The Owner's Vulnerability to the Liabilities of the Demise Charterer

• Author: Angus Stewart SC
• Position: SC (New South Wales and South Africa), BA LLB (Natal) BCL (Oxon), Barrister and Arbitrator at New Chambers, Sydney. The author gratefully acknowledges the research assistance of Leo Rees-Murphy, maritime law student at the University of Queensland, in the preparation of this paper. All errors remain the responsibility of the author alone. This...
• Pages: 85-92

(2015) 29 ANZ Mar LJ

85

THE OWNER’S VULNERABILITY TO THE LIABILITIES OF THE DEMISE

CHARTERER

Angus Stewart*

1 Introduction

Demise charters differ from other forms of charterparty in that they involve the charterer having possession and

control of the owner’s vessel. The leading statement on the nature of a demise charter is that of Lord Justice

Evans in The Guiseppe di Vittorio:1

What then is the demise charter? Its hallmark… is that the legal owner gives the charterer sufficient of the

rights of possession and control which enable the transaction to be regarded as a letting – a lease, or demise,

in real property terms – of the ship. Closely allied to this is the fact that the charterer becomes the

employer of the master and crew. Both aspects are combined in the common description of a ‘bareboat’

lease or hire arrangement.

That statement was with reference to the meaning of the phrase ‘charter by demise’ in s 21(4) of the Supreme

Court Act 1981(England and Wales) enacting Article 3(4) of the 1952 Arrest Convention.2It was adopted by

the Full Court of the Federal Court of Australia in The Hako Endeavour.3Rares J also recognised that a demise

charterer has often been described as ‘the owner pro hac viceor the temporary owner because of the extent of

his possession and control’.4

Because the charterer has possession and control of the vessel, peculiar issues arise with regard to the

vulnerability of the owner through the possible arrest of the ship for the debts and liabilities of the demise

charterer. The charterer may through the use of the owner’s vessel incur tortious liability, or it may contract for

its own purposes and interests and thereby place the vess el at risk for contractual debts.

These issues will be analysed in two categories, namely liabilities that give rise to maritime liens and those that

are enforceable by statutorylien (i.e. by the arrest of a vessel on a general maritime claim in in rem

proceedings). In each case, the circumstances can be further categorised into those cases in which the claim

arose before termination of the charterparty and those in which the claim arose after termination of the

charterparty.

2 Maritime liens

Since the master and crew are not employed by the owner, the owner will not be liable for the acts and

omissions of the master and crew on the basis of vicarious liability. However, the ship itself will be susceptible

to arrest and ultimately judicial sale – and the owner’s asset will be imperilled and the owner will in that sense

be liable – where the acts and omissions of the master and crew give rise to a maritime lien. Similarly, although

the owner will not in the ordinary course be liable for the contractua l debts of the charterer, where those debts

give rise to a maritime lien the owner will be vulnerable to the debts through the enforcement of the lien against

the ship.

A maritime lien is a privilege or security interes t ‘which adheres to the ship from the time that the facts

happened which gave the maritime lien, and then continues binding on the ship until it is discharged’.5It is

enforceable against the ship even if at the time of enforcement the ship is no longer owned by the person who

owned it when the events that gave rise to the lien occurred.6

* SC (New South Wales and South Africa), BA LLB (Natal) BCL (Oxon), Barrister and Arbitrator at New Chambers, Sydney. The author

gratefully acknowledges the research assistance of Leo Rees-Murphy, maritime law student at the University of Queensland, in the

preparation of this paper. All errors remain the responsibility of the author alone. This is a revision of a paper delivered at theInternational

Congress of Maritime Arbitrators (ICMA) XIX in Hong Kong on 11 May 2015.

1[1998] 1 Lloyd’s Rep 136 at p 156 2ndcol. Curiously the reports of this and o ther judgments published in Lloyd’s Reports concerning the

same dispute spell the name of the ship as reflected here (i.e. Guiseppe) although the ship was presumably named after the Italian post-war

trade-union and communist leader Giuseppe di Vittorio.

2International Convention Relating to the Arrest of Sea-going Ships(Arrest Convention), 1952, 439 UNTS 6330.

3(2013) 211 FCR 369, 386 [54] (Rares J), 372 [1] (Siopis J), 404 [138] (Buchanan J).

4Ibid 386 [55], citing inter alia, The Andrea Ursula[1973] QB 265, 269H (Brandon J).

5The Two Ellens(1872) LR 4 PC 161, 169.

6The Bold Buccleugh(1861) 7 Moo PC 267.