Wollongong Coal Limited v PCL (Shipping) Pte Ltd

1. [1]

   The plaintiff, Wollongong Coal Limited (“WCL”), is an Australian coal mining company. At the relevant time it was a subsidiary of Gujarat NRE Coke Limited (“Gujarat India”), an Indian company that produces metallurgical coke. From time to time WCL entered contracts with Gujarat India to sell it coal to fuel Gujarat India’s coking plants in India.

2. [2]

   The defendant, PCL (Shipping) Pte Ltd (“PCL”) is a Singaporean shipping company.

3. [3]

   In 2013, the MV Illawarra Fortune (“the Vessel”) carried a cargo of coal from WCL’s mines from Port Kembla to India (‘the Voyage”).

4. [4]

   At the time of the Voyage, the Vessel was the subject of a:

   1. (1)

      time charter (“the Time Charter”) between the owner of the Vessel (“the Owner”) and PCL; and

   2. (2)

      a voyage charter (“the Voyage Charter”) between PCL and Gujarat India.

5. [5]

   Gujarat India has failed to pay PCL the freight and other shipping costs of some USD 3.2 million due under the Voyage Charter.

6. [6]

   Nonetheless, PCL has not defaulted under the Time Charter. At no relevant time was any money due by PCL to the Owner under the Time Charter.

7. [7]

   WCL was shipper under owner’s bills of lading issued on behalf of the Owner in respect of the coal carried aboard the Vessel during the Voyage.

8. [8]

   PCL had taken an assignment of the Owner’s rights under those bills of lading and seeks thereunder to recover the USD 3.2 million from WCL.

9. [9]

   In my opinion, because those bills of lading were, in the circumstances I describe below, in effect cancelled, PCL is not entitled to recover against WCL.

10. [10]

    Accordingly, PCL’s claim should be dismissed.

The Voyage Charter, Time Charter and Bills of Lading

1. [11]

   On 7 August 2012, PCL and Gujarat India entered into the Voyage Charter pursuant to which PCL agreed to ship specified amounts of coking coal from Port Kembla to India three times a year for ten years.

2. [12]

   These proceedings are concerned with the first such shipment.

3. [13]

   The Voyage Charter obliged Gujarat India to pay freight and that:

4. [14]

   WCL was not a party to the Voyage Charter.

5. [15]

   To facilitate performance of its obligations under the Voyage Charter, on 29 October 2012 PCL entered the Time Charter with the Owner. The Time Charter includes the standard New York Produce Exchange terms.

6. [16]

   On 30 and 31 July 2013, WCL loaded 59,759 MT of coal onto the Vessel.

7. [17]

   On 1 and 6 August 2013 12 Bills of Lading were issued in respect of the coal.

8. [18]

   I will refer to these Bills of Lading as “the August Bills” to distinguish them from the “Switch Bills” to which I refer below.

9. [19]

   Each of the August Bills named WCL as “shipper”.

10. [20]

    Each of the August Bills provided:

PCL’s contentions

1. [21]

   Although, at the outset of the hearing before me, PCL’s claim ranged far wider, in final submissions its case was confined to the propositions that:

2. [22]

   The question is whether the Owner could have recovered from WCL the freight and other costs associated with the Voyage under the August Bills and, accordingly, whether PCL, as assignee from the Owner, can now do the same.

Later events

1. [23]

   On 21 August 2013, PCL issued an invoice addressed to WCL for freight and other costs owing in respect of the shipment.

2. [24]

   On 10 September 2013, the Vessel arrived at port in Mundra, India. PCL had not been paid for freight.

3. [25]

   On 12 September 2013, PCL received a payment of USD 1 million from WCL in respect of outstanding freight costs.

4. [26]

   On 17 and 18 September 2013, the Vessel discharged some cargo in Mundra. She then sailed for the second discharge port in New Mangalore.

5. [27]

   On 21 September 2013, the Vessel arrived in New Mangalore. PCL still had not been paid the balance of outstanding freight costs.

6. [28]

   On 24 September 2013, WCL requested that the August Bills be replaced with new bills (“the Switch Bills”) identifying a Singaporean company, New Alloys Trading Pte Ltd as shipper, in place of WCL.

7. [29]

   Thus PCL’s managing director, Mr Govind Ramanathan deposed:

8. [30]

   That request was passed on to PCL through Gujarat India and PCL’s shipping broker, Saigal Seatrade (“the Broker”).

