England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice
		25th February 2009

MR. JUSTICE BURTON:

1. This has been the hearing of an appeal under Section 69 of the Arbitration Act 1996 by permission of Gloster J on a question of a law arising out of an arbitration award dated 25^th June 2008, in which Corrected Reasons were given on 10^th July 2008.
2. That award was given by agreement between the parties as a consolidated award in two separate arbitrations in respect of two time charters, one the head charter dated 3^rd May 2005 between the owners and the charterers, and one a time charter dated 6^th June 2005 between the charterers and sub-charterers in respect of the same vessel.
3. The award was a declaratory award, made by Messrs. Bruce Harris and John Schofield as Arbitrators, in relation to disputes under those two identical time charters, both of which were on the NYPE 93 form, together with amendments and additional clauses. The Arbitrators in their reasons referred to the sub-charterers as 'the Charterers', and I shall do the same.
4. The Charterers terminated the Charterparty under clause 81 of each Charterparty, which was one of the additional clauses, and it read as follows:

"Unless caused by Charterers' servants, if the vessel is off-hire… for a period of 20 consecutive days… then the charterers have the option to re-deliver the vessel when next cargo-free".

The Charterers cancelled the Charterparty pursuant to that clause on 28^th September 2007, relying on what the Charterers asserted to be a consecutive period of off-hire since 7^th September. The Arbitrators found that the Charterers were not entitled to terminate, as there had not been 20 consecutive days.

5. The facts, as found by the Arbitrators, were as follows, and I find it simplest to refer to them by reading out paragraphs 4 to 7 of the Corrected Reasons, and I make a slight alteration to one of the paragraphs to allow for the fact that there was an issue which was dealt with by the Arbitrators relating to discharge at Hong Kong, which is not any longer relevant between the parties on this appeal.

"4. TS Singapore was chartered by the sub-charterers for use in the

very substantial containerised liner service that they operate between Asian ports. At the relevant time she was being employed in anti-clockwise rotation between Japan, three ports in China, Hong Kong (midstream), Vietnam, Thailand (two ports), Hong Kong (midstream and in berth), Xiamen (China) and Japan. At the time of the incident with which we are concerned, a round voyage had just started at Nagoya, Japan, followed by Tokyo and Yokohama. The next intended port was Shanghai, after which she was destined to call at Ningbo, Xiamen, and then Hong Kong.

5. The shop had loaded and discharged containers at Yokohama

overnight 5/6 September 2007. The pilot was aboard and the ship cast off at 02.36 hours on 6^th September, the tugs casting off 18 minutes later.

6. However, instead of sailing direct to Shanghai, as ordered by the

charterers, at 04.06 hours the ship anchored outside Yokohama, the master apparently fearing the approach of Typhoon Flitow. The charterers protested at this contending that the typhoon would not arrive for some time, whilst the master maintained that some 20 other ships had already taken the same precaution as had he.

7. In the small hours of 7^th September TS Singapore dragged her

anchor and hit a nearby breakwater, suffering not insubstantial damage in consequence. As a result, the ship stayed at Yokohama until 22^nd September, the owners declaring general average on 12^th September. Class imposed a condition on her departure from Yokohama, namely, that she proceed direct to Hong Kong (rather than Shanghai) to discharge the entire cargo, including cargo destined for [Shanghai], after which she was to sail to Guangzhou for repairs. And that was what happened."

6. The Charterers contended that from 7^th September the vessel was not complying with their instructions, it was acting on the Owners' behalf and to their account and in accordance with the instructions given to the Owners from Class.
7. The Owners contend that although there was, as they accept, off-hire from 7^th September until 22^nd September, while the vessel remained in Yokohama, the vessel came on-hire again from leaving Yokohama at 10.48 on 22^nd September, because, although it was en route to Hong Kong, the route to Hong Kong and to Shanghai were identical, what Mr. Goldstone QC before me has called a common route; and it was only when the vessel diverted from that common route, which the Arbitrators found to be at 20.16 on 23^rd September, that the vessel went off-hire again.
8. Consequently, there was a break in the off-hire of approximately 1½ days. The basis for this, that it was on-hire again, is asserted to be that for the period of those 1½ days it was travelling in the general direction of Shanghai, or 'towards' Shanghai, and consequently was not yet on its way to Hong Kong to the repair yard.
9. The Arbitrators addressed the rival contentions in paragraphs 24 and 25 of the Corrected Reasons:

"24. Ultimately, it seems to us that the question is whether the ship,

plainly having become inefficient for the charterers' purposes from the moment of the collision with the breakwater, and also being inefficient at least from the time she passed the waypoint…" (this is a reference to the moment when, as the arbitrators found, the route to Shanghai and the route to Hong Kong diverged) "…she was efficient for the purposes required of her by the charterers whilst she was sailing from Yokohama to the waypoint. Was she then performing the service required of her?

