TYCHY case: slot-charter novation, addendum, and in rem jurisdiction
MSC Mediterranean Shipping Company SA v the owners of the ship “TYCHY”: how slot-charter debts, a 1996 novation, and a 1999 addendum determined who could be sued in rem against the TYCHY and how the Court of Appeal’s ruling redirected the dispute to in personam questions about POL’s later guarantee-style promises.
In the early 1990s, a large container line and a historic Polish shipping group set up a way to move boxes across the Atlantic without putting a whole ship under charter each voyage. The structure used was a “slot charter,” which meant that one company would buy space measured in TEUs on another’s vessels and then run its own liner service to customers using that space. Under two written “Memoranda of Decisions” dated 17 May 1993, Polish Ocean Lines—later reorganized as Polish Ocean Lines Joint Stock Company and called here simply POL—agreed to buy slots on MSC’s vessels on a “whether used or not” basis, issue its own bills of lading, and operate a branded service between European ports and the Atlantic and Gulf coasts of the United States. The commercial idea was simple: POL could sell a transatlantic service in its own name, but MSC would provide the floating steel. Over time, however, the market turned down, POL’s cash flow fell behind, and by the mid-1990s arrears mounted into the millions of dollars.
As Poland’s economy opened and state entities restructured, POL decided to move the North Atlantic business into a new subsidiary with its own legal identity. On 01 December 1995, POL sent a letter to MSC stating that as of 01 January 1996 the North America services would be transferred to POL-Atlantic (often referred to as POL-A), an autonomous entity in the POL group, and asking that this be taken as an annex to the existing arrangements so that POL-Atlantic would be “officially entitled to act as the party that replaces POL.” The letter also promised that all obligations to MSC would be paid “in full,” signaling that the parent would stand behind the new operating subsidiary. When February rolled into March 1996, the parties crystalized the change through an exchange of communications that combined immediate money with structural adjustments to credit and invoicing.
On 07 March 1996, a director of POL-Atlantic, Mr. Osinski, faxed MSC’s commercial director, Mr. Formisano, confirming that on 08 March 1996 POL would remit USD 1,731,696.76 against an overdue balance then current as of 10 March 1996; that, starting with the MSC CLAUDIA VI at Antwerp on 31 March 1996 and MSC DOMINIQUE XI at Antwerp on 19 March 1996, eastbound and westbound credit terms would be split with a 28-day clock from the first loading port on each leg; and, crucially, that “effective vessels as per point 2 invoices will be issued for POL-ATLANTIC (and not POL any longer) as with these vessels POL-ATLANTIC is taking over the North Atlantic service from POL which was advised to you earlier this year.” Mr. Formisano replied by return telex headed “Credit Terms,” stating “We hereby confirm the agreement as per your message,” while adding protective conditions about keeping the new split-credit facility only if payment schedules were honored, including USD 800,000 by 31 March 1996, USD 400,000 by 30 April 1996, and another USD 400,000 thereafter. The exchange set out concrete money and billing steps and, read in the light of the December 1995 notice and the May 1995 discussions, evidenced the parties’ agreement that the contracting slot-charterer under the existing arrangements would now be POL-Atlantic and not POL.
From 01 March 1996 onward, the parties behaved that way in practice. MSC directed post-1 March invoices to POL-Atlantic and treated sums earned or owed accordingly, while cleaning up legacy pre-1 March sums with POL itself. Where an invoice was misaddressed, both sides treated that as an error to be corrected, consistent with POL-Atlantic being the contracting party going forward and POL being responsible only for the pre-transfer tail. A POL finance director wrote on 02 May 1996 acknowledging that as newly formed companies took over operations, POL’s previous income was “diminishing step by step,” and asked for a schedule to clear the old balance while emphasizing that POL-Atlantic was a separate legal entity operating under agreed terms with MSC. Those are not the words or actions of a parent still acting as the primary contracting slot-charterer for new voyages; they are the words of a parent winding down old accounts while its subsidiary, now the operator, takes the commercial reins.