9. [31]

   Thus on 24 September 2013, the Broker emailed PCL with “Flwing Request Recvd Fm Charterers”:

10. [32]

    Later on 24 September 2013 the Broker sent a further email to PCL:

11. [33]

    On 2 October 2013, a representative of New Alloys attended PCL’s offices in Singapore and surrendered the August Bills to PCL, for the purpose of their cancellation.

12. [34]

    That same day, upon the surrender of the August Bills, PCL, on the Owner’s instructions, marked each of the Bills of Lading ‘NULL & VOID’ and sent these marked bills by courier to the Owner.

13. [35]

    Mr Bayani Camitan, an employee of PCL, described what occurred on 2 October 2013 as follows:

14. [36]

    The August Bills with the marking “Null & Void” on their face contain, on their reverse side, the common seal of WCL and the signature of a Mr Dutta as “authorised signatory” of WCL as well as the signature of an “Authorised Signatory” of UIL (Singapore) Pte Ltd (then the holder of the August Bills) and of New Alloys.

15. [37]

    Thus, the face and reverse side of the August Bills was then:

16. [38]

    There is no direct evidence of when WCL’s common seal and the signatures were applied to the August Bills. It is common ground the seal and signatures were applied at some time before the August Bills were surrendered to PCL and marked “Null and Void” as described by Mr Camitan. There is no other example of the August Bills in evidence with these features. I would infer that the seal and signatures were placed on the documents shortly before their surrender to PCL.

17. [39]

    There was no dispute about the following matters, which I have drawn from the submissions of Mr Withers, who appeared with Mr Meagher for WCL.

18. [40]

    On 3 October 2013, PCL sought a letter of indemnity from Gujarat India, indemnifying PCL against any loss arising from the issue of the Switch Bills.

19. [41]

    On 4 October 2013, Gujarat India provided the requested letter of indemnity to PCL. In that letter, Gujarat India stated :

20. [42]

    On 4 October 2013, PCL provided a corresponding letter of indemnity to the Owner in the same terms.

21. [43]

    On 4 October 2013, the Owner released the Switch Bills to New Alloys in Hong Kong.

22. [44]

    On 5 October 2013, PCL forwarded copies of the Switch Bills to the Broker.

23. [45]

    On 7 October 2013, the Vessel commenced discharge of the coal the subject of the Switch Bills (formerly the subject of the August Bills). Discharge concluded on 9 October 2013, marking the completion of the voyage.

The effect of the cancellation of the August Bills

1. [46]

   As I find this issue to be decisive of PCL’s case, I will deal with it first.

2. [47]

   The question is whether the cancellation of the August Bills and the issue of the Switch Bills constituted a novation of contract the effect of which was to extinguish such liability as WCL had under the August Bills and to impose a corresponding liability on New Alloys as the shipper named in the Switch Bills.

3. [48]

   The form of novation in question here is:

4. [49]

   In my opinion, the parties’ conduct in relation to the Switch Bills, as I have outlined it at [28]–[45] above, bespeaks an intention by WCL and the Owners, as parties to the August Bills, and by New Alloys and the Owners, as parties to the Switch Bills, to substitute the Switch Bills for the August Bills.

5. [50]

   New Alloys, evidently then in possession of the August Bills, surrendered them to PCL on behalf of the Owner. With the Owner’s consent, PCL’s representatives marked the August Bills “NULL & VOID”.

6. [51]

   WCL consented to that course being followed. WCL’s consent to the switching of the bills is evidenced by its common seal and Mr Dutta’s signature on the reverse of the August Bills, now marked “Null & Void” (see [36] above).

7. [52]

   The obligations imposed on New Alloys by the Switch Bills were identical to the obligations imposed on WCL under the August Bills: namely to pay freight “as per charter party”. That conclusion follows from PCL’s own case, that I accept, for the reasons I set out below at [61]-[74], that where a bill of lading names a party as shipper and provides “freight payable as per charter party”, the shipper is and remains liable to pay freight to the vessel owner. Other than the change in parties, the terms of the Switch Bills are identical to the terms of the August Bills.

8. [53]

   This points strongly to the conclusion that the parties intended to substitute the Switch Bills for the August Bills: rather than preserve WCL’s obligations under the August Bills as well as imposing an identical obligation on New Alloys under the Switch Bills.

