded.

On 2nd June 2008, after checking that hire had not been received, the Owners, by their agents, gave the Charterers notice of withdrawal at 14.41 hrs GMT. They wrote

"Accordingly, Owners are instructing Master to stop further cargo operations and Owners now call upon Charterers to make arrangements for receipt ashore at Angra dos Reis their cargo presently on board the vessel".

They went on to say, "wholly without prejudice" to that, that they would perform the voyage ordered by the Charterers at the time of the notice of withdrawal on the terms of the charterparty other than the contractual rate of hire. Perhaps it hardly needs to be said that the market rate of hire at the time of withdrawal was considerably higher than the rate of hire which had been agreed in the contract.

In subsequent exchanges, the Charterers sought to persuade the Owners to revoke the withdrawal, but the Owners declined to do so. Then on 2nd June 2008 at 20.12 hrs the Charterers wrote: "We would … kindly ask Owners cancel the message withdrawing the vessel from service. Indeed we would like to meet with you at your convenience to confirm our wish to build good working relations for the future between our companies". On 3rd June 2008 at 11.30 hrs the Owners wrote this:

"The present position is that the vessel has been withdrawn and Charterers must decide if they wish to reinstate the time charter or continue with the voyage instructions on a voyage charter basis. If they do wish to continue on one of these bases then they must do so at the current market rates which Owners have indicated to Charterers. If Charterers consider the market rate to be different then please advise so Owners can consider.

Alternatively if Charterers do not wish to reinstate the time charter or continue on a voyage basis then they must make prompt arrangements for receipt back of their cargo.

While Charterers are deciding how they wish to proceed or (if that is what they decide to do) making arrangements for off-loading of their cargo, Owners will proceed on the basis that Charterers have requested that Owners store Charterers' cargo on board and reserve the right to claim remuneration at current market rates for such storage.”

At 15.02 hrs on 3rd June 2008 the Charterers repeated their request:

"… Charterers once again expect Owners to reconsider latest decision and keep vessel on service and the [charterparty] in force. Charterers look forward to hearing asap from Owners in order to decide next steps, considering we have cargo on board, to decide if we authorize terminal to receive it back or proceed loading operation".

At 16.16 hrs the Owners confirmed their decision to withdraw the vessel. At 18.25 hrs on 3rd June 2008 the Charterers wrote asserting that the Owners had waived their right to withdraw the vessel, and continued,

"In view of Owners' clear breach of Charter, unless Owners are now prepared to confirm that they will continue with the charter as it stands, Owners should contact the terminal to arrange for discharge of the cargo and discharge of Charterers' bunkers. Please note that in such circumstances, Charterers will immediately be taking such steps as are open to them to secure all losses suffered as a result of Owners' unjustified withdrawal of the vessel".

The Owners replied at 20.22 hrs that they were no longer under any obligation to perform the charterparty and therefore it was for the Charterers to make arrangements with the terminal: they requested the Charterers to "take the necessary steps without delay". At 21.36 hrs the Charterers wrote that they would contact the terminal to arrange for it to receive the cargo and that they would consider the Owners' request about bunkers. The Charterers then went about arranging for the discharge of the cargo shortly thereafter, some 1.29 days after the vessel was withdrawn from service.

At 02.23 hrs on 4^th June 2008 the Owners were informed by the brokers that the Master was refusing to discharge the cargo without authority from the Owners to do so, but at 03.07 hrs the Owners confirmed to the Master that he had that authority. The cargo was thereafter discharged and disconnection of the hoses occurred at 06.00 hours on 5^th June 2008.

The Owners have made a claim for detention between 14.41 hours on 2^nd June and 06.00 hours on 5^th June (2.64 days) at the (now agreed) market rate of $158,864 per day. They have a further claim for 80.11 mt bunkers consumed during the period of 2.64 days costing $40,415. Of this amount, 57 mt bunkers were consumed in discharging the cargo costing $28,756.

It will be convenient to discuss the various ways in which the Owners put their claim in the same order as the judge since most of the claims which failed are the subject of a cross-appeal. But it is, at the outset, worth emphasising the dearth of authority supporting the claim. Mr Eder QC for the Owners somewhat ambitiously asserted in his skeleton argument that Scrutton on Charterparties (21^st ed Art. 175) supported what he called “the general proposition in favour of recovery”. This reference is to a passage which appeared in the 11^th edition of this famous work published in 1923 and has remained ever since. It reads as follows:-

“If there is cargo on board at the time of withdrawal and the shipowner carries it to its destination, no doubt he is entitled to remuneration for that service, but the exact nature of this right has not been judicially determined.”

