England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		St Dunstan's House
		18th April 1997

1. This is an appeal by leave from an arbitration award of Mr John Maskell dated 10th January 1997. It concerns the proper construction of time charterparty dated 2nd August 1995 made on the ASBATIME form, with amendments, between the claimant owners and the respondent charterers of m/s North Sea. Owners' claim against the charterers was for alleged wrongful cancellation of the charter. The arbitrator rejected the claim, holding that charterers were entitled to cancel the charter for non-delivery by the time stipulated in the cancelling clause, clause 14.
2. The charter contained the following relevant clauses; I have highlighted in bold the words typed into the printed form:

"[Lines 1 to 25 - Owners, Description of Vessel and Charterers] THIS CHARTER PARTY made .... between Owners of ... .motorship NORTH SEA of .... tons gross tonnage and See Clause 55 tons net, having engines of See Clause 55 horsepower and with hull, machinery and equipment in a thoroughly efficient state, and classed See Clause 55 of about.... cubic feet grain/bale capacity .... and about 21081 metric tons deadweight summer capacity (cargo and bunkers, including fresh water and stores not exceeding .... long/metric tons) on a salt water draft of See Clause 55 on summer freeboard, inclusive of permanent bunkers, which are of the capacity of about See Clause 55 fuel oil and capable of steaming, under good weather conditions about 16 knots on a consumption of about 41 metric tons of IFO 380 CSI + abt. 3 mts ifo at sea - See also Clause 55 now trading and Charterers

[Lines 27 to 33 - Duration] The Owners agree to let and the Charterers agree to hire the vessel from the time of delivery for 1 timecharter trip via ports, always via good and safe ports/berths, always afloat, always within I. W. L. duration about 15-25 days w. o. g. Intended itenarary [sic] w. o. g. HongKong/Kobe/Nagoya/Yokohama/Oakland/Long Beach ...."

[Lines 34 to 45 - Delivery] Vessel shall be placed at the disposal of the Charterers at Charterers' berth Hong Kong or dlosp^[1] Hong Kong in Charterers' option any time day/night Saturdays/Sundays and holidays included as the Charterers may direct. Acceptance of delivery of the vessel by Charterers shall not constitute a waiver of Charterers' rights under this Charter Party. Vessel on her delivery shall be ready to receive container with clean-swept holds and tight, staunch, strong and in every way fitted for container service, having water ballast and with sufficient power to operate all crew for a vessel of her tonnage), to be employed in carrying lawful containerized merchandise ....

[Clause 3 - Bunkers on Delivery and Redelivery] The Charterers on delivery, and the Owners on redelivery, shall take over and pay for all fueled and diesel oil remaining on board the vessel as hereunder. The vessel shall be delivered with: See Clause 56. The vessel shall be redelivered with: See Clause 56.

[Clause 7 - Spaces Available] The whole reach of the vessel's holds, decks, and usual places of loading ... shall be a2t the Charterers' disposal ....

[Clause 14 - Laydays/Cancelling] If required by Charterers, time shall not commence before 5th August 1995 00.01 hours and should vessel not have been delivered on or before 10th August 1995 12.00 hours Charterers or their agents shall have the option of cancelling this Charter. If the vessel cannot be delivered by the cancelling date the Charterers, if required, to declare within 48 hours after receiving notice thereof whether they cancel or will take delivery of the vessel.

[Clause 21 - Cargo gear] Owners shall maintain the cargo gear of the ship which is as follows: See Clause 55

[Clause 40 - Blacklisting] Owners guarantee vessel is neither blacklisted by United Arab Republic, Syria, or any other Arabian State, due to previous calls at Israel, nor blacklisted by US Authorities due to previous calls at Cuba ....

[Clause 55 -Vessel's description] ....

[Clause 56 - Bunker] Vessel to be delivered with about 700mts HFO and about 100 mts MDO, and about Units MDO, and to be redelivered with approx. same quantities as on delivery.

