England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
HIS HONOUR JUSGE MACKIE QC
2008 FOLIO 1002

		Royal Courts of Justice Strand, London, WC2A 2LL
		29 February 2012

Lord Justice Longmore:

Introduction

1. This case is about an oil tanker voyage charterparty which had provisions about "approvals" given by some major oil companies the purpose of which was, no doubt, to give some comfort to the charterer about the quality of the vessel it was chartering.
2. Many oil companies publish standard printed chartering terms and the parties in the present case chose to incorporate Vitol's Voyage Chartering Terms as Amended on 1^st November 1999 which are themselves based on the well-known Asbatankvoy Charterparty form which is the subject of Section III of Mr Julian Cooke and others' book on Voyage Charters (3^rd edition 2007). Clause 18 of the Vitol Terms provides under the heading "Oil Company Approvals Clauses"

"Owner warrants that the Vessel is approved by the following companies and will remain so throughout the duration of this charterparty"

adding in brackets and heavy type

"(Owners(s) to advise, including inspection dates and expiry dates)".

3. In and before 1999 it seems that some major oil companies were happy to inspect oil tankers and record the results of that inspection on a database, available to subscribers, called SIRE. If an owner wanted to comment on any such inspection report, he was entitled to do so and those comments would also be available on SIRE for all subscribers to see. The relevant oil company would if satisfied then issue an approval of the vessel. The approvals would be dated and would often be expressed to be valid for a particular period of time and thus have an expiry date which an owner could then write in to any contract as envisaged by the Vitol Terms of 1999.
4. This practice began to change as a result of pollution incidents involving the vessels "ERICA and PRESTIGE" in 2002 because statements that those vessels had been "approved" by oil majors led to damaging publicity for the oil majors concerned. Reports continued to be posted on SIRE and letters reflecting "approval" were given, but they were in more guarded terms often stating that blanket approval had not been granted and should not be assumed. The judge quoted the terms in which Lukoil had granted "approval" as apparently typical:-

"We have now received sufficient information with regard to this vessel and will not normally require re-inspecting the vessel for a 12 month period from the date of inspection.

Please note, however, that this letter does not constitute a blanket approval of the vessel for LUKOIL-LITASCO business or for visits to Lukoil terminals or facilities. The vessel will be screened by us on each occasion it is tended (sic) for Lukoil/Litasco business or intends to visit one of our terminals or facilities.

Amongst other criteria, our decision will be based on the continued satisfactory performance of the vessel and any feedback that we may receive."

The experts called in the present case, Mr Cullen and Mr Pearce, agreed that letters in these guarded terms were still regarded as "approvals" for the purpose of clauses such as clause 18 of the Vitol Terms, unless there was a clear indication that the vessel had positively not been approved.

5. This evidence was accepted by the judge, and not challenged by either party in this court. We are, therefore, left in the somewhat curious position that letters given by oil companies in this case which expressly state that they are not blanket approvals of the vessel are to be taken, nevertheless, to comply with Vitol Clause 18.
6. The charterparty in the present case was made between Transpetrol Maritime Services Ltd as Owner and SJB (Marine Energy) BV as Charterer on 6^th June 2007 for the carriage, on board the oil tanker "ROWAN", of fuel and/or vacuum gas oil from safe ports in the Black Sea to safe ports in the US Gulf with an option on the part of the Charterer to top up or discharge and re-load at Antwerp. No formal document was ever drawn up but the parties agree that the terms of the charterparty are to be found in a recap e-mail of 6^th June 2007 sent at 16.23 to "Vincent" in the office of the Owner. Under the heading "(VESSEL INFO)" there is this:-

"TBOOK WOG VSL IS APPROVED BY:-

BP/LITASCO/STATOIL-EXXON VIA SIRE"

Transliterated this reads:-

"To best of Owner's knowledge, without Owner's guarantee, vessel is approved by the oil companies [there identified, via the SIRE database]"

7. Under the heading ("TERMS") there is set out a Turkish Straits Clause relating to delays due to traffic regulations in the Dardanelles and/or the Bosphorus and then:-

"VITOL VOYAGE CHARTERING TERMS – AMENDED 1^ST NOVEMBER 1999"

Each of the Vitol Terms is then referred to for the purpose of express inclusion, amendment, deletion or substitution as required by the parties. By way of example clauses 6,16 and 17 are deleted in their entirety (the Third Party Arrest Clause, the United States Coastguard Clause and the US Custom Regulation Clause). Opposite the number 18, however, in the recap one sees

"TBOOK VESSEL APPROVED BY:-

BP/EXXON/LUKOIL/STATOIL/MOH

Quite why it is said, as part of the VESSEL INFO, that the vessel is approved by some oil companies and, as part of the Oil Company Approvals Clause (Clause 18 of the Vitol Terms), that the vessel is approved by (to some extent) different oil companies such as Motor Oil Hellas, is something of a mystery.

