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By Mr T. Hosoi, of Hosoi Law Office, Japan1

A time charterer has occupied a rather peculiar position under Japanese law in that he, rather than the shipowner, may be held liable in respect of claims brought by third parties, including claims from cargo interests. He may even be held liable in tort resulting from crew negligence.

This law has been somewhat unique in comparison with the attitudes traditionally adopted in other maritime countries in that the time charterer under ordinary circumstances has no direct liability towards third parties. As a result, the Japanese law regarding the liability of a time charterer has received some criticism from some scholars and practitioners. However, a considerable development via the "JASMIN"12 decision has been made since my initial article appeared in Gard’s Handbook on P&I Insurance, 3rd edition, page 443.

This article will examine how the Japanese law originally came into existence, via the Supreme Court’s decision of 28th June 1928 through some literal interpretations of the Japanese Commercial Code and in what direction the Japanese law may now go.

As far as a voyage charter is concerned, I have not come across any judicial precedent in which a voyage charterer was held to be liable to a third party particularly in tort.

The owner of a cargo shipped on board a Japanese flag vessel was sued by the time charterer of that vessel for damage to cargo. The then Osaka High Court, which was at the time on a rank below the Supreme Court, held that the owner of the carrying vessel alone was liable in respect of the claim, on the basis of the then Section 612 (present Section 759)3 of the Commercial Code of Japan.

However, on 28th June 1928, the Supreme Court reversed the decision of the High Court. It held that the High Court was wrong in holding the owner liable and in not considering the liability of the time charterer, because the time charterers in question should have been considered as a contract both for the lease and the manning of the ship.

The owner of a Japanese vessel "KYODO MARU No. 13" time-chartered her to Sugimura Sempakubu who sub-chartered her to Jameshelm on substantially the same terms.

The vessel lost all lumber carried as cargo aboard during her voyage due to the lack of proper care exercised by the master with the result that the bill of lading holder sued the shipowner for compensation on the ground that, in addition to the then Section 612 (present Section 759)3 of the Commercial Code of Japan, the Master’s issuance of the bill of lading should be interpreted to show that the Master acted for and on behalf of the shipowner (as well as the time charterers).

The Supreme Court dismissed the claim and stated that the sub-time charterer was the only carrier of the cargo under the bill of lading in question since the sub-time charterer was considered to be equivalent to the lessee of the vessel who was given the same rights and obligations as those of the vessel’s owner as so provided by the then Section 557 (present Section 704) of the Japanese Commercial Code.5

Shipowner Toyo Kisen (Steamship) time chartered the "KOYO MARU" to Asano Bussan (Trading) who further time chartered her to Taiyo Kaiun (Marine Transport). The master had issued a bill of lading to consignee Asia Kingyo for the carriage of logs. The owner delivered the cargo to the consignee without receipt of the bill of lading, which had been put into the custody of Hokkaido Takushoku Bank as security. The Bank sued the shipowner for compensation based on the non-implementation of the contract under the bill of lading.

The then Tokyo High Court dismissed the Bank’s claim and determined that due to the characters of the time charterparties between the owner and Asaho and between Asaho and Taiyo, the vessel was, together with the Master aboard, considered leased to the respective charterers, and that sub-charterer Taiyo was, taking into account the provision of the then Section 557 (present Section 704) of the Japanese Commercial Code5, the only carrier under the bill of lading.

The Supreme Court followed the decision on the "KAISHO MARU" as above, and came to the same conclusion as the above-mentioned Tokyo High Court in the "KOYO MARU".

This case dealt with a statutory lien on the cargo aboard the "SANDVIKEN" which was time chartered. The shipowner insisted on executing a lien on the cargo (to secure his right to receive unpaid hire from the time charterer).

Consignee Nippon Kokan objected and stated that Shipowner Wallem & Co. was not the carrier under the bill of lading according to Japanese law as to the character of the time charterparty, and that therefore the owner was not entitled to the right of lien which should only have been given to the carrier of the cargo.

Both the then Tokyo High Court on 13th December 1935 and further the Supreme Court held, as against or different from the interpretation of the law regarding the "KAISHO MARU" and the "KOYDO MARU No. 13", that it was not the time charterer but the owner of the "SANDVIKEN" who was responsible for implementing the contract of carriage to the extent the Master’s duties were concerned, and that the consignee had to pay the freight directly to Wallem & Co. in exchange for the receipt of the cargo from the vessel. Since the consignee failed to pay the said freight, the shipowner was able to execute the lienable right over the cargo.