9. [54]

   It is not hard to see why the Owner and PCL would consent to these arrangements. At the time that the Switch Bills were issued in October 2013, freight had not been paid despite invoices having issued in August 2013. The Switch Bills transaction presented an opportunity to the Owner and PCL to shift the obligation to pay freight from Gujarat India, which had failed to discharge its obligation to pay freight, to a party apparently willing to take up the location and who was evidently in possession of the August Bills.

10. [55]

    The evidence does not reveal why New Alloys was willing to assume the obligation to pay freight under the Switch Bills. It may be that this was because, as the holder of the bills, it was willing to take up the obligation to pay freight to secure the discharge of the coal.

11. [56]

    The necessary consideration was provided by New Alloys’ promise to pay freight under the Switch Bills.

12. [57]

    Mr Hogan-Doran, who appeared with Mr Street for PCL, submitted that the cancellation of the August Bills was intended by the parties only to take effect insofar as the August Bills were documents of title and not insofar as they evidenced a contract of carriage between the Owner and WCL. But I see no evidence to support that submission and was taken to no authority to support it. If the parties intended this to be the result, surely they would have said so.

13. [58]

    For these reasons, and assuming that WCL was otherwise liable under the August Bills to pay freight to the Owner, such liability was extinguished upon cancellation of the August Bills and their substitution by the Switch Bills.

14. [59]

    It is therefore not necessary for me to decide whether WCL would otherwise have been liable to PCL under the August Bills.

15. [60]

    However, in deference to the detailed submission from counsel, and in case I am wrong in the conclusion I have just expressed, I will consider the question.

The effect of the words “freight payable as per charter party”

1. [61]

   The August Bills bore the statement:

2. [62]

   It is common ground that the reference in these words to “charter party” is a reference to the Voyage Charter.

3. [63]

   Those words were typed on the face of the August Bills although, as the image at [37] shows, the words also formed part of the standard “Congen” form. The words were required by cl 61 of the Voyage Charter between Gujarat India and PCL (see [13] above).

4. [64]

   Such wording has for many years been included in bills of lading, see for example Sanders v Vanzeller (1843) 4 QB 260 at 263; 114 ER 897, and has been recently considered in two decisions of the English Court of Appeal to which I will return shortly.

5. [65]

   A bill of lading performs a number of functions one of which is that it may evidence the terms of the contract of carriage. In this case, it is common ground that the August Bills fulfilled this function and comprised a contract of carriage between WCL and the Owner.

6. [66]

   Mr Withers submitted that the words “freight payable as per charter party” should be “construed as meaning that freight is payable by the person who is liable to pay freight under the [Voyage Charter]. That person is Gujarat India”.

7. [67]

   Thus Mr Withers’ submission was that the words should be construed as no more than a notation, presumably only for information, that freight was payable by Gujarat India under the Voyage Charter; and not as imposing any obligation on WCL itself.

8. [68]

   I do not accept that submission.

9. [69]

   A shipper’s common law obligation is to pay freight for the carriage of goods. That obligation arises “independently of the terms of the sea-carriage document” and is “implied from the mere fact of shipping goods into the carrier’s ship for carriage”: M Davies and H Dickie, Shipping Law (4th ed, 2016, Lawbook Co) at [12.640] citing Domett v Beckford (1833) 5 B & Ad 521; 110 ER 883 and Fox v Nott (1861) 6 H & N 630; 158 ER 261.

10. [70]

    In that circumstance, the wording “freight payable as per charter party” has been held to be:

11. [71]

    Mr Withers submitted that if this was the effect of these authorities, and I find that it is, “they are wrong and ought not be followed” because they “do not address the basic requirements for implication of contractual terms that exist in English law, or the general principle that courts do not interpret contracts in a way that gives them nonsensical operation when a harmonious and commercially sensible interpretation is available.”

12. [72]

    I do not agree. As Mr Hogan-Doran submitted, their Lordships in The Spiros C and The Bulk Chile were expressing an opinion as to the proper construction of the contracts comprised by the bills of exchange in question and, in particular, what the parties to those contracts must be taken to have intended by their use of words to the effect “freight payable as per charterparty”; and of the legal consequences of that construction. No question of implication of terms arose.

13. [73]

    The decisions are directly on point and concern the construction of a standard form international agreement. I should follow those decisions, being “decision[s] of a court of the stature of the Court of Appeal” of England and Wales, unless satisfied they do not apply or are “plainly wrong”: Leonie’s Travel Pty Limited v Qantas Airways Limited (2010) 183 FCR 246; [2010] FCAFC 37 at [55]-[58] (Lander and Rares JJ; Besanko J agreeing); and see Heydon on Contract at [8.1000].

