BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £1, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!
 |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | |
England and Wales High Court (Commercial Court) Decisions |
||
|
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Fastfreight Pte Ltd v Bulk Trident Shipping Ltd (Re Arbitration Act 1996) [2023] EWHC 105 (Comm) (24 January 2023) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2023/105.html Cite as: [2023] EWHC 105 (Comm) |
||
[New search] [Printable PDF version] [Help]
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
IN THE MATTER OF THE ARBITRATION ACT 1996
AND IN THE MATTER OF AN ARBITRATION CLAIM
Rolls Building, Fetter Lane, London, EC4A 1NL |
||
B e f o r e :
____________________
| FASTFREIGHT PTE LTD |
Claimants/ Charterers |
|
| - and - |
||
| BULK TRIDENT SHIPPING LTD |
Defendants/ Owners |
____________________
Henry Byam-Cook KC (instructed by Holman Fenwick Willan LLP) for the Defendants
Hearing dates: 29 and 30 November 2022
Draft Judgment circulated to the parties: 3 January 2023
____________________
Crown Copyright ©
Mr Justice Henshaw:
| (A) | INTRODUCTION | 2 |
| (B) | BASIC FACTS AND KEY CHARTERPARTY TERMS | 2 |
| (C) | THE AWARD | 5 |
| (D) | GENERAL PRINCIPLES TO BE APPLIED | 8 |
| (E) | APPLICATION TO PRESENT CASE | 10 |
| (F) | CONCLUSION | 17 |
(A) INTRODUCTION
"Where a charterparty clause provides that no deductions from hire (including for off-hire or alleged off-hire) may be made without the shipowner's consent: Is non-payment of hire a 'deduction' if the Vessel is off hire at the instalment date?
(B) BASIC FACTS AND KEY CHARTERPARTY TERMS
"The Charterers shall pay for the use and hire of the said Vessel at the rate of [US$20,000] per day pro rata… Charterers to pay first 20 days hire without value of bunker within 3 banking days of vessel's delivery and thereafter every 5 days in advance or up to redelivery which ever is earlier. U.S. currency, commencing on and from the day of her delivery…until the hour of the day of her redelivery…".
"(a) Payment
Payment of Hire shall be made so as to be received by the Owners or their designated payee in cash in to Owners' bank account in Germany…
Notwithstanding of the terms and provisions hereof no deductions from hire may be made for any reason under Clause 17 or otherwise (whether/ or alleged off-hire underperformance, overconsumption or any other cause whatsoever) without the express written agreement of Owners at Owners' discretion. Charterers are entitled to deduct value of estimated Bunker on redelivery. Deduction from the hire are never allowed except for estimated bunker on redelivery…
in United States Currency, in funds available to the Owners on the due date [5 days in advance] … Failing the punctual and regular payment of hire…the Owners shall be at liberty to withdraw the Vessel from the service of the Charterers without prejudice to any claims they (the Owners) may otherwise have on the Charterers.
At any time while the hire or any amount is outstanding … the Owners shall, without prejudice to the liberty to withdraw, be entitled to withhold the performance of any and all of their obligations hereunder … and hire shall continue to accrue …
…
(b) Grace Period
Where there is failure to make punctual and regular payment of hire due to oversight, negligence, errors or omissions on the part of the Charterers or their bankers, the Charterers shall be given by the Owners 3 banking days written notice to rectify the failure, and when so rectified within those 3 banking days following the Owners' notice, the payment shall stand as regular and punctual. …"
(my emphasis)
The paragraph underlined above was printed at line 146 of the amended NYPE terms and is referred to as "line 146" in the Award and the parties' submissions.