It may be that the decision of Carruthers J in Gadsden v Strider of 27^th April 1990 in New South Wales, as summarised in Lloyd’s Maritime Law Newsletter of 1^st June 1991, now gives some support for this expression of opinion. But it can be seen that the proposition is that, if an owner performs the contract of carriage contained in the charter after withdrawal, he may well be entitled for remuneration for so doing. That is, with all respect to Mr Eder, hardly support for a proposition that an owner is entitled to remuneration while, at his insistence, the cargo is discharged at the loading port (and not carried anywhere).

It is also worth considering at the outset whether, once withdrawal occurred, the presence of the cargo constituted a trespass on the Owners’ ship. Since the cargo was present pursuant to an agreement that the Charterers could employ the vessel and require the master to sign bills of lading in respect of the cargo, it is impossible to believe that the cargo’s continued presence, at any rate for a reasonable time after notification of withdrawal, could constitute a trespass. It has never been suggested that 2.64 days was an unreasonable time within which to sort out the consequences of withdrawal and to discharge the cargo and I would conclude that (if relevant) there could never have been any question of the Owners having any right to sue the Charterers for trespass. Any such claim could, in any event, only be a claim for damages for detention rather than the remuneration which the Owners claim.

If there is an express clause of the charter which gives the Owners the right to remuneration after withdrawal that would obviously be the clearest route to recovery. Any other route to recovery is, not unnaturally, open to the preliminary objection that the charterparty could have given (but did not give) such a right. The clause which the Owners assert gives them this right is the employment and indemnity clause (clause 13), the salient words of which I have already set out. It is in standard form and provides for the Master to be under the orders and directions of the Charterers as regards the employment of the vessel and for the Charterers to indemnify the Owners against all consequences or liabilities which may arise from the Master complying with the Charterers’ orders. If therefore charterers order the Master to load a cargo of coal which (by reason of the presence of methane in the coal) causes an explosion it can be said that the explosion is a consequence of the Master complying with the charterers’ order to load a cargo of coal, see The Athanasia Comninos [1990] 1 Lloyds Rep 227, 296 per Mustill J.

The employment and indemnity clause is nevertheless not all-embracing. As the judge said (para 34) it is subject to principles of remoteness and proximity of causation. He cited a dictum of Colman J in The Greek Fighter [2006] EWHC 1729:-

“it is in a commercial setting improbable that a charterer would be prepared to assume the risk of eventualities remote from his own orders.”

The judge therefore rejected this way of putting the claim.

I agree with the judge. While in a sense the vessel would never have had to discharge the cargo loaded at Angra dos Reis if she had never been ordered to load it in the first place, it is not a natural consequence of ordering it to be loaded that it would have to be discharged at the self-same port. The true cause of the necessity for the discharge of the cargo was the fact that, in the light of the withdrawal, the Owners required the Charterers to discharge the cargo. Mr Eder said that that only occurred because the Charterers failed to pay hire on time. That is, of course, correct but failure to make a punctual hire payment is not “an order as regards employment of the vessel …. or other arrangements”. It is something altogether different.

The obligation of the Charterers was to pay the hire monthly in advance. Mr Eder does not contend that the failure to pay the hire in the present case was a repudiation of the charterparty. So the Owners’ claim cannot be presented as a claim to damages for repudiation. If presented merely as a claim for damages for late payment of hire, it fails on the grounds of causation. The cause of the Owners’ “loss” is not the late payment of hire but rather the Owners’ decision to terminate the charterparty and withdraw the ship from the Charterers’ service. The fact that the Owners were, under the contract, entitled to take that course does not mean that, in the absence of any accepted repudiation of the charter, they can recover damages by way of lost remuneration or expenses for taking that course. It is their own action that has caused the loss not the Charterers’ breach of contract. On this aspect I also agree with the judge.

On appeal Mr Eder no longer sought to argue for an implied term and accepted the judge’s decision on this point. The judge relied on Lord Hoffmann’s starting point for any inquiry in relation to the implication of a term in A.G. of Belize v Belize Telecom Ltd [2009] 1 WLR 1983, 1993 para 17:-

“The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.”

No doubt it is for this reason that the implied term argument is no longer pursued. Mr Andrew Baker QC for the Charterers submitted that this change of heart was significant and that, if the Owners cannot make good their case by reference to either an express term or an implied term of the charterparty, then any court should be slow to give the Owners by operation of law what they have failed to achieve by agreement. There is, to my mind, force in that submission.

