ENVIROCO LTD V FARSTAD SUPPLY A/S

[2009] EWHC 906 (Ch), Chancery Division, Mr G Moss QC, 22 May 2009

Charterparty (time) – Interpretation – Charterer’s contractor sued by shipowner for damage to vessel – Whether exclusion clause in charterparty capable of benefiting contractor as affiliate of charterer – Meaning of “subsidiary” – Charterparty referred to statutory meaning of term – Companies Act 1985, sections 736 and 736A – Companies Act 2006, section 1159

The claimant contractor, Enviroco, had been contracted by the charterer to clean the tanks of the vessel Far Service. While it was doing so, a fire occurred in the engine room and substantial damage occurred. She was at the material time under a time charterparty between the charterer and the defendant shipowner, containing a clause excluding the liability of affiliates, which was designed to allocate this type of damage to the shipowner for insurance purposes. Enviroco would normally fall under this clause as an affiliate, because it and the charterer were both subsidiaries of A; however A had pledged the shares in Enviroco to a bank by way of security under Scottish law, by a method involving the registration of shares in Enviroco in the name of the bank’s nominee as a member of Enviroco. The issue to be resolved was whether Enviroco was removed from the scope of the exclusion clause by virtue of this “pledge”. The shipowner argued that A was not a member of Enviroco from the time that the shares in Enviroco came to be registered in the name of the bank’s nominee. Moss QC, sitting as High Court judge, held on an interpretation of the statutory meaning of “subsidiary” in the context of the charterparty provision, that Enviroco remained within the scope of the exclusion and that to hold otherwise would have been against business common sense. Enviroco was an affiliate in the sense of the exclusion clause, because although its shares were registered to the bank, A retained the rights to vote and appoint directors under the Companies Act section 736A.