Charters

Charter of Whole Ship

Where the whole or substantial part of the vessel is used, as may be the case with bulk cargo, there may be a charterparty. This is in effect a lease or contract for the hire of the ship. The charterer pays freight to the shipowner as the consideration.  The charterer must discharge the vessel within a set period.  If it fails to do so, it is liable to compensate the ship owner, usually by way of fixed damages known as demurrage.

Charter parties have some of the same characteristics as a bill of lading.

The charterer will not usually obtain any interest in the vessel.  A charterer by demise may obtain an interest which will bind a successor to the owner.

The charterparty  is commonly entered through the agency of brokers. The charterparty will provide for the loading, carriage, unloading and discharge of goods, payment of freight, demurrage, and commission for brokers. There may be a voyage charterparty for a single voyage or a time charterparty.

A charter party is, usually made in a standard form, relevant to the particular trade concerned.  The standard form is usually amended for the particular case. There are a number of different standard form providers, which are used internationally.

Although the charterparty may have some of the characteristics of a bill of lading, it is not a negotiable form of bill.  The Hague and Hague-Visby rules and the principles of assignability do not apply. The bill of lading may incorporate the terms of a charter so that the charterer and not the shipowner is liable to the holder.


Types of  Charterparty

Where there is a single voyage, a voyage charter may be used.  The charterer pays the shipowner freight which will cover full costs, including fuel, crew, and profit. The shipowner will generally have a lien on cargo and a right to detain cargo pending payment of freight.  It will also have a lien on freight and the right to intercept freight due to a charterer from a sub-charterer.

A voyage charter may relate to part of a vessel. A slot charter relates to slots for container boxes on  a cargo ship designed or adapted to carry container boxes of 20ft or equivalents in slots or cells  (TEU). The container firm may hire a number of 20ft or equivalent units in ships.

Charterparties may be for a period of time rather than for a particular voyage.  These are time charters.   A time charter is a contract for the use of the vessel.  The crew is usually employed by the shipowner.  The time charter may provide his own crew, in which event there is usually a demise charter.  A demise charterer holds a possessory interest in the vessel.

Hire rather than freight is paid to the shipowner.   A hire fee is paid from delivery of the vessel until redelivery back. Fuel is to the account of the charterer. The concepts of demurrage and lay time are not applicable, as there is a fixed period of hire.  However, the charter may be interrupted in certain cases, whereby it is deemed suspended.


Use of Vessel

The terms of the charterparty will determine the use to which the vessel may be put.  A charterer will have greater freedom under a time charter, than under a voyage charter.  The voyage charter may entitle the charterer to nominate the ports and cargo, although it is likely to be significantly limited.

The charterer may give orders in relation to certain matters, including the types of bill of lading to be used, the types of cargo and the ports between which the vessels should trade.  The charter may provide for the bills of lading which the charterer may order the shipowner to use. The charterer will usually want freight prepaid bills.

In the case of time charters, the master is required to sign bills of lading “as presented”, so that the form of bill is for the charterer.  The shipowner is entitled to refuse orders relating to the bill which may expose it to liability to the holder. It is usually entitled to insist on delivery to the holder of the bill.

A failure to comply with a legitimate order would be a breach of contract. An illegitimate order would be a breach of contract by the charterer.   The shipowner may ignore an illegitimate order and require the charterer to replace it with a legitimate order.  A shipowner may choose to comply with an illegitimate order, but recover for damages or loss thereby incurred.


Indemnity to Shipowner

An indemnity may be provided to the shipowner arising from the consequences of the charterer’s use of the vessel.  An indemnity may be implied in consequence of the charterer’s right to dictate the employment and use of the vessel.

The indemnity relates to the general employment of the ship, but not navigational matters.  For example, the charterer may be entitled to direct that the ship proceed to a particular port, but it would not be entitled to give orders to the master in relation to the manner of execution of that task.  The captain remains the employee of the shipowner. The implied indemnity may be restricted, for example, where the shipowner undertakes certain risks itself.

A claim under a shipowner’s bill of lading is against the shipowner.  The shipowner may seek indemnity against the charterer under the terms of the charter.  Various types of standard clause and agreements apply to regulate the position. The clauses may incorporate the Hague –Visby and other rules.


Terms of Charter

The default position is that the shipowner is obliged to load, stow and discharge the cargo.  The time charter implies a term as to the fitness to carry the cargo.  The charter will set out who does what and what responsibilities are allocated to whom. In the absence of specific clauses, the charterer is interpreted in order to ascertain which party is responsible.

The charter will define the types of cargo which may be loaded. If the charterer loads permitted cargo with special risks, of which the shipowner has no prior knowledge or deemed knowledge, then the shipowner must be informed.  The charterer will not be liable for loss caused by the cargo but may be liable if the cargo is not authorised by the charterparty.

Some charters may contain wide exception clauses.  In other cases, liability may be excepted for acts of good, political acts and certain classes of accidents.


Duties of Shipowner

A warranty is implied in a voyage charterparty that the shipowner will proceed with reasonable dispatch on the voyage.   A specific warranty may be given so that the implied term may t be displaced.  It is also implied in respect of the approach voyage to the place where delivery will take place from the place where the vessel is situated, at the time the charter is signed.

The charterparty may specify where the vessel is situated and when it is to commence. Such conditions are generally strict in that if they are breached, the charterer may terminate the contract and claim damages.

A cancellation clause entitles the charterer to cancel the charter of the vessel if it has not arrived ready to load at the relevant port by the specified date.  The cancellation clause by its terms in the circumstances, may or may not entitle the charterer to compensation.


Port of Loading and Unloading

The voyage charter may specify the ports of loading and unloading.  If this is the case, the charterer may not order the shipowner to proceed to any other port.  If it does so, the shipowner will be entitled to additional freight on a restitutionary basis.

Some time charters and some voyage charters give the charterer freedom to nominate ports of loading and discharge within a certain geographical range. The charterer generally warrants the safety of the ports nominated. The warranty will also cover the berths within the port and the standard of safety.

There may be express or implied warranties.  One type of clause provides that the shipowner may discharge goods at the nominated port or as near thereto as may be safely got afloat. This will entitle the shipowner to discharge at an alternative port if the nominated port is unusable and still claim freight due.  The alternative port must be sufficiently close so to be within the ambit of the nominated port.

A safe port is one which the ship may use, reach and return from, without, other than in abnormal circumstances, being exposed to danger which cannot be avoided by good navigation or seamanship.   Danger includes physical and political risks to safety.  This may be due to physical conditions or political/war conditions. It may be due to the absence of proper system and warnings.

Breach of the warranty will oblige the charterer to pay compensation to the shipowner, by reason of loss sustained for entering the unsafe port.  This may include physical damage and loss of profits.


Freight

The charterer under a voyage charter is liable for freight.  This is the price for a particular voyage carrying a particular cargo.  It is inclusive of the shipowner’s costs including personnel, fuel and profit.

Freight may be calculated as a lump sum, or by reference to a quantity loaded or discharged.  There may be a minimum or maximum cargo for which the rate is specified. The charterer may be obliged to load a full cargo.  If this is not achieved, additional freight, so-called dead freight may be payable.

The charter will normally warrant the ship’s capacity. The shipowner may have to compensate the charterer if it cannot load up to the specified amount.

A unique feature of freight is that it is not subject to set off.  Claims made by charterers must be made separately.  There are limits to this principle so that freight will not be payable, where the shipowner has failed to give “right and true” delivery.  The goods must be changed in character and not merely damaged.


Entitlement to Freight

Freight is generally payable at the start of the voyage. It was traditionally payable at the end.   80 to 95% of the freight is commonly paid up front. When freight is not paid, it may be recovered by summary judgment.

If the shipowner fails to make “right and true” delivery, it will have no entitlement to freight. If the amount of cargo delivered is not such as to amount to a “right and true” delivery, freight may be payable on a restitutionary basis in proportion to the contract sum.

The provisions in respect of freight may be varied. A clause may provide that freight is deemed earned on loading. In other cases, the payment obligation may be postponed.

Bills of lading may incorporate the terms of the charter.  Provided that the wording does not impose liability on the charterer exclusively, the holder of a bill of lading incorporating the head charter becomes jointly liable for freight due under the head charter.


Lien

A charterer has a lien on cargo and sub freight.  The lien is a right to detain cargo until freight is paid.  A lien subsists at common law, but it may be provided expressly.  The common law lien binds third parties, but the contractual lien does not.

A contractual lien may bind the holder of a bill of lading if it incorporates the terms of the charter and the language is sufficiently wide. The lien may apply even if the holder is not liable for the claim for which it is exercised. If the bill of lading is marked “freight prepaid”, a lien may not be exercised.

A lien on sub freight gives the right to intercept sub freight before it is paid to the head charter. The lien may be exercised by discharging the goods into a bonded warehouse.  It may be exercised by waiting outside the relevant port. The lien gives a right to detain cargo only.  It may be sold in accordance with the local law in force.  The Merchant Shipping Act provides for a right of sale.

The lien on sub freight is given effect by giving notice to the sub-charter.  It may be exercised for claims due under the head charter at the date of the notice.  It applies only if the sub-charter has not paid the freight due at the date of the notice.


Duties

The shipowner must procure the ship and proceed with reasonable dispatch on the approach voyage to the designated loading point.  It must proceed with reasonable dispatch on the voyage to the discharge point.

The charterer must, within a reasonable time nominate a port or berth, for loading and discharge and load and discharge at that place within a reasonable time of the arrival of the ship. If the charterer fails to do so, either at the point of loading or discharge, it may be liable for damages to the shipowner.

The charter may specify what is a reasonable time by allowing for lay time, which are events which might reasonably cause delay. If the process takes longer than the allowed lay time, the charterer is liable for a demurrage at the agreed daily rate.  The shipowner is not entitled to detain the ship and seek a market rate of compensation. The fixed calculation applies relative to the delay.


Lay Time and Demurrage

A fixed time may be provided for loading and discharging.  If the time is exceeded, the shipowner is paid a fixed compensation sum as set out in the charter, known as demurrage. The shipowner owes a duty to the charterer to proceed with reasonable dispatch on the voyage or voyages.

The lay time exceptions refer to circumstances and conditions which legitimately interrupt the running of lay time. There may be exceptions for working days and bad weather.  Clauses may allow exceptions for unavoidable hindrances, strike and unavoidable accidents.  The exceptions will be set out in the contract. There may not be a full allowance of lay time for the whole period, depending on the wording.

Once lay time expires, the vessels are said to go on demurrage under the completion of loading or discharge.  This is primarily for the account of the charterer.  The bill of lading holder may have a liability if it incorporates the terms of the charter under demurrage clause is worded so as to extend this liability.  The extent of the claim is limited to demurrage.

The right to terminate the charter will only arise where the delay is unreasonable or so long as to frustrate the purpose of the contract. If it becomes apparent that the vessel may not be loaded before the expiry of an unreasonable or frustrating period, the shipowner will be entitled to terminate the contract.  The position will depend on the wording.

The exceptions to lay time will not generally apply to the period of demurrage once begun unless the contrary is specified. Where, however, the delay is due to the shipowner, demurrage will generally be avoided.


Notice of Readiness

The shipowner may be obliged by custom to give notice of readiness for the charter, in order to commence the running of the allowable time (the lay time). The notice of readiness must be given only when the vessel is in fact ready.  The anticipated date is not sufficient.

The ship must be ready for loading when it arrives at the port of loading. Charters usually require the shipowner to obtain a “free pratique” before giving notice of readiness.  This is a healthcare certificate for the crew and ship issued by the port authority medical officer.

The allowable time or lay time will be set.  This may simply be a period of time or may refer to a particular rate of loading or unloading.  Bills of lading must be presented by the charterer within a reasonable time of the completion of loading.  However, they must with accord with the times under the relevant sale contract.


Port / Berth Charter

The charter may be a port or berth charter.  In this case, the voyage will end at the point when the port or berth as the case may be, is reached. The cost of loading and unloading are generally for the account of the charterer.

A port charter should be distinguished from a berth charter.  This depends on the point of time when the voyage ends by unloading or discharge.  The port charter ends when the vessel reaches the port of unloading.  A berth charter requires reaching the actual berth.

In the case of a port charter, the notice of readiness may be given when the vessel arrives at the port.  The time taken for berth counts as lay time and is at the risk of the charterer.  In contrast under a berth charter, lay time cannot commence until actual berthing at the port of arrival or discharge. Clauses may place some of the risks in the berth charter, back on the charterer.


References and Sources

Consumer Law  Long      2004

The Law of Transport and Road Haulage (1999) Canny

Consumer Law Rights & Regulation          Donnelly & White 2014

Commercial Law White  2nd ed    2012

Commercial & Economic Law in Ireland  White    2011

Commercial Law Forde  3rd ed    2005

UK Texts

Schmitthoff: The Law and Practice of International Trade 13th ed Carole Murray, David Holloway, Daren Timson-Hunt, Schmitthoffs 2018

Bills of Lading in Export Trade 4th ed Charles Debattista 2018

Arnould’s Law of Marine Insurance and Average 19th ed  Jonathan Gilman, Robert Merkin, Claire Blanchard, Mark Templeman 2018

O’May on Marine Insurance 2nd Ed Julian Hill 2018

Shipping Law 3rd ed  Sweet & Maxwell Ltd 2018

The UN Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea 2nd ed Michael Sturley, Tomotaka Fujita, Gertjan van der Ziel 2018

Commercial Maritime Law Edited by: Melis Ozdel 2018

Springer-VerlagScrutton on Charterparties and Bills of Lading 23rd ed: 1st Supplement

Scrutton on Charterparties and Bills of Lading 23rd ed: 1st Supplement (Book & eBook Pack) Scrutton on Charterparties and Bills of Lading 23rd ed: 1st Supplement (Book & eBook Pack)

Bernard Eder, Howard Bennett, Steven Berry, David Foxton, Christopher Smith 2017

The Bill of Lading: Holder Rights and Liabilities The Bill of Lading: Holder Rights and Liabilities

Frank Stevens 2017

Charterparties: Law, Practice and Emerging Legal Issues Edited by: Baris Soyer, Andrew Tettenborn 2017

Shipping and Trade Law 2017

Multimodal Transport Law Michiel Spanjaart 2017

Maritime Law 4th ed Edited by: Yvonne Baatz 2017


Cases

“Starsin”, Owners of cargo & Ors v. “Starsin”, Owners and/or demise charterers

 [2003] UKHL [2003] 1 CLC 921, [2003] 2 All ER 785, [2003] 1 All ER (Comm) 625, [2004] AC 715, [2004] 1 AC 715, 2003 AMC 913, [2003] UKHL 12, [2003] 1 LLR 571, [2003] 1 Lloyd’s Rep 571, [2003] 2 WLR 711

LORD STEYN

My Lords,

    42. In 1995, while the Starsin was on time charter to Continental Pacific Shipping Limited (“CPS”), bills of lading on CPS’ liner form were issued for the carriage of 17 parcels of timber and plywood. The carriage was between ports in Malaysia and Antwerp/Avonmouth. The cargoes were damaged. Receivers sued the owners for breach of contract, or alternatively in tort in the event that the bills of lading were charterers’ bills.

    43. On this appeal the central issues are:

1.  Whether the Owners or Charterers were the carriers under the bills of lading;

2. What, if any, protection the Himalaya clause in the bills of lading affords the Owners;

3. Depending on the answer to 2, the question may arise whether the Owners can be sued in tort.

I. The Identity of the Carrier.

    44. The issue was whether the bills of lading were charterers’ or owners’ bills. The terms of each of the 17 bills reveal inconsistent provisions. CPS were the charterers. The signature box on the face or front of a specimen bill of lading prominently carried a signature “As Agent for Continental Pacific Shipping (The Carrier).” The face of the bill of lading contained essential commercial provisions such as the identity of the shippers, the name of the vessel and a description of the cargo, as well as a reference to the contract of carriage, the latter being set out in the box commencing with the word “Shipped.” Clause 1(c) is consistent with what appears on the face of the bill of lading: it provides that the “carrier” is “the party on whose behalf this bill of lading has been signed.” So far the document is in harmony. But tucked away in barely legible tiny print on the back of the bill of lading are two clauses which contradict the contractual position revealed by the face of the bill. Clause 33 provides that the contract evidenced by the bill of lading was “between the merchant and the owner of the vessel named herein (or substitute).” Clause 35, a demise clause, provides that the bill of lading shall only take effect as a contract of carriage “with the owners or demise charterers.”

    45. How is the problem to be addressed? For my part there is only one principled answer. It must be approached objectively in the way in which a reasonable person, versed in the shipping trade, would read the bill. The reasonable expectations of such a person must be decisive. In my view he would give greater weight to words specially chosen, such as the words which appear above the signature, rather than standard form printed conditions. Moreover, I have no doubt that in any event he would, as between provisions on the face of the bill and those on the reverse side of the bill, give predominant effect to those on the face of the bill. Given the speed at which international trade is transacted, there is little time for examining the impact of barely legible printed conditions at the time of the issue of the bill of lading. In order to find out who the carrier is it makes business common sense for a shipper to turn to the face of the bill, and in particular to the signature box, rather than clauses at the bottom of column two of the reverse side of the bill.

    46. Taking advantage of their knowledge of the way in which the market works two commercial judges – Colman J and Rix LJ in the Court of Appeal – adopted the mercantile view. The majority in the Court of Appeal – Morritt V-C and Chadwick LJ – in effect gave preponderant effect to the boilerplate clauses on the back of the bill. In my view it would have an adverse effect on international trade if the latter approach prevails. Professor Debattista (Is the end in sight for chartering demiseclauses?, Lloyds List, Wednesday 21 February 2001, 5) rightly warned that the effect of the judgment of the majority would be to create traps for the unwary: see also the criticism of the majority judgments by Professor Gaskell and others in Contracts for the Carriage of Goods by Land, Sea and Air, LLP, ed. Yates, as updated by service issue No. 21, dated 31 December 2001, para 1.6.4.2.25.1, and by Dr Girvin and Professor Bennett in English Maritime Law 2000, [2002] LMCLQ, at 84-87. As Rix LJ observed, commercial certainty and indeed honesty is promoted by giving greater effect to the front of the bill of lading.

    47. This conclusion is reinforced by the ICC Uniform Customs and Practice for Documentary Credits: 1993 revision in force as of January 1, 1994. Article 23(a) reads as follows:

“If a Credit calls for a bill of lading covering a port-to-port shipment, banks will, unless otherwise stipulated in the Credit, accept a document, however named, which:

i.  appears on its face to indicate the name of the carrier and to have been signed or otherwise authenticated by:

– the carrier or a named agent for or on behalf of the carrier, or

– the master or a named agent for or on behalf of the master.

Any signature or authentication of the carrier or master must be identified as carrier or master, as the case may be. An agent signing or authenticating for the carrier or master must also indicate the name and the capacity of the party, i.e. carrier or master, on whose behalf that agent is acting . . .”

In paragraph v. it is expressly stated that banks will not examine the contents of terms and conditions on the back of the bill: see further Position Paper No. 4: UCP 500—Transport documents articles. At the very least this material suggests that, faced with the need for prompt decisions in international trade, this is how parties involved in such a transaction would view the bill of lading. It demonstrates how far removed from the real world of commerce the technical approach advocated by the cargo owners in this case is. Moreover, insofar as there is a choice between two competing interpretations, this material strongly suggests that the best interpretation is to give predominant effect to the face of the bill.

    48. It follows that in my judgment the ruling of the majority on the identity of the carrier point cannot stand. I would also hold that the ex tempore judgment in Fetim BV v Oceanspeed Shipping Limited (The Flecha) [1999] 1 Lloyd’s Rep 612 was wrong.

    49. Counsel for the cargo owners raised an alternative argument. He argued that words like “The Carrier,” “For the Carrier,” and “As Carrier,” can be treated as adding the personal liability of CPS rather than excluding the liability of the owners. This is a question of interpretation. Counsel for the owners showed convincingly that the bill of lading contemplated a single carrier. It is only necessary to mention specifically that the completed signature box, as well as the definition clause, points to a single carrier. I would reject this alternative argument.

    50. I conclude that CPS was the sole carrier under the bill of lading. The owners were not parties to the contract of carriage and are not liable under the bill of lading contracts. Their potential liability in tort must now be considered.

II. The Himalaya Clause.

    51. The issue whether the owners are protected from liability in tort by the Himalaya clause now arises.

    52. The owners rely in particular on that part of clause 5 of the bills of lading which Lord Bingham has recited and labelled part (1). The owners contend that part (1) confers on them a general exemption from liability.

    53. Before this question of construction can be considered a preliminary issue must be examined. As Lord Bingham has pointed out by reference to the Himalaya clause contained in the Conline bill of lading form some words have been left out of clause 5: see the clauses in New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154 and Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (The New York Star) [1981] 1 WLR 138. The deletion was plainly a mistake. In these circumstances the court should, in order to give effect to the reasonable expectations of the parties, fill the gap by inserting what had been omitted. What falls to be construed is the clause so reconstructed.

    54. The result is that it cannot be argued that part (1) is flawed by reason of a lack of agency or authority. Accordingly part (1) must take effect in accordance with the terms of clause 5 as reconstructed.

    55. For my part the language of part (1), contextually considered, is capable of one interpretation only. The shipowners are clearly “independent contractors.” It is not capable of being read as a mere covenant not to sue. In categorical language part (1) confers on the shipowners a general exemption from liability.

    56. The various attempts by the cargo owners to argue that part (1) is “not clear enough” are on examination at variance with the benign advance heralded by The Eurymedon, carried forward by The New York Star [1981] 1 WLR 138 and reaffirmed in The Mahkutai [1996] AC 650. In The New York Star Lord Wilberforce commended a wide interpretation of the reasoning in The Eurymedon. He said at 144:

“. . . the decision does not support, and their Lordships would not encourage, a search for fine distinctions which would diminish the general applicability, in the light of established commercial practice, of the principle.”

In The Mahkutai, supra, Lord Goff of Chieveley observed about The Eurymedon (at 664E):

“Nevertheless there can be no doubt of the commercial need of some such principle as this, and not only in cases concerned with stevedores; and the bold step taken by the Privy Council in The Eurymedon [1975] AC 154, and later developed in The New York Star (1981) 1 WLR 138, has been widely welcomed.”

When in ITO Ltd v Mida Electronics Inc 28 DLR (4th) 641 the Supreme Court of Canada followed The Eurymedon, McIntyre J commented (at 667):

“Himalaya clauses have become accepted as a part of the commercial law of many of the leading trading nations, including Great Britain, the United States, Australia, New Zealand, and now in Canada. It is thus desirable that the courts avoid constructions of contractual documents which would tend to defeat them. I would therefore accept the approach taken by Lord Wilberforce and, in doing so, I observe that the court is simply giving effect to that which the parties themselves clearly agreed to in writing.”

This is the approach which should be adopted in the case before the House.

    57. In my view the arguments of the cargo owners are of the very type which Lord Wilberforce warned against. I would respectfully also echo an extra-judicial statement by of Lord Goff of Chieveley in Commercial Contracts and the Commercial Court (1984) LMCLQ 382, 391:

“We are there to help businessmen, not to hinder them; we are there to give effect to their transactions, not to frustrate them; we are there to oil the wheels of commerce, not to put a spanner in the works, or even grit in the oil.”

This is a particularly apposite observation in regard to the ground-breaking development in The Eurymedon. The difficulties created in international trade by the doctrines of privity of contract and consideration had to be overcome. Those doctrines obstructed the process of giving effect to the reasonable expectations of parties. Fortunately, as was pointed out in ITO, at 667, by McIntyre J, “one of the virtues of the common law is that it has never let pure logic get in the way of common sense and practical necessity when a desirable result is sought to be achieved.” The desired result was to give businessmen the freedom to make arrangements for the allocation of risks as they thought right. The decisions in The Eurymedon, and The New York Star, were taken in the context of classical English contract law. It is true that this result can now be achieved more simply and directly by a combination of the Carriage of Goods by Sea Act 1992 and the Contracts (Rights of Third Parties) Act 1999. Nevertheless, the plain objective of the decisions in The Eurymedon and The New York Star was to enable businessmen to make sensible and just commercial arrangements, and thereby further international trade. Legal policy favours the furtherance of international trade. Commercial men must be given the utmost liberty of contracting. They must be left free to decide on the allocate commercial risks. In my view there can be no good reason to set at naught on an interpretative basis the allocation of risk in the Himalaya clause.

    58. That brings me to the question of the impact of the incorporated Hague Rules on clause 5. Clause 2 (described as the “Basis of Contract”) incorporated the Hague Rules. This neutral fact tells us nothing about the impact of the Hague Rules on the Himalaya clause. That depends on the proper construction of the relevant Hague Rules. Of course, the ship owner will not be entitled to rely on the Himalaya clause if it offends the Hague Rules. The question is whether the exemption in favour of the ship owners in fact is in conflict with the Hague Rules.

    59. I turn to the critical provisions of the Hague Rules. Article III rule 8 of the Hague Rules. This provision reads as follows:

“Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising from negligence, fault, or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect. . . .”

The critical question is whether the exemption in the Himalaya clause is contained in a contract of carriage. “Contract of carriage” is a well understood term: it refers to a contractual undertaking for the carriage of goods. It contemplates the usual incidents of such a contract, with the customary executory obligations. Next one has to consider the status of the exemption. In law it is a separate and independent contract. It contains no executory obligations. It merely confers a general exemption on the owners. Is it nevertheless to be treated as “a contract of carriage” within the meaning of article III rule 8? While this is a difficult question I have come to the conclusion that the answer ought to be No. Despite the fact that it comes into existence by the rendering of service by the vessel I am on balance of the view that in its natural and ordinary meaning “a contract of carriage” under article III rule 8 contemplates a contract with the usual incidents and executory obligations of a contract of carriage. In other words, it envisages a contract for the carriage of goods. Focusing simply on article III rule 8 I incline to the view that the exemption is not contained in a contract of carriage.

    60. One cannot, however, construe article III rule 8 in isolation. Article III rules 1 and 2 of the Hague Rules are relevant. They read as follows:

“1. The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to –

(a) Make the ship seaworthy.

(b) Properly man, equip and supply the ship.

(c) Make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and preservation.

2. Subject to the provisions of Article IV, the carrier shall properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.”

Once one has concluded that the exemption is contained in a contract of carriage that must hold good for all the provisions of the Hague Rules including the obligation to make the ship seaworthy, etc. That would indeed be a curious and implausible result flowing from a contract for an exemption clause. It would mean that the cargo owners of damaged parcels on the Starsin would in principle have had contractual remedies not on the bill of lading but on the Himalaya contract. That cannot be right. This factor reinforces my interpretation of article III rule 8. I would therefore hold that in the Hague Rules a contract of carriage means an agreement to carry and not an agreement simply for an exemption albeit that the consideration for the promise involves performance by the vessel.

    61. I have noted the reasoning based on the words in para (3) that the independent contractor “shall to this extent be deemed to be [a party] to the contract contained in or evidenced by this Bill of Lading”. For my part this places a weight on those words which they will not bear.

    62. For my part this result is in no way anomalous. It is loyal to the rationale of the advance in the rationality of English law achieved in The Eurymedon and The New York Star. It results in a readily predictable scheme, viz all claims in contract and tort have to be channelled to the charterers. That gives effect to what the parties intended to achieve. It has the merit of being a just decision achieved without in any way straining the Hague Rules. I would hold that the exemption contained in part (1) of clause 5 protects the owners against any liability in tort.

    63. Regretfully, and in the spirit of accepting that one must not be too confident that one is right, I consider it appropriate to record my disagreement with the majority on this issue.

III. Tort.

    64. This issue falls away. Given that it has been fully argued I accept, however, that the House should express a view on it. It is well established that a claim in negligence for damage to property is only maintainable by a person who had either the legal ownership of or a possessory title to the property at the time when the damage occurred: Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986] AC 785. Accepting this principle, the cargo owners argue that they meet its requirements. Rix LJ convincingly demonstrated the fallacy in the argument. He said (at 459, cols 1-2):

“. . . there is only one cause of action, which arises when (more than negligible) damage is first caused. It is not open, therefore, to a new owner to say, . . . that a new cause of action, in respect of further (albeit progressive) damage which has developed after the transfer of title, has come into being in favour of the transferee. It may be different where entirely different damage is done on different occasions by reason of a different defect, as where, owing to defective hatch covers, one hold is flooded on one day and another hold is flooded on a different day: but that is for another occasion. In my judgment, however, the progressive damage done in this case does not create new causes of action in respect of the later stages of the same progressive damage, even in the hands of a new cargo-owner and even upon the assumption that the new cargo-owner was always within the scope of the shipowner’s duty of care. . . . further consideration of the nature of the damage and the cause of action in question prevents recovery.”

I am in full agreement with the judgment of Rix LJ in this respect. The exception in respect of Makros Hout, which Rix LJ mentions in paragraph 108 of his judgment, arises because Makros Hout obtained title before the voyage began.

IV. Conclusion.

    65. I would allow the appeal.

    LORD HOFFMANN

My Lords,

    66. The appellants (“the shipowners”) are respectively the owners and demise charterers of the bulk carrier Starsin. On 3 October 1995 they time-chartered the vessel to Continental Pacific Shipping (“CPS”) for one trip, estimated 65/85 days. On 8 December 1995 the vessel began a voyage from Malaysia to Europe carrying a number of consignments of timber and plywood which had been shipped under separate bills of lading. On arrival in January 1996 it was found that 17 consignments had been damaged by fresh water; some of the cargo had been wet when loaded and negligent stowage had caused condensation which affected those and other consignments during the course of the voyage. The holders of the bills of lading (“the cargo owners”) sue the shipowners for breach of the contracts of carriage contained in or evidenced by the bills of lading and in tort for negligence in stowing the goods.

    67. Whether the shipowners are liable in contract depends upon whether they were parties to the contract of carriage made with the shippers and evidenced by the bills of lading. The time charter provided in clauses 8 and 33 that CPS should be entitled to require the master to sign bills of lading on behalf of the shipowners or authorise their agents to sign bills of lading on behalf of the master who would in turn be contracting on behalf of the shipowners. So there is no doubt that CPS had authority to cause a contract of carriage to be created between the shipowners and the shippers. But the question is whether they did so.

    68. The port agents who signed the bills of lading used printed forms headed “Liner Bill of Lading” and bearing the name and logo of CPS. The printed text, if one reads it through carefully, shows that the forms were meant to be used by a master signing on behalf of the owners. The form has printed on the front “In witness whereof the Master of the said Vessel has signed the number of original Bills of Lading stated below”. Then there is a box for the place and date of issue and, below that, another box for a signature. The form does not say expressly on whose behalf the master is signing but the master is the servant of the shipowner and unless he is authorised by the charterers to sign on their behalf and clearly does so the bill of lading will be construed as having been signed on behalf of the shipowner: see The Rewia [1991] 2 Lloyd’s Rep 325, per Leggatt LJ at p. 333.

    69. The impression that the forms are meant to be used as owner’s bills is confirmed by a reading of the small print on the back. Clause 33, headed “Identity of Carrier” says in terms that the contract evidenced by the bill of lading is between the cargo owner and “the Owner of the Vessel named herein”, that only the shipowner is to be liable for any breach of the contract of carriage, that the “Line, Company or Agents” which has executed the bill of lading “is not a principal in the transaction” and that “the said Line, Company or Agents shall not be under any liability arising out of the contract of carriage”.

    70. Much the same ground is covered by clause 35, which has no heading but is known as the demise clause. It says that if the vessel is not owned by the company or line by whom the bill of lading is issued “(as may be the case notwithstanding anything that appears to the contrary)” the bill of lading shall take effect only as a contract of carriage with the shipowners. It appears from an article in the Law Quarterly Review by Lord Roskill ((1990) 106 LQR 403-406) that this clause was devised to deal with conditions in the Second World War, when requisitioned ships on time charter were frequently operated by commercial liner companies which issued their own bills of lading. As the law then stood, only an owner or demise charterer could limit liability under sections 502 and 503 of the Merchant Shipping Act 1894. The words quoted above in brackets were, as Lord Roskill said, to “to put the bill of lading holder on express notice of the possibility that the ship concerned was chartered.” The rest of the clause was to make it clear that in such case the owner was the carrier. Conformably with this purpose, the demise clause appears originally to have been printed on the front or “business” side of the bill of lading: see The Berkshire [1974] 1 Lloyd’s Rep 185. One question in this appeal is the extent to which it remains efficacious for this purpose after its migration to the small print on the back.

    71. The forms, therefore, were printed for use as owner’s bills. But the port agents signed them, in the signature boxes on the front of the documents, “As Agent for Continental Pacific Shipping (The Carrier)” or “As Agents for the Carrier Continental Pacific Shipping” or “As Agents for Continental Pacific Shipping as Carrier”. That meant, in my opinion, that anyone reading only the front of the document would think that CPS was the party assuming liability as carrier. He might have been slightly puzzled by the statement that the bill of lading had been signed by the master when it evidently had not. He may well have reflected that people often use forms which have in some respects to be adapted for the particular circumstances without deleting the inconsistent parts: see The Okehampton [1913] P. 173. But the reasonable reader of the front of the bill of lading would have had no doubt that CPS, and only CPS, was accepting liability as carrier. “Carrier” is a technical term familiar to anyone who has to deal with a bill of lading. The bill of lading evidences a contract of carriage and “carrier” is the name given to one of the parties to such a contract. As it happens, that is what condition 1(c) on the back of these bills of lading says. But that is what a reasonable reader would have thought it meant even without looking at the back. It is what Article I(a) of the Hague Rules says it means. In The Flecha [1999] 1 Lloyd’s Rep. 612 Moore-Bick J., faced with a similar Continental Pacific Shipping bill of lading signed “as agents for Continental Pacific Shipping as carriers” said that the term “carrier” was being used “loosely” and that this was “not unusual or surprising”. I can well imagine that a timber merchant in Kuching might say over coffee that his goods were being carried by Continental Pacific Shipping without knowing or caring whether the particular vessel was owned, demise chartered or on time charter. But such loose usage of a critical expression in the bill of lading itself does seem to me surprising.

    72. On the other hand, a reader who turned the bill over and read the printed conditions might lose confidence in his initial impression. The identity of carrier and demise clauses would suggest deeper waters in which it might be necessary to resolve the apparent conflict between the form of signature and the other printed provisions of the bill of lading which show that it was meant for use as an owner’s bill.

    73. How is this conflict to be resolved? The interpretation of a legal document involves ascertaining what meaning it would convey to a reasonable person having all the background knowledge which is reasonably available to the person or class of persons to whom the document is addressed. A written contract is addressed to the parties; a public document like a statute is addressed to the public at large; a patent specification is addressed to persons skilled in the relevant art, and so on.

    74. To whom is a bill of lading addressed? It evidences a contract of carriage but it is also a document of title, drafted with a view to being transferred to third parties either absolutely or by way of security for advances to finance the underlying transaction. It is common general knowledge that such advances are frequently made by letter of credit and that the bill of lading is ordinarily one of the documents which must be presented to the bank before payment can be obtained. The reasonable reader of the bill of lading will therefore know that it is addressed not only to the shipper and consignee named on the bill but to a potentially wide class of third parties including banks which have issued letters of credit.

    75. Since a bill of lading is a legal document, the merchant or banker to whom it is addressed will know that on some questions of interpretation he will need to consult a lawyer. But he will also expect to be able to find out certain essential things for himself. These will include the identity of the carrier. The normal bill of lading recognises this distinction by having some of its terms written or printed on the front, where the businessman or banker can readily find them without a lawyer at his elbow, and the mass of other clauses printed at the back. Of course there will be cases in which the information provided on the front will be too obscure to provide the businessman or banker with the information he expects. In such a case, he may have to ask his lawyer to see whether the question can be elucidated by plunging into the small print at the back, or, if he is a banker offered the bill of lading pursuant to a letter of credit, he may simply reject it on the ground that he cannot be expected to puzzle out the answer by reference to other parts of the document. On the other hand, if the information is clearly stated on the front, the reasonable merchant or banker would go no further. The banker, for example, will accept the bill of lading when tendered against a letter of credit as having been issued by the named carrier without examining the terms on the back.

    76. As it is common general knowledge that a bill of lading is addressed to merchants and bankers as well as lawyers, the meaning which it would be given by such persons will usually also determine the meaning it would be given by any other reasonable person, including the court. The reasonable reader would not think that the bill of lading could have been intended to mean one thing to the merchant or banker and something different to the lawyer or judge.

    77. The proposition that bankers do not examine the contractual terms on the back of a bill of lading has long been common general knowledge and for many years the courts have said that they were not expected to do so: see Scrutton LJ in National Bank of Egypt v Hannevig’s Bank (1919) 3 LDAB 213, 214 and Salmon J. in British Imex Industries Ltd v Midland Bank Ltd [1958] 1 QB 542, 551-552. In more recent times, bankers have issued public statements to this effect in the form of the ICC Uniform Customs and Practice for Documentary Credits. Article 23 of the edition which was in force when these bills of lading were issued (UCP 500) provides that if a credit calls for a bill of lading, banks will accept a document which

“appears on its face to indicate the name of the carrier and to have been signed or otherwise authenticated by:

–  the carrier or a named agent for or on behalf of the carrier, or

–   the master or a named agent for or on behalf of the master.