One situation where the law does sometimes come to the rescue of a party who has not stipulated for remuneration is after a contract has been discharged by breach or frustration. If a contract is discharged because one party has repudiated it and the other party has accepted that repudiation, the law of damages caters for any loss suffered. But that, as I have already said, is not this case. The situation is more difficult if the contract is discharged for some other reason; if the performance envisaged by the contract is actually carried out, no doubt the party who does render performance should be remunerated. That was the conclusion of Pearson J in Société Franco-Tunisienne v Sidermar [1961] 2 QB 278, 312 where the contract was frustrated by the closure of the Suez Canal but the shipowners nevertheless carried the goods round the Cape of Good Hope to the port of discharge. If a shipowner is entitled to freight despite having caused the vessel to deviate during the voyage and the charterer accepts that deviation as a repudiation, any such entitlement (a much debated question) must depend on some such similar principle.

But the position in this case is entirely different. The cargo has not been carried to its contractual destination; it has not even been carried to an intermediate port as to which see Goff and Jones, The Law of Restitution 7^th ed (2007) para 20-54. At the Owners’ insistence it was discharged at the port of loading. In these circumstances it cannot be right to award a “quantum meruit” to the Owners who, although entitled to cancel the contract, have never purported to perform (or even partially perform) the voyage contemplated by the contract when the cargo was loaded.

Mr Eder relied on the exchanges after withdrawal in which the Charterers asked the Owners to cancel the withdrawal and the Owners only agreed to do so if market rates were paid. He also relied on the fact that at 21.36 hours on 3^rd June the Charterers informed the Owners that they would contact the terminal and arrange for it to receive the cargo and that at 01.55 hours on 4^th June 2008 they repeated that information. Thereafter the Charterers informed the Master that the terminal was ready to receive the cargo and, although the Master declined to operate the ship’s pumps for the purpose of discharging the cargo until he had the express authority of Owners to do so, he did co-operate in discharging the cargo once he had received that authority. Mr Eder then submitted that this activity on Charterers’ part constituted a request by them

It is, to my mind, too artificial to construe the exchanges as a request for the vessel to remain at the loading port pending a decision as to what to do. It was inevitable that the vessel would do so since it is impossible to imagine that, but for the exchange, the Owners would have sailed away with a part cargo on board which they would then have had to pay to be discharged elsewhere. The vessel stayed where it was just as much because the Owners were asking the Charterers to pay the market rate for the rest of the charter period as because the Charterers were asking for the withdrawal to be cancelled. As the judge said (para 49) the Owners required the vessel to remain at Angra dos Reis until 06.00 hours on 5^th June because there was no practical alternative and because the positions adopted by the parties demanded that the status quo be maintained during the exchanges. In these circumstances it cannot be said that the vessel stayed at the port in response to any express or implied request of the Charterers.

Nor in my view (although the judge did not expressly so find) was there any express or implied request by the Charterers that the Owners discharge the cargo. In the notice of withdrawal itself the Owners said on 2^nd June that they were instructing the Master to stop further loading and they called on the Charterers to make arrangements for receipt ashore of the cargo “presently on board the vessel”. They maintained this position throughout the exchanges saying at 11.30 on 3^rd June that, if the Charterers were not prepared to pay a market rate, “then they must make prompt arrangements for the receipt back of their cargo”. This is what the Charterers did on the very same day, 3^rd June. It cannot, therefore, be right to say that the Charterers expressly or impliedly asked the Owners to discharge the cargo. On the contrary, it was the Owners who were demanding that the Charterers discharge the cargo as, no doubt, they were entitled to do.

Mr Eder argued that, at the very least, there was an implied request that the Owners use their own bunkers for the purpose of using the ship’s pumps to discharge the cargo as far as the manifold at the shore terminal. But for my part I cannot discern even such a limited request once one concludes that it was the Owners who were demanding the removal of the cargo rather than the Charterers who were requesting it.

As a general principle English law does not, in the absence of an agency of necessity, impose any obligation on a party, on whom a benefit has been conferred, to pay for that benefit. There are, however, instances where, in the aftermath of a pre-existing relationship, measures are taken to preserve goods from deterioration, and the person taking such measure can recover the expenses incurred in so doing. If, for example, a contract of carriage or a contract to render salvage services has come to an end but the carrier or the salvor has a duty to take reasonable steps to avoid damage or deterioration to the goods and the goods owner for whatever reason gives no instructions in the matter, the carrier or the salvor may have rights inherent in the bailor-bailee relationship and it is these rights on which the Owners rely in the present case.

