Angara Maritime Ltd v Oceanconnect UK Ltd & Anor

This claim is mainly about the application of Section 25 (1) of the Sale of Goods Act 1979 when an unpaid supplier of bunkers to a time charterer claims against the owner of the vessel.

The Claimant (“Angara”) is the owner of the M/V FESCO ANGARA (“the vessel”). The Defendants (“Oceanconnect”) are an English company engaged in the sale and supply of bunkers for shipping and its US parent. Angara seeks a declaration of non-liability as regards bunkers to the value of $177,305.59 supplied by Oceanconnect to Angara’s time charterer, Britannia Bulkers A/S (“Britannia”). Britannia has not paid for the bunkers and is now in administration. Oceanconnect counterclaims for damages for conversion in the sum of $177,305.59. This claim has been hard fought at a cost which must approach the sum in issue. On 8 March 2009 Oceanconnect arrested the Vessel in Amsterdam. An escrow agreement between Angara and Oceanconnect was entered into on 11 March and this action started on 12 March. On 13 September 2009 Oceanconnect arrested the vessel again in the Western District of Louisiana. The vessel was released on 2 October 2009 and on 6 October Mr Justice Simon granted an anti suit injunction restraining the US proceedings. Oceanconnect have obtained permission from the Court of Appeal to appeal against that decision. I refused to adjourn the trial pending the hearing of that Appeal essentially on the grounds that its subject matter was the case brought in the US not this action. However, at my request, the parties reformulated the declaration sought by Angara so that its terms did not impinge on what the Court of Appeal has to decide.

As few of the facts are disputed the only live witness to the trial was Mr Vladimir Chabrov, Head of the Fleet Department at Far Eastern Shipping Company (“Fesco”) who acted as managers for the vessel on behalf of Angara.

The Defendants relied on witness statements of Jackie Gooby and Takako Shiozaki, brokers employed by Oceanconnect, and Dennis Gormley and Thomas Reilly, both Oceanconnect Directors.

Mr Chabrov gave evidence by video link from Vladivostok.

By a Time Charter dated 3 July 2008 Angara let the vessel to Britannia for what was intended to be twelve months.

The only term of the charter relevant to this dispute was Clause 40 which reads as follows:-

“The Charterers on delivery, and the Owners on redelivery, shall take over and pay for all bunkers remaining on board the vessel. On delivery quantity of bunkers on board shall be abt 300/100 RME180/DMB respectively. The vessel to be redelivered with about the same quantities of bunkers, however its quantity shall be sufficient to reach major bunkering port.

Prices for bunker on delivery are to be defined as per Bunkerdesk at the port and date of the vessel’s delivery (in case if said prices unavailable for the port of delivery then as per Bunkerdesk prices for the major bunkering port nearest to the port of delivery)”.

On 30 September 2008 Oceanconnect entered into a contract with Britannia to sell bunkers, 170 mt of IFO and 60 mt of MGO, to be supplied by Petrobras Marine. The bunkers were delivered on 6 October and on 15 October Oceanconnect invoiced Britannia for $177,305.59. Oceanconnect paid Petrobras on 5 November 2008 but Britannia never paid Petrobras. Oceanconnect’s standard terms which formed part of their contract with Britannia contained a retention of title clause. As a result Oceanconnect retained title in the bunkers.

On 29 October 2008 Mr David Znak of Britannia telephoned Mr Chabrov to say that because of financial difficulties Britannia was left with no choice other than to redeliver four vessels including the FESCO ANGARA. The conversation was confirmed later that day in an email which read as follows:-

“Good Day

Vladimir/David

Further telecon, Britannia Bulk has been informed that its financiers are not prepared to continue to support us in this current difficult market. Consequently we are not able to pay Hire, D/A’s or bunkers are left with no choice other than to redeliver the following vessels to you:-

C/P DTD 30.03.07

She is on her way to the discharging port Hamburg – eta 02.11

D/A’s have not been paid

Hire has been paid up to 27.10.08

C/P DTD 29.11.06

She is discharging in Yanbu and ETC is 02.11

Hire has been paid up to 29.10.08

C/P DTD 13.11.06

She is on her way to Hamburg with ETA 29.10.08

D/A for Hamburg has been paid

Hire has been paid up to 30.10.08

- Fesco Angara – C/P DTD

eta 1st Disport Belfast 30th November where d/a has been paid

eta 2nd Disport Glasgow 2nd November and d/a has not been paid.