Any minor differences between redelivery and delivery quantities to be settled together with final hire statement at prices according to platts mean price for Hongkong ruling on day of redelivery.

[Clause 59 - Deratization] Owners to supply valid "certificat de deratisation" on delivery of the vessel, and if this does not cover the whole period of the timecharter and/or "deratisation" is necessary, cost of same and detention to be for Owners' account, always provided deratisation not necessary on account of cargo carried, if any on board when "deratisation" to take place."

3. The award finds that the master on 9th August 1995 gave twenty-four hours' notice of intention to deliver the vessel under the charter at 1000 hours on 10th August 1995, and that

"10. Various requests were made to the Charterers inquiring as to where they wanted the vessel delivered, but no instructions were forthcoming. The vessel was at an anchorage on 10th August and by noon it was still there and neither at the Charterers' berth nor steaming from the pilot station. Since the vessel was at neither spot mentioned in the Charter, nor, according to the Charterers, was ready, the Charterers exercised their option to cancel.

11. There are two additional facts that are relevant. The first is that the On-Hire Surveyor certified that bunkering was complete at 1400 hours on the 10th when 722 tonnes of HFO, 89 tonnes of IFO and 107 tonnes of MDO were on board. The second is that it was alleged .... and not denied, that from the physical point of view the vessel was ready to sail at 1000 hours."

4. Taking the two grounds on which charterers relied to justify cancellation, identified at the end of paragraph 10, the arbitrator rejected the first, on the basis that charterers' own failure to select the place for delivery prevented them relying on the vessel's failure to present at either place as non-delivery under the cancellation clause. The arbitrator accepted charterers' second ground, holding that the failure to have on board the stipulated quantities of bunkers by 1200 hours on 10th August 1995 meant that

"the vessel was not in a deliverable state so as to comply with the Charter requirements and the Charterers had the option to cancel which they exercised".

