Judgment

[Please note that this case has not been edited in accordance with the current Singapore Law Reports house style.]

Judgment reserved.

Karthigesu J (delivering the judgment of the court):

1           The appellants (‘Cascade’) are the owners of the vessel ‘Grace Liberty II’. By a time charterparty in the Baltime Form dated 21 April 1990 Cascade chartered the ‘Grace Liberty II’ to PT Samudera Internusa (‘Samudera’). The charterparty contained the following relevant provisions:

9         Master

The master to be under the orders of the charterers as regards employment, agency, or other arrangements. The charterers to indemnify the owners against all consequences or liabilities arising from the master, officers or agents signing bills of lading or other documents or otherwise complying with such orders, as well as from any irregularity in the vessel’s papers or for overcarrying goods.

18         Lien

The owners to have a lien upon all cargoes and subfreights belonging to the timecharterers and any bill of lading freight for all claims under this charter, and the charterers to have a lien on the vessel for all moneys paid in advance and not earned.

43         Vessel to use charterers B/L or B/L approved by charterers and/or sub-charterers ... during the period of this charter party. Owners/master authorize charterers or their appointed agents to sign B/L on behalf of the master ... without prejudice to the charter party.

54         Charterers port agent to do normal agency work for vessel, as usually included in agency work, without payment.

2           By an agency agreement, substantially in the standard form prescribed by the Singapore National Shipping Association, dated 1 June 1990, Samudera appointed the respondents (‘Eka Jaya’) as their agents in Singapore. The relevant provisions for present purposes are, cl 1 which required Eka Jaya to provide the necessary agency services as may be required by Samudera from time to time; cl 2 which set out the duties of Eka Jaya which apart from the usual ‘husbanding’ services rendered to a vessel by an agent required Eka Jaya ‘to advise consignees of the cargo’s arrival, to collect freight and to issue delivery orders’, and cl 6 which provided that Samudera was to provide Eka Jaya ‘with sufficient funds at least 3 working days prior to the arrival of the vessel, to cover estimated disbursements failing which [Eka Jaya was to] have the authority to retain money collected from freight charges in any amount not exceeding the estimated disbursements so as to cover advance disbursement’. The clause further provided that notwithstanding the non-receipt of the required funds, Eka Jaya was at liberty, at its entire discretion, to render service to the vessel. The agency agreement also set out the scale by which Eka Jaya’s remuneration for the services rendered to Samudera under the agency agreement was to be calculated but it contained no specific provision of how or from what funds the payment was to be made. Similarly, there was no provision specifically dealing with how the freights collected by Eka Jaya were to be accounted to Samudera.

3           The bills of lading used by Samudera during the period of the charter of the ‘Grace Liberty II’ were its own as permitted by cl 43 of the charterparty and were signed at Singapore by Eka Jaya under the authority given to Samudera by Cascade pursuant to cl 43. The bills of lading contained what is commonly referred to as a ‘demise clause’ which was cl 4 and read as follows:

4         Agency clause

If the vessel is not owned by or chartered by demise to PT Samudera Internusa by whom this bill of lading is issued (as may be the case notwithstanding anything that appears to the contrary) this bill of lading shall take effect only as a contract with the owner or demise charterer as the case may be as principal made through the agency of the said PT Samudera Internusa who act solely as agents and shall be under no personal liability whatsoever in respect thereof.

4           We will refer to this clause hereafter as the ‘demise clause’.

5           Samudera fell into arrears of the payment of charterhire under the charterparty. By 21 September 1990 the arrears of charterhire amounted to US$230,855 and by a letter of that date Cascade, through its managers, Norse Management (UK) Ltd, addressed Eka Jaya as follows:

The charterers have not paid the hire, an amount of US$230,855 is presently overdue

...

As you will see under the terms of cl 18 of the charter party the owners have a lien upon all cargoes and sub-freights belonging to the time charterers and any bill of lading freight for all claims under the charter.

The owners are now exercising the lien. Please take note that any freight you are holding or are due to collect on behalf of the charterers must be paid direct to the owners.

Banking details are: ...

Kindly confirm that you will conform with the requirements of cl 18 of the charter party and remit all moneys directly to the account specified above.

Perhaps we should add that if you ignore this notification you may become liable to pay freight twice.

6           On 20 October 1990 Eka Jaya’s solicitors wrote to Cascade’s solicitors as follows:

Our clients instruct us that as at 25 September 1990, they have collected freight amounting to $287, 315.46 which sum was utilized to set-off a debt of $341,092.10 due and owing by their principals, ie the charterers as at that date. The charterers’ suggestion to make remittance is on the assumption that there is a credit in their account with our clients, which is erroneous. Freight collected after 26 September 1990 amounted to $2,959.20 and there is still a sum of $55,800.17 due and owing from the charterers to our clients. (Emphasis added.)

7           It would appear from this letter, that the letter from Cascade’s managers dated 21 September 1990 was received by Eka Jaya on or about 25 September 1990. It would also appear from this letter that Eka Jaya effected the set-off on 25 September 1990.

8           On 2 November 1990, Cascade’s solicitors, having obtained a copy of Samudera’s bill of lading on 31 October 1990, addressed Eka Jaya’s solicitors in these terms:

In your fax of 20 October 1990 you confirmed that your clients have collected freight amounting to $287,315.46 and that your clients have utilized that sum to set-off a debt allegedly due to your clients by the charterers. The terms of the bills of lading confirmed that the contract of carriage contained therein or evidenced by the bill of lading is between the cargo owners and our clients, the shipowners. In this regard, may we refer to you to cl 4 of the bill of lading. Therefore, all freight collected under the bills of lading is due to our clients and not the charterers and consequently your clients have no right of set-off with regard to collected freight.

