Navigating Charterer Responsibility: Court Awards Damages after Charterer Breaches Obligations to Safeguard the Vessel and Protect it from War Risks

On the fifteenth (15th) of November 2024, the First Hall Civil Court presided over by Judge Ian Spiteri Bailey, delivered its judgement in the case Dr. Joseph Mizzi noe vs. M.V. Sea Patron. This decision, emerging from facts which the Court describes as complex and extraordinary, significantly contributes to local jurisprudence on the nature of charterparty agreements, the charterer’s duty of care and the War Risk Clause.

The case was initiated by Sovereign Fuels Limited, owner of the M/V Sovereign M (the “Vessel”), which had been chartered to Patron Group Limited under a Time Charterparty Agreement. The proceedings were instituted against M/V Sea Patron, owned by Patron Group Limited, following its arrest in Maltese waters under the domestic court’s in rem jurisdiction established by Article 742D of the Code of Organisation and Civil Proceedings (Cap. 12, Laws of Malta).

The charterparty agreement limited the Vessel's operation to offshore activities involving the carriage of liquid cargo in the central Mediterranean. This was supplemented by a verbal agreement between the parties, prohibiting navigation within 80 nautical miles of Libya due to regional political instability. Patron Group Limited violated this agreement by directing the Vessel to operate within 40 nautical miles of Libya. While awaiting further instructions, the Vessel was intercepted by Libyan naval forces leading to the detention of the Vessel and its crew at Tripoli under harsh conditions. This led to significant financial losses for Sovereign Fuels Limited, including costs related to the Vessel and the crew’s release from detention. Patron Group Limited also failed to fulfil its payment obligations under the Charterparty.

As a starting point, the Court meticulously analysed the nature of the Time Charterparty Agreement in place to identify the rights and obligations binding on each party. Citing the judgement Avukat Max Ganado noe vs Kaptan Sebastiamo Pizzimenti, delivered by the Court of Appeal on the 30^th of November 2007, the Court distinguished between a bareboat charter, where the charterer assumes full control and possession of the vessel, and other types of charters, highlighting that it is only in the former case that the charterer, for all practical purposes, takes on rights and obligations akin to a temporary owner of the vessel. In other cases, the shipowner retains the exclusive responsibility to ensure that the vessel and the crew can fulfil their engagements. The Court concluded that the charterparty in place between the parties fell outside the scope of a bareboat charter, as the Vessel was leased together with its master and crew, but nonetheless recognized that the Vessel was under Patron Group Limited’s control throughout the charterparty for all navigation and operational purposes.

The Court addressed the damages resulting from the Vessel’s detention by referring to several safeguards within the charterparty agreement, including the charterer’s clear obligation to avoid exposing the Vessel to risk. It also highlighted the proven agreement between the parties that specifically prohibited navigation close to the Libya. The Court determined that Patron Group Limited instructed the vessel’s Master to navigate the Vessel within forty (40) nautical miles of the Libyan coast, and thus exposed the vessel to substantial danger which materialised upon the vessel and crew’s detention. The Court emphasised that, as an experienced operator in the shipping industry, Patron Group Limited should have foreseen the risks of unsafe conditions and potential detention when navigating near Libya, especially considering that Libya was experiencing serious political unrest and that there were several reported occurrences of vessels being detained, even arbitrarily, in the area. This was classified as a clear breach of the standard war risk clause established within the charterparty, which strictly forbids operations exposing the Vessel to war risks without the shipowner’s prior written consent. Consequently, the Court liquidated and awarded financial damages to Sovereign Fuels Limited for the actual losses incurred.

The Court also upheld Sovereign Fuels Limited’s claim for unpaid charter fees, ordering Patron Group Limited to pay €100,000 in arrears. In doing so, it relied on a private writing wherein the charterer recognized its defaulting status and expressly agreed to settle the balance due by way of charter fees. It dismissed claims that the debt acknowledgement was obtained under duress, citing insufficient evidence.

This judgement is notable in that it reinforces the high standard of care required from charterers in ensuring vessel safety, particularly in high-risk regions. It also confirms that prudent decision-making is required from charterers irrespective of the nature of the charterparty in place, shedding light on the balance of rights and responsibilities between shipowners and charterers.

Sovereign Fuels Limited was represented by Dr Joseph Mizzi and Av Ylenia Busutill from Muscat Mizzi Advocates and Dr Larry Gauci from Gauci and Partners Advocates.