I sincerely apologise for having to redeliver the above vessels early but unfortunately, as above we have been left with no other option.

Best regards

David Znak

Britannia Bulk”

This led in turn to a Redelivery Notice sent by the Master of the Vessel in the following terms:-

“REDELIVERY NOTICE

This is to certify that the mv “FESCO ANGARA”, Marshall Islands flag, registered to port of MAJURO, has been early re-delivered by requirement her Time-Charterer’s BRITANNIA BULK, PLS U.K. from charter to her owners “Angara MARITIME LTD”, on the 05th November 2008, at 1740OLT/1740UTC

Upon dropping the OUTARD PILOT at the port of Glasgow, Great Britain

The redelivery charterers bunker ROB as follows:

RME180 – 295 MT

MDO – 0 MT

Please be advised preliminary debts due to owners is 197 127,25 usd

Non paid Disb.Account Glasgow attached.

Best regards,

Capt. Mogilyan

Master of m/v “Fesco Angara”

On the following day, 30 October 2008, there was an exchange within the Fleet Department of Fesco. The vessel reported that on arrival in Belfast it would have on board only 9.1 tonnes of diesel of fuel and would need to order bunkers to reach Glasgow safely and there would also be a need for IFO. Fesco responded that bunkers should be ordered “in light of the situation that the vessel is not chartered any more and she is not booked for another voyage”.

Angara says that on 21 January 2009 a final hire statement was issued and sent to Britannia. A copy of a “Statement of Account between Angara and Maritime Limited and Britannia Bulk plc as of 21 January 2009” has been disclosed. That statement claims $437,305.29 being 11 days hire with some adjustments and credit is given for “bunker on redelivery” of $235,705.00. No record has been produced to confirm that that statement was submitted by FESCO to Britannia.

As several issues fell away or were agreed immediately before and during the trial it is unnecessary to refer in any detail to the material in the uncontested witness statements. However, the statement of Jackie Gooby exhibits lists showing a substantial number of occasions after September 2004 when Oceanconnect sold bunkers to Britannia for delivery to Fesco vessels. She also lists occasions when bunkers were sold by Oceanconnect to other charterers of Fesco vessels between May 2007 and October 2009. The lists are put forward to substantiate a claim that Angara and Fesco would have been aware of Oceanconnect’s standard terms, in particular that for retention of title. The response of Mr Chabrov is that Angara and Fesco would not have been aware of the details of those transactions since Oceanconnect was contracting with charterers and not with owners.

I next summarise the issues between the parties so that the relevance of the evidence of Mr Chabrov, when I refer to it, is clear.

It is now common ground that Oceanconnect’s standard terms including a retention of title clause were incorporated into the Britannia contract. As a result Oceanconnect retained title in the bunkers as Britannia did not pay for them. Oceanconnect claim that Angara assumed ownership of the bunkers first when they were consumed during the time charter and secondly after it was terminated and the vessel was redelivered (or as Oceanconnect would put it “returned”) by Britannia to Angara.

Angara denies that it converted the bunkers when these were consumed during the charterparty but accepts that there was a conversion after redelivery. Angara contends however that it purchased the bunkers from Britannia which it says was a “buyer in possession”, in good faith and without notice of Oceanconnect’s rights and that under Section 25 (1) of the Sale of Goods Act 1979 it acquired good title to the bunkers.

Section 25 (1) of the Sale of Goods Act 1979 provides as follows:-

“Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, has the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner.”

