England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		30th January 2001

Introduction

1. Cenargo Ltd are a company in the Cenargo group who own and operate Ro-Ro and other vessels. They were represented before me by Mr Smouha. The group were founded in 1979 by the present chairman, Mr Hendry, and now own or control some 15 vessels. These proceedings are in respect of two Ro-Ro ferries built with hull numbers 287 and 288 and named MV Dawn Merchant and MV Brave Merchant. The Dawn Merchant and the Brave Merchant are two of four sister-ships, the others being Northern Merchant (hull 289) and Midnight Merchant (hull 290). I understand that there are disputes about these other two ships, but I am not concerned with those disputes. The claims that come to trial before me concern the capacity of the two vessels, the Dawn Merchant and the Brave Merchant, to carry trailers and the speed of the vessels. Other claims about the vessels were brought by the claimants in these proceedings, but they have been settled and are not relevant to what I have to decide.

2. At the start of the trial before me the first defendants were Astilleros de Sevilla SRL ("Astilleros"), a Spanish ship building company. As a result of a group reorganisation another Spanish company, Empresa Nacional Bazan de Construcciones Navales Militares SA, have succeeded to the obligations of Astilleros, and by agreement between the parties this company has been substituted for Astilleros in these proceedings. It is common ground that this change does not substantially affect the rights and obligations of the parties, and I shall in this judgment refer to Astilleros without reference to this change. They were represented at the trial by Mr Kendrick QC and Mr Waller.

3. The second defendants, Wartsila NS Norway AS, the manufacturer of the controllable pitch propeller system for the vessels, were involved in a claim which has been settled, and took no part in the trial.

4. The claims are made under contractual arrangements entered into between the Cenargo group and the Astilleros group of companies. Negotiations started in 1995 and led to the Cenargo group and Astilleros signing a letter of intent on 17 and 18 January 1996 whereby the Cenargo group were to place an order with Astilleros for the design, construction and delivery of two passenger RoRo ferries, with an option for two further vessels. This led to contracts for the Dawn Merchant and the Brave Merchant for a price of US$44.7 million each.

5. The structure and terms of these contractual arrangements are similar in respect of each of the vessels and are as follows: on 15 March 1996 Cenargo International Ltd entered into sales contracts to buy the hulls from a company called Twinkleigh Ltd, a company in the Astilleros group. Astilleros Espanoles SA were also party to the contracts. On the same date Twinkleigh Ltd entered into ship building contracts for the hulls with Astilleros Espanoles SA. Under the sales contracts Cenargo International Ltd took an assignment of all Twinkleigh's rights and benefits under the ship building contracts. Subsequently on 30 July 1998 Astilleros Espanoles SA and Astilleros entered into assignment agreements whereby Astilleros Espanoles SA assigned to Astilleros, their wholly owned subsidiary, their interest under the ship building contracts. Within the Cenargo group too there were assignments of the contracts of 15 March 1996: by assignments dated 27^th August 1998 Cenargo International assigned to Cenargo Ltd their interests under them. The result is that Cenargo came to have the rights and obligations against Astilleros stipulated in the two ship building contracts. Astilleros admit in their Points of Defence, "that the obligations owed by the Builder to Twinkleigh under the shipbuilding contracts became owed by the First Defendant to the Claimant".

6. The MV Dawn Merchant and the MV Brave Merchant are twin screw, single hull, passenger RoRo ferries of 22,152 tonnes gross, with an overall length of 180 metres. They were constructed with two cargo decks, which were designated deck no 3 (the main deck) and deck no 5 (the upper deck). These decks are divided into longitudinal lanes for the stowage of RoRo cargo, a maximum of eight lanes on the main deck and of six lanes on the upper deck. The cargo is secured by use of raised lashing points (or "elephants' feet"), together with chains and hooks, turnbuckles, trestles and chocks.

7. The vessels were largely constructed at Astilleros' yard in Seville, Spain, but after being launched, they were taken to Cadiz and dry-docked for painting and other completion works before they underwent sea trials.

8. Astilleros used external consultants to carry out model tank tests and to refine the hull design of the vessels, and for this purpose they engaged the Maritime Research Institute of the Netherlands ("Marin"), a well established body of specialists in hydrodynamics and ancillary disciplines. One of the Marin employees involved with these vessels was a Mr Mennen, a specialist in sea trials who has worked for Marin for some 33 years. In November 1996 Marin carried out model tests in their towing tank from which to extrapolate the predicted speed of the vessels when constructed.

9. There are separate agreements for the construction of MV Dawn Merchant and MV Brave Merchant, but they are in identical terms. The agreements comprise a Shipbuilding Contract, together with a Specification and a Plan. Article 1 clause 1 of the Shipbuilding Contracts provides as follows:

"…

The Specification and the Plan are intended to explain each other and anything shown on the Plan and not stipulated in the Specification and anything stipulated in the Specification and not shown on the Plan shall be deemed to be contained in both.

In the event of any conflict between this Contract and the Specification and/or the Plan, the provision of this Contract shall prevail. In the event of any conflict between the Specification and the Plan the provisions of the Specification shall prevail."

Article XXII of the Shipbuilding Contracts is headed

Interpretation and reads as follows:

"In the event of a conflict or inconsistency between the terms of this Contract and any of the terms of the Specification attached hereto, the provisions of this Contract shall prevail in all respects.

In the event of any discrepancy between the Plans and the Specification the provisions of the Specification shall prevail.

Any further agreement or addenda signed by both Parties to this Contract, shall be deemed and considered as embodied in the contract and shall become an integral part of this Contract.

…"

10. The Specification which was incorporated into the Contracts was given the number 56118 and the date 25 January 1996: it is identified in Article I clause 1 of the Contracts. The Plan that was incorporated into the Contracts was numbered 6118/001/01. It too is identified in Article I clause 1 of the Contracts, and also at paragraph 001 of the Specification: "This Specification will be applied in connection with the following Contract Drawings: DRW. Number 56118/001/01; date: 25-01-96; identification: General Arrangement". (I should mention that the parties in fact reached agreement upon the precise form of the Specification and upon the precise Plan to be incorporated into the Contracts after 25 January 1996 and after the contracts themselves were concluded on 15 March 1996. Before 15 March 1996 the parties had signed a specification dated 4 March 1996 which was numbered 56118C, and which referred to a drawing 5611B/001/01 dated 25 February 1996. However it is apparent from the correspondence that in May and June 1996 the parties reached agreement on the Specification and the Plan to be introduced into the contracts, and they were those which I have described above. This is not in dispute.)

Capacity of the Vessels

1. Article III of the Contracts is headed Damages, and clause 5 of Article III is in the following terms:

"5. Deficiency in Trailer Carrying Capacity.

In this Clause 5 "trailers" refers to fully laden trailers with a mean carrying capacity of thirty (30) mt.

(a). If the actual trailer carrying capacity of the Vessel is less that 146 Units of 13 metres each the Builder shall pay to the Buyer as liquidated damages One hundred and fifty thousand United States Dollars ($150,000) for each trailer unit by which the Vessel is deficient but excluding the first one (1) in respect of which deficiency no liquidated damages shall be payable. If the deficiency in trailer carrying capacity is ten (10) or more the Buyer as an alternative to receiving the aforementioned liquidated damages may rescind the Contract.

(b)…"

12. Cenargo seek payment under this provision alleging a deficiency of ten units in each vessel. This claim is based upon an argument that Article III clause 5 provides for payment in the event of the vessels not having the capacity to carry 146 trailers of 13 metres length. Their contention is that properly interpreted the clause (read together with Article I(4) and the Specification, to which I shall refer) means that "the warranty given was that the Vessels would actually be able to load (by conventional means) and safely carry 146 trailers of 13m length": paragraph 24A of the Points of Claim.

13. Astilleros, on the other hand, contend that "in measuring the trailer capacity of the Vessels, it is not appropriate to calculate the number of 13 metre trailers which could be accommodated by the Vessels in practice (an approach which necessarily includes making allowance for clearances between each 13 metre trailer and between trailers and the Vessels' structure). The correct approach is to calculate the number of 13 metre spaces (or slots)": paragraph 26 of the Points of Defence.

14. At the start of this trial I gave the claimants permission to amend their pleading to put forward the case that the course of the negotiations was such as to preclude Astilleros from asserting their interpretation of the contracts and from denying the warranty for which Cenargo contend. When Cenargo called their witnesses in support of this allegation, it became obviously unsustainable, and Mr Smouha abandoned it in his closing submissions.

15. Astilleros, on the other hand, do maintain an argument that the claimants are precluded through an estoppel by convention from asserting their interpretation of the contracts. The basis of this contention is that the vessels were built in accordance with plans which were approved by Cenargo, or on their behalf by V Ships (UK) Limited ("V Ships"), who undertake day to day management of vessels in the Cenargo fleet and were instructed by Cenargo to supervise the construction of the vessels.

16. Depending upon my answers to these questions about contractual interpretation and estoppel, other issues about the capacity of the vessels arise:

1. Cenargo maintain that even upon Astilleros' interpretation of the contracts, the vessels did not have the requisite capacity, but had only 140 slots. This raises a question whether Article III clause 5 applies where slots are obstructed by obstacles to loading and carrying trailers. Astilleros maintain that the obstacles upon which Cenargo rely are too trivial and too readily remedied to give rise to a claim under the clause.

2. If, because of these "obstacles", Cenargo do have a claim under Article III clause 5 upon its proper interpretation, then Astilleros maintain that the clause provides for payment of a penalty (and not liquidated damages), and so is not enforceable.

3. If Cenargo did come to have any rights to liquidated damages under

Article III clause 5, Astilleros maintain that Cenargo lost their rights

when they took delivery of the vessels.

4. Cenargo's primary case is that their rights under Article III clause 5 were not lost upon delivery of the vessels, but if they are wrong in this, then the question arises whether they are entitled to the cost of remedying the deficiencies in the capacity of the vessels under Article X of the Contracts.

Does Article III, clause 5 refer to capacity to carry trailers of 13 metres length or does it refer to spaces of 13 metres length?

17. Article III clause 5 provides for payment upon a breach of contract by Astilleros, and it is to be interpreted in light of the contractual obligations undertaken by Astilleros with regard to the capacity of the vessel. This was, in the end, common ground between the parties. At one time Mr Smouha suggested that Article III clause 5 might provide for money to be paid upon an event rather than upon a breach of an obligation undertaken by Astilleros, and might be interpreted independently of the provisions setting out their obligations as to capacity. This submission was abandoned: it seemed to me an impossible interpretation of a provision purporting to provide for "liquidated damages" for breach of capacity obligations, given that the contracts do impose obligations upon Astilleros with regard to the vessels' capacity.

18. Article I clause 4 is headed Capacity and states that "The Vessel shall have a RoRo freight capacity of at least 146, 13 meter slots".

19. Article I clause 1, to which I have already referred, provides that the vessels are to be built and delivered in accordance with the Specification. The Specification includes the following provisions:

"101-Type of Vessel.

The vessel will be a RO-RO PASSENGER VESSEL designed and built for service in world wide traffic, carrying road trailers, cars and passengers as specified herebelow, with a capacity at least of 2,000 Lane meters, equivalent to 146 slots of 13m lengths, (width 3 metres), 47 Officers and Crewmen and 214 passenger, 114 in cabins and 100 in airline seats.

The vessel will be arranged for loading and unloading through the stern, bow and deck ramps and might be loaded on upper deck directly using port facilities. The vessel will be ready for future installation of a fore ramp/door installed on the main deck…"

"104-DESIGN CAPACITIES

a) Cargo capacities

Lane metres (width 3m.):

-On Upper Deck (8 lanes in breadth), about	1,075m.
-On Main Deck (6 lanes in breadth), about	875m.
Total	,000m.

Road trailers (length: 13m, 30 t/trailer)

- On Upper Deck	80 road trailers
- On Main Deck	66 road trailers
Total	146 road trailers"

20. Astilleros refer to a further provision of the contract, which they argue supports their contention that Article III clause 5 is directed to the size of spaces for trailers rather than the size of the trailers to be accommodated in the spaces. Article V clause 1 is headed "Buyer's Modifications" and is about Astilleros' obligation to make modifications requested by Cenargo. It stipulates that this obligation is provisional upon the parties reaching agreement upon various matters including "any adjustment of deadweight and number of units of trailer carrying capacity". Astilleros draw attention to this clause because here the term "units" is used to connote spaces in the vessel rather than trailers.

21. Before I examine in more detail the wording of the contractual terms that are to be construed, I make three more general observations that suggest to me that Astilleros' interpretation of the contracts makes more commercial sense than that of Cenargo.

22. First, Article III clause 5 is intended to be a liquidated damages provision. It is reasonable to suppose that the parties intended to make it easier for them to ascertain whether any, and if so what, sums were payable by Astilleros in the event of breach of their obligations as to capacity. It is legitimate in approaching the question of construction to consider how far a particular interpretation would achieve this purpose. This consideration supports Astilleros' interpretation, since theirs gives a more specific definition of the space to be provided for a trailer.

23. Secondly, if Cenargo's interpretation of the contracts were adopted, Astilleros would be obliged to provide sufficient room to allow trailers to manoeuvre into spaces and to allow appropriate clearance between trailers. There is nothing in the contractual documents which refers to additional space of this kind, and Astilleros would be left to form their own view as to what additional space was required. It seems to me unlikely that the parties would leave it to the builder of the vessel to estimate this and not stipulate this in the contracts. I asked Mr Smouha upon what criterion Astilleros were to decide the necessary clearance and manoeuvring space, and as he developed his submission he adopted the test of whether a space could be used by the most skilled driver, assuming the vessels were loaded by conventional means, but he did put forward a more specific criterion.

24. Thirdly, Cenargo do not contend that it was envisaged that the trailers that were to be loaded on the vessels would all be 13 metres in length. The contracts, they contend, required capacity for 146 trailers with an average length of 13 metres. They put their case in this way, I think, because it is indeed unrealistic to suppose that the trailers loaded on the vessels would be of a uniform length, or that the parties should intend the contracts to provide for the carriage of trailers of a uniform length. But once the case is put in terms of an average trailer length, further difficulties face Cenargo's contentions. The amount of manoeuvring room required to load the trailers is likely to depend upon the combination of trailers going to make up the 146 trailers with the average length stipulated. There is an ambiguity whether the vessel should accommodate any combination of trailers provided that their average length was not more than 13 metres, or whether it would suffice if some combination of trailers of the stipulated average length could be accommodated.

