Marine Oil Traders v Vitol SA & Anor

This is an urgent application upon which I have heard only brief argument and on which I must give judgment after only a very brief period for reflection.

The claimant is the owner of the vessel the motor tanker Windsor. Vitol SA are the voyage charterers. The charter-party has a law and litigation clause in these terms:

“This charter shall be construed and the relations between the parties determined in accordance with the laws of England. Any dispute arising out of or in connection with this charter involving amounts in excess of US $50,00 shall be subject to the jurisdiction of the English High Court.”

There is then a provision concerning disputes involving amounts less than US $50,000 with which I am not concerned.

67,000 tonnes of fuel oil were loaded on board the vessel at Odessa in June of this year. After three months detention at Odessa the vessel departed on 24^th September, bound for Singapore in accordance with the charterer’s orders.

The delay at Odessa was caused by disputes between those in the contractual chain pursuant to which the cargo was supplied to Vitol. Vitol purchased the cargo from a company called Karlak Participations Ltd on terms whereby title in the cargo was to pass from seller to buyer as the oil passed the vessel’s permanent flange connection at the load port.

The cargo arrived at Odessa by rail. It is said that 41,000 tonnes or so thereof had in turn been sold to Karlak by the second defendants, Euro Asian. The terms of that sale expressly provided that property was to pass “at the moment of the goods arrival at the railway station of destination, Odessa”.

Evidently Euro Asian have not been paid by Karlak. They assert that in consequence they remain owners or have resumed ownership of what is therefore just under two thirds of the cargo on board the vessel.

The legal analysis which is said to give rise to that conclusion is not advanced with any very great conviction. Euro Asian have placed no evidence before the Court. However in a fax message from their solicitors, Messrs Clyde &Co, to the owner’s solicitors, Messrs Holman Fenwick & Willan, of 2^nd October 2003 the following is said:

“8.

At 3 is a copy of our client’s contract with Karlak. You will see from the delivery clause that title to the goods passed on delivery.

9.

However that is not the extent of the position and title did not pass until Karlak were as a matter of fact able to freely dispose of the cargo without restrictions. Seemingly, due to local law and/or a previous course of dealings, the cargo remained under the control and direction of our clients until our clients consented to it being sold and any contrary act by Karlak amounted to conversion and/or unlawful interference with our client’s goods or rights over those goods and/or breach of the obligation on Karlak to return the oil.

10.

In any event, as matters progressed the contract was terminated and as a matter of Ukrainian and Kazakhstan law our clients are entitled to the return of their goods. We attach the relevant articles at tab 4. Ukrainian law applies as the offence was committed there and the contract has been terminated.”

For the record I am not sure that the relative articles of either Ukrainian or Kazakhstan law are in fact before the Court but in any event there is no evidence from any relevant person conversant with the laws of those jurisdictions. Indeed there is as I understand it no evidence before the Court as to the content of any relevant local law.

Insofar as Euro Asian rely upon the termination of their contract with Karlak this is asserted in pleadings served in proceedings in Kiev to have occurred on 26^th August. That was two months after completion of loading.

Vitol have filed evidence to the effect that at all times between 4^th April when they entered into the contract with Karlak and 18^th June when loading was completed they were unaware of the existence of any claim by Euro Asian in respect of the cargo.

Since there is no evidence as to the content of the relevant local law or laws it goes without saying that Euro Asian have not in any evidence filed before the Court, nor indeed in their solicitors’ letter to which I have just referred, addressed the question what is the impact under that local law of the intervening sale to a bona fide purchaser for value?

Euro Asian have brought arbitration proceedings against Karlak in Kazakstan. The claim apparently brought is in debt or damages without any suggestion that Euro Asian retain or have resumed title to the goods.

The delays in Odessa were as a result of legal action initiated by Euro Asian and possibly by others arising out of these underlying contractual disputes. The evidence placed before the Court by the ship owners and by Vitol is to the effect that by the time the vessel left there was no further legal impediment to her doing so, an attachment issued by a court in Kiev having been lifted, an order directed to the Master by a court in Odessa not having been enforced and the Customs and port authorities having given the vessel her clearance to leave the port.