14. [74]

    The decisions do apply and are not plainly wrong. Far from it. I propose to follow them.

Could the Owner have made a claim directly on WCL for the freight?

1. [75]

   PCL has taken an assignment of the Owner’s rights under the August Bills pursuant to a Deed of Assignment dated 4 July 2019.

2. [76]

   As assignee, PCL seeks to exercise such rights as the Owner had to call on WCL, as shipper under the August Bills, to pay freight directly to it.

3. [77]

   PCL is not seeking to exercise such rights as the Owner had to a lien over those sub-freights. That is no doubt because PCL has made no default under the Time Charter and cl 18 of the Time Charter provides that the Owner’s lien is only for “any amounts due under this Charter”.

4. [78]

   As PCL has made no default under the Time Charter, the Owner is not in this sense out of pocket and would have no cause to look to WCL for any payment.

5. [79]

   Indeed, the evidence before me is that the practice in the industry is that, absent default under intermediate charters, vessel owners do not look to shippers for freight. Thus PCL’s general manager, Mr Teo deposed:

6. [80]

   In this case, had the Owner sued WCL under the August Bills, it would not be able to show that it had suffered any loss. The only loss it could point to, in that hypothetical circumstance, would be the loss suffered by its Time Charterer, PCL, by reason of Gujarat India’s failure to pay freight under the Voyage Charter.

7. [81]

   Could it nonetheless recover the freight from WCL?

8. [82]

   On the authority of The Bulk Chile, the answer is “yes”.

9. [83]

   In the most recent edition of Scrutton on Charterparties and Bills of Lading (23rd ed, 2015, Sweet & Maxwell), the learned authors express doubt about an owner’s entitlement to look to a shipper for freight absent a default by the owner’s time charterer. Thus they state at [17-015]:

10. [84]

    However, the authority cited by the authors is The Bulk Chile.

11. [85]

    In that case Tomlinson LJ referred at [25] to:

12. [86]

    His Lordship was referring to the situation where, as in that case and as here, the bills of lading provided “freight payable per charter party”

13. [87]

    His Lordship however went on to say:

14. [88]

    His Lordship then set out these observations of Channell J in Wehner v Dene Steamships at 99:

15. [89]

    Although Channell J’s remarks contemplated there being an amount due to the owner under the relevant charter party, Tomlinson LJ continued, after having stated the matter I have set out at [70(c)] above:

16. [90]

    This is clear authority that an owner’s entitlement to look to the shipper for payment of the freight does not depend on whether the owner’s time charterer has made default under the time charter.

17. [91]

    The case is on all fours with this case as the relevant time charterer, the head time charterer, was not in default. The default was under a sub-charter (entered by the owner as undisclosed principal for its time charterer and, confusingly, referred to in the reasons as “the head charter”).

18. [92]

    Mr Withers pointed to an arguably different view expressed by the Court of Appeal in Singapore in the earlier case of Cascade Shipping Inc v Eka Jaya Agencies (S) Pte Ltd [1993] SGCA 7 especially at [37] and [47].

19. [93]

    However, were it necessary for me to decide this question, I would have felt obliged to follow the more recent view expressed in The Bulk Chile. Mr Withers submitted that the decision in The Bulk Chile was ‘thinly reasoned” and “apparently has not been followed or cited with approval, anywhere, in the seven years since it was handed down”. But it must follow that it “has not been otherwise challenged”, to adopt the language of the Full Court of the Federal Court in Leonie’s Travel at [58], and should be followed, especially by a trial judge, unless inapplicable or “plainly wrong”. The decision in The Bulk Chile is applicable and I see no reason to conclude that it is plainly wrong.

20. [94]

    It follows, in my opinion, that were it not for the cancellation of the August Bills, and subject to what I say below about PCL’s claims other than for freight itself, PCL would have been entitled to succeed against WCL.

Does any claim by PCL include a claim for demurrage, dead-freight, bunker adjustment and port costs?

1. [95]

   Included in PCL’s claim against WCL are amounts for demurrage, dead-freight, bunker adjustment and port costs.

2. [96]

   Mr Hogan-Doran accepted that the words on the August Bills “freight payable as per charter party” were not apt to impose an obligation on WCL to pay the Owner, and thus PCL as assignee of the Owner, any amount on account of these items.

