Oil & Gas Shipping: a Venezuelan detention


In ST Shipping and Transport PTE Ltd v Space Shipping Ltd [2017] EWHC 2808 (Comm) the Commercial Court rejected an arbitration appeal that sought to argue that the actions of the Venezuelan courts, in openly not following Venezuelan law, broke the chain of causation so relieving the charterer of liability for a court-ordered detention of a vessel as part of a criminal investigation that included issues of exporting without permission of PDVSA (Venezuelan state-owned oil & gas company).

The case gives an interesting insight as to country risk arising from decisions of local courts.


ST Shipping and Transport PTE Ltd (the Claimant and the Charterer) and Space Shipping Ltd (the Defendant and the Disponent Owners) entered into a charterparty dated 10 April 2014 on an amended Shelltime 4 form in respect of the vessel CV STEALTH. On the 19 September 2014, the vessel was detained by order of the Venezuelan court when waiting to load cargo under an employment order dated 4 September 2014 given by the Charterer to the Disponent Owners. The Venezuelan court had prohibited the ship from sailing from Puerto La Cruz as a precautionary measure to assist in the investigation into alleged crimes of a Mr Barbosa.

Mr Barbosa was subsequently charged with several criminal offences including the forgery of an authorisation purporting to come from PDVSA and with attempting to export cargo without the necessary authorisation of PDVSA. No allegations were made by the Venezuelan prosecutor against the Charterer or Disponent Owners. In late autumn 2014, the Disponent Owners filed a petition to lift the prohibitive order but the court refused to let the vessel sail. There were then various applications for the release of the vessel, appeals and arbitration.

The Disponent Owners commenced arbitration against the Charterer concerning the financial consequences of the detention of the vessel.

During arbitration in 2015, it was decided that any final assessment of trading losses resulting from the ship’s detention would be deferred and instead partial arbitral awards should be made. The Arbitrator decided in his First Partial Final Award, dated 23 September 2015, that the employment order was the cause of detention of the vessel and that the Charterer was financially liable to the Disponent Owners for the financial consequences of the detention up to July 2015, pursuant to an express indemnity and as damages for breach of the charterparty. The Charterer then unsuccessfully appealed to the English High Court, which upheld the Arbitrator’s decision. The Venezuelan court continued to refuse release of the vessel between July 2015 and the beginning of 2017 despite the Prosecutor’s office requesting its release. Under the Arbitrator’s Fourth Partial Final Award in relation to the matter dated 25 May 2017, it was held that, despite the Venezuelan court’s behaviour, the employment order could still be said to be the cause of the continued arrest of the vessel and the Disponent Owner’s continuing trading losses up to 31 March 2017.

The Charterer sought to appeal against the Fourth Partial Final Award.


The key issue before the Commercial Court was whether the Charterer’s employment order could still be said to be the cause of the continued arrest of the vessel – the Charterer arguing that the cumulative effect of unreasonable conduct by the Venezuelan judiciary in the period from 2015 had broken the chain of causation. 

The Commercial Court decided there was no misapplication or misunderstanding of the legal causation test on the part of the Arbitrator and refused the Charterer’s appeal in relation to losses after July 2015 under section 69 of the Arbitration Act 1996 (the “Act”).

There was little dispute between the parties as to the relevant legal test of causation. The issue in the Charterer’s appeal is simply whether the Arbitrator has applied a different one. In particular:

  1. The question is whether the employment order was an effective cause of the continued detention; it need not be the cause, i.e. the sole cause; but an effective cause is more than a “but for” cause, which does no more than provide the occasion for some other factor unrelated to the Charterer’s order to operate: ENE Kos 1 Ltd v Petroleo Brasileiro SA (The Kos) [2012] 2 AC 164.
  2. Once an effective cause is operative, it will only be replaced by another intervening cause, so as to render the latter the sole effective cause, if the intervening act constitutes an event of such impact that it “obliterates the wrongdoing”: Borealis v Geogas Trading [2011] 1 Lloyd's Rep 482.

In reaching its decision the Commercial Court reiterated the key “well-established” principles of legal causation:

  1. Where various factors or causes are concurrent, and one has to be selected as an effective cause, the matter is determined as one of fact: Leyland Shipping v Norwich Union [1918] A.C. 350, quoted with approval in ENE Kos 1 Ltd v Petroleo Brasileiro SA (The Kos) [2012] 2 AC 164.
  2. Where the arbitrator has selected one cause in preference to another as the direct or proximate cause, that is a decision of fact: Royal Greek Government v Minister of Transport (The Ann Strathatos) (1949) 83 Lloyd's Rep 228 per Devlin J at 238, quoted with approval in The Kos.
  3. However if an arbitrator has misdirected himself on a principle of law that is an error of law: see The Ann Strathatos.
  4. If the arbitrator could not have reached the conclusion to which he came on the facts had he applied the correct principles of law, there must have been an error of law either in failing to identify the correct principles of law or in failing to apply them: Fulton Shipping Inc of Panama v Globalia Business Travel SAU [2017] 2 Lloyd’s Rep 177.

In essence, the Charterer argued that the Arbitrator had applied as a legal test of causation the question whether anything had changed since the First Partial Final Award and that this was not the correct question. The Arbitrator concluded that it had not, because what had happened since 21 July 2015 was more of the same, so that the findings of causation in that First Partial Award still applied. This, the Charterer argued, was an error of law because it was necessary to consider the cumulative effect of intervening unreasonable acts when considering whether those unreasonable acts have broken the chain of causation.

The Commercial Court rejected this argument as:

  1. In his First Partial Final Award the Arbitrator referred to The Kos and expressly adopted the test as being whether the employment order was an effective cause of the detention in respect of the period he was then considering, namely to 21 July 2015. He was plainly aware of the relevant test, and it would be most surprising if he had forgotten it or chosen to apply a different test in his Fourth Partial Final Award. There is nothing in the language he used to suggest that he did so.
  2. The Arbitrator had already decided that the employment order had causative potency up to 21 July 2015. The focus was on whether what had happened since was sufficient to break the chain of causation. It is not therefore a matter of criticism that he should have focused on what had changed.
  3. The fact that the approach and attitude of the Venezuelan courts had not changed from the time at which the Arbitrator had held the employment order to be of causative potency, could legitimately be taken as powerful evidence that the latter remained of causative potency and that the causative chain had not been broken. That was the factual conclusion reached by the Arbitrator.
  4. If there were any doubt about it, it is dispelled by the reference in the Arbitrator’s award to the difference in subsequent judicial behaviour being insufficient to “obliterate the original cause of the detention.” This reflects the language of the test in Borealis v Geogas, which the Arbitrator clearly had in mind.
  5. In truth, the Charterer’s appeal was an example of trying to dress up an appeal against findings of fact as one which turns on questions of law, which it is the policy of the 1996 Act to prevent.


The decision of the Commercial Court illustrates that it is difficult to ‘break the chain of causation’ once an initial effective cause is established.

In the context of actions before local courts, this might prove an interesting issue. As with the English courts, many international courts are well practiced in granting protective measures to prevent potential crimes or potential civil wrongs that might disturb the status quo pending trial. If the employment of a vessel by the Charterer results in the court ordering the detention of the vessel, it is apparent from this decision that it will be difficult to establish that subsequent actions by the court in refusing to lift such order (rightly or wrongly), when the order is revisited for further consideration, will break the chain of causation.

The risk of alleged misapplication of the law by local courts is substantial in some jurisdictions, so might constitute a significant risk to the party taking liability for vessel detention due to local court order. If possible, such risks should be understood and accounted for at the time of agreeing any charter.

The case judgment can be found here.