By Section 61 of the Act “delivery” means voluntary transfer of possession from one person to another. Section 61 (3) provides that “a thing is deemed to be done in good faith within the meaning of this Act when it is in fact done honestly, whether it is done negligently or not”. “Possession” is not defined in the Act but by Section 1 (2) of the Factors Act 1889 “A person shall be deemed to be in possession of goods or of the documents of title to goods, where the goods or documents are in his actual custody or are held by the other person subject to his control or for him or on his behalf”.

Oceanconnect deny that Section 25 can apply. They say that reliance on the section is precluded because there was no contractual “redelivery” of the vessel. There was therefore no delivery of the bunkers to Angara. Oceanconnect claim that Angara has failed to discharge its burden of proof to show that it acted in good faith and without notice of any rights of Oceanconnect. Oceanconnect also claims that Angara has failed to show that it paid for the bunkers. They also maintain that if Britannia had been a mercantile agent in possession of the goods or documents of title with the consent of its owner this would not have enabled Angara to take good title to the goods. Furthermore, Oceanconnect claim that even if the protection of Section 25 is potentially available Angara remains liable both through breach of its duties as a bailee and also in unjust enrichment.

Questions of bailment and unjust enrichment arose only briefly, and I will deal with them in the same way. The real dispute is the application of Section 25 and the debate is conducted in the context of the decision of Clarke J, as he then was in ForsytheInternational (UK) Limited v Silver Shipping Co Limited and Others [1994] lWLR 1334.

Mr Vladimir Chabrov is Head of the Fleet Department at Fesco (not Angara). He gave evidence by video link from Vladivostok and was cross-examined on his witness statement. He confirmed the telephone call from Mr Znak disclosing that Britannia would need to redeliver four vessels early because its financiers would no longer support it. He insisted that he had carried out the paper and electronic search of his office required by court orders and disclosed all that he had. He conceded that there was no copy of any communication of the final hire statement dated 21 January 2009 as sent to Britannia but insisted that this would have been sent in the ordinary course of business. He said that it often took a little while to submit final hire statements because relevant bills came in late. He was taken to the list of transactions and dealings exhibited by Ms Gooby. He did not contest the accuracy of the lists but said that the number of transactions would not have brought the Defendant’s standard terms and conditions to the attention of Fesco because it was invariably charterers not Fesco who bought the bunkers. As to his claim that no one at Fesco would have any idea of the terms and conditions he accepted that he had not asked the Master but on this specific issue had enquired only of the Head of the Bunkering Department. He said that he had read the email of 29 October 2008 as indicating that Britannia were not in a position to pay hire or for bunkers going forward but not that they were already in default. He said that he had known Mr Znak for several years and trusted him. He believed that if the bunkers had not been paid for Mr Znag would have said so.

Mr Chabrov said that the Statement of Account was created routinely as a balance for all ships. He pointed out that it was prepared as part of a larger document covering four vessels. The only purpose for preparing it was to send it out . He said that some files of correspondence had been lost at Fesco and it was their habit to keep additionally on file copies of the more important items. However an additional copy of a routine submission of a statement would not have been retained.

Mr Chabrov was a clear and straightforward witness whose answers were frank and to the point. His knowledge of English was good but not fluent and that confirms my impression that he was answering truthfully questions about how he read the email. As to the Statement of Account, on the one hand there is no proof that it was ever sent but on the other hand it exists, is consistent with the earlier documents and it is improbable that Fesco would not have sent it. On balance therefore I find that it was sent. As to knowledge of Oceanconnect’s standard terms and conditions it is improbable that Fesco or Angara were familiar with these since most, but not all, bunkers would be bought by charterers.

Against those findings of fact I turn next to the submissions of the parties.

While I am grateful for the detailed lists of issues prepared by Mr Kulkarni and Ms Hilliard the evaluation of the claim under Section 25 is most usefully conducted by the sequence of steps adopted by Clarke J in Forsythe which I first set out; adapted slightly to the facts of this case.