The facts

8. The facts as found by HHJ Mackie QC sitting in the Commercial Court can be shortly stated. The vessel set sail from the Black Sea after 2^nd June and the Charterer exercised its option to discharge and re-load in Antwerp between 2^nd and 7^th July. Class took the opportunity to conduct its Annual Survey while the vessel was at Antwerp. On 4^th July it was learned that an inspection had revealed that the low suction sea-chest valve needed repair before the vessel could sail. Repairs were expected to finish on 5^th July at the lay-by berth to which the vessel had shifted overnight. What actually happened was that Lloyd's Register had issued an interim certificate permitting the valve to be dealt with at the next port and a Condition of Class No. 030 was imposed. The vessel was able to leave Antwerp on 6^th July and on that date the Charterer e-mailed the Owner saying that that was fine provided there was "no negative impact on vetting prospect of our potential USA customers"
9. Meanwhile the Owner thought that it would be a sensible idea to invite Shell to inspect the vessel since a Shell "approval", if it could be obtained, would be a valuable asset in the marketing of the vessel. Shell proceeded to file a SIRE report with 33 adverse comments on 9^th July, to which the Owner responded on 11^th or 12^th July. None of the comments related to the sea-chest valve. On 10^th July the Charterer made an agreement with Shell subject to vetting for the sale of the cargo at a price of WTI + $13 per barrel. On 13^th July the Owner was able to report that the defect in the suction sea-chest valve had been rectified by the crew at sea and that they would be calling in the Class surveyor at the next port to delete the condition of class. On 17^th July Mr Vellenga reported to the Owner that Shell had said the vessel was not acceptable and that Shell had decided not to purchase the Charterer's cargo. Ms. Van den Bossche of the Owner pointed out that Shell was not among the companies listed as "approving" the vessel in the charterparty, but the Charterer said it had no option but to sell the cargo elsewhere; it has now claimed the difference in price by way of damages from the Owner on the basis that the vessel was not in a fit state to be approved by any oil company and, in particular, the companies identified in the recap e-mail containing the charterparty. The judge has upheld this claim and there is now an appeal.
10. There are 3 questions which need to be resolved:-

(1) What were the (relevant) terms of the charterparty?

(2) What do those terms mean on their true construction?

(3) Was the Owner in breach of those terms on the facts as found by the judge?

Relevant terms of the Charterparty

11. I have already set out the transliterated provision about vessel approval to be found under the heading "VESSEL INFO", which includes not only the phrase "to the best of owner's knowledge" but also "without owner's guarantee".
12. The critical question under this head is whether the provision numbered '18' in the recap e-mail is to be read together with the printed version of clause 18 of the Vitol terms or in substitution for it. Mr Cogley QC for the Charterer points out that the recap e-mail is careful to distinguish between clauses of the Vitol terms which are to be amended (e.g. 1,2,4,8,9,10,11,12,15,23,24,26,27,28,29,31,32,34 and 35-37), and to be deleted (e.g. 6,16,17,20,22,30,33 and 38). On the other hand terms which are to remain (e.g. 7, 13, 14, 19, 21, 39 and 40) are positively identified as such. Mr Kendrick QC for the Owner points out that neither express inclusion nor amendment nor deletion are the same exercise as the substitution of one clause for another and he submits that any clause in the recap which the parties intend as a substitution is given a title (which may be the same title as that which it has in the Vitol terms) together with (thereafter) the clause which the parties wish to substitute.
13. In my view, Mr Kendrick must be right about this. Examples are:

i) Clause 3 headed "Bills of Lading / Indemnity Clause". This happens to be the same title as that in the Vitol clause and must be intended to be a substitution since the complex 8 clause indemnity of the Vitol terms is to be replaced by the simple words "as per owners' P&I Club wording".

ii) Clause 5 is headed "Weather Clause" in both the recap and the Vitol terms and must be intended to be a substitution for the Vitol term 5.

iii) Clause 25 headed "Blending Clause" in the recap e-mail is the same heading as in the Vitol terms. What follows in the recap must again be intended as a complete substitution for the relevant Vitol term.