In Cargo ex Argos, Gaudet v Brown (1872) LR 5 PC 134, the shipowner loaded a cargo of petroleum for carriage from London to Le Havre in his general ship which could not be discharged at Le Havre (or any other nearby port) as a result of the Franco-Prussian War. The ship arrived at Le Havre but was told to leave; the master tried to discharge at Honfleur and then Trouville but was turned away on each occasion. He then returned to Le Havre where he was allowed to unload the petroleum into a lighter; he was then permitted to discharge the rest of his cargo at Le Havre but was required by the port authorities to re-load the petroleum which he therefore brought back to London and re-delivered to the cargo owner. He then claimed (1) freight to Le Havre (2) homeward freight from Le Havre to London (3) the cost of the hire of the lighter and of storing the petroleum in her at Le Havre and (4) 5 days of demurrage incurred in France between leaving Le Havre on the first occasion and entering the port on the second occasion to discharge the general cargo. The Privy Council held that the Master would not have been entitled to destroy the cargo or cast it overboard. As Sir Montague Smith said (page 165):-

“…. Not merely is a power given but a duty is cast on the master in many cases of accident and emergency to act for the safety of the cargo, in such manner as may be best under the circumstances in which it may be placed; and as a correlative right, he is entitled to charge its owner with the expenses properly incurred in so doing.”

and later:-

“In a case like the present, where the goods could neither be landed nor remain where they were, it seems to be a legitimate extension of the implied agency of the master to hold that, in the absence of all advices, he had the authority to carry or send them on to such other place as in his judgment, prudently exercised, appeared to be most convenient for their owner; and if so, it will follow from established principles that the expenses properly incurred may be charged to him.”

and again:-

“The authority of the master being founded on necessity would not have arisen, if he could have obtained instructions from [the bill of lading holder] or his assignees. But under the circumstances this was not possible.”

It is tolerably clear that the Privy Council regarded the case as one of accident or emergency in which an agency of necessity had arisen, in the absence of any instructions from the cargo-owner. They regarded it as, therefore, right that the shipowner should be able to recover the cost of bringing the goods back to London (as being the most sensible course to be adopted). They also allowed the shipowner the expenses of hiring the lighter at Le Havre. But they did not allow the demurrage and expenses claimed for the four days exploring the situation at Honfleur and Trouville because those efforts were made in the interest of both the cargo as a whole and the ship and should be treated as expenses of the voyage, not incurred solely for the benefit of the particular cargo-owner.

It was this authority which the House of Lords followed in China Pacific S.A. v Food Corporation of India (The Winson) [1982] AC 939 a claim by a salvor which was also presented as a case of necessity. The chartering arm of the Indian Government chartered a vessel to take a cargo of wheat (which they owned) from U.S. ports to Bombay but the vessel stranded on a reef in the South China Sea in January 1975. Salvors were retained on the terms of Lloyd’s Standard Form of Salvage Agreement signed by the master on behalf (severally) of ship and cargo interests. Over a period of 2½ months the salvors salved six parcels of wheat and took them to Manila where the wheat was stored in warehouses at the salvors’ expense. The salvors wrote to the cargo-owners’ solicitors asking them to ask the cargo-owners to make arrangements to accept delivery in Manila but the letter was never answered. On 24^th April 1975 the shipowners notified the cargo-owners that they were abandoning the voyage; the contract of carriage then came to an end. The cargo-owners accepted liability for the Manila storage charges after the contract contained in the charterparty had come to an end but submitted that until that time the shipowners were responsible for the charges rather than the cargo-owners since the master, in making the salvage agreement, had been acting on behalf of the shipowners. The House of Lords disagreed and held that the master as an agent of necessity had authority to create a contractual agreement on the terms of Lloyd’s Standard Form directly between the salvors and the cargo-owners. They further held that the mere rendering of salvage services did not involve any taking of possession of the vessel or its cargo from the shipowner. But on the facts (after the stranding) there was a transfer of possession from the shipowners to the salvors when the cargo was off-loaded from the vessel into barges and at that point of time a direct relationship of bailor and bailee was created between the cargo-owner and the salvor. That relationship continued to exist until possession of the wheat was accepted by the cargo-owner from the warehouse-owners who had by then become sub-bailees of the salvors. The parties had agreed that the salvage services terminated on arrival at Manila which was a relevant place of safety and as Lord Diplock put it at page 160D

“the bailment which up to the conclusion of the salvage services had been a bailment for valuable consideration became a gratuitous bailment; and so long as that relationship of bailor and bailee continued to subsist the salvors … owed a duty of care to the cargo owner to take such measures to preserve the salved wheat from deterioration by exposure to the elements as a man of ordinary prudence would take for the preservation of his own property. For any breach of such duty the bailee is liable to his bailor in damages for any diminution in value of the goods consequent upon his failure to take such measures; and if he fulfils that duty he had, in my view, a correlative right to charge the owner of the goods with the expenses reasonably incurred in doing so.”

