England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE CHRISTOPHER CLARKE
[2008] EWHC 1269 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/05/2009

Lord Justice Longmore:

Introduction

1. The purpose of a cancelling clause in a voyage or time charterparty is to fix a definite date by which, if the owners fail to deliver the vessel to the charterers, the charterers are entitled to wait no longer for the vessel to be delivered. In the absence of a cancelling clause an owner would be in breach of charter for failure to deliver on the contractual date but a charterer would not be able to treat the owner as being in repudiatory breach of contract until the delay was such as to frustrate the commercial purpose of the adventure. The length of that delay is notoriously difficult to agree or fix with any certainty and it is, therefore, not surprising that parties to a voyage or time charter are ready to agree a cancelling date in order to avoid all arguments about whether delay in delivery is such as to frustrate the adventure.
2. The parties to a charterparty have many other obligations to each other before a cancelling date arrives. The owners must be in a position to deliver a seaworthy ship. If the place of delivery is within a range of ports in the option of either party such options have to be exercised. Frequently owners will be under an obligation to give notice to the charterers of an estimated date of delivery some days before actual delivery. In the present case the vessel was not delivered by the cancelling date and the charterers cancelled the fixture. The owners say that the charterers were not entitled to cancel because the charterers had not themselves given notice of any particular port at which delivery was to take place within the contractual range "WAF/Ghana-Nigeria" in charterers' option. The charterers retort by saying that:-

i) no such notice was required because the contract did not make it a pre-condition of the exercise of the right to cancel the fixture that any such notice be given;

ii) any required notice only had to be given at such time as would enable the owners to deliver the vessel before the cancelling date and no such time ever arrived;

iii) everyone knew at the date when such notice was alleged to be required that the vessel was undergoing repairs in Piraeus and had no hope of arriving before the cancelling date. In those circumstances serving a notice of a port for delivery would have been a futile gesture and the law does not compel a contracting party to do a futile act.

3. The underlying dispute between the parties is whether it was the owners' or the charterers' responsibility that the vessel was detained in Piraeus under repair. The charterers say that the owners needed more time than they had expected in order to put the vessel in a state in which she would comply with the contract; the owners say that the charterers required additional work to the vessel beyond that which owners had agreed to do before delivery. That dispute has yet to be resolved but meanwhile charterers have sought a declaration that they were entitled to cancel the charterparty and Cooke J has ordered a trial of the issue whether the Charterers

"were not entitled to cancel the charterparty by reason of any absence of nomination of a delivery port."

In other less negative words; was there an obligation on charterers to nominate a delivery port and, if so, when did that obligation arise and was the fulfilment of that obligation a pre-condition of the right to cancel?

The Facts

4. I can take the facts from the judgment although some of them are controversial. Clauses 4 and 5 of the charter provided:-

"4. The vessel shall be delivered by Owners at a port in WAF – Ghana/Nigeria range in Charterers' option and redelivered to Owners at a port in WAF – Ghana/Nigeria range in Charterers' option.

5. The vessel shall not be delivered to Charterers before 25^th September 2007 and Charterers shall have the option of cancelling this charter if the vessel is not ready and at their disposal on or before 31^st October 2007. Notices: delivery/redelivery 30-25-15 days estimated then 10-7-5-3-2-1 definite days notice. All times are to be based on Universal Time (UT)."

5. The charterparty related to the vessel "AILSA CRAIG" ("the vessel") and was agreed in the context of discussions between the owners and the charterers, from about 16 November 2006 to 25 May 2007, about the modification of the vessel so as to provide floating storage for two types of petroleum products, namely, segregated parcels of clean petroleum products ("CPP") and dirty petroleum products ("DPP"). Prior to that time, the vessel had only been employed in the carriage and storage of DPP. The owners were to bear the costs of the complex modifications necessary for this purpose on the basis that the charterers would charter the vessel for 2 years, for use as floating storage capacity for CPP and DPP off West Africa.
6. From about January 2007 to March 2007, the vessel was at Tema, Ghana, for ultrasonic testing in preparation for her Special Survey. Extensive consultation took place between the charterers and the owners in respect of the final modification works. By 14^th March 2007, a finalised diagram of the split between the vessel's DPP and CPP tanks had been produced and, on the same day, the charterers agreed to this plan as the basis of the works.
7. On 25^th May 2007, the vessel left Tema, where up until this point she had remained, for Piraeus, Greece, where she was due to arrive one month later for dry-docking, repairs and the conversion works. It is common ground that she arrived at Piraeus in June 2007.
8. The charterparty, which was evidenced by a number of documents beginning 31^st May 2007, was subsequently amended, following the charterers' visits to the vessel to assess the works in progress. Following such visits, various modifications were agreed and, on or about 18^th September 2007, the charterers and the owners agreed that the laycan would be amended to allow the delivery date to be extended up to 15^th November 2007. It is common ground that this extension was agreed.
9. The owners' case is that significant modifications were requested by the charterers on or about 18^th October 2007 when the charterers and the owners agreed that the forward bunker tank should be converted to CPP storage, after cleaning. This involved new works which would take about an extra 14 days to carry out. It was agreed that the works would be carried out at Piraeus for safety reasons. The charterers' case is that this work fell within the original modification agreement. The owners commenced the works, but given the voyage time to West Africa, it became obvious that the vessel would inevitably miss the revised cancelling date, whether these works were "new" or "additional" (as the owners say) or not (as the charterers say).