The delays at Odessa have caused serious problems for the vessel’s owners in particular in relation to the requirements of their classification society and of their flag state for various by now overdue periodic surveys.

The owners are now, to use their own expression, “desperate for the cargo to be discharged promptly upon the vessel’s arrival at the discharge area”, not just for the obvious commercial reasons but in consequence of these additional problems with the vessel’s class and flag status.

I am told that the vessel is due to arrive off Singapore tomorrow, 22^nd October. Discharge orders have been given by Vitol calling for a ship to ship transfer at sea at a position about thirty miles east of Singapore. Arguably this is an impermissible order since it does not call for discharge at one safe port in Singapore, that being the relevant description of Singapore in the contractual discharging range by contradistinction to for example the description of the permitted place of discharge in the Red Sea or the Gulf of Oman range which is one safe port or place. However, the owners seem unlikely to stand on that point.

The Bills of Lading are all consigned to Vitol. The owners however fear action by Euro Asian should they discharge the cargo to Vitol. Euro Asian claim that they are the owners of two thirds of the cargo and they have threatened to sue the owners if they discharge the cargo to Vitol. They have also sought conservatory measures against Vitol in Switzerland where both Euro Asian and Vitol are domiciled and have entered into correspondence with the owners of the lighters on to which Vitol wants the cargo transferred.

In an effort to resolve the impasse the owners have attempted to intervene pursuant to CPR SC17 Rule 1(1a) and SC17 Rule 8(1). Their Part 8 claim form directed to Vitol and to Euro Asian as first and second defendants sets out details of claim as follows:

“The claimant’s claim is for interpleader relief pursuant to CPR SC17 Rule 1(1a) and SC17 Rule 8(1) as follows:

1.

That the defendants, being the persons making adverse claims to the cargo of fuel oil presently laden on board the claimant’s vessel M.T. Windsor (i) state the nature and particulars of their respective claims to the cargo of fuel oil presently laden on board the vessel M.T. Windsor or any part of it, (ii) take such steps in the proceedings as the court shall direct, (iii) either pursue or give up their respective claims, and (iv) abide by any order the court may make.

2.

That the cargo of fuel oil presently laden on board the vessel M.T. Windsor is discharged to the order of the first defendant upon the vessel’s arrival off Singapore subject to (i) the first defendant making payment of freight and outstanding demurrage, damages for detention in the amount of US $1,723,956.40 in the claimant’s favour, and (ii) the first defendant providing satisfactory security or paying the value of the cargo into court.”

The owners have asserted that they are entitled to serve this claim form on Vitol pursuant to CPR 6 19 without the need to seek leave to serve out of the jurisdiction. In fact Morison J. on a without notice application has granted to the owners permission to effect service within the jurisdiction through their agent’s chartering brokers, Simpsons Spence & Young, although plainly that order presupposes that service is permissible under CPR 6.19.

Vitol have entered an acknowledgement of service indicating an intention to challenge jurisdiction. They say that the English court lacks jurisdiction to hear the substantive issue which is, they say, a contest between Vitol and Euro Asian. They do however accept that by virtue of the charterparty jurisdiction clause this court has jurisdiction to determine a claim by the owners that delivery up of the cargo should be on terms.

Euro Asian have accepted service within the jurisdiction. They urge me to grant the full relief sought by the owners which is, in terms of a draft order placed before the court by Euro Asian, an order in the following terms:

“It is ordered:

1.

Upon the first defendant paying into court the sum of [US $5.7 million] [or providing a letter of guarantee from a first class London bank in the sum of US $5.7 million] a cargo of fuel oil presently on board the vessel M.T. Windsor be discharged to the order of the first defendant upon the vessel’s arrival off Singapore.

2.

2. Pursuant to RSC order 17 Rule 5(1)(b) the following issue be tried, whether Vitol SA or Euro Asian A.G. has better title to the cargo of fuel oil, the cargo, shipped aboard the Windsor at Odessa by or on behalf of Karlak Participations Ltd and/or Karlak Participations (Cyprus) Ltd.

3.