"In the event of loss of time from deficiency and/or default … of officers or crew … or by any other similar cause preventing the full working of the Vessel, the payment of hire and overtime, if any, shall cease for the time thereby lost. Should the Vessel deviate .. during a voyage, contrary to the orders or directions of the Charterers, … the hire is to be suspended from the time of her deviating .. until she is again in the same or equidistant position from the destination and the voyage resumed therefrom. …
If upon the voyage the speed be reduced by defect in, or breakdown of, any part of her hull, machinery or equipment, the time so lost, and the cost of any extra bunkers consumed in consequence thereof, and all extra provide directly related and actually paid expenses (always limited to one shift maximum) expenses [sic] … may be deducted from the hire only after having reached an agreement with the Owners on the figures (costs, times, bunkers)."
"The Owners shall have a lien upon all cargoes and all sub-freights and/or sub-hire and/or all demurrage and/or all dead freight and/or all damages detention and/or all other amounts due to Charterers for any amounts due under this Charter Party, including general average contributions, and the Charterers shall have a lien on the Vessel for all monies paid in advance and not earned, and any overpaid hire or excess deposit to be returned at once. …"
"Clause 67. BIMCO terms
Notwithstanding anything within this charter party, the riders, the recap, and/or the "BIMCO infections or contagious disease clause for time charter parties" and/or its equivalent, in the event any member of the crew or persons (except those on charterers' behalf) on board the vessel is found to be infected with a highly infectious or contagious disease and the vessel has to (i) deviate, (ii) be quarantined, or (iii) barred from entering any port, all time lost, delays and expenses whatsoever shall be on owners' account and the vessel shall be off-hire.
…
Owners are fully aware that vessel is fixed for one trip via East Coast India to China."
(C) THE AWARD
"9. There is a dispute as to the precise situation on board the vessel concerning infection, and the facts in that regard will have to be investigated later in the arbitration if it proceeds. The owners contend that 3 crew members tested positive with rapid lateral flow tests on 1 May, 3 days before the vessel arrived off Lanquiao [sic], but 2 weeks after she had arrived at Visakhapatnam, which the owners said indicated that the crew in question were not infected when the vessel had arrived at that port.
10. It was impossible to arrange for PCR testing of those crewmembers, but on the owners' case if they had Covid-19 (lateral low tests not being wholly reliable) they had recovered by no later than 13 May, as their temperature records for that day and subsequent days showed. Meanwhile, the charterers asserted that the vessel went off hire on 4 May and remained off hire thereafter. They relied on clause 67, quoted above. This situation continued – subject to a brief excepted period referred to below – until 28 August when, the owners said, the agreed trip was completed, and the vessel redelivered. …"
The arbitrators noted that the Owners' position was that the Charterers could not rely on periods of alleged off hire to avoid paying hire if that had not been agreed by the Owners in writing: in other words, if it was disputed by the Owners.
"15. Fundamental to the charterers' case was their contention that "deduction" in the line 146 insertion must mean "deduction from hire that is due". Were that limited, literal, meaning to be given to the word it seems to us that it would largely, if not entirely, emasculate the insertion, for it would be sufficient for a charterer simply to assert off-hire in order to justify non-payment. That, in our view, cannot be right. The clear intention, to our minds, is that charterers cannot withhold payment of hire without the owners' agreement. Commercial parties such as the owners and charterers here would understand "deduction" in this sense, and without the input of lawyers would be most unlikely to use a word such as "withhold" in their contract.
16. We have no doubt that the owners are right when they argue that, reading all the relevant terms of the charter together, as must plainly be done, line 146 only allows charterers to withhold payment of hire not simply if the vessel is actually off hire as at the date when the relevant instalment falls due, but also only where the owners agree in writing that the vessel is off hire. The terms of the insertion at line 146 in our view make the position entirely clear.
17. First there are the opening words "Notwithstanding of the terms and provisions hereof …". Then there is the express prohibition against deductions "for any reason under Clause 17 or otherwise". If that were not sufficiently clear, the parties agreed that it should apply whether there was actual or only alleged off hire: "(whether/or alleged off hire"). And they capped all that with "or any other cause whatsoever)"; all "without the express written agreement of Owners at Owners' discretion". Finally, the position was put beyond doubt by the words quoted at the end of paragraph 4 above [viz. "Deduction from the hire are never allowed except for estimated bunker on redelivery."]
