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The BIMCO TOWCON and TOWHIRE are the only standard forms in common use for international contracts of towage. The forms were produced by BIMCO in collaboration with the International Salvage Union ("ISU") and the European Tugowners Association ("ETA"). The draftsmen's aim was to produce a balanced form of contract which did not heavily favour the tugowner, as had previously been the case when the tugowner prepared its own contract.

The efficacy of the TOWCON was recently tested in the Commercial Court in London (Lukoil-Kaliningradmorneft plc -v- Tata Ltd and Global Marine Transportation Inc. [1999] 1 Lloyds Rep. 365). Brookes & Co. acted for Lukoil-Kaliningradmorneft plc ("Lukoil").

Lukoil had entered into a towage agreement on the TOWCON form for the tandem tow of two vessels. The towage agreement was signed by Global Marine Transportation Inc. ("Global") as hirers and named Tata Ltd ("Tata") as owner of the towed vessels. Lukoil believed that Global was the agent of Tata and in entering the contract they relied, inter alia, upon clauses 21 and 22 of the TOWCON.

Clause 21: Lien

"Without prejudice to any other rights which he may have, whether in rem or in personam, the Tugowner, by himself or his servants or agents or otherwise shall be entitled to exercise a possessory lien upon the Tow in respect of any sum howsoever or whatsoever due to the Tugowner under this Agreement and shall for the purpose of exercising such possessory lien be entitled to take and/or keep possession of the Tow; provided always that the Hirer shall pay to the Tugowner all reasonable costs and expenses howsoever or whatsoever incurred by or on behalf of the Tugowner in exercising or attempting or preparing to exercise such lien and the Tugowner shall be entitled to receive from the Hirer the Tug’s Daily Rate of Hire throughout any reasonable delay to the Tug resulting therefrom."

Clause 22: Warranty of Authority

"If at the time of making this Agreement or providing any service under this Agreement other than towing at the request, express or implied, of the Hirer, the Hirer is not the Owner of the Tow referred to in Box4, the Hirer expressly represents that he is authorised to make and does make this Agreement for and on behalf of the Owner of the said Tow subject to each and all of these conditions and agrees that both the Hirer and the Owner of the Tow are bound jointly and severally by these conditions."

The towage agreement provided for a lump sum price payable by instalments during the course of the voyage. The initial instalment of 10%, payable on signing the contract, was paid and the tow commenced. No further instalments of the towage price were paid. The contract was eventually terminated by Lukoil and at the same time Lukoil gave notice to both Global and Tata that it was exercising its possessory lien over the towed vessels.
Lukoil commenced an action in the High Court in London. Both Global and Tata filed a defence but Global, which had no substantial assets of its own, ceased to exist early on in the proceedings and therefore did not take any further part.
Tata admitted that it was the owner of the vessels to be towed but denied that Global had authority to enter into the towage contract on its behalf. Tata further denied that Global was entitled to exercise a lien on the tow vessels.
The issues
The principal issues in the case were,
whether Global had actual or ostensible authority to enter into the towage agreement on behalf of Tata, and,
if Global had no authority to enter into the towage agreement on behalf of Tata, was the tugowner nevertheless entitled to exercise against Tata the lien conferred by Clause 21 of the towage agreement.
The Judge decided on the facts of the case that Tata had acted as the agent of Global and was therefore authorised to bind Tata to the towage agreement.

Clause 21

The judge also considered the second issue, namely, if Global had not been authorised to bind Tata to the towage agreement, would Lukoil nonetheless have been entitled to exercise a possessory lien against Tata under Clause 21 of the TOWCON.

Lukoil had submitted that even if Global had no authority to make a contract binding on Tata, Global had authority (whether express or implied) to create a contractual lien binding on Tata. Global was in possession of the towed vessel as baillee and the purpose of the bailment had been for Global to arrange the towage of the tow vessels to India.

The essential question considered by the judge, was whether under the towage agreement, the tug was a bailee of the towed vessels.

Tata had submitted, that under the contract of towage, Lukoil provided services for the tow with the tug but was not regarded as obtaining the possession necessary to create a bailment of the tow. Tata further submitted that there was no English authority which suggested or supported an analysis of the contract of towage as one of (or akin to) bailment, although the point had never been specifically addressed by the English Courts. Tata had referred the Judge to American authorities, including the judgement of the US Court of Appeals in Stevens v the White City 285US195, which had established that the relationship between tug and tow was not one of bailment.

Lukoil challenged the proposition that, as a matter of law, under a contract of towage, possession of the vessel under tow was never to be regarded as passing to the tugowner, and that therefore a contract of towage was by its essential nature incompatible with the bailment of the vessel. Lukoil, however, accepted that bailment was not a necessary incident of a contract of towage: a vessel under tow might remain throughout in the possession of the owner as the case where the vessel under tow had a crew and remained under the authority of the master.

Lukoil had further submitted that, on the facts of the case, it had been in sole charge of the towed vessels. It was argued that it would be a legal fiction to pretend that they were not in the Lukoil's possession and the Court ought not to create such a fiction.
The Judge accepted Lukoil's argument and held that Lukoil had taken delivery and possession of the vessels, sufficient to put it in the position of a bailee. The Judge further held that, even if under the law of towage no bailment was created, he could see no reason why the principle should not be extended to the case. If an owner of property engages another to work on it, knowing that the main contractor intended to sub-contract all or part of the works on terms to which the owner consents, and the main contractor does do, the sub-contractor ought, in justice, to rely on those terms as against the owner whether the property was in the possession of the owner, main contractor or sub-contractor. The judge concluded that by agreeing to Global entering into a contract for the towage of the vessels to India, Tata was to be taken as having consented to Global agreeing that the towage company should be entitled to the usual tugowner lien under clause 21 of the TOWCON.
Recommendations
Prior to entering into a towage contract with a hirer who is not the owner of the towed vessel, tugowners should always request from the owner of the towed vessel, written confirmation of the hirer’s authority to enter into the towage agreement on behalf of the owner of the towed vessel.
When the hirer of a tug is not the same entity as the owner of the towed vessel, clause 22 is of limited assistance to the tugowner. In the absence of authority from the owner of the towed vessels, the hirer cannot, by himself, bind the owner of the towed vessels. The owner of the towed vessels will not be liable to the tugowner for payment of hire simply because of the provisions of Clause 22.
If the hirer warrants his authority in circumstances where he has no authority, the hirer will be liable to the tugowner for breach of Warranty of Authority. In the shipping context, where single-purpose paper companies prevail, there is a very serious risk that tugowners will not be able to enforce any judgement against hirers either because the hirer has no assets, or, as in this case, because the hirer ceased to exist.
 
 

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