Any signature or authentication of the carrier or master must be identified as carrier or master, as the case may be. An agent signing or authenticating for the carrier or master must also indicate the name and the capacity of the party, i.e. carrier or master, on whose behalf that agent is acting.”

    78. Article 23(a)(v) states that banks will not examine the contents of the terms and conditions of carriage, that is to say, the terms printed on the back. The position is stated even more clearly in the ICC Position Paper No. 4, published on 1 September 1994 to clarify Article 23(a)(i):

“1.  The name of the carrier must appear as such on the front of the document. The expression ‘the front of the document’ means the side showing the details of the goods, vessel and voyage, and the expression ‘the back of the document’ means the side showing the details of the contract of carriage.

NOTE – Subparagraph (a)(v) of these UCP Articles states that banks will not examine the terms and conditions of carriage. Banks will therefore reject documents which fail to comply with the requirements set out in ‘1’ above, ie which fail to indicate the name of the carrier on the front of the document, even though the identity of the carrier may be indicated on the back of the document.

3.  Where the document is signed by an agent for (or ‘on behalf of’) the carrier, the agent must be named and must indicate the principal for (or ‘on behalf of’) whom he is signing, in one of the following ways:

a.  when the word ‘carrier’ has not been used on the front of the document to identify the party acting as carrier, eg

ABC Co Ltd

as agent for (or ‘on behalf of’)

XYZ Shipping, carrier

(signature).”

    79. Mr Milligan QC, who appeared for the cargo owners, said that Article 23 of UCP 500 was irrelevant because it only specified the conditions upon which a bank would accept a bill of lading as conforming to the terms of a letter of credit. That had nothing to do with the interpretation of the bill of lading as between the parties (or alleged parties) to the contract of carriage. I do not agree. It is true that the purpose of Article 23, when UCP 500 has been incorporated into the terms of a letter of credit, is to specify what will count as a conforming bill of lading. But what it also shows is that, if the conditions for identifying the carrier have been satisfied, the bank will treat the document as having identified that party as the carrier. In other words, Article 23 and the Position Paper show that if a document bears upon its face the words “ABC Co Ltd as agent for XYZ Shipping, carrier [signature]” the bank will treat it as meaning that XYZ Shipping is the carrier. Since it is common general knowledge that banks almost invariable issue letters of credit on the terms of UCP 500, those terms will be part of the background available to the reasonable reader seeking to ascertain the meaning of the bill of lading. He will know that a bank, one of the potential addressees which anyone issuing a bill of lading must have in mind, would accept it as meaning that the person named on the front as the carrier was indeed the carrier. And the reasonable reader will not think that the bill of lading could have been intended to have one meaning to a bank and another to a consignee or assignee.

    80. For this purpose it does not matter whether port agents in Malaysia are likely to have heard of UCP 500. Their knowledge and views on these matters are irrelevant because, unlike UCP 500, they are not reasonably available to everyone in the class of persons to whom the document was addressed. Nor does it matter that, as appears to have been the case here, the same port agents issued other bills in different and non-conforming form: this too is not something which the reasonable addressee of these  bills could be expected to know and therefore not admissible background. The construction given to the bill of lading must be objective and uniform and, in the case of the identity of the carrier, determined by an unequivocal statement on the face of the document.

    81. Thus it seems to me that in the present case the reasons for treating the words on the front of the bill of lading as determinative and overriding the identity of carrier and demise clauses go well beyond the general common sense rules of construction which give “preponderant importance” to the terms of the signature over the body of the document (see Universal Steam Navigation Co. Ltd v James McKelvie and Co [1923] AC 492, 500) or to written additions over boilerplate print (see Glynn v Margetson & Co [1893] AC 351).

    82. I respectfully think that where the majority judgments of Sir Andrew Morritt V-C and Chadwick LJ in the Court of Appeal went wrong is that they conscientiously set about trying, as lawyers naturally would, to construe the bill of lading as a whole. In fact the reasonable reader of a bill of lading does not construe it as a whole. For some things he goes no further than what it says on the front. If the words there are reasonably sufficient to communicate the information in question, he does not trouble with the back. It is only if the information on the front is insufficient, or the questions which concern the reader relate to matters which do not ordinarily appear on the front, that he turns to the back. And then he calls in his lawyers to construe the document as a whole.

    83. For similar reasons, I think that The Flecha [1999] 1 Lloyd’s Rep. 612 was wrongly decided. Moore-Bick J, as an experienced shipping lawyer, was so conscious of the presence of the identity of carrier and demise clauses on the back of the bill of lading that could not imagine that they could be overridden by a port agent’s stamp and signature on the front. He said that the term “carrier” on the front was used loosely but I think that what he really meant was that it must have been a mistake. If one were construing the document as a whole, giving equal weight to all its clauses, one might possibly conclude that it was a mistake: compare Mannai Investment Co. Ltd v Eagle Star Life Assurance Co. Ltd [1997] AC 749. But the bill of lading is addressed, among others, to persons who will try if possible to identify the carrier simply by what it says on the front. What The Flecha and the majority decision in the Court of Appeal did was to drive a wedge between the reasonable perception of a bank taking up the bill and the construction which would later be given to the bill by a court in litigation, perhaps involving the same bank. This does not seem to me commercially fair.

    84. Mr Milligan argued that in the alternative that the description of CPS as carrier in the signature box was not inconsistent with the shipowners being parties to the contract of carriage. In Fred. Drughorn Limited v Rederiaktiebologet Transatlantic [1919] AC 203 the House of Lords held that a charterparty which described one of the parties as “charterer” was not inconsistent with his being agent for an undisclosed principal who also assumed the rights and duties of charterer. So, in this case, Mr Milligan said that the description of CPS as “carrier” was not inconsistent with giving effect to the demise clause under which CPS were deemed to be agents for the shipowners. They were disclosed agents (the agency being disclosed by the demise clause) for an unnamed principal.

    85. This might be a powerful argument if the bill of lading were a different kind of document. But, for the reasons which I have given, I think that if the carrier is plainly identified by the language on the front of the document, one never gets to the demise clause on the back. The language on the front simply takes priority and no attempt at reconciliation is required. Mr Milligan also submitted that CPS may have contracted both for themselves and the shipowners, the latter being unnamed or undisclosed principals. Rix LJ, who appears to have floated this theory in the Court of Appeal, said that it might be considered “novel and inconsistent with the settled expectation of the shipping trade”. He would know this better than I, but I do not think that any reasonable merchant or banker who might be assumed to be the notional reader of this bill of lading would imagine that there was more than one carrier or that the carrier was anyone other than CPS.

    86. It follows that in my judgment the appellants were not parties to the contract of carriage and are therefore not liable in contract.

    87. Are they liable in tort? There is no dispute that the damage to the cargo was caused by the negligence of their servants employed on the vessel. The case has been argued on the basis that the shipowners owed the normal duty of care to the cargo owners on the ground that it was foreseeable that bad stowage would damage their goods. The existence of that duty could be reinforced by the fact that the shipowners were bailees or sub-bailees of the goods.

    88. But a person who sues for damage to goods must show that he had title to the goods at the time the damage occurred. Otherwise he has suffered economic damage rather than physical damage to his property: he has paid for goods which were damaged and therefore worth less at the time that he acquired title. Such loss cannot be recovered in an action for negligence: The Aliakmon [1986] AC 785.

    89. In the present case, only Makros Hout had obtained title before the voyage began. Prima facie, therefore, they are entitled to sue. The other cargo owners obtained title from the shippers at various stages during the voyage. The judge held that notwithstanding that the negligent act was the stowage at the commencement of the voyage and that, once the voyage had begun, progressive damage to the cargo was inevitable, the other cargo owners could recover for the proportion of the damage which had been caused to their consignments after they had obtained title.

    90. My Lords, in agreement with the Court of Appeal, I think that this was to treat the progress of the damage as creating new causes of action which accrued per diem in diem. But in my opinion there was a single cause of action which accrued to the persons who owned the cargo at the time when the negligent stowage caused it any significant damage. That cause of action comprised all damage caused by the negligent stowage, even if some of that damage did not manifest itself until after they had parted with ownership. As significant damage was suffered by all the cargo before title passed to the cargo owners (other than Makros Hout), they have no cause of action in tort.

    91. The respondents relied upon the decision of the House of Lords in Darley Main Colliery Co v Mitchell (1886) 11 App Cas 127. But that was an unusual case in which the cause of the damage (digging coal under ground) was not a wrongful act. It gave rise to a cause of action only in so far as it let down some part of the surface. So there was no unifying element in the cause of action such as, in this case, is provided by the negligent stowage. Each letting down of the surface was a separate cause of action. In the present case, all damage caused by the negligent stowage is a single cause of action which is complete once any significant damage has occurred.

    92. That means that only Makrous Hout have a prima facie claim in negligence. But the shipowners say that even that claim is excluded by an exemption clause on the back of the bill of lading, namely condition 5, known as the Himalaya clause after the decision in Adler v Dickson (The Himalaya) [1955] 1 QB 158. As sub-bailees, they may also have been entitled to rely on any terms of bailment contained in the contract between them and the charterers as bailees, i.e. the charterparty: see The Pioneer Container [1994] 2 AC 324. But no reliance has been placed by either side on those terms. The argument has turned entirely upon the effect of the Himalaya clause. The relevant provisions are quoted in the speech of my noble and learned friend Lord Bingham of Cornhill and I shall adopt his numbering of the relevant parts.

    93. A Himalaya clause in a contract of carriage is designed to create contractual relations between the shipper and any third parties whom the carrier may employ to discharge his obligations. It does so without infringing the English doctrines of privity of contract and consideration, which, until the Contracts (Rights of Third Parties) Act 1999, prevented third parties from claiming benefits under contracts. The way it works is this. The shipper makes an agreement through the agency of the carrier with the third party servant or contractor. Such third parties may have authorised the carrier in advance to contract on their behalf or they may afterwards ratify the agreement. The terms of the agreement are that if such a third party renders any services for the benefit of the cargo owner in the course of his employment by the carrier, he will be entitled to the exemptions and immunities set out in the clause. At that stage, the agreement is not a contract. The third party makes no promise to the shipper to render any services and, until he has actually rendered them, no contract has come into effect. It is the act of rendering the services which provides the consideration and brings into existence a binding contract under which the third party is entitled to the exemptions and immunities. The efficaciousness of the clause to achieve these results has been affirmed by the decision of the Privy Council in The Eurymedon [1975] AC 154. The theory of the agreement which becomes enforceable conditionally upon the act providing consideration was developed by Sir Garfield Barwick CJ in his dissenting judgment in the High Court of Australia in Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd (The New York Star) (1978) 139 CLR 231 and adopted by the Privy Council when it affirmed his judgment on appeal: see The New York Star [1981] 1 WLR 138.

    94. The first question is whether this version of the clause created the necessary agency. I agree with my noble and learned friend Lord Bingham of Cornhill that words have been omitted because of a common copyist’s error and that it is possible to identify the substance of the missing words. The clause ought therefore to be read as if it contained them. They make it clear that the carrier acts as agent to contract for the exemptions in parts (1) and (2). I do not think that there is any contradiction between the somewhat sophisticated technique of construction which has to be applied to restore clause 5 to its intended form and the more rough and ready approach used to decide who is the carrier. The latter is, as I have said, a question which the reasonable merchant or banker would expect to be able to decide for himself. On the construction of condition 5, he would undoubtedly want to consult a lawyer. For similar reasons, I do not think that it is relevant that the Himalaya clause is preceded by a separate and verbose sentence purporting to confer upon the carrier a series of immunities of which some are probably in conflict with the Hague Rules and others unnecessary.

    95. The next question is the nature of the exemption conferred by part (1). It confers immunities upon the carrier’s servants, agents or independent contractors. I agree with Colman J. and the unanimous Court of Appeal, for the reasons they gave, that the shipowners were independent contractors to carry the goods for the charterers. The cargo owners no longer contest this point. The condition then says that no such servants, agents and independent contractors “shall in any circumstances whatsoever be under any liability whatsoever to the shipper”. That seems reasonably clear. It appears to exempt them from any liability. But Colman J. and all the members of the Court of Appeal agreed that it did not. Why not?

    96. First it was said that part (1) is not a contract between the shipper and a third party. It is a covenant with the carrier, enforceable only by the carrier, by which the shipper promises that neither he nor his successors in title will sue the third party. The way to enforce it is for the carrier to obtain an injunction prohibiting the shipper from suing the third party: see The Elbe Maru [1978] 1 Lloyd’s Rep. 206. In the Court of Appeal, Chadwick LJ ( at p. 471) made his position on this point very clear: “The starting point”, he said, “is to appreciate that [part (1)] has effect only as an agreement between the shipper and the carrier.” He referred to the words of part (3) (“all such persons shall to this extent be deemed to be parties to the contract contained in or evidenced by this Bill of Lading”) and said that the words which he italicised showed that the agency mechanism was to apply only to part (2).

    97. I have two difficulties about this argument. The first is that, read as a whole, the Himalaya clause makes it clear that the carrier contracts as agent for the third party in respect of both parts (1) and (2). The agency mechanism is not in my opinion created by part (3); it is created by the words in part (2) –

“and for the purpose of all the foregoing provisions of this clause the carrier is or shall be deemed to be acting on behalf and for the benefit of all persons who are or might be his servants or agents [etc].”

    98. Part (3) has a different function which was in my opinion correctly identified by Beattie J. in his judgment at first instance in The Eurymedon [1971] 2 Lloyd’s Rep. 399, 409:

“the words “shall to this extent” indicate that the stevedore is only made a party to the exemption clause and not the remainder of the main contract”

    99. The purpose of deeming the third party to be party to the bill of lading to that extent is to ensure that the exemption clause is enforceable against subsequent assignees. As part of the bill of lading it will be enforceable under the Carriage of Goods by Sea Act 1992 or possibly the common law rule that the consignee is bound by his acceptance of the bill of lading and request for delivery of the goods: see The Eurymedon [1975] AC 154, 168.

    100. It may be that Colman J. and the Court of Appeal were misled because they were not given the words which had dropped out of the clause. But even without them I would have decided that the agency covered both parts (1) and (2). That is because in my opinion, and I understand it to be that of all your Lordships, part (1) simply cannot be read as a covenant not to sue. It does not say that the shipper is not to sue the third party. It says that he shall not be under any liability. A similar point arose in Gore v Van Der Lann [1967] 2 QB 31, in which the plaintiff contracted with the Liverpool Corporation that their bus drivers would not be liable to her for any damage however caused. The Corporation did not purport to contract as agent for the drivers and when the plaintiff sued a driver it was conceded that he could not rely upon the exemption: see Midland Silicones Ltd v Scruttons Ltd [1962] AC 446. But the Corporation intervened to claim that the contract was a covenant not to sue the drivers which they could enforce. The Court of Appeal rejected this argument, saying that the agreement could not be construed as containing such a covenant. So it seems to me that part (1) is either a contract of exemption between shipper and third party or it is wholly ineffective. In my opinion it was the former.

    101. The second argument is that if the first part of the clause means what it appears to say, cases like the The Eurymedon [1975] AC 154, The New York Star [1981] 1 WLR 138 and The Mahkutai [1996] AC 650 would have been decided on different grounds or at any rate argued differently by the eminent counsel who appeared in them. This kind of argument is always rather speculative – one seldom knows exactly why some point was not taken – and a close examination of those three cases does not make it any stronger. When The Eurymedon was decided at first instance in New Zealand ([1971] 2 Lloyd’s Rep. 399) Beattie J. had no doubt (at p. 408) that the first part of the clause meant what it said:

“The first part, down to ‘acting as aforesaid’, contains a general exemption from liability for servants and agents of the carrier, while acting in the course of their employment. From there on, is created an agency clause…”

    102. Beattie J. noted that the first pleaded defence was simply that the defendants (in that case, stevedores) were not liable because the work was done in the course of their employment. The second defence pleaded a package limitation and the third the time bar under the Hague Rules. The judge noted that all three defences depended upon showing that the agency mechanism succeeded in creating contractual relations between the defendants and the shipper and that if that worked, the time bar would be enough to defeat the action. But he observed in passing that –

“If it were not for the time factor then there would be room for a further issue, namely, whether this purported exemption from liability in clause 1 overrides the Hague Rules…The issue would then be whether the word “stevedore” came within the meaning of the word “carrier””

    103. In other words, the only answers which Beattie J. could see to a complete exemption under the Himalaya clause were (1) the agency mechanism did not work or (2) the contract created by the agency mechanism was a contract of carriage, so that the exemption was struck down by Article III.8 of the Hague Rules. Since the decisions of the Privy Council in The Eurymedon and The New York Star it is clear that in principle the agency mechanism can work and I have already explained why I think it works for part (1) of this clause. That leaves the question of whether the purported exemption would be struck down by the Hague Rules. I shall come back to that point later.

    104. In the New Zealand Court of Appeal, Turner P. summarised the issue as follows:

“The only defence raised, and the only point argued by the stevedore-defendant, either before Beattie J. or before us, was the efficacy of a clause in the bill of lading which purported to exempt it from liability to the owner of the goods for negligence in stevedoring. Beattie J. held the clause effective, and this appeal is from his decision.”

    105. Perry J. clearly held the same view, because he remarked:

“It should be noted here that the clause endeavours to protect the servants and agents of the carrier even further than the carrier himself. Under the UK Carriage of Goods by Sea Act 1924 he may limit his liability but cannot exempt himself from liability and yet here is a clause which purports to exempt his servants or agents.”

    106. The New Zealand Court of Appeal allowed the appeal on the ground that they did not think that the agency mechanism worked. They could not find any consideration moving from the stevedores. So they did not consider the point which Beattie J. said would arise if the agency did work but there had been no time bar, namely whether the contract was subject to the Hague Rules.

    107. In the Privy Council it was recognised, as it had been by Beattie J., that if the agency mechanism worked, the time bar would be enough to enable the appellants to succeed. So nothing was said about the potential effect of the exempting part of the clause.

    108. In The New York Star [1981] 1 WLR 138 there was a general exemption clause and a separate time bar. The stevedores recognised that there was a strong argument that the doctrine of fundamental breach might prevent the exemption clause from applying to the facts. The stevedores had handed over the goods to a thief without requiring production of the bill of lading. (Compare Sze Hai Tong Bank Ltd v Rambler Cycle Co. Ltd [1959] AC 576.) In the Privy Council Mr Gleeson QC, for the stevedores, included reliance upon the “general exclusion provisions” as an alternative at the end of his printed case (paragraph 20) but his stronger argument, upon which he succeeded, was based on the time bar. So there was no discussion of the issues which arise in this case.

    109. The Himalaya clause in The Mahkutai [1996] AC 650 was said by Rix LJ (at p. 461) to be similar but not identical. It was similar in that it had words similar to part (2), although in a somewhat narrower form. But it was different in that it did not have part (1) at all. Instead, it had what was plainly a covenant not to sue in a form similar to that in the The Elbe Maru [1978] 1 Lloyd’s Rep. 206. There was no general exemption clause. This difference seems to me rather important and makes it less surprising that the case contains no discussion of the effect of a general exemption clause. It is true that Lord Goff of Chieveley said ([1996] AC 650, 666) that the function of a Himalaya clause was –

“to prevent cargo owners from avoiding the effect of contractual defences available to the carrier (typically the exceptions and limitations in the Hague-Visby Rules) by suing in tort persons who perform the contractual services on the carrier’s behalf.”

    110. But this dictum is clearly addressed to the clause used in the case. I do not think it would be fair to treat it as laying down that this was the only function of any Himalaya clause.

    111. The third argument is from redundancy. The second part of the clause says that servants and independent contractors are to have the same protection as the carrier. So, it is said, if the first part exempted the independent contractor from all liability whatever, he would not need the protection of the second part. This argument was accepted by Colman J. ([2000] 1 Lloyd’s Rep. at p. 99) and by Rix LJ and Sir Andrew Morritt V-C in the Court of Appeal ([2001] 1 Lloyd’s Rep. at pp. 462, 476).

    112. My Lords, I seldom find arguments from redundancy very compelling and I think that in the case of a Himalaya clause they carry little weight. I do not think it surprising that when the clause was drafted (probably after Adler v Dickson (The Himalaya) [1955] 1 QB 158) the draftsman thought it might be prudent to wear belt as well as braces. In the legal climate of that time such prudence would have been justified. Exemption clauses were under threat from extensions of the fundamental breach doctrine and the draftsman might have thought that if the exemption in part (1) failed, the third party should at least be able to fall back upon the exemptions and time limits available to the carrier. That is what happened in The New York Star [1981] 1 WLR 138.

    113. That brings me to the fourth argument, which is that the complete exemption conferred by part (1) is cut down by Article III.8 of the Hague Rules, which provides that any clause in a contract of carriage relieving “the carrier or the ship” from liability for negligence shall be null and void. I confess that on this point my opinions have fluctuated but in the end I have been persuaded that the reasoning of Lord Hobhouse of Woodborough is correct and that Article III.8 does have this effect.

    114. Putting the argument in my own words, it seems to me to run as follows. I do not think that the collateral contract between shipper and independent contractor is a “contract of carriage” so as to attract the application of the Hague Rules. But part (3) says that the independent contractor “shall to this extent be deemed to be parties to the contract contained in or evidenced by this Bill of Lading”. That means, as I said earlier, that he is a party only for the purpose of taking the benefit of the exemption clause against the shipper and any transferee of the bill of lading. But, for that purpose only, the provisions of the bill of lading, insofar as they are relevant, apply to him. The only provision which has been suggested as relevant in the present case is Article III.8, which applies by virtue of the paramountcy provision in part (2). That does apply to exemption clauses and restricts their effect. I think that this argument was also accepted by Colman J. ([2000] 1 Lloyd’s Rep. 85, 100) and Rix L.J. ([2001] 1 Lloyd’s Rep 437, 462).

    115. I think that such a construction is in accordance with the general policy of the Hague Rules, which was to provide an acceptable balance in distributing the risks of loss and damage between carrier and cargo owners. The rules are intended to preserve the common law remedies which cargo owners would have in English law for loss of or damage to the cargo in the circumstances there specified. Of course they do have this effect anyway in relation to the contractual carrier, the charterer. But the preservation of these remedies must also be considered in relation to the procedures available for enforcement. By section 20(2)(g) of the Supreme Court Act 1981 the High Court has admiralty jurisdiction in respect of claims for loss of or damage to goods carried in a ship (which may, as in this case, be a claim in tort) and by section 20(2)(h) it has jurisdiction in respect of any claim arising out of any agreement relating to the carriage of goods in a ship. Jurisdiction may be founded by the arrest of the ship, which will also provide security for the claim. Without the right to these enforcement procedures, a cargo claim against a foreign carrier would in many cases be unenforceable. But by section 21(4)(i), the action in rem may be brought against the ship only if the person who would have been liable in personam was at the time when the action was brought the beneficial owner or charterer by demise.

    116. It follows that in the case of goods carried under a bill of lading issued by a time charterer, the liability in personam of the time charterer will not enable the cargo owner to arrest the ship. He may do so only if the shipowner is also liable in tort. But such liability will not exist if the time charterer is able to stipulate for complete exemption on the part of the owner. The remedy which the Hague Rules were intended to preserve may in such cases be unenforceable.

    117. I would therefore make the orders proposed by my noble and learned friend Lord Bingham of Cornhill.


Yemgas FZCO & Ors v Superior Pescadores S.A.

[2016] EWCA Civ 101 [2016] WLR(D) 97, [2016] Bus LR 1033, [2016] EWCA Civ 101 Longmore LJ

The Issues

The first issue is whether, on the true construction of the Paramount Clause, it operates as an agreement between the cargo owner and the shipowner, that the (old) Hague Rules apply or that the Hague-Visby Rules apply. If it is an agreement that the Hague-Visby Rules apply, then there is no agreement between the parties that a different regime in the form of the (old) Hague Rules is to apply. But if it is an agreement that the (old) Hague Rules apply, a second issue arises namely whether the Paramount Clause constitutes an agreement to fix maximum amounts other than those contained in Article IV Rule 5(a) of the Hague-Visby Rules for the purposes of Article IV Rule 5(g) of those rules. There is then a third issue namely whether the date of conversion into relevant currency of the limit of £100 gold per package or unit is the date when the cargo was delivered in its damaged condition or the date of the judgment.

The Rules

Article IV Rule 5 of the (old) Hague Rules provided:-

“Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding £100 per package or unit or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

This declaration if embodied in the bill of lading shall be prima facie evidence, but shall not be binding or conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier and the shipper another maximum amount than that mentioned in this paragraph may be fixed, provided that such maximum shall not be less than the figure above named.”

Article IX provided that the limit of £100 per package or unit is to be taken to be “gold value”.

The relevant provisions of the Hague-Visby Rules are:-

“Article III – Responsibilities and Liabilities

Rule 8

Any clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods … or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect. …

Article IV – Rights and Immunities

Rule 5

(a) Unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the goods in an amount exceeding 666.67 units of account per package or unit or 2 units of account per kilogramme of gross weight of the goods lost or damaged, whichever is the higher.

(b) The total amount recoverable shall be calculated by reference to the value of such goods at the place and time at which the goods are discharged from the ship in accordance with the contract or should have been so discharged. …

(d) The unit of account mentioned in this Article is the special drawing right as defined by the International Monetary Fund. The amounts mentioned in sub-paragraph (a) of this paragraph shall be converted into national currency on the basis of the value of that currency on a date to be determined by the law of the Court seized of the case.

(e) Neither the carrier nor the ship shall be entitled to the benefit of the limitation of liability provided for in this paragraph if it is proved that the damage resulted from an act or omission of the carrier done with intent to cause damage, or recklessly and with knowledge that damage would probably result.

(g) By agreement between the carrier, master or agent of the carrier and the shipper other maximum amounts than those mentioned in sub-paragraph (a) of this paragraph may be fixed, provided that no maximum amount so fixed shall be less than the appropriate maximum mentioned in that sub-paragraph.

Article V – Surrender of Rights and Immunities, and increase of Responsibilities and Liabilities

A carrier shall be at liberty to surrender in whole or in part all or any part of his rights and immunities or to increase any of his responsibilities and liabilities under these Rules, provided such surrender or increase shall be embodied in the bill of lading issued to the shipper. …”

Paragraphs (a) and (d) of Article IV Rule 5 in their current form set out above were inserted into the Schedule to the 1971 Act by section 2 of the Merchant Shipping Act 1981. The same section provided that the date for conversion of the special drawing rights into national currency under English law was the date of judgment. These provisions are now contained in Schedule 13 to the Merchant Shipping Act 1995.

The package limitation regime contained in Article IV Rule 5 of the Hague-Visby Rules differs from the equivalent Hague Rules regime in several respects. The judge identified five. First, the previous limit of £100 in gold is replaced by a limit calculated by reference to IMF special drawing rights, the value of which is based upon a basket of currencies. Second, paragraph (a) spells out that it is the higher of two figures, calculated by reference to the number of packages or the weight of the goods respectively, which constitutes the relevant limit. Third, paragraph (b) is new, providing for the method by which damages are to be calculated. Fourth, paragraph (c), dealing with containerisation, is new. Fifth, paragraph (e) provides for the circumstances in which the carrier may lose the benefit of limitation. The Hague Rules contained no equivalent provision, although resort would sometimes be had to the common law principles of deviation. Paragraph (g), however, permitting agreement on a higher maximum amount, existed in materially the same terms in the Hague Rules.

The Judgment

Males J decided (1) the Paramount Clause on its true construction incorporated the (old) Hague Rules not the Hague-Visby Rules but (2) it did not operate as an agreement for a higher limit pursuant to Article IV rule 5(g) of the Hague-Visby Rules. The cargo-owners were therefore confined to recover damages limited by reference to Article IV rule 5(a) of the Hague-Visby Rules. That limit was calculated at the date of judgment as required by the Merchant Shipping Acts, so the third issue did not arise. If it had, he would have held that the limit was to be calculated as at the date of delivery of the cargo. Neither side is satisfied with this decision.

Hague or Hague-Visby?

The judge would like to have held that the Paramount Clause incorporated the Hague-Visby rather than the Hague Rules but felt constrained by authority to hold that on its true construction (even in 2015 in respect of a contract made in 2008) the 1924 Hague Rules rather than the 1968 Hague-Visby Rules should apply. It will therefore be necessary to look at those authorities. Before doing so, however, it may be said that the conclusion which the judge unwillingly reached is an odd conclusion. Most maritime nations have adopted the Hague-Visby Rules; the United Kingdom did so as early as 1971 in the Carriage of Goods by Sea Act of that date; it did not come into force until a certain number of other countries had signed up but that happened as long ago as 23rd June 1977. Can it really be the case that a Paramount Clause in a contract made over 30 years later in 2008 is still to be taken as incorporating the 1924 Rules rather than the 1968 Rules?

The actual terms of the Paramount Clause are, of course, important. It identifies the Hague Rules contained in the International Convention of 25th August 1924 but provides that it is those Rules

“as enacted in the country of shipment”

which are to apply to the contract. The country of shipment was Belgium which adhered to the Hague-Visby Rules on 6th December 1978.

The judge had no evidence as to the method by which Belgium in fact enacted the Hague-Visby Rules and had, therefore, to proceed on the assumption that Belgian law was the same as English law, an assumption which is perhaps likelier in the present case than in some cases where the assumption is applicable. In this country the (old) Hague Rules had been enacted by the Carriage of Goods by Sea Act 1924. The Carriage of Goods by Sea Act 1971 (“the 1971 Act”) repealed that Act, see section 6(3) of the 1971 Act and provided by section 1:-

“1 Application of Hague Rules as amended

(1)        In this Act, “the Rules” means the International Convention for the unification of certain rules of law relating to bills of lading signed at Brussels on 25th August 1924, as amended by the Protocol signed at Brussels on 23rd February 1968 [and by the Protocol signed at Brussels on 21st December 1979].

(2)        The provisions of the Rules, as set out in the Schedule to this Act, shall have the force of law.

…”

The schedule to the Act, referred to in section 1(2) is entitled

“THE HAGUE RULES AS AMENDED BY THE BRUSSELS PROTOCOL 1968.”

The schedule then enacts that Brussels Protocol which, as I have said, is the formal designation of the 1968 Hague-Visby Rules. On any ordinary and sensible view of English law, therefore, the Hague Rules “as enacted” in England are the Hague Rules as enacted by the schedule to the 1971 Act, a schedule which in its title refers to the Hague Rules “as amended”. The position in Belgium must be taken to be the same.

This was the judge’s own inclination. He said (para 34):-

“I would see no real difficulty, if the point were free of authority, in holding that the version of the Hague Rules which is enacted in the country of shipment in the present case is the Hague-Visby Rules, with the consequences that those Rules apply not just as a matter of the compulsory application of the 1971 Act but also as a matter of contract.”

It is, therefore, necessary to consider the authorities by which the judge felt constrained to come to a contrary conclusion.

The first such authority is Nea Agrex S.A. v Baltic Shipping Co. Ltd (The Agios Lazaros) [1976] QB 933; [1976] 2 Lloyd’s Rep 47 a case decided after the 1971 Act had been passed but before it had come into force in respect of a contract made in 1972. It was a charterparty case and neither set of Rules was compulsorily applicable but the charter itself provided “Paramount Clause deemed to be incorporated in this Charter Party”. Donaldson J held that the purported incorporation of a Paramount Clause was ineffective since it did not specify the terms of such a clause; some such clauses only incorporated the Article IV exceptions or only applied if compulsorily applicable by the law of the place of shipment. He therefore disregarded the purported incorporation with the result that the one year time limit for claims imposed by Article III rule 6 of the Hague Rules did not apply.

This court disagreed and held that the intention of the parties was to incorporate all the Hague Rules including the one year time limit for claims. Lord Denning MR held that the right approach was to ask what the phrase “Paramount Clause” would mean to shipping men. He answered that question by saying (pages 943-944):-

“It seems to me that when the “paramount clause” is incorporated, without any words of qualification, it means that all the Hague Rules are incorporated. If the parties intend only to incorporate part of the rules (for example, art. IV), or only so far as compulsorily applicable, they say so. In the absence of any such qualification, it seems to me that a “clause paramount” is a clause which incorporates all the Hague Rules. I mean, of course, the accepted Hague Rules and not the Hague-Visby Ruleswhich are of later date.”

It is not clear why Lord Denning referred to the Hague-Visby Rules at all, since they also included a one year time limit but since England had already enacted the Hague-Visby Rules but they were not yet in force, his expression of opinion is not, perhaps, surprising.

Goff LJ (Sir Reginald not, as counsel seemed to think, Sir Robert) agreed. He referred to evidence having been before the judge that there were a number of forms of paramount clause which led the judge to conclude that there was no means of choosing between them. But he held that the phrase “paramount clause” was a term of art which referred to (and was therefore intended to incorporate) the Hague Rules as a whole. He accepted that a possible area of uncertainty was whether it was intended to incorporate the (old) Hague Rules or the (new) Hague-Visby Rules but he had no difficulty in saying that the intention was to refer to the Hague Rules in their original form (949C):-

“At the date of the charterparty the Visby rules had not been adopted in any country, nor indeed I think have they even now, but that does not matter. The form taken from a bill of lading and entitled Hague-Visby Paramount Clause had not been published and the Visby variant was not in any kind of general use.”

Shaw LJ agreed saying (954A):-

“A more productive approach [than that of counsel for the charterers] in the circumstances of this case is to ask what the shipowners would have supposed the charterers had in mind when the words “paramount clause” were inserted and then to ask the same question with the parties reversed. In the absence of any express words of variation or abbreviation or extension, each party must have assumed that the other party had the Hague Rules in mind in their original form without modification or qualification. This approach does provide a clue as to what the respective parties had in contemplation, namely that by the phrase “paramount clause” they meant simply the Hague Rules.”

This decision is helpful as showing what this court thought shipping men meant by the phrase “clause paramount” in 1972 but is, perhaps of little assistance in determining what the phrase “the Hague Rules … as enacted in the country of shipment” meant to shipping men in 2008.

The judge referred to The Marinor [1996] 1 Lloyd’s Rep 301 in which the paramount clause incorporated the provisions of the Canadian Carriage of Goods by Water Act “as amended”. Colman J had no difficulty in holding that those words did incorporate the (new) Hague-Visby Rules. In the present case, of course, it is not the Hague Rules “as amended” but “as enacted”. The Marinor is not therefore directly relevant save to show that there is a form of words which will lead to the definitive conclusion that the new Rules are intended to apply.

In Lauritzen Reefers v Ocean Reef Transport Ltd S.A. (The Bukhta Russkaya) [1997] 2 Lloyd’s Rep 744 a “general paramount clause” was to apply in a 1995 charterparty. The claim was made by a charterer who had settled with bill of lading holders and wanted to claim an indemnity from the shipowner. The Hague-Visby Rules permitted a claim for an indemnity to be brought if it was brought within 3 months of the settlement (Art III Rule 6bis) but the original Hague Rules required any claim to be brought within one year of delivery. It was therefore critical to determine which Rules applied. For the charterers, Mr Michael Coburn of counsel relied on a passage from the 4th edition of Wilford Coghlin & Kimball on Time Charters page 561 which, after referring to the Agios Lazaros stated:-

“However, if a paramount clause is incorporated into a Baltime charterparty governed by English law it is likely, following the coming into force in 1977 of the Carriage of Goods By Sea Act 1971, the Hague-Visby Rules would be regarded as incorporated.”

Thomas J did not deal with this argument of Mr Coburn because he held, on the evidence before him, that the words “general paramount clause” in a time charterparty referred to a particular clause or more accurately any of a number of clauses that had the following essential terms (page 746):-

“(1) if the Hague Rules are enacted in the country of shipment, then they apply as enacted; (2) if the Hague Rules are not enacted in the country of shipment, the corresponding legislation of the country of destination applies or, if there is no such legislation, the terms of the Convention containing the Hague Rules apply; (3) if the Hague-Visby Rules are compulsorily applicable to the trade in question, then the legislation enacting those rules applies.”

In the light of this conclusion Thomas J held that, since the Hague-Visby Rules were specifically referred to in the “general paramount clause” as being applicable (by contract) if compulsorily applicable (presumably by the proper law) which they were not in the case before him, it was the old Hague Rules which applied to the case, the voyage being one from Mauritania to Japan neither of which countries had enacted the Hague-Visby Rules by the date of the charter. That is perhaps not a surprising decision in a case where the incorporating clause itself expressly refers to both the Hague Rules and the Hague-Visby Rules and makes clear that the Hague-Visby Rules are only to apply in certain defined circumstances. The judge went out of his way to say (page 747) that it was, therefore, not necessary to consider Mr Coburn’s argument and it was not apposite to deal with it.

On the facts, of the present case, however, it is necessary to consider the argument which Mr Coburn made in that case and whether Mr Wilford’s book on Time Charters was correct in the view it expressed. Subject to any further authority which remains to be considered, I think the late Mr Wilford was indeed correct to say that since 1977 a typical clause paramount, which did not differentiate in terms between the two sets of rules, would be taken by shipping men to incorporate the Hague-Visby rules in a Baltime charter governed by English law and, by extension, to other charters and to bills of lading subject to such a clause (such as the Conline bills in the present case).