25. I turn to the precise wording of the relevant contractual provisions. Here the considerations which particularly weigh with me are these:

a) The primary obligation defining the capacity of the vessel found in the contracts is in Article I clause 4, and it refers to "13 metre slots". The natural meaning of this term is that "13 metres" defines the size of the space to be provided. Although if the other terms of the contracts so required it would be possible to interpret "13 metres" as connoting spaces for 13 metre trailers by using a loose label or vague description, this would, in my view, be a strained interpretation of the term, and not its ordinary and natural meaning.

b) The wording of Article III clause 5 also indicates that 13 metres is the size of the spaces to be provided. This is because of the grammar of the provision: "for each trailer unit by which the vessel is deficient". A vessel can properly be regarded as deficient in spaces but not "deficient" in trailers, as opposed to capacity for trailers.

c) Moreover, as I have already observed, it is unrealistic to suppose that all trailers were to be of any standard length (whether 13 metres or any other length), and therefore the claimants' case is necessarily put forward on the basis of average length of trailers. However, it would be remarkable that Article III clause 5, while specifically referring to the mean weight of laden trailers, does not indicate in any way that the stipulated length is also a mean or average figure.

d) I consider that Astilleros' argument based upon the use of "units" in Article V clause 1, to which I have referred, is cogent.

e) Finally, the terms of the Specification support Astilleros's interpretation: paragraph 101 seems to me clearly to state that the length of a space for a trailer is to be 13 metres and the width is to be 3 metres. There is no dispute that the 3 metres specified for the width refers to the width of the lanes (and spaces within the lanes), and not the width of the trailers to be accommodated in the lanes. The stipulation of 13 metres similarly, it seems to me, should be taken similarly to refer to the length of the spaces and not the length of vehicles to be accommodated within the spaces.

26. I acknowledge that paragraph 104 of the Specification, if read in isolation, lends some support to Cenargo's argument, but this paragraph must be interpreted so as to be consistent with paragraph 101. It is also, of course, the case that the Specification provides for a total length of lane space for trailers of some 1950 metres, which would allow an average space of something in excess of 13 metres. However, this does not seem to me to bear upon the minimum size specified for each space.

27. I therefore consider that Astilleros's interpretation of the agreement is the correct one, and that liquidated damages are determined under Article III clause 5 by reference to the size of spaces for trailers.

28. In forming this view, I have not overlooked the evidence put before me by Cenargo through the report of Captain Keenor, a marine surveyor who gave expert evidence for them on this aspect of the case. He said that in the context of the RoRo trade, the term "unit" means a road trailer or other article of transport with or without a towing unit attached which can be loaded, stowed or discharged exclusively "by RoRo means". I do not doubt that the term is often so used in the trade, but there was no evidence which satisfies me that it was always so used. In any event, this evidence, which was supported by the opinions of shipbrokers and charterers and not ship-builders, did not seem to me of help in interpreting the particular provisions of these contracts.

29. I should refer to two further arguments adduced by Astilleros on this question of interpretation although I have not relied upon them in finding in favour of their interpretation of the contracts.

30. First, Astilleros adduced evidence that, at around the time that these contracts were made, the usual sizes of trailers were around 12.2 metres (based on the ISO standard container) or around 13.6 or 13.7 metres (a size from North America which was becoming common in Europe), but not 13 metres. The suggestion was, I think, that the contracts should not be interpreted as referring to trailers of a length which was seldom found. However, this is no answer to the contention that 13 metres was to be the average length of the trailers to be accommodated.

31. Secondly, Astilleros sought to put forward various arguments that they were entitled to rely upon plans agreed between the parties in order to interpret the contract between them. First, they relied upon the plans that were incorporated into the Contracts, to which they were undoubtedly entitled to refer but which do not seem to me to assist upon this question of interpretation. These drawings, which were numbered 6118/001/01 and dated 25 January 1996, comprise four sheets, but the size of slots is not marked on them. I see nothing here that supports or detracts from the contentions of either party.

32. Astilleros also submitted that their case was supported by earlier drafts of the contractual plans which, they say, mark 13 metre slots. In the event, the evidence said to support this contention was not adduced by Astilleros (it being exhibited to a witness statement of a Mr Herrero, who was not called as a witness). For this reason and because Astilleros were impermissibly seeking to interpret the contracts by reference to pre-contractual negotiations, there is nothing in this point to assist Astilleros.

33. At the close of final speeches Astilleros sought to introduce plans which they said were signed contemporaneously with the contracts but were not incorporated into them. I refused them permission to do so. As I explained in refusing the application, since (understandably) Cenargo were not willing to admit when the plans were signed, it would not have been just to admit the documents without giving Cenargo the opportunity to re-open the oral evidence. I did not consider that this should be done, there being no good reason that Astilleros had not adduced evidence about this at the proper time during the trial. In any case there was no explanation as to why the plans were not referred to in the contracts if the parties intended them to have contractual effect,

34. Further, Astilleros sought to support their interpretation of the contracts by reference to drawings prepared and agreed after the contracts were concluded and in the course of the construction process, which they say inform the interpretation of the contracts. They submit that they are entitled to do so because of Article XXII of the Contracts, which provides that: "Any further agreement or addenda signed by both Parties to this Contract, shall be deemed and considered as embodied in the contract and shall become an integral part in this Contract." However, this provision refers to amendments and addenda to the agreements. It does not refer to plans that were subsequently agreed between the parties. Other provisions of the contracts, Article IV clauses 6 and 7, deal with plans that were approved by the parties after the contracts were made, and stipulate how they are to affect the contractual rights and obligations of the parties. There is no justification for using these plans to re-interpret the terms of the contracts in light of them. In these circumstances and subject to the arguments about an estoppel by convention, it does not seem to me that the post-contractual drawings are of assistance to Astilleros.

Are Cenargo precluded from asserting that the Article III, clause 5 refers to capacity to carry trailers of 13 metre length?

35. If I am correct in my conclusion about the proper interpretation of the contracts with regard to the capacity of the vessels, Astilleros do not need their argument that Cenargo are precluded from asserting that the capacity of the vessels is measured by their capability of loading 146 trailers of 13 metres in length. I should, however, decide the point. Astilleros' contention was that since Cenargo gave their approval to Astilleros' plans showing the vessels with spaces of 13 metres length for trailers, the parties had a shared understanding upon what was to be the length of spaces within the lanes, and thereafter Astilleros conducted themselves in accordance with that understanding; that Astilleros would suffer detriment if Cenargo were allowed to resile from it; and so that it would be inequitable for them to do so.

36. I should first identify the plans upon which Astilleros rely. The General Average Plan No. 6118/001/01 comprising four sheets and dated 25 January 1996 is not relevant in this context because it was incorporated into the contracts. This being so, if the Plan had showed that the vessel was to have spaces of 13 metres length (and I have held that it does not in fact show anything significant), then Astilleros could have relied upon it in support of their contentions about the meaning of the contracts themselves. However, being incorporated into the contracts, the Plan could not have supported an argument that the parties' understanding apart from the contracts gives rise to an estoppel by convention.

37. Mr Waller, who dealt with this question on behalf of Astilleros, submitted that there are two plans signed and approved by the parties after the contracts were concluded which support the argument of estoppel by convention. (In their opening Astilleros referred to other plans, but Mr Waller so confined the argument in the closing submissions.) The first is General Arrangement Plan No. 6118/001/02. Although dated 25 January 1996, it is clear from the evidence given to me by Mr Hendry, which I accept, that it was in fact drawn after that date. From a stamp upon it, it appears to have been received by V Ships on 23 May 1996 and approved by them at about that time. It shows the lanes on the main deck and the upper deck divided into 146 spaces for trailers, with no gaps between contiguous boxes, each box occupying slightly more than 18.5 frame spaces. Since one frame space is 700 mm, 18.5 frame spaces represent 12.95 metres. The drawing includes dimensioned sections showing trailers with a width of 2.5 metres in lanes of 3 metres width. The captions on the drawing contain details for each deck of the slot numbers and dimensions: "66 of 13000 x 3000" for the main deck and "80 of 13000 x 3000" for the upper deck.

38. Secondly Mr Waller identified a Fittings General drawing which was originally drawn dated November 1996 and redrawn with various revisions on different occasions in 1996 and 1997. This plan clearly shows 66 slots on the main deck and 80 slots on the upper deck, each of about 18.5 frame spaces and each clearly intended to represent spaces of 13 metres length. As the title of the plan implies, this drawing shows not only the position and length of each slot but also the position of the securing points on the decks. The first (unamended) version also showed a typical cargo slot including dimensions, and it is apparent from a memorandum passing between Cenargo and V Ships in October 1998 that later versions of the drawing were similar.

39. V Ships undoubtedly gave approval to these plans after the contracts were concluded. They are consistent with Astilleros' interpretation of the contracts and inconsistent with that advanced by Cenargo. Moreover, it is apparent that Captain Lees, the Managing Director of V Ships, shared an understanding that the vessels were to have slots of 13 metres: in a memorandum dated 14 October 1998 to Cenargo's technical director, Mr Wigforss, he wrote, "… it has always been quite clear that the requirement for 146*13 metre slots equates to 1898 linear metres and that the original lane meters (sic) available at contract stage was about 1075 on the upper deck and about 875 on the main deck, the reason for 2000 lane metres appearing in the specification was a requirement of Cenargo, the yard made it very clear from the start that they would be slightly short of this figure…".

40. Cenargo, in response to Astilleros' argument, refer to Article IV clause 7 of the contracts. This is headed "Builders Responsibility Not Diminished" and reads, "The above approvals and/or inspections do not diminish the Builder's responsibilities for the construction of the Vessel". The term "above approvals" is a reference to Article IV clause 6: "The Builder shall send to the Buyer ……… for approval three copies of the drawings and technical information of machinery and equipment, for which such approval if required by the Specification." It is therefore necessary to go to the Specification to see what approvals are referred to in Article IV clause 7. The relevant provision is paragraph 140, which is headed "Drawing Approval": It reads, "Three copies of most important drawings approved by the Classification Society will be forwarded to the Owner for his checking of the drawings compliance with this Specification. The following drawings will be forwarded in triplicate to the Owner for his approval of the drawing's compliance with this specification". There follows a list of drawings which includes "General arrangements (updated, if any)" and "Trailer lashing arrangement": the latter, as Astilleros accept, refers to the fittings drawings such as Astilleros rely upon. Accordingly, the plans to upon which Astilleros base their estoppel contention, are plans which fall within the terms of Article IV clause 6, and therefore plans which are referred to in Article IV clause 7.

41. I consider that this rebuts Astilleros' case of estoppel by convention. Article IV clause 7 shows the parties' intention that Astilleros should not cease to be responsible for the Vessels' capacity because Cenargo gave approval to plans of this kind. Since this is how the contracts distribute responsibility, it does not seem to me unconscionable for Cenargo to assert their case against Astilleros.

42. For these reasons, had I found in favour of Cenargo upon the point of contractual construction, I would not have found that they were precluded from putting forward their case.

If Astilleros' obligation was to provide spaces of 13 metres in length, did they do so?

43. Cenargo contend that even upon the basis that the agreed capacity of the vessels was 146 spaces, each 13 metres long, the vessels were deficient. They contend that each had only 140 spaces. Astilleros deny this. This dispute therefore is about six spaces.

a) The first areas in contention are two spaces on deck 3, the main deck, in the lanes designated G and I. The nature of the problem here is that towards the forward end of the main deck, the area available for trailers narrows to three lanes (referred to as lanes G, H and I) and the two side lanes of these three, lanes G and I, taper slightly at the forward frames due to the flair of the bow. The spaces here are restricted because of extended scupper valves spindles at the forward end of the lanes, and also because of the location of the spare propeller blades. The restrictions are aggravated by curved fenders at the side of the lanes. Dr J S Medhurst, a naval architect and marine engineer called by Astilleros as an expert witness, suggested three ways in which this problem might be solved. The first would involve modification of the frame structure and fittings at the forward end of the lanes, and with good reason Astilleros do not argue that this is a realistic option for the owners. Alternatively, however, the problem could be solved either (i) by moving the spare propeller blades, protecting the extending spindles and pipes from damage and adding a further lashing point or (ii) by fitting additional lashing points and moving the stow of all the spaces in lanes G and I aft by about two metres. This last solution would be the cheapest of the three.

b) Secondly, there is dispute about two spaces on the upper deck in the lanes designated A2 and H2. (The position of the ramps is such that the outboard lanes on the upper deck are divided into two parts, the forward parts being designated A2 and H2 and the aft parts being A1 and H1.) These two spaces are obstructed by crash barriers, the purpose of the barriers being to protect passenger accommodation access doors. The barriers were installed at the request of Cenargo; they were not originally required by the Specification and, as far as the evidence before me goes, are not needed to meet any statutory or regulatory requirement. Dr Medhurst points out that the barriers could be moved forward at the end of these lanes without unreasonably restricting passenger access since the relevant parts of the barriers do not fully overlap the accommodation doors.

c) The third areas in dispute are two further spaces on deck 5, which are in lanes A1 and H1. These spaces are physically accessible, but adjacent fire damping vent flaps cannot be closed if the spaces are used. Clearly it would not be proper to use the spaces during normal operations in these circumstances, and an operative would not be permitted by the MCA (Marine Safety and Coastguard Agency) to do so. Dr Medhurst's evidence is that the difficulty could be overcome if the vent flaps were replaced by sliding covers. Again the ventilators were sited at the request of Cenargo.

44. I have referred to Dr Medhurst's evidence about how these problems might be overcome. His views about this were for all practical purposes shared by Captain Keenor, and this part of his evidence was not significantly challenged. I accept it.

45. Further Captain Keenor and Dr Medhurst were able to reach agreement about the cost of carrying out the changes to which I have referred Their shared view is that if the cheapest solution to the obstacles to lanes G and I on the main deck were adopted, the cost of the modifications to make available to six extra spaces would be some US$6,000 assuming the price of the works was negotiated between shipyards; that is to say, if Astilleros placed an order for the works with another European shipyard. If the work were placed by way of an ordinary commercial contract by Cenargo with a European shipyard, the modifications would cost some US$11,000. The agreed sums were not broken down to provide separate costs for the three categories of modification, but these are sufficiently indicated by the costs put forward by Captain Keenor before he reached agreement with Dr Medhurst: he suggested the modifications on the main deck would cost something of the order of US$5,000, the modifications to lanes A1 and H1 on the upper deck would be of the order of US$2,000 and the modifications to lanes A2 and H2 would cost some US$6,000. Accordingly, even within the small sum involved in carrying out all the suggested modifications, it is apparent that the modifications relating to Lanes A1 and H1 would be relatively cheap.