For the purposes of the issue above the second defendant is to be the claimant and the first defendant the defendant.

4.

The claimant is to set out its claim to title to the cargo in the form of a CPR statement of case which is to be filed and served by no later than 4.00 pm on 14^th November 2003.

5.

The defendant is to set out its claim to title to the cargo in the form of a CPR statement of case which is to be filed and served by no later than 4.00 pm on a date to be inserted.

6.

There be a case management conference no later than a date to be inserted.

7.

Marine Oil Trader 2 Shipping Ltd is to preserve copies of all documents presently in its power, custody or control relating to the cargo and its shipment aboard the Windsor pending the case management conference, further order or agreement between all the parties.”

Euro Asian say that I should require Vitol to pay into court the amount of their claim, calculated by reference to their sale price to Karlak, or alternatively that they should provide a bank guarantee in a like amount. Discussion revealed that the question to whom such a guarantee should be directed or the events or claims to which it should respond is far from straightforward and does not command a unanimous response.

Vitol say that they are of such financial substance and reputation that they should not be required to put up security, or alternatively that the most that they should be required to do is to provide a company letter of guarantee directed solely to Euro Asian and on terms that Euro Asian do not seek further security elsewhere, all without prejudice to their contention as against Euro Asian that the court lacks jurisdiction to entertain the substantive issue as to ownership of the cargo which arises between Vitol and Euro Asian.

In my judgment Vitol’s attitude is somewhat ambivalent for easily understandable tactical reasons. Whilst apparently prepared to accept the owner’s ability at any rate to initiate interpleader proceedings against them, as against Euro Asian they challenge the court’s jurisdiction to entertain trial of an interpleader issue between them. Vitol say that such an issue cannot or should not be entertained by the court because of Article 2 of the Lugano Convention which reads:

“Subject to the provisions of this Convention persons domiciled in a contracting state shall, whatever their nationality, be sued in the courts if that state.”

I am not sure that Mr Brenton Q.C. is right about that. If the Court were to direct the trial of an issue between Euro Asian as claimants as Vitol as defendants in terms of the draft order placed before me I do not consider that it would necessarily be right to say that Vitol were being sued in this court. Rix J. as he then was had to consider a cognateproblem in relation to proceedings brought against a person domiciled in Greece with a view to rendering him liable under s.51 of the Supreme Court Act 1981 to pay costs incurred in litigation in this court and ordered to be paid by a company in which he had effectively the entire beneficial interest (see National Justice Companis Naviera SA v Prudential Insurance Co Ltd the Ikarian Reefer No 2, [1999] Vol 2 Lloyd’s Reports, page 621). At page 628 Rix J. said:

“Turning to the Convention, I do not know of any jurisprudence on the meaning of ‘sued’ for the purpose of Article 2. The expression is also found in Articles 3, 5, 6, 8, 9 and 20. I am prepared to assume that it should be given a broad meaning. For these purposes I note that the Convention elsewhere speaks in broad terms about the bringing of proceedings, for example in Articles 11, 13 – 15, 16 and 20-22, that the Convention applies in similar commercial matters whatever the nature of the court or tribunal, Article 1, and that ‘judgment’ is given the broad meaning in Article 25 to which Mr Layton has drawn attention. It is not therefore in any narrowness of language that I would find that the Convention cannot apply to the claim in question. Mr Hildyard nevertheless submits that Article 2 of the Convention was only intended to apply to a substantive cause of action of the kind which could support proceedings by itself and that pacethe dictum of Phillips L.J. in Murphy v Youngs Brewery a claim under s.51 could not do so. I agree that it could not do so. It seems to me that this is a helpful distinction and would also appear to be the basis of Sir Robert Gatehouse’s decision in Seismik v Sphere Drake. Consistently with that submission the concept of a cause of action is fundamental to Article 21 and the concept of lis pendens.”