We were, by agreement, shown the present (or, at least, an updated) form of the Conline bill which (in clause 3(a)) incorporates the Hague Rules “as amended” by the Protocol signed at Brussels on 23rd February 1968 (“the Hague Visby Rules”). Counsel for the cargo-owners argued that since it was possible to incorporate the Hague-Visby Rules by express words and it had been done in a later form than that used for the instant cargo carrying voyage, the court could safely assume that there was no intention to incorporate the Hague-Visby rules in the present case. Such an argument is not to my mind decisive. The court has to construe a contract made by shipping men in 2008; the fact that they could have used a clause which made the position clear does not absolve the court from deciding what the clause means when the position is not clear. I see little argument against Mr Wilford’s view as expressed in his book and much to commend it. Thomas J’s decision in Seabridge Shipping AB v Acorsleff’s Eftf’s A/S [1999] 2 Lloyd’s Rep 685 takes the matter no further.

There remains, however, the authority on which the judge chiefly relied to hold that in these bills of lading it was the 1924 rather than the 1968 rules which were incorporated. That is Parsons Corporation v C.V. Scheepvaartonderneming Happy Ranger (The Happy Ranger) [2001] 2 Lloyd’s Rep 530 (Tomlinson J) and [2002] 2 Lloyd’s Rep 356 (CA). The main point of contention was whether the Hague-Visby Rules applied if the contract was contained not “in a bill of lading or any similar document of title” but in what might be called an ordinary contract for goods to be carried (from Italy to Saudi Arabia) which merely provided that the carrier’s regular form of bill of lading was to form part of the contract. Tomlinson J held that no bill of lading or document of title was in fact issued and, therefore, that the Hague-Visby Rules were not “compulsorily applicable” because the contract was not covered by a bill of lading or any similar document of title as required by Articles I (b) and X, but that the Hague Rules did apply. This court held that there was in fact a bill of lading and the Hague-Visby Rules were “compulsorily applicable” (with their, in that case, higher limit).

The relevant general paramount clause was in the form discussed by Thomas J in The Bukhta Russkaya with its express reference to the incorporation of the 1924 Convention but of the Hague-Visby Rules where they “apply compulsorily”. Its precise terms were:-

“GENERAL PARAMOUNT CLAUSE

The Hague Rules contained in the International Convention for the Unification of certain rules relating to Bills of Lading, dated Brussels 25th August 1924, as enacted in the country of shipment shall apply to this contract. When no such enactment is in force in the country of shipment, Articles I to VIII of the Hague Rules shall apply. In such case the liability of the Carrier shall be limited to £100 – sterling per package.

Trades where Hague-Visby apply

In trades where the International Brussels Convention 1924 as amended by the protocol signed at Brussels on 23rd February 1968 – the Hague-Visby Rules – apply compulsorily, the provisions of the respective legislation shall be considered incorporated in this Bill of lading ….”

At first instance the cargo-owners contended that the version of the Hague Rules enacted in Italy was the Hague-Visby Rules so that it was those rules which were applicable pursuant to the first sentence of the clause; the shipowners argued that the Hague-Visby Rules were not “the Hague Rules … as enacted” in Italy

“not only because of the various important differences between the two codes but also because … the wording of clause 3 itself draws a clear distinction between enactment of the Hague Rules and enactment of [the] Hague-Visby Rules.”

Tomlinson J accepted this submission saying at para 31:-

“I also reject the argument that the Hague-Visby Rules are to be regarded as the Hague Rules “as enacted” in Italy so as to be incorporated by reason of the first limb of cl. 3 of the specimen bill of lading. Quite apart from the important difference between the two codes, in the first two sub-clauses of cl. 3 a clear distinction is drawn between the Hague and the Hague-Visby Rules and their enactment. Italy has repealed its enactment of the Hague Rules and has enacted the Hague-Visby Rules.That is not the situation to which the first sub-clause of cl. 3 refers.”

My Lord can, of course, speak for himself but I do not regard this paragraph of the judgment as saying that the words “as enacted in the country of shipment” could not refer to the Hague-Visby Rules if, for example, the particular paramount clause made no specific reference to the Hague-Visby Rules in some other part of the same clause but those Rules had in fact been enacted in the country of shipment. If he were saying that (and the judge seems to have thought that he was), I would, very respectfully, disagree with him and prefer the views of Mr Wilford in respect of the differently drafted clause with which we are concerned.

In the Court of Appeal Tuckey LJ observed (at para 11):-

“The Hague Rules are not enacted in Italy so the first sentence of the first paragraph of clause 3 of the bill is not applicable.”

The judge regarded this as an endorsement of what he (Males J) thought Tomlinson J was saying. But I respectfully doubt that. Tomlinson J had expressly held (para 35) that the (old) Hague Rules did apply with their limitation of £100 sterling per package. As I read Tuckey LJ’s sentence as cited above, he is saying (obiter) that the (old) Hague Rules were not (any longer) enacted in Italy with the result that if the Hague-Visby Rules were not compulsorily applicable pursuant to the second part of the clause, there would be no limitation at all. That, however, was not the position because there had been a bill of lading and the Hague-Visby Rules were therefore compulsorily applicable and the claim was limited to about US$2 million by reason of Art IV rule 5 of the Hague-Visby Rules (see para 32).

But on any view of the matter, Tuckey LJ’s remarks were obiter and I would regard this court as free to form its own view of the matter. For the reasons I have given I consider that any case, in which a bill of lading is issued in 2008 incorporating the Hague Rules as enacted in the country of shipment and in which the country of shipment has (as here) enacted the Hague-Visby Rules, should be regarded as a case which is subject to the Hague-Visby Rules rather than the (old) Hague Rules.

I am confirmed in this view by the fact that it is the same view as that of the second circuit of the United States Court of Appeals in an appeal from the District Court for the Southern District of New York where the Hague-Visby Rules have not been enacted. Nevertheless in JCB Sales v Wallerian Lines (The Seijin) 124 F 3d 132 (1997), [1997] AMC 2705, to which Mr Goldstone QC for the shipowners referred us, a contract which stated that it was to be governed by “the Hague Rules contained in the international convention for the unification of certain rules relating to bills of lading … as enacted in the country of shipment” was held to be governed by the Hague-Visby Rules where the country of shipment (England) had enacted those rules at any rate where that enactment described the new rules as being “the Hague Rules as amended by the Brussels 1968 Protocol”, see paragraphs 27-34 of the judgment of the court delivered by Van Graafeiland CJ. That seems to me the good sense of the matter.

Mr Robert Thomas QC sought to rely on an Additional Clause B at the foot of the bill of lading headed Scandinavian Trades providing for the Hague-Visby Rules to be incorporated

“in trades where one of the Scandinavian Maritime Codes apply compulsorily.”

He submitted that this showed the parties to the bill of lading could refer to the Hague-Visby Rules when they wished to do so and that the bills of lading in the present case were therefore similar to those before Thomas J and Tomlinson J which referred to the Hague-Visby Rule in the incorporating clause itself. I cannot accept that this Scandinavian tail can wag the general ocean-going dog. Nor did the judge who said that if he had had to decide the point

“I would have been cautious about construing a reasonably prominent and widely used clause paramount by reference to another clause buried in the small print of the bill which stated that it was “to be added” in a trade with Scandinavian and therefore, at least arguably, did not even form part of the contract in a case having nothing to do with Scandinavia.”

I would applaud the judge’s instincts in this respect just as much as his instincts on the main point of the case, if not his actual decision on the point.

Agreement “fixing” other maximum amounts within Art IV rule 5(g)

My conclusion that clause 2 of the bills of lading incorporated the (new) Hague-Visby Rules rather than the (old) Hague Rules makes it unnecessary to consider whether clause 2 constituted an agreement fixing other amounts within Article IV rule 5(g). The judge thought it did not because it would be odd in a case, governed compulsorily as a matter of English law by the 1971 Act, to find that £100 gold value came in “by a side wind” as a result of a clause purporting to incorporate the Hague Rules which the parties must be taken to know would, in general, not be applicable. There is much to be said for the judge’s view although it might be said, against it, that it was by no means obvious at the time when the contract was made that English law was applicable at all. The bill of lading was governed by the law of the country where the carrier had his principal place of business which might or might not have made the Hague-Visby Rules compulsorily applicable. It was only over 4 years later that English law was agreed to be the law applicable to the contract. In the event it is unnecessary to express any view on the matter.

Date for Conversion under the Hague Rules

Nor is it necessary to express any concluded view about the date of converting £100 gold per unit into the national currency. I would only express my agreement with the judge that I would be entirely happy to decide the point in accordance with the unarticulated assumptions of Hobhouse J in The Rosa S [1998] QB 419. The judge’s statement that, in a case of this kind, Hobhouse J’s unarticulated assumptions are “worth quite a lot” is a considerable understatement.

Conclusion

As it is, I would dismiss this appeal and uphold the judge’s conclusion that the Hague-Visby limit applies, even if my reasons for doing so are not the same as those in the judgment below.

Lord Justice Tomlinson:

I agree with my Lord, essentially for the reasons he has given.

The contracts contained in or evidenced by the bills of lading were, when made, governed by the law of the country where the carrier has his principal place of business. The carrier is a Panamanian company, although it seems doubtful that its principal place of business is to be found there. There is no evidence on that score.

The history of this litigation is curious. The Particulars of Claim simply asserted that the Hague-Visby Rules were applicable to the contracts of carriage pursuant to the Carriage of Goods by Sea Act 1971, whilst at the same time asserting that the contracts of carriage incorporated the Hague Rules.

The Defence admitted liability to pay the Hague-Visby limit, did not take issue with either proposition set out at paragraph 45 above, but as my Lord has recorded, denied the Claimants’ entitlement to pick and choose between the two package limit regimes.

Perhaps when, nearly five years after the contracts of carriage were made, and five months after pleadings were closed, the cargo underwriters and the shipowners’ P. & I. Club agreed that the claims for damage to cargo arising out of the alleged breach of these contracts should be subject to English law, they were giving effect to an unspoken assumption that the Hague-Visby Rules were applicable. However that may be, retrospective agreement that English law governed the claim had the effect, as my Lord has described at paragraph 5 above, of rendering the Hague-Visby Rules applicable by reason of Article X of Schedule 1 to the Carriage of Goods by Sea Act 1971.

I am not sure what is the provenance of the expression “the Hague-Visby Rules”. Strictly speaking there are no such Rules. There was signed at Brussels on 23 February 1968 a “Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading (“Visby Rules”)”. Those “Certain Rules” are of course the Hague Rules. The Protocol prescribes a series of amendments to the Hague Rules, and it is that series of amendments which in the title to the Protocol is termed the “Visby Rules”. Visby is a port on the Swedish Island of Gotland. I am indebted to Professor W Tetley QC of the Faculty of Law at McGill University, Montreal, for the information in Marine Cargo Claims (4th ed.) (2008) Vol. 1 pages 11-12 that:-

“The Visby Rules (the Brussels Protocol of 1968 amending the Brussels Convention of 1924) were the outcome of the successful deliberations of the Comité Maritime International Conference in Stockholm in 1963, where changes to the Brussels Convention of 1924 were adopted. The Comité met in the historic City of Visby after the Conference and thereby gave the Visby Rules their name.”

Professor Tetley also states:

“The Visby Rules (the Brussels Protocol of February 23, 1968) should not be considered as a separate convention. The Visby Rules are amendments to the Brussels Convention 1924 and art. 6 of the Protocol stipulates:

“As between the Parties to this Protocol the Convention and the Protocol shall be read and interpreted together as one single instrument. A Party to this Protocol shall have no duty to apply the provisions of this Protocol to bills of lading issued in a State which is a Party to the Convention but which is not a Party to this Protocol.”

Thus the result of ratification of or accession to the Visby Protocol by a nation is that the nation consents to be bound by the Hague/Visby Rules.”

It is perhaps inevitable that the Convention and the Protocol should have become together known compendiously as the Hague-Visby Rules, although I note that Professor Tetley terms them the Hague/Visby Rules.

Had I been as well-informed about these matters in 2001 as I am now as a result of studying the materials helpfully produced by Counsel for the purposes of this appeal, I think that in my judgment in The Happy Ranger, above, I would have expressed myself differently at paragraph 31. I do not think that I would simply have said that Italy has enacted the Hague-Visby Rules, because I am confident that when I said that I did not appreciate that the Hague Rules as amended by the Visby Rules had never in fact been promulgated as a single autonomous instrument, the Hague-Visby Rules. It would have been more accurate to say that Italy, like the UK, has enacted the Hague Rules as amended, which is exactly what is said in the sub-title to section 1 of the Carriage of Goods by Sea Act 1971.

Accordingly, I fear that in the first sentence of paragraph 31 of my judgment in The Happy Ranger I was intending to say that the words “the Hague Rules as enacted in the country of shipment” could not refer to the Hague-Visby Rules even if the particular paramount clause made no specific reference to the Hague-Visby Rules in some other part of the same clause, but those Rules had in fact been enacted in the country of shipment. I agree with my Lord that in the light of the manner in which “the Hague-Visby Rules” came into being, that is a mistaken approach.

I still consider that my approach to the construction of the paramount clause in that case may have been correct, subject of course to the point on which I was overruled by the Court of Appeal, which was a separate point as to whether there had in that case been issued a bill of lading or similar document of title. The paramount clause there under consideration drew a distinction between the Hague Rules and the Hague-Visby Rules.

As Males J points out at paragraph 30 of his judgment below, when The Happy Ranger reached the Court of Appeal the arguments were different.

“30. . . . The cargo claimants no longer suggested that the first sentence of the clause (“The Hague Rules … as enacted in the country of shipment”) referred to the Hague-Visby Rules. Instead they contended that the Hague-Visby Rules applied by virtue of the second part of the clause in that case, referring to trades where the Hague-Visby Rules applied. That argument was rejected as a matter of construction: the majority (Tuckey and Aldous LJJ, Rix LJ dissenting) held that the second part of the clause only operated when the Hague-Visby Rules applied compulsorily, which would only be the case when there was a bill of lading or similar document of title. However, reversing Tomlinson J, all three members of the Court held that there was such a bill in this case and therefore the Hague-Visby Rules did apply compulsorily. It did not matter, therefore, whether the clause purported to apply the Hague or Hague-Visby Rules. It is nevertheless of interest that Tuckey LJ said at [11]:

“The Hague Rules are not enacted in Italy so the first sentence of the first paragraph of clause 3 of the bill is not applicable.”

31. Although strictly this point did not arise for decision in view of the fact that the shipowners’ reliance on this part of the clause as a route to the application of the Hague-Visby Rules was no longer pursued, this constitutes a clear statement of the position for which Mr Thomas contends in the present case.”

Although it does not perhaps greatly matter, as what was said on this point was on any view obiter, for my part I do consider that Tuckey LJ was agreeing with my approach when at paragraph 11 of his judgment he remarked: “The Hague Rules are not enacted in Italy so the first sentence of the first paragraph of clause 3 of the bill is not applicable.” I had held that the Hague Rules applied by virtue of the second limb of the first sub-clause of clause 3 of the bill of lading. I think that Tuckey LJ was recording the by then common ground that if the second paragraph, or second sub-clause, of clause 3 applied the Hague-Visby Rules, there would be no scope for the application of the second limb of the first sub-clause because that was a default provision, and there was no default.

However that may be, we are at liberty to form our own view as to the effect of the paramount clause in this case. I agree with my Lord that the Hague Rules as enacted in the UK are the Hague Rules as enacted by the Schedule to the Carriage of Good by Sea Act 1971. Those are the Hague Rules as amended, as pointed out both by the sub-title to section 1 of the Act and the title to the Schedule. It may be that it was common ground before the judge that the position in Belgium is the same – see paragraph 13 of his judgment. But in any event, as my Lord points out, the position in Belgium must in the absence of evidence to the contrary be taken to be the same as in the UK.

I am sorry to have been in part responsible for preventing the judge following his first inclination. As it is, I agree that he came to the right overall conclusion, albeit for the wrong reason.

Lord Justice McCombe:

I am happy to say that, having read the judgment of Males J below, having read and heard the admirable arguments in this court and having read the drafts of my Lords’ judgments in this case, my own inclination on first reading of the documents as to the correct outcome of the matter was precisely the same as that of my Lords. Having been educated by all these materials, I am also pleased to find that our mutual inclination also corresponds with the law that my Lords have so carefully explained in their judgments, with both of which I agree. I too would dismiss the appeal.


Siboti K/S v BP France SA

[2003] 2 LLR 364, [2003] EWHC 1278 (Comm), [2003] 2 Lloyd’s Rep 364

Gross J

THE CONTRACTUAL TERMS

The charterparty: As foreshadowed, the charterparty was on the ASBATANKVOY form. By cl. M of Part I of the charterparty, Special Provisions Nos. 1-14 were incorporated therein. Special Provision 14 provided that “Enron clauses as amended and attached are incorporated” in the charterparty. The “Enron clauses” were in fact the ECTRIC Charter Party Clauses (“the ECTRIC clauses”), dated January 1, 1996. ECTRIC it will be recollected was the shipper under the bill of lading, to which I shall return in due course. Cl. 49 of the ECTRIC clauses is central to the present dispute; it provided as follows:

” 49. GOVERNING LAW/ DISPUTE RESOLUTION

Notwithstanding anything to the contrary contained in this Charter Party (including Part II), the parties hereby agree as follows:

(a) This Charter Party shall be construed and interpreted in accordance with, and governed by, the laws of England ….

(b) Subject to subclause (c) below, any dispute of whatsoever nature arising under this Charter Party shall be determined by the English [Court] … and the parties hereby expressly submit to the exclusive jurisdiction of the English … Courts and to service of process by certified or registered mail sent to the address for such party as set forth in Part I hereof.

(c) Notwithstanding the foregoing… either party may … elect to have any such dispute referred (and exclusively determined by) … arbitration in London …

(d) It is expressly understood that this Clause supersedes the Arbitration and Interpretation clauses in Part II hereof.

(e) All bills of lading under this Charter Party shall incorporate this exclusive dispute resolution clause…..”

There followed various (unnumbered) Additional Clauses, two of which provided as follows:

” COMMERCIAL COURT LONDON

This charterparty shall be governed by and construed in accordance with English law and the English courts have jurisdiction in respect of all disputes arising out of this charter party.

LONDON ARBITRATION

This charterparty shall be governed by and construed in accordance with English law and any dispute arising out of this charterparty shall be referred to arbitration in London …”

Pausing here, it is plain and was not in dispute that the charterparty was governed by English Law (cl.49(a)). Further, it seems clear that the dispute resolution regime under the charterparty provided for the exclusive jurisdiction of the English Court (cl. 49(b)), subject only to the right of election for London arbitration (cl.49(c)). The additional unnumbered clause spelled out these jurisdiction provisions. In effect, this jurisdiction regime superseded the references to arbitration contained in the standard ASBATANKVOY form provisions found in Part I and Part II of the charterparty.

The bill of lading: The bill of lading provided as follows:

” This shipment is carried under and pursuant to the terms of the charter dated between and … and all the terms whatsoever of the said charter apply to and govern the rights of the parties concerned in this shipment.”

As is apparent, this provision did not supply the date of the charterparty in question nor the names of the parties thereto. There is, however, no realistic doubt that the charterparty in question was the charterparty (dated 16th October, 2001, between the Claimant and EIC).

THE RIVAL CASES IN OUTLINE

I turn to the rival cases in outline, leaving over the concession point for separate consideration at the end of this judgment.

Before proceeding further, it is convenient to explain the references which follow to English and Community Law. It was common ground between the parties that the question of whether as between the Claimant and the Defendant (as holder of the bill of lading), in isolation, the EJC was incorporated in the bill of lading was to be approached by reference to Community Law. That said, there was no or no serious dispute that under the bill of lading a holder would succeed to the rights and obligations of the shipper. As there was at least some doubt as to the domicile of the shipper (ECTRIC) and, accordingly, as to the applicability of Community Law to the question of the incorporation of the EJC into the bill of lading as between it and the Claimant, that question was addressed by the parties in terms of English Law. On the view which I take of this matter, as explained below, it is immaterial whether the incorporation issue is addressed by reference to English or Community Law. While the terminology differs, the two systems are engaged in an essentially similar inquiry and it would in general be unlikely, if not impossible, that the answer to the question of incorporation would differ as between English and Community Law. Against this background, I shall follow the approach adopted by the parties and deal with the matter in terms of both English and Community Law.

For the Claimant, the essence of Mr. Young QC’s argument proceeded as follows. The starting point was the bill of lading contract but that contract incorporated by reference “all the terms whatsoever” of the charterparty. The precise wording “all the terms whatsoever” was very wide and was not covered or confined by previous authority. That said, such wording read simply with cl. 49(b) of the charterparty, would not suffice to incorporate the EJC into the bill of lading. Matters did not, however, rest there. Cl. 49(e) of the charterparty was of the first importance. Cl. 49(e) provided an explicit reference to the bills of lading and served to make it plain that the EJC was intended to be operative in the bill of lading context. The exercise of construction was to be undertaken in a modern fashion and in any event it should not be assumed that the old law as to the incorporation of arbitration clauses in bills of lading should be applied to the incorporation of jurisdiction clauses. As between the shipper (ECTRIC) and the Claimant, it would be contrary to commonsense to treat the EJC as not incorporated in the bill of lading; most unusually, the EJC here formed part of the shipper’s rather than the shipowner’s standard terms. Accordingly, “stopping the clock” at the stage when the bill of lading was a contract between the original parties thereto, the conclusion was that the EJC was incorporated therein. If so, the same conclusion followed with respect to the bill of lading contract as between the Claimant and the Defendant (a subsequent holder). The same answer was arrived at in terms of Community Law. By the route of cl. 49(e), a consensus as to the incorporation of the EJC was clearly and precisely demonstrated; if anything, this result was all the more clear under Community Law, which was not hidebound by old English authority. The Defendant’s stance, involving as it does a subsidiary or arm of BP resisting the English jurisdiction in order to conduct an English law dispute before the French Courts, was without merit.

For the Defendant, Mr. Flaux QC emphasised its entitlement, under Art. 2 of the Regulation, to be sued in the Courts of its domicile. That entitlement was not displaced here; neither as a matter of English nor Community Law was the EJC incorporated into the bill of lading contract. As a matter of English Law, the inquiry began (and perhaps ended) with the bill of lading contract. It was well-established that general wording of incorporation such as “all the terms whatsoever” did not suffice to incorporate into the bill of lading ancillary clauses such as arbitration or jurisdiction clauses, which, for these purposes, were to be approached in the same way. In order to incorporate the EJC into the bill of lading, there needed to be some explicit reference thereto either in the bill of lading or the charterparty. There was no such explicit reference in either the bill of lading (with its general wording of incorporation) or the charterparty. As to the charterparty, cl. 49(e) could not be relied on in order to construe the bill of lading; cl. 49(e) went only to the intention of the parties to the charterparty, not to the intention of the parties to the bill of lading. There was no claim for rectification of the bill of lading; the subjective intention of the parties thereto was irrelevant and no objective intention to incorporate the EJC into the bill of lading could be demonstrated; the fact that the EJC formed part of the ECTRIC standard terms did not warrant re-writing the terms of the bill of lading contract. Neither as between the original parties to the bill of lading nor as between the Claimant and the Defendant, was the EJC incorporated therein. The same conclusion was arrived at in terms of Community Law; no agreement to incorporate the EJC had been clearly and precisely demonstrated. Had there been any such intention, it could have been simply achieved by an express reference to the EJC in the bill of lading.

Standing back from the matter, it seemed at once plain that the Claimant’s case for incorporation of the EJC into the charterparty could readily be dismissed under both English and Community Law but for (1) the presence of cl.49(e) of the charterparty; and (2) the fact that the EJC formed part of the shipper’s rather than the shipowner’s standard clauses. The question to be resolved is whether these two matters simply enabled Mr. Young to argue the question of incorporation or whether they entitled him to succeed on it. The route to the determination of this question lies via the relevant frameworks of English and Community Law. To those I now turn.

ENGLISH LAW

The incorporation of charterparty provisions in bills of lading in English Law is an area well-travelled in the authorities. As to the following propositions, there was no or no serious dispute:

i)          The starting point is the contract contained in or evidenced by the bill of lading; it is that contract which the court must construe. See, for example: The Federal Bulker[1989] 1 Lloyd’s Rep. 103, at pp.105, 110.

ii)         The incorporation of terms is to be distinguished from mere notice of terms; the fact that the holder of a bill of lading has notice of terms in a charterparty does not mean that those terms are incorporated in the bill of lading: The Varenna [1984] QB 599, esp. at pp. 616, 619. Further, it is terms not intentions which are incorporated; in The Varenna, Oliver,LJ said this (ibid):

” The purpose of referential incorporation is not – or at least not generally – to incorporate the intentions of the parties to the contract whose clauses are incorporated but to incorporate the clauses themselves in order to avoid the necessity of writing them out verbatim.”

iii)         General words of incorporation will incorporate into the bill of lading only those provisions of the charterparty which are directly germane to the shipment, carriage and delivery of the goods. Provisions of the charterparty which are ancillary rather than directly germane to the subject-matter of the bill of lading as aforesaid, will not be incorporated by general words of incorporation in the bill of lading. By way of amplification:

a)         “General words of incorporation” are to be distinguished from wording making a specific reference to a particular charterparty provision (for example, a charterparty arbitration clause). Accordingly, even comparatively wide wording such as “all terms, conditions and exceptions as per charterparty” constitute “general words of incorporation” for these purposes.

b)         Arbitration clauses are ancillary in this sense.

See: Thomas v Portsea [1912] AC 1; The Annefield [1971] P 168, esp. at pp. 184, 186; The Federal Bulker (supra), at p.107.

iv)        Even when the wording of a bill of lading is prima facie of sufficient width to incorporate the charterparty clause in question, such incorporation may be defeated if undue manipulation is required. That said, in this regard the intention of the parties is paramount. Accordingly, while the purported incorporation of certain charterparty clauses may prove ineffective on the ground of linguistic inapplicability alone (for example, charterparty arbitration clause wordings such as “any disputes arising out of … this charter”, as in Thomas v Portsea, supra), where the intention to incorporate a particular charterparty clause is clear, difficulties of manipulation may be overcome (as in The Nerano [1996] 1 Lloyd’s Rep. 1, where the wording of incorporation made explicit reference to an otherwise inapplicable charterparty arbitration clause). It may well be that the true intentions of the parties serve to define the ambit of permissible manipulation: cf. The Miramar [1984] AC 676.

For the purposes of the present dispute, the more controversial aspects of English Law may be grouped under the following headings:

i)          (1) Does the inquiry end with the bill of lading contract ?

ii)         (2) Are jurisdiction clauses to be treated differently from arbitration clauses ?

iii)         (3) When can the provisions of the charterparty be taken into account ?

iv)        (4) What is the relevance to the bill of lading contract of charterparty clauses as to the intended form and content of bills of lading to be issued thereunder ?

v)         (5) Is English Law in this area hidebound by authority, antiquated and over-technical?

I take each in turn.

(1) Does the inquiry end with the bill of lading contract ? There is, as it seems to me, Court of Appeal authority for the proposition that unless the wording in the bill of lading is of a sufficient width so as prima facie to incorporate the provision of the charterparty under consideration, it is irrelevant and unnecessary to construe the charterparty. That stage is never reached; the inquiry not only begins but ends with the bill of lading: See: The Varenna (supra), at pp. 618 and 621-2; The Federal Bulker (supra), at pp. 108, 110. It appears to follow that where general wording of incorporation in the bill of lading is insufficient to incorporate an ancillary clause in the charterparty, such as an arbitration clause, then the wording of the charterparty clause in question and whether or not it contains an explicit reference to the bill of lading, matter not. If this be right, it has obvious consequences for the suggested incorporation of the EJC in this case, provided only that jurisdiction clauses are (for present pruposes) indistinguishable from arbitration clauses (see below).

It may be, however, that the authorities do not all speak with one voice. Observations of all three members of the Court of Appeal in The Merak [1965] P 223, appear to suggest that the charterparty arbitration clause was incorporated in the bill of lading on the basis, inter alia, that the arbitration clause itself contained an explicit reference to the bill of lading (“Any dispute arising out of this charter or any bill of lading issued hereunder shall be referred to arbitration…”): see, esp. at pp.250, 253 and 259-260. Certainly, it is difficult to resist the conclusion that the Court of Appeal in The Annefield (supra), a decision to which I must shortly return, analysed The Merak in this way; see too and not least, the judgment of Brandon,J. (as he then was) at first instance in The Annefield, at pp.173 and following.

By contrast, in The Federal Bulker (at pp. 107-108), Bingham,LJ (as he then was,) explained and distinguished The Merak on the basis of the incorporation wording in the bills of lading. The word “clauses” included in The Merak wording was sufficient to incorporate the arbitration clause, whereas the word “terms”, found in The Federal Bulker bill of lading was insufficient to do so, in the light of the authority of Thomas v Portsea (supra). See too, Oliver,LJ in The Varenna, at pp. 621-622.

It is unnecessary and inappropriate for me to say more on this topic. A reconciliation between these approaches, if one is needed, must await another occasion. Here, firstly, my duty is plain; I must follow the more recent decisions of the Court of Appeal in The Varenna and The Federal Bulker, even if I thought that they could not be reconciled with the earlier decisions in The Merak and The Annefield. Secondly, on the view which I take of the matter (see below), it matters not to the outcome of this case whether I regard the inquiry as ending with the bill of lading wording or whether I go on to consider the charterparty wording – which I shall do in any event.

(2) Are jurisdiction clauses to be treated differently from arbitration clauses? This question can be very shortly answered. Jurisdiction clauses, like arbitration clauses, are ancillary to the subject-matter of a bill of lading. There is no good reason for distinguishing between arbitration and jurisdiction clauses in this regard: see, in the insurance, reinsurance and Community Law context, AIG Europe v Ethniki [1998] 4 All ER 301, at pp. 309-311 (Colman,J.) and [2000] 2 All ER 566 (CA), at pp. 375-6 (Evans,LJ); AIG v QBE [2001] 2 Lloyd’s Rep 268, esp. at paras. 17 and 26.

(3) When can the provisions of the charterparty be taken into account ? As already foreshadowed, I propose to consider the position on the assumption that the inquiry does not necessarily end with the wording of the bill of lading. On this footing, it can confidently be said that charterparty clauses ancillary or collateral to the subject-matter of the bill of lading will only be incorporated into the bill of lading by explicit reference, either in the bill of lading or the charterparty. Such a proposition formed the ratio of The Annefield (supra) and the second ratio of The Federal Bulker (supra). Whether there is, in any particular case, such an “explicit reference”, must be a matter of construction of the contract in question.

The nature of this proposition may be seen most clearly from The Annefield. There, the issue was whether the Centrocon arbitration clause was incorporated in the bills of lading and hence whether the claim was time barred. The material words in the bills were these: “… all the terms, conditions and exceptions of …[the] charterparty, including the negligence clause, are incorporated herewith.” The arbitration clause in the charterparty provided that “All disputes …arising out of this contract…” were to be referred to arbitration. Such wording (of both the bills of lading and the charterparty) had been in use since 1914; the selfsame point had arisen on the same wording in The Njegos [1936] P 90, where it had been held that the arbitration clause was not incorporated; Lord Denning MR observed (at p.183) that it would require a strong case to upset the practice. Upholding Brandon,J the Court of Appeal held that the arbitration clause was not incorporated in the bills of lading. At pp. 184-185, Lord Denning, MR said this:

” I would say that a clause which is directly germane to the subject-matter of the bill of lading (that is, to the shipment, carriage and delivery of goods) can and should be incorporated into the bill of lading contract, even though it may involve a degree of manipulation of the words in order to fit exactly the bill of lading. But if the clause is one which is not thus directly germane, it should not be incorporated into the bill of lading contract unless it is done explicitly in clear words either in the bill of lading or in the charterparty.

Applying this test, it is clear that an arbitration clause is not directly germane to the shipment, carriage and delivery of goods. That appears from the decision of the House of Lords in T.W. Thomas & Co. Ltd. v Portsea…. It is, therefore, not incorporated by general words in the bill of lading. If it is to be incorporated, it must be either by express words in the bill of lading itself (for example, if there were added in this case: ‘including the arbitration clause as well as the negligence clause’), or by express words in the charterparty itself (as indeed happened in The Merak where the words were: ‘Any dispute arising out of the charter or any bill of lading issued hereunder’). If it is desired to bring in an arbitration clause, it must be done explicitly in one document or the other…..

In this case the words in the charterparty are ‘any disputes under this contract.’ Those words, in this context, meant: ‘under this charterparty contract’. They do not include the bill of lading contract. In any case they are not so explicit as to bring in disputes under the bill of lading.”

Cairns,LJ (at p.186) succinctly encapsulated the matter in this way:

” … there must be incorporated in the bill of lading only such terms as are directly relevant to the shipment, carriage or discharge of the cargo or which by explicit reference, either in the bill of lading or in the charterparty, are intended to be incorporated.”

(4) What is the relevance to the bill of lading contract of charterparty clauses as to the intended form and content of bills of lading to be issued thereunder ? Whether strictly ratio or not, powerful observations in The Merak, The Varenna and The Federal Bulker support the answer that clauses in the charterparty as to the form or content of bills of lading to be issued thereunder are irrelevant to the contract constituted by the bills of lading themselves. Such clauses have certainly not been treated as furnishing the “explicit reference”, as discussed in The Annefield, to the ancillary clause which it is sought to incorporate into the bill of lading. Taking these authorities in turn:

i)          In The Merak, the bill of lading had mistakenly referred to cl. 30 of the charterparty, whereas the arbitration clause in the charterparty was numbered 32. To overcome this difficulty, it was argued that another clause of the charterparty (clause 10) made it plain which clause was referred to as clause 30 in the bills of lading. Clause 10 of the charterparty provided, so far as material, as follows: “the bills of lading shall be prepared in the form indorsed upon this charter and shall be signed by the master, quality, condition and measure unknown, freight and all terms, conditions, clauses (including clause 32) and exceptions as per this charter.” Russell, LJ (at p.259), rejected this argument:

” The agreement between charterer and shipowner that bills issued under the charter ought to take a particular form cannot be regarded as incorporated in the bill: as a contractual term it is irrelevant to the contract constituted by the bill itself… “

ii)         In The Varenna, the consignees of the cargo in question were seeking a stay of the court proceedings in which owners were claiming demurrage, on the ground that the bill of lading incorporated an arbitration clause. As already noted, the consignees failed, without reference to the charterparty wording, because the language of the bill of lading was insufficient to incorporate the charterparty arbitration clause. However, Oliver,LJ (as he then was) went on to consider the position under the charterparty. He alluded to the difficulty faced by the consignees at this stage, given that the arbitration clause referred to disputes “under this charter”. As Oliver,LJ remarked, the consignees sought to escape from this dilemma by reliance on a clause of the charterparty (cl. 44) which provided that “all bills of lading issued pursuant to this charter shall incorporate by reference all terms and conditions of this charter including the terms of the arbitration clause…”. Oliver,LJ (at p.623) rejected this argument. It could “scarcely be argued” that this clause itself could be incorporated in the bill of lading. This was the same argument as that advanced in The Merak and rejected by Russell,LJ, whose reasoning Oliver,LJ found persuasive. He continued:

“I do not see how it can be permissible to ascertain what the parties to a particular contract intended to be incorporated by reference to an entirely different document.”

iii)         The judgment at first instance in The Varenna was given by Hobhouse,J (as he then was) and repays careful study. Whatever precise approach was adopted to the clause in the charterparty dealing with the intended form or content of bills of lading to be issued thereunder (a matter on which Oliver,LJ was more inclined than Hobhouse,J to follow the observations of Russell,LJ in The Merak), it was still necessary, as Hobhouse,J put it (at p.610), to look for “a clear, explicit intention to incorporate the charterparty arbitration clause into the bill of lading”. Continuing, the learned Judge said this:

“If, as in the present case, the bill of lading wording specifically creates an antithesis with the charterparty wording so that one must infer, reading the two documents together, an intention of the parties to the bill of lading to incorporate less into the bill of lading than the charterparty had provided, then the charterparty clause cannot … affect the incorporation proprio motu. On the other hand, if the bill of lading wording does follow that of the relevant provision in the charterparty, they must both, ex hypothesi disclose a clear, explicit intention to make the bill of lading subject to an arbitration clause and no problem arises. If the bill of lading wording … had followed the wording of clause 44 of the charterparty the arbitration clause would clearly have been incorporated.

… The bill of lading uses a well-established form of wording of well-known and limited effect. It demonstrates that the bill of lading parties did not intend the wide incorporation provided for by clause 44 of the charterparty….”

In short, a charterparty clause dealing with the intended form or content of bills of lading to be issued thereunder either (a) added nothing to the argument for incorporation, because the wording of the bill of lading followed the wording of the clause, or (b) told against the argument for incorporation, because the difference between the wordings disclosed an intention by the parties to the bill of lading contract not to give effect to the intentions of the parties to the charterparty.

iv)        Finally, in The Federal Bulker, Bingham,LJ (at p.109) cited the above observations of both Russell,LJ and Oliver,LJ, with approval; he added that the difficulty of relying on the intentions of parties, one of whom was not a party to the bill of lading contract, was illustrated in that case by the fact that the bills of lading actually issued contained some but not all of the clauses stipulated in the charterparty. Bingham,LJ concluded these remarks (ibid), by observing:

“If the cargo-owners were to succeed on this point they would … have to show that the express terms of the arbitration clause apply to resolution of disputes arising under the bill of lading.”