Angara submits that it is self-evident that Britannia obtained possession of the bunkers and did so with the consent of Oceanconnect. Mr Kulkarni submits for the reasons given in Forsythe at 1343 F – 1345 C, that while the owners obtained possession of the bunkers because they obtained actually custody so did the charterers because the bunkers were held by the owners subject to their control or on their behalf.

Oceanconnect do not seriously dispute this.

Angara submits that there was a delivery within Section 25 (1) ie “some voluntary act by the buyers in possession amounting to delivery” (Forsythe at 1349B). Angara submits that there was in this case the voluntary act which was lacking in Forsythe. This is because while in Forsythe there was a termination of the charter party for non-payment of hire by the owner the position was different in this case as the events on 29 October 2008 show. The telephone conversation and the email demonstrate that while Britannia, the buyer in possession, had not wanted the contract to come to an end it was deciding of its own volition to redeliver the vessels early having been as Mr Znak put it “left with no other option”.

Oceanconnect say there was no such voluntary delivery. Angara has alleged that there was a contractual redelivery on 5 November 2008 resulting, under Clause 40, in the owners taking over and paying for all bunkers remaining on board. Oceanconnect submit that the clause does not apply in the event of premature termination for the reasons given by Lord Diplock in the House of Lords in The Span Terza [1984] 1 Lloyd’s Rep 119, at 122:-

“My Lords I agree with Lord Justice Kerr that cl.3 [which set out that Owners were to pay for bunkers on redelivery] and the latter half of cl.4 [which set out the means of redelivery] deal with the same subject-matter and are confined to it. The latter half of cl.4 deals with the redelivery of the vessel (i.e. its being put once more at the disposal of the shipowners by the charterers) on dropping last outward sea pilot at the port within the redelivery range at the end of the contract period; in casu, about two years, 45 days more/less, from the date of delivery. Clause 3 deals with what is to happen to the bunkers aboard the vessel at the time of that redelivery. I share the view of Lord Justice Kerr that as a matter of construction its express provisions are wholly inapt to apply to termination otherwise that pursuant to cl.4”

Ms Hilliard argues that the Claimant cannot succeed at this point without an express clause stating that the consequences set out in Clause 40 would occur whether delivery occurred during the charter period or on an earlier termination, as happened in Forsythe. (She also submits that the Claimant did not pay for the bunkers with the agreement of the charterers and therefore did not buy them).

Angara responds that consideration of Clause 40 is a distraction. The Span Terza was about who owned bunkers at the point of sale in a dispute between the suppliers and the charterers. The question is whether, as a matter of fact, there was a voluntary act. In this case there was an unqualified tender of redelivery accepted by Angara. Had it been necessary to evaluate the matter in contractual terms the fact would remain that Britannia and Angara had, notwithstanding the provisions of Clause 4, agreed to redelivery with Angara taking over the bunkers.

I prefer Angara’s approach. The issue is whether as a matter of fact there was a voluntary act by the buyers in possession amounting to delivery and, on the evidence, there clearly was. It is a question of fact not contractual analysis. Even if that analysis is required one then has the parties agreeing to redelivery otherwise than under the clause and thus varying the terms of the deal between them. It is unrealistic for Oceanconnect to present the events as being Angara’s voluntary act, a process beginning with breach by Britannia potentially bringing the charter to an end, ending when Angara voluntarily accepted the repudiation.

Ms Hilliard placed emphasis on the fact that the burden of proof rests on Angara throughout. So it does. That does not mean however that Angara must itself produce evidence in any particular form. The question is simply whether on the agreed facts and those established at the trial the Claimant has, on balance, established its case on the point in issue.

Such documents as exist are consistent with there being a sale by Britannia to Angara. The redelivery notice presupposes on a preliminary basis that the debt due to the owner is $197,127.25 (albeit not $201,127.67), as does the Statement of Account. Then is no question of Angara/Fesco dreaming up the sale at a later and convenient point.