Furthermore in De La Rue v Hernv Peron & Stockwell Ltd [1936] 2 KB page 164 Green L.J. said at pp 172 – 173:

“In substance when an interpleader issue is tried two actions against the person interpleading are being dealt with. Interpleader proceedings are the method of compelling the parties, either one or both or neither of whom may have actually issued a writ, to prosecute their claims. As it is the essence of interpleader proceedings that the person who has inter pleaded has no title themselves he naturally drops out of the suit but in effect the entire matter is tried out in the presence of all the parties concerned and the real claimants are compelled to put forward their claims and have them adjudicated upon. The reason for that is not their own benefit but is for the relief of the person interpleading. When it is once appreciated that that is the true nature and history of interpleader proceedings I take the view that it is quite wrong to treat an issue directed under the interpleader rules as though it were an action of tort. It is a method to enable the court to decide the claim as between two persons present at the proceedings and to decide those claims so that the person interpleading will get the relief to which he is entitled.”

I am therefore far from convinced that Mr Brenton’s reliance on Article 2 of the Convention is well-founded although I do consider that the lack of any connection between either Vitol or Euro Asian and this jurisdiction is a factor to take into account in the exercise of my discretion.

I am however far more troubled by the question whether the court has jurisdiction pursuant to CPR 6.19 to permit service out of the jurisdiction upon Vitol of the owners’ claim form. This point was not fully argued and since Vitol intend to challenge jurisdiction hereafter it may in due course have to be.

CPR 6 19 provides:

“A claim form may be served on a defendant out of the jurisdiction where each claim included in the claim form made against the defendant to be served is a claim which the court has power to determine under the 1982 Act.”

Mr Bright submits that the owners’ claim for interpleader relief falls within the ambit of the charterparty jurisdiction clause and thus that the court has jurisdiction under Article 17 of the Lugano Convention scheduled to the 1982 Act.

I would agree, as does Vitol, that owners’ claim that delivery up of the cargo should be upon terms can properly be said to be or perhaps to evidence a dispute arising out of or in connection with the charter. That deals with paragraph 2 of the details of claim in the claim form.

However paragraph 1 of the claim form seeks interpleader relief properly so called, asking that the two defendants state their adverse claims and take such steps in the proceedings as the court shall direct.I am doubtful whether that evidences a dispute arising out of or in connection with the charterparty. It seems to me that what that really evidences is a dispute between Euro Asian and Vitol as to who has title to the cargo.I suppose that possibly it also evidences a dispute between Euro Asian and owners as to whether the cargo should be discharged to Vitol’s order and I suppose also that it can be said to evidence or reflect the disputes between owners and Vitol as to whether discharge should be on terms, but the request for interpleader relief really arises not in connection with the obligations assumed under the charterparty but in connection with the contractual arrangements for acquisition of the cargo.It seems to me somewhat artificial to describe the owners’ request for interpleader relief as arising out of or in connection with the charterparty when there is no real controversy as to the ambit of the obligations of either of the parties to the charterparty.

However there is in my judgment a yet further problem in that I have grave doubts whether a request for interpleader relief in terms of paragraph one of the details of claim should properly be regarded as a claim for the purposes of CPR 6.19. I discussed a related problem under CPR 6.20 in my judgment in Cool Carriers AB & another v HSBC Bank USA & others [2001] 2 Lloyd’s Reports at page 22. Article 6.19 is equally concerned with service out of the jurisdiction. It seems to me likely that Article 6.19 is, just as much as is Article 6.20, concerned in substance with claims asserted by the claimant, not with claims asserted against the claimant.It is of course competing claims against the interpleader which are invoked by a request for interpleader relief.

All of these questions may need to be decided on Vitol’s substantive challenge to the jurisdiction. All are plainly reserved by them at any rate as against Euro Asian.

At the end of the day however I am not persuaded that I should in the exercise of my discretion grant any of the relief sought. Firstly, Euro Asian have placed no evidence before the Court on the basis of which I could conclude that they have an arguable claim which ought to be secured. Secondly, Vitol’s financial position is such that I am not persuaded that they should be required to put up security. This is dealt with by Vitol’s solicitor, Mr Dennis Hickey, a partner in the firm of Messrs Ince & Co. in his witness statement and in particular at paragraphs 26 – 28. I quote:

“26.

