Judgment of the 9th Commercial Court of Appeal of 01.09.2020, case A40-119211/18

(Rhenus Intermodal Systems LLC v. Sovship DV LLC & Sovfrakht PJSC)

Facts: Rhenus Intermodal Systems LLC (claimant), as an agent, entered into a voyage charter with Sovship DV LLC (carrier) on behalf of its client. The contract contained an LCIA arbitration clause. Shortly after a cargo of flour was loaded onto The Semyon Dezhnev, a fire broke out on board.

According to the expert report, the fire broke out due to the fact that the team did not turn off the floodlight when accepting a flammable cargo, and combustible materials ignited from the heated surfaces of the floodlights. As a result of the survey of the vessel, it turned out that the covers of the holds were leaking and let water through, and the vessel was, in principle, unfit to carry flour. Thus, the cargo was not only burnt, but also wetted.

The freight forwarder incurred the costs of unloading, sorting and storing the damaged cargo (8.5 million rubles). The forwarder's client, in turn, incurred the costs of entering a substitute contract to compensate for the lost consignment of flour (5.5 million rubles). The forwarder agreed to reimburse these losses to the client, after which he himself filed a tort claim against the carrier (Sovship) and the shipowner (Sovfrakht), claiming they were liable jointly and severally for these 14 million rubles.

The Moscow Commercial Court initially dismissed the claim without prejudice, as covered by the arbitration clause in the voyage charter. The court indicated that in this case there was an assignment of claims by operation of the law from the client to the agent, as a result of which the arbitration agreement remained binding on the agent.

However, at second instance, this decision was reversed and remanded for reconsideration. The 9th Court of Appeal correctly determined that the freight forwarder’s claims did not arise out of the voyage charter, and he was not a party to the charter. There was no evidence of an assignment of the rights and obligations under the voyage charter to the claimant, which meant that the arbitration clause did not apply. The Commercial Court for the Moscow Circuit dismissed the carrier’s and the shipowner’s appeal.

On reconsideration, the courts of two instances ruled in favor of the claimant.

Moscow Commercial Court: the carrier and shipowner breach their duty to make the ship seaworthy and fit to carry flour, as well as their oversee the cargo operations. Thus, the court found them jointly and severally liable. In this case, the court referred to Art. 173 of the Russian Merchant Shipping Code (“MSC”) (“Liability of the actual carrier”) and probably considered shipowner to be the actual carrier, extending the application of this article to tort claims.

9th Court of Appeal: on appeal, the shipowners argued that they were not the “actual carrier” under Art. 173 MSC and also did not operate the vessel, since the "operational management" was transferred to a company called Sovfrakht-Vostok LLC under a contract on the SHIPMAN form. The court rejected this argument, stating that the ship management contract does not change the shipowners’ obligations to third parties and that he still remains responsible for making the ship seaworthy and maintaining it. At the same time, according to the text of the decision, the court referred to the ship management contract on the SHIPMAN form as either as an agency agreement or a contract for the provision of services. The court also confirmed that in this case there was no contractual relationship between the defendants and the claimant freight forwarder, and therefore the Civil Code rules on tort liability applied. As a result, the 9th Court of Appeal upheld the decision of the Moscow Commercial Court at first instance – the carrier and the shipowner remained liable jointly and severally to the freight forwarder.

Comments: judging by text of the judgments in this case, the nature of the relationship between the carrier and the shipowners/their manager remains somewhat unclear. Most likely, the carrier here was the time charterer - but then he should not have been held liable jointly and severally with the shipowners, since a time charterer he does have possession of the vessel and is not responsible for its maintenance and making it seaworthy. Regrettably, none of the courts explained exactly on what basis the owners and the time charterer/carrier should bear joint and several liability here.

It may very well be that the courts misinterpreted Art. 173 MSC, dealing with the liability of the "actual carrier". After all, at first they pointed out that there is no contract between the claimant freight forwarders and the defendants and thus the claim sounds exclusively in tort. Despite this, the courts referred to Art. 173, which is located in the chapter of the Russian Civil Code called "Contracts of carriage by sea" and applies where a shipper sues in contract not only his contractual counterparty-carrier, but also the actual carrier.

However, in this case, none of the defendants could be considered “carriers” as against the claimant freight forwarder. After all, the claimant, being merely an agent, was not a party to the contract of carriage (as the courts correctly pointed out). Consequently, given that according to the 9th Court of Appeal the ship's crew acted on behalf of the owners and not the carrier, in the present case there was no basis for imposing joint and several liability on the carrier. ■