9        The letter concluded with a demand for the payment of the freight collected by Eka Jaya amounting to $287,315.46. Eka Jaya, however, disputed the demand but acknowledged that the freight collected by them after 26 September 1990 was due and owing to Cascade. Accordingly, Cascade’s demand and the amount claimed in this action was limited to $287,315.46 being the amount of freight collected by Eka Jaya up to 25 September 1990 and which sum they claimed they had set-off against moneys due to them from Samudera under the agency agreement.

10       Before proceeding further it is pertinent to note that Cascade’s original claim for the freight collected by Eka Jaya was founded on the lien under cl 18 of the charterparty. However, the claim as pleaded in the statement of claim, in line with their demand for payment made on 2 November 1990, is founded on the demise clause contained in Samudera’s bill of lading. Paragraph 8 of the statement of claim reads as follows:

As the contracts contained in or evidenced by the bills of lading were contracts between the plaintiffs (Cascade) and the owners of the cargoes, all freight collected by the defendants (Eka Jaya) thereunder were due to the plaintiffs and not PT Samudera Internusa.

11       On the other hand Eka Jaya’s defence, as appears from the only affidavit filed by one of its directors on 18 January 1991, is that the bill of lading with the demise clause is to appraise shippers of cargo, that notwithstanding what appears on the face of the bill of lading, their contract of affreightment is with the owners of the carrying vessel against whom they are legally bound to seek redress for any breaches of the contract of affreightment. The legal effect of the demise clause is not to convert Eka Jaya’s obligations to collect freight from the shippers on behalf of their principals, Samudera, which emanates from the charterparty and the agency agreement, to one of collecting freight on behalf of Cascade. Furthermore, Cascade’s right to intercept the freight in the hands of Eka Jaya is strictly governed by cl 18 of the charterparty and such right can only arise from and after notice to Eka Jaya of the exercise of such right under cl 18 of the charterparty by Cascade.

12       For the sake of completeness we set out paras 5 and 6 of the affidavit of Eka Jaya’s director.

5       I am advised by the defendants’ (Eka Jaya’s) solicitors and verily believe that the function of cl 4 of the bill of lading — the demise clause — is to make it clear that the shippers’ contract of affreightment is with and only with the owners of the vessel. In other words, notwithstanding that it was the charterers’ bill of lading, as the vessel was under a time-charter, the charterer (Samudera) cannot be sued if the goods are lost or damaged. Clause 4 does not, as the plaintiffs (Cascade) appear to be suggesting, convert the defendants’ obligations to collect freight on behalf of their principals to collecting freight on behalf of the plaintiffs.

6       I am further advised by the defendants’ solicitors that the bill of lading freight is not payable to the plaintiffs unless they are entitled to and do give notice to the defendants to account to them in respect of freight received by the defendants. But the plaintiffs are not entitled to interfere with the ‘flow’ of bill of lading freight to the charterers unless there has been a default in the payment of hire or some other matter giving rise to a claim. In other words the plaintiffs’ rights to freight collected by the defendants are only crystallized upon the exercise of their lien which is expressly reserved in cl 18 of the charterparty … .

13       The contentions of both Cascade and Eka Jaya raise pure questions of law. The facts in themselves, as we have set them out above, were not contentious when Cascade’s application for summary judgment was heard by the assistant registrar on 21 January 1991 who gave judgment for Cascade or when the appeal was heard by Chao Hick Tin J on 2 April 1991 who allowed Eka Jaya’s appeal and dismissed Cascade’s action (see [1992] 1 SLR 197). However, at the hearing before us, Eka Jaya sought to adduce evidence that the freight collected by them was in fact setoff on the dates they were collected from the shippers against the amounts due to Eka Jaya from Samudera under the agency agreement. Further, that the bills of lading in question were ‘freight pre-paid’ bills of lading and that the freight was in fact pre-paid. We dismissed Eka Jaya’s application with costs as this evidence could easily have been produced at the hearing before the assistant registrar, had it been material. In any event, the case had been argued before the assistant registrar and Chao Hick Tin J on the basis that the set-off was effected on 25 September 1990. If it was material to Eka Jaya’s case that the set-off was made before 25 September 1990 or that the set-off was made as and when the freight was received on dates before 25 September 1990 or even if the set-off was made on 25 September 1990, it was made before the receipt of Cascade’s manager’s letter dated 21 September 1990 on that day, then that evidence was always available to Eka Jaya. However, there was no question of Cascade going back on the fact that Eka Jaya had made a set-off and that the set-off was made on 25 September 1990. In applications of this kind we would require strict compliance with the conditions laid down in Ladd v Marshall1 before we would even begin to consider it, unless there are other considerations which take the application out of the Ladd v Marshall test.

14       There is another preliminary matter of which we must make mention. Although the matter before the learned judge was whether Cascade was entitled to a summary judgment or whether Eka Jaya ought to have leave to defend the action under the O 14 procedure, he decided that he would hear full arguments on the points of law in issue and decide the action one way or another. Before doing so he obtained the agreement of both counsel. As no issue was made of this procedural question we propose to say no more except to point out that the procedure followed is not supported by European Asian Bank AG v Punjab & Sind Bank (No 2) and Jaya Kumar v Subramaniam Mohana Krishnan & Anor. These two cases only illustrate the court’s power to grant summary judgment where the sole issue is a point of law which is clearly against the defendants.