46. Cenargo submit that they are entitled to payment under Article III clause 5 on the basis that each vessel is deficient, having six fewer spaces than stipulated, and that they are therefore entitled to payment of US$ 750,000 (5 x US $150,000) in respect of each vessel. Their argument is simple: the state of the vessels is to be considered at the time of their delivery. At the times of delivery, it was not possible to load and safely to carry more than 140 trailers on either vessel, and it is nothing to the point that the problems could readily and cheaply be remedied. This, they would add, is not an unreasonable result of the contractual provisions. While on the facts of this case this might seem excessive recompense for minor obstacles, it is in the nature of liquidated damages clauses that they might turn out to benefit one party or the other by providing for generous or niggardly compensation.

47. Astilleros's case is that in judging capacity it is not appropriate to take into account what they call "superficial constraints". They submit that the true analysis is that the ships actually have, and had when delivered, 146 slots, but they need some trifling modifications to make six of the slots immediately available. Accordingly, there is no breach of Article I clause 4, and therefore no sum is payable under Article III clause 5.

48. Before assessing these arguments, I should mention that although Astilleros have pleaded in respect of the disputed spaces on the upper deck that Cenargo are estopped from complaining that the spaces are not available, Mr Kendrick in his closing submissions made it clear that he was not pursuing this argument. Had he pursued it, the short answer would have been that there is no evidence and no basis to infer that, in requesting the siting of the ventilators and the installation of the barriers, Cenargo are to be taken to have intended to relieve Astilleros of their responsibilities to deliver vessels with the agreed capacity, or that they led Astilleros to believe that Cenargo were content for the capacity of the vessels to be reduced.

49. I accept Cenargo's submission that what matters for the purpose of deciding whether there has been breach of the warranty as to capacity and whether liquidated damages are payable is the capacity of the vessels at the time that they were delivered. The question is whether at that time the constraints are properly to be characterised as affecting (in the terminology of Article I clause 4) the "RoRo freight capacity" of the vessels or (in the terminology of Article III clause 5) their "actual trailer carrying capacity", so that they can be said to be "deficient". Ultimately the matter is one of impression. The amount of time or money required to make modifications to remove the constraints does not of itself determine whether the obstacles are to be regarded as reducing the capacity of the vessels.

50. The conclusions that I have reached on these questions are as follows.

a) The constraints at the bow end of lanes G and I on the main deck do reduce the capacity of the vessels. In view of the nature of the changes which are required to make these spaces available, I do not think that they can be characterised otherwise. Whichever of the suggestions put forward by Dr Medhurst for remedying the position were adopted, it seems to me that the natural view of these alterations is that they involve rearrangements to the configuration of the decks so as to increase capacity of the vessels, and to provide additional capacity which the vessels do not presently have.

b) With regard to the barriers affecting the space in lanes A2 and H2 on the upper deck, similarly it seems to me changes in the position of the barriers would involve modifications to increase the present capacity of the vessels to carry trailers.

c) I take a different view with regard to the ventilators. The vessels do have the capacity to carry trailers in these spaces in lanes A1 and H1. The difficulty is properly to be characterised as affecting the safety equipment on the vessels and not their capacity.

51. Accordingly my view is that the vessels each had when delivered the capacity to carry 142 trailers. They were deficient by 4 spaces, and accordingly in respect of each vessel, subject to the matters I am to consider below, US $ 450,000 is payable to Cenargo.

52. I should add this: in support of a submission that the courts are astute to construe liquidated damages provisions as only applying to major breaches, Astilleros cited the authority of Webster v Bosanquet, [1912] AC 394, a decision of the Privy Council. I do not find in that authority support for the wide proposition put forward by Astilleros, and I do not consider that there is any general rule of this kind governing the interpretation of liquidated damages clauses.

Is Article III, clause 5 a penalty clause?

53. Astilleros contend that if Article III clause 5 is to be interpreted as applying to temporary and minor restrictions in capacity which can easily be remedied, the provision is penal and not enforceable, and they contend that it could only be upheld as a liquidated damages clause if it is to be interpreted as applying solely to more permanent and significant deficiencies in capacity. They submit that if the clause is to be interpreted as covering what they call "non-permanent deficiencies", the facts of this case demonstrate the penal effect of the clause.

54. This does not seem to me to be a proper approach to determining the question whether the clause is penal. The third of the principles enunciated by Lord Dunedin in Dunlop Pneumatic Tyre Company Ltd v New Garage Motor Company Ltd, [1915] AC 79, 86 is that "the question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of making the contract, not as at the time of the breach". What is to be considered is the range of losses which it could have been anticipated at the time that the contract was made would be covered by the clause. In the case of these contracts, while sometimes it might be easy to increase the capacity of the vessels, in other circumstances this could be done, if at all, only at considerable expense and inconvenience. It can readily be seen Cenargo's losses from a vessel being deficient by one space might far exceed US$150,000. (This was well illustrated by the evidence of Mr Hendry, which was not challenged, that the freight rate on a passage between Liverpool and Dublin is some £200 per trailer on a RoRo vessel, which means that, if a vessel is fully booked, an operator receives more than £2,000 per week from each space; and the life of the vessels is over 40 years.)

55. The approach to be adopted to the question whether a clause is a liquidated damages provision or a penalty is explained in Philips Hong Kong Ltd v The Attorney General of Hong Kong [1993] 61 BLR 49. In that case Lord Woolf, giving the advice of the Privy Council, cited with approval what was said by Dickson J in the Supreme Court of Canada in Elsey v JG Collins Insurance Agencies Ltd (1978) 83 DLR at page 15: "It is now evident that the power to strike down a penalty clause is a blatant interference with freedom of contract and it is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no oppression". Lord Woolf went on to observe that such views are in accordance with those expressed by Diplock LJ in Robophone Facilities Ltd v Blank, [1966] 1 WLR 1428, 1447: the "court should not be astute to descry a penalty clause". Lord Woolf concluded, "Except possibly in the case of situations where one of the parties to the contract is able to dominate the other as to the choice of the terms of the contract, it will normally be insufficient to establish that a provision is objectionably penal to identify situations where the application of the provision could result in a larger sum being recovered by the injured party than his actual loss. Even in such situations so long as the sum payable in the event of non compliance with a contract is not extravagant, having regarded to the range of losses that it could reasonably be anticipated it would have to cover at the time the contract was made, it can still be a genuine pre-estimate of the loss that would be suffered and so a perfectly valid liquidated damage provision".

56. Applying this approach, I reject the submission that Article III clause 5 is penal.

Did Cenargo lose any rights that they had under Article III, clause 5 upon delivery of the vessels?

57. Astilleros put forward two further contentions that no sums are payable under Article III clause 5. Their first submission is that under the terms of the contracts any entitlement to payment was lost upon delivery of the vessels. Secondly, they argue that Cenargo lost the right to liquidated damages because they failed to advise Astilleros of the deficiency in capacity before taking delivery of the vessel.

58. The first argument is that the scheme of the contracts is that liquidated damages are payable upon delivery, and thereafter any claim by Cenargo is defined by and limited to the guarantees or warranties set out in Article X of the Contracts. In support of this contention Astilleros rely upon the following contractual provisions:

"Not later than delivery of the Vessel, any variations in the Contract Price arising out this Contract, but excluding any damages payable in accordance with Article III, will be calculated and the payment due upon delivery of the Vessel will be varied accordingly. At the same time and as a condition thereof the Builder will pay the Buyer any amount payable under Article III of this Contract": Article II clause 2.

"Any amounts for liquidated damages under Article III shall be calculated and determined on delivery of the Vessel and shall be paid by the Builder to the Buyer on the Vessel's delivery": Article II clause 5

"Payment is of the essence to this Contract. The Buyer shall not delay any payment in case of any disagreement as to the amount of the above liquidated damages or in the event of other exceptions or claims the Buyer may have asserted or may intend to assert against the Builder, whether in connection with this Contract or otherwise without prejudice to the Buyer's right to apply subsequently for resolution of any dispute or matter in difference pursuant to Article XIII and provided further payment of a cash deposit or provision of a bank guarantee pursuant to sub-clause 2 of this Article II [a contractual machinery for providing security in the event of a dispute] shall be deemed to be compliant with this sub clause 7 (sic)": Article II clause 6.

"The Builder for the period twelve (12) months from the date of the acceptance of delivery of the Vessel, guarantees the Vessel, her engines and accessories and all parts and equipment thereof, that are manufactured or furnished or supplied by the Builder or its Subcontractors under this Contract, against all defects which are due to faulty design…": Article X clause 1.

"The guarantees contained as herein above in this Article replace and exclude any other liability (and whether contractual or tortious, including liability for negligence), guarantee, warranty and/or condition imposed or implied by the law, customary, statutory, admiralty or otherwise, by reason of the construction and sale of the Vessel by the Builder for and to the Buyer": Article X clause 5.

59. In reliance upon these provisions Astilleros plead that, by not making a claim for liquidated damages on delivery, Cenargo "lost and/or waived its right to liquidated damages". (There is no dispute that no claim was made by Cenargo until after the delivery of the vessels.) In his submissions, however, Mr Kendrick presented the point as one of construction of the contract and did not advance an argument in this context on the basis of waiver.

60. The argument presented by Astilleros therefore contemplates that a claim for liquidated damages on delivery would preserve Cenargo's right to be paid under Article III clause 5. This points to the difficulties facing Astilleros' contention. It is not an ingredient in Cenargo's right to liquidated damages that they should make a claim. Upon delivery Astilleros' obligation to pay liquidated damages accrues, whether they are claimed or not. If there were any doubt about this, Article II clause 2 puts it beyond question.

61. Accordingly, Mr Smouha contends that Article X clause 5 is not drafted widely enough or specifically enough to provide that accrued rights, including any right to liquidated damages, cease upon delivery. I agree with that submission: see Andrews v Singer, [1934] 1 KB 17 and the "Seta Maru", [2000] 1 Lloyd's Reports 367, 371.

62. Astilleros's other argument is that Cenargo lost any right to payment under Article III clause 5 because they did not notify Astilleros of their complaints about capacity before delivery of the vessels. The argument is that had notification been given, particularly about the more minor deficiencies, Astilleros would have had the opportunity to remedy them before delivery. In their pleaded case this argument was put upon the basis that Article IV clause 2 of the contract put Cenargo "under an obligation to notify the first defendant of any apparent defect in capacity prior to accepting delivery". The provision of the contracts to which they are referring reads as follows: "The Supervisors [whom the buyer was entitled, but not obliged, to assign and maintain in order to assist in the construction of the Vessels] shall notify the Builder promptly in writing in the event the Supervisors have discovered any construction or materials which the Supervisors believe do not or will not conform to the requirements of the Specification". Accordingly the contractual obligation is triggered only by actual discovery on the part of the Supervisors of materials or construction which they do not believe will conform to the requirements of the Specification. The evidence does not begin to establish any such knowledge or belief on the part of V Ships or anyone acting for Cenargo.

63. In his submissions Mr Kendrick put the matter rather differently: he contended that the terms of Article II and Article X to which I have referred above gave rise to a duty upon Cenargo to raise a claim for liquidated damages at the time of delivery. For the reasons which I have given I do not consider that Cenargo were under any such duty.

64. In support of his contentions Mr Kendrick made reference to Heisler v Anglo Dal [1954] 1 WLR 1273, 1278. In that case, Somervell LJ referred to the rule that a contracting party, who, after he has become entitled through the other party's breach to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not; and went on to say that the rule was subject to a proviso: "If the point not taken is one which if taken could have been put right, the principle will not apply". The rule concerns the rejection of goods or refusal to perform a contract, and the proviso is a qualification to the principal of Boston Deep Sea Fishing v Ansell, (1888) 39 Ch D 339. It does not impose a general obligation upon a buyer to draw deficiencies to the seller's attention before taking delivery, and I do not see any basis for holding that Cenargo were obliged to do so. It is to be noted how broad the contention advanced by Astilleros is. It does not depend upon Cenargo having knowledge of the deficiencies and they have not pleaded or proved such knowledge.

Would Cenargo, if they had lost rights under Article III, clause 5 upon delivery of the vessels, have a claim based upon Article X?

65. Astilleros go on to contend that if by taking delivery of the vessels Cenargo have lost their right to claim under Article III clause 5, then Cenargo have no claim under Article X. This question does not arise if I am right upon my interpretation of the contracts. Further, as I understand the position, no such claim has been presented by Cenargo except upon the basis that the contracts entitled them to have spaces big enough to accommodate 13 metre trailers. I can therefore deal with this point briefly.

66. Astilleros's liability under Article X is limited by clause 4 as follows: "The Builder's liability is limited to remedying at its expense any defects against which the Vessel, or any part or equipment thereof, is guaranteed under this Article by making all necessary repairs and replacements in its Shipyard, unless the Vessel cannot be conveniently brought to such Shipyard for such repairs. However, if the Vessel is not in Spanish waters and/or it is inconvenient to bring the Vessel to the Builder's Shipyard, and if it is likewise not feasible for the Builder to forward replacements, part (sic) and materials to effect the repair so as to avoid impairment or delay to the operation or working of the Vessel, then, in any such events, the Builder is entitled to carry out the necessary repairs or replacements elsewhere at the discretion of the Buyer,,,"

67. Cenargo would, if Article X applied, prima face have a right to claim rectification of the defects. However on the evidence before me they have not sought that remedy. There is no sufficient evidence that it is inconvenient to bring the vessels to Astilleros' shipyards, and it has not been shown that it is not feasible for Astilleros to forward replacement parts and materials to effect repairs without impairing or delaying the operation and working of the vessels. In these circumstances it does not seem to me possible for Cenargo to pursue any claim under Article X.

Speed

68. The provision in the contracts upon which Cenargo rely to bring their claims about the speed of the vessels is Article III clause 2. This is headed "Insufficient Speed" and the material part of the clause is as follows:

"(a) The guaranteed speed of the vessel shall be 23.3 knots with the main engines developing 90% of their maximum continuous rating in fine weather, with clean hull in deep water on the design draught of 6.5 metres even keel with shaft generators disengaged.

