The “AFRA OAK” - Employment Orders or Negligent Navigation – Which One is Paramount?

In Mercuria Energy Trading Pte v Raphael Cotoner Investments Limited, MT AFRA OAK [2023] EWHC 2978 (The “AFRA OAK”), in an appeal from an arbitration award, the Court considered whether under Article IV(2)(a) of the Hague Rules, the negligent navigation defence applied in circumstances where, following the breach of the charterer’s employment orders, a vessel proceeded into territorial waters and anchored there in breach of local law. On 23rd November 2023, the High Court (Sir Nigel Teare) dismissed the appeal, ruling in favour of the shipowners.

Background

The Master and the vessel “AFRA OAK” (the “Vessel”) were detained by the Indonesian Navy on 12th February 2019 while anchored in Indonesian territorial waters near Singapore. At the time of detention, the vessel was laden with a cargo of fuel oil owned by Mercuria Energy Trading PTE, who were also the charterer of the vessel (the “Charterer”). The detention of the Vessel gave rise to substantial claims and counterclaims between the Charterer and the Vessel owner (the “Owner”). 

High Court

On 23rd November 2023, the High Court (Sir Nigel Teare) summed up the question of law raised by the appeal as “Does Article IV(2)(a) of the Hague Rules provide a defence where, in breach of an order of its charterers, a vessel proceeds into territorial waters and waits at anchor there in breach of local law?”. The answer is highly sensitive to the precise nature of a charterer’s orders and the factual circumstances of the case. 

The gist of the Charterer’s order was to “anchor wherever it is safe to do so in EOPL¹ , using good navigation and seamanship” (“Charterer’s Order”). Essentially, the order required the Master to exercise good navigation and seamanship when deciding where to anchor the Vessel outside the port limits of Singapore.

The Owner claimed that the Vessel had complied with the Charterer’s Order by anchoring where it had and was entitled under the United Nations Convention on the Law of the Sea 1982 (“UNCLOS”) and Indonesian law to anchor there. The Owner also argued that the Charterer had breached a warranty that the Vessel would only be ordered to safe ports/places. 

The Tribunal rejected these claims. In fact, the Vessel was not entitled to anchor in Indonesian waters under UNCLOS and this was further prohibited by Indonesian law. The Master was convicted for committing a criminal offence. It was also found that there had been no breach by the Charterer of the safe port/place warranty despite the Owner having claimed that the anchoring place was politically unsafe since the vessel was exposed to a risk of unlawful detention.

The Charterer advanced counterclaims on the following grounds: 

1. the Vessel was unseaworthy on two grounds:

(i) the passage plan for the short voyage was defective as it failed to record that the Vessel should not anchor in territorial waters, and 

(ii) the Master had a disabling lack of knowledge in relation to anchoring in territorial waters. 

2. there was a term in the charterparty (the “Compliance clause”) in which the Owner warranted that the Vessel would comply with the laws of the place to which it might be ordered. 

The first counterclaim was dismissed. With reference to the second counterclaim the Charterer highlighted that the term in the Compliance clause warranted that the Vessel should comply with the laws of the place to which she might be ordered: the order was “to wait in Singapore EOPL where you consider it safe to do so, using good navigation and seamanship”. The Charterer accepted that if the order to proceed to Singapore EOPL was not construed as an order to wait in Indonesian waters, then the claim for breach of the Compliance clause would fail. 

Overall, the Court ruled in favour of the Owner. While it was held that the Charterer’s Order did not permit the Vessel to anchor in Indonesian waters, the Master’s inability to exercise good navigation and seamanship by causing the Vessel to anchor in the wrong location entitled the Owner to rely on the negligent navigation defence for breach of Charterer’s Orders. 

In essence, the breach of employment orders did not preclude the Owner from relying on defences/exceptions under the US Carriage of Goods Act 1936, whose provisions are similar to the Hague and Hague Visby Rules, which had been incorporated in the charter by virtue of a clause paramount. 

Comment

The judgment will be of interest to all ship owners and those operating in the marine transport industry. There has been an increased number of vessel detentions in the Eastern portion of the Singapore Strait (in waters around Bintan Island). These waters are often misconstrued as being the Outer Port Limit (OPL) Singapore. Consequently, a number of vessel detentions and disputes are arguably due to misunderstanding the applicable local laws and territorial water limits. 

This case highlights the importance of understanding UNCLOS, yet more importantly the local laws, when transiting and/or anchoring in territorial waters of a country without any prior approval or permission from the local authorities. The right to innocent passage, pursuant to Article 17 of UNCLOS, requires the passage to be continuous and expeditious. Local Indonesian law requires a vessel not engaged in an innocent passage within the territorial waters of Indonesia to obtain clearance. 

Going forward, careful consideration should be given to charterers’ employment orders, and, in the event of a breach, it will be crucial to consider the precise nature of the charterers’ orders and the factual circumstances of the case, along with the proper incorporation of a clause paramount, before a shipowner can attempt to rely on the negligent navigation defence.

Judgment 

For further details, please see a copy of the judgment here: Mercuria Energy Trading Pte v Raphael Cotoner Investments Limited, MT Afra Oak [2023] EWHC 2978 (Comm), 23 November 2023

¹ Eastern Outer Port Limits