So with clause 18. All the more so, because here the recap e-mail has a new title "TBOOK VSL APPROVED BY" instead of "Oil Company Approvals Clause". It then provides in the recap "TBOOK VESSEL APPROVED BY: BP/EXXON/LUKOIL/STATOIL/MOH". This is not, in my view, intended to be read together with Vitol Clause 18 but in substitution for it. The same method is used in the recap for dealing with this clause as is used for other intended substitutions. The fact that, on this occasion alone, a new title is also used, to my mind, clinches the matter.

14. A further consideration is the difficulty one has in reading the recap clause and clause 18 of Vitol together. The parties self-evidently thought TBOOK important since it is mentioned twice in the wording of the recap. Mr Cogley, when asked to express the whole obligation of clause 18 in the recap and the printed Vitol terms, submitted it would be sufficient to add TBOOK after the word "Charterparty" so that the full clause read:-

"Owner warrants that the vessel is approved by the following companies and will remain so throughout the duration of this Charterparty to the best of owner's knowledge: BP/EXXON/LUKOIL/STATOIL MOH."

This would be a difficult clause to construe. If one was sure that this was what the parties meant to say, one would have to do one's best but the concept of a "continuing warranty to the best of the owner's knowledge" is to say the least a curious one and I cannot believe that it is what the parties intended to agree.

15. The judge's response to Mr Raphael's submissions on this point was to say (para 26) that they were "ingenious … but of no weight". It is not clear to me why they should be of no weight, unless the judge was also right to speculate at the beginning of the paragraph that contracts were often

"put together by relatively junior business people, without legal training and under pressure of timing and events, who use loosely relatively complex contract terms."

To my mind that is a consideration which itself should be of no weight in the present case, partly because it is indeed speculative (although no doubt often true) but mainly because, as I would read the recap, there is every sign of an intelligent mind addressing each of the Vitol terms in turn and very little sign of "loose use".

16. In my view, therefore, clause 18 of the Vitol terms has been replaced by clause 18 of the recap which also, of course, contains a reference to approvals under the heading "VESSEL INFO". It is those two terms which have to be construed together without reference to the Vitol terms.

Construction of those terms

17. Mr. Kendrick submitted that, on this basis, the parties must have intended the "WOG" under "VESSEL INFO" to be also a part of the new (substituted) Clause 18. This is a hopeless argument. The "vessel info" clause and clause 18 perform entirely different functions, although they are both concerned with oil company approval. The vessel info clause constitutes the description of the vessel and the information contained in it will normally be a condition of the contract entitling the charterer to terminate the charterparty if the condition is not fulfilled. It is not surprising that the parties might wish to limit the obligation in relation to approval by saying that it is without guarantee, a phrase which has a comparatively well-settled meaning viz that there is to be no liability in the absence of fraud or bad faith, see The Lendoudis Evangelos [1997] 1 Lloyds Rep 404 and the authorities there cited. There is no reason to carry that well-settled meaning into clauses where the rubric "WOG" is not present. The fact that the oil companies identified in clause 18 are not the same as those identified in the vessel info clause can only confirm that that must be the position.
18. This point of Mr. Kendrick's is not, however, essential to the Owner's case which is that clause 18 of the recap is different from clause 18 of the Vitol terms; that (Vitol) clause is an express continuing warranty of approval for the duration of the charterparty; clause 18 of the recap has no such express continuing warranty: on its true construction the clause is confined to a promise at the time when it was made. For the reasons given, I consider this submission to be correct.
19. That leaves open the question of the meaning of "TBOOK". It can be said with some force that it is not much of a promise for an owner to say at the time of the agreement that his vessel is approved by specified oil companies "to the best of his knowledge". He must, after all, know perfectly well at that time whether his vessel has been approved or not. For this reason it seems to me that the promise must have a limited degree of futurity, albeit related to the knowledge of the owner at the time the promise is made. The force of "TBOOK" (in a voyage charter at any rate) must be first, that the owner has, to the best of his knowledge, at the date of the charter, procured approvals from the named oil companies and secondly that, at the date of the charter, he knows of no facts which would cause the vessel to lose the approval of those oil companies in the course of the duration of the charter.

Breach of Charter

20. On this basis the question whether there was a breach of the charterparty can be dealt with briefly. There are two issues:-

1) Was the vessel approved by the named oil companies at the date of the charter?

2) Did the Owner know anything at that date which would cause the approval of the oil companies to be lost?