(b) The Builder shall not be under any liability, if, as determined by trial run, the actual speed of the Vessel is less than three tenths (3/10ths) of a knot below the guaranteed speed, as per sub-clause (a) above. However, for each tenth (1/10^th) of a knot deficiency (fractions of less that one tenth (1/10^th) of a knot shall incurr (sic) liquidated damages on a pro rata basis) below the first three tenths (3/10^ths) of a knot deficiency, the Builder shall pay the Buyer as liquidated damages as follows:-

From three (3) tenths of a knot up to six (6) tenths Seventy Five Thousand United States Dollars (USA $75,000).

From seven (7) tenths of a knot up to nine (9) tenths, one hundred and twenty five thousand United States Dollars ($125,000)."

69. Article VI of the Contract provides for trials. Clause 1 deals with the notice to be given to Cenargo by Astilleros of the intended time and place of trials. Clause 2 states, "The trial shall be conducted in the manner prescribed in the Specification and shall evidence fulfilment of the performance requirements for the trial as set forth in the Specification. The trial of the Vessel shall be conducted in the open sea".

70. The Specification is therefore also relevant. Paragraph 108, which is headed "Propulsion, Speed and Consumption" provides: "The main engines (four engines) will be capable of developing at least a total maximum continuous rating (MCR) of about 23,000 kW (4x5,750 kW) up to 600 rpm.

Speed at mean design draught in ideal conditions (Fine weather, with clean hull in deep water, draught 6.5m even keel and the shafts generators disengaged), with the four main engines developing 90% MCR will be 23.3 knots……"

71. Paragraph 174 of the Specification is headed "Sea Trials" and under "General" it is provided, "The specified sea trials will be performed, in general, in accordance with SNAME Code, except as per counter agreement…… Speed, manoeuvring and steering trials as well as other trials will be carried out with the vessel in a Ballast condition with the maximum ballast compatible with even keel, and according to Builder's sea trials procedure. Mean draught in these conditions will be as close as possible to that in a Ballast condition tested in the Towing Tank…"

72. The reference to the "SNAME Code" is to the Guide for Sea Trials, 1989 of the Society of Naval Architects and Marine Engineers (which despite its title was published in June 1990).

73. At paragraph 174.30 under the heading "Speed Trials", it is provided as follows:

"Speed trials will be made in a measured mile or measured by electronic means, as the Raydist system, DGPS or similar. The approaching run will be long enough to ensure that the ship's speed is stabilized before entering into the measured course.

Two double runs will be performed (each consisting of two single runs in opposite direction). One double run with the main engines developing a power about 90% of the MCR specified in 108, and the others developing a power of 60%, 70% and 80% of MCR.

The mean values obtained during sea trials will be compared with those in the same condition in the model test. Correlation factors will be obtained between the actual values and test values. If these factors were not equal, lineal variation with speed should be considered. Making correction with the final correlation factor to the model test curve for the design draught, other curves corresponding to this condition will be obtained. These speed and rpm from these true new curves will be considered as the contractual results.

A torsion-meter will be used to read each shaft power, and also the power developed by main engines will be controlled by comparison to data taken during bed tests.

Speed trials will be conducted in deep water. If they are carried out under environmental conditions not in accordance with those specified in 108, trial results will be corrected by the Towing Tank Institute by using the Isherwood method for the wind added resistance, with coefficients derived from Wagner and Towsing method or computer calculations together with model tests results of smaller ships for the added resistance in waves."

74. Accordingly, the trials are to establish a relationship between speed and power. The paragraph requires a double run (one run up and one run down) at 90% of the maximum continuous rating. This is to be following by a second such double run, and then further double runs at 80%, 70% and 60% of maximum continuous rating.

75. For measurement and control of power, the Specification provides that a torsion meter will be used to read shaft power. The distinction to be noted here is between brake power and shaft power, brake power being the engine power at the point of output from the engine before the gearbox and shaft power being measured after the gear box and before the shafting.

76. Marin was nominated as the "Towing Tank Institute". At one stage of the proceedings Astilleros contended that the calculations made by Marin determined conclusively the results of the speed trials, but that argument was abandoned before the hearing before me, and I do not need to refer to it further.

77. As will be apparent, the Specification calls for two categories of corrections to be made to the test speed. First, there are the corrections required to adapt the trials results to the model results. Secondly, there are corrections to be made to compensate for resistance because of environmental conditions if they are not "ideal". The latter are to be made by reference to the methods of R M Isherwood, B Wagner and ("Towsing" being a misnomer) R L Townsin: more specifically, the wind correction is to be made by using Isherwood's methods with Wagner's co-efficients, and the waves correction is to be made either by using the method enunciated by R L Townsin and Y J Kwon in "Approximate formulae for speed loss due to added resistance in wind and waves", Transactions of the Royal Institute of Naval Architects, 1982, p.199, or by computer calculations using model data from similar ships. This was the evidence of Dr Medhurst and I do not understand it to be controversial.

78. The calculations to be made when using the method of Townsin/Kwon formulae are complex, and do not require detailed explanation in this judgment. They can be used to estimate the effects of waves alone on the speed of a vessel. Even when used to compute the effects of waves alone, however, the method requires the input of a Beaufort number, because the formulae express relative speed loss (that is to say, percentage speed loss) in terms of Beaufort numbers and ship displacement.

79. There were sea trials of both the Dawn Merchant and the Brave Merchant. In respect of the Dawn Merchant Astilleros rely upon sea trials held on 6 September 1998. In respect of the Brave Merchant they rely upon trials held on 22 December 1998.

80. Both parties called expert witnesses concerning the speed of the vessels. The Claimants' expert was Mr Brian Corlett, who is a naval architect and the managing director of Burness, Corlett and Partners (IOM) Limited, a company of Maritime Consultants. The Respondents used Dr Medhurst, who also gave evidence on the capacity issues and to whom I have already referred. The experts have gone to considerable lengths to clarify the issues between them, and reached a great deal of agreement about the calculation of the speed of the vessels. The result is that they have reduced a formidable enquiry into hydrodynamics and engineering to five issues, and provided me with formulae into which to introduce my answers to those five remaining questions. It was apparent that Mr Corlett and Dr Medhurst were able to co-operate in this way because of the impressive command that both of them have both of their discipline and of the issues in the litigation, and I am very grateful to them.

81. For the Dawn Merchant, the agreed formula is as follows:

Base speed (corrected for power and draught) 22.65 knots

Agreed correction for wind 0.07 knots

Corrected speed 22.72 knots

Disputed correction (i) for waves [up to 0,32 knots]

Disputed correction (ii) for brake/shaft power [0.08 knots]

For the Brave Merchant, the agreed formula is as follows:

Base speed (corrected for power and draught) 22.57 knots

Agreed correction for wind 0.07 knots

Agreed correction for waves 0.08 knots

Corrected speed 22.72 knots

Disputed correction for (iii) rudder drag [up to 0.12 knots]

Disputed correction for (iv) displacement [0.04 knots]

Disputed correction for (v) drift angle [0.04 knots]

82. The five issues between the parties about speed are these.

Dawn Merchant

83. Waves: the parties are agreed that the result of the Dawn Merchant trials should be corrected to take account of the speed loss attributable to the height of the waves. They disagree about what was in fact the relevant, or "significant", wave height during the trials. Astilleros maintain that the significant wave height was 2 metres, and it is agreed that if it was, the speed on the trials is to be increased by 0.32 knots. Cenargo maintain that the significant wave height was only 1 metre, and if this is the case, then the speed is, Astilleros accept, to be increased by only 0.07 knots. The experts have also agreed the appropriate correction for intermediate significant wave heights: a height of 1.25 metres requires an adjustment of 0.11 knots; a height of 1.50 metres calls for an increase in the speed of 0.17 knots; and one of 1.75 metres calls for an adjustment of 0.25 knots.

84. Brake power/shaft power: Astilleros maintain that a further adjustment is to be made to reflect the difference between brake power and shaft power. Cenargo dispute that any such adjustment is required, but it is agreed that if any correction is to be made, the appropriate correction would be to increase the speed by 0.08 knots.

Brave Merchant

85. iii Rudder drag: Astilleros maintain that the speed should be adjusted to take account of "rudder drag". Cenargo contend that no adjustment should be made. If an adjustment is to be made, the precise amount of the correction depends upon a number of specific questions to which I shall refer, but the correction for which Astilleros contend as their primary case is one of 0.12 knots.

86. iv Displacement: Astilleros contend that a "displacement correction" should be made to increase the speed by 0.04 knots. Cenargo dispute there should be any such adjustment.

87. v Drift angle: Astilleros also submit that a correction in respect of "drift angle" should be made and the speed increased by 0.04 on that account. Cenargo say that no such adjustment should be made.

Dawn Merchant

Waves.

88. There are two aspects to the dispute about the height of waves when the trials of the Dawn Merchant were held on 6 September 1998. First, representatives of Cenargo and Astilleros signed a document headed "Sea Trials Log Form" shortly after the trials were completed. This recorded information about the circumstances in which the trials took place, including information about the waves. Astilleros maintain that the parties "are bound by the agreed data, and neither party has any contractual right to seek to correct the speed by reference to any other data on wave height". Cenargo refute this.

89. Secondly, if I reject Astilleros' argument that the information on the log form has the contractual effect for which they contend, then the question arises what in fact was the significant wave height. This is a question of fact to be resolved on all the evidence, including the log form. There is no dispute that the significant wave height takes into account both wind induced waves and swell, notwithstanding the significant wave height is fed into the Townsin/Kwon formulae on the basis that there is a specific relationship between a significant wave height and a Beaufort number. It was made clear by Mr Smouha during his closing submissions that Cenargo accept this. He observed that in fact swell was not likely significantly to affect the speed of the vessel, but this does not mean that it is to be ignored in calculating the requisite adjustment. Mr Corlett stated in his supplementary report: "The significant wave height is based on the total wave energy in the measured spectrum and therefore includes waves of all frequencies, i.e. both wind driven sea and swell". Dr Medhurst similarly in his oral evidence told me that swell is a component of significant wave height.

The evidence about the Dawn Merchant trials

90. The trials of the Dawn Merchant on 6 September 1998 were not the first attempt by Astilleros to hold speed trials of the vessel. They first tried to hold them on 11 July 1998, but Astilleros had to abort them for various reasons, for example because there was no means of checking whether the propeller pitch was in the correct position and whether the right power was being developed in the engines.

91. Astilleros then held trials between 14 and 16 August 1998 about 5 miles off the Rota Chipiona measured mile posts to the North-West of Cadiz. The depth of the water was between 18.5 and 22.6 metres, despite the requirement in the Specification that the trials be held in deep water. The wave height is recorded as 1.5 metres at the start of the trials and decreasing during them to 1 metre. Marin calculated corrections for speed loss due to water depth, as well as wind and waves. Cenargo objected to the corrections made because the trials were held in shallow water, and by their letter dated 16 August 1998, V Ships, on behalf of Cenargo, rejected the results for this and other reasons.

92. On 20 August 1998 Marin issued a certificate, referring to the trials being carried out "in waves between 1.5 and 1.0 m height", and stating that "if said speed trials were carried out at 6.40 m even keel in ideal trials conditions, implying unrestricted deep sea water without wind and a calm sea, the speed would be 23.46 knots when the main engines are developing 90 per cent of their maximum continuous rating …". (The reference to a draught of 6.4m even keel was an error for 6.5m, which was corrected a few days later.)

93. By a facsimile message dated 20 August 1998, V Ships made an offer to resolve their complaints on the basis that the vessel would (upon completion of everything other than the speed trials) be delivered to Cenargo alongside a safe berth at Cadiz, and thereafter there would be trials in deep water comprising two double runs at 90% maximum continuous rating. One term of this proposal concerned the obtaining and recording of information during the trials, and I shall refer to this term below. Astilleros accepted this proposal by Email: the Email itself is not in evidence, but Captain Lees responded on 21 August saying, "glad you can agree our compromise". Accordingly Cenargo took delivery of the vessel on 3 September 1998 at Cadiz, subject to the speed trials.

94. In their pleaded defence to these proceedings and until the parties served outline openings shortly before this hearing, Astilleros maintained that these trials of August 1998 were properly held and they relied upon the results to defend the claim against them in respect of the speed of the Dawn Merchant. However, they have now abandoned this argument, and the July and the August trials are relevant only as part of the background to the trials held on 5 September 1998, upon which alone Astilleros now rely.

95. The September trials were held in an area about 25 miles out to sea with water depths in excess of 200 metres. They were conducted using DGPS (that is to say, a Differential Global Positioning System, based on satellite navigation) without land based measured mile markers in sight of the vessel. There were in fact not two double runs but two runs at 90% of maximum continuous rating (designated 01 and 02) conducted on reciprocal courses of 290 degrees and 110 degrees, the first being started at 02.59 hours and the second at 03.50 hours.

96. I shall return to the evidence about the sea conditions in which the trials took place. What is not in dispute is that a log form was signed within hours after the trials, and it included information about the waves under the heading "Waves visual"; there were separate entries for each run of the trial recording a height of 2 metres. The log form was on Marin paper. It was signed by Mr Labella on behalf on Astilleros and by Captain Lees on behalf of Cenargo, and it was also signed by Mr Mennen of Marin.

97. It is necessary to refer to the exchanges between the parties after the trials were completed. On 8 September 1998, Mr Mennen wrote to Astilleros with a report on the trials. Much of the report is not material to matters now in dispute, but Mr Mennen records among the data wave heights of 2 metres for each of the two runs. On 14 September 1998 he wrote a fuller "provisional" report about the speed tests, which again records a wave height of 2 metres for each run. It also states that the data included corrected values to "the contract displacement draught of 6.21 m, even keel". (In fact, it will be recalled, the contract draught always was 6.50 m even keel.)

98. Marin produced a certificate dated 21 September 1998 stating that during the trials the average speed of the vessel was 22.87 knots and continuing, "That can be expected if said speed trials were carried out at the design displacement draught of 6.21m even keel in ideal trial condition, implying unrestricted deep sea water without wind and calm sea, the speed would be 23.39 knots when the main engines are developing 90 per cent of their maximum continuous rating of 23760 kW, being 21384 kW". It seems from subsequent correspondence that this certificate was attached to Marin's report of 14 September, but there was no clear evidence about this.

99. There are three curiosities about the certificate: first it refers to speed trials carried out on 15 August 1998, although the details refer to the trials of 6 September 1998. Secondly, it states that the trials were carried out in waves of between 1.5 and 2.0 metres despite the information on the log form. Thirdly, in line with the report of 14 September 1998, it states what the speed would be if the trials were carried out at "the design displacement draught of 6.21 metres even keel".