POL-Atlantic also took the frontline role to the market. It issued its own bills of lading to customers and received the freight. It engaged with the Transatlantic Conference Agreement (TACA), for which Federal Maritime Commission approval required vessel operator status. To satisfy regulatory formalities, MSC and POL-Atlantic even papered a nominal time charter on the New York Produce Exchange form for an MSC vessel, with an offer to designate a specific ship that POL-Atlantic could name and mark with its logo. Nothing about that paper exercise changed the real carriage by MSC’s ships; its purpose was to show the U.S. regulator that POL-Atlantic was the service operator. The chain of conduct made sense only if POL-Atlantic, not POL, was now the contracting slot-charterer vis-à-vis MSC.
Commercial stresses returned in 1997 and 1998. POL-Atlantic and MSC negotiated variations to slot prices and bunker clauses, sometimes in Geneva, sometimes by fax, with MSC writing in December 1997 that new prices would give “POL ATLANTIC an economy of about USD 3.5 million,” a remark directed to “your company” in the sense of POL-Atlantic’s own account. In August 1998—after arrears to MSC had reached roughly USD 1.5 million—MSC and POL-Atlantic signed a written agreement that reduced the minimum slots while committing POL-Atlantic to pay down the outstanding balance in five monthly installments and to keep current on weekly invoices. Again, the document’s heading named only MSC and POL-Atlantic, and the obligations fell on POL-Atlantic as the entity that owed the slot hire. That was not an internal housekeeping memorandum but a bilateral instrument adjusting contractual burdens between the two companies actually performing the service and paying for the slots.
In the last weeks of 1998 and the first weeks of 1999, with arrears growing and bank financing elusive, POL’s leadership explored using the ro-ro vessel TYCHY as security, and then, when that drew no satisfactory offers, floated a sale-and-leaseback. MSC declined to buy and lease back. On 26 January 1999, POL-Atlantic’s chairman and chief executive wrote that POL—the parent—would release funds to POL-Atlantic after a vessel transaction, projecting a 4-to-6-week timeline. On 04 February 1999, in a letter jointly signed by POL and POL-Atlantic, the writers acknowledged late payments given a poor market, thanked MSC for patience, and stated that POL was “fully supporting” POL-Atlantic with “necessary guarantees and funds,” that financial institutions had been approached, and that proceeds—expected in 4-to-6 weeks—would be released to POL-Atlantic to cover obligations to MSC, while declining MSC’s request for a mortgage over the TYCHY. That correspondence framed the next step: a Geneva meeting on 12 February 1999 attended by senior figures from both MSC and the POL group, leading to a written instrument days later.
That instrument was entitled “Addendum to Agreement dated 12th August 1998 between MSC Mediterranean Shipping Company S.A. (MSC) and POL-ATLANTIC,” and it began by noting “Pol Atlantic’s inability to pay the accrued outstanding of US$3,614,738.04 as per attached statement of accounts.” The text then set out terms designed to address that shortfall. The parties to the addendum were MSC and POL-Atlantic; POL, the parent, participated in the meeting and signed correspondence, but the addendum’s structure and language treated POL-Atlantic as the debtor on the slot-charter account. The substance of any promise by POL was not to step back in as the contracting slot-charterer under the 1993 arrangements, but to stand behind its subsidiary’s payment program by providing support and, in effect, a promise to pay if necessary.
Meanwhile, procedural steps taken in England to secure MSC’s claim had targeted the ship TYCHY in rem. The arrest of a ship is a potent maritime remedy, but it has legal preconditions. Under section 21(4)(b) of the Supreme Court Act 1981 (as it then was), an action in rem for a claim “arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship” can be brought against a ship only if the “relevant person”—the person who would be liable on the claim in personam—was, when the cause of action arose, the owner or charterer of, or in possession or control of, the ship in connection with which the claim arises; and the action can be brought against “that ship” if at the time the action is brought the relevant person is the beneficial owner of that ship as respects all the shares. Here, there was no dispute that the owners of TYCHY (the respondents in the appeal) were beneficial owners of that ship when the writ issued; the jurisdictional hinge was whether the “relevant person” liable in personam for the slot-charter hire was POL or POL-Atlantic at the times when the slot-charter causes of action arose, and whether any later instrument pulled POL back into the status of “charterer” so as to satisfy the in rem gateway.
