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Legal 500, 2021


Rhine v Vitol: High Court decision on owners’ liability for vessel’s ‘detention’

May 31 2023

Rhine v Vitol: High Court decision on owners’ liability for vessel’s ‘detention’

The High Court last week gave judgment in Rhine Shipping DMCC v Vitol SA. Ingolf Kaiser and Ryan Hunter of MFB acted for Vitol, the successful counter-claimants, together with Paul Toms of Quadrant Chambers.

The case concerned delays to the vessel M/T Dijilah in reaching its second loadport because of a ‘detention’ at the previous loadport. At that port, the bunkers and stores of the vessel were arrested due to a dispute between unrelated third parties and the vessel’s bareboat charterers. The bareboat charterers had time chartered the vessel to Rhine, from whom Vitol had chartered the vessel and purchased a cargo of crude oil with pricing to be determined by the bill of lading date. The delay meant a significant increase in price under the sale contract. Vitol claimed the difference in price caused by the delay.

The court had to consider, firstly, whether owners were obliged to pay for that loss either as damages for breach of a warranty or under an indemnity in the charterparty. This included interpreting the warranty and indemnity clauses and deciding whether the vessel was detained when bunkers and other property aboard (but not the vessel itself) were arrested. If so, there were two main quantum questions – firstly, whether that loss was reduced by Vitol’s internal risk management processes, which owners alleged were similar to hedging. These involved recording a notional internal “swap” in respect of each of the pricing dates that would have been used to price the cargo, and then rolling those internal “swaps” to later dates once the vessel was delayed. There was no external counterparty for the internal “swaps”, which were grouped together with other similar internal transactions.

The second main quantum question was whether Vitol’s loss was too remote and was not something for which owners had assumed responsibility. Was Vitol only entitled to recover what it would have lost if it had concluded external swaps? There was a further question, as to whether Vitol had proved what the bill of lading date would have been if there had been no delay, and whether that was to be determined based on a loss of chance or balance of probability analysis.

Vitol was successful in arguing that it was entitled to be paid all of its claimed loss as either damages under the warranty, or under the indemnity. The vessel was detained because it was unable to depart even though the arrest order was directed at bunkers and other property onboard. The court also found that the likelihood of the vessel meeting the originally intended loading days was sufficiently certain that the losses were recoverable in full.

As to the alleged “hedging”, the court considered Vitol’s risk management processes, having heard evidence from a commercial analyst at Vitol and oil trading experts from both sides. The court found that Vitol’s processes were not equivalent to the position where external hedges are concluded as was in the case in Glencore Energy UK Ltd v Transworld Oil Ltd [2010] EWHC 141 (Comm) and Choil Trading SA v Sahara Energy Resources Ltd [2010] EWHC 374 (Comm). Instead, the actions of a large trader such as Vitol in “netting off” notional internal transactions of this kind did not have the effect of reducing Vitol’s loss. It was also held that a party in owners’ position would have contemplated that Vitol would have had such a system, and so the loss claimed was not too remote and owners had assumed responsibility for it. Vitol was therefore entitled to recover its loss in full arising from the delay.

The full decision of Simon Birt KC sitting as a Deputy Judge of the High Court is available here:

Full Judgement Rhine Shipping DMCC v Vitol SA (984.16 kB)

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