5. Before me, Mr Southern for the charterers does not challenge the arbitrator's conclusion on the first ground. Mr Hamblen Q. C. for owners submits that the arbitrator should have gone further. Charterers' obligation to select the place of delivery was, he submits, a precondition to owners' ability and duty to deliver, and accordingly neither the time for delivery nor any right to cancel ever arose. Charterers' responses are that (i) failing any such selection by them, the vessel fell to be treated as placed at their disposal as and where she lay at anchorage in Hong Kong - representing, they say, a more favourable position for owners (in that it was easier for them to have the vessel ready there) than any berth or place where a pilot might have been dropped; alternatively, (ii) if charterers had selected a place for delivery, the vessel still could not have been delivered there in time with the stipulated quantities of bunkers, so that they would anyway have had the right to cancel; the operation of the cancelling clause should not, they submit, depend upon their identifying a place for delivery if there was no point in doing so, in particular when it was clear that the vessel could not deliver there in time with the appropriate bunkers; failure at an appropriate stage to identify a place for delivery could only be material if it led to inability on owners' part to deliver there in time with appropriate bunkers. The arbitrator must have accepted one or other of such arguments, although he did not make clear which.
6. In my judgment, neither of charterers' arguments on the first ground is correct. The making of delivery depends under lines 34 to 45 upon charterers identifying where delivery is to take place. The only charterparty agreement is that time runs from the placing of the vessel at charterers' disposal at the place so selected by charterers. 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. It is of course the case that a time charter of this description does not import any transfer of possession (see e.g. Cheikh Boutros Selim el-Khourv v. Ceylon Shipping Lines. Ltd. (The "Madeleine") [1967] 2 Ll. R. 224, per Roskill J. at p. 238). But the express language of lines 34 to 45 requires delivery to be effected by placing of the vessel at the charterers' disposal at a place to be selected by charterers. Unless and until charterers select such a place, owners cannot deliver in accordance with the charter, although they may have a claim for damages against time charterers for failure duly to select the place for delivery (see e.g. Anders Utkilens Rederi v. Co. Tunisienne de Navigation of Tunis (The "Golfstraum" [1976] 2 Ll. R. 97, where the damages claimed consisted of lost hire). 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.
7. 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. It was not suggested that any inability in fact to deliver there by that time with the agreed bunkers (or any indication that there may have been of any intention to deliver there by that time without the agreed bunkers) involved any breach of charter, still less a breach of condition or repudiation by owners which, if duly treated as such, could have relieved charterers from further performance. The effect of the cancelling clause was simply that charterers would have a right to cancel, and owners would be vulnerable to loss of the charter, if, and only if, due delivery was not made by the time specified in the clause. Costs of any steps taken to effect an abortive tender (if delivery is tendered late and charterers cancel) fall on owners, not on charterers. 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.
8. For these reasons, this appeal succeeds on the first point raised by Mr Hamblen on behalf of the owners. For completeness, I also consider the second point. The issue is whether failure to have on board at 1200 hours on 10th August 1995 bunkers in quantities complying with clauses 3 and 56 invalidated any delivery which was or could then have been made, and justified charterers in cancelling the charter for non-delivery under clause 14. Clause 14 as amended applies simply "should the vessel not have been delivered" by that time. It is common ground that this must at least refer back to the provisions of lines 34 to 45, expressly dealing with delivery. If the vessel on delivery was not, by the time stipulated in clause 14, "ready to receive container with clean-swept holds and tight, staunch, strong and in every way fitted for container service, having water ballast and with sufficient power to operate all cargo-handling gear simultaneously (and with full complement of officers and crew for a vessel of her tonnage)", her delivery could thus be rejected and the charterers could cancel. The case was not put before the arbitrator on the basis of any suggested breach of lines 34 to 45. The only relevant argument which he addresses (and which he accepted) depends on clauses 3 and 56 and was that delivery with bunkers complying with these clauses was also required to avoid exposure to cancellation under clause 14.
9. In support of this conclusion, charterers point out that clauses 3 and 56 deal expressly with the position at the time of delivery, as do lines 34 to 45 and clause 14. There is thus, they submit, no difficulty in treating delivery under clause 14 as meaning delivery in accordance with clauses 3 and 56 as well as lines 34 to 45. Further, they submit, there is good reason to do so. Read with clause 14, the specific provisions of clauses 3 and 56 would obviate any arguments (which in the context of a time-charter for a vaguely defined trip could involve obvious difficulty) as to the extent of the bunkers necessary to make the vessel fit under lines 34 to 45. Clauses 3 and 56 would in effect crystallize in relation to bunkers the requirements which the vessel must satisfy if the vessel is to count as duly delivered for the purposes of the cancellation clause.
10. Owners submit that readiness or compliance in other respects with lines 34 to 45 is necessarily a matter of fact and degree. They also acknowledge that the combination of lines 34 to 45 and clause 14 may on occasion work stringently against owners, as where, for example, some relatively small aspect of unreadiness to load enables cancellation. But that, they submit, is no reason to relate to the cancelling clause a standard provision dealing with the quantities of bunkers to be on board at delivery, in a manner which would extend the right of cancellation to circumstances where the discrepancy in bunkers might be quite immaterial to the vessel's actual trading. Further, they submit, there could only exist a right to cancel for a discrepancy in bunkers on board, if the discrepancy was shown to have some "real significance" from a commercial viewpoint. The last submission relies on reasoning of Webster J. in Athenian Tankers Management S. A. v. Pvrena Shipping Inc. (The "Arianna") [1987] 2 Ll. R. 376 in relation to defects having no effect on the safety of the vessel or security or integrity of her cargo, which might nonetheless be said to render her prima facie unready. Shortage of bunkers could, of course, in some circumstances render a vessel unsafe and imperil her cargo, but here the award recites in paragraph 11 that from the physical point of view the vessel was ready to sail at 1000 hours, and still more materially in paragraph 18 that

"It may well be that the vessel had more than sufficient fuel to reach Japan and she could take on more bunkers there, ...."