Cancellation

10. On 16^th November 2007, the charterers sent a notice of cancellation to the owners on the basis that the vessel, which was still in Piraeus, had not been delivered. It is common ground between the parties (a) that the vessel was not delivered to the charterers by 15^th November 2007, (b) that the charterers did not at any point nominate a delivery port within the delivery range and (c) that a voyage from Piraeus to West Africa would take at least 25-28 days.

Was it a condition precedent to the exercise of the option to cancel the charter that charterers should have nominated a port where delivery was to be made?

11. Mr Timothy Young QC for the owners submitted that the charterers were obliged to nominate a port in the delivery range and that no notice of cancellation could be given until that had been done. There is, of course, no such provision in the charterparty and he did not submit that there was any implied term to that effect. He said instead that the provisions as to estimated and definite days of notice of arrival to be given by owners to charterers pre-supposed that the charterers had a duty to nominate a port within the contractual range so as to enable such notices to be given in a timely sequence and that, in the absence of such nomination, no right to cancel could arise. As the case as a whole developed, the owners had some difficulty in saying precisely when the obligation to nominate a port arose but Mr Young's eventual preferred position was that the charterers had to nominate a port more than 30 days (therefore at least 31 days) before the earliest delivery date of 25^th September 2007 so that owners were able to give the first (30 day) notice of estimated time of arrival; if no such nomination was given, the right to cancel the charterparty never arose. Mr Young has, therefore, to submit that, on the true construction of the particular charterparty with which this case is concerned, it was a condition precedent to charterers' right to cancel on 15^th November 2007 that on or before 26^th August the charterers had nominated a port between the westernmost part of the coast of Ghana and the easternmost coast of Nigeria.
12. There are at least two reasons why this seems to me an impossible construction of this charterparty:-

i) the charterparty does not contain any provision to this effect. Despite Mr Young's disavowal of any intention to imply a term into the charterparty, that is precisely what he is seeking to do. This cannot be done on any of the accepted tests for implications of terms into a contract;

ii) any such implication into or construction of the charterparty is entirely pointless. Both at the time when the charterparty was agreed in May/June 2007 and at the time in September 2007 when the delivery date was extended from 31^st October to 15^th November 2007, both parties knew the vessel was being modified in Piraeus. What would be the point of requiring charterers to nominate a port for delivery on or before 26^th August (or even 15 days later (9^th September) if the extension of the delivery date carried with it an extension of the port nomination date)? It is common ground that, once repairs were completed, whichever port in the range was in due course nominated, the vessel would have to sail from Piraeus through the straits of Gibraltar and down the west cost of Africa. It would only be when the vessel was at or near Cape Palmas off Liberia at what has been called "the deviation point" that the owners would, at earliest, need to take into account the port at which actual delivery was to be made. This would be many days after 26^th August or 9^th September. Charterparties, on the whole, do not require the parties to make nominations pointlessly early and certainly do not provide that pointless requirements should be conditions precedent to the exercise of any other rights arising under the charter.

13. The judge held that, if matters had proceeded as originally hoped, a time would come when charterers would be obliged to nominate a port of delivery (para. 51) and (para. 56) that that time would be such time as was

i) not so late as would mean that, because of the lateness of the nomination, the vessel could not make her cancelling date;

ii) early enough to ensure that the vessel suffered no delay resulting from the absence of nomination.

He added that, before the vessel reached the deviation point of Cape Palmas, the owners could without a nomination do all they needed to do to comply with the charterparty without any loss (and I might add, inconvenience) to themselves. It followed that the time for the charterers to make a nomination never arrived and that there was no question of charterers failing to make a nomination. He held further (para. 58) that the parties cannot have intended that charterers should not be entitled to exercise their right to cancel because they had failed to make a nomination before they were obliged to do so. I entirely agree with the judge as a matter of construction of the particular charterparty with which we are concerned. Subject to any authority to the contrary, that is an end of this appeal.

The Authorities

14. Mr Young relied on the decision of Mance J in Georgia Maritime Corporation v Sealand Industries (Bermuda) Ltd (The North Sea) [1997] 2 Lloyds Rep 324. This reliance was misplaced because, on the view taken by Mance J, the time had come when charterers were obliged to make a nomination and charterers' argument was merely that any such nomination would have been a futile gesture because, even if they had nominated the place for delivery, the vessel would not have been ready for delivery since she had insufficient bunkers on board. Both Mance J and the Court of Appeal decided that, on the construction of the charterparty in that case, insufficiency of bunkers at the time of delivery did not give rise to the right to cancel. But Mance J did, before coming to that conclusion, consider what the position would be if insufficiency of bunkers on delivery was a good ground for cancellation but it was impossible for the insufficiency to be made good between the time that the charterers ought to have nominated the place for delivery and the cancelling date. The vessel was already at the relevant delivery port (Hong Kong) but the place of delivery was expressed to be

"at charterers' berth Hong Kong or [dropping last outward sea pilot] Hong Kong in charterers' option."