Oceanconnect claim that Angara lacked good faith and/or had notice of their rights. Ms Hilliard emphasises that in some circumstances mere negligence or carelessness may be evidence of bad faith and that suspicion combined with the power to acquire knowledge can amount to notice. Angara claims that it had no knowledge of Oceanconnect’s standard terms or that there was a retention of title clause within them. Angara further submits that it was not aware that Britannia had not paid for the bunkers. I have accepted Mr Chabrov’s evidence about these points and I find no evidence of negligence or suspicion in what he did and did not do.

For the reasons that I have given I find that Angara did act in good faith and without notice of Oceanconnect’s rights because there was nothing to put someone in the position of Mr Chabrov on enquiry. There would have been no reason for Mr Chabrov to give the email the close textual analysis to which the lawyers have now subjected it. Even when that examination is conducted it seems to me that the unredacted copies support the position that Mr Chabrov had no knowledge of Oceanconnect’s adverse rights or that Britannia had not paid for the bunkers on board.

Angara has established that it meets the first three steps and the fourth one is satisfied for the reasons I have given. As Angara purchased bunkers from Britannia upon redelivery in good faith and without notice of any adverse right, what would otherwise be a good claim in conversion fails.

Ms Hilliard contends that Angara is liable for a breach of its duties as bailee. Oceanconnect’s case is that upon delivery of the bunkers to the vessel Angara, as owner, became bailee. In breach of Angara’s duties as bailee it consumed the bunkers and became liable to Oceanconnect. Consumption of bunkers is a conversion and Angara therefore has no defence, even under Section 25(1), in the period up to re-delivery.

Mr Kulkarni responds that upon delivery to the vessel the bunkers would have been held by Britannia as bailee. They would also, he accepts, have been held by Angara as sub-bailee but, as it was put by Lord Diplock in The Span Terza (see Clarke J’s reference at 1341F of Forsythe), Angara would have been under a duty to procure that the bunkers were used by the Master in carrying out Britannia’s lawful orders under the charterparty. Britannia, as bailee exercised full control over the bunkers and, during the charterparty, could have directed Angara to deliver them to it. The sub-bailment was on terms, as explained by Lord Goff in The PioneerContainer[1994] 2 AC 324. Angara is thus entitled to rely upon the terms of the contract between it and Britannia under which the sub-bailment of the bunkers took place. Oceanconnect is to be taken as having consented to Britannia sub-bailing the bunkers on the terms of the charterparty. Those terms in clauses 2 and 86 require the charterers to provide and pay for the fuel.

Ms Hilliard counters that this would still not be a defence to the claim in respect of the IFO because it can only apply to the period while the charterparty remained alive. The answer to that is that Oceanconnect can in that regard be in no better position than Britannia, as regards a bailment claim.

Although Angara was a bailee the relationship is a classic illustration of a sub-bailment on terms. In a claim based on bailment Oceanconnect could not be in any better position than that which Britannia would have enjoyed. There is thus no basis for Oceanconnect’s bailment claim either during the period prior to redelivery or afterwards.

Oceanconnect claim that Angara is liable to it in unjust enrichment. The case was advanced very briefly at the trial and occupies just five lines of Ms Hilliard’s skeleton argument. The case is that the bunkers were consumed by Angara’s vessel and Angara thereby obtained the benefit. Angara has not paid Oceanconnect for the bunkers or, Oceanconnect maintain, Britannia either. There has therefore been a total failure of consideration and Angara is liable in restitution/unjust enrichment for the value of the bunkers.

This claim cannot get off the ground for the reasons given in Mr Kulkarni’s skeleton argument. It appears that the unjust enrichment claim only arose in the first place when the Defendants were submitting that it was governed by the law of an unspecified US state or alternatively of the Marshall Islands.

There will be judgment for the Claimant because Section 25(1) of the Sale of Goods Act 1979 protects it from what would otherwise be a claim for conversion and because the claims based on bailment and unjust enrichment fail. I shall be grateful if counsel will let me have corrections of the usual kind at least 48 hours before this judgment is handed down together with a draft order and a note of any further matters which arise for decision by me.