18. The intention of this provision could hardly be clearer: if anything, it might be said to suffer from overkill. What is clear is that it considerably limits the effect of clause 17 and any other off-hire provisions in the charterparty so as to affect the question of actual payment of hire in accordance with the other provisions of clause 11, without of course preventing the charterers from ultimately claiming that the vessel was off hire at any particular time, and seeking a refund of any hire that they might have been obliged to pay because the owners had failed to give written consent to a deduction.
19. The charterers suggested that this consequence would be surprising, as it would mean that charterers have to pay hire, essentially by way of security, for a period when no hire might be due. However, whether or not it is surprising, that is what the parties agreed. And, contrary to the charterers' submissions, it is not hard to see why rational commercial actors would reach such a result. Indeed, such provisions are in our experience becoming increasingly common, no doubt because of the very frequent tendency of time charterers to withhold hire whenever they can on grounds which not infrequently turn out to be spurious. That is why, over the last forty years or so, we have seen numerous applications based on The Kostas Melas, most of which in our experience have succeeded.
20. This conclusion is also consistent with what follows in the charter, namely the owners' right to withdraw "failing the punctual and regular payment of the hire". The provision eliminates the uncertainty that would otherwise prevail in the event of a non-payment and the owners having to consider whether they were entitled to withdraw or not.
21. The charterers also argued that line 146 only covers cross-claims and set-offs. We agree with the owners that this cannot be right given the references to clause 17 and to alleged off-hire, for off-hire does not operate by way of a set-off or cross-claim.
22. The charterers said that whatever the position in relation to line 146, there had to be a genuine dispute in the light of the decision in The C Challenger [2020] EWHC 3448 (Comm). Assuming, without deciding, that this is correct, in our view there is nothing in this argument because there was in any event a genuine dispute, so the owners were entitled to withhold their written consent. Indeed, as things stand it is somewhat difficult to see on what basis it can be said that there was an off-hire situation for at least most of the period relied on by the charterers: disputing that position is certainly reasonable."
(my interpolation in quoted § 17 above)
(D) GENERAL PRINCIPLES TO BE APPLIED
i) The court has to decide what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood them to be using the language in the contract to mean. The court does this by focussing on the meaning of the relevant words in their documentary, factual and commercial context. The meaning has to be assessed in the light of (a) the natural and ordinary meaning of the clause, (b) any other relevant provisions of the contract, (c) the overall purpose of the clause and the contract, (d) the facts and circumstances known or assumed by the parties at the time that the contract was made, and (e) commercial common sense. (Arnold v Britton [2015] UKSC 36, [2015] AC 1619 § 15).
ii) The court has to ascertain the objective meaning of the language used, within the context of the contract as a whole and, depending on the nature, formality, and quality of the contract, give more or less weight to the wider context in reaching a view on objective meaning (Wood v Capita Insurance Services [2017] UKSC 24, [2017] AC 1173 § 10).
iii) The unitary exercise of construction is an iterative process by which rival constructions are checked against the provisions of the contract, business common sense, and their commercial consequences. The extent to which each factor will assist the court in its task will vary according to the circumstances of the particular agreement. Sophisticated and complex agreements or those negotiated and prepared with the assistance of skilled professionals should be interpreted principally by textual analysis (Wood v Capita §§ 11-13).
See also the summary by Popplewell J in Lukoil Asia Pacific Pte Ltd v Ocean Tankers (Pte) Ltd [2018] 1 Lloyd's Rep. 654 § 8.