In the "FULL MOON" case (Hisatoyo & Ors. v. Showa Line), a Liberian flag cargo vessel, the "FULL MOON", collided with a Japanese fishing boat on the high seas. It was found that the accident was caused by the sole negligence of the crew of the "FULL MOON".

The "FULL MOON" was operating under a time charter to Showa Line, the charter being on the Baltime form.

The fishing vessel sued both the owner and the time charterer of the "FULL MOON" in the same litigation before the Tokyo District Court. However, for some reason, the plaintiff discontinued proceedings against the foreign owner of the "FULL MOON" with the result that the Japanese time charterer, Showa Line, became the only defendant.

The District Court held that Showa Line, as time charterer, had considerable authority to instruct and supervise the Master of the vessel to proceed with despatch. The time charter in question provided that if the time charterer was dissatisfied with the ability and behaviour of the Master, then he would be entitled to require the owner to replace him.

For this reason, inter alia, the Court considered that the time charterer was in a position to influence even the navigation of the vessel under the charterparty and held, therefore, that the charterer was liable. Since the owner of the "FULL MOON" was no longer a party to the proceedings, the Court did not pronounce on whether the owner was liable in addition to or jointly with the time charterer.

Showa Line appealed to the Tokyo High Court, but the matter was settled out of court before the case was ever heard on appeal.The High Court did not therefore have the opportunity to rule on the question of the respective tortious liabilities of the owner and time charterer, and the decision of the District Court stands.

However, it is understood that the P&I Club in which the "FULL MOON" was entered, subsequently reimbursed the time charterer to some extent for the amount that he had paid to the fishermen in settlement. This was understood to be on the basis that the owner was at risk of having to indemnify the charterer under the terms of the charterparty, which was not subject to Japanese law.

In 1983 the Osaka District Court gave a judgment which was relevant to the question of a time charterer’s tortious liability to a third party. The case was Matsishima v. Kaiyo Sangyo & Ors. (The "SHOEI MARU"" v. "SHINKO MARU").

A fishing boat called the "SHOEI MARU" collided with a cargo vessel, the "SHINKO MARU", and the Court found that the vessels were both equally to blame for the collision. The Court then went on to consider who, on the side of the cargo vessel (which was on time charter at the material time), should be liable in respect of the loss and damage sustained by the fishing boat. In other words, the Court considered whether the owner or the time charterer of the "SHINKO MARU" should be liable to the "SHOEI MARU".

The Osaka District Court held that it was the time charterer of the "SHINKO MARU", and not her owner, who was liable.

The case was appealed to the Osaka High Court, but a settlement was concluded before judgment was rendered. The reason for the District Court’s decision was that time charterparties have traditionally been considered as contracts for letting which also contain a supply of labour clause. Thus the time charterer was found liable under Section 704 (1) of the Japanese Commercial Code.5

There is, however, another relevant provision in the Japanese Commercial Code.10This is Section 690 which suggests on the face of it that it is the shipowner who should be liable, but the Osaka District Court interpreted it to the effect that the word "shipowner" did not automatically mean the registered owner of the vessel, but rather the person or body corporate who actually and in fact manages or operates the vessel in the business of the carriage of goods by sea.

Bearing in mind that the time charterers’ position under the law of Japan is akin to that of a lessee under a lease contract, the District Court considered the time charterer to be the manager or operator of the vessel as far as the carriage of goods by sea was concerned.

A new precedent was further set as a result of the District Court’s decision. The Court considered the owner of the "SHINKO MARU" to be free of any liability, a point not previously clearly stated by any other court, although there is an earlier case in which the time charterer had been held liable, but the position of the shipowner had not been made clear.

A Panamanian flag cargo ship, the "SCAN TRIOARROW", was arrested in Japan by a bunker supplier from Hong Kong, on the basis that the vessel had been supplied with bunker oil in the United States at the request of the Japanese time charterer and that the bunker oil had never been paid for.

The supplier contended that he had a maritime lien against the ship arising out of the supply of provisions necessary for the continuation of navigation. The shipowner pleaded, inter alia, that he had not ordered the bunkers but that the contracting party was the time charterer.