One of the owners' arguments was that no right of cancellation could arise until and unless the charterers nominated the actual place of delivery to which the charterers retorted that, even if they had nominated the place of delivery, the owners would never have been able to remedy the bunker deficiency before the cancelling date.

15. In relation to these arguments Mance J said (page 327):-

"The making of delivery depends … on the charterers identifying where delivery is to take place. The only charter-party agreement is that time runs from the placing of the vessel at charterers' disposal at the place so selected by the charterer. There is no basis on which even owners, still less charterers when they were in default of selection, can claim to treat delivery as having been made on any other basis or at any other place… The express language… requires delivery to be effected by placing of the vessel at the charterers' disposal at a place to be selected by the charterers. Unless and until charterers select such a place, owners cannot deliver in accordance with the charter …In the present case, the time for delivery never arose, and there is thus no basis on which charterers could assert, in the context of the cancelling clause, that the vessel was due to be, but had not been, delivered.

It does not assist charterers to argue that, if they had identified a place for delivery, owners would not have delivered the vessel in time and in the right condition at that place. The operation of the cancelling clause depends on delivery actually being due and not being made when due. Charterers' contention that they were under no obligation to select the place for delivery, since it was clear that owners would not be able to deliver in the right condition and in time at any place so selected, has no basis. In practical terms, it would lead after the event to speculative arguments whether charterers were right about this. In principle, there is no way in which charterers were relieved of their obligation to identify the place for delivery, merely because they considered, however correctly, that owners would be unable to effect delivery there by the time specified in the cancelling clause…….

…..In the present case, charterers' failure to identify any place for delivery means in my judgment that delivery never became due at all, and charterers' claim to invoke the cancellation clause was unjustified."

Even if this is entirely correct it does not seem to me to help the owners' argument in this case because in the present case no time for the charterers to make their nomination ever arrived, whereas in The North Sea, on the judge's view of the matter, it had.

16. As Christopher Clarke J pointed out, however, the authority of the decision at first instance in The North Sea is somewhat called into question by the obiter remarks of Hobhouse LJ in the Court of Appeal with, whom my Lord, Lord Justice Waller, and Lord Justice Robert Walker agreed [1999] 1 Lloyds Rep. 21, 26. This was partly because this court doubted whether there really was an obligation on the charterers to nominate the particular place in Hong Kong where the vessel was to be placed at their disposal when it was in Hong Kong already, but also because there were serious difficulties with the judge's view which would apply:-

"where a vessel is clearly never going to be able to meet her cancelling date and would require the charterers to go through a futile and premature exercise of nomination which everyone knew that the vessel would be unable to comply with. If the Charterers were right to say, in the present case that the vessel was not in a deliverable state….. and that was so regardless of whether she was given orders to proceed to one or other of the places referred to in the charterparty…. it is hard to see upon what basis the failure to give the requisite order in exercise of the option could affect the right to cancel for lack of readiness."

17. For the reason I have given it is unnecessary for us in this case to choose between the ratio of Mance J at first instance and the obiter view of this court on appeal. But it is perhaps of interest that when Mr Julian Cooke and his fellow-authors came to consider The North Sea in the second edition (2002) of Voyage Charters (para. 19.24) they appear to have preferred the views of Mance J. By the time Mr Cooke and his collaborators produced the third edition (2007) of that most useful book, they had re-evaluated the significance, in this connection, of the earlier case of Hudson's Bay Co v Domingo Mumbru Sociedad Anonima (1922) 10 Lloyd's L.R. 476. That was a case where the right to cancel was exercised because the vessel had not become an arrived ship at the port of Buenos Aires by the cancelling date. The owners argued that that did not matter since the charterparty gave the charterers the option of ordering the vessel to one or two safe loading places four hours after receipt of the Master's notice of readiness and, no such option having been exercised, no right to cancel arose. The charterers said that, even if they had directed the vessel to a safe loading place, the vessel could never have got there, from where she was in the roads of Buenos Aires, before the time for cancellation arrived; that was clearly the position as a matter of fact. Both Bankes and Younger LJJ thought that the charterers' argument was correct. Atkin LJ did not think that, in the circumstances of the case, the charterers were under any obligation to nominate a particular place but he said that, if he was wrong about that, he did not dissent from the view that appealed to Bankes LJ.
18. Before making his obiter comments in The North Sea, Hobhouse LJ said that, if it had been necessary to determine the question whether it mattered that there could not have been compliance with any order of the charterers nominating the place of delivery, he would have required more detailed argument on the point. It seems to me with respect that Mr Cooke's re-discovery of Hudson Bay v Domingo has vindicated Hobhouse LJ's instinctive reaction and that, as the judge in the present case observed, the owners' arguments must, in the light of it, be wrong in any event.
19. As it is, I would dismiss this appeal and confirm the judge's answer to the question posed by the preliminary issue.

Lord Justice Richards:

20. I agree.

Lord Justice Waller:

21. I also agree.