Dillon,LJ put the same matter tersely (at p.111):

” One has to look at the bill of lading to see what was intended to be incorporated in the bill of lading.”

(5) Is English Law in this area hidebound by authority, antiquated and over-technical? I canvass this issue in the light of Mr. Young’s argument that a “modern” approach to construction was to be adopted. Insofar as that submission implied that the authorities adopted a hidebound, antiquated, or over-technical approach, I am unable to accept it. To the contrary, the approach of the Courts to the incorporation by reference of charterparty clauses in bills of lading reflects the need for clarity and precision arising from (a) the status of bills of lading as negotiable commercial instruments; (b) the jurisdictional consequences of such incorporation; and (c) the importance of certainty in this area.

Elaboration is hardly necessary but, as to (a), bills of lading may pass through many hands internationally. As to (b), the incorporation of arbitration or jurisdiction clauses in bills of lading may result in the displacement of the jurisdiction otherwise seized of the matter – as here, where the EJC, if incorporated, would override the general principle contained in Art. 2 of the Regulation. As to (c), the need for certainty is readily apparent; where a settled construction has been placed on a particular form of words, commercial parties are entitled to rely and act upon it. If there is dissatisfaction with the line drawn in previous authorities, the parties are free to make specific provision to the contrary. See, generally, Bingham,LJ in The Federal Bulker (supra), at p.105. In the light of all these considerations, there is nothing over-technical in requiring parties to a bill of lading who intend to incorporate a charterparty arbitration or jurisdiction clause to make that intention clear; moreover, it can be done very simply by explicit reference in the bill of lading incorporation wording.

A postscript on English Law: Notwithstanding the importance of considerations such as certainty which point to the conclusion to be reached in the generality of cases, the principles in this area are “rules” or aids to construction; they are not to be treated as statutes. In every case, the Court is seeking to ascertain the intention of the parties and, when construing the language, it is necessary to have regard to the individual context and commercial background. See: AIG Europe v Ethniki (supra), at p.311 (Colman,J) and AIG v QBE (supra), at p.273. If necessary, general “rules” may have to yield to exceptional or unusual facts.

COMMUNITY LAW

The applicable principles of Community Law may be summarised comparatively briefly.

Art. 2 of the Regulation provides (subject to the other provisions thereof) that a person domiciled in a Member State shall be sued in the courts of that Member State. That domiciliary rule expressed the “basic philosophy” of the Brussels Convention (“the Convention”): Knauf v Peters [2001] EWCA Civ 1570; [2002] 1 Lloyd’s Rep 199, at [49]. It accordingly expresses the basic philosophy of the Regulation. As Henry,LJ remarked in Knauf v Peters (ibid):

” It is not merely that a claimant is entitled to sue his defendant where he is domiciled; the defendant is entitled to be sued there.”

Art. 23 of the Regulation (the terms of which have already been set out) deals with jurisdiction clauses. It has replaced Art. 17 of the Convention, as amended and is further drafted so as to reflect the interpretation placed on Art. 17 by decisions of the European Court. The effect of a consensual agreement as to jurisdiction within Art. 23 is to exclude both the general principle laid down in Art. 2 and the special jurisdictions provided for in Arts. 5 and 6 of the Regulation. Against this background, the requirements which a jurisdiction clause must fulfil to come within Art. 17 have been strictly construed under Community Law; such clauses must be the “subject of a consensus between the parties, which must be clearly and precisely demonstrated”: Salotti v RUWA [1976] ECR 1831, esp. at para. 7, a decision on Art. 17 in its original form. The strict Salotti approach remains good law; the subsequent amendment to Art. 17 and the further changes introduced in Art. 23 accommodate a course of dealings between the parties and practices in international trade; they do not signify any relaxation in the requirement of consensus, clearly and precisely demonstrated.

In AIG v QBE (supra), Moore-Bick,J. considered (inter alia) whether a jurisdiction clause had been incorporated by reference from an insurance contract into a reinsurance contract. On the facts of the case, the answer was that it had not been. The decision turned on Art. 17 of the Convention and contains, with respect, an instructive treatment of the relevant Community Law considerations, taking into account Salotti (supra), together with other decisions of the European Court, in addition to the decision of Colman,J. in AIG v Ethniki (supra). From this valuable judgment (see, esp. paras. 15, 22 and 25-26), I would seek to extract the following guidance:

i)          The construction and effect of Art. 17 was to be determined by reference to Community Law rather than the proper law of the contract.

ii)         In Community Law, there was a need to be confident that the jurisdiction clause had been effectively drawn to the attention of the other contracting party so as to satisfy the requirement of genuine consensus.

iii)         Community Law recognised the validity of incorporation by reference, provided that the body of terms to be incorporated was clearly identified and whether or not it was available to the contracting parties at the time of entry into the contract.

iv)        For the purposes of Art. 17, Community Law, like English Law, regarded jurisdiction clauses as ancillary to the substantive provisions of the contract. In many cases, general words of incorporation would only suffice to incorporate terms germane to the subject-matter of the contract and not terms ancillary thereto; the reason is that in the absence of specific language, the Court may not be able to conclude that the parties have demonstrated clearly and precisely the existence of a consensus to incorporate clauses which are ancillary to the subject-matter of their contract.

v)         While, in Community Law, the language of the contract was emphasised, rather than extrinsic factors, this did not entail ignoring the commercial background; to the contrary, in each case the Court must construe the language of the contract in context and inquire whether a consensus on the subject matter of the jurisdiction clause had been clearly and precisely demonstrated. It was, however, to be kept in mind that the commercial background could not always be relied upon to make good deficiencies in the language which the parties had chosen to use.

With regard to the position of subsequent holders of bills of lading, as distinct from the original parties thereto, the European Court has held as follows: if a jurisdiction clause included in the carrier’s printed conditions of carriage was effective as between the carrier and the shipper, then it was also effective between the carrier and any subsequent holders, provided that under the relevant national law, the holder of the bill of lading succeeded to the shipper’s rights and obligations thereunder: The Tilly Russ [1985] QB 931; Coreck Maritime v Handelsveem [2000] ECR I-9337. Given the recognition by Community Law of incorporation by reference (see above), it seems to me to follow that the same answer would be given in respect of a jurisdiction clause effectively incorporated by reference into a bill of lading.

Pausing here, in my judgment, though the route followed may be different, the objectives of English and Community Law in this area are very similar indeed. It is true that in Community Law attention must be focussed on the provisions of Art. 23 of the Regulation and that no such question arises in English Law. It is equally true that in English Law there is a weight of relevant authority not present in Community Law. That said, it would be surprising indeed if, at least in the generality of cases, the answer arrived at was not the same under English and Community Law.

For completeness, in the light of certain allusions in the argument at the hearing, given the jurisdiction regime contained in the Regulation, the fact that a dispute may be governed by one national law but proceed before the Courts of another Member State, is a commonplace and not a matter for remark.

CONCLUSIONS AS TO INCORPORATION

Applying the law to the facts, in my judgment, Mr. Young’s argument faces insuperable hurdles under both English and Community Law. Whether as between the original parties or as between the Claimant and the Defendant (a subsequent holder) I am persuaded that the EJC was not incorporated into the bill of lading. Accordingly, subject only to the concession point, the Defendant’s application must succeed. My reasons follow.

English Law: (1) The first hurdle: I start with the bill of lading. The incorporation wording was general, “..all the terms whatsoever of the said charter..”. There was no explicit reference to the EJC in the bill of lading.

On the authorities, general wording including “all terms” is insufficient to incorporate an ancillary charterparty arbitration clause into a bill of lading: Thomas v Portsea; The Federal Bulker. The same result must follow with regard to charterparty jurisdiction clauses. Does the addition of the word “whatsoever” make all the difference ? I do not think it does or should.

i)          In principle, the real divide lies between general wording of incorporation on the one hand and explicit reference to the ancillary clause in the charterparty, on the other. With or without the word “whatsoever”, the incorporation wording in the bill of lading was general wording.

ii)         If and insofar as it is necessary to qualify this principle and to treat incorporation as turning on the precise form of general wording used in the bill of lading, then, on the authority of the analysis contained in The Federal Bulker of the wording of incorporation in The Merak, the addition of the word “clauses” was decisive; wording going no wider than “all terms” was insufficient to achieve the necessary incorporation.

iii)         I cannot accept that “all terms” would be insufficient to incorporate an ancillary charterparty clause into a bill of lading but “all terms whatsoever” would be apt to do so. As already discussed a bill of lading has the status of a negotiable commercial instrument. If the word “terms” lacks the necessary width, there can be no good reason for the rights of holders to hinge on the addition of the word “whatsoever”. No authority on the word “whatsoever” compels such a conclusion; instead, the interests of certainty support the conclusion that a general formula involving no wider wording than “terms” will not suffice for present purposes.

In the light of the decisions of the Court of Appeal in The Varenna and The Federal Bulker, this conclusion is by itself fatal to any argument that it is permissible to proceed from the wording of incorporation in the bill of lading directly to the EJC. In other words, as I understood Mr. Young to accept, if matters rested with the bill of lading and the EJC alone, the Claimant’s case could not succeed.

Faced with this difficulty, the Claimant must in some other fashion construct a bridge between the bill of lading and the charterparty. This it seeks to do by placing reliance on cl.49(e) of the charterparty. I shall presently deal with the difficulties in the way of this approach at the stage of considering the charterparty (on the assumption that that stage is reached). For immediate purposes, confining myself to the bill of lading, if the wording “all the terms whatsoever” is insufficient to incorporate the EJC (cl. 49(b) of the charterparty), then I cannot see why it should be apt to bring cl. 49(e) of the charterparty into the bill of lading in any manner; plainly, cl.49(e) is every bit as ancillary to the subject-matter of the bill of lading as the EJC itself.

If this conclusion is right, then the Claimant’s case must fail at the first hurdle. The inquiry begins and ends with the bill of lading. It is unnecessary and irrelevant to have regard to the terms of the charterparty. I go on, however, to consider the charterparty.

(2) The EJC itself (cl. 49(b) of the charterparty): Even if it is permissible to get as far as the EJC, it lends no support to the Claimant’s case for incorporation.

The EJC provided that “any dispute … arising under this Charter Party” shall be determined by the English Court. The contrast with the (arbitration) clause in The Merak, which made explicit reference to disputes arising out of the bill of lading, could not be more marked; the EJC is not even a clause which provided for any disputes “under this contract” to be determined by the English Court. Still further, the concluding words of the EJC contain a specific and personal reference to the parties to the charterparty, when dealing with service of process.

For completeness, if academic, had the wording in the bill of lading demonstrated a manifest intention to incorporate the EJC, then, for my part, following The Nerano, I would not have been inclined to regard the need for manipulation, by itself, to preclude incorporation.

(3) Cl. 49(e) of the charterparty: Accordingly, neither the incorporation wording of the bill of lading read on its own nor considered in conjunction with the EJC itself, is sufficient to incorporate the EJC into the bill of lading. It follows that (assuming reference to the charterparty to be permissible at all) the Claimant’s argument depends on the opening words of cl. 49(e) of the charterparty, namely, that “all bills of lading under this Charter Party shall incorporate this exclusive dispute resolution clause”. In my judgment, that is a weight which cl.49(e) cannot bear.

First, cl. 49(e) is a charterparty clause as to the form or content of bills of lading to be issued thereunder; indeed, I did not understand the contrary to be suggested. The location of cl.49(e) can make no difference; the fact that it is a sub-clause of cl. 49, rather than a separate clause, must be neither here nor there.

Secondly, if this characterisation of cl. 49(e) is correct, then the observations (recorded earlier) in The Merak, The Varenna and The Federal Bulker, as to such clauses are in point. Whether or not strictly ratio, those observations are persuasive and tell, in general, against cl.49(e) assisting the argument for incorporation of the EJC into the bill of lading. In essence:

i)          Cl. 49(e) is not itself incorporated into the bill of lading; it is plainly inapt to be incorporated.

ii)         The intention of the parties to the charterparty, expressed in cl. 49(e) is irrelevant to the construction of the bill of lading contract.

iii)         If and insofar as cl. 49(e) sheds any light on the intention of the parties to the bill of lading contract, the fact that the wording of the bill of lading did not follow the wording contemplated by cl. 49(e) gives rise, if anything, to the inference that they did not intend to give effect to the intentions of the parties to the charterparty; see, in this regard, the reasoning of Hobhouse,J. in The Varenna (at p.610).

iv)        Assuming The Merak to be good law as regards the incorporation of a charterparty arbitration or jurisdiction clause based on an explicit reference in the charterparty, the present is not a like case. The explicit reference in The Merak was contained in the arbitration clause itself; a clause to be incorporated in the bill of lading. The sole reference to incorporation of the EJC here is to be found in cl. 49(e). To hold that in the present case there was the necessary “explicit reference” to incorporation of the EJC by reason of cl. 49(e) would not be an application of The Merak (the high water mark of incorporation cases); it would be an extension of The Merak and, moreover, an extension in a manner disapproved of (at least by Russell, LJ) in The Merak itself and in the other authorities to which reference has been made.

v)         While it is correct, as Mr. Young urged, that there are factual differences between cl.49(e) here and the clauses under consideration in the authorities in question, to my mind these are distinctions without a material difference.

Thirdly, the fact that the EJC was contained in the ECTRIC clauses does not tip the scale in favour of its incorporation into the bill of lading.

i)          As it seems to me, the high point of any such argument must be this: given that the EJC formed part of the ECTRIC clauses, cl.49(e) of the charterparty (entered into between the Claimant and EIC) must be taken as indicative of the intentions of the original parties to the bill of lading (the Claimant and ECTRIC) to incorporate the EJC therein. The Claimant had signified its intention to do so in the charterparty; ECTRIC must have had a like intention with regard to the bill of lading, given that the EJC formed part of its own standard terms. If so, then the EJC remained incorporated in the bill of lading when it came into the hands of subsequent holders. Whatever the position generally as to clauses in charterparties concerning the form and content of bills of lading to be issued thereunder, in this case cl.49(e) was relevant to the bill of lading by reason of the ECTRIC clauses comprising the shipper’s rather than the shipowner’s standard terms. For the reasons which follow, I cannot accept this submission.

ii)         To begin with, it must be underlined that the task is to construe the bill of lading; that task involves ascertaining the objective intentions of the parties to the bill of lading. There is no claim to rectify the bill of lading. The subjective intentions of the parties to the bill of lading are therefore irrelevant. The fact, if it be the fact, that one or other of the original parties to the bill of lading subjectively intended to incorporate the EJC is neither here nor there.

iii)         As already discussed, unless the wording “all terms whatsoever” is to be read in a wholly novel and, in my judgment, insupportable manner as extending, directly or via cl.49(e) to the EJC, there is nothing in the wording of the bill of lading itself which appears capable of disclosing an intention to incorporate the EJC.

iv)        It remains to consider whether there is matrix evidence, disclosing that the parties to the bill of lading contract, notwithstanding the initial impression given by its language, intended to incorporate the EJC. Pausing here, it is to be noted that the Claimant does not seek to rely on any matrix evidence relating to the bill of lading contract, other than the existence of cl.49(e) of the charterparty and the origins of the ECTRIC clauses. I do not think that the Claimant’s intention as a party to the charterparty can be amalgamated with what is no more than an inference as to ECTRIC’s intention, derived from the origins of the ECTRIC clauses, so as to read into the bill of lading something which is not otherwise there. Nor do I think that such material as there is warrants jettisoning the guidance given in the authorities as to the nature and analysis of clauses such as cl. 49(e). For this submission to succeed, it has to be said contrary to such guidance and improbably (1) that cl.49(e) is itself to be incorporated in the bill of lading; and/or (2) that clause 49(e) is both relevant to and decisive as to the intentions of the parties to the bill of lading, notwithstanding no outward manifestation of such intentions in the bill of lading itself. On any view, the submission inescapably requires the re-writing of the bill of lading; it is not a matter of doing no more than construing the bill of lading in context. For my part, this is a leap altogether too far. I am not persuaded that the provenance of the clauses of which the EJC forms a part, justifies such a conclusion or that commonsense dictates it. On all the material available to me, the furthest I would be minded to go is to accept that there would have been understandable reasons why the original parties to the bill of lading might have contemplated incorporating the EJC; absent a case of rectification, such an argument cannot go anywhere; if that was what the parties had in mind, the contract they entered into failed to achieve it.

Returning to the question originally posed, the presence of cl. 49(e) and the fact that the EJC formed part of the ECTRIC clauses, enabled Mr. Young to submit that, as a matter of English Law, the EJC was incorporated in the bill of lading; these considerations do not entitle that argument to succeed. The hill is simply too steep to climb. Even having regard to cl.49(e), The Varenna and The Federal Bulker stand in the way of the Claimant getting to the charterparty at all. If that be wrong and the charterparty is reached, to hold that cl.49(e), considered in context, achieves the incorporation of the EJC into the bill of lading, would, inter alia, fly in the face of the reasoned observations contained in The Merak, The Varenna and The Federal Bulker. In short, the route to incorporation of the EJC via cl. 49(e) of the charterparty, does not work. I add this. Had the original parties to the bill of lading intended to do so, they could very simply have put the matter beyond argument, by doing no more than adding to the language of incorporation in the bill of lading the words “including the dispute resolution clause”; that wording would then have read “all the terms whatsoever of the said charter including the dispute resolution clause apply to and govern the rights of the parties concerned in this shipment”. This they failed to do; for all the reasons already discussed, it is not for the Court to strain the construction of either the bill of lading or the charterparty so as to re-write their agreement. It is perhaps not to be forgotten that the full style of the ECTRIC clauses is “the ECTRIC Charter Party Clauses”.

Community Law: Given the relatively extended and overlapping discussion of English Law, I can state my conclusions as to Community Law very shortly indeed. The question here is whether the basic philosophy contained in Art. 2 of the Regulation has been displaced by the EJC? In summary, whatever the position as between the parties to the charterparty, I am wholly unpersuaded that a consensus between the parties to the bill of lading to do so has been demonstrated, let alone clearly and precisely demonstrated. As with English Law, if incorporation of the EJC was desired, the parties to the bill of lading could and should have made their intentions clear in the bill of lading wording, or, at the least, in the EJC itself. While incorporation by reference from a charterparty is permissible in Community Law, the concerns which it occasions, especially in connection with general wording of incorporation and clauses ancillary to the subject-matter of the bill of lading, are, in substance, similar to those encountered in English Law. The presence of cl.49(e) and the provenance of the clauses of which the EJC forms part, do not outweigh the difficulties to which the language, chosen by the parties to express their bargain, has given rise. Jurisdiction clauses are not to be incorporated, as it were, by a sidewind.

It is true, as foreshadowed earlier, that in the result a dispute governed or largely governed by English Law, will be heard before the French Courts; it may further be true that the stance of the Defendant is possibly opportunistic or guided by partisan considerations lacking in “merits”; so be it. Such an outcome is no more or less than a consequence of the jurisdiction regime of the Regulation.

THE CONCESSION POINT

This point can be taken almost summarily. The argument here is that in the course of the French proceedings, a French lawyer acting for the Defendant admitted in written submissions or otherwise the incorporation of the EJC. The parties, sensibly, if I may say so, agreed that I could deal with this matter on the documents and without the need for oral evidence. In the event, on the available materials, I am not persuaded that the Defendant’s admission in the French proceedings went beyond accepting that (1) the charterparty and (2) the validity of the lien, were, respectively, governed by and to be determined in accordance with, English Law. I am bound to add, that even had any such “admission” extended to the EJC, it should not readily be assumed that the requirements of Art. 23 of the Regulation would thereby have been satisfied; as a matter of English Law, such an admission would have been immaterial at least unless a case of election or estoppel could have been made good. In the event, it is unnecessary to say more of the concession point.

OVERALL CONCLUSION

The Defendant’s application must accordingly succeed. I shall be grateful for the assistance


Polestar Maritime Ltd v YHM Shipping Co Ltd & Anor (Rev 1)

 [2012] EWCA Civ 153

Aikens LJ

Issue one: the construction of the words “The Vessel shall be delivered with…her National/International trading certificates, as well as all other certificates the vessel had at the time of inspection, all valid and unextended…” in clause 11 of the MOA.

In my view the judge’s construction of this wording is the correct one. Clause 11 deals with the condition of the Vessel upon her delivery. The basic agreement between the parties is that the Vessel is to be delivered and taken over “…as she was at the time of inspection”. In short, this is an “as was” sale and purchase contract. The basic obligation on the Sellers with regard to documentation is set out in clause 8, which stipulates what documents are to be delivered to the Buyers at the time of closing. At the stage of closing the Sellers have to deliver the originals of all “trading/class, national and international certificates in accordance with the MOA” as stipulated in paragraph (12) of Addendum No 1. That same paragraph notes that copies of all such certificates will already have been passed to the Buyers. The MOA therefore contemplates that the Buyers will already have been given the national and international certificates existing at the time of the vessel’s inspection and that they will get the originals of those certificates at the closing.

As it is contemplated that the Sellers will have given to the Buyers copies of all the trading, class, national and international certificates “…in accordance with the MOA” before closing and will deliver the originals to the Buyers at closing, the obligation on the Sellers in clause 11 concerning documentation on closing is clear. The Sellers must have the Vessel in a condition on delivery which is such that she will have on board the originals of her National and International certificates as well as all other certificates that the Vesselhad at the time of her inspection. In the absence of any wording that imposes any duty to provide further certificates that the Vessel did not have at the time of her inspection by the Buyers, no obligation to provide such further certificates can be eked out of the actual wording of clause 11. Notwithstanding the way the two commas are placed (which was a point that Mr Coburn rightly did not press far), in my view the obvious sense of clause 11 is that the words “…the Vessel had at the time of inspection” qualifies both the Vessel’sNational and International certificates and also “all other certificates”.

I agree with the judge that this construction provides much greater certainty than the arbitrator’s construction. SOLAS Annex 1 may give a working list of the certificates and documents that are required to be carried on board ships, but it is not a definition of “National” or “International” trading certificates for the purposes of this clause 11. Those terms are not defined elsewhere in the MOA. If the reference to “National/International trading certificates” is not linked to the words “the Vessel had at the time of inspection” there is no means of deciding whether that phrase is a reference to certificates that the Vessel has needed for trading in the past or might need for trading in the future. Who could know where the Vessel might trade in future and what particular cargoes she might carry. In my view much clearer and more precise wording would be needed to create an additional obligation on the Sellers that the Vessel would have on board at closing all original certificates needed at that time to make her eligible to trade internationally – whatever that might mean. With great respect to the view of the experienced maritime arbitrator, I have concluded that the construction accepted by the judge produces greater certainty and is more in accordance with the commercial expectations of these parties to this contract.

As already noted, Mr Kenny wished us to look at the previous version of the standard NSF terms and to look at the BIMCO drafting committee’s commentary as aids to construction. Whilst there may be occasions when this has to be done in order to assist in solving a problem of an ambiguous wording, I would generally discourage such exercises in “the archaeology of the forms”. In most cases it makes the task of interpretation of contractual wording unnecessarily over elaborate and it can add to the expense and time taken in litigating what should be short points of construction.

On Issue One I would, therefore, dismiss the appeal.

Issue Two: does the wording in clause 14 of the MOA stipulating that “…the Sellers shall be granted a maximum of 3 banking days after Notice of Readiness has been given to make arrangements for the documentation set out in clause 8…” mean that the Sellers had 3 banking days from 30 September 2008 to lift the detention of the Vessel and deliver the Bill of Sale in which the Sellers covenanted that the Vessel would be free of “detentions”?

On this issue too I prefer the construction given by the judge. It is important to note the context of the words; they are in clause 14 of the NSF, which is dealing with the possible action open to the Buyers if the Sellers fail to be ready validly to complete a legal transfer of the Vessel by the cancelling date stipulated in the MOA. Note that it is completion of a “legal transfer” which, of course, requires the production of documents by the Sellers that will enable that transfer to take place. The documents to be produced are identified in clause 8 and Addendum No 1 and include a Bill of Sale, whose terms the parties will have agreed. The Bill of Sale is the formal instrument by which the Sellers transfer the property of the Vessel to the Buyers, although it was not intended that the Seller would remain in possession of her. The effect of the Bill of Sale on the sale of a ship is similar to that of a conveyance in the case of land. If the Sellers were to give the Buyers a Bill of Sale containing the covenant that the Vessel would be free of detention upon transfer when she was not free of detentions, that would not prevent the valid legal transfer of property in the Vessel to the Buyers; but it would place the Sellers in breach of their covenant in the Bill of Sale and that, in my view, would also place them in breach of the contract of sale in the MOA, because the obligation to provide the Bill of Sale with that covenant arises out of clause 8, Addendum No 1 and the agreed modification of the wording to the Bill of Sale as found by the arbitrator.

The arbitrator was correct to say that there was nothing wrong with the form of the Bill of Sale that was proffered. But, in my view, the phrase in clause 14 which begins “…provided always that the Sellers shall be granted a maximum of 3 banking days after Notice of Readiness…” contemplates more than just giving the Sellers three banking days from the time of giving Notice of Readiness to provide the documentation set out in clause 8 to effect a legal transfer of the Vessel to the Buyers. The actual wording is not so narrowly phrased. In my view, the words “make arrangements for” contemplate the Sellers taking such steps as will enable them to provide documentation for the valid legal transfer of the Vessel in such a way that the Sellers will conform with their covenants set out in the transfer documentation and so, also, under the MOA.

The proposition can be tested in this way: imagine the Sellers saying at the closing that they could not proffer a Bill of Sale at that point in the terms agreed because the Vessel was under detention. But, they said, they are confident that they can procure the Vessel’s release within three days of the time when Notice of Readiness was given. The Buyers could have no complaint because, on any view of the wording of clause 14, the Sellers have three days from the time Notice of Readiness is given to provide the Buyers with the documents relating to the legal transfer of the Vessel, including the Bill of Sale. Once the detention was lifted (within the three day period), if the Sellers then proffered the Bill of Sale in time, they will have complied with their obligations under clauses 8 and 14. What the Sellers did was to “make arrangements for” the documentation set out in clause 8.

Again, with great respect to the arbitrator, I think that the construction he gave to the wording “make arrangements for” in clause 14 is too narrow and inconsistent with the commercial intent of that clause and the construction adopted by the judge is more in accord with the commercial expectations of the parties. Therefore, I would also dismiss the appeal on Issue Two.

Disposal.

For the reasons given, I would dismiss this appeal and affirm the order of Field J.

Lord Justice Lloyd

I agree.

President of the Queen’s Bench Division

I also agree.


Greatship (India) Ltd v Oceanografia SA de CV

[2012] EWHC 3468 (Comm)  [2013] 1 All ER (Comm) 1244, [2012] EWHC 3468 (Comm)

Mrs Justice Gloster:

Introduction

This is an appeal by Greatship (India) Limited (“Owners’), pursuant to section 69 of the Arbitration Act 1996, against a Third Partial Final Award dated 13 April 2012 of Mr. Simon Rainey QC and Dr Aleka Sheppard (“the Award” and “the Arbitrators’ respectively). The Award attached “Reasons Forming part of Award” which I shall refer to as “the Reasons’.

The appeal raises a short point of construction in relation to Clause 10(e) of the amended BIMCO Supplytime 1989 form of charterparty.

By a time charterparty on an amended BIMCO Supplytime 1989 form dated 15 August 2008 (“the Charterparty”), Owners agreed to charter the “Greatship Dhriti” (“the Vessel”) to Oceanografia SA de C.V. (“Charterers’) for “two years firm”. Clause 31 of the Charterparty contained a London arbitration clause.

Clause 10(e) provided as follows:

“10(e) Payments – [1] Payments of Hire, bunker invoices and disbursements for Charterers’ account shall be received within the number of days stated in Box 23 from the date of receipt of the invoice. Payment shall be made in the contract currency in full without discount to the account stated in Box 22. However any advances for disbursements made on behalf of and approved by Owners may be deducted from Hire due.

[2] If payment is not received by Owners within 5 banking days following the due date Owners are entitled to charge interest at the rate stated in Box 24 on the amount outstanding from and including the due date until payment is received.

Where an invoice is disputed, Charterers shall in any event pay the undisputed portion of the invoice but shall be entitled to withhold payment of the disputed portion provided that such portion is reasonably disputed and Charterers specify such reason. Interest will be chargeable at the rate stated in Box 24 on such disputed amounts where resolved in favour of Owners. Should Owners prove the validity of the disputed portion of the invoice, balance payment shall be received by Owners within 5 banking days after the dispute is resolved. Should Charterers’ claim be valid, a corrected invoice shall be issued by Owners.

[3] In default of payment as herein specified, Owners may require Charterers to make payment of the amount due within 5 banking days of receipt of notification from Owners; failing which Owners shall have the right to withdraw the Vessel without prejudice to any claim Owners may have against Charterers under this Charter party.

[4] While payment remains due Owners shall be entitled to suspend the performance of any and all of their obligations hereunder and shall have no responsibility whatsoever for any consequences thereof, in respect of which Charterers hereby indemnify Owners, and Hire shall continue to accrue and any extra expenses resulting from such suspension shall be for Charterers’ account”

As was the convention adopted in argument, the subparagraphs have been additionally numbered with numbers in square brackets. The key words which featured in the argument have also been emphasised in bold, italic text.

The question of law

On 6 July 2012, Popplewell J granted permission to appeal on the following question of law:

“Whether on the proper construction of Clause 10(e) of the BIMCO Supplytime 89 form in order for Owners’ right to withdraw[1] the vessel from the Charterparty temporarily to be validly exercised, Owners are required to give Charterers 5 banking days notice of the suspension.”

Permission was granted on the basis that:

“… the question is one of general public importance, arising on a standard form charterparty which remains in regular use, and the decision of the Tribunal is open to serious doubt”.

Popplewell J also gave Charterers permission “to support the Award by reference to their alternative arguments of an implied term, if necessary”, as sought in Charterers’ Respondents’ notice dated 14 June 2012.

The dispute

The present dispute arose from instances of non-payment of hire during the currency of the Charterparty. Owners purported to suspend the provision of the services of the Vessel for non-payment of hire and relied upon what they claimed was their right to do so under part [4] of Clause 10(e). There was a separate factual question before the Arbitrators (yet to be decided) as to whether or not Owners actually gave notice before or upon suspending the Vessel’s services. That issue does not arise on this appeal.

Owners submitted before the Arbitrators that, upon its proper construction, Clause 10(e) did not contain any express or implied requirement for notice to be given before Owners were entitled to exercise their right to suspend the provision of services under part [4] of Clause 10(e); in other words that there was no requirement to give some form of antecedent or advance notice. Charterers’ submission, on the other hand, was that it was an express or implied requirement of part [4] of Clause 10(e) that Owners would give five banking days’ notice of intention before exercising their right to withdraw the vessel from the Charterparty whether permanently or temporarily.

The Arbitrators upheld Charterers’ submission on the basis that the period of grace and express notification provision contained in parts [2] and [3] of Clause 10(e) governed part [4]: see paragraphs 9-29 of the Reasons. However (insofar as was relevant) the Arbitrators rejected Charterers’ argument that there should be an implied term to such effect: see paragraphs 30-35 of the Reasons.

The Arbitrators’ reasoning

In summary, the Arbitrators’ reasoning appears to have been as follows:

i)          As a matter of language, Owners’ right to suspend performance of services in part [4] appeared to be “unfettered”: see paragraph 11 of the Reasons. However, part [4] was not a separate stand-alone provision and could not be read, as Owners sought to read it, divorced from the context in which it appeared in Clause 10(e) of which it formed a part. The structure and organisation of the clause was important to an understanding of the intended purpose and effect of Clause 10(e).

ii)         The “due date” for the purpose of payment (as referred to in part [2]) was the date fixed in part [1] and Box 23: see paragraph 15 (and also the second sentence of paragraph 19) of the Reasons.

iii)         However since parts [2] and [3] provided for a grace period of five banking days, it followed that, as a matter of construction, it was an express requirement contained in part [4] that both the part [3] notification requirement and the period of grace in parts [2] and [3] must apply to “the lesser right to suspend performance of the vessel’s services without withdrawing the vessel”: see paragraphs 15-18 of the Reasons.

iv)        It was significant that part [4] was located after parts [2] and [3] and not after part [1].

v)         Accordingly, the phrase “while payment remains due” in part [4] did not refer to the period following the “due date” as referred to in part [2], but rather to the period after the provision of the 5 day notice under part [3]: see paragraphs 19 – 20 and 26 of the Reasons. In other words, payment remained (and necessarily “became”) due for the purpose of part [4] only “following the giving of the notice requiring payment to be made within 5 banking days under part [3]”.

vi)        However, and apparently inconsistently with their conclusions in paragraphs 19–20 and 26, the Arbitrators then went on to hold that, on the true construction of Clause 10(e), in order for Owners’ right “to withdraw the Vessel from the Charterparty temporarily to be validly exercised”, Owners were not only required to give Charterers notice under part [3] but then were also required to wait five banking days before being permitted to exercise their right of suspension.

vii)       Thus, whereas in paragraphs 19, 20 and 26 the Arbitrators appear to have held that payment remained “due” under part [4] following the provision of a part [3] notice, their conclusion in paragraph 28 was apparently based on the different premise that the words “while payment remains due” in part [4] referred to the period only beginning on the date which was after expiry of five banking days from Charterers’ receipt of notification from Owners.

viii)       Charterers’ construction accorded “better with the commercial purpose of the right of suspension, objectively viewed.”: see paragraphs 21-26 of the Reasons.

ix)        However, contrary to the submissions of Charterers, there was no basis for the implication of any term that notice should be provided before the exercise of Owners’ right to suspend the performance of their obligations: see paragraphs 30 – 35 of the Reasons.

……

Discussion and determination

I am prepared to accept that the views of experienced arbitrators, such as the members of the tribunal in the present case, should be given appropriate weight, particularly in circumstances where they have experience of practice or procedures, or issues of the construction of contracts, in the relevant trade or industry. Nevertheless, the court necessarily has to arrive at its own conclusion on the arguments presented to it, and, in the event that it reaches the clear conclusion that a tribunal has made a wrong determination, the court is not constrained by the standing of the arbitral tribunal from departing from the latter’s view.

Largely for the reasons put forward by Mr. Jacobs QC in his submissions, I conclude that the question of law should be decided in the negative. In other words, I hold that, on the proper construction of Clause 10(e) of the BIMCO Supplytime 89 form, in order for owners’ right “to suspend performance of any and all of their obligations’ to be validly exercised, owners are not required to give charterers five banking days notice of the suspension. I prefer not to use the expression “right to withdraw the vessel from the charterparty temporarily” as synonymous with the phrase “to suspend performance of any and all of their obligations’. In reality, when such a right on owners’ part is being exercised, the vessel is not being withdrawn, even temporarily from the charterparty; the vessel remains on hire, but owners are entitled to decline to perform any of their obligations in respect of the vessel, or under the charterparty.

My reasons for this conclusion can be stated as follows.

Meaning of the words in part [4] of Clause 10(e)

In the recent case of Rainy Sky (supra), at paragraphs 16 to 23, the Supreme Court reiterated the principle of construction that, if the contract has used clear and unambiguous language, the court must apply it, however surprising or unreasonable the result might appear to be. But where there are two possible constructions, the court is entitled to reject the one which is unreasonable and, in a commercial context, the one which flouts business common sense. As Hoffmann LJ (as he then was) said in Co-operative Wholesale Society Ltd v National Westminster Bank plc [1995] 1 EGLR 97, at 99, after quoting a passage from the speech of Lord Diplock in The Antaios [1985] AC 191, 201,

“This robust declaration does not, however, mean that one can rewrite the language which the parties have used in order to make the contract conform to business common sense. But language is a very flexible instrument and, if it is capable of more than one construction, one chooses that which seems most likely to give effect to the commercial purpose of the agreement.”

As the Arbitrators themselves recognised at paragraph 11 of the Award, if one simply looks at the language in part [4] in isolation, the words “while payment remains due” clearly and unambiguously suggest that Owners were entitled to suspend performance of their obligations at any time after payment became due and whilst it remained unpaid. The time when payment became “due” under the Charterparty was addressed in part [1] and Box 23. As set out above, the former provided that:

“Payments of Hire, bunker invoices and disbursements for Charterers’ account shall be received within the number of days stated in Box 23 from the date of receipt of the invoice.”

The latter provided as follows:

“Payment of hire, bunker invoices and disbursements for Charterers’ account (state maximum number of days) (Cl.10(e)): 23 days’.

Thus there can be no doubt that “payment became due” and “the due date” for payment was 23 days from the date of receipt by Charterers of Owners’ invoice. That was also confirmed by part [2], which was in the following terms:

“[2] If payment is not received by Owners within 5 banking days following the due date”.

That was subject to the second paragraph of part [2], which made it clear that, if Charterers disputed a portion of an invoice, they were entitled to withhold payment; in those circumstances the disputed portion of an invoice would obviously have not been “due” for payment after the expiry of 23 days, but no issue arose in the present case in relation to disputed invoices.