25. On balance, although not without some hesitation, we have

come to the conclusion that these questions are to be answered in the affirmative. Although the ship was in fact on her way to Hong Kong, for the first part of the voyage she was on the route she would follow for Shanghai, where the charterers wanted her to go. For that part of the voyage she was performing the service required of her, albeit she then deviated. She was for that part of the voyage efficient for the purpose the charterers required of her, even though ultimately it was much later before she fulfilled it entirely".

10. Mr. Goldstone suggests that for that last clause there should be read in the alternative "even though ultimately it would have been much later before she fulfilled it entirely", because, at the very least, of course, it is the case that the Charterparty was in fact terminated. There was no evidence, certainly no finding of fact, as to what would have happened but for the termination, and, as has been made clear, it is the case that the entirety of the cargo, including that which should have been discharged at Shanghai, was discharged in Hong Kong.
11. The Arbitrators continue in paragraph 26 as follows:

"26. We can see that the man in the street when told the facts might say that it was purely coincidental that the ship was sailing over the same ground for the first part of the voyage, but that in truth she was going to Hong Kong to repair and at no stage was she going to Shanghai for cargo operations, as the charterers wanted. But we think he might equally say the opposite, and although our view is in any event as expressed above, we also bear in mind firstly that the provisions relied upon here are purely for the charterers' benefit and so it is for them to bring themselves clearly within such provisions; and secondly that the remedy which clause 81 affor4ds the charterers is a drastic one with possibly very serious consequences (the owners here have estimated their losses at around $7.73 million), which simply underlines the same point."

12. That the man in the street might "equally say the opposite" is not support for the Arbitrators' conclusion and certainly does not indicate what is wrong with the contrary proposition.
13. The dispute arises on this appeal in respect of two clauses of the charterparty, Clause 57 and Clause 17. In the event, it has not been necessary for the parties to address Clause 17, which it is agreed between them does not arise if I am in favour of the Appellants, as I am, in respect of Clause 57. Mr. Goldstone QC accepts that if he loses on Clause 57 he must also lose on Clause 17. I do not therefore need to address in my judgment Clause 17 at all.
14. Clause 57 reads, in material part, as follows:

"Any time lost, either in port or at sea, deviation from the course of the voyage, or putting back whilst on voyage caused by sickness of or any accident to the crew ... or due to an accident or breakdown to the vessel, the hire shall be suspended from the time of inefficiency in port or at sea, deviation or putting back, until the vessel is again efficient in the same or equivalent position, whichever is the shorter distance to the port where the vessel is originally destined, and the voyage resumed therefrom ... In the event of loss of time arising for arrest, government restrictions or boycott ... payment of hire shall cease for the time thereby lost."

15. The question of law was formulated, on permission being given by Gloster J, as follows, although I omit the reference to Clause 17, as to which she also gave permission:

"Whether on the facts found, and on the true construction of the Charterparty the vessel was off-hire for a continuous period of (at least) 20 days between 7^th and 28^th September 2007, and, in particular, whether, following an accident to the vessel on 7^th September 2007, as a result of which the Vessel went off-hire … the vessel is to be treated as having temporarily become "efficient" again for the purposes of Clause 57 .. for the period that its route on her voyage to a repair port, in accordance with the Condition of Class, happened to coincide with the route she would have taken to her next intended port of call in accordance with Charterers' order, and notwithstanding that the Vessel was off-hire immediately before and after such period and was, throughout the period 7^th to 28^th September 2007, incapable of performing Charterers' orders to proceed directly to her next port of call for cargo operations".