"… the reliance placed in some cases on commercial common sense and surrounding circumstances (e g in Chartbrook [2009] AC 1101, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision."
and the statement of Patten LJ in Warborough Investments v Lunar Office SARL [2018] EWCA Civ 427 that:
"…it is normally safe to assume that the parties intended to give the words they chose their natural meaning. In particular, there is a danger in approaching the construction of the document with pre-conceived ideas about what the parties, acting commercially, are likely to have intended and to allow those ideas to subvert the clear language of the document". (§ 19)
i) Under a time charter the risk of delay is fundamentally on the charterer, who remains liable to pay hire unless relieved of the obligation under an off hire provision: The Eleni P [2019] EWHC 910 (Comm) § 11.
ii) An off hire clause is a form of exception clause. The burden lies on the charterer to bring itself within the plain words of the clause; and, all other things being equal, doubts as to the meaning of an off-hire clause are to be resolved in favour of the owner: The Eleni P ibid..
iii) The charterer's obligation to pay hire on or before the due date is an absolute obligation. If hire is not paid punctually, then under § 11 of the NYPE form the owner has the right to withdraw the vessel, reflecting the importance to the owner of the regular receipt of hire: Coglin & others, "Time Charters" (7th ed., 2014) § 16.3 (citing case law referring to § 5 of the 1946 form, the equivalent of § 11 in the 1993 NYPE form).
iv) In the absence of express contrary provision, the owner is entitled to claim the full amount of any advance instalment of hire on the day it falls due, even if it is obvious that it will never be fully earned (e.g. because the vessel will be redelivered during the period covered by the hire payment). Likewise, a charterer cannot withhold hire on the basis that the vessel will be off hire during the period covered by the advance payment (e.g. because of an agreed, future period of repairs). This avoids the need for an estimate of the amount of hire that may be due in the forthcoming period, an estimate that is at risk of being falsified by events. This does not prejudice the charterer because it has a lien on the vessel for the amount of any overpayment (such lien was expressly provided by clause 23 of the NYPE form in this case): see Carver on Charterparties (2nd ed., 2021) § 7-454 and cases cited.
v) Absent any contractual scheme to the contrary, in the event of a dispute over off hire, a charterer may exercise a form of self-help by making deductions from the amount of hire that it pays. That can put pressure on the owner by interrupting anticipated cashflow, but it exposes the charterer to the risk of the owner withdrawing the vessel and the deduction from hire ultimately being held to have been unjustified.
vi) It was therefore necessary to find a way of determining, at least on an interim basis, (a) what deductions a charterer can make before risking withdrawal of the vessel and (b) when an owner can demand immediate hire payment despite claims asserted by a charterer. The solution devised by the courts is to allow a charterer to make deductions on an interim basis only where it can establish that they were made both in good faith and on reasonable grounds at the time of deduction (those requirements applying whether the deduction is made pursuant to equitable set-off or an express term of the charterparty). If the charterer cannot show those requirements are satisfied, then it must pay the disputed hire to the owner on an interim basis, albeit without prejudice to its right to have its cross-claim against the owner determined in court or arbitration in the ordinary course: Carver §§ 7-511 to 7-512.
(E) APPLICATION TO PRESENT CASE
i) The arbitrators' basic error, which underlies their reasoning as a whole, was to start with the parties' assumed commercial objective, rather than the words the parties actually used, leading to the arbitrators rewriting their bargain.
ii) The word 'deduction' in line 146 pre-supposes that a sum is due in the first place; a deduction can only be made where there is something to deduct from. It is basic and inherent in the meaning of deduction that there must be something to deduct from in the first place. Therefore, a charterer makes a 'deduction' when he subtracts a sum from an instalment of hire that has fallen due for payment. Examples would be subtracting a sum to cover port expenses, or deducting the amount of a previous overpaid hire payment paid in advance for a period during part of which the vessel turned out to be off hire.
iii) Thus line 146's prohibition of deductions is an 'anti set-off' provision, restricting Charterers' ability to set off, against an accrued obligation to pay hire, sums owed to them. It does not restrict Charterers' right not to pay hire on the ground that the obligation to pay hire has not accrued.
iv) Where the vessel is off hire at the date on which a hire instalment would otherwise fall due, the effect of § 17 of the charterparty (being the equivalent of § 15 of the 1946 NYPE form) is that the obligation to pay hire is suspended: see The Lutetian.