100. Mr Mennen gave evidence about this. The first two points, he explained, result from Marin drafting this certificate by amending the certificate issued after the August trials, and not changing fully and properly. Hence the date; and with regard to the wave height, Mr Mennen explained, the intention had been to change the wave height from "between 1.5 and 1.0 m" to 2 metres, and the reference to wave height of "between 1.5 and 2.0 m" was an error because an incomplete amendment was made. He explained that different wave heights on a certificate issued by Marin indicate waves of different heights on different runs, not an unresolved difference between observers about the wave height. It was put to Mr Mennen that the wave height on the certificate reflected his recollection of a discussion on board the vessel about wave heights being between 1.5 and 2.0 metres, but Mr Mennnen denied this. The explanations on these points given by Mr Mennen are, it seems to me, readily understandable, and I accept them.

101. Mr Mennen was also asked about the reference to a draught of 6.21 metres. He said that this was included "on the request of Astllleros". He understood from Astilleros that there was a new design draught, but said that he did not know why they wanted to change the draught. He said that the request was made in a telephone conversation by Mr Minguito, a naval architect and engineer employed by the Astilleros group as a consultant in hydrodynamics.

102. The report of 14 September 1998 had been sent by fax by Astilleros to Cenargo. Captain Lees says in his witness statement that he was extremely upset on reading the report, and he came to the view that "Marin were making a number of false assumptions in order to massage the figures in an attempt to justify the Vessel's failure to meet the warranted speed". In his response dated 24 September 1998, Captain Lees reacted strongly to the reference to a draught of 6.21 metres, and also wrote to Astilleros about the wave height as follows: "we also require a full explanation of where they [Marin] find .61 knot for waves, there were no waves, the reference to 2 meters significant wave height is not accepted, the effect from wave action was far less than on the first sea trial, there was a slight swell which produced no pitch or roll in the vessel and the 2 meter height was questioned, when raised with your Master he shrugged his shoulders and said 1 to 2 meters, on the 110 degree run the surface of the water was like a mirror without any wave action at all".

103. A further certificate was issued by Marin dated 29 September 1998, and it was sent to Astilleros by Marin described as a "corrected version of the certificate". By this time, Astilleros had drawn to Marin's attention the error about the wave height in the certificate of 21 September 1998, and the wave height was given as 2 metres. Further, the reference to a draught of 6.21 metres was altered, and the certificate referred to the result which might be expected if the trials were carried out at 6.50 metres even keel.

104. Mr Minguito was asked in cross-examination why Marin had been required to produce a certificate referring to a draught of 6.21 metres and about the circumstances in which the further certificate of 29 September 1998 was requested. Although Mr Minguito accepted that he had requested both certificates of Marin, he did not have any satisfactory explanation about why different certificates were sought. He said that when he requested the certificate referring to a draught of 6.21 metres, he was passing on the request of Mr Sanz, whom he described as the managing director of Seville, but he was unable to suggest what proper purpose Astilleros might have had for obtaining it.

105. No reply to Captain Lees' letter of 24 September 1998 has been put in evidence. However, the parties arranged to discuss their differences about the trials at a meeting, which was held on 10 November 1998 at V Ships' offices in Southampton. It was attended by Captain Lees, and Astilleros were represented by Mr Minguito, Mr Labella and Mr Calatrava, who has been described as their manager in Seville. It was also attended by Mr Hubregtse of Marin, Mr Mennen being unable to be there. After the meeting, on 13 November 1998 Captain Lees wrote to Astilleros about what had been discussed, and commented about the wave height as follows: "it also materialised that the certificate signed by Marin and attached to the report that made reference to a wave height of between 1.5 and 2 metres which reflected a discussion between owners, representatives of Marin and the two Masters on the actual wave height was changed at the instigation of Astilleros Espanoles and a new certificate issued showing two metres."

106. Marin sent Astilleros their comments on the observations made by Captain Lees about the meeting. They accepted some of them, while rejecting criticisms made by Captain Lees about Marin's independence and stating that they used in their calculations the wind readings and the wave height of 2 metres which were on the log form signed by Captain Lees, and had made draft calculations as requested by Astilleros. They went on to say that they had also made calculations using a wave height of 1.75 m, which they put forward, according to Mr Mennen's evidence, as an intermediate calculation between the height for which the two parties appeared to be contending. In their reply to Marin, Astilleros said that they saw no reason to use a wave height of less than the 2 metres as recorded on the log form. They also wrote to Captain Lees on 23 November 1998, stating that they and Marin did not agree with Captain Lees' comments. Cenargo criticise Astilleros on the grounds that this letter misrepresented Marin's position by indicating that Marin rejected all of Captain Lees' observations. In my judgment, that criticism is justified.

107. After sending their comments upon the observations of Captain Lees and after Astilleros had responded rejecting the suggestion that a wave height of 1.75 metres might be used and making their own comments upon what Marin had said, Marin prepared a new version of their response to Captain Lees, editing out anything which showed these were not their original comments. It is not clear to me, having heard Mr Mennen being cross-examined about this, what purpose the new version of the letter had. For this reason, and because Marin did not issue a corrected version of their certificate, Cenargo also criticise Marin's conduct. I understand the thrust of that criticism to be that Marin displayed an inappropriate willingness to comply with Astilleros' requests and a lack of independence. Although Mr Mennen was not able fully to explain the correspondence emanating from Marin, I do not consider that this criticism is made out. I should also make it clear that Cenargo did not adopt at trial the allegation made by Captain Lees in correspondence to which I have referred, that Marin were improperly "massaging" the trial results. I would not, on the evidence that I have heard, have accepted any such allegation of impropriety on the part of Marin. In any event, these criticisms of Marin do not bear directly upon the questions between the parties that I have to decide.

108. Other than the log form itself and the correspondence following the trials, the evidence about the wave height during the September trials can be divided into the following categories:

(1) The evidence of the signatories of the log form and the other witnesses on board the Dawn Merchant at the time of the trials.

(2) The evidence of the deck log of the Dawn Merchant.

(3) The evidence from a wave buoy located near where the trials took place.

(4) Evidence from meteorological offices.

109. Of the three signatories of the log form, Mr Labella and Mr Mennen gave oral evidence on behalf of Astilleros. Captain Lees did not give oral evidence at trial, but two written statements by him were in evidence. Mr Hendry explained that the reason that Captain Lees, who had retired in February 1999, did not attend to give oral evidence, was that he needed to be in France to attend to the purchase of a house there.

110. Captain Lees is an experienced mariner, who had joined the merchant navy in 1957, and rose to the rank of Master by 1967. He came ashore in 1974, joined the Furness Withy Group and was their Marine Manager by the time he left in 1989 to become the Managing Director of V Ships. The picture of him that emerges from the correspondence and the evidence is that he is a forthright man, who, according to Mr McKeown who worked with him, "speaks his mind". When he was unhappy about the August trials of the Dawn Merchant, he refused, as Mr Mennen put it, to "sign off".

111. In his first witness statement in these proceedings, Captain Lees said that he attended the trials of the Dawn Merchant in July, August and September 1998; and that during the trials in August the seas were "smooth or slight, with waves of under one metre". He explained that he rejected the August trials, and reached an arrangement for further trials to be carried out after delivery of the vessel.

112. The evidence that Captain Lees gave in his first witness statement about the conditions for the September trials is that they were nearly perfect, and that on the 110 degree run the surface of the sea was "almost like a mirror with no wave action evident". He continued, "I do not accept that there were two metre waves at the time of the speed trial. Indeed, I believe that the sea conditions were better during the second trial than the first [sc. the August trial]. There was only a slight swell which produced no pitch or roll in the vessel."

113. In this witness statement, Captain Lees did not make any reference to the record of the September sea trials which he signed and which on the face of it seems to be inconsistent with the evidence in his witness statement about the waves. In his second witness statement, he said this: "The document I signed referred to a maximum height of 2 metres. There was a swell of between one and two metres. There was no wave action on the vessel. Nonetheless, Marin considered this a good reason to make a further correction to bring the speed of the vessel within the limits provided for in the shipbuilding contract to avoid Astilleros being liable for liquidated damages".

114. I accept the explanation given by Mr Hendry for Captain Lees being unavailable to give oral evidence. However, I think that it is fair to make these observations upon his statements:

1. Captain Lees does not give evidence which is specifically directed to what was the significant wave height, although he and those advising the Claimants must have been aware that this is the important question. There is an ambiguity about what Captain Lees had in mind when he referred to a "maximum wave height of 2 metres", whether he means that the highest waves were 2 metres or whether he is referring to the highest estimate which might reasonably have been given of the significant wave height. The former seems to me the more natural use of language. What is clear is that the log form itself says nothing that suggests that the height recorded was a "maximum" of some kind.

2. If, as Captain Lees' second statement indicates, the swell was between 1 and 2 metres, obviously the average of the one third highest waves would fall somewhere between those figures. It is unclear whether Captain Lees includes any wind-induced waves within his estimate of "swell", but even if he does, on superficial view one would expect the significant wave height to be nearer two metres than one metre.

3. If Captain Lees' first statement is to be read as stating that the significant wave height was less than one metre, this would be inconsistent not only with the log form that he signed and the correspondence that he wrote after the trials, but also his second statement.

4. Captain Lees does not refer in his statements to the discussion which according to his facsimile of 13 November 1998 was reflected in the reference in Marin's certificate to a wave height of 1.5 to 2 metres. Indeed he says nothing of the circumstances in which he signed the log form.

115. I conclude from Captain Lees' witness statements that his evidence read as a whole does not support a case that the significant wave height was as little as one metre, and his evidence in his second statement points to a significant wave height of nearer 2 metres. He gives no evidence relevant to the question whether the log form that he signed was intended to be of contractual effect, and says nothing which would explain why he might have subscribed to a record of the wave height which exaggerated it. I find it difficult to believe that Captain Lees was prevailed upon to sign the log form if he did not agree with it, and I can only conclude that when he signed it his assessment of the conditions, made as an experienced mariner, was that the significant wave height was about 2 metres.

116. The first witness who gave oral evidence for Cenargo about the conditions in which the September trials took place was Mr McKeown, who joined V Ships in 1996 and in June 1998 took over as project manager for the vessels being built by Astilleros. He was on board the Dawn Merchant both during the August trials and during the September trials. His witness statement, like that of Captain Lees, described the seas during the August trials as "smooth or slight with waves of under one metre". It goes on to describe the September trials as being carried out in "near perfect conditions" and states that on the 110 degree run "the surface of the sea was almost like a mirror with no wave action evident". It also stated that he did not accept that there were 2 metre waves at the time of the sea trials, and added that the sea conditions were better during the September trials than the August trials: "There was only a slight swell, which produced no pitch or roll in the vessel".

117. In oral evidence, he described a beautiful moonlit night and the sea as looking very calm, and he said of the wave height that it was 1 to 1.5 metres "maximum". He stated that he could remember commenting to Captain Lees about the waves being 1 to 1.5 metres.

118. I did not find Mr McKeown a credible witness. Significant parts of his witness statement reflected word for word the first statement of Captain Lees. It is apparent that the passage about the surface of the water being "like a mirror" derived from the letter written by Captain Lees to Astilleros and dated 24 September 1998. He insisted under cross-examination that the wording of his statement was his own, but he had no explanation for the identical wording of his own and Captain Lees' statements. This undermines the value of the evidence contained in his witness evidence and his credibility generally. It is to be observed that Captain Lees said nothing in his statement of discussions about the waves with Mr McKeown.

119. Even if I had regarded Mr McKeown as a credible witness, I would not have placed reliance upon his evidence about the waves. He had no relevant deck experience or qualifications which would enable him to estimate wave heights. (It is acknowledged that this requires skill and experience, and this is why other witnesses accepted that it was beyond their competence.) Mr McKeown attended the trials as an engineer concerned with the operation of the engine and not as a bridge officer concerned with sea conditions.

120. Cenargo also called Captain McCleery as a witness of the conditions during the September trials. He was the Master of the Dawn Merchant from the time of her delivery to Cenargo on 3 September 1998, and was present at the speed trials in July, August and September 1998. He expressed the opinion in his witness statement that the significant wave height was about one metre during the September trials, but pointed out that, although it was a clear moonlit night, it is never easy to assess wave height from the bridge. He confirmed that he countersigned the deck log made up by the second officer, a Mr Cerevenic, to which I shall refer. His oral evidence was that he had not discussed the wave height with Captain Parodi or with Captain Lees, and knew nothing of the form signed by Captain Lees. He said that he had not been asked to give an opinion about the wave height or other conditions during the trials. He was under the impression that independent sea trials were being conducted by a third party who were not involved with either the owner or the builder.

121. Captain McCleery was an impressive witness as he gave his evidence, and his honesty is not in question. However, he had not been asked to recall these events until little more than a week before he gave his evidence. Moreover, he said that at the time of the trials "There were lots of things going on on the ship and so these sea trials were not particularly important to me. In fact, the sooner they were over the better as far as I was concerned". In these circumstances, he cannot be expected to have a good memory of the trials. His evidence was inconsistent not only with the evidence of other witnesses but also with what Captain Lees wrote after the trials, specifically the facsimile dated 13 November 1998 which referred to a discussion between Masters about a wave height of between 1.5 and 2 metres. I have concluded that his recollection must be mistaken when he says that he took no part in discussions about the wave height, and also I do not consider his evidence about the wave height itself to be reliable.

122. Mr Labella, who signed the record on behalf of Astilleros, is a naval architect who qualified in 1996. He gave oral evidence and, although he had an interpreter available to him, he needed to use his assistance only occasionally. While it was sometimes a little difficult to understand him, it seemed to me that Mr Labella certainly had sufficient command of English to convey unambiguously his recollection of events. He was the only employee of Astilleros who was called to give evidence. Captain Parodi, who was Astilleros' Master on the vessel during the trials, was not called as a witness, and no explanation for this was given.

123. Mr Labella was responsible for organising the trials. He described himself as "quite stressed" during them. The sea trials of the Dawn Merchant were the first sea trials that he attended, and he acknowledged in his evidence that he did not have the experience himself to estimate wave height. He describes in his witness statement the signing of the Marin record as follows: "During the speed trials, Mr Mennen from Marin wrote down the data that had been agreed between the Masters in respect of wind and waves in a log. Thereafter, he asked Captain Lees to sign it and he also signed it himself. After the trials, he gave me a copy."

