Introduction
In the shipping industry, it is quite common that a charterparty is agreed by third parties on behalf of the vessel owner and the charterer, respectively.  To illustrate, a managing owner or agent may act on behalf of the vessel owner while a shipbroker may act on behalf of the charterer. The third parties acting on behalf of their “principal”, either the vessel owner or the charterer, often play key roles in negotiating the terms of the charterparties.  However, these practices might lead to questions in relation to the parties’ respective rights and liabilities.

In Navig8 Inc v. South Vigour Shipping Inc and Others [2015] EWHC 32 (Comm), the English Commercial Court decided that the vessel owners were not liable under the charterparties signed by the vessels’ managers for breach of charterparties by withdrawing the vessels from service.

Background
The Claimant in the Navig8 case was the charterers of 4 Aframax vessels (the “Charterers”). The 1st to 4th Defendants were respectively the registered owners of the 4 vessels (collectively, the “Registered Owners”). The Registered Owners were group companies of the Nan Fung Group.  The 5th Defendant, Star Maritime Management Co. Pte. Ltd. (“SMMC”), was alleged to be the agent of the Registered Owners.

On 13 April 2012, the charterparties were signed by SMMC (allegedly on behalf of the Registered Owners) and Poten & Partners, brokers of the Charterers (on behalf of the Charterers) (the “Charterparties”). In particular, each charterparty contained the phrase of “Disponent Owners Signatory in Contract: SMMC”.

The 4 vessels withdrawn from service prior to the termination of the Charterparties, the Charterers therefore sued the Registered Owners and SMMC for breach of contract.

The Charterers claimed that SMMC was the agent of the Registered Owners, and supported such argument by the following:

1.         Throughout the negotiation process of the Charterparties, the representative of SMMC, Mr. Pal, mentioned that they kept the Registered Owners informed;

2.         Mr. Pal showed a corporate structure diagram to the representative of Poten & Partners, which in effect revealed that SMMC acted as commercial managers on behalf of the Registered Owners; and

3.         The Charterers relied on the phrase “Disponent Owners” in the Charterparties to suggest that SMMC being a manager of the vessels with power to fix the Charterparties on behalf of the Registered Owners.

In this regard, the Charterers claimed that both SMMC (i.e. agent of the Registered Owners) and the Registered Owner (i.e. principal of SMMC) were legally bound by the Charterparties and should be held liable in breach by withdrawing the vessels from service.

However, the Registered Owners denied that: (i) they were parties to the Charterparties; and (ii) they gave authority to SMMC to enter into the Charterparties.

The Issues
There were two major issues arose in Navig8as follows:

1.         whether the Registered Owners are parties to the Charterparties; and

2.         whether the Registered Owners gave authority to SMMC in order to enter into the Charterparties.

Who are the parties to the Charterparties?
This was a question of fact and might be established by evidence.  According to The Starsin [2004] 1 AC 715, where a contract was a signed and written document, the process of ascertaining the identity of the parties and the capacity in which they entered into the contract must begin with the signatures and any accompanying statement which described the capacity in which the persons who appended their signatures did so.

In the present case, Mr. Justice Teare of the English Commercial Court took into account the factual background of the case and decided that SMMC signed the Charterparties as a Disponent Owner, in the sense of SMMC being the manager of the 4 vessels.

In other words, “disponent owner” could be used to refer to a party who was the agent of the vessel owner, particularly if it is a manager having very wide powers. Important to note, the English Commercial Court acknowledged that it was rare and unusual to use “disponent owner” in referring the manager of vessel owners under charterparties.

Did SMMC have authority to act on behalf of the Registered Owners?
Having considered SMMC signed the Charterparties in the capacity as the manager of the 4 vessels, the next issue would be: whether or not the Registered Owners gave proper authority to SMMC to enter into the Charterparties.

The Court considered that there was a powerful case that the Registered Owners disagree with SMMC that it could manage the 4 vessels on the Registered Owners’ behalf, the reasons were as follow:

1.         during a meeting conducted on 21 September 2011 which both the representatives of the Registered Owners and SMMC attended (the “Meeting”), there were no formal commercial management agreements signed between the parties, simply a note of “Conclusion from Nan Fung after the meeting” was recorded;

2.         in the absence of written confirmation of the commercial management agreement during the Meeting, there was no correspondence afterwards between the Registered Owners and SMMC in securing the commercial management agreement;

3.         the internal memorandum of the Meeting made by the Registered Owners did not record the commercial management agreement; and

4.         there were documents prepared by Mr. Pal for the subsequent meetings with the Registered Owners that showed no commercial management agreement had been agreed between SMMC and the Registered Owners.

Having considered the testimony made by the witnesses (in which Mr. Pal did not give oral evidence in court), the Court concluded that, on the balance of probabilities, there was no evidence showing the Registered Owners expressly authorise SMMC to enter into the Charterparties with the Charterers on behalf of the Registered Owners.

In the circumstances, the English Commercial Court decided that the Charterers failed to establish that SMMC was authorised by the Registered Owners to fix the 4 vessels on its behalf.

The decision
In Navig8, the Charterers’ claims against the Registered Owners were dismissed. 

As for the claims against SMMC, the Court held that SMMC was liable in damages to the Charterers for breach of an implied warranty of authority.  The measure of damages was the difference between the charterparty rate and the market rate to be assessed from the date of breach.

Implications
In the course of negotiating a charterparty, third parties such as agents or managers of the vessel owners often play a key role and may give an impression to others that they are acting on behalf of the vessel owners.

Navig8 was an important case which highlighted the requirement of clear and explicit authority to be given to the agents or managers to enter into contract on behalf of the vessel owners. For agents or managers, they should ensure that they have express authorities (e.g. a written confirmation from the owners) to act on behalf of the owners, otherwise they might be liable for damages under the charterparty which was purportedly agreed on behalf of their “principal”.

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.