16. There is no dispute between the parties as to the applicable law in relation to the construction and application of such a clause as Clause 57, an off-hire clause. The leading case is a decision of the House of Lords in Hogarth v Miller [1891] AC 48, and, in particular, the following passages of their Lordships' opinions. Lord Halsbury LC at 57 said as follows:

"It appears to me, therefore, that at that period there was a right in the ship owner to demand payment of the hire because at that time his vessel was efficiently working; the working of the vessel was proceeding as efficiently as it could with reference to the particular employment demanded of her at the time".

17. Then at page 61 the words of Lord Watson:

"If charterers keep possession of a vessel which is in a thoroughly efficient state for all the purposes contemplated at the time by the contract, and required by them, they must in terms of the contract pay the stipulated hire".

18. Finally, at page 64, Lord Herschell said:

"The payment of hire was to cease until she was again in an efficient state. I should have said the same if it had been "in a state to resume her service", her service being the carriage of goods as a steamer upon the stipulated voyages".

19. In those circumstances, the question to ask is whether the vessel is in an efficient state to perform its services, Lord Halsbury LC at 56 saying, in another relevant passage:

"She should be 'efficient to do what she was required to do when she was called upon to do it".

20. In the Mareva AS [1977] 1 Lloyd's Rep 368 Kerr J, referring to that line of authority without expressly mentioning it, said (at 382, left hand column):

"If the ship is for any reason not in full working order to render the service then required from her .. then hire is not payable .."

21. There is, as one would expect, a lengthy analysis of off-hire clauses in chapter 25 of Wilford on Time Charters 6^th Edition 2008, and one of the relevant passages appears at paragraph 25.9, where the editors say:

"A ship is prevented from working when she is prevented from performing the next operation that the charter service requires of her (see The Berge Sund [1993] 2 Lloyd's Rep 453 per Staughton LJ at p459)".

22. So the question which was before the Arbitrators is whether the vessel, on its way under instructions from Class to a repair yard, and not going to Shanghai to unload and load cargo in accordance with the Charterers' instructions, was tendering services in accordance with the Charterparty to the Charterers. Mr. Siberry QC for the Charterers says plainly not. He served and exchanged a powerfully persuasive skeleton, and I did not call upon him to expand on it.
23. The battleground was thus left to Mr. Goldstone QC to defend the Arbitrators' reasons. He founded a general submission, which of course must be right, on two principles. The first is that the onus is on a charterer to bring itself within a beneficial exemption such as an off-hire clause. That is clear both from Royal Greek Government v Minister of Transport [1948] 82 Lloyd's Law Rep 196 at 199 per Bucknill LJ, and from The Doric Pride [2006] 2 Lloyd's Law Rep 175 at 179 per Rix LJ. The second principle, which of course I accept, is that this court should be slow to interfere with the conclusions of arbitrators and, I must add, particularly such experienced arbitrators as these.
24. Mr. Goldstone QC began his skeleton with a hypothetical scenario, which I set out:

"A vessel is time-chartered. It is ordered by the charterers to Port X for discharge. Port X is 1,000 miles away. Shortly after commencing the voyage, the vessel suffers damage which needs to be repaired before the vessel can discharged the cargo at Port X. The owners arrange for repairs to be carried out at a repair yard 50 miles beyond Port X. The vessel proceeds the 1,000 miles towards Port X and then continues on the last 50 miles to the repair yard. Is the vessel off-hire under a period off-hire clause for the entire time spent proceeding the 1,000 miles to Port X?"

He submits that the answer to that hypothetical question is no, and so it ought to be in relation to the similar one being posed by Mr. Siberry QC here.

25. That scenario is different from the facts of this case. The facts of this case were that, even before the voyage commenced, certainly after it should have commenced but before the vessel had left Yokohama, it was going to go to the repair yard and not to Shanghai to discharge cargo in accordance with the Charterers' instructions.
26. In paragraph 10 of his skeleton he referred to Hogarth v Miller. He pointed to the decision in that case, in which the full working of the ship was prevented during the tow to Harburg, even though the vessel did convey the cargo to Harburg, and the low pressure (but not the high pressure) cylinder of its compound engine was operating, such that it was only at 80% efficiency, so that the Charterers were entitled to establish that it was off-hire. Mr Goldstone continued:

"Thus, because the vessel was only able to proceed very slowly, she was not fully efficient for the purposes of the service then required to proceed to the discharge port".