On the clear wording of part [4], it is thus difficult, if not impossible, to construe the words “while payment remains due” in that part, as referring to anything other than the period after which payment has fallen due and remains unpaid under part [1] and Box 23. There is nothing in the express wording of part [4] to suggest or indicate that one should construe the words “while payment remains due” as referring to the period “following the giving of the notice requiring payment to be made within five banking days under part [3],” as the Arbitrators suggest in paragraphs 19, 20 and 26 of the Reasons.

Furthermore, there is nothing in the express language of part [4] which requires “the giving of notice requiring payment to be made within five banking days under part [3]” or for any period of grace prior to the entitlement of Owners to exercise their right of suspension. This is to be contrasted with the fact that the Charterparty contained numerous clauses for the provision of notices but part [4] of Clause 10(e), in contrast to part [3], contained no such requirement. I find it difficult to regard the absence of an express reference to notification and a period of grace from part [4] as an “oversight”, as the Arbitrators appeared to have accepted in the context of the implied term argument; see paragraph 33 of the Reasons. If the parties had indeed intended to make the Owners’ entitlement to exercise their right under part [4] dependent upon prior notification of their intention to exercise that right, they could and would have made express provision for the requirement of notice as they had in numerous other contexts outside part [3]; see, for example, the notice provisions in Clause 2(c); Clause 2(d); Clause 5(c)(iii); Clause 15(a); Clause 17(a); Clause 26(a); and Clause 26(b).

In addition, there is nothing in the express wording of either part [4] or part [3] to suggest that the exercise of the rights under part [4] is somehow linked to the giving of notices under part [3]. Part [4] begins as a distinct sub-paragraph within Clause 10(e) and there are no words linking the notification requirement in part [3] to the right to suspend in part [4]. In contrast to parts [2] and [3], part [4] simply does not contain any reference whatsoever to a period of grace and does not require the giving of notice. There is, therefore, no basis for reading part [4] as subject to any obligation to give five banking days’ notice under part [3]. Part [4] merely links the right to suspend performance with the failure to make payment (“while payment remains due”) without any reference to any written notice or period of grace. There can be no doubt that payment remained “due” at all times after payment had fallen due under Box 23 (and part [1]). By contrast, for example, clause 11(a) of the NYPE form 1993 clearly links the right of suspension to the grace period contained in the anti-technicality notice.

Mr. Kulkarni’s submissions (and indeed the Arbitrators’ conclusion) require a different meaning to be given to the words “due” in part [4] from that which is given to the word and the expression “due date” in box 23 and in parts [2] and [3]. I see no linguistic or other justification for such a departure or for depriving the words used of their natural meaning and effect.

For all the above reasons, I accept Mr. Jacobs’ submission that, as a matter of language, the wording of part [4] is clear and unambiguous and that there is no scope for any alternative construction. I see no justification for what would, in effect, be a rewrite of the Charterparty. I do not regard the construction which I have concluded to be the correct one, as in any way surprising or unreasonable.

I accept that the right to suspend performance of owners’ obligations may have serious consequences; but the right to suspend is not the same, or so draconian, as the right to withdraw the vessel from the charterparty and bring it to an end. I see no lack of commerciality in a provision which allows owners, for example, to refuse to take the vessel out of port in circumstances where charterers have failed to pay bunkers within 23 days of the receipt of an invoice. Why, in those circumstances, should there be any lack of fairness in a provision which does not require yet a further notice provision and yet a further lapse of time before owners can exercise their suspension rights? That is particularly so in circumstances where charterers are entitled to withhold payment in respect of invoices which they dispute.

The significance of the location of part [4] after part [3] of Clause 10(e)

If, contrary to my primary conclusion, this is a case, as the Arbitrators considered, where the words, “while payment remains due” is capable of “a number of possible meanings’, I turn to consider the conclusion of the Arbitrators that the position of part [4] within Clause 10(e) was somehow significant in relation to its construction.

I accept that, in the construction of any contractual provision, one needs to construe the relevant words in the context, and against the textual background, of the entire contract and the objectively ascertainable intentions of the parties. However, in my judgment there is nothing in “the structure of Clause 10” (see paragraph 17 of the Reasons) or the “location” (see paragraph 18 ibid) of part [4] within Clause 10(e), or the contextual background of the BIMCO Supplytime 89 form, which supports the proposition that part [4] requires owners to give any form of notice before exercising their right to suspend performance of their obligations.

Contrary to paragraphs 18 and 20 of the Reasons, no inference can, in my judgement, be drawn from the position of part [4] within Clause 10(e) and, in particular, from the fact that it comes after part [3] rather than part [1]. Part [1] deals with the obligation to make payment; part [2] deals with the financial consequences of non-payment; part [3] deals with the so-called “nuclear” option of withdrawal and part [4] deals with the lesser right to suspend performance. Clause 10(e) is thus logically structured.

I agree with Mr. Jacobs QC’s submission that it cannot simply be inferred from the location of the right to suspend performance within Clause 10(e) that the notification and five day grace period applies to part [4] as well as parts [2] and [3].

As set out above, part [2] provides for the payment of interest if “payments of hire, bunker invoices and disbursements’ (i.e. “payment” under part [1]) were not received “within 5 banking days following the due date”. There is no requirement in part [2] for the provision of any notice before Owners are entitled to charge interest at 12%. Part [2] follows from the payment obligations under part [1]. Accordingly apart from identifying “the due date” part [2] has no relevance to the construction of part [4]. It is impossible to see how the five day period of grace in part [2] impacts upon part [4]. Indeed, the five day period may be different from the part [3] period which is triggered by the giving of notice, rather than automatically.

In part [2], Owners are entitled to charge interest “if payment is not received by the Owners within 5 banking days following the due date”. Thus the right to claim interest only arises if payment is not made during the five day period of grace although, if payment is not made, the obligation relates back to the “due date”. At paragraph 27 the Arbitrators considered that this produced an “odd result” in the context of part [4], if the right to suspend services arose as soon as payment was not made by the due date fixed in Box 23. But why? These are two completely different consequences of non-payment with different regimes: part [2] does not require notice (i.e. interest must be paid five days after the due date without the need for written notice), and part [3] requires written notice prior to the exercise of the draconian remedy of withdrawal. The fact that Charterers were granted a period of grace within which to pay interest at the rate of 12% (considerably in excess of a normal borrowing rate) did not mean that, in the absence of an express provision, the Charterers had an identical period of grace before the Owners were entitled to exercise their right to suspend performance in circumstances in which hire, or indeed any other payment obligation of Charterers, had not been paid. This was simply an example of the allocation of risk for non-payment of hire and other sums. The two are in any event very different: the five day grace period for interest is inserted for the benefit of Charterers in case of banking delays leading to a plethora of small interest claims, whereas the right to suspend has been inserted for the Owners’ benefit and without reference to any “anti-technicality” provision.

Part [3] then confers the right of withdrawal for non-payment of hire. It contains a specific requirement to give notice requiring “the Charterers to make payment of the amount due ….” Thus, in part [3] “the Owners may require the Charterers to make payment of the amount due within 5 banking days of receipt of notification from the Owners.” In the event that payment was not made, Owners are entitled to withdraw the vessel. This again shows that the “due” date refers back to part [1] of Clause 10(e) and Box 23. As I have already said, in contrast to parts [2] and [3], part [4] simply does not contain any reference whatsoever to a period of grace and does not require the giving of notice.

In my judgment, Owners’ construction is clear and certain. Part [1] of Clause 10(e) and Box 23 identify the time when payment of the sums identified in part [1] are “due”. The fact that the Charterers have a period of grace in parts [2] and [3] does not somehow shift or alter the “due date” for payment which triggers the different consequences set out in part [2], [3] and [4]. As a matter of language the right to suspend performance is not linked to the provision of any notice or period of grace.

For the above reasons, I conclude that there is nothing in the location of part [4], in the context of the entire Charterparty, which justifies the Arbitrators’ construction of its terms.

The commercial purpose of part [4]

I do not accept Mr. Kulkarni’s submissions that the Arbitrators were correct to support the construction of part [4] on the basis that it “accords better with the commercial purpose of the right of suspension, objectively viewed”; see paragraph 21 of the Reasons. In my judgment, for the reasons which I have set out above, the language of part [4] was unambiguous. In those circumstances, the language of the Charterparty had to be applied and it was not permissible in effect to re-write the Charterparty on so-called grounds of commerciality.

But even on the assumption that there were two, or even more, permissible constructions of the Charterparty, I do not accept that there was anything uncommercial with Owners’ approach. As Owners submitted, there is a fundamental difference between permanent withdrawal of a vessel, and temporary suspension of service, during the period of which the vessel remains on hire. The right to suspend performance is a “lesser” or “intermediate” right. It is wholly unsurprising that the manner in which such rights are to be exercised are different. I see no reason why it should be regarded as uncommercial to give the owner the right to suspend performance immediately when the charterer fails to pay, on the due date, hire, bunkers or other obligations, in clear breach of the charterparty. It is for the charterer to ensure that the owners receive payment by the due date. I see no commercial reason why owners should be potentially obliged to provide the services of the vessel without payment for a period of seven to eight days (i.e. because of intervening weekends) before any notice of suspension became effective for the purpose of Part [4], in circumstances where the Charterers have failed to honour their payment obligations. On the Arbitrators’ approach, if payment is not made, Owners would be powerless to prevent the loading of cargo during the five day notice period and then be effectively unable to withdraw the vessel because of the presence of cargo.

There is every commercial reason for a difference between the triggers permitting the exercise of the right to withdraw, and the exercise of the right to suspend services. Since permanent withdrawal cannot be contractually remedied by charterers after the vessel has been withdrawn, there is every commercial justification for the requirement that owners must give five banking days notice before their right to withdraw can be exercised. By contrast, the suspension of performance is temporary, can easily be remedied by the payment of hire (which charterers are bound to pay) and, therefore, there is no need to give five banking days notice prior to suspension. The consequences of the exercise of the respective rights are, therefore, of a different order and this is reflected by the different pre-conditions for the exercise of owners’ respective rights.

Thus I accept Mr. Jacobs’ submission that it makes commercial sense for the two rights to exist separately. Owners can first put pressure on the Charterers without permanently withdrawing the vessel. If non-payment is not remedied, the right to withdraw then applies.

Accordingly I cannot accept Charterers’ contention that Owners’ construction leads to an uncommercial result so as to justify Charterers’ construction of the wording of part [4], even on the assumption, which I consider incorrect, that there is room for an alternate construction.

The amendment to the BIMCO 1989 form

At paragraph 3 of their Reasons the Arbitrators noted that the relevant “suspension” provision had been re-drafted in the BIMCO Supplytime 2005 form. Clause 12(f) now provides for owners to give notice of a failure to pay hire, but does not provide that owners are not entitled to suspend performance during any period of grace. It is unclear on the wording of the new clause whether suspension can only take place after notification has been given.

Whether or not it is impermissible (as the Arbitrators held it was) to use the later version of the form as an aid to construction of its predecessor (as to which see ICS v West Bromwich Building Society [1998] 1 WLR 896 at 912H-913B), I am not assisted by reference to the terms of the new BIMCO Supplytime 2005 form. In relation to the question in issue in the present case, I do not consider that the new provisions provide any further support beyond the arguments to which I have already referred.

Charterers’ argument based on an implied term

I see no justification for the implication of a term in the Charterparty along the lines suggested by Charterers. In this respect, I agree with the analysis of the Arbitrators. Whilst the absence of an express term does not necessarily mean that a term cannot be implied, there is no business necessity to imply such a term in the present case. As the Arbitrators pointed out, it cannot be said that the Charterparty cannot properly work without such notice being given, since Charterers are already on notice from the wording of part [4] alone that non-payment entitles the Owners to suspend performance there and then. Moreover, there is real difficulty in seeking to imply a term into a detailed standard form contract such as the Supplytime 1989 form, where the strong presumption is likely to be that the detailed terms of the contract are complete; see A-G of Belize v. Belize Telecom [2009] 1 WLR 1988 per Lord Hoffmann at paragraphs 17-27; and Mediterranean Salvage v. Seamar Trading [2009] EWCA 531 per Lord Clarke MR. at paragraphs 10, 15-18.

Disposition

Accordingly I find in favour of Owners and allow this appeal. I conclude that, on the proper construction of Clause 10(e) of the BIMCO Supplytime 89 form, in order for Owners validly to exercise their rights to suspend performance of any and all of their obligations under the Charterparty pursuant to part [4] of Clause 10(e), Owners are not required to give Charterers five banking days notice of the suspension.

I will hear argument from counsel as to the appropriate form of the order and as to any consequential matters.

Note 1             The right to withdraw temporarily was in this formulation used synonymously with Owners entitlement “to suspend performance of any and all of their obligations” under part [4].     [Back]


Dry Bulk Handy Holding Inc v Fayette International Holdings Ltd & Anor

[2012] EWHC 2107 (Comm) : [2013] 1 All ER (Comm) 177, [2012] 2 Lloyd’s Rep 594, [2012] EWHC 2107 (Comm)

Smith J

The Bills of Lading Claims

Although this was not the order in which counsel made their submissions, it is convenient first to consider the bills of lading claims. These are made by DBHH against Metinvest, to whom the bills were issued. As I have said, it is not in that dispute they were owners’ bills, that is to say they recorded or evidenced contracts under which DBHH, as owners of the “Bulk Chile”, undertook the carriers’ obligations. They named Metinvest as shippers of the cargo, and so evidence that Metinvest were the shippers: this was not disputed on the pleadings or at the trial. Accordingly, the bills of lading evidenced contracts of affreightment between DBHH as carriers and Metinvest (which I shall label the “bills of lading contracts”, notwithstanding the bills evidence rather than contain the contracts), and prima facie Metinvest were liable to pay freight to DBHH according to the terms of the bills of lading contracts: Scrutton on Charterparties (22nd Ed., 2011) art 185. That, as I say, is only a prima facie inference of the contractual position: as Hobhouse LJ emphasised in Cho Yang Shipping Co Ltd v Coral (UK) Ltd, [1997] 2 Lloyd’s Rep 641, it could have been displaced by evidence of a different contractual scheme, but there is no such evidence in this case. The fact that the bills of lading stated “freight prepaid” does not of itself show that Metinvest were not to be liable for freight which had not in fact been paid. As Hobhouse LJ said, loc cit at p.643, “Such words are not, in English law, words of contract … and their insertion in the bill of lading does not serve to negative a pre-existing, undischarged, contractual liability to pay freight”.

The bill of lading contracts provided that the freight payable by Metinvest was “payable as per [the voyage] charterparty”. This means that the terms of the voyage charterparty govern not only the amount of the freight payable by Metinvest but also the time of payment, the method of payment and who is to receive it: see India SS Co v Louis Dreyfus Sugar Ltd (The “Indian Reliance”), [1997] 1 Lloyd’s Rep 52. (The Gencon bills’ standard wording that incorporate the provisions of the voyage charterparty perhaps reinforce this, but add nothing.) The voyage charterparty did not expressly state to whom payment was to be made, but the implication is that it was to be made to Fayette as disponent owners. Accordingly Mr Happé submitted that the freight to be paid by Metinvest under the bill of lading contracts was to be paid to Fayette, and that DBHH were and are not entitled to require that it be paid to themselves.

A similar argument was considered in Tradigrain SA and ors v King Diamond Shipping SA (The “Spiros C”), [2000] 2 Lloyd’s Rep 319, a case in which owners claimed freight from shippers although the shippers had discharged their obligations to intermediate charterers in respect of freight payable under the sub-charter. Rix LJ agreed (at p.331) with the observation of Colman J at first instance that “… it has long been established that a shipowner can intercept to claim freight directly from the shipper at any time before it has been paid”. He referred to the decisions of Channel J in Wehrer v Dene SS Co., [1905] 2 KB 92 and of Greer J in Molthes Rederi Aktieselskabet v Ellermans Wilson Line Ltd, [1927] 1 KB 710. Of course, the contract recorded in the bill of lading could have provided that the owners had no right so to intervene and effect would have been given to such a provision, but Rix LJ said that the provision in the bill of lading contract that freight should be payable “as per charterparty” does not exclude the owners’ right to intercept freight. This is because, as stated in Chitty on Contract (30th Ed, 2008) Vol 1 para 18-073, where a contract provides for payment to a third party, it is a matter of the construction of the contract whether the promisee can unilaterally (ie without the consent of the promisor) demand that payment should be made to himself”, and Rix LJ considered that “the typical case of the bill of lading in which freight is payable as per charterparty is probably such a contract”.

The right of the owners to intercept or to intervene so as to require payment to themselves is distinct from any right that they might have to a “lien” over freight. However, in The “Spiros C” the head charterparty was on the 1946 NYPE form and included clause 18, and Rix LJ observed (at loc cit p.332) that his analysis would be “entirely consistent with the regime under the time charter, under which the lien over sub-freight is, in the event of a default under the charter, to be subject to the shipowner’s claim”. As I understand the analysis of Rix LJ, the right of owners to intervene to have freight under their contract with shippers paid direct to themselves does not depend upon whether the charterers under the head charterparty have defaulted in paying hire or whether sums have “accrued due” (in the terms of clause 18 of the 1946 NYPE form) under the head charterparty. Unless the contractual arrangements expressly or impliedly so provide, payment to the charterers does not discharge the shippers’ liability for freight, and upon Rix LJ’s interpretation of the “typical case of the bill of lading in which freight is payable as per charterparty” the contractual arrangements cease so to provide once the owners have demanded of the shippers that payment be made to themselves (or not to the charterers).

Mr Happé submitted that Rix LJ’s analysis was by way of obiter dictum, that it is wrong and that I should not follow it, notwithstanding that Henry and Brooke LJ agreed with the judgment. I agree that Rix LJ’s observations were not part of the ratio of the case in that in The “Spiros C” the claim of the owners depended upon them showing both (i) that arrangements between the shippers and the charterers had not discharged the obligation to pay freight before they demanded payment to themselves, and (ii) that they could effectively intervene by demanding payment to themselves: and, since the shippers succeeded on the first point, the answer to the second question was of no consequence. But this does not much detract from the weight of the case as precedent: in Cross and Harris, Precedent in English Law (4th Ed, 1991) at p.77, it is said of the position where litigation between A and B involves two points of law and a decision on either in favour of A obliges the court to give judgment for him: “If an appellate court decides one point in favour of A, and the other in favour of B, the decision on the second point is obiter if the ratio decidendi of a case must be a proposition of law upon which the order of the court is based. Yet it is difficult to believe that the decision would not have coercive effect so far as lower courts are concerned.” This properly states the authority of the judgments in The “Spiros C” over my decision, notwithstanding that Rix LJ stated (loc cit at para 58) that he preferred to rest his decision on the question about how the arrangements between the shippers and the charterers affected the owners’ rights. I recognise that the views of Rix LJ were questioned by Aikens et al, Bills of Lading (2006), who commented (at para 12.50) as follows: “It is … unclear from this decision whether on this analysis [the owners] can redirect payment of the freight at any stage or, if not, what event triggers such a right. The law on this point is unclear and it is respectfully submitted that the dictum needs to be treated with some caution”. But I do not think that it would be proper for me to depart from a precedent of this weight, even if I doubted it. In any case I would respectfully subscribe to the analysis of Rix LJ, of which Mr Happé made no specific criticism and which seems to me convincing.

However, Mr Happé also submitted that DBHH did not effectively intervene to demand payment of the freight to themselves and so did not prevent the payment by Metinvest to Fayette on 12 April 2011 from discharging their obligations to DBHH to pay freight. He did not dispute that, if DBHH did effectively demand payment to themselves before 12 April 2011, any payment to Fayette after the demand had been made cannot avail them: if they made payment after a demand, the payment would not, of course, be made in breach of the contractual arrangements with DBHH – Metinvest were entitled to pay Fayette what they wanted – but it did not discharge their obligations under the bills of lading contracts.

Mr Happé had two arguments. The first was that the First and Second Notices did not on their proper interpretation make such a demand under the bills of lading contracts. No particular form or wording is required for a demand or notice of intervention of this kind, provided the meaning is plain, but Mr Happé argued that both notices only made demand under clause 18 of the KLC charterparty and not under the bill of lading contracts. DBHH called the First Notice a “Notice of Lien” both in the heading and repeatedly in the body of the notice, including in the words introducing the first request and the second request. The heading of the Second Notice, which was sent after the vessel had started to load, indicates that DBHH’s purpose in sending it was to assert their lien over cargo, as well as over the freights and hires that were the subject of the First Notice.

I recognise the force of this argument. However, DBHH’s second request in the First Notice was that Metinvest arrange “payment of all such freight(s) and/or Hire(s) in [their] hands directly to [DBHH’s] account when due …”, and the expression “such freight(s) and/or hires(s)” refers to the first request in which they ask that Metinvest confirm the amount of “freight(s) and/or hire[s] due from you under any charters, bills of lading, or other contracts of carriage”. This covers freight payable under bills of lading contracts, and therefore on its face the second request is wide enough to cover freight falling due under any bill of lading contract made by Metinvest. DBHH (and CSAV) could not have any lien over freights under bills of lading contracts unless, perchance and improbably, charterers’ bills entitling Fayette to payment of freight had been issued, and to interpret the notices as directed only to rights of lien would, effectively, deprive of any effect the references in the First Notice to bills of lading.

This consideration seems to me a more powerful indication of the intended meaning of the First Notice (and of the repetition of the second request in the Second Notice) than DBHH’s description of it as a “Notice of Lien”. If a legal principle is needed to support this interpretation, I would invoke falsa demonstratio non nocet cum de corpore constat – the expression “Notice of Lien” being what Lord Hoffmann might call a misleading car number plate: see Synthon BV v Smithkline Beecham plc, [2005] UKHL 59 at para 37. This interpretation means that the description was incomplete, if not inaccurate, but it is not, in my judgment, significantly misleading. It is perhaps the less remarkable given that the typical purpose of owners intervening to require payment to themselves of bills of lading freight is to secure their position when the financial standing of intermediate charterers is uncertain. In The “Spiros C”, [1999] 2 Lloyd’s Rep 91, 96 Colman J drew an analogy between the two regimes (as Rix LJ observed at [2000] loc cit at para 52).

I add that, although it is couched in terms of a “request” that freight under the bills of lading contracts be made to DBHH, the First Notice makes clear that Metinvest could no longer discharge their obligations to pay bills of lading freights by paying Fayette: in commercial reality, it amounted to a demand for payment. In any case, if there be doubt about that, the Second Notice was expressed in terms of what DBHH “require[d]” and puts this beyond dispute.

Mr Happé’s second argument was that the First and Second Notices were not effective to “intervene” to require payment of freight to DBHH because DBHH could give notice only when money was overdue to them under their contractual arrangements for the carriage, and they have not showed, it was said, that by 1 February 2011 that there was overdue “at least US$742,975”, the amount mentioned in the First Notice. There is nothing in this point. First, an owner is not entitled to intervene to have freight paid to himself only if money is overdue to him in respect of the carriage. Of course, the right is usually exercised in these circumstances: in Federal Commerce and Navigation Inc v Molena Alpha Inc (The “Nanfri” etc), [1978] 1 Lloyd’s Rep 581, 591 Kerr J referred at first instance to clause 18 providing “additional remedies” in the event of default in the payment of hire, and at first instance in The “Spiros C” Colman J spoke of freight under a bill of lading contract being intercepted “if a disponent owner defaults under the head charter”. But I do not understand them to intend to define or restrict the circumstances in which owners can intervene. Colman J was seeking to draw the analogy with rights of lien that Rix LJ explained in the Court of Appeal: loc cit at para 52. There is no reason of principle that the right to intervene should be restricted as Mr Happé suggested.

In any case, when the First Notice was sent on 1 February 2011, money was overdue in respect of the hire from 18 January 2011 to 2 February 2011. I have rejected Mr. Happe’s submission that the invoice for this hire had not been delivered to KLC, but, even if it had not been, this would not affect the position: the hire would still have been overdue whether invoiced or not. I accept that the hire for the period from 2 February 2011, although falling due on 1 February 2011, was not overdue when the First Notice was sent, but that does not mean that the notice was in any way inaccurate. The First Notice stated (i) that KLC had failed to pay hire due and owing “In breach of charter”; and (ii) at least $742,875 was due and owing to Owners “at the date of this notice”. It did not state that KFC were in breach of charter in failing to pay at least $742,875. Moreover, even if it had implicitly asserted that KFC had failed in breach of contract to pay at least $742,875, I cannot accept that therefore the notice would be vitiated so as to be of no effect. Finally, even if First Notice were so vitiated, by 5 February 2011, when the Second Notice was delivered, the hire for both the period from 18 January 2011 and the hire for the period from 2 February 2011 were overdue and valid notice of intervention in respect of the bills of lading freight was given thereby.

I reject therefore the various arguments advanced on behalf of Metinvest in answer to the bills of lading claims, and I uphold them.

The Lien Claims

I come to the lien claims: CSAV make a lien claim against Fayette for hire payable by them under the trip charterparty and against Metinvest for freight payable by them under the voyage charterparty. (The KLC charterparty was made by DBHH as agent for CSAV, their undisclosed principal: as I see it, CSAV have intervened to assert their rights under the KLC charterparty and they, rather than DBHH, are the proper claimants to pursue these claims. However, there is no issue between the claimants and I did not hear submission about this.) In relation to these claims there are issues between the parties about (i) the proper meaning of clause 18 (“interpretation issues”); (ii) whether the notices given to Fayette and to Metinvest are sufficient to invoke rights under clause 18 (“notice issues”); (iii) whether a lien over “sub-freights” under clause 18 can effectively be invoke before they fall due; and (iv) whether any rights that CSAV have under clause 18 are defeated or curtailed by orders of the Seoul Court (“Korean proceedings issues”).

The main issue of interpretation is whether clause 18, properly interpreted, provides for a lien over sub-hire, or whether it applies only to freight, a question about which Lloyd J and Steyn J disagreed in Care Shipping Corp v Latin America Shipping Corp (The “Cebu”) (No 1), [1983] QB 1005 and Care Shipping Corp v Itex Itagrani Expert SA (The “Cebu”) (No 2), [1993] QB 1. In The “Cebu” (No 1) Lloyd J concluded that the reference in clause 18 to “sub-freights” is properly understood to cover sub-hire, that is to say, hire payable under a trip charterparty of the m/v “Cebu”, which was the last of a chain of four charterparties. He rejected an argument that a distinction should be drawn between sub-freight and sub-hire. He pointed out that, while freight “in the strict sense” refers to sums earned under a bill of lading contract or a voyage charterparty, usage going back to the nineteenth century included so-called “time freight” or freight under a time charterparty, referring in this context to the speech of Lord Blackburn in Inman SS Co Ltd v Bischoff, (1882) 7 App Cas 670, 678; and he observed a tendency in the twentieth century to assimilate the rules governing voyage charters and time charterers (notwithstanding the judgments in the Court of Appeal in The “Nanfri” etc, [1978] QB 927). Lloyd J declined to give clause 18 a construction that would mean that the owners’ security depended upon whether the sub-charter was a trip charterparty or a voyage charterparty: loc cit at p.1012F. Mr Bignall submitted that he was right to do so, observing that such a distinction would be particularly surprising in the context of a long-term charterparty such as the KLC charterparty where there was a real possibility of the vessel being sub-chartered for substantial periods either on time charterparties or on trip charterparties.

However, in The “Cebu” (No 2) (loc cit) Lloyd J’s view was rejected by Steyn J, whose judgment Mr Bignall analysed critically. He identified these six reasons given by Steyn J for not following Lloyd J’s decision.

i)          Steyn J distinguished (loc cit at p.13F) what was said in the Inman SS case because there the term “freight” was used in an insurance contract, in which context it has a specialised and wide meaning. But Mr Bignall argued that the wider meaning has been recognised elsewhere, citing by way of example the judgment of Donaldson J on Seven Seas Transportation Ltd v Atlantic Shipping Co SA, [1975] 2 Lloyd’s Rep 188, 191.

ii)         Steyn J observed (at p.12B) that, while the wide usage of “freight” continued “well into [the 20th] century”, there had clearly been a change in the use of the word “in modern times”. Mr Bignall submitted that the parties to the KLC charterparty must be taken to have known that they were adopting the 1946 NYPE form and to have expected that it would be given the meaning that the form had when it was introduced.

iii)         The use of the word “hire” elsewhere in the charterparty, in Steyn J’s view, not only meant that the NYPE form provided no reason to “stretch” the meaning of “freight” to cover hire, but indicated the contrary: see p.14B/C. This observation loses some of its force when it is recognised that the “wider” usage of the term “freight” would not mean that the NYPE form uses two different terms (“hire” and “freight”) with the same meaning, but that it uses the expression “freight” in a generic sense that includes hire.

iv)        Next, Steyn J cited the observation of Lord Wilberforce in The “Nanfri” etc, [1979] AC 757, 777G that in construing the NYPE form clause 18 should not be given too much force, and said (at p.14G) that “The fact that [clause 18] had no operative effect if the subcharter is a time charter does not by itself warrant any stretching of the language of clause 18”. However, this does not answer Lloyd J’s point that the more businesslike interpretation of clause 18 would give it effect whether the sub-charter is a voyage charterparty, a trip charterparty or a time charterparty.

v)         Steyn J considered (at p.15A) that a factor militating against an extended meaning being attributed to the term “sub-freights” would be that the accounting would be more complicated under a time charterparty than a voyage charterparty. But the 1993 NYPE form expressly provides for a lien over hire, which indicates that the shipping trade does not consider any complexity of accounting would make a lien over hire unmanageable or undesirable.

vi)        Finally, Steyn J took account (at p.16B) of the fact that third parties are affected by a lien clause in a charterparty, and that “Only a clear lien clause should be enforceable against the third party”. Mr Bignall observed that, whatever its interpretation, the operation of a lien clause inevitably can present third parties with decisions of the kind that concerned Steyn J.

I pay tribute to the care of Mr Bignall’s analysis and recognise that it has considerable force. In the absence of authority I should have given clause 18 the wider interpretation and concluded that the term “sub-freights” covers “sub-hire”. However, given that there are two conflicting decisions at first instance and the later fully considered the earlier decision, I must follow the later decision unless there are cogent and convincing reasons to do otherwise: see In re Lune Metal Products Ltd in Administration, [2006] EWCA 1720 (Civ) at para 9 and Ferrexpo AG v Gilson Investments Ltd and ors, [2012] EWHC 721 (Comm) at para 165. I do not consider the proper meaning of clause 18 to be so clear that I should reject the interpretation that Steyn J preferred: the criticisms of his reasoning are not so compelling as to justify that. I therefore conclude that the lien clause does not, on its proper interpretation, provide for a lien over the hire payable by Fayette under the trip charterparty.

There appeared at the start of the trial to be another issue about the meaning of “sub-freights” in clause 18: whether it includes sub-sub-freights (that is to say freight due under a sub-sub-charterparty, where, as here, there is a chain of at least three charterparties). However, in his oral submissions Mr Happé made it clear that Metinvest do not dispute that the term covers sub-sub-freights: Lloyd J so decided in The “Cebu” (No 1) case (loc cit at p.1013A) and Mr Happé’s concession was correctly made. I must therefore consider whether Metinvest have another answer to the lien claim against them.

Lloyd J explained that, since the lien under clause 18 operates where there is a single sub-charterparty by way of an equitable assignment of the right to freights payable under it, so too the law can and does give effect to the parties’ intention where there is more than one sub-charterparty by recognising “a chain of equitable assignments”, the assignee of the right to be paid sub-sub-freights assigning that assigned right up the chain. This analysis was not disputed before me. The parties in this case all accepted that a lien over sub-freights operates by way of an equitable assignment of the right to be paid them or, in the case of sub-sub-freights, a chain of assignments; and so the lien confers on the assignee a right against the person liable to pay the sub-freights (“the debtor”); and, even if this analysis had not been so accepted, the weight of first-instance authority in support of it would require me to adopt it. This view was most recently endorsed by Christopher Clarke J in Western Bulk Shipowning III A/S v Carbofer Maritime Trading ApS and ors, [2012] EWHC 1224 (Comm) at paras 32-52. He rejected the argument that the “lien” confers only a personal, contractual, non-possessory right of interception (see Dr Fidelis Oditah’s article, “The Juridical Nature of a Lien on Sub-Freight”, [1989] LMCLQ 191 and Agnew v CIR, [2001] 2 AC 710 per Lord Millett), and preferred the view that clause 18 takes effect as an assignment by way of charge, or at the least (for that was sufficient for the purposes of the application for the continuation of a freezing order that was before him) that this analysis was “well arguable”. Thus the position is rightly stated in Time Charters (6th Ed, 2008) para 30.11: “The right of the owners under … the [NYPE] form to intercept sub-freights extends to sub-freights due to sub-charterers – and not therefore payable to the time charterers direct – if, under the terms of the sub-charter, the time charterers have similar rights of lien to those given to the owners under the head charter”. That condition is met here.

It was also argued that the lien claims should be rejected because the notices given by DBHH were defective. There is ample authority (referred to by Christopher Clarke J in the Western Bulk Shipowning case) that refers to the need for notice if the lien under clause 18 is to be invoked. For example, in The “Nanfri” etc, (cit sup at p. 591) Kerr J referred to the lien being exercised by “giving the appropriate notices”; and in the House of Lords Lord Russell of Killowen said (loc cit at p.784G) that the lien “operates as an equitable charge upon what is due from the shipper to the charterer, and in order to be effective requires an ability to intercept the sub-freight (by notice of claim) before it is paid by shipper to charterer”. Christopher Clarke J (loc cit at para 37) said that the assignment of the debt owed to the lienor means that “The debtor, once he has notice of the lien, may not make payment to his creditor if the obligation to the lienor is unpaid”.

Mr. Happé submitted that the First Notice did not give the notice required in order to exercise the lien, because it was defective or ineffective in that (i) it mis-stated the amount due to DBHH; (ii) it did not explain how the sum claimed is made up; and (iii) the First Notice wrongly claimed that KLC were in breach of the KLC charterparty in that they had failed to pay $742,875. These submissions are apparently based on the judgment of Scrutton LJ in Albemarle Supply Co Ltd v Hind & Co, [1928] 1 KB 307, a case in which garage owners claimed a lien over taxicabs in respect of repairs that they had done. He said, at p.318:

“A person claiming a lien must either claim it for a definite amount, or give the owner particulars from which he himself can calculate the amount covering the lien really existing. If he does not, unless excused, he has no answer to a claim of lien. He may be excused from tendering (1) if he has no knowledge or means of knowledge of the right amount; (2) if the person claiming the lien for a wrong cause or amount makes it clear that he will not release the goods unless his full claim is satisfied, and that claim is wrongful. The fact that the claim is made for more than the right amount does not matter unless the claimant gives no particulars from which the right amount can be calculated, or makes it clear that he insists on the full amount of the right claimed.”

I do not consider that this authority assists the defendants in this case. First, Scrutton LJ explained that the owners of goods subject to a lien are “excused” from tendering the amount required to free them from the lien if he did not do so because person claiming the lien had not told him the amount and he did not and could not know it: he said (at p.319) that the owners of the taxicabs could not defeat the lien by this argument because they “did not tender because they thought their agreement prevented the creation of a lien, not because they could not ascertain what repairs were done”.

In any case, Scrutton LJ was concerned with the position under a possessory lien. A lien over sub-freights is different in kind and Scrutton LJ’s reasoning has no application here. As Robert Goff J observed in Ellerman Lines Ltd v Lancaster Maritime Co Ltd and ors (The “Lancaster”), [1980] 2 Lloyd’s Rep 497, 501, clause 18 of the NYPE 1946 form provides for three liens (for owners’ liens over (i) all cargoes and (ii) sub-freights and for a charterers’ lien over the ship), and they are different in kind, only the owners’ lien over cargoes being a straightforward possessory lien (unless the charterparty is a demise charter so that the charterers have possession of the ship).

Nevertheless, Mr Happé’s submission requires me to consider the nature of the notice required to invoke the lien over sub-freights. In the case of statutory assignments under section 136 of the Law of Property Act, 1925, the debt or other chose in action is transferred only if notice in writing of the assignment has been given to the debtor or other obligee, and the notice is not effective if the notice mis-states the date of the assignment or, it seems, the amount of a debt transferred. These requirements must be strictly complied with because they directly concern the transfer of title: see W F Harrison & Co Ltd v Burke, [1956] 1 WLR 419, 421. However, I see no good reason to apply these strict rules (which have been criticised with some force: see R Munday, Notice of Legal Assignment, 131 NLJ 607) in this case. The rules in equity have never been so strict (see, for example, Whittingstall vKing, (1882) 46 LT 520 and the note of Mr R E Megarry QC in 72 LQR 321). An equitable assignment transfers title without notice of it being given to the debtor, but payment to or settlement with the assignor before the debtor receives notice of the assignment discharges the debt, and for this reason an assignee might wish to give the debtor notice of it. (Notice to the debtor also means that he cannot set up against the assignee new and independent equities that arise between him and the assignor and gives that assignee priority over any subsequent assignees under the rule in Dearle v Hall). However, for notice of this kind no particular formality is required and “The language is immaterial if the meaning is plain”: see Lord Macnaughten in Wm Brandt’s Sons & Co v Dunlop Rubber Co, [1905] AC 454, 462 and Mackinnon LJ in James Talcott Ltd v John Lewis & Co Ltd, [1940] 3 All E R 592, 595D/E. This is well illustrated in a shipping context by Smith v Owners of SS “Zigurds”, [1934] AC 209. Where the assignment is by way of the crystallisation of a floating charge, the assignment is effective against the debtor not when the debtor receives only notice of the charge but also notice of the crystallising event and so notice of the assignment: Business Computers Ltd v Anglo-African Leasing Ltd, [1977] 1 WLR 578, 582A/B; Lightman & Moss, The Law of Administrators and Receivers of Companies (5th Ed, 2011) para 22.061. But again no particular form of words is required so long as the meaning of the notice is clear.

