Law Report: Ship owners right to check orders: Kuwait Petroleum Corporation v I & D Oil Carriers Ltd (The Houda) - Court of Appeal (Lord Justice Neill, Lord Justice Leggatt and Lord Justice Millett), 21 July 1994.

In a war situation, the owners of a ship might be entitled or even obliged to delay obeying the charterers' instructions for a reasonable time in order to check the source and validity of those orders.

The Court of Appeal allowed an appeal by I & D Oil Carriers Ltd, owners of the Houda, against a decision of Mr Justice Phillips ((1993) 1 Lloyd's Rep 333), granting the charterers, Kuwait Petroleum Corporation, a declaration that the ship was off-hire for a substantial period between 8 August and 27 September 1990.

The charterers had chartered the Houda under a time charterparty dated 2 April 1990 on the Shelltime 4 form. On 2 August 1990, Iraq invaded Kuwait. The Houda was loading oil at Min al Ahmadi. On the announcement of the invasion, she sailed part-loaded with 150,000 tonnes of crude. Bills of lading issued and signed prior to her departure were left in Kuwait and subsequently disappeared. By 8 August the Houda had proceeded to an anchorage off Fujairah, just outside the Gulf. Hitherto, she had operated under standing instructions issued by the charterers, that 'all instructions relating to the voyages of your vessel will be issued by Kuwait Petroleum Corp in Kuwait'. After the invasion, the charterers' management moved to London. It was from the London office that orders had been given on which the charterers relied in the present proceedings.

On 8 August, they sent a telex through brokers to the owners' managers in Athens, instructing the ship to proceed to the Red Sea for orders. The owners were concerned about the authority on which those orders were given and about the possible effect of UN sanctions. Eventually surveyors were allowed to board the vessel on 19 August, and on 21 August the ship sailed to Ain Sukhna, arriving on 4 September. There was then a further delay while the parties negotiated the terms under which the cargo could be discharged without presentation of the bills of lading signed in Kuwait.

The charterers now claimed they were deprived of the use of the vessel in August and September 1990 by reason of the owners' refusal to comply with lawfully given orders. But the owners took the view that, as to the first period of delay, they were entitled to seek further information before complying with any orders, and as to the second period of delay, that they were under no duty to discharge the cargo otherwise than on presentation of bills of lading.

Stewart Boyd QC and David Joseph (Ince & Co) for the owners; Richard Aikens QC and Richard Lord (Shaw & Croft) for the charterers.

LORD JUSTICE NEILL said it was necessary to take a broad and comprehensive view of the duties and responsibilities of the owners and master and to ask: How would a man of reasonable prudence have acted in the circumstances?

It was not for the Court of Appeal to decide whether on the facts the owners had reasonable grounds to pause; but his Lordship was satisfied that in a war situation there might well be circumstances where the right, and indeed the duty, to pause in order to seek further information about the source and validity of any orders received was capable of arising even if there might be no immediate physical threat to the cargo or ship.

As to the second period of delay, while it was open to a ship owner to decide that he was adequately protected by a letter of indemnity and to deliver in the absence of a bill of lading, in his Lordship's judgment the rights of a time charterer to give orders did not entitle him to insist that cargo be discharged without production of a bill of lading.

LORD JUSTICE LEGGATT and LORD JUSTICE MILLETT concurred.

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