Background
Litigation history
High Court decision
Comment
The High Court recently considered its ability to annul or modify charterparties under three heads of jurisdiction: first for contracts that are entered into under duress, secondly within its admiralty jurisdiction where the terms of the charterparty are inequitable and thirdly under the International Convention on Salvage 1989.(1)
The dispute underlying this decision arose from the grounding of the MV Rena off the New Zealand coast in October 2011 (for further details please see "Owner of MV Rena convicted and fined"). Following the grounding, Svitzer Salvage BV was appointed as salvor. It was quickly ascertained that the Rena could be refloated only if the bunkers and the containers onboard were first discharged. This involved the removal of 1,700 tonnes of heavy fuel oil and 200 tonnes of marine diesel oil. Svitzer sought the urgent hire of a bunker tanker onto which to pump that fuel. The MV Awanuia was the only suitable vessel in New Zealand.
The Awanuia was owned by Seafuels Ltd and was on long-term charter to Z Energy. Z Energy agreed to let the Awanuia off charter on the basis that Seafuels was required to meet the costs and expected losses from Z Energy's loss of use. Seafuels was to pay Z Energy NZ$150,000 a week, plus any direct costs incurred in accommodating customers with supply contracts, capped at NZ$100,000 a week. Another term of the release was that Z Energy would take title to the fuel taken off the Rena. Seafuels agreed to ensure that Svitzer paid any compensation due, but was not liable for any failure by Svitzer to make payment.
Having obtained the release of the Awanuia, Seafuels then entered into a charterparty agreement with Svitzer. The charterparty contained the term that the fuel taken off the Rena was to become the property of Z Energy, and that Svitzer would compensate Z Energy for NZ$150,000 a week plus any direct costs paid by Z Energy. The charter rate was between NZ$187,000 and NZ$200,000, plus goods and services tax per day. Svitzer agreed to the terms of the charter under protest on the following grounds:
- It contained an illegal term, as Svitzer could not convey title in the fuel onboard the Rena which it did not own.
- The charter rate was excessive and the terms inequitable.
At the time that the charter was entered into, it was expected that the charter would last around seven days. As events transpired, the Awanuia was chartered for 43 days (a total of 12 extensions).
Seafuels invoiced Svitzer NZ$8.8 million throughout the course of the charter, plus NZ$60,000 in costs; NZ$2.9 million remained outstanding. Seafuels sought payment of this outstanding sum plus interest.
Svitzer filed a claim seeking to have the charterparty set aside. Seafuels brought applications for a strike-out and summary judgment. Z Energy applied to be removed as a party. The applications were heard by an associate judge, who declined the applications.
Svitzer filed an amended claim in the High Court seeking:
- a declaration that the charterparty was void for duress and unenforceable;
- to have the charterparty set aside under the court's admiralty jurisdiction, by which the court can set aside manifestly unfair or unjust agreements that are entered into in circumstances that allow one party to take advantage of the calamities of the other; and
- for the terms of the charterparty to be annulled or modified under Article 7 of the International Convention on Salvage on the basis that it was entered into under influence of danger and that its terms were inequitable.
Although there was no direct contractual relationship between Svitzer and Z Energy, Svitzer's amended statement of claim alleged that Z Energy had put pressure on it to enter into the charterparty and sought the return of all sums which it had paid to Seafuels under the charterparty that Seafuels had passed to Z Energy.
Following the amendment to the claim, Seafuels was granted leave to file an application seeking summary judgment or, in the alternative, a strike-out of the causes of action and – if necessary – review of the associate judge's ruling. Z Energy was granted leave to file an application for summary judgment. These applications were considered by Justice Goddard in the High Court.
Summary judgment is available to a defendant where:
- all of the plaintiff's causes of action against it cannot succeed;
- it has a clear answer that cannot be contradicted;
- the merits are clear and capable of summary disposal and abbreviated procedure; and
- affidavit evidence is sufficient to expose the facts and legal issues.
In its application for summary judgment or strike-out, Svitzer claimed that it had entered into the charterparty under duress, as Seafuels had not permitted the Awanuia to approach the Rena until a charterparty had been entered into. It said that in the circumstances, it had no choice but to agree to the terms of the charterparty. Seafuels responded to this cause of action on the basis that there had been no threat of illegal action by it that would amount to illegitimate pressure. It argued that its insistence that contract terms be agreed before performance (bringing the Awanuia alongside the Rena) was no more than commercial common sense. It said that Svitzer had requested the Awanuia and had signed the charterparty for reasons related to the pressures of the situation (weather and risk of environmental disaster), rather than due to any duress imposed by it or Z Energy. The court agreed and Svitzer's first cause of action was struck out.
On the claim in the admiralty jurisdiction, Seafuels claimed that the court's jurisdiction to set aside manifestly unfair or unjust agreements entered into in circumstances which allow a party to avail itself of the calamities of others was limited to setting aside salvage agreements and did not extend to charters, and thus could not be relied on by Svitzer. The court considered that its admiralty jurisdiction was arguably not limited to salvage agreements. It held that in the context of potential environmental disaster, Svitzer was under just as much pressure as a desperate shipowner entering into a salvage contract, particularly as Svitzer had an obligation under the Salvage Convention to prevent or minimise damage to the environment. In any case, the court also held that it was at least arguable that the charterparty was a salvage contract, as it related to a service of salvage. Accordingly, Seafuels was declined summary judgment on, and strike-out of, the second cause of action.
The claim under the Salvage Convention (which has been incorporated into New Zealand law) was for the charterparty to be modified or annulled under Article 7 on the basis that it was entered into under undue influence or the influence of danger, with its terms being inequitable or the payment being excessive. Seafuels claimed that the convention did not apply to the charterparty, as it was not a 'salvage operation' and, in the alternative, that Article 7 jurisdiction was limited to salvage contracts and the charterparty expressly provided that it was not a salvage contract. The court refused summary judgment on, and strike-out of, the third cause of action. It held that it was inappropriate to determine whether the convention applied to the charterparty by way of summary judgment, particularly as to do so might have a chilling effect on the future incentive of salvors to assist in similar situations and would undermine the spirit of the convention – to promote efficient salvage operations for the protection of the environment. The court held that the law is far from settled, and that it was at least arguable that the convention applied to the charterparty, even though it was not strictly a salvage contract.
In relation to Z Energy, the court held that there was no valid reason for it to remain a party to the proceeding, so it was entitled to summary judgment in respect of all causes of action in the amended statement of claim. It held that the proceeding was solely concerned with the charterparty between Svitzer and Seafuels, to which Z Energy was not a party, and so Svitzer had no claim against it. The court could not order Z Energy to pay money to Svitzer under the separate contract that it had with Seafuels. Z Energy was therefore held to have a clear answer to the plaintiff's claims which could not be contradicted. Z Energy did not seek to enforce any rights and no claim was made by Seafuels against it.
This case included an interesting initial discussion of the extent of the High Court's admiralty jurisdiction to set aside manifestly unfair or unjust agreements and the application of the Salvage Convention to charterparties. However, the court failed to bring the discussion to any final conclusion, finding instead that the questions should be given a full trial rather than be determined at summary judgment. The final conclusions of these issues will be in any judgment following trial of the remaining two causes of action.
For further information on this topic please contact Felicity Monteiro at Wilson Harle by telephone (+64 9 915 5700), fax (+64 9 915 5701) or email ([email protected]). The Wilson Harle website can be accessed at www.wilsonharle.com.
Endnotes
(1) Svitzer Salvage BV v Z Energy Ltd [2013] NZHC 2585.