15       Having got these preliminary matters out of the way we turn to the appeal itself.

16       Cascade relied most heavily on Wehner & Ors v Dene Steam Shipping Co & Ors and it is with this case we commence our deliberations on the legal issues canvassed at the hearing before us. Dene Steam Shipping Co (‘Dene’), the owners of a vessel called the ‘Ferndene’, had chartered her on a time-charter for a period of 12 months to an American company (‘Brauer’). The charterparty permitted sub-letting of the Ferndene during the period of the time-charter and it further provided, inter alia, that the master (although appointed by the owners) would be under the order and direction of the charterers (Brauer) as regards employment, agency or other arrangements, who would indemnify the owners from all consequences or liabilities that may arise from the master signing bills of lading or otherwise complying with the same. The charterparty also provided that ‘the owners shall have a lien upon all cargoes and all sub-freights for any amounts due under this charter, and the charterers to have a lien on the ship for all moneys paid in advance and not earned.’ During the period of the time-charter Brauer sub-chartered the Ferndene to Wehner for one transatlantic trip. The subcharterparty contained clauses similar to those contained in the charterparty. The Ferndene then loaded a cargo of phosphate at New York for delivery at Hamburg under the terms of the sub-charterparty. A bill of lading signed by the master of the Ferndene was handed to Wehner who indorsed it to the consignee of the phosphate at Hamburg who took delivery of the phosphate upon the terms of the bill of lading in Hamburg. Upon arrival of the Ferndene at Hamburg, Wehner appointed one Vogemann as the ship’s agents to collect the freight payable by the consignee under the bill of lading. The consignee paid the amount of the freight due under the bill of lading to Vogemann. At the date the consignee paid the freight due under the bill of lading to Vogemann, there was due and owing by Brauer to Dene hire under the charterparty which had become due before the Ferndene arrived at Hamburg. On a date after the Ferndene was ready to discharge the cargo of phosphate but before the discharge had been completed, Dene gave notice to Vogemann ‘that they claimed to exercise their lien for hire then due, or to accrue due during the discharge, under their charterparty upon the whole freight collected from the consignee, which Vogemann had not at that time remitted to Wehner and had not pledged [himself] in account to do so’. Dene subsequently claimed to detain so much of the cargo of phosphate as had not been discharged which became the subject of litigation in the German courts. Brauer was practically insolvent. Dene had previously commenced an action in the Hamburg courts against Vogemann claiming £800 being part of the freight in his hands, in which action Dene had subsequently obtained judgment. Wehner then claimed the £800 as money had and received by Dene to Wehner’s use.

17       On these facts Channell J decided that Dene were accountable to Wehner for the £800, but Dene were entitled to retain therefrom such sums of money as were due to them from Brauer under the charterparty. His reasoning as stated in his judgment at pp 98 to 100 is as follows:

In ordinary cases, where the charterparty does not amount to a demise of the ship, and where possession of the ship is not given up to the charterer, the rule is that the contract contained in the bill of lading is made, not with the charterer, but with the owner, and that will, I think, explain away and accounts for all the difficulties which would otherwise arise as to the existence of the shipowner’s lien. When there is a subcharterparty there is no direct contract between the sub-charterer and the owner, and if the contract in the bill of lading were made, not with the owner, but with the subcharterer, how is the shipowner’s lien to be accounted for as against the holder of the bill of lading? It would be very difficult to deal with the question upon any logical or intelligible footing unless one starts with the proposition that the bill of lading contract is made, as it appears upon its face to be made, with the shipowner. In support of that view there is the high authority of Willes J in Gilkison v Middleton (2CB (NS) 134), and the opinion of the learned author of a work on this subject (Carver on Carriage by Sea (4th Ed) s 155).

That being, in my opinion, the legal position with regard to the contract in the bill of lading, I have next to consider the effect of the clause in the charterparty which provides that the captain, though appointed by the owner, shall be under the orders and direction of the charterer as regards employment and agency, and shall sign bills of lading at any rate of freight that he may be directed by the charterer. Now, although the owner has the right to demand the bill of lading freight from the holder of the bill of lading because the contract is the owner’s contract, yet the owner has also, of course, contracted by the charterparty that for the use of his ship he will be satisfied with a different sum, which will also in the great majority of cases be less than the total amount of the bills of lading freights; and, therefore, if the owner were himself to demand and receive the bills of lading freight, as he might do if he chose, he would still have to account to the charterer or the sub-charterer, as the case might be, for the surplus remaining in his hands after deducting the amount due for hire of the ship under the charterparty. Of course, in practice an agent is usually appointed to receive the bill of lading freight, though not necessarily, because the captain may receive it himself; and under this charterparty the captain has to appoint as agent any person whom the charterers may select, which is a very reasonable arrangement, because if the business goes smoothly and the charterparty hire is duly paid, the charterers are the persons really interested in receiving the bill of lading freight. But, if I am right as to the bill of lading contract being with the owner, then it seems to me to follow that the agent appointed to receive the bill of lading freight becomes by the very act of appointment the agent of the shipowner to receive the freight for him, and the agent’s receipt binds the shipowner.