124. In his oral evidence Mr Labella explained that there was a searchlight on the water to assist those estimating the waves. He gave evidence in chief about an agreement between Captain Lees and Captain McCleery for Cenargo and Captain Parodi for Astilleros. In cross-examination he spoke of this agreement resulting from an exchange between Captain Lees and Captain Parodi, and he did not refer to Captain McCleery. In any event, he did not himself hear the exchange that led to the agreement, being a short distance removed on the crowded bridge.

125. As for the completion of the log form, Mr Labella said that he himself filled in a form during the trials, but it became very dirty and he accepted Mr Mennen's offer to copy the information on to a clean form for signature. According to Mr Labella, Captain Lees went to his cabin, and Mr Mennen, after completing the form, found Captain Lees to obtain his signature and then found Mr Labella, who signed it on the bridge.

126. I consider that Mr Labella was attempting to give an accurate account of events. I accept his evidence that Captain Lees did discuss with Captain Parodi the wave height and that they reached a consensus about it. It is, I think, inherently probable that there were such discussions, and no evidence contradicts this. I also conclude that Captain McCleery took part in the discussions, or some of them. That too seems to me inherently likely, and it is both in accordance with the subsequent correspondence and supported by the evidence of Mr Mennen. However, Mr Labella was not otherwise able to give evidence that assists in determining the questions that I have to decide.

127. Mr Mennen said in his witness statement that it was difficult to assess the wave height, but this was done by the Master of the vessel and someone from the shipyard. He remembered that a searchlight was used, but did not himself take part in assessing the wave height: indeed, he is not sure that he could distinguish between a wave of 2 metres and one of 1.5 metres. He recalls that before signing the record, Captain Lees asked the Master of the Dawn Merchant whether he agreed with the assessment of the wave height at 2 metres and the Master confirmed that he did. He described the Master as a tall, white haired Scandinavian, but in this his recollection must be at fault: Captain McCleery is not white haired but light haired, and is not a Scandinavian. However, Mr Mennen saw Captain McCleery give evidence and confirmed that he was referring to him in the witness statement. I accept that evidence: there is no one else whom he could have had in mind. Mennen described in oral evidence a short discussion before the Masters agreed that the wave height was 2 metres, but has no recollection of the details of the discussion. He also described how he wrote out the record and "a few hours" after the trials, went together with Mr Labella, to Captain Lees in his cabin behind the bridge, and how Captain Lees, having gone to the bridge, signed the sheet.

128. Mr Mennen recalls that before signing the log form Captain Lees read it through carefully and went to find Captain McCleery to discuss with him the information recorded on the form, and in particular the wave height. I accept that evidence. I also conclude that Captain Lees did so because Captain McCleery had engaged in the discussions about the wave height with Captain Parodi.

129. Mr Smouha emphasised in his closing submissions that there were differences between the accounts of Mr Labella and Mr Mennen about the circumstances in which the data log was signed. In particular, he draws attention to the fact that Mr Mennen refers to going with Mr Labella to find Captain Lees in his cabin, whereas Mr Labella gives no such account. I do not find such differences as there were between the evidence of these witnesses significant or remarkable, given that both are recalling events which took place more than two years ago. The essential features of their accounts, that the Masters discussed the wave height and reached a consensus about it before the log form was signed, are both consistent and credible.

130. I have referred to the deck log. Before the trials the vessel had been delivered to Cenargo and therefore at the time of the trials, Cenargo was keeping the logs. The deck log was not produced until about the start of the hearing but it was put in evidence during the course of the trial. The late disclosure was not explained. As I have stated, Captain McCleery countersigned the log. It was written by the second officer, a Mr Cerevenic, who no longer works for Cenargo. Mr Cerevenic was not called to give evidence. The log records the sea state at the time of the trials as "Code 3", that is to say as a slight sea of between 2 and 4 feet.

131. In his supplementary report, Mr Corlett gave information about the conditions at the time of the trials which was obtained from Spanish Clima Maritimo and came from a wave buoy operated by ODAS (Oceanographic Data Acquisition Service) and located about 30 miles off Cadiz. The buoy was within 10 miles of the trials course, and provides a continuous record of wave height and wind speed. At the time of the trials it recorded winds of 7 – 9 knots between 351 and 9 degrees and significant wave height of between 0.64 and 0.68 metres.

132. Mr Smouha relied heavily upon this evidence, arguing that it is to be preferred to estimates about the waves given by observers because of the acknowledged difficulty in making such assessments visually. However, Dr Medhurst explained why the buoy can underestimate swell induced waves. The buoy is tethered to the sea bed by a number of anchor chains and has no fixed reference point. It measures movement by an inertia device which relies upon the resistance of property to acceleration. If a wave results from a long slow swell, the acceleration of the movement of the buoy will be slow and therefore there are liable to be inaccuracies in calculations of movement.

133. Dr Medhurst included in his report evidence about the conditions at the time of the trials which he obtained from the UK and Spanish Meteorological Offices. The UK Meteorological Office reported the conditions as follows: "light to moderate winds…smooth or slight seas…westerly swell…height 1 to 2 metres". It also reported in the introduction to its report "stronger north-westerly winds, up to around Beaufort Force 6, appear to have affected waters to the west of the Gulf of Cadiz, off Southern Portugal". For the particular time of the runs, the Meteorological Office Report gives wind of Beaufort 3 WNW, that is to say 7 to 10 knots. The sea state at the particular time is said to be "Smooth or Slight, less than 1 metre", and the swell is given as "W. Low 1m to 2m". This information is not based upon actual observation, but is a "hindcast" based on reports from ships in the area.

134. The information from the Spanish National Meteorological Institute is derived from a vessel in the area of the sea trials, which reported wind of 10 knots from the North West, and wind induced waves (from the north west) of one metre with a northerly ground swell of 1.5 metres. Mr Corlett calculates that the recorded wind induced waves and swell would give a wave height of 1.8 metres. However, the position of the vessel is unknown and it is also not known what time the report was made.

135. The observations made by Dr Medhurst in his report about the two meteorological reports seem to me to be justified: "Both meteorological reports are reasonably consistent, apart from the direction of the swell. It is evidence that the direction of the wind induced waves and the swell were different and this would be expected to give rise to confused seas, with maximum wave height in excess of either the wind induced sea or swell height. The sea conditions reported are totally consistent with the observation made on board during the trials that the significant wave height was about 2 metres."

136. Mr Corlett makes a comparison between this data and the information from the wave buoy: "It would seem that when compared to the wave buoy data…both Meteorological Offices were correct on wind speed and close on wave height. However, it seems that the swell must have been lower than estimated". This brings into focus the question what reliance, in view of the other evidence, is to be placed on the information from the buoy as far as the height of swell induced waves are concerned.

Was there an agreement between Cenargo and Astilleros that conclusively determines the wave height for the purpose of correcting the results of the speed trial?

137. Astilleros maintain that the log form signed by Captain Lees and Mr Labella record an agreement about the wave height at the time of the trials from which Cenargo are not entitled to resile and which precludes them from having "resort to a different method for ascertaining wave height and direction and/or [from asserting] a different figure from the agreed figure".

138. Mr Smouha submitted that if there is to be such a binding agreement, the contract between the parties must specifically so provide. He cited Lindsay & Co v European Grain & Shipping Agency, [1963] 1 Lloyd's Rep 437 in which Diplock LJ said at p.445: "Any clause in a contract relied upon as excluding evidence which would ordinarily be admissible is to be strictly construed – all the more so where the evidence sought to be excluded is directed to the question whether the goods in question correspond to the description by which they were sold". However, that was a case in which the Court of Appeal was construing a contract of sale in order to determine the effect of a term providing for sampling and allowing analysis of samples by a third party. Here the question whether the contracting parties reached a binding agreement about contractual tests which had taken place in order to avoid disputes between them. The cases are quite different, and I see nothing in the authority cited which requires me to adopt a restrictive approach to the question whether the parties reached an agreement of the kind for which Astilleros contend.

139. In support of their argument that the log form recorded a binding agreement, Astilleros invoke paragraph 174 of the Specification which refers to the SNAME Code and the "Builder's sea trials procedure", and they also rely upon the terms of Captain Lees' facsimile of 20 August 1998.

140. The Specification provides that the sea trials are to be performed "in general in accordance with SNAME Code, except as per counter agreement (emphasis added)". The "Code" is by way of being a guide, and in the Preface to it the authors state, "The basic concept followed in preparing the guide was to provide information on a sufficient variety of sea trials and tests to enable the owner or acceptance authority to choose those suitable for the type of ship and operation involved. Positive contractual invocation of specific individual trials is recommended rather than having them invoked as a package without proper consideration. This avoids burdening the industry with expensive trials not needed by the owner". In the guide itself at paragraph 1.7 it is stated that "Blanket invocation of this Guide is not intended…" However, it does also state that, "If this Guide is invoked by contract, all of the recommended trials and tests are to be conducted except those specifically deleted…"

2. In this case, the parties did not invoke any specific provisions of the guide, but Astilleros rely upon provisions of the guide included in section 4, which is headed "Standardization Trials". It includes the following sections:

"4.8 Data Requirements

See Figure 21 for a Data Sheet

The following data should be recorded during standardization trials…

(h) the approximate side [sic] and direction of waves on each run."

Figure 21 shows a data sheet, which includes in the information to be

recorded the height and direction of the waves "estimated".

"4.9 Organization of Observers…

The organization of the personnel involved in standardization trials should…

(b) Provide for prompt correlation and analysis of data at the end of each run.

1.10 Instrumentation for Standardization Data

The following paragraphs recommend the methods for obtaining the data required in paragraph 4.8...

(g) The size and direction of the waves for each run should be obtained from an experienced bridge observer".

142. I do not interpret the SNAME Code as providing that the records of the runs, countersigned as they were on the log form, should conclusively determine the conditions during the trials and exclude other evidence. The paragraphs of the Code upon which Astilleros rely do not expressly so provide. On the contrary, they are resonant of advice about how the trials should take place and no more. In fact, at the trials of the Dawn Merchant, the advice was not followed in all respects. The Code does not refer to the parties reaching agreement about the waves, or countersigning a record of the agreement. The information about the size and direction of the waves was not obtained from a designated bridge observer, but resulted from a discussion between observers from both parties. The only observer who might be regarded as neutral, Mr Mennen, did not regard himself as having the experience or expertise to make an estimate of wave height. I therefore do not consider that the SNAME Code supports Astilleros' argument.

143. Astilleros argue that they had a Builder's procedure which provides how data about the sea trials is to be collected. Mr Labella produced a record of the August speed trials which, he stated, contains the parties' agreement about the conditions in which they took place. He said that the document was produced from what he described as Astilleros' "sea trial procedures book", but the book was not put in evidence. The document sets out a procedure for the trials including the "data to be recorded", and that data includes the "sea conditions". It includes a note that "Data recorded during Speed trials will be sent to the Maritime Research Institute (M.A.R.I.N.) NETHERLANDS who will supply the official certificate". Astilleros' argument that this amounts to an agreement that the calculation of the speed in respect of sea conditions would be based on, and only on, data so collected. There is nothing to suggest that a comparable document was produced by Astilleros for the September trials.

144. I find here no support for Astilleros' argument that the log form is conclusive. Astilleros have not established that the document on which they rely represents their standard procedure, nor have they explained why a different form, produced by Marin, was used for the trials in September. Nor does the form itself stipulate that the information on the form is the only information that is to be taken into account when determining the wave height for the purpose of the speed calculation. There is no evidence which would justify me in treating the document produced by Mr Labella as constituting a procedure as contemplated by the Specification.

145. Thirdly, Astilleros rely upon the letter of Captain Lees dated 20 August 1998. This argument is based upon the paragraph in the letter which reads as follows: "Astilleros Seville will have on board equipment and qualified personnel to obtain and record shaft output, speed (using acceptable electronic means), wind direction/force. Depth of water etc as per the trial protocol and to mutually agree and accept results". Cenargo contend that this paragraph contemplates that the record should conclusively determine the matters recorded, including the wave height.

146. I do not agree with this contention. This paragraph of the letter refers equipment by which various measurements are to be obtained. All the pieces of information expressly mentioned in the paragraph are to be measured, and are not matters of estimation by observers. It does not seem to me that the expansive "etc" is sufficient basis for interpreting the paragraph as including the observers' estimation of the wave height. In any case, the paragraph requires information to be recorded, but it does not provide that the record should be conclusive.

147. The essential question, it seems to me, is whether Astilleros have established that when there were discussions on the Dawn Merchant whereby Captain Lees reached a consensus with Captain Parodi about the wave height and when Captain Lees and Mr Labella signed the log form, the parties evinced an intention to be contractually bound by the agreement which was recorded. I do not consider that Astilleros have established this. The log form itself contains no words of agreement. There is nothing to suggest that of the three signatures on the sheet, Captain Lees and Mr Labella were signing as representatives of parties to an agreement recorded on the sheet whereas Mr Mennen was signing in some other capacity. The log form had an obvious purpose in making a record to evidence what the observers recalled, and I do not consider that it should be given any other status.

What was the significant wave height?

148. I must therefore determine on the evidence before me what was the significant wave height during the September trials. Here it seems to me that the log form is strong evidence of the sea conditions. As I find, it resulted from discussions of three Masters. It is of particular significance, in my view, that Captain Lees signed it. He was not a man to be overborne, I find it difficult to believe that he was not properly protecting Cenargo's interests, and I accept Mr Mennen's evidence that when he signed he was being careful and attentive to what he was doing. The evidence of the log form that the significant wave height was 2 metres is supported, as Dr Medhurst points out, by the evidence from the meteorological offices.

149. I do not accept the evidence of the witnesses called by Cenargo that the wave height was less than 2 metres for the reasons which I have explained. The deck log is, in my view, more telling evidence for Cenargo, particularly as it was countersigned by Captain McCleery, but I do not consider that the observation of a relatively junior officer, albeit countersigned, should lead me to reject the view which, as I find, emerged from the discussions between the masters. The evidence which has particularly troubled me on this part of the case is the information from the wave buoy. However, I am impressed by Dr Medhurst's observation that such buoys do not reliably record swell, and I am not persuaded that the information from the wave buoy is sufficient reason to reject the evidence of the log form and the meteorological offices.

150. I therefore conclude on the balance of probabilities that the significant wave height during the September trials of the Dawn Merchant was 2 metres.