21. In the light of the judge's acceptance of the effect of the expert evidence, there is now no dispute that the Owner had obtained "approvals" of the named oil companies at the date of the charter. The judge (para. 34) put it in this way:

"Despite the wording of the letters the evidence from both sides was virtually unanimous that the words "approval" in this context was taken, at least in 2007, to mean not literally "approval by" but "acceptable to" and subject to further approval. Although it seems that some in the market prefer not to use the expression 'approval letter' there is no doubt that the word "approved" in the clause is referring to such letters. Notwithstanding that position Mr Cogley's primary argument is that "approved" is an ordinary English word and the owner therefore warrants that the vessel has indeed been approved and will continue in such status throughout the charterparty. The argument is it seems to me doomed by the overwhelming evidence that notwithstanding the potential risk for confusion particularly amongst outsiders the letters in this case would all be taken to constitute approval letters. Mr Vellenga seemed to accept that. I certainly do and the word 'approved' in the warranty must be read accordingly"

Mr. Cogley did not repeat his "doomed" argument in this court.

22. Nor did Mr. Cogley submit that, on the facts found by the judge, there was any evidence that at the date of the charter the Owner knew anything about the vessel that would cause the named oil companies to "disapprove" the vessels or alter the terms of the letters which they had given in relation to the vessel. The problem with the low suction sea-chest valve only emerged at Class's Annual Survey conducted at Antwerp in July 2007 in the course of the voyage. The thirty three comments made by Shell (which caused Shell not to proceed with their contract of purchase from the Charterer) likewise only emerged at Antwerp. It is not suggested that the Owner knew anything in early June 2007 which could have warned it of these impending events, let alone anything which would have caused any of the named oil companies to alter or cancel the terms of their letters of "approval".
23. In these circumstances the appeal must be allowed and the Charterer's cross-claim must be dismissed.

The judgment below

24. As already indicated HHJ Mackie held that clause 18 of the recap e-mail and clause 18 of the Vitol terms had to be read together. So doing, he came to this conclusion in para. 40:

"As I see it "approved" for the purpose of the clause means that the approval letters specified must be in place throughout the charter. At any time when offered to cargo buyers the vessel must not be in a state which to the knowledge of Owners would remove the comfort of the warranted approvals to the potential purchaser of cargo. For example there will be a breach of warranty if some event occurs which, to the knowledge of Owners, would if known to the issuers of the approval letter, cause it to the withdraw or cancel that approval. The fact that the commitment undertaken by the writers of the letters is so limited is, as I see it, beside the point."

Mr. Kendrick, for the Owner, submitted that this construction gave no proper weight to the rubric "TBOOK" and was effectively a construction of clause 18 of Vitol in its original and un-amended form. He also mounted a powerful argument that it was a wrong construction even of the original clause 18 of Vitol because the clause was concerned with the existence or non-existence of "approvals" contained in documents not the "state" of the vessel. The judge, said Mr. Kendrick, had confused a warranty about documentation with a warranty about the condition of the vessel. Indeed, so to construe clause 18 of Vitol would be contrary to the warranty which was given about the condition of the vessel in the underlying Asbatankvoy terms which was only a warranty (in Part II clause 1) that the owner had exercised due diligence to make the vessel seaworthy at the beginning of the voyage. Mr. Kendrick further said that warranties as to "approval" letters should be treated in the same way as warranties about Class. It is well settled that a warranty that a vessel is in Class is not a warranty that she is rightly in Class, see French v Newgass (1878) 3CPD 163 and Scrutton, Charterparties 22^nd Edition (2011) page 112; it is probably not even a warranty that an owner does not know anything that would cause a vessel to lose her Class or have a recommendation imposed on her. He also pointed out that in The Seaflower (No. 2) [2007] 1 All ER Comm, 240 Rix LJ had expressly said that, in this respect, approval letters were the equivalent of documentation in relation to Class (see para. 64). He accepted, however that that expression of view by Rix LJ related to approval letters properly so called which gave approval in express terms, before the more muted letters which have come to be used since 2002.