... With regard to the defendants’ (Dene’s) claim to the freight in the hands of the ship’s agents (Vogemann’s), that claim was put forward before the agents had in fact remitted the money to the plaintiffs (Wehner) in New York, or had in any way given them credit for it in account, and in my opinion the defendants had the prior right to receive that freight from the agents, subject to this— that after satisfying the amount of their lien for any sum due for hire or otherwise under the charterparty with Brauer & Co, they would have to account to the plaintiffs for the balance, if any.

18       We must next consider Molthes Rederi Aktieselskabet v Ellerman’s Wilson Line, Limited. The steamship ‘Sproit’ owned by Molthes was chartered for a period of 12 months by Maurice Elliff & Co. The charterparty was not a demise of the ship and Molthes throughout remained in possession and control of her. Sub-letting of the Sproit was permitted. The charterparty provided, inter alia, as follows:

9         That the captain shall prosecute his voyages with the utmost dispatch, and shall render all customary assistance with ship’s crew. Although appointed by the owners the captain shall be under the orders and direction of the charterers as regards employment, agency, or other arrangements; and the charterers hereby agree to indemnify the owners from all consequences or liabilities that may arise from the captain or officers personally or by agents signing bills of lading or other documents or otherwise complying with such orders, as well as from any irregularity in the steamer’s papers or for over carrying goods. Owners shall not be responsible for shortage, mixture, marks, nor for number of pieces or packages, nor for damage to or claims for cargo caused by bad stowage or otherwise, the stevedore being employed by the charterers.

21         That the owners have a lien upon all cargoes and all sub-freights for hire and general average contribution, and for all expenses and damages due under or for breach of this charter and charterers to have a lien on the steamer for all moneys paid in advance and not earned.

19       During the period of the charter the ‘Sproit’ was sub-chartered on a voyage charter to carry a cargo of wood from Riga to Hull. This charter provided that bills of lading were to be prepared in the form indorsed on the charter and signed by the master, and that the master or owners (Molthes) were to have an absolute lien upon the cargo for all freight, dead freight and demurrage. Bills of lading in this form were issued to the shippers at Riga. The freight on a considerable part of the cargo was payable, and was paid, in advance to the time charterers’ (Maurice Elliff & Co’s) agents at Riga but the freight on part of the cargo consisting of pit props was not due in advance, but was to be paid in Hull on right delivery thereof. The defendants (Ellerman’s) had been appointed by Maurice Elliff & Co, who were already in arrears of a considerable amount of hire money, as their agents to attend to the discharge of the vessel and collect the freight.

20       While the vessel was discharging, but before any freights had been paid in respect of the pit props, Molthes’ solicitors telephoned Ellerman’s saying that they had been instructed to collect the freights payable at Hull, and if necessary to have a lien placed on the cargo to secure payment and asked for an assurance that Ellerman’s would collect the freights on Molthes’ account. Ellerman’s were not prepared to give that assurance. Further discussions followed and eventually Ellerman’s agreed to collect the freights on Molthes’ account by which time the greater part of the goods on which freight was payable had been discharged from the vessel. The day after Ellerman’s had so agreed, the freight was paid and upon receiving the freight Ellerman’s wrote immediately to Molthes in which they said that the freight would be absorbed by their disbursements and refused to discharge the balance of the cargo pending definite instructions from Molthes to discharge at their expense. These instructions were later given.

21       Greer J held that Molthes were entitled to the freight collected by Ellerman’s less the expenses they had incurred in discharging the balance of the cargo after they had agreed to collect the freight on Molthes’ account because ‘first, notice of claim was received by the agent (Ellerman’s) before collection of the freight; secondly, the agents agreed to collect for the owner (Molthes); and thirdly, here there was a bill of lading contract which vested the legal right to the bill of lading freight in the owner’. (See the judgment at p 718.)

22       It seems clear that both Wehner and Molthes are authority for the proposition that a time-charterer’s bill of lading which the time-charterer is authorized to issue by the terms of the charterparty (not being a demise charter) with the shipowner is a contract between the shipowner and the shipper vesting the legal right to the bill of lading freight in the shipowner but that right which is derogated to the charterer by the terms of the charterparty can only be divested by notice from the shipowner, if, and only if, that notice intercepts the receipt of the bill of lading freight by the charterer or his agent.

23       But, Wehner goes further than this and decided that the shipowner could claim the bill of lading freight as of right, notice or no notice, from the holder of the bill of lading, or the charterer’s agent, and even in the hands of the charterer’s agent provided that the freight had not yet been remitted to the charterer or in any way given credit for in account with the charterer, subject only to accounting to the charterer for the surplus remaining in his hands after deducting the amount due for hire of the ship under the charterparty. Greer J in Molthes doubted the correctness of this part of the judgment in Wehner. He addressed the question as follows at p 715:

But it seems desirable also to consider and answer the question, whether notice from the shipowners to the agents was or was not of itself sufficient to entitle the owners to the money received for freight after receipt of the notice. If the decision in Wehner v Dene Steam Shipping Co is correct, it follows that in every case where bill of lading freight is received by the agent nominated by the charterers the shipowner can intervene and claim the freight in the hands of the agents as his money. That he can intervene successfully before receipt of the freight by the agent seems to me to be the necessary consequence of holding as Channell J did in the case cited, that the bill of lading contract is a contract between the shipowner and the shipper, and not a contract between the charterers and the shipper. If this be so, the legal right to the freight is in the owner and not in the charterer, and the former can intervene at any time before the agent has received the freight, and say to him, ‘I am no longer content that the charterer should collect the freight. If you collect it at all, you must collect it for me.’ If the agent then collects the freight, it follows that the shipowner can sue for it as money had and received. The judgment in Wehner v Dene Steam Shipping Co goes beyond this, in that it decides that the agent must account for bill of lading freight received by him before notice of the owner’s demand that it should be paid to the owner. In so far as the case so decided it seems difficult to reconcile the decision with that of the Court of Appeal in Tagart, Beaton & Co v Fisher & Sons ([1903] 1KB 391).