v) If (contrary to the Charterers' primary submissions) there is any ambiguity, line 146 should be construed against the Owners, because "if set-off is to be excluded by contract, clear and unambiguous language is required": FG Wilson (Engineering) Ltd v John Holt [2012] EWHC 2477 (Comm) § 83 per Popplewell J. Line 146 as interpreted by the arbitrators is even more potent than an anti-set off clause, because it requires a payment that would not otherwise be due. On that view, it creates a 'hell or high water' absolute obligation to pay, overriding both the Charterers' rights of set-off and the effect of the off-hire clause. However, it fails clearly and unambiguously to say so.
vi) The arbitrators were wrong to say in Award § 15 that commercial parties such as the Owners and Charterers here would understand "deduction" in line 146 to mean that the Charterers cannot withhold payment of hire without the Owners' agreement, and that without the input of lawyers they would be most unlikely to use a word such as "withhold" in their contract. There was no evidential basis to assume lack of lawyer involvement; the proper approach was to use the language's ordinary meaning; and in any event "withhold" is not an uncommon contractual word.
vii) The arbitrators were wrong to consider that the emphatic language of line 146 ("for any reason under clause 17 or otherwise") supported their conclusion, because it sheds no light on the logically prior question of what the word "deduction" means.
viii) The arbitrators were also incorrect to reject the Charterers' submission – that line 146 applies only to set-offs and cross-claims – on the basis that "off-hire does not operate by way of a set-off or cross-claim". The last phrase of § 23 of the charterparty provided that "any overpaid hire or excess deposit was to be returned at once"; and, as noted in Carver § 7-462:
"if the vessel is off-hire for all or part of a period for which payment has been made in advance, the charterer can recover the amount of any overpayment… In practice, any overpayment is deducted from the next instalment of hire but if necessary it can be recovered by action".
That is the type of deduction (correctly so termed in Carver) at which line 146 is directed.
ix) The Charterers' interpretation of line 146 does not 'emasculate' line 146 as the arbitrators suggested. It still heavily cuts back the valuable set-off right which the Charterers would otherwise have.
x) The arbitrators were wrong to suggest, in Award § 19, that such clauses are seen as necessary to prevent a charterer from withholding payment on spurious grounds: were a charterer to do so, the owner would still be entitled to bring a claim of the kind brought in the present case.
i) In The Trident Beauty [1994] 1 WLR 161, 163H-164A, Lord Goff said, "given the circumstances [in that case] that the charter hire was payable in advance and that the ship might be off hire under one or other of the relevant clauses during a period in respect of which hire had been paid, it was inevitable that, from time to time, there might have to be an adjustment of the hire so paid. … The usual practice is, I understand, for an adjustment to be made when the next instalment of hire falls due, by making a deduction from such instalment in respect of hire previously paid in advance which has not been earned…."; and
ii) Carver ibid. § 7-462 states: "if the vessel is off-hire for all or part of a period for which payment has been made in advance, the charterer can recover the amount of any overpayment… In practice, any overpayment is deducted from the next instalment of hire but if necessary it can be recovered by action".
i) In BOC Group v Centeon LLC [1999] 1 All ER (Comm) 970, the Court of Appeal held that a clause providing for payment to be "absolute and unconditional and shall not be affected by … any other matter whatsoever" was not adequate to exclude rights of set off. Evans LJ noted (at 980b) that "[t]here is not necessarily a magic formula, but words such as "payment in full without deduction or withholding of any sort" are all familiar in contexts such as this. The failure of the parties to use any such words amounts to an eloquent silence." (emphasis added);
ii) That statement was applied in Lotus Cars v Marcassus [2019] EWHC 3128 (Comm), where a clause provided that "[t]he Dealer shall pay in full cleared funds without deduction, withholding, or qualification". Phillips J held that wording to be "more than wide enough" to exclude rights of set off (§ 34).