11. Although this may not itself amount to a positive finding in owners' favour, the award certainly contains no finding that any discrepancy in the extent of the bunkers on board by 1200 hours on 10th August 1995 would have had any real commercial significance. At one stage charterers suggested that, if the point became material, the case should be remitted to the arbitrator for make positive findings one way or the other, as to whether or not there was any commercial significance in the discrepancy. They raised however no case that it was of actual commercial significance before the arbitrator. The owners' effectively undisputed allegations were that the vessel had on board as at 1200 hours on 10th August 1995 approximately twice the quantity of fuel required to proceed to all contemplated loadports in Japan, where charterers anyway intended to refuel her prior to her cross-Pacific voyage. At the end of the argument, Mr Southern for the charterers conceded that no case had ever been raised before the arbitrator of lack of compliance with lines 34 to 45, and that there was no basis for remission in that context.
12. The charterers accept that there are some provisions in the charterparty which would fall to be complied with at the time of any delivery, but non-compliance with which would still not justify cancellation. As examples, one may take owners' obligations to comply with the very detailed provisions regarding the vessel's description, capacities and capabilities introduced by lines 1 to 25 and clause 55. Owners also refer to clauses 21 (maintenance of cargo gear), 40 (blacklisting) and 43 (safety in ballast) as potential further examples, which I need not consider. Charterers, as I understand it, distinguish any such provisions in two ways. First, they are not specifically related to delivery in the same way as the obligation under clauses 3 and 56 regarding the quantities of bunkers to be on board on delivery. Secondly, they go to permanent, as distinct from variable, characteristics of the vessel. The first distinction has some force, but in other respects clauses 3 and 56 are not so confined. Clause 3, into the scheme of which clause 56 is in effect set, starts by assuming that delivery has been validly effected ("The Charterers on delivery .... shall take over and pay for all fuel and diesel oil remaining on board the vessel ...."). Clauses 3 and 56 then provide for the quantities with which the vessel is to be delivered. Both clauses also deal with redelivery. The basis and logic of the second distinction are not obvious and it appear open to the objection that a number of the matters covered by lines 1 to 25 and clause 55 (and indeed the other clauses mentioned) would be capable of being rectified.
13. Both Devlin J. and Tucker L. J. in Noemijulia Steamship Co. Ltd. v. Minister of Food [1951] 1 K. B. 223 drew attention to the nature of a cancelling clause as a "forfeiture clause", which should not be "applied lightly". That was in a context where the issue was on whom the onus lay to show matters relevant to its application and what the test of readiness to load was. But, because the clause is a forfeiture clause, caution is also appropriate in extending its application by reference to provisions of the charter outside the language of lines 34 to 45. In The Madeleine Roskill J. had to construe a cancelling clause, clause 22, in a time charter in similar language to the present. It applied "should the vessel not be delivered by the 2nd day of May 1957 ....". Mr Staughton, as he then was, argued for owners that delivery under clause 22 imported no more than a tender of or placing or offering to place the vessel at the charterer's disposal. Roskill J. rejected the argument, holding that the charter must be construed as a whole and that "delivered" in clause 22 related to the delivery provisions of clause 1, whereby owners agreed to let and charterers to hire the vessel for three months "from the time .... the Vessel is delivered and placed at the disposal of the Charterers between 9 a. m. and 6 p. m. pr between 9 a. m. and 2 p.m. if on Saturday, at CALCUTTA in such available berth where she can safely lie always afloat, she being in every way fitted for ordinary cargo service." Clause 22 thus provided a right of cancellation if the vessel was not, when tendered for delivery, "in every way fitted for ordinary cargo service".