In any event Vitol’s financial position means that there can be no justification for requiring my client to provide security. Vitol SA is the main trading entity within the Vitol group and is widely recognised as the foremost independent physical trader in the world, routinely shipping over £10 million tonnes of crude and petroleum products per month. The business which has offices in fifteen countries has been in existence for thirty-eight years and has built on a platform of long-term relationships with refiners and customers. Vitol’s trading team operates on a global basis and the majority of business is carried out under long-term contracts with a stable basic supplier and clients. Vitol is one of the biggest charterers in the market, fixing more than 2,500 vessels per year. The Vitol group also own the North Atlantic refinery in Nova Scotia Canada and have substantial shares in metal smelting assets in the FSU.

27.

I am advised by David Fransen who is Managing Director of Vitol SA that the 2002 audited results for Vitol SA show turnover converted into US dollars at current rates of US $32.14 billion, net income of US $39.7 million, total assets of US $4.34 billion and total equity of US $250 million. I am further advised by Sandra Rosignoli that the latest profit and loss accounts for the ultimate holding company, Vitol Holding BV, which are filed in Holland, show net profits for the group after tax of US $288 million in 2001.

28.

I can further advise, having acted as an external legal adviser to the company for over twenty-five years, that Vitol have never failed to honour any judgment or award against them. It is therefore clear that there can be no concern about Vitol’s ability to pay any judgment which may be made against the company.”

Furthermore, on 26^th September 2003 Messrs Clyde & Co for Euro Asian in a fax message to Sandra Rosignoli, who is I believe an in-house legal adviser to Messrs Vitol, themselves put forward the proposal that Vitol should provide a company letter of guarantee. The relevant paragraph reads:

“As discussed we suggest that to avoid interruptions and lengthy determinations of the title issue that you provide a company letter of guarantee to us to secure our client’s claim and in return our clients prepare a letter of guarantee to you to secure any costs you will incur in defeating our client’s title claim.”

Mr Nigel Teare Q.C. for Euro Asian suggested that there were various reasons why Euro Asian were entitled now to resile from that position. In particular he said that financially strong companies do not always remain strong and that in the oil business those selling to Vitol would require a letter of credit as the machinery for payment. He suggested that where there are competing claims it is only fair that proper security be given rather than reliance upon a mere promise to pay. He also submitted that there are two aspects which have caused Euro Asian real concern, by which I suppose he meant concern as to the bona fides of Vitol, those being firstly the fact that both the original and the substitute Bills of Lading named Euro Asian as shippers whereas they were not and secondly that it has apparently taken some time for Vitol to explain the basis upon which they believe themselves to be the owners of the cargo. None of those matters, as it seems to me, really bear on the fundamental question of whether or not Vitol is a company of a size and reputation which ought to be required to post security in the particular circumstances before the Court. Vitol is of course well-known to the judges of this court as an extremely shrewd and tough operator which fights its own corner with some vigour, but in the experience of this Court Mr Hickey’s assertion that Vitol has never failed to honour any judgment or award against it is entirely well-founded.

A further reason which militates against requiring Vitol to post any security is the uncertainty to which I referred earlier amongst counsel as to the appropriate terms in which any security should be couched. That related not just to the identity of the parties to whom the security should be addressed but also the events or claims to which it should respond.

The third ground upon which I have concluded that I should not grant any of the relief sought relates to the fact that Mr Bright, whose application this is, emphasises that whether to grant any of the interpleader relief is entirely within the discretion of the Court. Vitol for their part have asked me not to assume jurisdiction over the substantive dispute between them and Euro Asian. Mr Teare as I understood him accepted that the powers of the Court are in this field discretionary; that is why he suggested that the burden was upon Mr Brenton to demonstrate that Switzerland is a distinctly and clearly more appropriate forum for the resolution of the substantivedispute than is this court. Switzerland is the domicile of both claimants to the cargo and the place where Euro Asian has instituted conservatory proceedings against Vitol. In my judgment it is plain and obvious that Switzerland is in principle a more appropriate forum than this for the resolution of the dispute between Vitol and Euro Asian as to the title to the cargo. Of course, if some real problem arises as to the ability, by which I mean the competence in a jurisdictional sense of the Swiss courts to entertain such a claim if brought by Euro Asian, then Euro Asian will be at liberty to return to this court to draw to its attention the fact if it be the case that it is not possible for the Swiss court to assume jurisdiction in relation to that dispute.