But sub-charterers who owe sub-freight under a voyage charterparty can usually discharge the obligation by paying intermediate charterers rather than the owners even if they have (actual or constructive) knowledge that the head charterparty includes a clause such as clause 18 whereby the owners have a “lien” over sub-freights. For one thing, the lien under clause 18 is by way of security and is for an “amount due”, and the lien “can be exercised only in respect of hire already accrued due at the time the sub-freights are liened”: Time Charters (cit sup) para 30.38; see too Scrutton on Charterparties, cit sup, para 16.014. There is no reason that sub-charterers should be aware whether an amount is due under the head charterparty. As Kerr J said in The “Nanfri” etc (loc cit) at p.591, the operation of the lien must be limited by reference to normal shipping practice, and, until the lien is invoked, freight is normally paid to the intermediate charterers whether or not the sub-charterers have notice of a lien provision.

The lien is, as Christopher Clark J said, by way of a charge, and its operation can be seen to be in some ways analogous to that of a floating charge in that the shared assumption of the parties is that until the lien is invoked the parties will carry on business in the ordinary way. The analogy with the floating charge breaks down in that, as Lord Millett observed in Agnew v CIR, [2001] loc cit at para 41, clause 18 does not state a crystallising event and indeed Lord Millett said that it is incapable of “crystallisation”. What is required in order for the lien to be invoked is, as Lord Russell said, that the owners make a claim against the debtor, that is to say that they intervene or intercept the payment of the freight with a demand that it be paid to them under clause 18: hence the analogy with notices that owners can give shippers under bills of lading contracts, to which Rix LJ referred in The “Spiros C” (loc cit) at para 52.

Therefore, in my judgment effective notice to invoke the lien is given if the sub-charterers are informed (in one or more communications) (i) that the owners are assignees of debts owed (or to be owed: see para 61ff below) by the sub-charterers; (ii) what debts are so assigned; (iii) that an amount is due to the owners under the head charterparty; and (iv) that the owners require that the assigned debts be paid directly to them. No particular form of words is required for conveying the information. The First and Second Notices meet these requirements. The First Notice asserted that an amount was due to the Owners from KLC under the KLC charterparty and that they had a lien over “any balance of freight(s) … due under any charters … relating to the voyage”. This could not reasonably be understood to refer only to money due at the time of the notice: see para 63. As I have said in the context of the bills of lading claims, I consider second “request” amounted to a demand for payment or a requirement that the sub-freights be paid to the Owners rather than intermediate charterers although it was couched in terms of a request, and in any case the Second Request put the position beyond doubt.

I do not accept that any of Mr Happé’s criticisms of the First and Second Notices means that they were ineffective either to give Metinvest notice of the assignments of the right to be paid the freights payable under the voyage charterparty or to demand their payment (when they fell due) to DBHH.

i)          I do not consider that the First Notice mis-states the amount under the KLC: see para 44 above. Even if it did, this would not be material. In my judgment, what was required was that Metinvest be informed that there was an amount due, not how much was due, and (whatever the position with regard to statutory assignments) I do not accept that an error in unnecessary information vitiates a notice invoking the line over sub-freights.

ii)         DBHH did not have to provide Metinvest with an explanation or breakdown of their debt, or even the amount of it. The failure to do so does not affect the validityof the notices.

iii)         I do not consider that the First Notice wrongly asserted that KLC had failed to pay $742,875 in breach of the KLC charterparty, but, even if it had done so, this error would not have vitiated it.

This leaves the question whether effective notice could not be given in respect of freights which were to fall due after the notice had been given. The question arises because freight under the voyage charterparty did not fall due until two banking days after the completion of loading and so after the First and Second Notices had been given. Mr Bignall did not contend that thereafter Metinvest were given any relevant notice before they paid Fayette on 12 April 2011. Three questions fall for consideration: (i) whether on the proper interpretation of clause 18 it was agreed that the Owners should have a lien over sub-freights that had not yet fallen due; (ii) whether the First Notice or Second Notice purported to cover sub-freights that had not fallen due; and (iii) whether the law allows assignees to give debtors effective notice of assignments before the assigned debt has fallen due.

Mr. Happé submitted, however, that, properly interpreted, clause 18 means that the right against Metinvest to be paid sub-freights under the voyage charterparty was assigned (by Fayette to KLC and then by KLC to CSAV) only when they are due for payment. I cannot accept that the parties intended clause 18 to be limited in this way. It is clear from the judgment of Lloyd J in The “Cebu” (No 1), loc cit at p.1016, (who cited the judgment of Mathew LJ in Hughes v Pump House Hotel Co Ltd, [1902] 190, 194-195) that this does not follow from the lien being by way of security. There would be no commercial justification for this interpretation of the clause, and the law recognises an assignment by way of charge over future debts: see Picarda, The Law relating to Receivers, Managers and Administrators (4th Ed., 2006) p.106. Beale, Bridge, Gullifer and Lomnicka, The Law of Personal Property Security, (2nd Ed, 2012) observe with regard to floating charges at para 6.79, “As a general rule, if the floating charge covers future assets, assets within the description of the charged future assets which accrue to the company after crystallization will fall within the crystallized charge”. The position is, to my mind, similar here: when the KLC charterparty and the trip charterparty were made, the sub-freights to which they referred were necessarily future assets, and the clause was intended to cover them. Mr. Happé observed that the lien over cargo conferred by clause 18 operates only when cargo is loaded, but that is because it takes effect as a possessory lien. This is not, to my mind, an indication of the parties’ evinced intention as to the sub-freights to which clause 18 was to refer.

As I interpret the First Notice, it is clear that it is directed to sub-freights that might fall due after its receipt and not only to any sub-freights that might be due when it was received by Metinvest. It asserted that the Owners had a lien over “any balance of freight(s) … due under any charters … relating to the voyage”, but this could not, in my judgment, reasonably be understood to refer only to money due at the time of the notice because the second request called upon the recipient to make payment of “such freight(s) … when due”.

Mr Happé did not develop his argument that the law does not allow assignees to give debtors effective notice of assignments before the assigned debt has fallen due, and cited no authority in support of it. I reject it, although generally notice of assignment can be given only at the time of an assignment or afterwards: see Beale, Bridge, Gullifer and Lomnicka, The Law of Personal Property Security, loc cit, para 7.99. They observe that the position is less clear where, as here, there is an agreement to assign future debts, but refer to a dictum of Baggallay LJ in Roxburgh v Cox, (1881) 17 Ch D 520, 527 that suggests that in these circumstances too effective notice cannot be given before the assigned debt is due.

In Roxburgh v Cox an army officer had, in order to secure a loan, assigned commission that was to be paid to him when his retirement from the services was gazetted, but the commission was paid into his overdrawn bank account before the assignee gave notice to the bank. It was held that the notice was too late for the assignee to dispute the bank’s claim of set-off. Baggallay LJ said this (at p.527):

“It is admitted here that there was no notice whatever given to [the debtor] of the present claim of the [assignee] until the morning of the 19th of December, and, in point of fact, any notice given by him before the money came into the possession of [the debtor] would have been ineffectual, as was decided in the case of Somerset v Cox …, which has been repeatedly recognised and followed. There was therefore no notice given by the [assignee] to [the debtor] before the morning of the 19th which could have created a valid charge on the money in the hands of [the debtor] and this was after the right of set-off had arisen.”

Somerset v Cox (1865) 33 Beav 634 was another case in which an army officer charged the proceeds that might arise from sale of his commission. These and other army commission cases were explained by P O Lawrence J in Ipswich Permanent Money Club v Arthy, [1920] 2 Ch 257, 270, who pointed out that they are of “the class of cases dealing with assignments of future property, expectancies and possibilities”. The entitlement to freight, once the voyage charterparty had been concluded, is a present chose in action: see Colonial Bank v European Grain & Shipping Ltd (The “Dominique”), [1988] 1 Lloyd’s Rep 215, 221, in which Mustill LJ said when considering freight:

“All contractual rights are vested from the moment when the contract is made, even thought they may not presently be enforceable, either because the promisee must first perform his own part, or because some condition independent of the will of either party (such as the elapsing of time) has yet to be satisfied. Equally, all unperformed obligations to pay money are in one sense debitum in praesenti solvendum in futuro.”

(The decision of the Court of Appeal in this case was reversed in the House of Lords ([1989] AC 1056), but not on this point.)

The dictum of Baggallay LJ was directed to future debts, not existing choses, and it does not, to my mind, support the challenge to the First and Second Notices. There seems to me to be no reason in principle that notice given before a debt falls due should not be effective (if not for the purpose of determining priority between assignees and chargees or even, possibly, for determining questions of set-off, at least for the purpose of preventing the debt being discharged by payment to the party who agreed to assign it). Wood, English & International Law of Set-Off (1989) at para 16-119 expressed the view (to which I would subscribe) that such a rule about future interests would be “arbitrary and out of accord with realities” with regard to set off, and that an assignee of present and future claims ought to be able to give advance notice to protect himself. The objections to such a rule with regard to whether assigned debts are discharged by payment to the assignor are all the more compelling, but in any case there is no such rule where an existing chose is assigned. As Mr Bignall observed, if the lien over sub-freights could be invoked only once they were due, this part of clause 18 would be emasculated: owners do not usually know when sub-freights fall due and are not realistically in a position to intervene before sub-charterers who pay their debts promptly make payment to the intermediate charterers. I conclude that the First and Second Notices were effective with regard to the sub-freights that fell due after the cargo was loaded.

I come to the Korean proceedings issues: Mr Happé submitted that “the purpose of the procedure put in place in Korea and given effect to by the Court Orders was to prevent alleged creditors, such as the owners, from gaining advantage at the expense of the generality of KLC’s creditors”, and that “The Court should be unwilling to permit such an advantage”. However, he accepts that the orders of the Seoul Court did not, as Mr Choi and Mr Kim agreed, have extra-territorial effect or purport to do so. In any case, the orders of the Seoul Court provide no answer to the lien claims (or to any of the claims in these proceedings).

Mr Happé’s argument is based upon an observation of Mr Kim that the Comprehensive Stay Order was designed to suspend creditors’ compulsory enforcement, which is defined in article 44 of the DRBA as meaning, among other things, “the compulsory auction sale proceedings for the execution of security interests”. Mr Kim said that, “Even though the Sub-hire Lien is characterised as a security interest, it is not clear to say that the notice sent out for execution of such a right can be covered by the compulsory auction sale proceedings for the execution of security interests and there appears no court precedent available in this respect”; but that in view of the purpose of the DRBA to prevent “any instance where the purpose of the rehabilitation proceedings may not be sufficiently achieved due to unsecured and secured creditors’ independent and separate enforcement of their rights … there is a basis to judge that the creditors’ enforcement action for executing security interest is generally prohibited, in addition to the simple auction sale proceedings”.

Mr Kim’s suggestion of such a purposive construction of the statute is advanced in tentative terms. Mr Choi firmly rejected it in a report in response dated 22 June 2012, and cited in support of his opinion the views of the Bankruptcy Division of the Seoul Court published by them in “Practice in Rehabilitation Cases”. His opinion is in line with a decision of the Seoul Court of 21 December 2011 in case no 2011 Hoehwak 382. I cannot accept that Mr Kim’s suggestion represents the present state of Korean law, and I conclude that the orders of the Seoul Court afford the defendants no answer to the lien claims. I uphold the lien claim against Metinvest.

The Post-Withdrawal Claims

The post-withdrawal claims are put in three ways:

i)          That Fayette are liable to pay hire of $24,000 per day (the rate of hire payable under the KLC charterparty) under a contract made in exchanges between DBHH and Fayette or in the exchanges together with Fayette’s conduct in continuing to accept the vessel’s services.

ii)         That Fayette (expressly or impliedly) requested the services of the vessel to complete the voyage and to discharge the cargo, and are therefore contractually liable to pay $23,000 per day for the requested services on a quantum meruit basis.

iii)         That Fayette and Metinvest (or one of them) are liable to pay a quantum meruit of $23,000 per day for use of the vessel from 26 February 2011 to 10 March 2011.

Before any contract might have been made and any relevant use of the vessel, CTM stated that DBHH’s principals were CSAV, and CSAV and not DBHH are entitled to bring the post-withdrawal claims.

By the email of 19 February 2011 CSAV offered that, if they withdrew the “Bulk Chile” from KCL, they would complete the voyage and discharge the cargo in consideration of Fayette complying with the First and Second Notices and confirming that they would pay hire from the date of withdrawal. The implication of the email is that the hire would be at the rate payable under the KLC charterparty: Mr Bignall so contended and Mr Happé did not dispute this. As I have said, Fayette did not accept that offer: in their reply on 23 February 2011 they disputed the validity of the First and Second Notices and did not agree to pay hire to CSAV (at the rate of $24,000 per day or at any rate). Nor can I accept that Fayette accepted the offer simply by accepting the vessel’s services: given that the cargo was on the vessel when it was withdrawn and in view of the express statement on 23 February 2011 that the validity of the notices of lien was in dispute, their conduct did not evince an intention to accept the offer (still less unequivocally do so).

The claimants’ pleaded case is that the contract for the continuing hire of the vessel at $24,000 per day was made in the communications between 18 and 23 February 2011 or in those communications together with Fayette’s “conduct in continuing to accept the Vessel’s services”; and for the reasons that I have explained I reject the pleaded case. Mr Bignall advanced other unpleaded contentions. (Mr Happé so observed in his written argument, but no application was made to amend.) I consider them no more convincing than the pleaded case.

Mr Bignall submitted that the email of 1 March 2011 contained or evidenced Fayette’s agreement to pay hire for the period after the vessel was withdrawn. I accept that in it Fayette presented themselves as charterers of the “Bulk Chile”: they so described themselves and they gave notice of redelivery of the vessel. However, I cannot accept that they thereby agreed to hire the vessel on the terms of the email of 19 February 2011 – they had, after all, expressly rejected those terms, including CSAV’s insistence that they comply with the notices of lien – and there is no suggestion that CSAV ever offered them the vessel on any other terms.

However, Mr Bignall had another argument, which was based on the email of 5 March 2011 to the master. He did not contend that the email itself contains an agreement by Fayette to hire the vessel or to accept any offer of CSAV, but he contended that I should infer from it, and in particular from the statement that the charterers (that is to say, as I understand it, Fayette) “confirmed to the owners that all hire due to the vessel under their [charterparty] could be transferred to the owners, DBHH”, that they had agreed with DBHH or CSAV to hire the vessel. This, he said, would explain why they presented themselves as charterers of the vessel in the email of 1 March 2011 and is consistent with the reference to “contractual obligations” in the messages to the master on 5 March 2011. I do not draw that inference. No communication in which Fayette confirmed their acceptance of an agreement of this kind is in evidence, and there is no sensible explanation for this if such confirmation were given. It is not clear to what Fayette were referring in their messages to the master, but, as I have said, most likely they were referring to the bills of lading contracts, or possibly they were alluding to their willingness (stated on 3 February 2011) to pay the hire under the trip charterparty to DBHH if KLC agreed to them doing so: after all, in the first email of 5 March 2011 refers to the charterers paying the hire under “their” charterparty, which I would understand to mean the trip charterparty. It suffices that I do not consider that there is a sufficient basis to infer that Fayette agreed to pay hire at the rate in the KLC charterparty.

I therefore reject the contractual post-withdrawal claim for hire of $24,000 per day. I come to the claim for payment on a reasonable remuneration on the basis that Fayette expressly or impliedly requested the vessel’s services. Mr Bignall relied upon the decision of Robert Goff J in Tropwood AG of Zug v Jade Enterprises Ltd (The “Tropwind”) (No 2), [1981] 1 Lloyd’s Rep 45. In that case owners had purported to give notice of withdrawal of a vessel but, after the charterers disputed its validity, the vessel loaded more cargo and proceeded to the delivery port for that cargo and discharged it there. Robert Goff J, having decided that the notice of withdrawal was valid and effective, determined that the charterers were liable to pay for use of the vessel after her withdrawal at the market rate. He said this (at p.53): “… the first question to be asked is whether the services were rendered at the request (express or implied) of the charterers, in which event the charterers will ordinarily be liable to pay a reasonable remuneration for the services rendered, a liability which can probably be categorized as contractual. If however there was no such request, then there can be no contractual liability on the charterers; and their liability (if any) to pay remuneration for the services so rendered can only derive from the principles of restitution”. He held on the facts of that case that there had been an implicit request for services and therefore that the charterers were liable to pay “a reasonable remuneration, i.e. remuneration at the market rate prevailing at the time when, after [the date of withdrawal] the owners complied with the charterers’ request …”. In these circumstances, he did not need to “explore … the nature of the liability which might arise, in the absence of any request, under principles of the law of restitution”.

Upon appeal from the decision of Robert Goff J, the Court of Appeal concluded that the vessel had not been withdrawn from service and so the question about remuneration for her services did not arise. However, Lord Denning MR expressed disagreement with Robert Goff J about remuneration after withdrawal (although the other members of the Court of Appeal, Dunn LJ and Fox LJ, expressed no view on this question). For reasons that I sought to explain in ENE Kos v Petroleo Basiliero SA (The “Kos”), [2009] EWHC 1843 (Comm) at paras 43 ff, I agree with the view expressed, despite the opinion of Lord Denning MR, by the editors of Time Charters (2008) 6th Ed at paras 16.111-112 that owners are entitled to remuneration in these circumstances: “Where, after [a valid] withdrawal, the owners perform further services at the request of the charterers, they may become entitled to remuneration for those services under a new contract. Given the development of the law since The Tropwood (No 2), it is suggested that Robert Goff, J’s view would now prevail if the matter came before the courts again”. This view finds support in the judgment of Carruthers J in Mutual Export Corp and ors v Australian Express Ltd and ors (The “Lakatoi Express”), (1990) 19 NSWLR 285, 304.

I therefore consider that the contractual claim for reasonable remuneration for use of the vessel after she was withdrawn depends, therefore, upon whether Fayette expressly or impliedly requested these services. I have not found this an easy question, but I conclude that they did impliedly do so. After the withdrawal of the vessel, while CSAV had obligations under the bills of lading contracts, they were under no contractual or other obligation to Fayette to continue the voyage and to deliver the cargo, but Fayette would prima facie have been in breach of their obligations under the voyage charterparty if cargo was not delivered to Indonesia and Malaysia. However, Fayette served notices and gave instructions to the vessel (or purported to do so) by way of the notice of redelivery and on 5 March 2011. The implication is that they were calling upon the vessel to provide her services to complete the voyage.

Mr Happé submitted that Fayette’s communications should not be so interpreted. He pointed out that on 19 February 2011 CTM had called for Fayette’s “full co-operation” and on 3 March 2011 DBHH had asked for updated advice about the vessels “prospects”. He argued that Fayette’s communications are properly to be seen as them affording such co-operation as had been sought, rather than requesting services of the vessel. I cannot accept that submission: the communications with the master on 5 March 2011 were sent by way of objection to instructions given by the owners rather than in order to co-operate with them. I conclude that CSAV are entitled to be paid by Fayette reasonable hire or remuneration at the agreed rate of $23,000 per day for the period from 26 February 2011 to 10 March 2011.

CSAV have alternative claims against Fayette and Metinvest that they are entitled to be paid on a quantum meruit basis on the basis of unjust enrichment (or in restitution) for use of the vessel after she was withdrawn from KLC’s service in carrying the cargo to its destinations and delivering it there. They observe that otherwise the owners would have provided the vessel for the whole voyage and Fayette and Metinvest would benefit from that but not pay anything for much of the voyage (KLC having no claim for hire after the vessel was withdrawn from their service on 26 February 2011). If I am correct about the bills of lading claims and the contractual post-withdrawal claim for reasonable remuneration, these alternative claims do not arise. I shall consider them only briefly.

Initially Mr Bignall submitted that CSAV are so entitled because the defendants were unjustly enriched at their expense and that in these circumstances the defendants are liable unless they can rely upon a recognised defence. However, he rightly abandoned this argument: English law has rejected so general a rule, and a claim of this kind must be brought within a recognised category for which a remedy for unjust enrichment is available: Deutsche Morgan Grenfell Group plc v IRC, [2006] UKHL 49 at para 21 per Lord Hoffmann. More specifically, English law does not recognise a general right of recovery for benefits conferred on others or expenses incurred in conferring them: Petroleo Brasiliero SA vENE Kos 1 Ltd (The “Kos”), [2012] UKSC 17 at para 19 per Lord Sumption. Accepting that this is the proper approach, Mr Bignall submitted that the claim is within a recognised category because:

i)          Fayette freely accepted the services and are liable to pay a quantum meruit for them.

ii)         Metinvest are liable, as bailors of the goods, to pay CSAV on a quantum meruit basis because CSAV were obliged to care for the cargo and did so.

Mr Bignall’s submission in support of the claim against Fayette is that, in the absence of a relevant contract or relationship of trust, if no liability in tort arises and subject to various recognised defences, a person is entitled to a quantum meruit by way of unjust enrichment when another chooses to accept his services, so long as he knew or as a reasonable man should have known that their provider expected to be paid for the services. He cited chapter 17 of Goff & Jones, The Law of Unjust Enrichment (2011, 8th Ed) in support of his contention that the law provides relief on the basis of unjust enrichment in cases of “free acceptance”, an expression derived from the 1st edition of Goff & Jones, The Law of Restitution (1966), p.30. A principle of this kind has had more academic than judicial recognition (and has been questioned academically: for example, by A Burrows in “Free Acceptance and the Law of Restitution”, (1988) 104 LQR 576), but it was, I think, acknowledged by Arden LJ in Benedetti v Sawiris, [2010] EWCA 1427 (Civ) at para 2 (although Etherton LJ, at para 143, considered that the basis upon which Mr Benedetti was entitled to quantum meruit relief for his services was immaterial): “A quantum meruit may be awarded where services have been rendered but there is no contract establishing the price to be paid for those services”.

For my part, I consider that English law probably does provide quantum meruit relief for “freely accepted” services, but I am not persuaded that Fayette would have been liable on this basis even if I had rejected the other claims. I agree with Mr Bignall that it was a benefit to Fayette that the cargo was carried to the destinations stipulated in the voyagecharterparty: they thereby fulfilled their contractual obligations to Metinvest, and I cannot accept Mr Happé’s submission that, because under clause 9 of the Contract of Affreightment Fayette earned the freight on loading, it made no difference to them whether or not the contract in the voyage charterparty was carried out. However, a claim lies only where the services are “freely” accepted, where a defendant has not taken a reasonable opportunity open to him to reject the proffered services; and it does not lie when a defendant has had no option about whether to accept the benefit of them. In this case, CSAV were obliged under the bills of lading contracts to carry the cargo and deliver it to its destinations. Fayette (who had these obligations of CSAV well in mind, as is apparent from their communications of 23 February 2011 and, as I interpret them, those of 5 March 2011) were in no position to prevent CSAV from carrying out their obligations under the bills of lading contracts: it was not suggested that they should have sought to prevail upon Metinvest or other persons with interest in the delivery of the cargo to release CSAV from their obligations, and no evidence that, if they had sought to have CSAV released, they would have succeeded.

In support of the claim against Metinvest for remuneration on a quantum meruit basis, Mr Bignall made this submission: that, where goods are loaded on a vessel and the contractual arrangements for the bailment of the goods terminate while the goods are still on the vessel, the owner is under a duty as bailee to take reasonable care of the cargo and, as a correlative right, is entitled to remuneration for carrying out his duty from the bailor of the goods. He relied upon the decisions of the House of Lords in China Pacific SA vFood Corpn of India (The “Winson”), [1982] AC 939 and of the Supreme Court in The “Kos”, (cit sup). It seems to me that the principle established by those cases would apply in the present circumstances if the relationship between the bailors and the bailees were not governed by the bills of lading contracts. I accept that CSAV carried out their obligations to care for the cargo by carrying it to the destinations stipulated in the bills of lading contracts. Mr Happé did not submit that they could have met their obligations as bailees more economically by discharging the cargo at an interim port. In any case, it appears from the decision of the Privy Council in Gaudet v Brown (“Cargo ex Argos”), (1873) LR 5 PC 134 that the bailee is entitled to recover in respect of carriage of bailed cargo if that is “the best and cheapest way of making [it] available to the [bailor]” (at p.165 per Sir Montague Smith), and there is no suggestion that CSAV should have dealt with the cargo otherwise than as they did; and I would conclude that CSAV took the only course reasonably and practically open to them when they carried the cargo to Malaysia and Indonesia and delivered it there. Nor did Mr Happé suggest that there is any relevant distinction in this case between the remuneration that CSAV would have been entitled to recover and their expenses (which would include what Lord Sumption called in The “Kos” their “opportunity cost” of caring for the cargo, as well as out of pocket expenses: loc cit at para 29). But for my decisions on the bills of lading claims and the contractual post-withdrawal claim, I would have allowed the claim against Metinvest in unjust enrichment.

Conclusion

I therefore allow the bills of lading claims, the lien claim against Metinvest and the contractual post-withdrawal claim against Fayette for quantum meruit remuneration. I hope that the parties can agree upon the terms of relief to which the claimants are entitled but I shall, if necessary, hear further submissions about that.


Total Transport Corporation v Arcadia Petroleum Ltd

 [1998] 1 LLR 351, [1997] EWCA Civ 2754, [1998] 1 Lloyd’s Rep 351, [1998] CLC 90

Staughton LJ

There is, as it seems to me, a long history of charterparty clauses dealing with the liability of one party or the other for what would without the clause in question still be a breach of contract. To the lawyer this is surplusage; but to commercial men it is a way of making sure that there has been no mistake or misunderstanding, and to emphasize their rights and liabilities. Many years ago there used to be a clause in popular use which provided what the penalty for breach of the charterparty should be. See Scrutton on Charterparties (20th edn) p.387:

“In many charters there appears a clause in some such terms as “Penalty for non-performance of this agreement estimated amount of freight.” Such a clause is inoperative, and is neglected by the court. It is also well-established, although on general principles less obvious, that it is equally a penalty clause and inoperative (rather than being a valid limitation clause) if in the form, “Penalty for non-performance of this agreement proved damages not exceeding the estimated amount of freight.” In past editions of this work, it has been said to be “a mystery why the clause survives, except upon the supposition that chartering brokers regard it as a piece of sacred ritual”.

Such a clause is to be found in a specimen charterparty in the First Edition of Scrutton of 1886 p.270 (in particular in the copy given by Scrutton to F.D. Mackinnon, and now in the Inner Temple library). There is footnote reference to Harrison v. Wright (1811) 13 East 343, as well as later cases, in the 20th edition

Cooke & Others on Voyage Charters p.442 quotes at the head of a chapter clause 12 of the Gencon charter in its 1876 version:

“Indemnity for non-performance of this charterparty, proved damages, not exceeding estimated amount of freight.”

Thereafter the text states:

“The remedy to which the innocent party most commonly resorts in the event of a breach of the charter is a claim for damages, and this is frequently the only remedy available. The basic principle which lies behind an award of damages is indemnity or restitutio in integrum ….”

This is plainly an example of the first meaning of the word indemnity which I have mentioned.

This ancient habit of making express provision as to breach and remedy has continued, and notably in the Baltime and Gencon charters. They were, or appeared to be, the forms of contract most commonly used fifty years ago. In the Royal Greek Government case Devlin J. had to deal with a clause which was in fact part of clause 13 of the Baltime charter (although incorporated into the Anglo Greek Agreement 1941):

“The charterer to be responsible for loss or damage caused to the vessel or to the owners by goods being loaded contrary to the terms of the charter or by improper or careless bunkering or loading, stowing or discharging of goods or any other improper or negligent act on their part or that of their servants.”

Devlin J., in the passage already quoted from page 235 of his judgment, held that this part of the clause was “from a lawyer’s point of view, superfluous.”

So too in Tor Line A.B. v. Alltrans Group of Canada (1984) 1 Ll. R. 123 at p.128 Lord Roskill said –

“I doubt whether the fourth sentence of clause 13 imposes greater liabilities than would in any event fall upon the charterers either under the charter or at common law.”

The sentence referred to was the same as that which I have quoted from the judgment of Devlin J.

The Gencon owners’ responsibility clause was analysed by Diplock J. in Louis Dreyfus et Cie v. Parnaso Cia Naviera S.A. (1959) 1 QB 498, on appeal (1960) 2 QB 49. Whilst it is not all surplusage by any means, it again illustrates the practice of drawing together some matters for which one or other party is to be “responsible”.

In the present case clause 36 begins “Owners shall be responsible …” Mr Jacobs for the owners observed that the same or similar words were to be found in the Baltime clause considered by Devlin J. and Lord Roskill, yet nobody suggested that they afforded an indemnity as opposed to the ordinary remedy in damages. Indeed Lord Roskill said in relation to an earlier part of the clause (at page 127):

“For those matters the owners expressly accept “responsibility”, that is “legal liability”.

My Lords, it follows that the first sentence only deals with those matters for which liability will be accepted. It does not, expressly at least, deal with those other matters for which liability is to be excluded. If cl. 13 finished at the end of the first sentence, in my view the owners would not have protected themselves against “responsibility”, that is “legal liability”, for other types of delay or for other physical loss or damage due to causes other than those to which I have already referred. This further protection is therefore sought in the second sentence.”

One should not in my opinion place too much weight on the coincidence that the words “shall be responsible” appear also in this case; to do so would be contrary to my view that charterparties are not generally drafted with the degree of consistency to be expected from skilled lawyers. But I do attach importance to the habit of repeating or emphasising matters of responsibility in the context of damages for breach of contract, even when it is unnecessary to do so.

Direct authority on the interpretation of a clause in a charterparty as providing for an indemnity is sparse indeed. The Charterers relied on Mediterranean Freight Services Ltd v. B.P. Oil International Ltd. (1994) 2 Ll. R. 506. That was a decision on Article 4 rule 6 of the Hague Rules, which deals with dangerous goods. It provides –

“… the shipper of such goods shall be liable for all damages and expenses directly or indirectly arising out of or resulting from such shipment

if there has not been informed consent to the shipment of the goods. There were two relevant issues of law: first, whether Article 4 rule 6 provided an exclusive remedy, so as to oust the parties’ rights at common law; secondly, whether unseaworthiness of the vessel arising from a breach of contract by the owners overrode their rights under the clause. So far as I can detect there was no contest in the Court of Appeal as to whether the remedy provided by Article 4 rule 6 did or did not apply to loss which was not within the reasonable contemplation of the parties. Nevertheless Mr Rainey relies on the fact that Judge Diamond QC, at first instance, on at least three occasions referred to the rule as providing an indemnity: see (1993) 1 Ll. R. 257 at pp. 268, 286 and 287.

Mr Rainey also referred us to a passage in the judgment of Hirst LJ at page 514, column 1. The incidence of quotations in Lloyd’s Reports is not always easy to detect at a glance; but that passage is in fact a quotation from Judge Diamond without comment. Hirst LJ at p.518, when considering two earlier cases, referred to “the party indemnified” and “his indemnity”. Hoffmann LJ likewise referred “an indemnity clause” at p.821. Hirst LJ said this at p.519:

“The inclusion of the words “directly or indirectly” in art. IV, r. 6 does not in any view alter the position, even assuming (as I am inclined to do) that Mr Boyd is right in his submission that those words relate to causation not foreseability, despite the contrast with the York-Antwerp Rules. These two adverbs are of nothing like sufficient strength to fall within Lord Morton’s first exception in Canada Steamships .”

Hoffmann LJ at p.522 said this of the words “directly or indirectly”:

“It seems to me, however, that in their natural meaning they do refer to causation. If so, their effect may be to make the shipper liable not only in cases like the present, where (if the explosive gases had been wholly derived from the fuel oil) one would say that the shipment of dangerous cargo caused the damages, notwithstanding that ignition was provided by the static electricity and the act of the surveyor (compare Philco Radio v. Spurling , [1949] All E.R. 882) but also in cases in which one would ordinarily say that the shipment had merely provided an occasion for something else to cause the damage, e.g. if the gas had been deliberately ignited by an arsonist or the explosion caused by some highly abnormal accident. If this is the effect of the words, they obviously also exclude the Hadley v. Baxendale limitation as well. But even construed in this sense, they do not in my judgment assist the owners.”

I do not see that either Lord Justice was expressing any view as to whether, without the words directly or indirectly, the clause provided a remedy for loss which was not within the reasonable contemplation of the parties.

The authority which comes nearest to being directly in point is The Walumba (Owners) v. Australian Coastal Shipping Commission (1965) 1 Ll. R. 121. It was concerned with a clause from the United Kingdom Standard Towage Conditions, which were held to form part of the contract between the owners of the tug WALUMBA and the owners of a vessel which she went to assist when aground off the coast of Australia. The clause provided:

“3. The Tugowner shall not, whilst towing, bear or be liable for damages of any description done … to the tug … or for loss of the tug … or for any personal injury or loss of life, arising from any cause, including negligence at any time of the … tug, its machinery, boilers, towing gear, equipment or hawsers, lack of fuel, stores or speed, or otherwise, and the Hirer shall pay for all loss or damage and personal injury or loss of life, and shall also indemnify the Tugowner against all consequences thereof …”

Instead of rescuing the other vessel, the WALUMBA herself became in a situation of peril, and had to be salved by a pilot boat, which was awarded £10,000 for its services. In the High Court of Australia Kitto J. said this:

“The question, therefore, is whether a salvage liability incurred in such circumstances as those of the present case should be considered to have been outside the reasonable contemplation of the parties as consequences of damage to the tug; and that depends on the view a business or seafaring man would take “without too microscopic analysis but on a broad view”: per Lord Wright in Yorkshire Dale Steamship Company, Ltd. V. Minister of War Transport , [1942] A.C. 691 at p.706; (1942) 73 Ll. L. Rep. 1, at p.10.”

That passage provides some very modest support for the Owners in the present case, as Kitto J. regarded an obligation to indemnify as not extending to consequences outside the reasonable contemplation of the parties. By contrast the Charterers rely on the judgment of Barwick CJ and Tiernan, Menzies and Owen JJ, where no mention is made of that suggested limitation, although it had been that subject of argument at any rate in the Court below. That case too is in my opinion of little assistance in solving the present problem. The situation there was more akin to one where a party is allowed to adopt an alternative method of performance, on terms that he shall be recompensed for additional loss and expense, as mentioned above in connection with clause 4 of the Scanport clauses. The WALUMBA was not obliged to help the other vessel, which was aground and therefore sooner or later likely to be in peril. The WANGARA herself was embarking on a hazardous operation for modest reward. She might be expected to require a complete indemnity in case of misfortune. See the analysis of the case by Lord Denning MR in Australian Coastal Shipping Commission v. Green (1971) 1 QB 456 at pp. 480-481.

Of the text-books Halsbury’s Laws of England (4th edn) vol. 20 para 345 says this:

“The extent of a person’s liability under an indemnity depends on the nature and terms of the contract, and each case must be governed, in general, by its own facts and circumstances. A clause will not indemnify a person against damage caused by his negligence, where it also indemnifies against damage otherwise arising, unless it is clearly expressed to have such an effect.”

I readily accept the first part of that passage as an accurate statement of the law. By contrast I do not accept that there is any fixed rule such as is suggested in Cooke & Others as Voyage Charters at p.407:

Difference between damages and contractual indemnity

The main importance of ascertaining whether the charterer has committed a breach of contract in presenting the bill of lading is in determining whether the captain is obliged to sign it (see page 393). Once he has signed, it will usually make no practical difference whether the claim for indemnity arises by way of damages for breach or under an express or implied undertaking to indemnify; and there are many cases where the shipowner could put his claim on either basis: see The Caroline P. [1984] 2 Lloyd’s Rep. 466. There are, however, some differences which may be significant.

Causation and remoteness . A claim for damages is subject to the ordinary rules of remoteness discussed below under clause 12. A claim for indemnity is not subject to the same rules, but there must be an unbroken chain of causation between the signing of the bill of lading and the loss.

No authority is cited for the proposition that remoteness is always irrelevant to an indemnity obligation.

I remain of the view that it was not the intention of the parties to provide, by clause 36, that a particular kind of breach of contract by the Owners should attract liability even for unforseeable consequences, whilst in the case of all other breaches of contract the ordinary rule of remoteness would apply. I cannot extract that from the wording of the clause; and even if it were arguably there, we are now enjoined to have regard to the purpose or aim of contractual provisions as well as to the actual words used: see Investors Compensation Scheme Ltd v. West Brunswick Building Society , 19th June 1997 (unreported) by Lord Hoffmann. I would therefore uphold the decision of Rix J. on issues (1) and (2).

Issues (3) and (4): causation .