"If upon the voyage the speed be reduced by defect in, or breakdown of, any part of her hull, machinery or equipment, the time so lost, and the cost of any extra bunkers consumed in consequence thereof, and all extra provide directly related and actually paid expenses (always limited to one shift maximum) expenses [sic] … may be deducted from the hire only after having reached an agreement with the Owners on the figures (costs, times, bunkers)."
However, that portion of § 17 clearly includes its own bespoke provision requiring the Owners' written agreement.
i) I do not consider there to be any ambiguity, so as to make it necessary to resort to presumptions of the kind referred to in FG Wilson (Engineering) Ltd. I also note that at § 85 of that case, Popplewell J added that "[t]he draftsman's intention must be ascertained from the totality of the language which has been used" and "where the provision does expressly qualify the payment obligation, it may readily be construed as suf?ciently clear to be effective". By analogy, line 146 here expressly qualifies the off hire provision and reinforces the § 11 payment obligation.
ii) Having regard to the slightly slipshod drafting of the amendments to the charterparty, I suspect that the arbitrators were right to assume that they were not drafted by lawyers. Further, the examples cited by the Charterers of the use of the word "withhold" both involved contracts very likely to have been drafted by lawyers. In any event, I do not regard these points as critical. The key point is how the word "deduction", in the context of line 146 and the charterparty as a whole, should be interpreted.
iii) I do not agree that the arbitrators were wrong to consider that the emphatic language of line 146 ("for any reason under clause 17 or otherwise") supported their conclusion. It does help shed light on the question of what the word "deduction" means, because it supports the view that line 146 is directed at, inter alia, the effect which § 17 as a whole would otherwise have.
iv) I also do not agree that the arbitrators were incorrect to reject Charterers' submission, that line 146 applies only to set-offs and cross-claims, on the basis that "off-hire does not operate by way of a set-off or cross-claim". I agree with the Charterers that the last phrase of § 23, and Carver § 7-462, indicate that a right to offset overpaid hire arises. However, § 17 is broader in effect than that, so the fact that line 146 specifically restricts the application of § 17 supports the arbitrators' conclusion.
v) The arbitrators were right, in my view, to consider that the Charterers' approach to line 146 would substantially undermine it. Though a set-off right restriction would be of some importance, it would be considerably less effective than a right for the Owner to receive hire payments without the risk of the Charterer declining to pay hire on the due date. Such a right is perhaps particularly important when hire is payable every 5 days: an alleged off hire period of any significant duration would, on Charterers' approach, quickly lead to cession of hire payments on their due dates, making a restriction on offsets largely irrelevant.
vi) I do not accept Charterers' contention that the Owners are adequately protected by the right to bring a claim of the kind brought in the present case. Even using the speedy procedure deployed in this case, it took months for the Owners to receive, on 20 December 2021, an arbitration award in respect of hire left unpaid in May, June, July and August 2021 (which, incidentally, counsel for the Owners informed me remains unpaid). Those actual events merely illustrate what would be apparent at the time of contracting, namely that any arbitral remedy would take at least several months. In the meantime, of course, all the Owners' usual expenses of running and financing the vessel will have continued to be incurred.
"and if upon the voyage the speed be reduced by defect in or breakdown of any part of her hull, machinery or equipment, the time so lost, and the cost of any extra fuel consumed in consequence thereof, and extra expenses shall be deducted from the hire."
The submission made to Bingham J by Mr Anthony Evans QC was presumably to point out that the example of a mere partial off hire event indicated that § 15 did not envisage the charterer being allowed to decline to pay hire. Bingham J stated:
"Mr. Evans drew attention to the closing words of cl. 15, dealing with loss of time due to reduction in speed. But I do not think these words help him. The clause is there concerned with a partial, not a complete, loss of service over a period. This could only practically be dealt with by deduction. There is, however, a contrast between deduction from the hire in this instance and cessation of payment in the other."
(F) CONCLUSION