It can be seen that The Winson is similar to Cargo ex Argos in that

Mr Baker submits that, on a true analysis, these authorities do not assist the Owners in the present case because

There is, to my mind, considerable force in those submissions. To accede to the suggestion that an owner who withdraws his ship from the charterers’ service should be remunerated at market rates from the time of withdrawal until the cargo is discharged would go much further than existing authority has, so far, contemplated. It is true that the shipowner recovered the homeward freight in Cargo ex Argos but he had performed a service (and conferred a benefit) in the exigencies of war at a time when the cargo-owner was unable or unwilling to give him instructions; there was no practicable alternative to bringing the cargo home. The Winson merely decided that there were circumstances in which a gratuitous bailee could recover expenses incurred when, again, there was no practicable alternative. It is a contradiction in terms to suggest that a gratuitous bailee should be entitled to remuneration but it is at the same time a contradiction in terms to suggest that a shipowner who exercises his rights to terminate a time charterparty continues as a bailee for reward when he has by his own decision brought the charterparty to an end. It may be that, if he thereafter performs a service for the charterer (even in the absence of request) such as taking goods to their contractual destination, he is entitled to be paid for doing so. But owners performed no such service in this case. The cargo’s existence on board the vessel was a useful lever for the Owners in their attempt to negotiate a fresh contract. In no sense were they doing any more than required of a gratuitous bailee by way of caring for the cargo during the 2.64 days which elapsed before they sailed away. To remunerate them for that period at a market rate would not only go beyond any existing authority but would also be unjustifiable as a matter of principle which, to my mind, requires remuneration to be subject to express or implied contractual agreement.

In coming to the opposite conclusion the judge said (para 59) that, if the Owners had themselves discharged the cargo into a facility at Angra dos Reis, they would have been able to recover the reasonable expenses of hiring that facility and that, therefore, they should be able to recover reasonable remuneration for providing this facility in their own ship. This consideration seems to me, with respect, to beg too many questions to be helpful. In the first place it must be doubtful whether the Owners would, in fact, have been entitled themselves to discharge the Charterers’ cargo immediately on withdrawal; they would surely have had to give the Charterers an opportunity to discharge it themselves before taking any unilateral action. Secondly, and perhaps more importantly, they would only be able to recover reasonable storage charges; it does not at all follow that such charges would be the same as even the contract rate of hiring a vessel equipped to ply the high seas and take oil cargoes to destinations across the world, let alone the higher market rate which is what the Owners are claiming. In an interesting case-note on Andrew Smith J’s decision ([2010] LMCLQ 226,231) Professor Gerard McMeel has pointed out that the Owners’ claim could be seen as a claim in restitution because the Charterers received an incontrovertible benefit by being saved the expense of looking after the cargo for 2.64 days but he likewise makes the point that the assessment of that benefit might have to be on a land-based storage facility rate. Although, no doubt, Owners’ case could have been put on this basis, it would still have to face the difficulty that, in a case which is not one of accident or emergency, there is no obvious injustice in the Charterers’ retaining the (comparatively small) benefit which has only arisen as a result of the Owners’ action in terminating the charter for their own benefit.

The judge also pointed out that Clarke LJ (as he then was) contemplated recovery of remuneration in Guildford Borough Council v Hein [2005] L.G.R. 797; EWCA Civ 979, but, to my mind, that case is more supportive of the Charterers’ case than that of the Owners. Court orders had disqualified Dr Hein from having custody of dogs for a particular period and Guildford Borough Council lawfully removed them from her custody. They thus became bailees of the dogs but the period covered by the court orders expired in August 2003. Guildford sought to retain possession because they were concerned that Dr Hein would commit further offences and an injunction was obtained prohibiting Dr Hein from keeping any dogs (save for a particular 3 dogs of the same sex). Clarke LJ said that Guildford could not have recovered the costs of keeping the dogs before obtaining the injunction mainly because the magistrates had declined to make an order to that effect but also because, once the orders expired, they were obliged to return them to Dr Hein. After the injunction, however, they became “bailees of necessity” because they would not be allowed to redeliver the dogs and they would have, therefore, a correlative right, as per The Winson, to the reasonable cost of looking after them

“and, perhaps, to a reasonable remuneration for doing so.”

One notes both the hesitant nature of that latter conclusion and the important fact of “necessity” which only arose after the injunction had been granted. In the absence of any element of “necessity” it is unlikely that remuneration would have been due; if, moreover, it had been due it would have been calculated according to the cost of a reasonable carer not by reference to remuneration due to a carrier or some operator different from a warehouser of the cargo.

Where there is no element of accident, emergency or necessity, I do not consider remuneration, which has not been expressly or impliedly agreed, can be due. I would, therefore, on this aspect of the case respectfully disagree with the judge and hold that the Owners are not entitled to hire at the market (or, indeed, the contract) rate for the 2.64 days before they sailed away.

