English law - Competing title for goods - Interpleader actions

Interpleader actions can be a useful tool for shipowners sometimes.

Introduction
Consider the situation where as the shipowner, with a full cargo of crude oil on board your tanker, you find that the cargo is arrested by a third party, but you believe that the charterers actually own it. This takes place in a notoriously difficult jurisdiction and is likely to take a considerable time to resolve through the local courts. To make matters worse, the vessel has class certificates about to expire, is running out of bunkers and can not wait indefinitely. The charterers are demanding that the vessel sail immediately and the third party wants you to discharge the cargo back to shore. What can you do?

In short, you may be able to apply to the court for relief by way of interpleader. This is a well-established, although not frequently used, means of putting your case before a judge along with all of the competing parties, and asking him to exercise his discretion to address your predicament.

The scenario set out above was faced recently by a Gard member, although before looking at the situation a little further it is useful to examine the background to an interpleader application.

Interpleader actions
Interpleader actions are brought under Order 17 of the Supreme Court Rules and give the court the power to make orders where two or more persons are making adverse claims against property or money held by another. To be able to bring a claim there is a jurisdictional hurdle to be cleared in Order 17 Rule 4. This makes it clear that there must be an underlying claim that can be brought in the courts and a claim form issued on the back of it. In shipping-related cases this is usually the main point of difficulty as all of the parties may be incorporated in various non-UK jurisdictions and thus the applicable law is not necessarily clear-cut.

Bearing in mind that where there is a three-party or more dispute over title to goods each party could have claims and cross-claims against one another, for instance, under sale contracts the court takes a flexible approach to who is classed as being the interpleader claimants and defendants. The court is also allowed considerable powers regarding the allocation of costs depending on the outcome of the application. The remedy contemplated by Order 17 is set out in Rule 6, which gives the court the right to order that the goods be sold (in whole or part) and the proceeds of sale be held or distributed on terms that the judge considers to be just. The courts generally prefer to deal with money rather than goods, particularly where they are perishable or may be costly to store. Liquidating the subject matter of the interpleader allows for a greater variety of orders to be made; for instance the funds are to be held in court or escrow.

One of the leading cases on interpleaders is Cool Carriers v. HSBC,¹ in which the jurisdictional problems were considered in some detail.² The issue to be determined in this case was whether the charterers should have to pay hire to the owners or the owners’ assignees. The application failed as the court held it did not have jurisdiction on the basis that it could not order service out of the jurisdiction of the underlying claim form under Civil Procedure Rules Order 6 Rule 20.

However, where does this leave the shipowner in the situation outlined above? In this case an interpleader application was made to the High Court in London to try and resolve the impasse between the competing cargo interests.

The case
The outline facts were that the vessel was ordered to load a parcel of fuel oil in Odessa. After some time it became clear there was a problem with “clearance” of the vessel to leave the port due to a dispute over the sale of the cargo. The charterers had purchased the cargo as it passed the flange and therefore believed that they had proper title to the goods. The difficulty was that a seller further up the chain claimed that they had not been paid by the intermediate purchaser and under their sale contract had retained title to the goods. Proceedings were brought in Odessa and an order made that the cargo should be delivered up to the cargo claimants (who were not the charterers). This order was never actually served on the vessel, but as original bills of lading had not yet been provided the vessel was effectively detained. The difficulties were compounded as the vessel had been in port for three months, it was running out of bunkers and class periodic surveys were due to expire and could not be conducted. Additional proceedings were being brought in Kazakhstan under the head sale contracts and in Switzerland as between the charterers and their sellers.

Having taken advantage of a window of opportunity, following the issue of the bills of lading the vessel sailed for Singapore, shortly after which the Odessa cargo claimants attempted to serve their court order for delivery-up of the cargo, only to find that the ship and its cargo had left the jurisdiction. Fortunately, class had been kept advised of the situation and were sympathetic to owners’ plight and allowed a short extension of time.

During the voyage to Singapore each claimant to the cargo made out their claims against each other and the vessel owners. The owners’ predicament was to face a potentially very expensive “no win” situation which was not of their own making. If delivery was made to the charterers then they could be arrested or pursued for participating in a potential fraud. Alternatively, they could be in breach of charter by not following the charterer’s orders. Finding themselves on the horns of a dilemma, the owners sought interpleader relief from the High Court in London. The application was heard a day before the vessel arrived in Singapore to discharge.

The judge held that he did not have jurisdiction to decide on the whole matter as the charterparty, which called for English High Court jurisdiction and English law, was only between the vessel owners and charterers. It was only intended to deal with their relationship, not the substantive dispute which was between the charterers and the other alleged cargo owners, and subject to another jurisdiction. The court also held that notwithstanding the jurisdictional point the court probably did not have the power to order that the underlying claim form be served out of England on the defendants. If, however, the parties had been incorporated in the UK or the sale contracts were subject to English law, then it would have been more likely that the court could have exercised its jurisdiction.

Although understandable, it was disappointing that the judge did not make a decision on the specific question of how to deal with the situation owners faced. However, the application was far from fruitless, as it gave owners the benefit of understanding the position of the opposing parties in greater detail, which then led to greater confidence in confirming the legal advice to owners that they should discharge against the original bills of lading and follow the charterers’ orders. On this basis there could be no damages claim for breach of charterparty, under the bill of lading terms or in conversion.

This was certainly an unenviable situation and the owners were fortunate to have let the vessel to pragmatic charterers, who were appreciative of their position and did their best to assist.

Conclusion
In summary, interpleader is a very useful means of trying to resolve disputes over title to goods. This could be where a party holds settlement funds and an assignee, purchaser or third party claims they have title to them. The court will, however, pay close attention to the jurisdictional aspects of the application, and if it is able to make an order it will usually prefer to deal with the proceeds of sale of the goods rather than the cargo per se.