The Court of First Instance in Sinokor Merchant Marine Co Ltd v Vessel Marcatania [2011] HKEC 1585 held that where a vessel owner was not party to a vessel sharing agreement and the bills of lading were not issued on its behalf, the owner’s duty in relation to the goods shipped under the said agreement and bills of lading was not governed by or subject to the terms therein.

Facts

The Plaintiff, Sinokor Merchant Marine Company Limited (“Sinokor”), entered into a vessel sharing agreement with C& Line and another shipping company to share their respective designated vessels and capacity (slots) on those designated vessels for the carriage of containers consigned to the other party (the “VSA”). One of the designated vessels was the Marcatania, which was contributed by C& Line and had been chartered from the Defendant owners of the Marcatania (the “Owners”) under a NYPE (1946) Time Charter (the “Time Charter”).

C& Line began to fail pay charter hire to the Owners, so the Owners withdrew the Marcatania from the Time Charter such that C& Line was no longer able to operate the vessel. When the Marcatania arrived in Hong Kong, the Owners refused Sinokor’s request to (a) discharge the containers designated for Hong Kong and (b) on-carry the remaining containers to their intended destinations, requiring payment of the outstanding hire. Eventually, after a few rounds of negotiation, the Owners released all the containers (including those containers that should be on-carried to Shanghai or Busan) in Hong Kong.

Sinokor then claimed against the Owners for breach of terms of bailment and for conversion.

Issues

Given that there was no contractual relationship between Sinokor and the Owners, whether Sinokor could establish that the Owners accepted the containers on board the Marcatania subject to the terms of the VSA or the bills of lading issued by Sinokor and, by refusing to discharge the goods in Hong Kong or on-carry the others to Shanghai or Busan, whether the Owners were in breach of bailment and also were liable for conversion.

Bailment

In general, a bailee owes a duty to take such reasonable care of goods as the circumstances of a bailment warrant and to re-deliver the goods upon demand to a bailor having the right to immediate possession of the same.

Sinokor’s contention that the Owners accepted the containers on board the Marcatania subject to the terms of the VSA was rejected by the Court on the simple ground that the Owners were not a party to the VSA.On the contrary, the Owners only authorised C& Line to accept cargo subject to the terms of the Time Charter.

The Court accepted the Owners’ argument that the Owners were entitled to withdraw the vessel for non-payment of charterhire by C& Line.Therefore, it was for the parties to the VSA to undertake the risk that a given vessel employed as part of the VSA might be withdrawn if a member to the pool became insolvent or failed to pay hire.

The Court also rejected Sinokor’s contention that the Owners were obliged to on-carry the containers from Hong Kong to other destinations in accordance with terms of the VSA or the bills of lading signed by Sinokor.

No owner’s bills of lading were issued in respect of any of the containers on board the Marcatania. All the bills of lading were issued by Sinokor in its capacity as carrier and were not issued on behalf of the Owners. There was no evidence that the Owners had sight of those bills or gave authority to Sinokor to issue such bills on their behalf. There was no good reason why the terms of the Sinokor bills of lading should govern the bailment to the Owners.

Sinokor’s claim for breach of terms of bailment failed.

Conversion

The claim arises because the Owners did not immediately deliver the containers to Sinokor upon arrival of the Marcatania in Hong Kong.

Unlawful keeping may constitute conversion. A demand by a bailor entitled to the immediate possession of goods followed by a refusal of delivery by a bailee may evidence an unlawful keeping. However, in the event of doubt as to a bailor’s entitlement to the delivery of goods, a bailee is entitled to a reasonable time to make relevant enquiries.

The Court considered that there was a dispute between the parties as to whether the Owners were entitled to exercise a lien over all of the containers on board pending payment of outstanding hire due from C& Line. Negotiations ensued between the Owners and Sinokor. The Court was of the view that the Owners and their lawyers were entitled to a reasonable time to consider the question of lien and the alleged obligation to on-carry the containers onwards and came to the conclusion that it was not unreasonable for the Owners to take 16 days before deciding not to exercise any lien, but instead to release all the containers in Hong Kong. Therefore, there was no conversion.

For completeness, the Court went on to consider that even if there had been conversion, Sinokor had not shown that it had suffered any loss as there was no evidence that Sinokor had to hire alternative containers or turn away potential container hirers.

Comments

In the context of a vessel sharing agreement, the parties are exposed to the risk that one or more of the ships involved might be withdrawn as a result of non-payment of charter hire. To minimise the risk, it is preferable to have only vessel owners to become a party to such an arrangement. On the issue of conversion, though it is well known that a container generates income by way of leasing, where the use of a container is being denied, the container owner may not always be able to claim damages where there is no evidence that he has suffered any loss.