That leaves the question whether I should make the order which the owners seek in paragraph 1 of the draft order, simply that “Upon the first defendant complying with its obligations under the charter-party the cargo of fuel oil presently on board the vessel M.T. Windsor be discharged to the order of the first defendant upon the vessel’s arrival off Singapore.” I should mention that the introduction of the words “Upon the first defendant complying with its obligations under the charter-party” represents a compromise by the owners of their request hitherto that any order that the cargo be discharged be made conditional upon Vitol first paying the outstanding freight and demurrage. It is common ground between the owners and Vitol that I have jurisdiction to make such an order which they would both wish me to make in these proceedings to which Euro Asian are party.

Anxious though I am to assist the parties I am not persuaded that this would be an appropriate exercise of my discretion. It is axiomatic that any ship owner should, upon the charterer complying with its obligations under the charter-party, itself comply with its obligations under the charterparty. A charterer only has power to give lawful orders and lawful orders should be complied with. If I were satisfied that I had jurisdiction to grant full interpleader relief and that it was appropriate to do so I would of course have no difficulty in making an order in terms of paragraph 1 as I have just read it out as part and parcel thereof. However, where I am doubtful as to my jurisdiction and not satisfied that the full interpleader relief requested is appropriate I am very doubtful whether I should at the urging of two parties make an order which simply declares that the owners should comply with their contractual obligations without of course determining that the order to which they are invited to respond is a lawful order. The only purpose of such an order is to enable the owners to say to the world in general and to Euro Asian in particular that the Court has sanctioned their proposed discharge to the order of Vitol. I doubt whether the Court should make such an order without determining that Vitol are entitled to have the cargo discharged to their order, unless of course as part of an overall package designed to safeguard the interests of all potentially interested parties, which by definition would not conclusively determine anyone’s legal rights.

Whilst I am far from persuaded that such interests as Euro Asian have will be irretrievably prejudiced by discharge to Vitol the fact is that the order sought under paragraph 1 alone is intended by the owners and Vitol to preclude Euro Asian from hereafter pursuing any claim in conversion against the owners. The owners and Vitol of course agree that it should be granted since the owners believe that it will give them some protection in the event that they discharge to Vitol’s order and Vitol believe that it will induce the owners to comply immediately with their orders. I am afraid that I do not believe that it is the proper function of the Court to assist two parties in this way to the possible disadvantage of a third without first deciding that that third party in fact has no interest to be protected.

I think that were I to make an order simply in terms that “Upon the first defendant complying with its obligations under the charterparty the cargo of fuel oil presently on board the vessel be discharged to the order of the first defendant upon the vessel’s arrival off Singapore” there would be a grave danger that that order could be misunderstood in other jurisdictions as involving a determination by this Court that Euro Asian has no proprietary interest in the cargo. That is not an issue which I am invited to or which I could decide today.

For all these reasons therefore I am afraid that I must decline to grant any of the relief sought. I appreciate that the owners’ dilemma is exacerbated by the flag state and class problems to which I have already referred. However, were it not for those difficulties I doubt if this application would have been made. In commerce parties frequently face dilemmas which they must simply resolve in accordance with the legal advice tendered to them. Lord Woolf C.J. adverted to this problem in a slightly different context in Bank of Scotland v A Ltd [2001] 1 WLR 751 at 768. Some decisions are simply an inescapable commercial responsibility. The Court will assist where properly it can on an interim basis but here in my judgment the Court can only properly adopt either the whole solution urged upon it by the owners or none of it.

Since I am not satisfied that I can grant to the owners all of the relief which they seek and since I am satisfied as a matter of discretion that I ought not to do so, I regret that I do not consider it appropriate to grant simply that part of the relief sought which will assist the owners and Vitol to the possible detriment of Euro Asian, who owners have impleaded in these proceedings and whose only interest is to support the owners in their request for full interpleader relief.