Shaft power / brake power.

151. My conclusion about the wave height means that the claim in respect of the speed of the Dawn Merchant fails however I determine the second issue. Nevertheless I should express my conclusions about it.

152. This issue concerns the measurement of power during the trials. As I have stated, the relevant measurement is of shaft power. The results recorded on the log form include a measurement of power. The dispute is whether the figure recorded is the shaft power or the brake power. Astilleros maintain that the figure represents brake power and that it falls to be adjusted to reflect gear box loss of power, the mechanical gearbox efficiency of the vessels being 98.5%. Cenargo maintain that the recorded figure is shaft power and so requires no adjustment.

153. In calculating the speed of the Dawn Merchant during the trials, Marin proceeded on the basis that the figures recorded for the trials of the Dawn Merchant by the torsion metre sub-contractors, Tecnicas Y Servicios de Ingenieria SL ("TSI"), were a measurement of brake power, that is to say of shaft power adjusted to take account of gear box losses. Mr Minguito in a supplementary statement gave evidence in support of this, explaining that the readings were of brake power because the computer programme automatically made a allowance for power lost due to the gear box before producing a reading. He explained that because of the disputes arising from the trials of the Dawn Merchant, he arranged on subsequent trials, including those of the Brave Merchant, for shaft power to be recorded and the adjustment shown. He produced a letter from TSI to support this explanation.

154. Cenargo put forward cogent reasons that I should regard this evidence with suspicion, not only because it was produced late but because there is other evidence that the recorded figure was shaft power. The Specification requires that shaft power be read. The TSI report for the September trials does not mention the adjustment. Most importantly, the log form itself, signed by Mr Labella (who was, as I have stated, particularly concerned with the operation of the engine), records the power under the heading "shaft power".

155. I have much sympathy with Cenargo's argument, but I have concluded on balance that I should accept the evidence of Mr Minguito. The matters to which Cenargo draw attention raise suspicions but are not sufficient reason to reject Mr Minguito's specific evidence on this issue.

156. My conclusions on these two issues about the Dawn Merchant mean that there are be added to the agreed corrected speed of 22.72 knots, 0.32 knots in respect of the waves and a further 0.08 knots in respect of the power; and therefore the corrected speed is 23.12 knots. It follows that this part of the claim fails.

Brave Merchant

157. The sea trials of the Brave Merchant were conducted on 22 December 1998 in deep water about 30 miles west of the mouth of the River Guadalquivir to the North of Cadiz, a similar location to that of the September trials of the Dawn Merchant.

158. Speed and distance during the trials were, as in the September trials, measured using a DGPS system. The trials were run on auto-pilot. There were four double runs at nominal brake power of 90%, 80% 70% and 60% of maximum continuous rating, on reciprocal courses of 295 degrees and 115 degrees. Those at 90% of MCR were designated 90/1 and 90/2.

159. In addition to distance over time, heading was also calculated. An electronic record was kept of the vessel's course and her rudder angle. From these records, a plot of the drift angle was produced for each run together with a plot of the rudder angle. These were used by Marin to compute steering calculations.

160. Two of the three issues between the parties, the issue about rudder drag and the issue about drift angle, depend firstly upon whether the contractual arrangements between the parties permit corrections of this kind. As for the displacement issue, there is no dispute that the contract permits the adjustment if the facts justify it. It is convenient to deal with this first.

Displacement

161. The issue is whether in this case a correction should be made in respect of the difference between the displacement of the vessel in the ideal trial conditions of the model tests and the actual displacement of the Brave Merchant during the sea trials. There is no dispute that a correction for displacement should properly be made if it can be shown that the circumstances justify it. However, in the case of the Brave Merchant, her draught was not measured in calm water before the trials, and readings were taken when she was at sea. Mr Corlett expressed the opinion that a reading taken in these conditions is so unreliable that no adjustment can properly be made on the basis of it. The difficulties of reading a draught with the water and the vessel moving in relation to each other are obvious. Dr Medhurst did not dispute that it is more difficult to read the draught reliably in these circumstances and acknowledged the basis of Mr Corlett's reservations, but considered it preferable to use the reading to make an adjustment for draught rather than to leave this out of account altogether.

162. The draught readings which Astilleros contend should be used to correct the speed were set out in a record of the conditions of the sea trials. It was signed on behalf of Cenargo by a Mr Hendy of Burness Corlett & Partners, who observed the trials and, according to Mr Corlett, assisted in taking the draughts. The record includes readings on the port side and the starboard side of the fore draught, the midship draught and the aft draught. There is nothing in the evidence to suggest that Mr Hendy was reluctant to sign the record. Nor is there any evidence that when the readings were taken there was any protest about their reliability from any of the Cenargo representatives on the vessel, who included Captain Lees, Mr. McKeown and Mr Wigforss, the technical director of the Cenargo group. These all provided witness statements in the proceedings and none indicated any unease about this part of the trials. Nor did Mr Mennen who was also on board during the trials.

163. While recognising that readings taken in such circumstances cannot be precise, I consider in view of this evidence that the correction for displacement is justified by the readings which were taken.

Do the contractual arrangements between the parties permit corrections in

respect of rudder drag and the drift angle?

164. I should first explain why Astilleros maintain that rudder drag and the drift angle can reduce the speed of the vessel. I give this explanation on the basis of the evidence of Dr Medhurst, which was not significantly controversial in this regard and which I accept. A ship that has wind or waves on the bow or the beam will experience a lateral force. This will cause the ship to move sideways at a right angle to the centreline, and this lateral movement will cause the ship to slow down – a phenomenon known as drift. A ship's rudder is a lifting hydrofoil which generates lift at a right angle to the direction of the flow of the water and drag in the direction of the flow. The angle between the centreline (or "chord line") of the hydrofoil and the fluid flow is the "angle of attack". As the angle of attack increases, the lift and drag increases. If the drift angle and the rudder angle are small, the added resistance due to steering a straight course will be negligible. However, the drift force will increase in proportion to the square of the drift velocity and the rudder force will also increase approximately as the square of the rudder angle (at constant speed). Accordingly, the combined force will become appreciable at quite modest angles.

165. Astilleros do not contend that the Contracts or the Specification provide for corrections to be made to compensate for these effects. However they do maintain that they are entitled to require them in the case of the Brave Merchant because of the exchanges which took place between the parties before the trials on 22 December 1998.

166. On 9 December 1998 V Ships were sent a facsimile stating that sea trials of the Brave Merchant would take place on 18 to 21 December 1998. In reply, V Ships requested full details of the protocol regarding the speed runs. Captain Lees was not satisfied with Astilleros' response. In the event, the speed trials took place on 22 December 1998, and before they did there were discussions on board the vessel about the procedures. There were present at those discussions a number of representatives of Cenargo, including Mr Hendy of Burness Corlett and Partners, and representatives of Astilleros. Mr Mennen was also there. According to Mr Mennen's evidence the main discussion took place between Captain Lees and Mr Minguito. The Cenargo representatives wanted to conduct the trial runs with the waves abeam with a view to minimising the wave resistance. This was opposed by Mr Minguito, who argued that this would require rudder corrections in order for the vessel to maintain her course. Captain Lees was insistent, and Mr Minguito accepted the Cenargo's proposed course.

167. There was not, however, agreement about whether, in calculating the speed of vessel, account should be taken of any rudder movement which would be required as a result of this course being adopted. There is no significant dispute about what was said between those present. Mr Minguito said that corrections might be needed and Mr Mennen agreed that depending upon what happened on the trials, they might be required. However, it is common ground that Captain Lees made it clear that Cenargo did not agree to any corrections being made to take account of rudder movement.

168. Astilleros justify the stance that they took in these exchanges by referring to the provision in the Specification that their sea trials procedures should be followed. They also refer to the SNAME Code. They cite section 4.4, which is headed Wind and Sea: "…The direction of the wind relative to the course is also an important factor… many ships require helm to counteract the aerodynamic effect of the wind. This causes increased drag which cannot be eliminated by any of the customary methods of analysis…"; and they cite section 4.6, which is headed Course Selection: "…If two stations are available, course can be modified to take account of sea and wind conditions if necessary. If sea or wind are considerable, they should be taken on the quarter...". Finally, they rely upon section 4.7, Operation of the Ship: "…If practicable, the run over the measured course should be made with the rudder held stationary at the minimum angle necessary to maintain a straight course…It is better to allow the ship to swing slightly off the exact compass course rather than to steer constantly". Astilleros submit that it was practicable to run the trials in accordance with the SNAME guidance, and criticise Cenargo's refusal to do so.

169. These considerations might well have justified Astilleros refusing to allow Cenargo to prevail upon them to carry out the trials as Cenargo wished. Certainly the evidence before me showed that trials are usually, but not always, carried out with the wind either head on or astern. However, considerations of this kind do not in themselves justify the corrections that Astilleros wish to introduce into the speed calculation.

170. Mr Corlett and Dr Medhurst agree that it would be unusual to make corrections of this kind to the results of sea trials. Neither expert has come across a case in which such corrections were made. There is no standard or generally accepted method of calculating the correction to be made, as paragraph 4.4 of the SNAME Code mentions.

171. Further, Mr Smouha points out that, when the July and August trials were carried out, the weather was on the beam to some extent. On those occasions, Astilleros did not call for corrections to be made.

172. Against this unpromising background, Mr Kendrick valiantly mounts an argument along these lines: under the Contract the Builder was entitled to determine the course of the trials, and Astllleros' wish to run the tests into the wind and waves was not only the usual procedure for trials using DGPS but what was stipulated on this occasion. Cenargo, on the other hand, were seeking to minimise the correction to be made for wind and waves, and then refusing to accept adjustments for the consequent loss of speed through use of the rudder. Astilleros, Mr Kendrick submits, agreed to the course which Cenargo required only on terms that account would be taken of any consequent loss of speed, and that in these circumstances Cenargo, by allowing the trials to go ahead and accepting delivery of the vessel, are to be taken to have accepted the trials took place on the terms which Astilleros required.

173. I reject this argument. It is a fiction that flies in the face of the evidence to suggest that Cenargo agreed to the corrections. It was Astilleros who ultimately could agree to Cenargo's proposals about the course or reject them. They decided to hold the trials on the course that Cenargo requested.

174. An alternative case which was pleaded by Astilleros is that the trials went ahead on 22 December 1998 without agreement as to whether corrections should be made because of loss of speed through rudder angle and drift angle, and that in these circumstances there were no speed trials of the Brave Merchant which were of contractual effect. Astilleros did not develop this argument in their closing submissions, and I reject it. It is clear from the evidence that both parties understood both during the trials and afterwards that they were contractual speed trials, and both parties clearly intended that they should be. There is no question of the parties being mistaken when the trials took place as to the other's position about whether the disputed corrections should be made. They had not resolved the difference about whether Astilleros were entitled to have them made, but that does not mean that the trials are to be disregarded. It simply means that the parties had not agreed to vary the contract between them to introduce a new provision for which Astilleros were pressing.

175. I conclude therefore that there were contractual speed tests for the Brave Merchant on 22 December 1998. Only the corrections for which the Specification provides are to be made to the results, and these do not include corrections for rudder angle or drift angle.

Have Astilleros established that an adjustment for rudder angle would be

appropriate if the contract provided for such adjustments?

176. As I have explained, the basis of Astilleros' case that a steering correction should be made is that unless taken dead astern or ahead, wind and waves will cause a turning moment which must be counteracted by use of the rudder to maintain a straight course. Cross-currents may have a similar effect.

177. The electronic records which were kept of the vessel's course and rudder angle to which I have referred show that on the 90/1 run (the first of the two runs at 90% of maximum continuous rating), some port helm was being applied consistently at about 1.25 degrees. This is curious because the vessel was on a course of 295 degrees and the wind is recorded as being at 25 degrees with a speed of 10 knots. In these circumstances, the wind would tend to push the vessel to port, and the constant application of port helm would take the vessel further off her course. The vessel did in fact steadily go off to port and was eventually 4 degrees off course, until towards the end of the run something countered this. There is no evidence as to what caused this except that it was not the application of helm.

178. On the second of the runs, run 90/2, the vessel was supposed to be on a course of 115 degrees, but at the start of the run she was off course by some 5 degrees. When she was something less than one minute into the run, the record shows a substantial application of port helm, some 6 degrees, apparently to bring her back on to course, and the vessel responds. The vessel passes through the heading of 115 degrees after the helm is reduced, but she does not settle on a steady course. Port helm is still applied, first about 1.5 degrees and some 3 and a half minutes into the run about 3 degrees, but this does not stop the ship drifting off course at the end of the run.

179. The electronic records cover only the runs themselves. It was fairly pointed out by Dr Medhurst that they do not show whether there were difficulties in setting the vessel on course before the run, but there is no evidence that either party protested on this account or called for the runs to be aborted. The inference is that at the time the representatives of Astilleros did not consider the trials unfair because of difficulties before the runs started.

180. I should refer to the evidence of the witnesses who attended the trials. Captain Lees in his witness statement said that rudder action during the trial of the Brave Merchant was "minimal" and, he continued "I find it very difficult to believe that it would materially have affected the resistance encountered by the Vessel". This is echoed, almost verbatim, by Mr McKeown. However, I do not consider that I can rely upon this evidence because there can be no doubt that during the second run there was a major application of helm, and they make no reference to this.

181. Mr Mennen's evidence was that during the trials he recalls seeing from the wash of the vessel that there was disturbance and that the vessel was drifting, and the information about the drift angle and the rudder angle being conveyed to the bridge where he and Captain Lees saw it. He recalls Captain Lees making the comment, "Can't they make a better steering engine?" This evidence is consistent with the electronic records and I accept it.

182. The fundamental difficulty facing Astilleros in showing that corrections would be justified is this. In order for a correction to be justified, they would need to show not only that the helm was applied but that it was applied because of the effect of wind or waves on the vessel. It is no part of their case that if helm was applied for some other reason, for example to correct the course required because the vessel was exhibiting directional instability, a correction should be made. In order to justify a correction, they would need to distinguish steering required by the wind and wave conditions from other steering. Dr Medhurst admitted that this cannot be done. His cross-examination was as follows:

Q. … But the fact is that vessels have varying degrees of directional instability?

A. Yes

Q. You do not know whether these vessels would, in absolutely ideal conditions, require some help, or no help, to maintain a straight course, do you?

A. It has not been recorded, no. Not as a matter of fact, no.

Q. And directional instability is not tested in modern tank tests, because, by definition, the model is being towed in a fixed lateral position?