24       Chao Hick Tin J also expressed doubts as to the correctness of this part of the judgment in Wehner. We are in general agreement with him on the observations he made. He said [ [1992] 1 SLR 197 at 203]:

… in the normal course, there is no reason for the shipowners to be concerned with the freights to be collected on such bills of lading. The shipowners are only entitled to the hire charges as provided in the charterparty. They will only be concerned when there are outstanding hire charges; in which event they will be entitled to intervene and demand payment from the shippers. In my judgment, this entire arrangement is more consistent with there being an implied understanding that notwithstanding the existence of cl 4 in the bill of lading, the freight due under such a bill of lading belongs to the charterers unless the shipowners intervene and demand that payment be made to them or demand that the charterers’ agents receive the payment on their behalf. To say that all freights collected by the charterers’ agents are automatically collected on behalf of the shipowners (even before any notice is given or demand made by the shipowners) does not appear to be in consonant with the factual position. The circumstances of this case do not warrant the suggestion that the defendants (Eka Jaya) had collected the freights on behalf of the plaintiffs (Cascade) (as shipowners).

Without Wehner I would have less hesitation in holding that the freights already collected by the defendants were collected on behalf of the charterers, Samudera. It seems to me that the court in Wehner held that the shipowners were entitled to the freight collected by the agents of the sub-charterers because it also held that the agents were also agents of the shipowner; and the only reason for the latter determination was that the court felt that, as the bill of lading was a contract of carriage between the shipowners and shipper, the agents of the sub-charterers were automatically the agents of the shipowners. Granted that by the very nature of a time-charter, it is understood between the shipowners and the charterers that the charterers could issue a bill of lading with the demise clause. It is also understood that the charterers’ agents could pay over the freights they have collected to the charterers. Surely it must also be understood between the parties to the time-charter that the freight due under such a bill of lading would go to the charterers and the shipowners would have no direct interest in it until and unless the shipowners wish to exercise their rights and give notice. Therefore, must it necessarily follow that the agents of the charterers are ipso facto also the agents of the shipowners to collect freights? I entertain considerable doubts whether I should follow this part of the decision in Wehner. However, for the reasons set out in the next two paragraphs I do not think I need make a definite ruling on this point in order to dispose of this action.

25       In the event the learned judge dismissed Cascade’s claim on the ground that Eka Jaya were entitled to and did set off the freights collected by them before the receipt of Cascade’s notice of claim against the amounts due to them from Samudera.

26       Now, the rule that the contract contained in a bill of lading issued by the charterer under the authority contained in a charterparty which does not amount to a demise of the ship, and where possession of the ship is not given up to the charterer, is a contract between the shipowner and the shipper is a well established rule. The rule was already established before Wehner was decided in 1905, and before, what we now know as the demise clause became a common feature of a time charterer’s bill of lading. It will be noted that there is no reference to a demise clause in the bills of lading either in Wehner or in Molthes. If there was such a clause it is inconceivable that no mention was made of it in the reports of Wehner. However that may be, the introduction of a demise clause simply confirms the existence of the rule. Brandon J, dealing with the effect of a demise clause (in all respects similar to cl 4) in ‘The Berkshire’, said at p 188:

…All the demise clause does is to spell out in unequivocal terms that the bill of lading is intended to be a shipowners’ bill of lading. The charterparty entitles the charterers to present to the master for signature by him on the shipowners’ behalf, or to sign themselves on the same behalf, bills of lading of that kind. How then can it be said that the demise clause is, within the meaning of the principle set out above, an extraordinary clause? In my view, so far from being an extraordinary clause, it is an entirely clear and ordinary clause.

27       The judgment of Brandon J in ‘The Berkshire’ was confirmed by the Court of Appeal in ‘The Vikfrost’.

28       ‘The Berkshire’ and ‘The Vikfrost’ did not deal with the question of the shipowners’ prior right to receive the bills of lading freight. They dealt with the shipowners’ obligations of carriage under the contract evidenced by the bills of lading, of the kind, as the bills of lading in this case.

29       Counsel for Cascade apart from relying heavily on Wehner also relied on the demise clause in the bill of lading in support of his argument that because a bill of lading, issued in the circumstances of this case, was a contract between the shipowner and the shipper, the shipowner had the legal right to the bill of lading freight, without the necessity of giving notice to the shipper to pay the freight to the shipowner and also to claim the freight in the hands of the charterer’s agent if the shipper had already paid the freight, provided that the charterer’s agent had not yet appropriated the freight to the charterer or to the charterer’s account. It will be remembered that Cascade who had originally founded their claim on the lien clause in the charterparty (cl 18) later shifted their ground to the demise clause in the bill of lading. In our judgment this argument, whether based on the authority of Wehner or on the demise clause in the bill of lading or on a combination of both, is misplaced.