The Owners are on stronger ground in relation to expenses since The Winson is authority that, in some circumstances some such expenses can be recovered. I would, however, draw a distinction between expenses incurred during the first period when the parties were discussing whether to make a new contract at market rate or not and expenses incurred after the decision to discharge the cargo. During that period the vessel was idle for the benefit of both parties in case a further agreement could be made. Expenses incurred during that time were not expenses incurred in taking care of the cargo let alone in preserving the cargo (which was the position in The Winson see 960E-F and 961F per Lord Diplock).

Once the decision to discharge was finally made, that discharge required co-operation between the Owners and the Charterers. Although the true position was that the Owners were requiring the Charterers to discharge the cargo and the Charterers were complying with that requirement, the nature of the discharge meant that the Owners did have to use bunkers in the course of that co-operative endeavour. The expenses of those bunkers were expenses incurred in taking care of the cargo during actual cargo operations. The Winson is authority for the proposition that the cost of those bunkers can be recovered from Charterers.

If (as I assume) the claim for $28,756 in respect of the bunkers is only for the cost of bunkers consumed during the discharge that sum can be recovered. To the extent (if any) that it covers bunkers consumed at other times, it will be irrecoverable. In respect of this sum I would dismiss, but otherwise allow the Charterers’ appeal.

I agree with Sir Mark Waller about the costs of the guarantee.

I agree with both judgments.

The appellants originally alleged a counterclaim for wrongful withdrawal of the vessel. They threatened to arrest the vessel but accepted a guarantee in the sum of US$18 million from the Royal Bank of Scotland which was procured by the respondent owners. Summary judgment was ultimately entered against the appellants in the Court of Appeal, when on an appeal to this court relating to whether the appellants had complied with a condition as to payment in, counsel for the appellants accepted that he could not put forward an arguable case in the light of a statement produced in the Court of Appeal on behalf of the owners see [2010] 1 WLR 1361. The expense of maintaining that guarantee has been considerable and the owners claimed that expense either as part of the costs of the counterclaim awarded to them or as damages.

Before Andrew Smith J the owners were successful in obtaining a declaration that the costs of the guarantee were costs “of or incidental to” the counterclaim and thus recoverable as part of the costs awarded to them. The owners failed in what would have been an alternative argument that they could recover the same as damages for breach of an implied term of the charter.

The question whether the costs of the guarantee could be recovered as costs in the counterclaim involved detailed examination of the court’s powers to award costs and in particular what would appear to be different views taken from time to time. A convenient starting point is the view of Sir James Hannen, President, in 1885. But, as the judge held, it is important to place that view against the relevant background. Before the Judicature Act of 1875 the courts, including the Admiralty Court, had different bases and practices in relation to awarding costs. Rules of court were brought into force by the Judicature Act 1875 and among the rules was Order LV, the language of which bears similarity to language (to which I shall come), as used in the more modern era. It provided that “Subject to the provisions of the Act the costs of and incident to all proceedings in the High Court shall be in the discretion of the Court.” But two views were taken about that rule. One view was that it conferred powers which courts had not previously had and another that it simply regulated how the courts should exercise their powers. The position is more fully recorded in Andrew Smith J’s judgment at paragraph 78.

It is perhaps unsurprising thus that there is no reference to Rule LV, or consideration of its language, in a judgment of the Admiralty Court at this time. In The Collingrove (1885) 10 PD 158 the question was raised whether a shipowner could, on success in the action, recover the costs of providing a bail bond. Sir James Hannen was at first persuaded to make an order in favour of the defendants that he should order delivery up and cancel a bail bond and order the plaintiff to pay the fees and costs of the same. But on appeal to the Divisional Court, where he presided over that appeal, and an appeal in the The Numida, he was persuaded by the argument of Mr Hall QC of the validity of the point – if the plaintiff is not liable for the costs incurred by arresting the vessel, why should he be made liable for the costs of the bail bond? He ruled in a judgment of the court:-

“In the case of The Numida, which was argued before Butt J, and myself, on a summons adjourned into Court, the question raised was, whether, when a ship has been arrested and held to bail, and the proceedings against her have been discontinued before the hearing, the owners are entitled to compensation for the loss occasioned to them by being obliged to pay commission in order to procure bail for their ship.

It was contended for the defendants that this commission must be regarded as costs in the proceedings in which the giving of bail was an ordinary step. We are, however, of opinion that this contention cannot be supported. It was not suggested that these expenses ever had been treated as costs since the time when the practice of obtaining bail on payment of a commission arose; and we should not be justified in creating a new head of costs.