27. That proposition, far from being helpful to him, in my judgment is unfavourable to him, because it presupposes that that is what, in this case, the vessel was required to do, namely to proceed to the discharge port, when at no time after it left Yokohama was it doing so.
28. Then in paragraph 14 of his skeleton he said:

"In order to be able to say that the vessel was off-hire, the Appellants need to find a way of characterising the service required by them of the vessel at the relevant time as being something other than proceeding towards Shanghai, which was something the vessel was fully efficient to do (and did do) during the relevant time".

That, in my judgment, ignores the fact that what the vessel at the relevant time was supposed to be doing was not proceeding towards Shanghai, but proceeding to Shanghai, in order to discharge its cargo there, and indeed no doubt collect other cargo.

29. The final reference I would make to his skeleton is to paragraph 25, where he asks the question: "What about the fact that the voyage is also being carried out for the Owners' purposes?" That assumes that the vessel was voyaging at the stage in question not only for the Owners' purposes but (because of the use of the word 'also'), assertedly for the Charterers' purposes. Mr. Siberry QC submits that at this stage the voyage was not being carried out for the Charterers' purposes, because contrary instructions had already been given, and the conclusion already reached by the Owners was that the vessel must, complying with Class' instructions, go to Hong Kong, and not to Shanghai.
30. Mr. Goldstone's submissions were threefold. First, he submitted that the reality of the Charterparty is that the vessel is chartered from day to day. If it is voyaging in the right direction today then it does not matter what will happen tomorrow: tomorrow can look after itself. When tomorrow comes, that is when the test will be operated as to whether the vessel is off-hire. But, in this case, it was known from the start of the voyage, from the start of departure from Yokohama, that it was not going to Shanghai to discharge the Charterers' cargo. This falls, of course, to be contrasted with the words of Wilford, which I have already read. Mr. Goldstone was driven to disagree with Wilford, and to suggest that the words "performing the next operation" in that passage are wrong; all that matters is that the vessel is performing an operation today which is consistent with the possibility that tomorrow there would be either off-hire or on-hire.
31. In my judgment, the important question is to ask under what instructions the vessel was operating today. The instructions were that it was not voyaging to the discharge port, and, in my judgment, in those circumstances when it was voyaging on 22^nd and 23^rd September, when it left Yokohama, it was not carrying out Charterers' instructions, not providing them with the service that it was supposed to supply, partly because of the damage, but, more significantly, because the existence of that damage had led to instructions from Class that it should not go to Shanghai, and that it should discharge the entirety of the cargo somewhere else, namely in Hong Kong.
32. The second submission that Mr. Goldstone made was by reference to construction of Clause 57 to accord, as he submits, with its commercial purpose. He submits that the best way of analysing its commercial purpose, and indeed operating it fairly and sensibly, and without uncertainty, is, in the case of a vessel that is voyaging, on the face of it, in accordance with the Charterparty, that the issue, properly addressed by the arbitrators, is whether it was on what he has called a common route, and that it was better and clearer to address the question of the common route in this case, so as to be able to observe that until 23^rd September it was on the route which it would have taken if it had been going to Shanghai, albeit that on 23^rd September the vessel then diverged from it, rather than to consider questions such as intention, or instructions.
33. The first problem with that is that it will in many circumstances be as difficult, if not more difficult, to analyse whether there is such a common route than it would be to analyse or find out under what instructions the vessel was travelling and what was the intention of the owners. It may be that in this case, and certainly from the use by the Arbitrators of the word 'waypoint', it would so appear, that there was a very well marked out route from Yokohama which would always be taken by every vessel, whether it was going to Shanghai or to Hong Kong, effectively until what Mr. Siberry called a 'signpost in the sea' coming half away along, or some way along, that route.
34. That will not always be the case. There will be many occasions when to go to point A or point B could involve a choice of routes dependent upon all kinds of matters such as time of year or climatic and trading conditions. So it is far from my view that an adoption of some such concept as factual geographical reference to which direction the vessel was voyaging would create certainty; it may well create the reverse.
35. The second problem, and it is a big one for Mr. Goldstone, is the consequence of this argument, this reference to a common route, this suggestion that a vessel is complying with charterers' instructions if it is going in the general direction of where the charterer would like it to go, even though in fact it is going to a completely different destination, or is about to reveal itself as so doing.