25. It is not necessary to express any final view about these arguments in the appeal but, as at present advised, I can see considerable force in Mr. Kendrick's argument on the construction of the unamended clause 18 of the Vitol terms. If the judge were right, an owner would find himself in breach of the clause, if any fact existed which would cause the approval letters to be amended or withdrawn whether or not he knew of that fact and whether or not he had had any opportunity to put right the defect which would have caused the letters to be amended or withdrawn. That is a very far reaching warranty which would indeed cut across the warranty of seaworthiness in the Asbatankvoy form. The only way to avoid that conclusion would be to treat clause 18 as a warranty in relation to documentation not a warranty as to the underlying condition of the vessel.
26. The question would then be whether the addition of "TBOOK" changed all that. There are arguments either way (as noted by Mr. Robert Gay in his note on this case at [2011] LMCLQ 465) but the judge's construction is still open to the objection that the owner will be in breach once he has knowledge of the fact which "would" cause the approval letters to be amended or withdrawn without having any opportunity to put the matter right. There would, moreover be considerable scope for argument whether any defect which came to light "would" or only "might" cause an oil company to change its approval. Such argument, depending on the predicted attitude of a third party not before the court, would inevitably be difficult to resolve.
27. For my part I would not wish to resolve these questions finally in this case since it would obviously be better if they were determined in a case where it actually mattered rather than one in which it does not. It is sufficient to say I would allow this appeal.

Lord Justice Davis:

28. I get the impression that in the court below the parties' respective submissions were to an extent dominated by appeals to "commercial sense". The Charterer took the view that it would never have agreed to an Approvals Clause which could expose it, through no fault of its own, to potential depreciation of the value of the cargo if any approvals could be liable to be withdrawn during the voyage. The Owner, on the other hand, took the view that it would never have agreed to an Approvals Clause which could expose it, quite possibly through no fault of its own, to financial exposure to the Charterer if any approvals could be liable to be so withdrawn. This led to the parties filing a good deal of evidence in substance directed as to what each would have intended and did intend – evidence which the judge quite rightly rejected as inadmissible. In truth, the competing arguments on commercial sense were to an extent self-cancelling, both parties having diametrically opposed views as to where commercial sense lay.
29. Nevertheless, appeals to "commercial sense" were vigorously renewed in this court. In my view, this was not very productive. Indeed at one stage in his argument Mr Cogley QC even stated that the Charterer had paid a very full rate for this charter – as though that should have some bearing on whether the form of Clause 18 which was inserted into the recap was one which should have an interpretation favourable to the Charterer. Such a matter is, of course, wholly irrelevant on the question of interpretation.
30. In the present case, what is at least absolutely clear is that the standard form Vitol Clause 18 – a relatively "charterer friendly" clause – was not incorporated into this particular charter in its entire and unqualified terms.
31. What was incorporated as the relevant Approvals Clause was in issue. I am in no real doubt but that, by the wording used, the standard form Vitol Clause 18 was entirely replaced and was substituted by the (new) Clause 18 set out in the recap email. That is demonstrated by the insertion of the new title, as well as by the failure to insert any inspection dates or expiry dates and the other matters referred to by Longmore LJ. There is also nothing uncommercial about such a conclusion: it is simply, as part of the overall bargain, the term agreed (objectively speaking), as to the extent of the obligation undertaken with regard to approvals.
32. Once that conclusion is reached as to the actual term incorporated then it follows that this appeal must succeed. I accept that there is no basis for incorporating "WOG" into Clause 18 – those letters simply are not there and they are not implicitly to be incorporated from the earlier provision in the recap under "Vessel Info". I would reject Mr Kendrick's submission on this (and in fairness to him he did not advance it with any degree of enthusiasm). But that does not affect the outcome; because the short point is that there was neither a pleaded case nor evidence that to the best of its knowledge at the time of the recap the Owner knew – or, indeed, even had reason to believe – that there were matters which would cause any of the approvals not to subsist unaltered throughout the voyage charter. In fact, the evidence was to the contrary. That is determinative of the matter, on any view.
33. For the much fuller reasons given by Longmore LJ, with which I agree, I would allow the appeal. Since, in the circumstances, the point does not arise for decision I would for myself prefer to express no view on the meaning of the standard form Vitol Clause 18, either as unamended or as qualified by "TBOOK".

Sir David Keene:

34. I also agree.

The order of the court is as follows:-

The appeal is allowed.

The Defendant's counterclaim is dismissed.

The Defendant do repay to the Claimant all the sums paid by the Claimant under the Order of His Honour Judge Mackie of 18 February 2011, namely US$ 2,832,582.19 paid on 1 April 2011 and £175,000 paid on 4 March 2011, within 21 days of this order.

All other matters, including permission to appeal, the disposition of the Claimant's claim, interest, and costs are adjourned for further determination defendants to make written submission by Friday 9th March 2012.

NOTE

Defendants ask the court not to make the order proposed in para 3 but the court takes the view that it must follow from para 1 and 2. The court is prepared to enter time for payment by 7 days. The court does not believe it has any power to extend the time for applying to the Supreme Court for permission to appeal, if this court refuses permission.