We think, however, that in some circumstances the commission paid for obtaining bail would be recoverable as damages. This commission is the cost which the owner incurs to obtain the release of his ship, and to avert the damage he would sustain by the continued detention of his vessel. It appears to us, therefore, that this commission might be recovered as damages in those cases, and in like circumstances, in which damages could be recovered for the wrongful arrest of the vessel. It has always been the practice in the Court of Admiralty for the judge to award these damages to the defendant, where upon the trial the facts have shewn that he was entitled to them, without putting him to the necessity of bringing a fresh action for them see The Evangelismos. And it appears to us that where the suit is discontinued the same power nevertheless belongs to the Court, in fitting cases, to award damages to the defendants whose ship has been improperly arrested, upon the facts being brought to the knowledge of the Court by affidavit. See the case of The Orion.

We do not, however, consider that the bare fact of the proceedings being discontinued entitles the defendant to damages. It is necessary for him to shew that the arrest of the ship was malicious, or the result of gross negligence. This has not been done in this case, and we therefore dismiss the summons with costs. In the case of the Collingrove, where the same point was raised, the same result will follow, and the appeal must be allowed with costs.”

I cite the whole of the judgment because it shows that the court took the view that such costs could in the appropriate circumstances, i.e. where the arrest was “malicious or the result of gross negligence” be recovered as damages and indeed that it was unnecessary at least at that time to bring a fresh action, but they could not be recovered as costs in the action. If the wording of Rule LV had been considered, the view would have had to be that such costs were not considered “incident to” the proceedings.

The point made by Mr Hall QC was and is a very powerful point, and it is the point much relied on by Mr Baker QC for the appellants.

Mr Eder QC however took the court to a Rule change which expressly made the commission or costs up to 1% of the value of the bond or security recoverable as costs in the action. The Rule, either as a Rule or a Note in the Rules, relating to taxation of costs continued in materially the same form for 80 years, but for some reason no longer appeared in the Rules in 1982. The rule was in the following terms when it first appeared in RSC Nov 1900 as Order XII, rule 21(a):-

“A commission or fee paid to a person becoming surety to a bail bond or otherwise giving security may be recovered on taxation; provided that the amount of such commission or fee shall not in the aggregate exceed one pound per centum on the amount in which bail is given.”

The position was summarised in Williams and Bruce, Admiralty Practice (or the 3rd edition of Roscoe) (1902) 3rd Ed p 293, fn(b) in the following way:-

“A practice previously unknown in the Court of Admiralty has sprung up of recent years, whereby a commission, usually of £1 per cent, is paid by the party giving bail to each of the sureties to the bail bond. This commission was formerly held to be no part of the costs of the action as between party and party (The Numida, The Collingrove 10 PD 158), but might perhaps have been recovered as damages where the arrest had been improperly made. But it is now provided by R. S. C. Nov. 1900 (Order XII., rule 21a) that a commission or fee paid to a person becoming surety to a bail bond, or otherwise giving security, may be recovered on taxation, provided that the amount of such compensation or fee shall not in the aggregate exceed £1 per cent, on the amount in which bail is given”

The rule, as I say, continued for 80 years. In the 1979 edition of the Supreme Court Practice it appeared in RSC Ord 62 Appx 2 in a Note to items 93 and 94 which stated, “The commission or fee paid to a person becoming surety to a bail bond or giving a guarantee or undertaking in lieu of bail not exceeding £1 per cent of the amount for which the bond, guarantee or undertaking is given, shall be recoverable on taxation.”

In 1920 the Scottish courts, who did not have an equivalent rule of court, confirmed their own practice which accorded with the view of Sir James Hannen. The Judge correctly summarised their position in paragraph 80 as follows:-

“Lord Salvesen said: I think that was the rule established long before 1885, because it is in accordance with my earliest experience of shipping law that the expense of procuring a bail bond, being in the interest of the person who made the application for the release of the vessel, fell to be borne by himself. The pursuer in the action was entirely indifferent as to whether he had the ship secured for his debt or money deposited in lieu of it. But it was to the interest of the defender, who desired the release of his vessel for its profitable employment, to obtain its release on such terms as the Court would sanction.

Now that having been the practice in Scotland so far back as I can recollect, I see no warrant for changing that rule in the fact that the English Courts have now, in the exercise of jurisdiction conferred upon them by Parliament, issued a rule that in England such expense shall be treated as part of the expenses of process. These rules are not binding upon us, and we have no equivalent rule in Scotland.”