The conclusion that I have already reached is enough to require the Charterers’ claim and this appeal to be dismissed. Nevertheless I express relatively briefly my views on the two remaining issues.

The arbitrators found that the Charterers’ loss in having to pay the January price for their oil was

“attributable to the combination of the specific terms of the contract with NNPC and the unusual if not unique 8 a.m. rule that is applied in Nigeria.”

However they concluded that as a matter of law an event occurring before the wrongful act could not be the cause of loss. Hence they were obliged to rule out the 8 a.m. rule as the cause of the Charterers’ loss. The only other possible candidate, in the arbitrators’ view, was the Master’s failure to obey the Charterers’ orders; and that appeared to be accepted before us.

The Owners say that the arbitrators were wrong to exclude the 8 a.m. rule as a possible cause of the loss, since there is no rule of law that events antecedent to the unlawful act must be disregarded. That is the first issue on the topic of causation.

The arbitrators with commendable scholarship had regard to what I might call the Oxford school of jurisprudence, that is to say the writings of McGregor (15th edn) and of Hart & Honoré (2nd edn). The former says in paragraph 141 in connection with tort:

“The general rule is, it is submitted, that where the third factor in the situation, be it act, event or state of affairs, has already occurred at the time of the wrongful act, the law will hold the wrongful act to be the cause of the damage in the absence of subsequent intervening factors, even although the third factor be improbable, abnormal, and unforeseeable.”

Contract is dealt with in para. 233:

“As with tort, it seems that a state of affairs existing at the time of the breach of contract will not negative causal connection.”

Hart & Honoré deal with the topic in detail. In connection with tort they say (at p. 172):

“Coexisting circumstances and intervening events. If a contingency is, on account of its abnormality, to negative causal connection it must be an event and one later in time than, or possibly simultaneous with, the wrongful act. But a state of the person or thing affected existing at the time of the wrongful act (a ´circumstance’), however abnormal, does not negative causal connection.”

There is then reference to the eggshell skull cases, and the authors write (p. 173):

“How far the principle extends beyond physical and emotional susceptibilities of the victim has not been much explored by the courts.”

Later they write (p. 316):

“In contract, as in tort, coexisting circumstances do not negative causal connection.”

I readily acknowledge that I have presented only the briefest summary of their views.

It is common to refer to a chain of causation between the wrongful act and the plaintiff’s loss, and to an intervening act which may or may not break the chain. If that is always the appropriate metaphor, of course it must follow that an event occurring before the wrongful act cannot break the chain. It is as simple as that. But I for my part do not accept that the chain metaphor is an appropriate one for causation in contract. Instead one has to ask whether in common sense the wrongful act was a cause of the plaintiff’s loss, or whether something else was.

That I would regard as settled law. The latest authority on the topic is, I believe, Galoo Ltd v. Bright Grahame Murray (1994) 1 WLR 1360. There Glidewell LJ referred to Chitty on Contracts (26th edn) para 1785, Monarch Steamship Co. Ltd v. Karlshamns Oljefahiker (1949) AC 196 and Quinn v. Burch Brothers (1966) 2 QB 370, and concluded (at p. 1374:

“The text in Quinn v. Burch Brothers … still leaves the question to be answered “How does the court decide whether the breach of duty was the cause of the loss or merely the occasion for the loss?”

The answer in my judgment is supplied by the Australian decisions to which I have referred, which I hold to represent the law of England as well as of Australia, in relation to a breach of a duty imposed on a defendant whether by contract or in tort in a situation analogous to breach of contract. The answer in the end is “By the application of the court’s common sense”.”

That has been the appropriate test, in my judgment, at least since Yorkshire Dale Steamship Co. Ltd v. Minister of War Transport (1942) AC 691 – see Lord Wright at p. 706.

Common sense is not fettered by rules of law. It seems very likely that the arbitrators, whose trade is supposed to be common sense, would have regarded the 8 a.m. rule as a serious candidate for the cause of the Charterers’ loss, had they not been persuaded that the law did not allow them to reach such a conclusion.

Hart & Honoré cite the eggshell skull cases, the rule that a wrongdoer takes his victim as he finds him, as an example of their general principle; and they suggest that there is a similar rule for inanimate objects. I am not persuaded that there is such a general principle. It seems to me at least as likely that the eggshell skull cases are a separate category where the law allows compensation as a matter of policy, and not an example of a general principle.

Mr Jacobs cited a number of cases where a pre-existing event appeared to be regarded as a relevant cause. I need not consider them in detail, since I do not reach a final conclusion on this point. But my inclination is to hold that pre-existing events are not outlawed as a cause of the plaintiffs’ loss.

It follows that, if I had not held that clause 36 did not give the Charterers the remedy of an indemnity which the arbitrators awarded them, it would be necessary to remit the award. That is because, as all are agreed, clause 36 in any event requires the test of causation to be satisfied; and the arbitrators regarded themselves as precluded from considering a relevant cause, that is to say the pre-existing 8.0 a.m. rule.

It would then be for the arbitrators to decide, unhampered by any rule of law, which was the relevant cause out of (i) the master’s failure to obey orders, and (ii) the 8 a.m. rule. As I understand the situation, there is no longer any other candidate.

At that stage the Owners argue that foreseeability, while not the test of causation in contract, is nevertheless a significant element in it; and it is found that the effect of the 8.0 a.m. rule was not foreseeable. (I calculate, without much confidence, that the odds against any particular cargo of oil falling foul of the rule in a Nigerian port are 90 to 1 against). If they are right in that argument, what follows? I suppose it is said that the master’s failure to obey orders cannot have been a cause of the Charterers’ loss, because the 8 a.m. rule was not foreseeable. Therefore, the only other candidate, the 8 a.m. rule itself, must be the cause of the loss.

I regard that argument as suspect. But I need not decide it, and I am not inclined to do so except to the extent of the point of law involved. This is whether foreseeability is indeed relevant to causation in contract. In my opinion it is: see the judgment of Salmon LJ in Quinn’s case at p. 394:

“Although the foreseeability test is a handmaiden of the law, it is by no means a maid-of-all-work. To my mind, it cannot serve as the true criterion when the question is, how was the damage caused? It may be a useful guide, but it is by no means the true criterion.”

See also Treitel, the Law of Contract (9th edn) p. 880.

For the reasons given earlier, I would dismiss this appeal.

LORD JUSTICE AULD: I agree.

SIR JOHN BALCOMBE: “The object of all construction of the terms of a written agreement is to discover therefrom the intention of the parties to the agreement. The rules which govern the construction of contracts are the same at law and in equity, for simple contracts and for specialties” – see Chitty on Contracts (27th ed.) para. 12-039. To the last sentence I would add “and for charterparties”, since I know of no principle which requires the terms of charterparties to be construed in a manner different to the terms of other commercial contracts.

So I approach the construction of Clause 36 in the present case by reference to the language used in the context of the charterparty as a whole. Clause 36 is set out in the judgment of Staughton L.J. and I need not repeat it. The first point I would make about the Clause is that it contains no express obligation upon the Owners to comply with the Charterers’ voyage instructions. Before the arbitrators it was common ground that Clause 36 contained an implied term to that effect, and Rix J. came to the same conclusion – see [1996] 2 LL.R. at p.421. I agree with Staughton L.J. that the words “provided such instructions are in accordance with the charterparty and the custom of the trade” shows that Clause 36 was not intended to increase the scope of the Charterers’ right to give orders and the extent of that right must be found elsewhere in the charterparty.


Giertsen and Others v. George V. Turnbull & Co.

 [1908] SLR 916

Lord Salvesen

Opinion.—“Two questions remain to be decided. The first is whether during the periods when, according to my previous judgment, payment of hire ceased, the coals consumed on board the ‘Bauta’ fall to be charged against the shipowners or the charterers. The latter contended that it was inequitable that during the time when they were deriving no benefit from the ship they should nevertheless be liable for the cost of the coal used to enable the vessel to steam to a port of safety from the spot where the actual breakdown took place. In my opinion the decision of this question depends not on general considerations of equity, but on the terms of the charter-party. By article 2 the defenders were taken bound to provide and pay for all the coals, fuel, &c., used during its currency. But for the stipulation contained in article 12 they would also have been liable to pay the hire, for the misfortunes of a ship under a time charter primarily affect the charterer. It does not, however, follow that because they have stipulated that the hire shall cease from the time a breakdown occurs, that the other expenses for which they are liable shall also cease to run, and the implication from the stipulation in article 12 points in the contrary direction. There is no express decision on this matter, but the dictum of Mr Justice Phillimore in Vogemann, 6 C.C. 253, accords with my own opinion. I hold that the general obligation on the charterer to provide and pay for coals is not subject to any implied limitation during the time that the vessel is broken down.

The second question relates to the method of counting periods of time shorter than a day. One of the periods during which I held that the hire ceased to be payable extended over two days and eight hours; and the shipowners maintain that the succeeding period of sixteen hours must be treated as a full day. The contention is based on cases like Angier, 1 C. & D. 357, and Hough, 6 R. 961. The former case referred to a time charter which had expired, and it was held that there was no smaller unit for estimating the hire payable than a day. The latter was a case of demurrage, in which again the day was taken as the unit. So far as I am concerned the question is no longer open, because I have already found that the pursuers are not entitled to hire in respect of certain specified periods of time during which the vessel was through breakdowns inefficient for her service. Apart from this I would reject the argument as contrary to the charter-party, the terms of which are quite explicit. The vessel must be more than 24 hours disabled before suspension of hire takes place, but it would be a strange thing to construe this provision as meaning in effect that only one day’s hire shall be deducted whether the vessel was disabled for 24 hours or for 47 hours. Nowadays demurrage is generally calculated by hours, to avoid the inconvenience of the rule established by the Courts, and I see no difficulty except one of elementary arithmetic in giving full effect to the literal language of the charter-party. I accordingly hold that the hire payable falls to be calculated by hours or half-hours up to the point of time when early breakdown occurred, and commenced to run again from the moment when the vessel was efficient for her service.”

The charterers reclaimed, and argued—(1) The Lord Ordinary was in error in taking 28th November as the date from which the pursuer was relieved of his obligation to pay hire. It was proved that the “Bauta” was not in a seaworthy condition when she arrived at Jaffa on 18th November, and therefore from that date, or, alternatively, from 20th November, when the vessel left Jaffa, hire ceased to run. There was an implied warranty in every contract of this kind that the vessel should be seaworthy at the commencement of the voyage— Kopitoff v. Wilson, 1876, 1 Q.B.D. 377; Steel v. State Line Steamship Company, July 20, 1877, 4 R. (H.L.) 103, L.R. 3 App. Cas. 72, 14 S.L.R. 734; Cohn v. Davidson, 1877, 2 Q.B.D. 455; Abbott’s Law of Merchant Ships and Seamen (14th ed.), pp. 492, 493. The voyage commenced when the “Bauta” began to load at Jaffa—“ The Carron Park,” 1890, 15 P. 203; and if a voyage consisted of several stages, then the warranty required that the vessel should be fit for each stage as it was entered upon—“ The Vortigern,” [1899] P. 140; Carver on Carriage by Sea (3rd ed.), sections 19b and 21. In time charters where several voyages were included in one charter the shipowner was held to undertake that his ship was seaworthy on leaving each place where he had an opportunity to remedy unseaworthiness—Scrutton on Charter Parties and Bills of Lading (5th ed.), p. 74. Now the master of the vessel had an opportunity at Jaffa to remedy any defect, but he failed to take sufficient steps to discover and remedy it. Accordingly, the owners here being under an obligation both at common law and under the express terms of article 1 of the charter-party to provide a ship reasonably fit for the service required, and having failed to do so, could not sue the charterers for hire— Turnbull v. M’Lean & Company, March 5, 1874, 1 R. 730, 11 S.L.R. 319. Further, by article 12 of the charter-party it was provided that hire should cease from the time of “the breakdown.” A “breakdown” occurred when the ship was found to be inefficient for the service required— Hogarth v. Miller, Brother, & Company, December 1, 1890, 18 R. (H.L.) 10, 28 SLR 583. It was not necessary that the vessel should be so disabled as to be unable to proceed, nor was the date to be taken that at which the defect was completely diagnosed, as the Lord Ordinary had assumed. It was sufficient if there was a defect, and if that defect were perceived. (2) As to the claim for the coal consumed, article 12 of the charter-party supported the claim. Detention arising through stress of weather or accident to the cargo was to be at the charterer’s expense, from which it followed that detention for other reasons was at the owner’s. And the last clause of the article showed that the time off hire was to be cut out from the period of hire, and that the ship then was to be at the owner’s risk. Vogemann v. Zanzibar Steamship Company, July 31, 1902, 7 Commercial Cases, 254, affirming 6 Commercial Cases, 253, was decided with reference to the special terms of the charter there in question. Moreover, by article 22 of the charter-party average was to be according to York and Antwerp rules. These rules provided (Rule 9) that where cargo was burnt for fuel, it should be admitted as general average, provided an ample supply of coal had been supplied, but the estimated quantity of coals that would have been consumed was to be charged to the shipowner. This showed that the shipowner was liable for the coal. The other questions of breakdown were immaterial.

Argued for the owners (who acquiesced in the Lord Ordinary’s interlocutor)—The charterers had claimed on general average, and had recovered four-fifths of the freight from the cargo owners. By making this claim they admitted that the ship was on hire, and they were therefore barred from refusing to pay under the charter-party, With reference (1) to the payment of hire. there was admittedly an obligation to supply a seaworthy vessel, and the respondents had fulfilled this obligation when they handed over the “Bauta” on 23rd September 1905. It could not be said that the service commenced at Jaffa. The case of the “ Vortigern,” sup., was inapplicable to the circumstances of the present case. The doctrine of “stages” in voyages had never been applied to a time charter or to any question except the supply of coal; and further, as the “Bauta” proceeded to Jaffa under the pursuers’ directions it was not in fact a stage in the journey. Hence the cases cited as to the implied warranty were inapplicable, because in this case the defect emerged during the voyage, and there was no implied undertaking that the ship should continue fit after sailing—Carver on Carriage by Sea, sec. 21. It was settled law that even where there was a contract by the owner to maintain the ship in seaworthy condition the charterer could not withhold freight, but must seek his remedy by means of an action of damages— Havelock v. Ceddes, 1809, 10 East. 555; Ripley v. Scaife, 1826, 5 B. & C. 167; Inman Steamship Co. v. Bischoff, 1882, L.R., 7 App. Cas. 670. And in such action the charterer would require to prove that his loss was occasioned through the ship’s unseaworthiness—“ The Europa,” [1908] P. 84; Joseph Thorley, Limited v. Orchis Steamship Co., Limited, [1907] 1 K.B. 660. The pursuers had not shown this here. The necessary repairs could not have been made at Jaffa, and therefore the defender was not in breach of any obligation unless it could be shown that it was his duty to deviate from the course. The circumstances here would not have justified deviation—Carver on Carriage by Sea, secs. 287, 288, 289; Abbott’s Law of Merchant Ships and Seamen, p. 522. That was the opinion also of the master of the ship, and his opinion was not lightly to be disturbed on a question of this kind— Phelps, James, & Co. v. Hill, [1891] 1 Q.B. 605. In any event, the defenders were entitled to recover quantum meruit—Lord Watson in Hogarth v. Miller, Brother, & Co., sup. cit.; and the pursuer having paid in full knowledge of the facts could not now recover what he had paid. With reference to article 12 of the charter-party, it was plain that “breakdown” referred to the time when the vessel was unable to perform the required service, and not to the date at which the accident which ultimately led to her being inefficient took place. The vessel made its normal speed up to the 28th November, and there could be no breakdown prior to that date. A charterer who was bound to pay in proportion to the time the ship was in his employment could not make any deduction for time during which she was laid up for repair, unless this was stipulated for—Carver on Carriage by Sea, sec. 572; Ripley v. Scaife, supra—and article 12 merely contained this stipulation. (2) On the question of coals it followed that if the defenders were right in their contention as to hire they were not liable for the coal consumed. Clause 12 of the charter-party did not refer to coal in any way, for coal did not go into general average— Vogemann v. Zanzibar Steamship Co,, Limited, supra, was applicable and should be followed.

Judgment:

Lord Ardwall—The three actions now conjoined, in which the interlocutors reclaimed against have been pronounced, arose out of a charter-party of the vessel “Bauta” entered into between the owners, Mathilde Giertsen and others, and George V. Turnbull & Company, Leith, as charterers. The vessel was hired out for six calendar months beginning in September 1905, and it was stipulated that the charterers should pay for the use and hire of the said vessel at the rate of £270 sterling per calendar month.

The two questions which formed the subjects of the discussion on the reclaiming note were—First, What was the period on the vessel’s voyage from Jaffa to Bona during which the said vessel is to be regarded as off hire within the meaning of the 12th article of the charter-party? and Second, Whether the charterers were entitled to escape paying for the coals used during the time that the said vessel was off hire on the voyage from Jaffa to Bona, and on the Vigo and the Cadiz voyages?

The facts of the case are set forth with great clearness and correctness in the Lord Ordinary’s opinion, and I require only to refer to them incidentally in connection with the contentions presented to us on behalf of the charterers.

The Lord Ordinary has held that the period for which the vessel was off hire on the voyage from Jaffa to Bona was from 8·30 a.m. on the 28th of November 1905 till 9 a.m. on the 1st of January 1906, the former date being the time when it was discovered that the propeller of the vessel was loose on the shaft. As a consequence of this discovery the voyage on which the vessel then was from Jaffa to Valencia was interrupted and the master resolved to make for the nearest port, which happened to be Bona, at slow speed. The vessel arrived at Bona by midnight on the 30th of November, and it was then ascertained that the shafting had got out of line, and that the white metal stern bush had been worn down to a dangerous extent, consequently the vessel had to lie at Bona till her machinery was repaired.

It seems tolerably clear on the evidence that the accident which originally led to the propeller and shaft getting out of order was the propeller striking some wreckage on the 14th of November while the vessel was on her voyage to Jaffa. It was contended before the Lord Ordinary by the owners that they were entitled to hire until the time when the vessel arrived at Bona, but on the reclaiming note they acquiesced in the judgment of the Lord Ordinary, and I need say nothing more on that point than to refer to the Lord Ordinary’s opinion regarding it, in which I concur.

The charterers, on the other hand, while they maintain that the breakdown must be held to have commenced on the 14th of November, yet only insist on their action on non-liability for hire from the time when the vessel left Jaffa, and they claim this exemption from hire on two grounds. In the first place, they plead that under the first clause of the charter-party the owners were bound under the clause of maintenance to have the vessel in a seaworthy condition at the commencement of each voyage that she might undertake, and that the “Bauta” not having been seaworthy in the proper sense of the word at Jaffa, the owners thereby committed a breach of their contract and cannot on their part claim remuneration in respect of the voyage from Jaffa to Bona. In support of this contention they relied upon the case of the “ Vortigern,” L.R., 1889, P.D. 140. That was a case in which a ship ran out of coal and was forced in consequence to burn 50 tons of cargo, the value of which the freighters successfully claimed to deduct from the amount of freight on the ground that the implied warranty of seaworthiness had been broken by the vessel not having a sufficient quantity of coal to continue her voyage. But it is plain from the opinions delivered in that case that it is only with reference to supplies of coal that a ship must be put in a seaworthy condition at the commencement of each stage of a voyage, because it is usual in long voyages that the vessel has leave to call at certain ports for the purpose of coaling, and accordingly the vessel must be made seaworthy at the commencement of each stage of the voyage by being supplied with sufficient coal at starting, and if she is not so supplied then the warrant of seaworthiness is held, as in the case of the “ Vortigern,” not to have been complied with. But at the same time it is made plain in the judgment in that case that except in such cases the warranty of seaworthiness is satisfied by a vessel being put in a seaworthy condition when starting on her voyage, or, in the case of a vessel being hired, when she is handed over to the charterers.

I am accordingly of opinion that the charterers’ contention on this point is ill-founded; that the implied warranty of seaworthiness was complied with when the vessel was handed over to the charterers in a seaworthy condition at the commencement of the period of hiring, and that the maintenance clause in article 1 of the charter-party is inserted merely for the purpose of laying upon the owners the burden and the expense of maintaining the vessel during the period of hire in a thoroughly efficient state, including of course the expense of all necessary and proper repairs. Therefore if the charterers had been at the expense of repairing the steamer at Jaffa or elsewhere, they would have recovered that expense under this clause, but there is nothing in it to suggest that the payment of hire is to cease merely because the vessel at some time during the currency of the time charter requires repairs to put her in a thoroughly efficient state.

The only article of the charter-party which deals with the cessation of payment of hire is article 12, and that article prescribes that the hire is to cease when, inter alia, there is a breakdown of machinery or damage preventing the working of the vessel for more than twenty-four working hours, and it is further provided that the payment of hire shall cease from the time “when the breakdown occurred until she be again in an efficient state to resume her services.” On this clause the charterers maintained that in the present case the breakdown must be held to have occurred at Jaffa, because at that time the vessel was suffering from the defect in the machinery which led on the 28th of November to her discontinuing her voyage. They argued that to make the question of the occurrence of the breakdown depend merely upon the opinion of the master of the vessel on the question when it was prudent to discontinue the voyage was to put the matter on a wrong basis by making the time of the occurrence of the breakdown depend upon an opinion, and not, as they contended it ought to do, upon fact. They therefore maintained that it being now ascertained by sufficient evidence that when at Jaffa the shaft and propeller of the vessel were in a condition to render her not fit for the voyage on which she was starting, the breakdown within the meaning of the charter-party must be held to have occurred at Jaffa.

On this question I entirely agree with the Lord Ordinary in holding that the words “a breakdown of machinery” must be construed in a popular and reasonable sense, and that in such sense the vessel broke down when a defect was discovered which rendered it necessary in the opinion of a prudent navigator that she should proceed to a harbour for repairs. This does not mean, as was suggested by counsel for the charterers, that the question of when there is a breakdown is made to depend entirely upon the opinion of the master. The master’s opinion is of course of great value as a piece of evidence, but should it turn out that that opinion was wrong, it may be corrected by other evidence in any particular case. If the contention of the charterers were given effect to, it appears to me that it would put matters in a very uncertain and undesirable position as regards the application of a clause of this kind in a charter-party, because according to that contention, not the time when a vessel has to go to a port for repairs is to be taken as the time of the breakdown, but the time when the defect in her machinery—which, when fully developed, ultimately led to her having to discontinue her voyage—can be ascertained or conjectured to have first come into being. It would be most undesirable that the liability or non-liability for hire of a vessel should be made to depend upon the result of investigations of the kind—investigation, for instance, as to whether a hairy crack in some piece of the machinery were old or new? and if old, how old? and so on.

Therefore in the present case I have no hesitation in holding that the breakdown did not occur on the 14th of November, when the original damage probably was done to the machinery, or when the ship left Jaffa, but on the 28th of November, when, after having progressed so far upon her voyage perfectly satisfactorily as regarded speed and safety, it was discovered that the propeller was loose on the shaft, and that it was necessary to go to port for repairs.

The second question to be considered is, whether during the periods when payment of hire ceased in terms of article 12 of the charter-party, the coals consumed on board the “Bauta” are to be paid for by the shipowners or the charterers. It was contended for the charterers that it was inequitable that they should be charged for the coal which was needed to enable the vessel after the breakdowns which occurred on the three voyages to proceed to port for repairs, and that it was a necessary corollary from the cessation of payment of hire that payment for coals should also cease over the same periods. I agree with the Lord Ordinary that this question must be determined on the terms of the charter-party and the nature of the contract.

Now in a contract constituted by timecharter, in the absence of special exemption, the charterers have to suffer the consequences of all mischances that may happen to the ship. In the present case there is a stipulation that in certain circumstances the hire shall cease, but there is no stipulation that the other expenses for which the charterers are liable shall also cease to run, and accordingly, there being nothing in the charter-party to exempt the charterers from payment of the charges for coal and other expenses mentioned in article 2 of the charter-party during the cessation of hire provided for by article 12, it follows that the general obligations contained in article 2 still rested upon the charterers notwithstanding the breakdown of the machinery. An opinion to this effect was, as noted by the Lord Ordinary, delivered by Mr Justice Phillimore in the case of Vogemann, 6 C.C. 253, and this opinion was approved of by the Court of Appeal in 7 C.C. 254, and although it was obiter as regarded the case then under discussion, yet it is entitled to great weight considering the eminence of the judges who delivered it.

On the whole matter I entirely agree with the interlocutors of the Lord Ordinary and the reasoning by which he has supported them. I accordingly am of opinion that we should refuse the reclaiming note, and adhere to the whole interlocutors of the Lord Ordinary.

The Lord Justice-Clerk, Lord Stormonth Darling, and Lord Low concurred.

The Court adhered.


ED & F Man Sugar Ltd v Unicargo Transportgesellschaft mbH

[2012] EWHC 2879 (Comm)

Eder J

The safe berth point

With great respect to the Tribunal, it seems to me that the Charterers are right in their submission that the Tribunal approached this aspect by asking the wrong question i.e. whether the Charterers had a relevant legal obligation to nominate an alternative loading berth when the CBL terminal became unusable. The Tribunal concluded that that obligation (as they perceived it) meant that no delay was relevant in law (paragraphs 61-62 and 66 of the Award).

This was, however, not a case about berth nomination but about whether there was prevention or delay in loading caused by a relevant excepted peril. Furthermore, even if it be correct that the wording requiring the Vessel to proceed to “1-2 safe berths” imposes on the Charterers a duty, as opposed to conferring a right, to nominate a second berth, it does not necessarily follow that there can be no prevention or delay in loading while that is being done nor that, as a matter of law and prior to any valid nomination of a berth, the Charterers are necessarily precluded from relying upon Clause 28. In other words, I do not consider that there is any reason in principle nor in the wording of the Charterparty which, as a matter of law, requires the Charterers to nominate a berth as a precondition to the operation of Clause 28. As submitted by Mr Young QC for the Charterers, delays consequential upon the operation of an excepted peril (including congestion caused by re-arrangements) may still be relevant to clauses like Clause 28: see, for example, Carboex v Louis Dreyfus Commodities Suisse [2011] 2 Lloyds Rep 177 (Field J), [2012] 2 Lloyd’s Rep 379 (CA).

In my view, the correct question for the Tribunal to answer was simply whether there was prevention or delay in loading which was caused by an excepted peril. This had three stages, namely: (i) whether there was prevention or delay in loading, and, if there was (ii) was it caused by an excepted peril and (iii) how long was the relevant delay in loading.

As to stage (i), the Tribunal appear to have thought that there was in fact “prevention or delay”, albeit that they expressed this finding in the phrase “…the only sense in which loading was ‘prevented or delayed’ was that it became impossible to load at the berth originally intended…” (paragraph 66 of the Award). However they appear to have regarded that fact as legally irrelevant, preferring instead their “short answer” of law.

In accordance with the decision in Reardon Smith v Ministry of Agriculture (The Vancouver Strikes Cases) [1963] A.C. 691, the Charterers would have been entitled to require the Vessel to wait until the CBL terminal, as planned, was again usable and the only question would have been whether there was relevantly caused “prevention or delay” during that period. That the Charterers did not so insist and in fact sought to reduce the delay following the fire and to make alternative arrangements, but only after some delay had been caused, does not alter that analysis.

It follows, in my view, that the Tribunal’s view that the Clause 28 exceptions could apply only if the CBL terminal had been “named” in the Charterparty (paragraph 61 of the Award) is, as a matter of law, incorrect. The fact that a party can make alternative arrangements and may re-direct a vessel following the operation of an excepted peril does not mean that that excepted peril cannot in law cause delay while such arrangements are put in hand. That is so whether the berth is “named” or not. Naming a berth merely makes alternative arrangements for loading at another berth legally impossible without a variation of the charter.

In seeking to support the Tribunal’s conclusion on this point, Mr Phillips, counsel for the Owners, submitted in summary as follows:

i)          The Charterers cannot rely upon a problem at a berth to which the Vessel was never ordered and which was never nominated (i.e. the CBL terminal);

ii)         Once the Pasa terminal or the Centrosul terminal was effectively nominated, such nomination was to be treated as if written in to the Charterparty from the outset (see The Vancouver Strike Cases [1961] 1 Q.B. 42 per Sellers L.J. at p. 86 and per Willmer L.J. at p. 115; The Jasmine B [1992] 1 Lloyd’s Rep. 39 per HHJ Diamond QC at p. 42);

iii)         As much as that possibly meant that, once a berth was effectively nominated, the Charterers were under no obligation to make a substitute nomination (as the Charterers argue), it also means that the Charterers cannot seek to rely upon Clause 28 as if they had made a different nomination (i.e. the CBL terminal) from the outset.

iv)        Thus, the Charterers cannot argue that the delay to the Vessel was the consequence of the fire at the CBL terminal (and thereby bring themselves within Clause 28) in circumstances where (i) the Charterparty stands to be viewed as always having required the Vessel to proceed to the Pasa terminal or the Centrosul terminal, and (ii) there is no finding to the effect that any delay (and consequent loss of time) which resulted from the need to proceed to either of those two terminals was caused by an excepted event within Clause 28.

In my view, these submissions do not, at the end of the day, support the “short answer” given by the Tribunal. As I have stated, reliance on Clause 28 does not depend upon the nomination of any particular berth.

The fire and mechanical breakdown point

This argument is more finely balanced. It turns primarily on the proper construction of the words in Clause 28 which exclude from laytime time lost as a result of loading being prevented or delayed by “mechanical breakdowns at mechanical loading plants…”.

As to these words, Mr Phillips submitted that Clause 28 operated as an exception to the running of laytime and that they should therefore be construed contra proferentem against the Charterers. In support of that submission, Mr Phillips relied in particular upon the statement by Lord Sumner in USSB v Strick [1926] AC 545 at p576: “…if this clause in effect prevents lay days from running till the ship gets her regular turn and (I suppose) is in berth, it is evidently a stipulation in the charterers’ favour. Such a clause must be construed contra proferentem…”. Although Lord Sumner in fact dissented in that case, nevertheless Mr Phillips submitted that this dictum was generally applicable. Mr Young QC initially appeared to accept that Clause 28 had to be construed “strictly”. However, he submitted that the words still needed to be read “naturally according to their wording and not be over-restrictive”, an approach which he submitted was in accordance with Carboex.

In support of the Charterers’ case, Mr Young QC submitted in summary as follows:

i)          The Tribunal’s view that the complete destruction of a loading system is not a “mechanical breakdown at mechanical loading plant” because the cause of that destruction was a “fire” is unsupportable and contrary to the reasoning of the Court of Appeal in The Afrapearl [2004] 2 Lloyd’s Rep. 305. In that case, the main issue was whether a leak in a pipe was to be regarded as a “breakdown of machinery or equipment in or about the plant of the charterer”. In the event, the Court accepted the charterers’ argument in that case that the cause of the breakdown is immaterial and that there is a breakdown if the equipment does not function or if it malfunctions. In particular, as stated by Clarke LJ:

“21. It does seem to me that a distinction should be drawn between a breakdown and its cause. To my mind Robert Goff J was right to draw that distinction. As I see it a breakdown of equipment such as the discharge pipe occurs when it no longer functions as a pipe. The cause of the breakdown may be a hole in the pipe or, as here, a gap in way of the flange which prevents the pipe operating as a discharge pipe. The hole may of course be caused in a number of different ways and for a number of different reasons. One of those reasons will commonly be the fault of someone concerned with the operation of the equipment, here the pipe.”

ii)         Thus, a “mechanical breakdown” is still a “mechanical breakdown” whatever its cause. One thing is certain, it cannot be said that the destruction of a mechanism is not within “mechanical breakdown”.

iii)         It would be odd, unreasonable and uncommercial, if one had to distinguish between types of mechanical breakdowns according to their cause, which might require difficult and expensive investigations. Thus, perhaps, what would be the case if a mechanical breakdown caused overheating which caused the fire which caused the destruction of the conveyor system? Or what would be the case if operator error caused the mechanical breakdown which caused overheating which caused the fire which caused the destruction? Or what would happen if the operator error was itself caused by the mechanical breakdown of a gauge which misled him into failing to turn on a lubricating oil pump? Investigations of the taxonomy of mechanical breakdowns according to initiating causes are not what parties to a charterparty like this can reasonably be taken to have contemplated, as the Court of Appeal in The Afrapearl made quite clear.

iv)        Here, there can be no doubt that the conveyor system was inoperable and had “broken down”. That is sufficient to constitute a “mechanical breakdown” within the meaning of Clause 28 regardless of the cause of such breakdown.

v)         Further, that conclusion is unaffected by the fact that the conveyor system was destroyed. The words “mechanical breakdown” are wide enough to include destruction. The contrary would lead to surprising results.

These are forceful submissions but I am unable to accept them for the following reasons.

First, the starting point must be the finding of the Tribunal as stated in paragraph 13 of the Award viz that the fire had destroyed the conveyor-belt system linking the terminal to the warehouse. Despite Mr Young QC’s arguments, it seems to me that, as a matter of ordinary language and common sense, the destruction of an item (or even its partial destruction) is not within the scope of the term “breakdown”, still less within the term “mechanical breakdown”. This can be tested by reference to two everyday examples which were referred to by Mr Phillips. If a vehicle were consumed by fire and written off, its owner would invite a raised eyebrow if he were to suggest that his car had merely suffered a breakdown. Likewise, if a heating engineer were to be summoned to repair a domestic boiler described as having broken down, he would be surprised to discover that it had in fact caught fire and burned to destruction. As submitted by Mr Phillips, it seems to me that these examples illustrate the difficulty as a matter of ordinary language in way of Charterers’ argument.

Second, the Owners’ construction is, in my view, supported by the judgment of Robert Goff J in The Thanassis A (1982, unreported), referred to with approval by Clarke LJ in The Afrapearl [2004] 1 W.L.R. 311 at [11]-[12]. In that case, a jetty (on which was mounted an oil pipeline) was struck by a vessel which collided with it, resulting in delay to other vessels seeking to use the pipeline. The question arose as to whether such damage was within the scope of “breakdown of machinery or equipment” as those words appeared in the relevant charterparty demurrage exception. Robert Goff J observed as follows:

“The arbitrator, before whom this point was argued, rejected the contention of the Charterers. He did so saying that he could not see how the words of the clause could be wide enough “to include damage to the jetty and oil pipes resulting from a collision by a vessel. ‘Breakdown of machinery or equipment’ cannot, even on the most generous of constructions, be regarded as the same as a complete destruction of part of the facility.”

Mr. Gross had a number of other arguments, and the next one was this. He said that the clause refers to “breakdown of machinery or equipment in or about the plant of the Charterer, Supplier, Shipper or Consignee of cargo”. He then turned to the findings of fact in the Award (I have already quoted them) which show that the oil pier was damaged by the tanker Presidente Campos Salles, by reason of a collision between that ship and the oil pier; and he said that that included damage to the jetty and oil pipes and could be regarded as a complete destruction of part of the facility. Now what is plain from these findings of fact is that there was a collision; that the jetty itself suffered substantial damage in view of the time of repair; and that the pipes on the jetty were also damaged at the same time. The complete destruction of part of the facility may well refer to a destruction of part of the jetty itself, and possibly also to destruction of part of the piping.

In those circumstances, I turn back to the clause again, and I ask myself whether what occurred can reasonably be described as a case of a breakdown of machinery or equipment. In my judgment the answer must be in the negative. So far as the damage to the jetty is concerned, I do not see how that can properly be described as breakdown of machinery or equipment. Plainly the jetty is not machinery; plainly it is not equipment. Furthermore, complete destruction of part of the facility would appear to involve something more than a breakdown. In those circumstances I do not see that the words in question are wide enough to embrace what happened in the present case. As I read the Award, I think this is the approach which the arbitrator himself adopted. So, on that simple ground, it seems to me that Mr. Tomlinson’s appeal must fail.” (emphasis added)

It is right to say, as Mr Young QC submitted, that this last paragraph and in particular the single sentence underlined (which was heavily relied upon by Mr Phillips) needs to be read with some care. In particular, it is to be noted that the focus in that passage would seem to be the destruction of the “facility” rather than the jetty itself or the oil pipes which had been damaged in that case. On that basis, Mr Young QC submitted that the term facility included the jetty which was not machinery or equipment; that Robert Goff J was not in truth focussing on the question whether complete destruction of machinery or equipment might nevertheless fall within the term “breakdown” of machinery or equipment; and that the single sentence did not therefore assist Mr Phillips. Mr Young QC may well be right at least in part as to the focus of this part of the judgment of Robert Goff J. Nevertheless, it seems to me that the observations there set out support my own view that as a matter of ordinary language and common sense, the destruction of an item (or even its partial destruction) is not within the scope of the term “breakdown” still less within the term “mechanical breakdown”.

Third, it seems to me that the Owners’ case derives support from a passage in the judgment of Robert Goff J in The Thanassis A where he stated:

“… There was then canvassed in argument the colloquial use of the word “breakdown” in relation to such things as motorcars, which seemed to indicate that in that context at least the word “breakdown” indicates some inherent defect of the machinery of the car itself which results in the car breaking down, whereas if the car was damaged in collision with another car one would not normally say that the car broke down.”