The issues came before the Admiralty Court first on jurisdictional points of law, then on a fuller record. In March 1999, on assumed facts, a deputy judge decided (and in 1999 the Court of Appeal confirmed) that a slot-charterer qualifies as a “charterer” for section 21 purposes and that credit-period details did not defeat the timing requirement in that context. Later, after trial, David Steel J held that POL had remained the slot-charterer at all material times and so was liable to MSC; on that view, both POL’s in personam liability and the in rem jurisdiction marched together, and the alternative questions about novation, rectification, and the 1999 addendum did not change the outcome. That was the judgment challenged on appeal.
The Court of Appeal, constituted by Lord Phillips MR, Lord Justice Jonathan Parker, and Lord Mustill, looked at the March 1996 fax exchange not in isolation but against the commercial and documentary background that any reasonable reader in February and March 1996 would have had: the May 1995 meeting where MSC had agreed in principle that a POL subsidiary could replace POL in the MoD but expected a parental “back letter”; the December 1995 letter from POL announcing the transfer to POL-Atlantic and asking to annex the change to the agreements; the day-to-day conduct after 01 March 1996 where POL-Atlantic ran the service and negotiated prices in its own name; and the August 1998 agreement signed by MSC and POL-Atlantic alone to reduce slots and set a staged plan to clear arrears. Putting those pieces together, the Court concluded that the March 1996 exchange did effect a novation: POL-Atlantic became the contracting slot-charterer and replaced POL under the MoDs. The Court expressly rejected the trial judge’s view that the 07–08 March 1996 messages were too “financial” or “credit-term”-focused to support a novation, pointing to the explicit line that invoices were to be issued to POL-Atlantic “and not POL any longer” because POL-Atlantic was taking over the North Atlantic service, and to the reply confirming “the agreement as per your message.” The later course of dealings—billing addresses, POL-Atlantic’s independent bill of lading and conference membership, and the 1998 agreement—fit that legal change rather than undermined it.
With that foundation, the Court then examined the February 1999 addendum. If that document had “re-novated” the relationship by substituting POL back in as the slot-charterer, then POL might again have been the “relevant person” and in rem jurisdiction could have been revived for debts, subject to timing questions about earlier liabilities. However, the Court held that the February 1999 text did not do that. It found no wording that expressly replaced POL-Atlantic with POL as contracting party, no coherent reason why a document headed as an addendum to the 12 August 1998 MSC/POL-Atlantic agreement would silently swap the debtor, and several positive indications that the obligations continued to lie on POL-Atlantic, with POL’s role being to support or guarantee. Summarizing, the Court stated that there was no re-novation in 1999; any obligations taken on by POL in that period were free-standing promises “in the nature of a guarantee,” and they were not obligations “in relation to the use or hire of ships of which POL were the charterers.” Because in rem jurisdiction under section 21(4)(b) requires that the relevant person liable in personam be, at the material times, owner or charterer (or in possession or control) of the ship, MSC’s claim based on those later guarantees could not sustain an action in rem against the TYCHY.
Those legal conclusions on novation and the addendum dictated the appellate outcome. The Court of Appeal allowed the appeal against David Steel J’s judgment. Because the trial judge had not, on his view of the facts, had to decide whether POL had submitted to the court’s in personam jurisdiction or the merits and scope of any in personam claim under the 1999 addendum, the appellate court remitted the case to him to determine those reserved issues: first, whether POL had submitted to the jurisdiction for an in personam claim, and only if so, the outcome of any such claim. In parallel, practical steps concerning the res were addressed. The TYCHY had already been sold by order of the Admiralty Court while under arrest, and the Court of Appeal stated it would hear submissions on the appropriate disposition of the sale proceeds. The formal order recorded: appeal allowed with costs; costs below to be remitted to the trial judge; the sale proceeds to be paid back into court, including USD 500,000 paid in relation to costs, with interest, to await the reserved determinations, without prejudice to any issues about the claimant’s right to access that fund; and GBP 50,000 to the appellants on account of their costs in the Court of Appeal, payable within 14 days. Those orders matched the logic of the jurisdictional ruling: if the in rem basis fell away, the proceeds of the res had to be protected until any in personam footing was established.