30       We return again to the judgment of Greer J in Molthes. At pp 716 and 717 he said:

Though Channell J bases his judgment in Wehner v Dene Steam Shipping Co on the fact that the bill of lading contract is with the owner, and therefore the owner in claiming the freight was only claiming what was legally his, he still speaks of the owner’s rights as arising out of his lien. It is difficult to understand how a shipowner can be said to have a lien on that which, ex hypothesi, is his own property, and which he is entitled to because it is his own. A lien is a claim by a person in possession of the property of another who has the right to keep possession until the owner pays the debt in respect of which the possessor is entitled to the lien. It seems a misuse of words to say that a shipowner has a lien on the debt due to him under the contract made with him by the bill of lading. The lien clause in the charterparty is needed to give the owner a lien in those cases where the sub-freight is due to the charterer and not to the owner, as where goods are carried on a sub-charter without any bill of lading. In such a case the owner could only become entitled to the sub-freight by virtue of the lien clause, and it would be too late to exercise this lien after the debt had been paid to and received by the charterer personally or through his agent. The actual decision in Tagart, Beaton & Co v Fisher & Sons goes no further than this. It only governs a case where the shipowner is bound to rely on a lien, and does not affect the case where he can claim the freight as due to him on his bill of lading contract. Whether the owner in the latter event can claim the freight in the hands of an agent of the charterer after it has been received by such agent without notice of claim by the owner is a question which it is unnecessary to decide in the present case.

31       The very point which we are asked to decide in this appeal was left open by Greer J in Molthes. Counsel has not referred us to any case in which this question has been directly decided and we know of none. However, in ‘The Nanfri’, although that case dealt with freight pre-paid bills of lading, there were certain pronouncements of principle made both in the Court of Appeal and in the House of Lords which, albeit obiter dicta, nevertheless carry much judicial weight and are highly persuasive and considerably assist us in deciding the question which Greer J left open in Molthes. We will refer to them.

32       The facts in ‘The Nanfri’ were as follows. The Nanfri and two other vessels, Benfri and Lorfri, were time-chartered, not being a demise charter, in the usual Baltime form. The charterparties contained an employment and indemnity clause similar to to cl 9 and a lien clause, in terms identical to cl 18 (also 9 and 18 in the charterparties). The bills of lading were signed by the charterers on behalf of the masters. They were marked ‘freight pre-paid’ and the freight was collected by the charterers or their agents. Under the charterparties the charterers were required to pay the charterhire in advance without discount. However, the charterers in making the charterhire payments continually made deductions setting off amounts allegedly due to them under the charterparties. The owners desired to receive the charterhire in full without deductions. The charterers refused to oblige. The owners then gave instructions to the masters, to withdraw from the charterers all authority to issue or sign bills of lading on their behalf; to themselves (ie the masters) to refuse to sign any bills of lading marked ‘freight pre-paid’; and to insist that all bills of lading be claused to confer on the owners the lien under cl 18. Consequently the charterers terminated the charterparties and the owners sued the charterers for breach of contract.

33       In the Court of Appeal, Lord Denning MR said at p 136 of the1978 [CA] report:

The lien clause

The charterparty contained this clause in favour of the owners. It is cl 18:

The owners to have a lien upon all cargoes and sub-freights belonging to the timecharterers and any bill of lading freight for all claims under this charter, and the charterers to have a lien on the vessel for all moneys paid in advance and not earned.

The owners placed much reliance on that lien clause. It gave them a lien on any subfreights and any bill of lading freights. It is obvious that, if such freights were pre-paid, there would be nothing on which the lien could operate. So in this trade (where freight was always pre-paid) the clause was not much use to the owners. The only way in which they could take advantage of the lien was like this: If hire was unpaid, the owners had to intervene before the freight was paid to the charterers, see Tagart v Fisher [1903] 1 KB 391. They could give notice to the sub-charterer or the shipper, telling them of the lien clause, and requiring the freight to be paid to them, the owners (up to the amount of the unpaid hire): but the sub-charterer or shipper would not pay on that notice except with the agreement of the charterers. If the charterers did not agree, the sub-charterer or shipper would interplead: and place the freight in escrow. So the lien clause itself was of no use to the shipowners.

34       And Goff LJ at p 149 said:

Secondly, they were not exercising or threatening to exercise any lien. That they could do only if there were freight payable which they could intercept, which there was not, and then only by notice given to the party liable to pay that freight, which was not given or at that stage threatened to be given. All that the owners can urge— and they did present this argument very forcibly — is that they were entitled to give, and if necessary act upon the instructions they did in fact give to the masters in order to secure that any freight becoming payable would be amenable to their lien. That, however, could only be so, if at all, if they were entitled notwithstanding cl 9 of the charterparty to refuse to issue freight paid and unclaused bills of lading, which is what they assert … . But, in my judgment, that is not the true construction of the clause. Under cl 9 the master was bound to sign bills of lading laid before him in any proper form, and the trading for which this vessel was intended clearly required freight paid bills of lading and unclaused bills of lading to be issued by the owners.

35       In the House of Lords, Lord Wilberforce said at pp 205–206 of the 1979 report:

There can be no exception taken to a general proposition that a charterparty, as any other contract, must be taken as a whole; the obligations and rights created by one clause must be read in the light of the fact that it forms part of a complex of contractual provisions …

It is important in this connection to have in mind that the present charters are time charters, the nature and purpose of which is to enable the charterers to use the vessels during the period of the charters for trading in whatever manner they think fit … Furthermore, cl 9, as is usual in time charters, contains an indemnity clause against all consequences or liabilities arising from the master signing bills of lading. This underlines the power of the charterers, in the course of exploiting the vessel, to decide what bills of lading are appropriate for their trade and to instruct the masters to issue such bills, the owners being protected by the indemnity clause.