A. No, but calculations are usually done for it at an early stage; fairly simplistic calculations, but calculations nonetheless; based on the basic form parameters of the ship.

Q. And you're not aware of what the result of those calculations was in this case, are you?

A. No. I'm not. I've not seen any such calculations for these ships, no.

Q. And you agree, I think you said a few moments ago, that no correction for steering would be appropriate if the trial had been carried out in ideal conditions?

A. If ideal, yes, that is correct.

Q. Ideal conditions would be, effectively, wind and waves not exceeding Beaufort 2?

A. Well, wind of a few knots, and waves not exceeding half a metre to a metre. Something like that.

Q. Yes. And you agree with Mr Corlett, I think, the one thing you do not do is to correct for the inherent steering characteristics of the vessel?

A. No, no, I agree with him."

Asked specifically about run 90/1, Dr Medhurst said:

"Q. How do you distinguish between the effect here of the weather on the beam, and the effect of the application of the port helm?

A. I don't, in any quantified way.

Q. Well, we agreed a few moments ago that the question that we are trying to deal with, is to identify what rudder was necessitated by the weather being on the beam?

A. Yes.

Q. Are you saying that its impossible to distinguish what element of the application of rudder here, is due to the weather being on the beam?

A. It's difficult to be precise because we don't have enough information."

Asked about what happened in the first minute of run 90/2, Dr Medhurst's evidence was this:

Q. But do you agree: one thing that there is absolutely no doubt, is that it is the helm being applied before the vessel does anything?

A. Oh, yes.

Q. It's not helm being applied as the result of the vessel having done something?

A. Unless it's something that happened before this trace began.

Q. It's nothing to do with weather on the beam during the trial, is it?

A. It doesn't appear to be, although there is a – there is slight movement of the course the other way just before the start of the trace: the course changes form 120.3 roughly, dips under 120, and then starts to move back up again.

Q. Are you seriously suggesting that five, six degrees of helm is applied to deal with that tiny little course correction?

A. No, it looks like a deliberate course change. It's just that I find a deliberate course change hard to believe with everybody watching what was happening on the bridge. "

(It is tempting to speculate that it was when this strange change of course was made, Captain Lees made the comment which Mr Mennen recalled.)

Later in the cross-examination, Dr Medhurst confirmed his views:

Q. Dr Medhurst, what contractual or academic basis do you have for suggesting that there should be correction for course changes not caused by weather on the beam, not directly caused by weather on the beam?

A. If the purpose of making the correction in the first place is to compensate

for a departure from ideal conditions, then any course alteration found

necessary should be included.

Q. Are you able to split out from what we see on [the electronic records], the application of helm due to weather on the beam, and application of helm due to the inherent characteristics, inherent steering characteristics of the vessel?

A. No."

183. Astilleros' argument is that it is speculation to suppose that anything other than environmental conditions caused the helm to be used during the trials. On the face of it, however, this seems improbable that environmental conditions do explain what happened because on each of the reciprocal runs, the records show the application of helm to port. Dr Medhurst put forward a theory that Astilleros say explains this.

184. As I have stated, the wind during run 90/1 was at 25 degrees (north north east) and its speed, measured by the ship's anemometer, was 10 knots. When run 90/2 took place the wind was at 40 degrees (north east), and had increased to 11 knots.

185. Mr Minguito gave evidence about the currents in the area during the runs. He said that there was a tidal current from the sea to the coast, that is to say from the south-west to the north-east. Because the runs were carried out in front of the mouth of the River Guadalquivir, there was always in the area a current from or towards the river, that is to say from east to west or from west to east. The predominant direction of the ocean currents is parallel with the coastline; that is to say, the current generally flows south-east or north-west. The direction and magnitude of the combined currents change, and they are difficult to predict and complex. However, he also said that these changes are because of the tides and the seasons, and this is no reason to suppose that there would be variable currents within the short distance and period of time between the two runs.

186. Dr Medhurst explained that during the run 90/1, when the vessel was on a 295 degree course, the wind would effect a moment on the vessel which would tend to turn the ship anticlockwise. On the other hand, a current from the south west could produce a drift moment on the vessel which would counteract the wind moment. If the drift moment was greater than the wind moment, port helm would be required to keep the vessel on course.

187. On run 90/2, the vessel being on a 115 degree course, the wind moment would now tend to cause the vessel to drift to starboard. The drift moment resulting from the current, on the other hand, would tend to turn the ship to port. If, however, the wind moment on this occasion had greater effect on the vessel than the drift moment, the vessel would still require port helm to maintain course.

188. Mr Corlett pointed out that this theory crucially depends upon a change of wind force being postulated to explain the difference between the balance of the drift moment and the wind moment. He did not dispute that a change of this kind was possible. However, he observed that the recorded difference in wind speed and direction between the two runs was not sufficient to support Dr Medhurst's hypothesis.

189. Mr Corlett's evidence emphasises how speculative Dr Medhurst's theory is, and I do not consider that Astilleros have shown on the balance of probabilities that this is the explanation for the application of port helm on both runs. Furthermore, this would not explain the major applications of helm in run 90/2, and therefore does not fully explain why helm was being applied during the runs. Astilleros therefore have not overcome the fundamental difficulty in this part of their case, that they cannot distinguish when the helm was applied as a result of environmental conditions and when it was applied for another reason.

190. I have therefore concluded that the contractual arrangements do not allow corrections to the trials results to compensate for rudder angle and that Astilleros have not shown that corrections were in fact justified in respect of the Brave Merchant. If I had decided these questions differently, I would have had to decide what adjustment should be made, and here there are three further issues between the parties. Because these issues have been fully argued before me, I shall state my conclusions on them. The consequence of these conclusions would be that, if there were an adjustment, the speed would be increased by 0.08 knots in respect of rudder drag: it is a matter of agreement between Mr Corlett and Dr Medhurst that this follows from my determination of the three issues.

The major applications of helm on run 90/2

191. First, Cenargo contend that on no view have Astilleros shown that in run 90/2 the major change of course in the first minute and the further helm after three minutes or so were required by the environmental conditions. I agree with this submission. It is difficult to envisage why weather on the beam or any other environmental conditions would require such use of helm, and it seems to me that it is improbable that this is the explanation for these steering movements.

Calibration

192. Mr Corlett is of the opinion that it is to be inferred from the electronic records that there is an error in the readings, resulting from a failure in the some part of instrumentation measuring the rudder angle, and he went on to suggest that the gyro compass might not have been properly calibrated to zero before the trials. There are, I think, two points to be drawn from the records which particularly support this thesis. First, there is the curious fact that port helm is recorded on each run. Secondly, there is the pattern of run 90/1, where there is a reading of a constant application of port helm as the vessel goes further and further off course to port.

193. During the trial I was much attracted by Mr Corlett's theory, which would neatly explain many of the oddities shown by the records of the runs, but I have concluded that it is not supported by the evidence. It would be remarkable if the instruments were not checked before the trials. Even in the absence of specific evidence, I would find it difficult to believe that those conducting the trials would make such an elementary error and that those on the Brave Merchant to observe the trials, including Mr Hendy, would allow such an error to occur. Mr Hendy did not give evidence, but Mr Corlett said that he understood that Mr Hendy had made enquiries about how the data logging equipment had been calibrated, and that he had been given a description of how this was done when the vessel was alongside the quay. Further, Mr. Minguito confirmed in his evidence that the gyro compass was calibrated before the trials, and indeed there is a record of this signed on behalf of Cenargo and Astilleros. Mr Minguito also gave evidence the rudder angle instrumentation would have been adjusted as a matter of routine. I accept that evidence.

194. I conclude that Mr Kendrick was justified in his submission that Mr Corlett's theory really amounted to an invitation to accept the improbable, however, unlikely, because all other explanations are impossible. Whether or not such reasoning is ever permissible, it would be wrong for me to adopt it here in view of the limited evidence about what precisely occurred during the trials.

The drag co-efficient

195. The third issue concerns the drag co-efficient which it would be appropriate to use in calculating any correction to be made in respect of rudder drag. The Brave Merchant was equipped with a high performance Becker rudder. This is a flapped rudder in which some 30% of the rudder nearest the trailing edge consists of a hinged flap which is geared to the movement of the rudder stock and increases the flap angle in proportion to the rudder angle. These rudders are specifically optimised to produce high lift and low drag for small rudder angles.

196. In general, according to Dr Medhurst's undisputed evidence, flapped rudders generate about twice the lift and drag of a conventional rudder of the same lateral area per degree of incidence to the flow. Accordingly, a calculation of rudder drag should take into account the fact that the drag is lift induced, and also the fact that flow velocity over the rudder is greater than the ship speed.

197. However, the expert witnesses were not able to reach agreement about the calculation to be made, or more precisely about what source of information should be used to make the calculation. Ideally both experts would have relied upon information about the rudders provided by Becker themselves or by Marin who helped in the design of the Becker rudders and have built up a bank of information about them. However, this information is commercially valuable and sensitive, and neither Becker nor Marin have been willing to supply it to the parties or their experts. Both experts therefore had to resort to what they considered to be the next best source of information about the rudders, and they took different views about what this was.

198. Mr Corlett relied upon a paper entitled "Contribution to the Determination of Optimum Dimensions for the KSR Rudder Support of Becker Heavy Duty Rudders" by Dipl Ing R Beyer and published in 1977, and specifically he draws upon a figure in the paper which compares the drag coefficient of conventional and of Becker spade rudders with an equal rudder area.

199. Dr Medhurst preferred to rely upon information in a paper by J E Kerwin, P Mandel and S D Lewis entitled "An Experimental study of a series of flapped rudders" written in 1971 and published in December 1972 in the SNAME Journal of Ship Research.

200. The arguments in favour of the 1977 paper are not only that it is more recent but it is dealing specifically with Becker rudders, whereas the 1971 paper provides only generic data about flapped rudders. However, the 1977 paper is not directed to examining the drag co-efficient but to the strength of the rudder.

201. Dr Medhurst gave two reasons for preferring to use the information from the 1971 paper, which seem to me cogent and which I accept. Firstly, the 1977 paper concerned different Becker rudders from that on the Brave Merchant. The information in the paper is not sufficient to enable the experts to tell whether there is a significant difference in the flap angle to rudder angle ratio. Secondly, the 1977 paper is concerned with determining rudder strength. Mr Corlett sought to use a diagram in the paper to calculate the drag co-efficient, but it was not sufficiently detailed to provide reliable information to make the necessary calculation. Mr Corlett had to expand the diagram and extrapolate intermediate values. On the other hand, the 1971 paper deals with a range of flap angles and gives more data about the drag co-efficient at zero rudder angles from which to compile a drag co-efficient curve for the Brave Merchant's rudder at small rudder and flap angles.

202. Accordingly, if I had been making an adjustment to the speed in respect of rudder drag, I would have drawn upon the figures for drag co-efficient used by Dr Medhurst.

Have Astilleros established that an adjustment for drift angle would be

appropriate if the contract provided for such adjustments?

203. My conclusion that the contractual arrangements do not allow a correction for rudder angle applies equally to a correction for drift angle. However, I shall deal with the issue whether in fact such a correction would be justified if it had been allowed.

204. The experts are agreed, and it is obviously the case, that, if an adjustment were to be made, it should in principle reflect drift through water, rather than drift over the ground. However, the experts are also agreed that it is not possible to make calculate the drift through water. The question therefore is whether in these circumstances it is preferable to make an adjustment based on drift over the ground or to leave this out of account.

205. Dr Medhurst is of the opinion that it is preferable to make an adjustment based upon drift over ground. Accordingly, he makes a calculation based on the recorded heading of the vessel and the course made over ground, which would mean that the speed was to be increased by 0.04 knots.

206. Mr Corlett is of the view that such a correction should not be made because it is too speculative particularly in view of the unknown effects of currents, which might have been significantly different for the two runs. He gave evidence that while it is impossible to say how inaccurate the figure advocated by Dr Medhurst might be because he ignores currents, the effect of currents could only work to increase the adjustment. Moreover their effect could be substantial and might even account for the greater part of the adjustment which Dr Medhurst would make.

207. Dr Medhurst defends his adjustment on the basis that it is reasonable to suppose that the currents on the reciprocal runs would, on the balance of probabilities, be the same in magnitude and direction and so tend towards cancelling each other out. He accepts that this approach is not at all precise, because the fact remains that the magnitude of the current is unknown and because the relationship between the strength of the current and the drift angle is non-linear. However, his calculation resulting in the adjustment of 0.04 knots is the minimum adjustment to be made. He also takes issue with Mr Corlett's view that any error can only go to increase the amount of the adjustment.

208. The question therefore comes to this, whether I should conclude on the balance of probabilities that the current on the reciprocal runs is sufficiently similar in strength and direction to justify the correction. There is little evidence before me upon which I can determine this question, but there is Mr Minguito's evidence, to which I have referred: that although the currents in the area vary with the tides and seasons, this is no reason to suppose that there would be different during the two runs. I accept this evidence, and I come to the conclusion that on the balance of probabilities Dr Medhurst is right in his contention that the currents on the reciprocal runs would sufficiently cancel each other out to justify his view that, if the contract between the parties provided for a correction of this kind, on the facts it should be made. The parties are agreed that if any correction were to be made, 0.04 knots should be added to the speed.

209. My conclusions about the speed trials of the Brave Merchant mean that there is to be added to the agreed corrected speed of 22.72 knots a further correction in respect of displacement of 0.04 knots, and the properly corrected speed on the trials was 22.76 knots. This means that there is payable to Cenargo under Article III clause 2 in respect of the Brave Merchant the sum of US$180,000.

210. In reaching this conclusion, I have not referred to the speeds achieved by the Northern Merchant and the Midnight Merchant on their speed trials on 7 February 2000 and 19 July 2000 respectively. Their corrected speeds on the trials were, according to Dr Medhurst, 23.02 and 23.14 knots. Astilleros at one time suggested that, because sister ships would be likely to have similar speed capacities, this supports their arguments about the speed of the Dawn Merchant and the Brave Merchant. I did not hear oral evidence about the trials of the two later vessels and this argument was not developed by Mr Kendrick. I do not regard this as a consideration upon which I can properly rely.

Conclusion

211. I therefore conclude that Cenargo are entitled to payment of US$1,080,000, being $450,000 in respect of the capacity of each vessel and US$180,000 in respect of the speed of the Brave Merchant.