The narrative of communications also mattered to how the court approached rectification and subjective intention. Witnesses’ beliefs that the 1999 document was not intended to substitute parties could not control the objective meaning of the addendum; what mattered was the language of the instrument read in its context. The court accepted that, had a true re-novation been intended in February 1999, it would be expected to appear expressly, especially since everyone knew the legal and practical significance of who the slot-charterer was and what that meant for in rem remedies. The absence of any such statement, the heading tying the document to the 12 August 1998 bilateral agreement between MSC and POL-Atlantic, and the framing of the arrears as “Pol Atlantic’s” debt of USD 3,614,738.04 all pointed one way. In short, the addendum expressed a plan to help POL-Atlantic pay—possibly with POL’s money or credit behind it—but not a swap-back of the contracting carrier under the MoDs.
All of this matters because maritime liens and statutory in rem claims are specific to particular relationships. Where the claim arises out of “use or hire of a ship” and depends on the claimant identifying a “relevant person” who was owner or charterer when the cause of action arose, one cannot arrest Ship A of Owner X based on a mere parent-company guarantee of Subsidiary Y’s debt for slot hire unless the statutory conditions are met. Here, once the March 1996 novation put POL-Atlantic in the slot-charterer’s shoes, new slot-hire causes of action arose against POL-Atlantic, not POL. And when POL later promised, in 1999, to support payment and stand behind its subsidiary, that promise did not make POL the slot-charterer again; it created a different kind of obligation—one that might be enforceable in personam if jurisdictional hurdles are overcome, but not one that satisfies section 21(4)(b) so as to found Admiralty jurisdiction in rem against a ship owned by POL.
Tracing the timeline with concrete dates and numbers brings the outcome into sharp focus. The arrears figure of USD 1,731,696.76 targeted for remittance on 08 March 1996 was linked to the structural change of sending invoices to POL-Atlantic “and not POL any longer,” and MSC’s 08 March confirmation was tied to that deal. In 1998, about USD 1,500,000 of arrears led to the 07 August 1998 letter from POL’s general director proposing a meeting to settle “all aspects of our present and future cooperation,” which by month’s end produced an MSC/POL-Atlantic agreement cutting slots and scheduling five monthly payments. In early 1999, the arrears had grown to USD 3,614,738.04, and the addendum bearing that number was framed between MSC and POL-Atlantic, with POL’s backing described in surrounding correspondence but not inserted as a contractual substitution. At the end of the road, the Court of Appeal allowed the appeal on 24 July 2001 and remitted the in personam questions, while protecting the sale proceeds pending those decisions and awarding interim costs. Those precise steps followed, line by line, from a statutory scheme that ties in rem jurisdiction to who, in law, was the slot-charterer when the debts accrued and to what a later document actually does or does not change.
The broader legal meaning is straightforward. First, when parties run a long commercial relationship, a short, practical exchange—like the 07–08 March 1996 faxes—can effect a novation if, read with the real-world background, it clearly announces that the new company will be the invoiced party “and not” the old, and both sides then perform that way. Second, when a parent later supports its subsidiary’s obligations in a fresh document that is styled as an addendum to an agreement with the subsidiary, courts will not treat that as silently swapping the debtor back to the parent without explicit words. Third, because an action in rem against a ship—such as the arrest of the TYCHY—depends on the “relevant person” test and on the link between the underlying claim and the status of owner or charterer when the cause arose, a later guarantee-type promise by an owner will not revive that jurisdiction if the owner was not the slot-charterer for the debt in question. On 24 July 2001, the Court of Appeal therefore allowed the owners of the TYCHY to escape the in rem claim, returned the proceeds to court to await decisions on the reserved in personam issues, and awarded costs accordingly; the ruling confirms that, in English Admiralty law, the gateway for arrest tracks the contracting status at the time of accrual, not the after-the-fact willingness of a parent to help pay, and that clarity in papering any true substitution is essential if jurisdictional consequences are to follow.