In its judgment delivered on 2nd May 1985,11 the Takamatsu High Court, Second Division, held that a time charter on the New York Produce Exchange Form was to be considered as a mixture of a contract for the lease of a ship and a contract for manning. Thus the Court clearly adopted the Supreme Court decision of 28th June 1928 regarding the "KAISHO MARU"2. The Takamatsu High Court further held that the shipowner had a statutory liability to the bunker supplier because of a maritime lien, which arose by virtue of Section 704 of the Japanese Commercial Code.5

Rice bran extraction pellets (the cargo) were carried by the "JASMIN" from Indonesia to Korea from April to May 1986 and found damaged on arrival. The cargo insurersdemanded payment of damages from the time charterer for breach of his obligations under the contract of carriage by sea as evidenced by the bills of lading and from the shipowner for breach of his obligations under the contract of carriage by sea evidenced by the bills of lading or for his tortious acts. The cargo insurers asserted that their rights of suit were acquired by subrogation from the original holders of the bills of lading, on the face of which the name of the time charterer was printed and which were signed by a ship’s agent in Indonesia under the words "For the Master" followed by the demise clause.

The Tokyo High Court decided, inter alia:
(1) that the shipowner had been able to make another charterparty (normally a voyage charter) with the cargo owners in the circumstances. (He coincidentally had made the time charterparty with the time charterer (Kanki Gaiko Co., Ltd. of Tokyo)).
(2)that the demise clause was considered valid as far as Japan’s International Carriage of Goods by Sea Act was concerned; and
(3)that in view of the above, the carrier named on the bills of lading in question was considered to be not time charterer but the shipowner in the circumstances.
The case has been appealed to the Supreme Court and had not yet been finalised and concluded as of December 1997.

The Japanese Courts’ approach to matters involving a time charterer’s liability has been, except for the "SANDVIKEN" as reported above, traditionally that it is not the shipowner but the time charterer who should be liable to the third party including the holder of the bill of lading.

The "JASMIN" case, however, expresses a very different view on the issue from the traditional view of the Japanese Courts. It will thus be interesting to see the outcome of the Supreme Court proceedings in the "JASMIN" case.

1 T. Hosoi is a legal counsellor of Hosoi Law Office, Japan. Mr Hosoi is the author of the section on Japanese law in "Arrest of Ships, Volume 1" (Lloyd’s of London Press Ltd. 1985). He has been overseas correspondent of Kluwer Law & Taxation Publishers since 1984 and a maritime arbitrator of The Japan Shipping Exchange Inc., Tokyo ("JSE").
2Min-shu (Minji Hanrei Shu) 7-8-519
3Section 759 (ex-Section 612) of the Japanese Commercial Code:
(A shipowner’s liablity under a sub-charterparty)
In the case where one, who has chartered a whole or a part of a vessel for the purpose of the contract of carriage, has further chartered her out to a third party, the shipowner is solely liable for implementating the master’s duties under the contract of carriage towards the third party.
4Min-Shu 14-1495.
5Section 704 (ex-Section 557) of the Japanese Commercial Code:
(Lease of a ship: legal relation)
(1) If the lessee of a ship makes her available in navigation for the purpose of engaging in commercial transactions, he shall, in relation to third persons, have the same rights and duties as the owner in connection with matters relating to the use of the ship.
(2) In the case mentioned in the preceeding paragraph, any maritime lien which has arisen in connection with the use of the ship shall be effective even against the owner of the ship; this shall not, however, apply in cases where the holder of the maritime lien (preferential right) was aware that the use of the ship was not in conformity with the contract.
6Tai Jian Zenshu 4-1086.
7Shimbun 4033-16.
8Hanrei Jiho 748-77.
9Kaijo Ho Kenkyu Kaishi No. 57, December 1983 edition, pp. 22 ff. The Japanese Shipping Exchange, Inc. ("JSE").
10Section 690 of the Japanese Commercial Code:
(Liability of shipowners).
"A shipowner shall be liable for any damage done intentionally or negligently to another person by a mariner, such as the master, in the performance of his duties".
11Hanrei Times No. 561 (1.10.985) pp. 150 ff. and BLC, Cargo Claims Analysis, Kluwer, August 1986, pp. 91 ff. Chief Judge Hiroshi Kikuchi, Judges Ken Fukuie and Ko Watanabe.
12Kaiji Ho Kenkyukai, Shi, JSE 114-2 and 119-1. English translation of the case is made in the Bulletin of "JSE" No. 27. December 1993 edition.