But the appellants contend that at any rate the charterers have no right to require the master to issue bills of lading which would defeat the owners’ right of lien: this under cl 18 extends to —

…all cargoes and sub-freights belonging to the time-charterers and any bill of lading freight …

A freight pre-paid bill of lading might prejudice this lien, since, if the freight had been paid before the lien was sought to be exercised, there would be nothing on which it could operate.

In my opinion this argument attributes too much force to the lien clause. This clause, just as much as cl 9, must be read in the context of the whole contract, and must be related to the commercial situation which exists under time charters. The lien clause must be read as giving the owners a lien upon such freights or sub-freights as, in the event, come to be payable, and which in fact are payable, under any sub-charter or bill of lading, but it cannot be read as interfering with the time charterers’ primary right to use the ship and to direct the master as to its use.

36       And Lord Russell of Killowen said at pp 210–211:

The fact that cl 18 refers expressly to bill of lading freights appears to me to add nothing to the lien conferred by that clause on sub-freights belonging to the charterer, and serves only to distract the mind from the true scope of the lien. The lien operates as an equitable charge upon what is due from the shipper to the charterer, and in order to be effective requires an ability to intercept the sub-freight (by notice of claim) before it is paid by shipper to charterer. The simple question is whether the marking of bills of lading freight pre-paid interferes with that ability to intercept. It cannot. If freight is in fact pre-paid before issue of the bill of lading, cadit quaestio. If not, how does the marking freight pre-paid interfere with such ability to intercept as may be available to the other? For these reasons I say that the justification suggested by the owner for its actions is fallacious.

For the owner the only answer put forward was that it would be strange that, if the master for the owner signed a bill of lading freight pre-paid, the owner should demand of the shipper that freight not paid should be paid to the owner. I see nothing impossible in this. The shipper would if necessary interplead. He could not, not having paid the freight, assert that he had paid: nor could he assert an estoppel against the owner: he would be simply faced with rival claims, not caring which was right, and knowing only that he owed someone the sub-freight.

37       The demise clause is really no more than a confirmation of the common law rule that the bill of lading issued pursuant to a time-charterparty is intended to be a shipowner’s bill of lading. See ‘The Berkshire’ and ‘The Vikfrost’. Be that so the demise clause becomes operable only in the context of a time- charterparty for only then does the question arise whether the shipowner who has agreed to hire his ship to the time-charterer for his use in consideration of the charterhire he has agreed to receive from the time-charterer, can contrary to that agreement insist on his right to the bill of lading freight on the ground that the bill of lading contract is between him and the shipper and not between the charterer and the shipper. On the other hand, vis a vis the shipper, the shipowner is a stranger for the shipper negotiated the freight with the charterer and not the shipowner. Implicit in the supervening agreement between the shipowner and the time-charterer, that is in time-charterparty, is the understanding that the shipowner will not exercise his legal right under such a bill of lading until and unless the time-charterer is in default of his obligation to pay the charterhire under the time-charterparty. Furthermore, as Lord Russell pointed out in ‘The Nanfri’ it matters not to the shipper to whom he pays the freight knowing only that he owed someone the freight. If this is right then it must follow that it is also implicit that the shipowner must give notice of his intention to the time-charterer and the shipper before exercising his right. We find support for these propositions from the dicta we have quoted from ‘The Nanfri’.

38       Accordingly, we endorse what the learned judge said in his judgment. He said:

… in the normal course, there is no reason for the shipowners to be concerned with the freights to be collected on such bills of lading. The shipowners are only entitled to the hire charges as provided in the charterparty. They will only be concerned when there are outstanding hire charges in which event they will be entitled to intervene and demand payment from the shippers.

39       It seems to us that the pivotal question always was whether the freights or subfreights had been received by the charterer or his agent for once the freights or sub-freights had reached the hands of the charterer or his agent there was nothing on which the shipowner could lay his hands on. This position was accepted both in Molthes as well as in ‘The Nanfri’.

40       The question left open by Greer J in Molthes, namely, whether the shipowner can claim the freight in the hands of an agent of the charterer after it has been received by such agent without notice of claim by the shipowner was, in our view, in deference to Channell J’s judgment in Wehner with which Greer J was not in agreement. It will be remembered that Greer J’s judgment in Molthes rested on the agreement between the shipowner (Molthes) and the charterer’s agent (Ellerman’s) to collect the freight on the shipowner’s account. It seems to us that short of an agreement as in Molthes between the shipowner and the charterer’s agent that the latter would collect the freight for the shipowner’s account, notice to the charterer’s agent can serve no purpose. In order to intercept the freight before it reaches the hands of the charterer’s agent notice to the shipper is necessary. In the Court of Appeal case of Tagart, Beaton & Co v Fisher & Sons, referred to by Greer J in Molthes (also referred to by Lord Denning MR in ‘The Nanfri’), the Earl of Halsbury LC said (at p 394).

In my opinion this judgment is perfectly right. I desire to confine myself to the one question which emerges out of a rather complicated state of affairs, and, confining myself to that, I am clear that the right over the freight must be exercised at a time when there is freight to be paid as such, and that when the freight has once been paid the lien upon it is gone. The moment that the freight has been paid over by the consignees to persons who are entitled to receive it, the shipowner’s right to stop it on its way ceases to exist.

