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Ship owner not liable for lien incurred by sub-charterer
Published in the May 2010 issue of Transportation Notes - View Article
The Federal Court of Canada recently released an interesting decision on a claim by a bunker supplier against the ship Nordems and her owners. The motor vessel Nordems is owned by a German corporation, was time-chartered to a Norwegian corporation and then sub-time chartered 7 times, with the last sub-time charterer being Parkroad Corporation of South Korea. The original time charter from the owners and the sub-charter to Parkroad both contained a clause stipulating that the charterers would not procure bunkers on the credit of the owners and would not permit any lien or encumbrance to be placed on the ship.
In October of 2008, the ship took on $300,000 worth of bunkers in Cape Town, South Africa. The purchase was arranged between Parkroad and World Fuel Services Seoul which is part of World Fuel Services (Singapore) PTE Ltd. The bunkers were physically delivered by Chevron South Africa. An e-mail from World Fuel Services to Parkroad stipulated that the buyer was presumed to have authority to bind the vessel with a maritime lien. After the bunkers had been delivered, the master of the vessel stamped the delivery receipt to the effect that the delivery was “for the account of Parkroad Corporation” and that “neither the owner, nor vessel, was responsible for payment of the service/supply”. Thereafter, World Fuel Services addressed an invoice to “MS Nordems and/or her owners/operators and Parkroad Corporation” at an address in South Korea. The first that the owners heard of it was in December of 2008 when they received a communication relating to the imminent arrest of the M/V Nordems. This correspondence was on the letterhead of World Fuel Services Corporation of Miami. When payment was not forthcoming, the vessel was arrested in Baie-Comeau, Québec and then released on bail.
An action was commenced by World Fuel Services Corporation of Miami in the Federal Court of Canada and it brought a motion for summary judgment seeking to recover the amount that it was owed. The Defendants brought a cross-motion for summary judgment, seeking the dismissal of the action. The Plaintiff argued that American law should govern and that American law would grant a valid maritime lien over the ship. The contract between World Fuel Services Corporation and Parkroad was stipulated to be governed by the maritime law of the United States. Justice Harrington began by reviewing the principles which would apply in both Canada and the United States, which can be summarized as follows:
1. Under the maritime law of the United States a necessaries man is presumed to have contracted on the credit of the ship. That presumption can only be rebutted by establishing that the necessaries man had actual knowledge that the contracting party did not have authority to bind the ship.
2. If that presumption is not rebutted, American law creates a maritime lien on the ship.
3. Under Canadian maritime law, apart from a few exceptions, a necessaries man does not enjoy a maritime lien. Rather, he has a statutory right in rem against the ship, but only if her owners are personally liable.
4. In Canadian law, there is also a presumption that the necessaries were ordered on the credit of the ship, but that presumption can be rebutted without proof of actual knowledge of lack of authority on the part of the necessaries man.
Justice Harrington seemed satisfied that if American law applied to this case, the Plaintiff would have the benefit of a maritime lien. He therefore noted that it may be necessary to consider the proper law of the contract. However, he also pointed out that if Canadian law applied and it were established either that the Owners were a party to the World Fuel Services contract or if the Owners failed to rebut the presumption that the bunkers were supplied on the credit of the ship, World Fuel Services would be entitled to judgment, even if it only had a statutory right in rem.
He therefore went on to consider whether under the law of agency, the owners of the Nordems were bound by the contract purportedly made on their behalf by Parkroad. Clearly the Owners did not expressly authorize Parkroad to order bunkers on their credit, as the provisions of the charter parties prohibited it from doing so. For there to have been implied authority, there had to have been some action on the part of the Owners which could have caused the necessaries man to have concluded that the bunkers were being ordered on behalf of the Owners. There was no such action in this case. Indeed, the World Fuel Services contract made it clear that they were aware that the person ordering bunkers may not have actual authority to bind the ship. They were on notice and could have verified with the Owners as to whether or not Parkroad had authority. The presumption that the bunkers had been ordered on the credit of the ship had been rebutted.
Justice Harrington then went on to consider whether or not American law applied to the contract. He began by pointing out that our choice of law rules direct our courts to foreign substantive law, without renvoi.
In other words, our courts will not take into consideration the conflict rules of the foreign jurisdiction. While our courts will generally give effect to a choice of law clause in a contract, in this case the contract was not with the shipowner but between the bunker supplier and the charterer. In that circumstance the proper law is not the law of the contract but the law with which the transaction has the closest and most substantial connection. Justice Harrington went on to conclude that in this case the non-American factors outweighed the American ones.
These included the flag of the ship (Cyprus) the domicile of her owners (Germany), the place where the offer to purchase bunkers was accepted (South Korea), the place where the bunkers were delivered (South Africa), and the place where the ship was arrested (Canada).
There were only two points of contact between the bunker supplier and the owners of the ship. One was Canada, where the ship was arrested. The other was South Africa, where the bunkers were supplied.
Since the law of South Africa had not been proven to differ from Canadian law the arrest was set aside and the Plaintiff’s action was dismissed.
World Fuel Services Corporation v.
The Ship “Nordems” et al, 2010 FC 332)