14. In The Arianna the cancelling clause applied "should vessel not be ready in accordance with the provisions hereof". Counsel, myself as it happened, argued unsuccessfully before both the tribunal and Webster J. that it should be related to all provisions of the charter applicable at the delivery date. The arbitrators disagreed (see page 380) on the basis that it was "specifically related to those provisions of the charter dealing with readiness for delivery", and in particular clause 3 (the parallel of lines 34 to 45 in the present charter). Webster J. also concluded that the words "ready in accordance with the provisions hereof" referred to readiness under clause 3 (see page 387).
15. The reference to readiness in the unamended printed form of clause 14, which is one tie between the provisions of clause 14 and lines 34 to 45 in the printed form, has been deleted. There is however no reason to think that the deletion was with the present problem in mind, rather than simply to remove the requirement of notice of readiness. Taking clause 14 as it stands, as one must, the use of the word "delivered" still naturally refers back to lines 34 to 45, dealing expressly with delivery, in the same way as the cancelling clause in The Madeleine referred back to clause 1. By contrast, clauses 3 and 56 are neither part of the primary delivery provisions in lines 34 to 45, nor referred to in clause 14.
16. The conjunction of a cancelling clause and primary delivery provisions like lines 34 to 45 is natural and familiar. If the cancelling clause had been intended to relate to other specific obligations, such as the obligation to have certain quantities of bunkers on board on delivery, this could have been made clear. It would have been easy to include a specific reference to compliance on delivery with clauses 3 and/or 56 in either lines 34 to 45 or clause 14 itself. It may be, as charterers submit, that there could be advantages in terms of simplicity and certainty in such a link. On the other hand, there could be objections in terms of rigidity and the expansion of the right to cancel to circumstances where the discrepancy in bunkers was of no conceivable relevance. If a vessel to be "delivered" under clause 14 requires bunkers complying with clauses 3 and 56, I can see no scope for any qualification limiting the requirement to circumstances where the discrepancy is of "real commercial significance".
17. I add, though the conclusion which I have reached in no way depends on this, that, if compliance with clauses 3 and 56 were required, there would be some difficulty in seeing why tender with bunkers in excess of the quantities specified in clause 56 would not justify cancellation, especially since clause 56 requires the vessel "to be redelivered with approx. same quantities as on redelivery" and calls for settlement of any differences between delivery and redelivery quantities at Platts mean price ruling on redelivery. The very fact that this difficulty would exist, whether or not it could then be overcome as a matter of construction, may itself be a further pointer towards the irrelevance of clauses 3 and 56 in the context of clause 14.
18. The proper construction of this particular charterparty is, as I see it, as follows. The obligation regarding bunkers on delivery imposed by clauses 3 and 56 is, if broken, readily capable of giving rise to a claim for damages. There is no reason to treat the charter as conferring in respect of it the more draconian remedy of cancellation which would apply automatically if its performance was directly relevant under clause 14. Properly understood, clause 14 operates by reference to lines 34 to 45. If the vessel on tender for delivery lacked bunkers, to an extent which meant that she did not comply with some aspect of lines 34 to 45, cancellation under clause 14 would become a possibility. In that context, the question whether the deficiency was of real commercial significance could arise. In the present case, charterers' only contention before the arbitrator was that mere non-compliance with clauses 3 and 56 automatically entitled them to cancel. They did not seek to justify their cancellation with reference to lines 34 to 45 at all. The award contains nothing to enable them to do so now, and there is no basis for remission.
19. In these circumstances, I would, if it had arisen, also have allowed the appeal on the second ground, to which the major part of the submissions before me was directed.
20. Subject to any observations which either party wishes to make on the precise form of the order, the interim final award of Mr Maskell dated 10th January 1997 in charterers' favour will be set aside and replaced by an award in owners' favour on liability and costs in the form set out in paragraph 1 of the notice of motion dated 30th January 1997, and the matter will be remitted to the arbitrator for him to assess damages for the charterers' breach of contract.

18th April 1997

Note 1   i. e. dropping last outward sea pilot    [Back]