41       The Earl of Halsbury LC was referring to the judgment at first instance of Bigham J which is noted at p 393 of the report as follows:

Bigham J gave judgment for the plaintiffs, Tagart, Beaton & Co holding that, in order for the lien of the West Hartlepool Steam Navigation Company to become operative, notice of it ought to have been served on the persons who had to pay the freight, and not upon the persons who were receiving it for the time charterers.’(Emphasis added.)

42       It is true that Cascade’s claim is founded on the demise clause in the bill of lading and not on the lien clause (cl 18) in the time-charterparty. Reliance is placed on the statement of Channell J in Wehner that because the bill of lading contract is with the shipowner and not the charterer, the shipowner has the right to receive the freight. Apart from Wehner we know of no case, and none was referred to us, where the proposition of Channell J has been re-stated or confirmed. Even Greer J in Molthes did not confirm it. Note his words ‘if this be so’ at p 715 and again at p 716 where he says that although Channell J bases his judgment in Wehner on the fact that the bill of lading contract is with the owner and therefore the owner in claiming the freight was only claiming what was legally his, he still speaks of the owner’s rights as arising out of his lien. But Greer J did not decide Molthes5 on the owner’s right to receive the freight without notice of claim. If he had he would not have left open the question whether freight in the hands of an agent of the charterer after it had been received by such agent without notice of claim by the shipowner could be claimed by the shipowner as of right. He decided it on the agreement which he found as a fact between the shipowner and the charterer’s agent that the latter would collect the freight on the account of the shipowner.

43       In this situation it is our considered opinion that Wehner is of doubtful authority for the proposition that because the bill of lading contract issued pursuant to a time-charterparty by the charterer is a contract between the shipper and the shipowner, the shipowner has the legal right to receive the bill of lading freight from the shipper without notice to the shipper. The learned judge felt the same.

44       Whether or not the right to receive the freight is a necessary legal consequence of the bill of lading contract being between the shipper and the shipowner is we think conditional upon the supervening agreement between the shipowner and the charterer (the time-charterparty) in the context of which the bill of lading comes into being. This does not mean that the conditions and obligations of the carriage as between the shipowner who carries the goods and the consignee for whom the goods are carried is not governed by the bill of lading contract which by the demise clause in the bill of lading is between the shipowner and the shipper. See ‘The Berkshire’ and ‘The Vikfrost’ referred to above.

45       There is no doubt in our minds that a bill of lading issued by the charterer under a time-charterparty must be looked at in the ‘commercial situation which exists under the time-charterparty’ (per Lord Wilberforce in ‘The Nanfri’ at p 206 of the 1979 report) and especially so in the present day practice (unlike in the days of Wehner and Molthes) of charterers themselves issuing and signing bills of lading pursuant to the authority given to them in the time-charterparty.

46       The commercial reality under a time-charterparty (not being a demise of the ship) is that the shipowner hires out his ship to the charterer for the charterer’s use and directs the master to abide by the instructions given to him by the charterer for which the shipowner receives charterhire from the charterer. Hence the employment and indemnity clause in the charterparty (cl 9). The shipowner retains possession of his ship during the period of the charter and has the care and control of the goods shipped on board his ship for carriage. Hence the former concept of the bill of lading contract being between the shipowner and the shipper (still a valid concept) and the more recent concept of the demise clause in the bill of lading. In our opinion this dichotomy is necessary to give commercial sense and efficacy to the business of the time-chartering of ships which is not a demise of the ship. The shipowner carries the goods from the port of shipment to the port of discharge not because of the bill of lading freight paid by the shipper or payable by the consignee at the port of discharge but because the shipowner has agreed with the charterer, for the charterhire which the charterer has agreed to pay the shipowner, that the master will act on the instructions of the charterer and take the ship from whichever port of loading to whichever port of discharge as directed by the charterer within the trading limits specified in the charterparty. The shipowner or his agent, the master, has no contact with the shipper or the consignee, except to receive the cargo from the shipper and to deliver it to the consignee.

47       It must follow then, that the shipowner has by the terms of the time-charterparty impliedly agreed with the charterer that he will not exercise his right to the freight under a bill of lading issued pursuant to the time-charterparty except by notice of claim to the shipper or the consignee as the case may be, and then only in circumstances which justify the exercise of such right.

48       Applying the principles we have discussed in this judgment to the facts of the case in this appeal, the notice served on Eka Jaya by Cascade’s managing agents dated 21 September 1990 in purported exercise of the lien contained in cl 18 of the charterparty and which appears to have been received by Eka Jaya on 25 September 1990 served no purpose whatsoever. It was not served on the shipper or the person liable to pay the bill of lading freight before the freights were received by Eka Jaya. The concession made by Eka Jaya in their director’s affidavit filed on 18 January 1991 that the freight amounting to $2,959.20 received after the notice ‘is due and owing to the plaintiffs’ is misguided. Further, the demand of Cascade’s solicitors of 2 November 1990 that Eka Jaya hand over the freights collected by them up to 25 September 1990 amounting to $287,315.46 based on the authority of Wehner4 and the demise clause in the bill of lading cannot be sustained.

49       For the reasons we have given we would dismiss this appeal with costs. Since we dismissed the respondents’ application to adduce further evidence with costs, we will not make the usual consequential order regarding the security deposit for costs. However, should there be a difference between the appellants’ taxed costs and the security deposit for costs in favour of the respondents, the same shall be paid over to the respondents or their solicitors to account of the respondents’ costs.

Appeal dismissed.

Reported by Charmaine Lye