Précis: The British Columbia Court of Appeal confirmed the ship owner’s right to direct the payment of sub-freights to itself.
The owner of the ship “Loyalty” granted a time charter to KLC who, in turn granted a time charter to MUR who, in turn, granted a voyage charter to Canworld for a voyage from Vancouver to Australia carrying sulphur. Canworld contracted with the shipper, Prism, to carry the sulphur cargo to Australia. MUR paid its hire to KLC but KLC defaulted on its payment of hire to the owner. The owner then sought to exercise a lien on the freight owing by the shipper to Canworld and the shipper paid the freight into court. Insolvency proceedings were commenced in Korea concerning KLC. Those proceedings were settled on terms that the owner recovered approximately $10 million of the $16 million owed to it. However, the settlement terms further provided that any amounts recovered by the owner from sub-hires or sub-freights were to be deducted from the settlement amount. Subsequently, this motion was brought before the British Columbia Supreme Court for directions as to how the funds paid into court by the shipper ought to be paid out. The owner argued it was entitled to the funds on the basis of its lien rights and the terms of the bill of lading. MUR and others argued that, given the terms of the settlement in the Korean insolvency proceedings, it would be inequitable to order the payment to the owner since the person who would ultimately benefit would be KLC, the entity that was responsible for the dispute. At first instance, the motions Judge agreed and ordered the funds paid to Canworld who could then satisfy its debt to MUR. The ship owner appealed.
Decision: Appeal allowed.
Held: The motions Judge appears to have decided the case on the basis of his interpretation of what would be a fair result whereas he was required to base his decision on legal and equitable principles. There is no equitable principle supporting the motions Judge’s conclusions. There is no unjust enrichment or double recovery and there is not sufficient evidence for a conclusion that a payment to the owner would benefit KLC. There seems little question that, pursuant to the terms of the head charter party, the owner has the right to direct the payment of sub-freights to itself.