3. [97]

   Rather, Mr Hogan-Doran submitted, such amounts were recoverable by reason of the incorporation into the August Bills of the terms and conditions of the Voyage Charter. That incorporation was effected by a “Condition of Carriage” which appears on the reverse side of each of the August Bills:

4. [98]

   This clause reflects what Scrutton describes at [6-016] as a ”very common practice to include in bills of lading issued in respect of goods carried on a chartered ship, a provision purporting to incorporate into the bills some or all of the terms of the charterparty”.

5. [99]

   Scrutton outlines at [6-017]-[6-019] a three stage process. The first is to ascertain whether the incorporating clause in the bill of lading is wide enough to bring about prima facie incorporation of the term. The second is to determine whether the term sought to be incorporated makes sense in the context of the bill of lading. The third is to consider whether the term in question is consistent with the express terms of the bill.

6. [100]

   Only the second stage is relevant here, as the incorporating clause is of sufficient width and no question of inconsistency arises.

7. [101]

   The general rule is that clauses in the charterparty that are “directly germane to the subject-matter of the bill of lading (that is, to the shipment, carriage and delivery of goods) can and should be incorporated into the bill of lading contract, even though it may involve a degree of manipulation of the words in order to fit exactly the bill of lading”: per Lord Denning MR in The Annefield [1971] P 168 at 184.

8. [102]

   Under the Voyage Charter, Gujarat India as charterer was liable to pay both load port and discharge port demurrage. The liability of Gujarat India, as voyage charterer, for load port demurrage was provided in terms. Due to infelicitous striking through of some of its standard form words, the Voyage Charter does not, in terms, impose a corresponding obligation on Gujarat India for discharge port demurrage. However, it is obvious from the form of the Voyage Charter that the parties to it intended Gujarat India have this obligation.

9. [103]

   To adopt Lord Denning MR’s words from The Annefield, as I did at [101], demurrage is a cost “directly germane” to the shipment and carriage of goods.

10. [104]

    The question is whether incorporation into the August Bills of the provisions in the Voyage Charter concerning demurrage requires “manipulation” of the words in the Voyage Charter so as to read “charterer” as “shipper”.

11. [105]

    I think it unlikely to have been the intention of the parties to the August Bills, the Owner and WCL to impose an obligation on WCL to pay demurrage.

12. [106]

    WCL was not the voyage charterer and had no control over the time at which the Vessel arrived at Port Kembla, let alone over what might occur at the discharge ports in India. The parties to the August Bills must have contemplated that those matters would be under the control of Gujarat India, as voyage charterer. I do not think it is to the point to examine what in fact occurred at Port Kembla before the vessel was loaded or what in fact occurred in India when the Vessel was unloaded.

13. [107]

    In my opinion, the correct conclusion is that the parties to the August Bills must have intended that liability for demurrage remain with the party with control of the vessel’s movements: the charterer, Gurjurat India.

14. [108]

    Mr Hogan-Doran accepted that there is no provision in the Voyage Charter dealing with dead-freight. He also accepted that an obligation to pay dead-freight “is not stipulated in the bill, and I have to accept that it’s not in the bill, and it’s not in the bill directly, nor is it in the bill indirectly through any incorporation of term of the contractual framework”.

15. [109]

    Mr Hogan-Doran submitted that the obligation to pay dead-freight was a “personal liability” on WCL “[a]rising from the circumstances of what happened at Port Kembla”.

16. [110]

    That being so, any obligation of WCL to pay dead-freight arose otherwise than under the August Bills. It follows that PCL cannot, as assignee of the Owner’s rights under those bills, recover this amount from WCL.

17. [111]

    Clause 68 of the Voyage Charter imposed an obligation on Gujarat India, as charterer, for bunker adjustment.

18. [112]

    Bunker adjustment is as an incident of freight, as it represents the increased cost of freight caused by increase in fuel.

19. [113]

    As WCL, as shipper is, for the reasons I have set out, obliged to pay freight to the Owner, it must have intended to also be liable to bunker adjustment.

20. [114]

    There is no provision in the Voyage Charter concerning port costs, and PCL has not identified any basis for construing the August Bills so as to impose an obligation on WCL to pay these costs.

Conclusion

1. [115]

   The parties should bring in short minutes to give effect to these reasons.

2. [116]

   I will hear the parties as to costs.