The Lord Justice-Clerk, Lord Dickson, said this:

“This is a pure question of practice. As regards the Scots practice I entertain no doubt. When expenses generally are allowed only those expenses are to be included in the account which are expenses necessitated by the steps of process in the cause. I cannot understand how procuring a bail bond in order to liberate a ship which had been arrested can be regarded as in any sense a step of process. It is a step which the owners of the ship take for their own convenience, because they think it is better for them to have their ship at their disposal, and to pay the expenses necessary to procure a fund which may remain as a surrogatum, rather than let the ship remain under arrest. ”

The note in the 1979 edition of the Annual Practice disappeared in the sixth cumulative supplement of that edition produced as at 1st January 1981. There was, it seems, a debate as to what the effect of the disappearance of the note was and the industry of Ince &Co has produced a minute of a discussion of the Admiralty Solicitors Costs Draftsmen Association of September 1982 in the following terms:-

“This note does not appear in the 1982 edition of the White Book …. From discussion with Admiralty Solicitors and with the Admiralty Registrar it is clear that two views could be put forward. The one view is that there is now no longer any limit to the amount of the bail fee which would be awarded on a taxation of costs. The other view is that by long established custom and practice, the bail fee allowable on taxation is 1%. The purpose of this note is not to advocate any increase in bail fees but to suggest that any doubt which might exist should be clarified one way or the other.”

The minute records that:

“The secretary reported that on a recent application before the Admiralty Registrar on a matter concerning bail fees. It was, perhaps somewhat tongue in cheek, put to the Registrar that there were no longer any rules governing the allowance of bail fees. He replied to the effect that it was deliberately left out of the new rules so that proper allowances could be made in respect of the actual costs providing security. In other words whilst bail fees will still be allowed, the Registrar’s discretion as to quantum is no longer fettered.”

Mr Eder submits that the Rule, when introduced as Rule LV in 1900, gained its authority from and was thus only intra vires by virtue of Section 5 of the Judicature Act 1890 which was in the following terms:-

“Subject to the Supreme Court of Judicature Acts, and the rules of Court made thereunder, and to the express provisions of any Statute, whether passed before or after the commencement of this Act, the costs of and incident to all proceedings in the Supreme Court, including the administration of estates and trusts, shall be in the discretion of the Court or Judge, and the Court or Judge shall have full power to determine by whom and to what extent such costs are to be paid.”

He points out that it was accepted after the passing of this Act that it gave a new power to award costs. (See paragraph 82 of the judge’s judgment and the reference to the Rule Committee’s decision in 1900.) He emphasised that section 51 of what is now the Senior Courts Act 1981 has identical or nearly identical language. (“Costs of and incidental to the proceedings”). So he argues that the view taken by the Admiralty Registrar as recorded in the above note was correct, i.e. that bail fees (and by implication costs of guarantees) were recoverable as costs “incidental” to the proceedings with quantum unfettered save by the Taxing Master’s discretion on reasonableness or proportionality.

The fact that Rule LV would be ultra vires the 1890 Act if section 5 of that Act would not bring costs of bail bonds within the phrase “incident to proceedings” does not necessarily establish that section 5 does bring costs of bail bonds and other security within that phrase. That could be said to be seeking to establish by reference to what occurred what it seeks to prove, when it may be that the rule was ultra vires all the time. The question is whether such costs are “incidental to the proceedings”. What can be said is that for many years such costs have been treated as incidental to the proceedings.

Mr Eder also seeks to gain some support from authorities dealing with costs incurred prior to commencement of proceedings in obtaining arrest or security summarised in paragraph 86 of the judge’s judgment, and other authorities dealt with from paragraphs 89 and onwards of the judge’s judgment. I agree with Mr Baker that those authorities do not really assist.

I thus come back to the question - are the costs of providing a guarantee “incidental to the proceedings”? Mr Baker’s strongest point is that which Mr Hall QC put before Sir James Hannen. If the costs incurred in having a ship under arrest are not recoverable as costs of the action, why should the costs of putting up a guarantee be such costs?

My answer to that question is that there is a distinction, albeit narrow, between the type of expenditure that one is dealing with. It is understandable how, over many years, it has been thought that such costs should be recoverable, even though the damages for the ship being arrested were only recoverable in limited circumstances. The costs incurred by an owner of a ship arrested is truly a damages claim. The costs of putting up a guarantee are very little different from the costs incurred to protect the subject matter of an action which, on any natural reading of the words are costs “incidental to the proceedings”.

Sir James Hannen, from his language, was against inventing another head of costs but, if for many years a new head had been recognised, I do not think he would have been averse to continuing it – after all at first instance he had made such an order.

In agreement with the judge I would award the costs of providing the guarantee as costs of the action, quantum to be left to the Costs Judge. It is unnecessary in those circumstances to consider Mr Eder’s fall back position seeking to recover such costs as damages.

I agree with Lord Justice Longmore’s judgment on the other point in this appeal.