In response, Mr Young QC submitted that this passage did not support the Owners and that, on the contrary, the succeeding part of the judgment of Robert Goff J strongly supported the Charterers’ case:

“Now the difficulty with this argument is that, if one looks at the words of the clause, they refer to “breakdown of machinery or equipment”. No doubt the words “breakdown of machinery” might be limited, in the appropriate context, to the colloquial expression “breakdown” when used, for example, in relation to the breakdown of a motorcar. But I find it very difficult to apply that expression in relation to equipment other than machinery. In the case for example of an oil jetty, the relevant equipment may include not merely machinery but, for example, pipes; and it seems to me that piping can legitimately be called equipment in or about the plant of the supplier or consignee of the cargo in the context of a charterparty for a tanker. As I read the words “breakdown of machinery or equipment” they must in the present context go beyond the ordinary example of a machine breaking down due to its own inherent defect. Where there has been a breakdown of equipment in the context of this clause I can see no reason why it should not include, for example, a breakage in a pipe, and in those circumstances it is difficult to see why breakdown should be limited in this clause to something involving an inherent defect in the machinery or equipment.

Now that being so, I feel disinclined to accept Mr. Gross’ first submission and I feel fortified in that conclusion by a case which Mr. Tomlinson has cited to me, In re An Arbitration between Trade and Leonard & Sons, Limited [1904] 2 KB 377. That case was concerned with different clauses, which provided as follows:

“detention by ice to be for account of charterers, unless caused by breakdown of steamer.”

In that case the ship stranded, and had to go for repairs. Having been repaired she then proceeded to St. Petersburg and was unable to proceed further because of ice. The question which arose was whether, given that there was detention by ice, that detention was caused by breakdown of steamer. It was held by Ridley J., whose decision was affirmed by the Court of Appeal, that it was. He said that although the event which caused the damage to the ship was the stranding nevertheless he was prepared, in the circumstances, to say that there was a breakdown of the steamer, it being irrelevant what was the cause of the damage to the ship.

In my judgment, although I am not dealing with the same clause and I must construe this particular clause in its context, here too the cause of the breakdown is immaterial. It could be some external agent, or it could be some internal defect in the machinery or equipment, but if the machinery or equipment does not function, and possibly also if it malfunctions, then there is a breakdown of the machinery or equipment. So I reject the first argument advanced by Mr. Gross.”

I agree that this passage does, at first sight, appear to support Mr Young QC’s argument that the cause of the malfunction was to be regarded as irrelevant; and I accept, of course, that this passage was, in effect, approved by Clarke LJ in paragraph 21 of his judgment in The Afrapearl. However, as it seems to me, the important point is that Robert Goff J was persuaded to reach the conclusion he did because of the particular wording of the clause in The Thanasiss A i.e. which did not merely refer to “breakdown of machinery” but referred to “breakdown of machinery and equipment” (emphasis added). As stated by Robert Goff J, although no doubt the meaning of the words “breakdown of machinery” might be limited, the position in that case was otherwise because of the additional words “and equipment”. In my view, it is clear from this passage that had Robert Goff J been considering only a clause encompassing “breakdown of machinery”, he would have been content to apply the “colloquial” meaning to which he referred (i.e. “some inherent defect of the machinery … itself which results in the [item] breaking down”). It was only the inclusion of the words “and equipment” which compelled a different and broader construction. Drawing the obvious parallel between that analysis and the words of Clause 28 in the present case, it seems to me that the wording “mechanical breakdown at mechanical loading plants” points in favour of the narrower colloquial meaning rather than the much broader construction for which Charterers contend.

In my judgment, there is nothing in The Afrapearl which affects this analysis. Indeed, it seems to me important to note that, unlike The Afrapearl and The Thanassis A, Clause 28 in the present case is not concerned simply with “breakdown”, but with “mechanical breakdown at mechanical loading plants” (emphasis added). As submitted by Mr Phillips, it seems to me that this difference is significant. The inclusion of the word “mechanical” serves to restrict the scope of the “breakdown” which must be established for the purposes of the exception. In this regard, it is clear that what is required is a breakdown of a mechanical nature. Thus, unlike in The Afrapearl [2004] 1 W.L.R. 311 and The Thanassis A, the nature of the breakdown is relevant. In other words, it is not enough that the mechanical loading plant in question simply no longer functions, or malfunctions (irrespective of the cause of the malfunction). The nature of the malfunction must be mechanical in the sense that it is the mechanism of the mechanical loading plant which ceases to function, or malfunctions, and causes the prevention of or delay to loading (and the consequent loss of time). This connotes an inherent mechanical problem, as distinct from a wider or external cause.

Fourth, it seems to me that this conclusion derives some further support when considering the Charterparty as a whole. For example, it is noteworthy that Clause 28 also refers to “accidents and/or breakdown on railways”. The inclusion of the word “accidents” with regard to railways is no doubt intended to broaden the scope of that exception. But there is no equivalent or similar word in relation to mechanical loading plants. Similarly, I note that Clause 6 provides expressly for an exception (albeit not one of which Charterers could avail themselves, as they now recognise) in respect of “fire on board, in hulk or craft, or on shore”. Thus, where the parties intended, the Charterparty makes express provision for an exception in respect of fire. Clause 28, however, contains no reference to fire. The fact that they did so in Clause 6 but did not do so in Clause 28 provides at least some support for the conclusion that “fire” was therefore not intended to be an exception to the running of laytime.

Fifth, insofar as may be necessary, it seems to me that this is a case where the Owners might properly rely upon the contra proferentem principle although I should make plain that my conclusion does not rest on that basis but, as submitted by Mr Young QC, on the basis that the words should be read naturally according to their wording and not be over-restrictive.

Finally, under this head, I should mention that the Owners had a further argument viz that the Charterers cannot rely upon Clause 28 because it could only apply when the Vessel became an arrived ship and the laytime clock started to run. In particular, the Owners submitted as follows:

i)          Clause 28 applies “In the event that whilst at or off the loading place … the loading of the vessel is prevented or delayed by … mechanical breakdowns at mechanical loading plants, government interferences … time so lost shall not count as laytime”. Given that Clause 28 is intended expressly to provide for exceptions to laytime, it can only have been intended to apply from the time that the Vessel became an arrived ship and the laytime clock started to run. In that regard, Clause 19 of the Charterparty provided for the commencement of laytime as stated, “whether in berth or not”. Thus, the laytime clock started to run following arrival (i.e. once the Vessel was at or off the loading place) and in accordance with Clause 19.

ii)         In light of this, if it was the intention of the parties simply to provide for a laytime exception in respect of any event (whenever occurring, even if it occurred before the Vessel’s arrival) which prevented or delayed loading, it was not necessary to do any more than provide to the effect that “In the event that … the loading of the vessel is prevented or delayed by … mechanical breakdowns at mechanical loading plants, government interferences … time so lost shall not count as laytime”. By definition, those words, in combination with the “whether in berth or not” wording of Clause 19, would suffice to achieve that effect.

iii)         Against this background, it must be assumed that there was some additional purpose behind the introduction of the words “whilst at or off the loading place” in Clause 28. Those words cannot have been intended simply to signify that the protection of the Clause would commence with the start of laytime, for that was achieved in any event by the other words of the Clause (and Clause 19). Nor can they have been intended to signify that the laytime exceptions to which Clause 28 refers should apply only while the Vessel was at or off the loading place, for that would be unnecessary: by definition, a laytime exception could not apply to any period prior to the Vessel becoming an arrived ship.

iv)        In light of this, the words “whilst at or off the loading place” must be understood to refer to the timing of the excepted event, especially given their proximity to the words “In the event that …” and “… the loading … of the vessel is prevented or delayed …”. In other words, those words are intended to signify that the excepted event must be one which occurs (i.e. commences) while the Vessel is “at or off the loading place”. In this regard, it cannot have been intended that it would suffice for the event to occur prior to the Vessel’s arrival and the commencement of laytime, for such an event would not then (i.e. at that stage) be one which “prevented or delayed” loading (for loading would not ever have been possible at that stage) and thereby affected the running of laytime.

v)         Against this background, the intention of the parties must have been to restrict the exceptions in Clause 28 to stipulated events which occur while the Vessel is “at or off the loading place” (i.e. after its arrival and the commencement of laytime) and (at that stage) prevent or delay loading. Thus, it is time lost in “the event” (in the sense of “In the event that …”) of the excepted cause occurring while the Vessel is “at or off the loading place” (i.e. after its arrival and the commencement of laytime) and thereby preventing or delaying loading which is excepted. Events occurring prior to the Vessel being “at or off the loading place” (i.e. prior to its arrival and the commencement of laytime) do not qualify.

vi)        This construction is consistent with a sensible commercial allocation of risk. The “whether in berth or not” wording of Clause 19 allocates to Charterers the risk of delay following arrival and the commencement of laytime (whether or not the cause of such delay existed prior to the arrival of the Vessel). That risk is only transferred back to Owners upon the occurrence of a stipulated event which (i) takes place after the Vessel has arrived and laytime has commenced, (ii) prevents or delays loading, and (iii) causes a loss of time as a result.

vii)       Thus, the inclusion of the words “whilst at or off the loading place” (given their proximity to the words “In the event that …” and “… the loading … of the vessel is prevented or delayed …”) produces a more restrictive effect than, for example, Clause 9 of the AmWelsh form (which does not contain restricting words like “whilst at or off the loading place”, and which was considered in Carboex). In the present case (where the fire at the CBL terminal occurred some days prior to the arrival of the Vessel (see paras 13 and 62 of the Award)), Clause 28 therefore has no application.

It may be that the Owners are correct to say that the words “whilst at or off the loading place” are surplusage. However, there is, in my view, no warrant to read the words as intending to signify that the excepted event must be one which occurs (i.e. commences) while the Vessel is “at or off the loading place”. Nor do I consider that such a construction is consistent with a sensible commercial allocation of risk. On the contrary, it seems to me that it would be most uncommercial to suggest that the ability of the Charterers to rely upon Clause 28 should depend upon whether the relevant event occurred a minute before as opposed to a minute after the arrival of the Vessel.

The government interference point

Under this head, Mr Young QC submitted, in summary, as follows:

i)          It is inherent in paragraph 69 of the Award that the Tribunal thought that the Port Authority did re-schedule the loading of vessels in light of the fire at the CBL terminal. They did not take the reasoning further since they thought that “government interferences” could not, in law, extend to such actions and that those words were limited to such matters as embargoes or export bans.

ii)         However, there is no sound basis for the Tribunal’s gloss on the words. Was there an “interference”? Was it by an arm of “government”? The precise form of the interference and the precise identity of the governmental arm cannot matter, much as the precise cause of the leaking pipeline in The Afrapearl did not matter. Imagine a vessel is loading at a berth and that loading is interrupted by an order of government which requires an armaments vessel to berth there immediately or because there is a warning of a terrorist attack. It is not easy to see any logical or rational basis for saying that resulting delay was not caused by “government interference”. The analogy with the common exception of “restraint of princes” might be apt and, in that connection, see Scrutton, 22 Ed., Art. 123 and Cooke on Voyage Charters 3rd Ed. paras 85.306-307 which show that compliance with an order from a governmental body can bring the case within that exception. Certainly there is nothing in the wording of Clause 28 redolent of (or restrictive to) “embargoes” or “export bans” specifically and the Tribunal did not explain their reasoning.

In my view, these submissions are fatally flawed for the following reasons.

First, there is no finding in the Award to the effect that (i) the port authority at Paranagua or in control of the CBL terminal was a government entity, or (ii) that permission to berth at the CBL terminal was suspended by the port authority (or any other party). In the absence of such findings, Charterers’ argument fails in limine.

Second, as a matter of construction the phrase “government interferences” is not, in my judgment, intended to encompass “an administrative re-scheduling of cargoes due to a fire” (paragraph 69 of the Award). In particular and putting aside “government interferences”, each of the exceptions for which Clause 28 provides is capable (in the abstract) of affecting all and any berths at all and any ports. Thus, the exceptions are intended to be of general and widespread application. As it seems, they are not intended to give rise to the possibility of inconsistent and differing outcomes depending upon the nature of the berth in question. However, if Charterers’ construction of “government interferences” is upheld, inconsistency will be the result, and the application of the exception (and its outcome) would be capricious and unpredictable. For example, it is common for a vessel to be ordered off a berth by reason of poor weather or in order to accommodate the berth or terminal operator’s desire to give priority to another vessel. In isolation, neither scenario would stop the running of laytime under Clause 28. However, on the basis of Charterers’ interpretation, time would stop running in such circumstances if the berth or terminal operator were a government entity, but not otherwise.

Against this background, it seems to me that the parties must have intended some other construction for “government interferences”. In my view, that phrase cannot have been intended to encompass a state-sponsored port authority acting in the ordinary course of discharging its port or berth administrative function (in the same manner as any other, private port authority), as distinct from a government entity acting specifically/peculiarly in a sovereign capacity which is independent of that ordinary administrative function. The need to acknowledge the division of responsibility on the part of a port authority in this manner has long been recognised (see, for example, The Isabelle [1982] 2 Lloyd’s Rep. 81 per Robert Goff J at p. 86 LHC where the distinction was drawn between a port authority acting in the exercise of its own administrative function, on the one hand, and fulfilling some other function or acting on instructions from the charterers, on the other hand).

While in The Forum Craftsman [1991] 1 Lloyd’s Rep. 81 (which concerned Clause 28 in embryonic form: see p. 86 LHC), the charterers sought to rely upon the exception in respect of “government interferences” where a vessel was advised by port control in Bandar Abbas that the vessel was to be shifted from the berth to the anchorage and then remained at anchor for a further 79 days, that was in circumstances where it was found as a fact that the intervention of the Ministry of Health of the Islamic Republic of Iran through the Hormozgan Province Regional Health Department had had some causative effect in delaying the re-berthing of the vessel (see pp. 83 RHC to 84 LHC). Thus, it was arguably a paradigm case of government interference, unlike the present. As it was, the application of the exception was never considered on its facts in that case.

As it is, it would in many cases be very difficult to determine whether, in any given case, a port authority is or is not a government entity for the purposes of “government interferences”. Challenging and subtle distinctions would arise between ports which are plainly state-operated (openly, through a ministry) and ports which are operated by private companies which are themselves state-owned or state-operated. As submitted by Mr Phillips, it seems to me that the need to wrestle with such distinctions confounds the certainty for which commercial parties would be expected to provide. For that reason, it is my conclusion that it cannot have been their intention that “government interferences” would apply to the acts of port authorities in the manner for which the Charterers contend.

In light of the observations above, it does not matter what is encompassed within “government interferences”; it suffices that the facts of the present case are not. However, the Tribunal was plainly right in concluding that: “That phrase was suggestive … of an embargo or export ban, rather than simply an administrative re-scheduling of cargoes due to a fire” (paragraph 69 of the Award). What was required, at the least, was an act by a port authority (which was also a government entity) which amounted to the discharge of a sovereign function and which differed from an ordinary administrative act of which any port or berth authority (state-owned/operated or otherwise) would be capable in the day-to-day management of a berth. There was no such act in the present case (nor any finding in that regard).

Conclusion

In conclusion, although I have accepted the Charterers’ submissions in relation to the “safe berth point”, I am unable to accept their further submissions in relation to the other points. On that basis, I dismiss their appeal and affirm the Award. Counsel are requested to seek to agree a draft order for my approval (including costs) failing which I will deal with any outstanding issues.


Lisheen Mine -v- Mullock & Sons (Shipbrokers) Ltd & ors

[2015] IEHC 50

Cregan J

The Principles Governing the Formation and Construction of Charter-Party Agreements

140.     Halsbury also deals with the formation and construction of charter- party agreements at page 191 paras. 219-220 as follows

“219. Formation of the contract, including formalities. A charter- party usually consists of a signed contract embodying the terms already negotiated and agreed by the parties or their agents. It need not be in any particular form nor is a signed contract necessary provided that the parties have agreed to be bound by identifiable terms. Standard forms of charter- party are however invariably used.”

220. Charter parties agreed ‘subject of contract’ etc. Where there is an informal agreement between the parties which expressly requires or envisages the subsequent signing of a formal contract, the legal effect of that prior informal agreement depends on the intention of the parties. The parties to a charterparty may, therefore, have entered into a binding contract, whilst envisaging its subsequent replacement by a more formal one; or they may show an intention to be bound only on the signing of a formal contract, the prior informal agreement being of no legal effect.

It is common for negotiations to crystallise into a ‘recap telex’ recapitulating the terms on which ‘agreement’ has been reached and either indicating that the ‘fixture’ or ‘agreement’ is ‘subject to details’ or expressly listing the ‘subjects’ yet to be agreed between the parties. Where this is the case it is clear that under English law there is no normally no contract binding the parties until full agreement (where ‘agreement’ had been reached subject to details) or when the stipulated ‘subjects’ have been ‘lifted’ that is to say agreed upon. Thus where the agreement is ‘subject to contract, ‘subject to details’ …..no binding agreement will have been concluded. (See The Star Steamship Society v. Beogradska Plovidba The Junior K [1988] 2 Lloyds reports 583.)

141.     In the present case it is common case that there is no agreed contract charter- party agreement in writing signed by both parties. There is however an exchange of emails and it is a matter for the court to ascertain from these emails whether a contract has been concluded between the parties.

142.     In this case the use of the expression subject to details – or words which effectively mean the same thing – clearly shows that Vertom was making its offer subject to details being agreed. It is clear therefore that any agreement to such offer was also subject to the details being agreed. The details were in fact never agreed.

143.     Halsbury also deals with the rules of construction of charter parties at para. 227 saying as follows:

“Rules of construction: Like any other commercial document, a charterparty must be construed so as to give effect, as far as possible, to the intention of the parties as expressed in the written contract.

The legal effect of the particular terms to which reference will be made depends in every case not only on the exact words of the term but also on the language of the charter- party taken as a whole and construed in the light of the circumstances in which it was made.”

145.     Likewise at para. 228 Halsbury states as follows

“The words used in charterparties are to be understood in their plain, ordinary and popular meaning unless the context shows that the parties, for the purposes of the contract, intended to place a different meaning on the, or unless, by the usage of a particular trade business or port they have to such an extent acquired a secondary or technical meaning that that is clearly the meaning intended by the parties.

The words used are to be construed with reference to the surrounding circumstances to which they were intended by the parties to apply and evidence of such circumstances is admissible”.

The “subject to details issue”

146.     On 7th December 2012 Mullock and Sons sent an email to Simon Mills of Lisheen. The full text of this email has been set out above. It contains the text of an email from Vertom to Mullock and Sons. It also contains the offer of Vertom to The Lisheen Mine response to the tender. It states in the body of the email

“our offer is furthermore based on the following:

–           sub agreeing CP details and owners BOD approval”

147.     The CP referred to therein is clearly the charter- party. This phrase means and clearly means “subject to agreeing details of the charter- party”.

148.     In The Junior K case [1988] 2 Lloyds Reports 583, the parties used the words “sub dets gencon cp”. The Court noted that “those expressions mean ‘subject to the details of the Gencon charterparty”.

149.     Steyn J. stated at page 585

“The meaning of the relevant expression must, of course, be ascertained against the contextual scene…..

The correct approach to that question is to ask how a reasonable man, versed in the chartering business, would have construed those words. There are judicial expressions of opinion on the point. But one is dealing with the meaning of words which have no technical or special meaning and I propose to examine the question first without the aid of authority. The starting point seems to me to be the proposition that if there has been a complete and unqualified acceptance of an offer, prima facie a contract comes into existence even if the parties intend to reduce the agreement to writing. On the other hand, in negotiations parties are free to stipulate that no binding contract shall come into existence, despite agreement on all essentials, until agreement is reached on yet unmentioned and unconsidered detailed provisions. And the law should respect such a stipulation in commercial negotiations. That seems to me to be exactly what happened in this case. The Gencon charter -party is, of course a detailed and well known standard form. It is plain that the parties had in mind a contract on the Gencon form but that they had not yet considered the details of it. By the expression “Subject to details of the Gencon charterparty” the owners made clear that they did not wish to commit themselves contractually until negotiations had taken place about the details of the charter- party. Such discussions might have covered a number of clauses. It does not follow that the owners were willing to accept all the detailed provisions of the standard form documents. After all, it is a common occurrence for some of the detailed provisions of the Gencon form to be amended during the process of negotiation. In any event, the Gencon standard form contains within it alternative provisions which require a positive selection of the desired alternative.

…Against this background it seems to me clear that the stipulation ‘subject to details of the Gencon charterparty’ conveys that the fixture is conditional upon agreement being reached on the details of the Gencon form, which had not yet been discussed. In other words, it was stipulated that there was to be no contract until agreement had been reached on the details of the Gencon charter- party.

What I have described as the stipulation in this particular case is, of course, one that can be displaced in certain circumstances. It can be displaced by a subsequent waiver of the stipulation. It can be displaced by actual agreement on the details. It can also be displaced by an execution of a formal contract. It is common ground, however, that none of these events occurred in this case. Prima facie, therefore, there was no binding contract”.

150.     Steyne J. also stated at page 588 of his decision;

“And I would respectfully suggest that it is in the interests of the chartering business that the Courts should recognise the efficacy of the maritime variant of the well known ‘subject to contract.’

The expression ‘subject to details’ enables owners and charterers to know where they are in negotiations and to regulate their business accordingly. It is a device which tends to avoid disputes and the assumption of those in the shipping trade that it is effective to make clear that there is no binding agreement at that stage ought to be respected”.

Application of the law to the facts

(I) Was there a concluded master/framework agreement?

151.     I am of the view that there was no concluded framework/master agreement between the parties in this case for the following reasons:

1.         The original letter of 21st November 2012 with the invitation to tender for The Lisheen Mine is clearly an invitation to treat.

2.         On 27th November 2012 The Lisheen Mine sent an email attaching a question and answer document which stated that the charter- party which The Lisheen Mine wished to use was the Gencon charter. Thus it is clear that the Gencon charter- party agreement was part of the architecture of the agreements which The Lisheen Mine and Lisheen Milling Ltd intended to enter into. It is clear that Lisheen Mine and Lisheen Milling Ltd intended to enter into a suite of agreements or at least two separate agreements being the master/framework agreement and the charter- party agreement.

3.         The master agreement only referred to specific ports and specific rates of charging and commission. It needed a charter- party agreement to complete it or to fulfil its terms. Likewise the charter- party agreement needed the master agreement to fulfil certain terms about prices and commission and freight rates.

4.         On 7th December 2012 Mullock and Sons sent an email to The Lisheen Mine in respect of the tender which incorporated the text of an email from Vertom. This set out Vertom’s price quotation and various other matters. This clearly constituted an offer from Vertom. However this offer was stated to be based on the following:

“Sub agreeing CPD details and owners BOD approval”

This appears to mean “subject to agreeing charter- party details”. Thus the offer was subject to a condition that the charter- party details should be agreed before its offer on freight rates and commission could be finally agreed. In effect this email of 7th December 2012 made the offer on freight rates and commission subject to a condition precedent (i.e. agreement between the parties on the details of the charter- party agreements.) This makes commercial sense because clearly elements of the charter- party agreement could affect the freight rates which Vertom wished to agree with either The Lisheen Mine or Lisheen Milling Ltd.

5.         It is Vertom’s case that its offer was accepted by The Lisheen Mine because of the letter of 20th December 2012 sent by The Lisheen Mine to Mullock and Sons. This letter states “Following our telephone conversation of earlier this week please accept this letter as confirmation that Lisheen shall be awarding Mullock and Sons the following routes”. However Vertom is seeking to seize on the use of the words “accept this letter as confirmation” as proof of acceptance of an offer and therefore proof of the conclusion of a contract. However the letter has to be read in full and in context because the letter goes on to state “I would be grateful if you would kindly draft charter parties for the above routes and send them to myself for review”. This clearly shows that it was the intention of The Lisheen Mine (both from the earlier email exchanges and indeed this letter) that the master/framework agreement and the charter- party agreements were to be concluded at the same time. Moreover it is also clear from the Vertom email of 7th December 2012 that it was indeed Vertom’s own position that it wanted the master/framework agreement and the charter- party agreements to be concluded at the same time. It is also clear that the proper interpretation of this letter (of 20th December 2012) is that if the parties reached agreement on the charter- party agreements then Lisheen should award the master/framework agreement to Mullock and Sons/Vertom. Therefore it seems that both sides were of the view that there would be no master/framework agreement concluded until the charter- party agreement had been agreed. The parties then turned their attention to the charter- party draft agreement.

6.         On 21st December 2012 – the very next day – Vertom sent comments on the charter- party agreement and also the extra clauses to Mullock and Sons who forwarded them on to The Lisheen Mine. They suggested various amendments to the extra clauses suggested by The Lisheen Mine and/or Lisheen Milling Ltd. It is of note that Vertom in their email state at the end “pls sent recap for owner’s approval”. It is also of note that Mullock and Sons state “and with your approval will draw up after the holidays”. It is clear therefore that Vertom were awaiting a recapitulation of all of the essential terms and that Mullock and Sons would draw up draft charter- party contracts after the holidays. It is also of note that the email from Vertom of 21st December 2012 states “by the looks of it we are heading in the right direction”. Again this is more consistent with a progress of negotiations rather than a concluded agreement.

7.         Likewise on 21st December 2012 Simon Mills for The Lisheen Mine replied saying “initial view don’t see any major issues. Speak in the new year”. Thus, just before the Christmas holiday, parties were still in negotiations about the exact terms of the charter- party agreements. They were they believed heading in the right direction but there were certain matters which had to be finalised and agreed between the parties. A recapitulation email would have had to be sent and the exact terms of any charter- party agreement would have had to have been finally negotiated and agreed. This never happened and the operational dispute arose early in January.

8.         On 2nd January 2013 The Lisheen Mine then asked Mullock and Sons to nominate a suitable vessel at their earliest convenience. This request however to nominate a vessel occurred in the context where there had only been negotiations in respect of a draft charter- party agreement but no concluded charter- party agreement.

9.         Subsequently the parties had a major dispute about the nomination of the suitable vessel and one could not be agreed. Then Vertom/Mullock and Sons nominated a specific vessel without the consent of The Lisheen Mine or Lisheen Milling Ltd and Lisheen Mine and Lisheen Milling Ltd broke off all further negotiations between the parties.

152.     In the light of all of the above, it is clear that both parties were of the view that the master/framework agreement could not be finally concluded and agreed until there was a final agreement on the charter- party agreement. However as there was no final or concluded charter- party agreement it follows that there was no concluded master/framework agreement.

153.     I would therefore conclude that there was no concluded master/framework agreement entered into between The Lisheen Mine and Mullock and Sons and/or Vertom.

(II) Was there a concluded charter- party agreement?

154.     The next issue to consider is whether there was a valid and concluded charter- party agreement between the parties? The analysis set out above also applies to an analysis of this question. For reasons set out above, I am of the view that although the parties were in negotiations about agreeing a standard Gencon charter- party agreement these negotiations had not concluded or “ripened” into an agreement.

155.     Moreover in addition to the analysis set out above, I also believe that there was no concluded charter- party agreement between the parties for the following reasons:

1.         The email from Mullock and Sons/Vertom dated 7th December 2012 specifically stated that any offer was subject to agreeing details on the charter- party. In effect therefore the offer was made “subject to contract” or as that phrase appears to be used in the shipping industry “subject to the details of the charter- party agreement”. Again, as stated above, it makes sense that Vertom did not wish to enter into a long term contract based on agreed freight rate and commission rates until the final details of the charter- party agreement were finalised as this could clearly effect its freight rate and commission rate profitabilitys.

2.         It is also clear that the letter of 20th December 2012 from The Lisheen Mine to Mullock and Sons cannot be any evidence that there is agreement on the charter- party agreements given that it is actually a request to Mullock and Sons/Vertom to draft charter- party agreements and send them to Lisheen for review.

3.         These draft charter- party agreements were, as a matter of fact, never drafted and sent to Lisheen for review. In the email of 21st December, 2012 Mullock and Sons state that they would draw up the draft charter- party agreements after Christmas. However this never happened.

156.     There is no doubt that the parties were engaged in negotiations on a charter- party agreement. It is equally clear however that these negotiations never successfully ripened into a concluded agreement. It is an agreed fact that there is no signed charter- party agreement. However there is no other document which reflects a consensus ad idem between the parties on the major or essential terms of the charter- party agreement. It is simply not there. The evidence in this case falls a long way short of what would be required for a court to conclude that there was a concluded charter- party agreement between the parties – whether that be The Lisheen Mine and Vertom or Lisheen Milling and Vertom.

157.     In the circumstances I would conclude that there is no concluded charter- party agreement between either The Lisheen Mine and Mullock and Sons/Vertom and/or between Lisheen Milling Ltd and Mullock and Sons/Vertom.

158.     Given these conclusions there is no need for me to consider whether The Lisheen Mine and/or Lisheen Milling Ltd were entitled to repudiate such a contract. The issue does not arise.

159.     In considering whether the correct test to be applied, in assessing whether there is an arbitration clause, is either the prima facie test or the full judicial consideration test I am of the view that the full judicial consideration test is the appropriate test for the reasons which I have set out earlier in my judgment. Having considered all the affidavit evidence before the court I am of the view, applying this test, that there is no concluded master/framework agreement between the parties and there is no concluded charter- party agreement between the parties.

160.     However even if I am wrong in this and the appropriate test is the prima facie test, I am of the view that the defendant fails the prima facie test also. I am of the view that the defendant has not established a prima facie case that there was a concluded master/framework agreement between the parties, or that there was a concluded charter- party agreement between the parties.

161.     Insofar as Vertom seek to argue that the email exchanges between the parties in early January about the nomination of a new vessel either shows that there was a concluded charter- party agreement or a concluded master agreement between the parties I reject this submission. In fact the best way to characterise this sequence of events is that the operational requirements of the mine meant that the mine wished to transport product sooner than anticipated. As negotiations had been ongoing between The Lisheen Mine and Vertom, Lisheen not unnaturally turned to Mullock Brothers and Vertom to nominate a vessel. It is possible that this process might have resulted in the parties focusing their mind and agreeing the final terms of the charter- party agreement. However that is not in fact what happened. Instead the parties were distracted by the fact that the nominations offered by Vertom were inadequate. Moreover the nomination of the MV Sirocco by Vertom was not a valid nomination further to a contractual agreement between the parties because there was no such agreement.

162.     Likewise I am of the view that it is not true to say that all essential terms on the charter- party were agreed. It is quite clear that they were not.

163.     It has not been necessary, for the purposes of this application, to consider the many points which were raised by the plaintiff in their replying affidavits about the financial condition of Vertom, the conflation of Vertom and Vertom USC Holdings BV, and whether Vertom actually own or manage the relevant ships and related matters. Thus I have considered Vertom’s case at its height.

Incorporation of arbitration clause in charter- party agreement into framework agreement by reference to the charter- party agreement

164.     The essential argument of the defendants in bringing this application for a stay (and a reference to arbitration) is that there is an arbitration agreement in existence between the parties. It is common case however that the framework agreement does not contain an arbitration clause. That arbitration clause is to be found in the draft standard conditions of the charter- party agreement. However even if there is a framework agreement between the parties it appears that this framework agreement is between The Lisheen Mine and Mullock and Sons as agents for and on behalf of Vertom. By contrast the charter- party agreement appears to be between Lisheen Milling Ltd and Mullock and Sons as agents for on behalf of Vertom. There are therefore different parties to each contract. It is therefore a two contract situation. .

165.     The issue of incorporation by reference in a two contract situation, was considered in Habas Sinai v. Sometal S.A.L. by Clarke J. in the UK High Court [2010] EWHC 29 (Comm). At para. 12 of his judgment he states as follows:

“Are general words of incorporation sufficient?

12.       The authorities recognise a distinction in approach between cases in which the parties incorporate the terms of a contract between two other parties or between one of them and a third party and those in which they incorporate standard terms.

13.       Parties are free to incorporate (or seek to incorporate) whatever terms they choose by whatever method they choose. In those circumstances it is unwise to seek to formulate definitive categories. But, with that caveat, most attempts at incorporation of an arbitration (or jurisdiction) clause are likely to fall within one of the following broad categories (in which the terms referred to include an arbitration clause):

(1) A and B make a contract in which they incorporate standard terms.

These may be the standard terms of one party set out on the back of an offer letter or an order, or contained in another document to which reference is made; or terms embodied in the rules of an organisation of which A or B or both are members; or they may be terms standard in a particular trade or industry.

(2) A and B make a contract incorporating terms previously agreed between A and B in another contract or contracts to which they were both parties.

(3)        A and B make a contract incorporating terms agreed between A (or B) and C.

Common examples are a bill of lading incorporating the terms of a charter to which A is a party; reinsurance contracts incorporating the terms of an underlying insurance; excess insurance contracts incorporating the terms of the primary layer of insurance; and building or engineering sub contracts incorporating the terms of a main contract or sub-sub contracts incorporating the terms of a sub contract.

(4)        A and B make a contract incorporating terms agreed between C and D.”

166.     Clarke J. then reviewed a number of authorities on these issues and continued at para. 34 of his judgment;

“It is apparent from these and other authorities that various different reasons have been given for the Court’s restrictive approach to the incorporation of arbitration clauses in two-contract situations. These are, or include, the following:

(a) Arbitration clauses are not “germane” or “directly” relevant to, nor part of the subject matter of, the main contract, and general words must generally be taken to cover only those contractual provisions that are germane to the subject matter of the bill of lading contract (e.g. provisions as to carriage and discharge) and are capable of being operated in conjunction with that subject matter because the court cannot confidently infer that the parties intended to incorporate any more than that: Thomas v Portsea (Lord Loreburn, L.C. and Lord Atkinson; The Annefield, Excess Insurance. See also Moore-Bick J in AIG Europe SA v QBE International Insurance [2001] 2 Lloyd’s Rep 268, 273.

(b) Arbitration clauses are ancillary provisions by way of dispute resolution essentially personal to the parties which agree them so that general words of incorporation are insufficient; see Sir John Megaw in Aughton; and Excess Insurance p 364 LHC; an arbitration clause is, thus, not incorporated by language which refers to all terms: The Federal Bulker; or all conditions: The Varenna; see also The Delos [1999] 2 Lloyd’s Rep 685.

(c) Arbitration clauses oust the jurisdiction of the courts and clear words are need for that purpose: Lord Gorrell and Lord Robson in Thomas v Portsea. Section 7 of the Arbitration Act 1979 requires an arbitration agreement to be in writing and shows the need for a conscious and deliberate relinquishment of a right to go to court: Sir John Megaw in Aughton;

(e) The terms of a charterparty arbitration clause may not be applicable to disputes between the bill of lading holder and the shipowner – Lords Loreburn, Gorrell and Robson in Thomas v Portsea – and on that account are not to be regarded as incorporated by a general reference.

(f) The need for certainty in the law: Bingham LJ in The Federal Bulker.

167.     Likewise at para. 52 of his judgment Clarke J. states as follows:

“I do not accept that the present case is to be regarded as a “two-contract” case. Whilst, literally speaking, there is more than one contract to be considered, being the June contract and whatever other contracts between the same parties are to have some of their terms incorporated, the relevant distinction is between incorporation of the terms of a contract made between (a) the same and (b) different parties. In short there is a material distinction between categories 1 and 2 on the one hand and categories 3 and 4 on the other. In relation to the latter two categories a more restrictive approach to incorporation is required.”

168.     The above analysis of the law means, in my view, that in the present case (which is an example of a two contract case because there are two separate contracts and because the second charter- party agreement is between different parties) a more restrictive approach to incorporation by reference should apply. Thus, in my view, even if there were a framework agreement properly concluded between the parties – and I am of the view that there is not – I do not believe that it would be appropriate, as a matter of law, to incorporate an arbitration agreement made in an alleged charter- party agreement between Lisheen Milling Ltd and Vertom into a framework agreement made between The Lisheen Mine and Vertom. Taking the defendant’s case at its height and assuming that there are two valid agreements in place these two agreements are essentially parallel agreements. I do not believe as a matter of law or on the facts of this case that it would be appropriate to incorporate the arbitration agreement in the charter- party agreement into the framework agreement.

Inherent jurisdiction

169.     The defendant in its notice of motion although not in its legal or oral submissions before the court also sought to stay the proceedings pursuant to the inherent jurisdiction of the court. It is clear that the court has such a jurisdiction. (See Clarke J. in Kalix Fund Ltd v. HSBC Institutional Trust Services (Ireland) Ltd 2010 2 IR 581.) However in the light of my findings above that there is no arbitration agreement between the parties I am of the view that there are no grounds upon which I should exercise the court’s inherent jurisdiction to stay proceedings.

Conclusion

170.     I would therefore conclude as follows:

1.         There is no concluded master/framework agreement between The Lisheen Mine and Mullock and Sons/Vertom.

2.         There is no concluded charter- party agreement between Lisheen Milling Ltd and Mullock and Sons/Vertom. (Or between The Lisheen Mine and Mullock and Sons/Vertom.)

3.         It is common case that even if there was a concluded master/framework agreement this agreement contains no express arbitration clause. Such an arbitration clause could only be incorporated by reference to the charter- party agreement.

4.         In the circumstances where there is no master/framework agreement and/or no concluded charter- party agreement there is therefore no arbitration agreement between the parties.

5.         In the circumstances the defendant’s application to stay the within proceedings and refer the dispute to arbitration is refused.