36. Whereas in this case it would seem that the 'common route' up to the 'waypoint' lasted for 1½ days, I put to Mr. Goldstone QC in argument the scenario of a vessel leaving Yokohama and simply coming out of the harbour perhaps for a few hundred yards, before then either turning left, to go to the port which the charterer has required it to go to, or right, to go to a repair yard pursuant to the owners' instructions, such that there would be a common route but only for a very short distance indeed. Mr. Goldstone QC accepted that the inevitable logic of his argument was that for the period of that common route, however short, the vessel would be on-hire. That would mean that the vessel could have been 19 days off-hire, hanging around in Yokohama, such that there would have been, within one more day, the opportunity for the charterer to cancel under Clause 81, that the vessel, once it travelled any distance, would in fact be going in the completely opposite direction from that which the charterer intended and had directed, but that, because there was some measure of common route, it would go back on-hire during it, thus depriving the charterer of the opportunity to terminate until another 20 days had clocked up under Clause 57. That cannot be right.
37. The reality, in my judgment, is that the commercial purpose of the Charterparty is better directed towards looking not at a vessel neutrally travelling along a route, whether a common route or otherwise, but by reference to the commercial purpose of the Charterparty, which in this case was to comply with the Charterers' instructions, and give the Charterers the trading opportunity to travel to a port where the cargo could be loaded and discharged; and the vessel was not complying with that commercial purpose when it set off from Yokohama, such that, in my judgment, it was therefore, on a proper construction of Clause 57, off-hire during that period, albeit travelling in the general direction of Shanghai, but not intending to go there.
38. The third submission that Mr. Goldstone made at least had the benefit of giving me pause for thought, because it had a certain element of attraction to it, and that was what he called commercial injustice. If, says Mr. Goldstone QC, the position is that the vessel goes off-hire the minute that it sets out on a voyage which does not comply with the charterers' instructions, even if going in the general direction of where the charterer would have liked it to go, then if the Charterparty is not cancelled, and if the vessel goes to a yard and is repaired, and is then either reloaded, or never discharges, and carries on with the Charterparty, and with the voyage which had been so substantially interrupted, then different consequences would ensue, depending upon where the yard is.
39. If, he submits, the yard is further away, such that the journey from the yard once the vessel goes back on hire to the original destination is further than it otherwise would have been, then Clause 57 limits the charterers' obligation to no greater distance than the charterers would have paid for to start with, if there had been no diversion. If, however, the yard happens to be nearer to the ultimate destination, then, unless the charterer has had to pay something for that part of the journey which had been interrupted by the voyage to the yard, then the charterers will get the benefit of that voyage being shorter. This, of course, only arises if the charterparty is not cancelled in such a scenario, and that is unlikely, in my judgment, to be the majority of cases.
40. Mr. Siberry's answer was a straightforward one, and that is that an off-hire clause is a blunt instrument, and does not necessarily always do justice. See, for example, the very case of Hogarth, to which such a degree of reference has been made, where the owner did not recover any hire, even though the cargo limped its way to the correct port of discharge and discharged. But the fact that in unusual cases an off-hire clause may not do entire justice does not, in my judgment, mean that I should conclude that a vessel is on-hire when it is plainly not. The answer might well have been different if the vessel had already set out from Yokohama before a decision was made to change its destination, en route. It could well have been said in those circumstances that, until that decision was made, it was still carrying out the charterers' instructions, and the vessel remained on hire until that time. Thus Mr. Goldstone's fairness would trigger in. But that was not the case. There was here a change of route from one compliant with the Charterers' instructions to one non-compliant, and compliant rather with the instructions of Class, from the beginning.
41. In those circumstances, from the very beginning of the voyage from Yokohama the vessel was not intending to comply with the Charterers' instructions, and was not going to Shanghai, even though it might have been going towards Shanghai for the first day and a half. Going towards Shanghai was not sufficient to comply with the Charterers' instructions, not sufficient to put it into the position in which it was efficiently carrying out the service required by the Charterers.
42. In those circumstances, I am satisfied that the Arbitrators erred in law in their application of the authorities, to which I have referred, to Clause 57. As a result of the accident in the breakwater this vessel was, first of all, unable to voyage anywhere, and then it was only able, because of Class' instructions, to go straight to a repair yard, discharging on the way, in Hong Kong, what it should have discharged at Shanghai. It remained off-hire throughout that period. In those circumstances, this appeal is allowed.