CHARTER PARTY INFORMATION

Recent English case law – The House of Lords rules in The Hill Harmony – Master cannot ignore charterers’ orders as to the route to be taken.

The House of Lords on 8 December 2000 published its opinion in the case of Whistler International Ltd. v. Kawasaki Kisen Kalsha Ltd. (The Hill Harmony). In the July 1999 issue of our Tanker Charter Party Circular (No. 219/1999), the link to which is http://www.intertanko.com/members/legaldocumentary/tankercharterparty/artikkel.asp?id=938&utg_id=83 , we reported on the decision of the Court of Appeal. The House of Lords has allowed the appeal by the charterers and restored the original decision of the London arbitrators that the shipowners, Whistler International Ltd., were liable for the extra costs caused by the prolongation of two trans-Pacific voyages from Canada to Japan as a result of the master’s refusal to proceed by the shorter great circle route rather than the rhumb line route.

The House of Lords’ opinion was that the choice of ocean route was, in the absence of some over-riding factor, a matter for the employment of the vessel, her scheduling, her trading so as to exploit her earning capacity. It was not a matter of the navigation of the vessel. Such matters would include decisions as to what speed to proceed up to a hazard and other matters of seamanship.

This is an important decision that members should note. A more detailed report can be found below. Any member wishing to discuss this case should contact mailto:john.fawcett-ellis@intertanko.com

____________________

Recent English case law – The House of Lords rules in The Hill Harmony – Master cannot ignore charterers’ orders as to the route to be taken

INTERTANKO has been following with interest the progress of the case in the English Courts: Whistler International Ltd. v. Kawasaki Kisen Kaisha Ltd. (The Hill Harmony) which has now been decided once and for all by the House of Lords. We last reported on this case when the Court of Appeal published its judgment, this article can be found in the July 1999 issue of our Tanker Charter Party Circular (No. 219/1999), the link to which is http://www.intertanko.com/members/legaldocumentary/tankercharterparty/artikkel.asp?id=938&utg_id=83

Summary of the Facts

The vessel was period chartered on the New York Produce Exchange form with amendments. The vessel performed two trans-Pacific voyages from Canada to Japan in 1994. The vessel’s master refused to follow the charterers’ instructions to proceed by the shorter great circle route and instead proceeded by the longer rhumb line route.  Under a previous charter the vessel had encountered heavy weather on a voyage from San Francisco to a port in southern Japan and had suffered heavy weather damage. It was apparently that experience that lead the master to proceed by the more southerly but longer rhumb line route. The majority arbitrators did not consider that that was a sufficient reason to justify refusing to follow charterers’ orders.

Evidence given during the arbitration had revealed that the charterers had consulted Ocean Routes as to the most favourable route to follow. In the relevant months of 1994 Ocean routes had provided advice to some 360 vessels routed from the north Pacific to northerly China, Korea or Japan.  All had sailed on a northerly route and there had been no evidence of any particular difficulties encountered by them.

The majority arbitrators had found that the owners had been in breach of their obligation to proceed with utmost dispatch and follow charterers’ orders as to the employment of the vessel. They concluded that the planning of the voyage was not a matter of navigation.

The owners appealed to the High Court, which allowed the appeal and took the opposite approach to the arbitrators holding that the decision of which route to follow was one for the master alone and a matter of navigation rather than employment. The charterers appealed to the Court of Appeal who dismissed the appeal.

The House of Lords’ decision

The decision of the House of Lords was given by Lord Hobhouse. His Lordship said that this dispute reflected the conflict of interest between the owners and the charterers. The owners did not normally have an interest in saving time, whereas to the charterers the scheduling of the vessel was critically important so that obligations to others could be fulfilled. As a matter of mercantile policy of saving time and as a matter of construction of the obligation to proceed with the utmost dispatch, if the master unnecessarily chose a shorter route, which caused delay, the owners would be breach of their obligation to the charterers. Furthermore, the owners had already agreed in the charterparty what were to be the limits within which the charterers could order the vessel to sail and had undertaken that barring unforeseen circumstances the vessel would be fit to sail in those waters. It was not open for the owners to say that the vessel was not fit to sail from Vancouver to Japan by the shortest route within those limits.

On the findings by the arbitrators the vessel was fit to proceed on the shorter route and there was not any good reason why the vessel should refuse those orders. It was not a valid reason that the master preferred to sail via calmer waters rather than the rougher more northerly route. Charterers were entitled to give the order they gave. The question of whether the order was as to employment was an academic one in the circumstances, but was in any case such an order.

The choice of ocean route was in the absence of some over-riding factor, a matter of the employment of the vessel, her scheduling, her trading so as to maximise her earning capacity. Employment embraced the economic aspect whereas navigation embraced matters of seamanship. The judge was erroneous to reason that all questions of what route to follow were questions of navigation. His Lordship concluded that the arbitrators had been right to reject the owners’ navigation defence on the grounds that there was insufficient evidence that the master has been justified in taking the decision he had made. Accordingly the appeal was allowed.

Comment

This case summary has been made from the brief report of the decision that appeared in the Times, however a full report of the House of Lords decision has still to be published.

The owners’ navigation defence failed due to lack of compelling evidence that the master had been justified in refusing to follow charterers’ orders as to the route to be followed. The effect of this decision is that owners are bound to follow charterers’ orders as to the route to be taken unless there is clear evidence that the master would be justified in following an alternative route. Owners should note that where a vessel is under the employment of the charterers this includes orders that have an economic aspect to the vessel’s operation rather than to matters of navigation or seamanship. Any member faced with a decision of whether to follow charterers’ orders as to the route to be followed should seek legal advice.

Any member wishing to discuss this case further should contact john.fawcett-ellis@intertanko.com

______________ 

Recent English case law – The Court of Appeal’s decision in The Seaflower – Breach of oil major approval’s clause entitles charterers to treat that contract as having been repudiated

On 22 November 2000 the Court of Appeal delivered its decision in the case of B S & N Ltd v. Micardo Shipping Ltd. (The Seaflower). INTERTANKO reported on the decision of the High Court in its June 2000 issue of the Tanker Charter Party Circular (No. 230/2000), which may be found on our website, the link to which is http://www.intertanko.com/members/legaldocumentary/tankercharterparty/artikkel.asp?id=872&utg_id=74

The Court of Appeal held that the “Major’s” approval clause in the charterparty was a condition and therefore breach of it by the owners entitled charterers to treat the contract as having been repudiated and claim damages for the loss suffered. It should be borne in mind that the case involved the construction of a particular clause, which the Court described as badly drafted. Furthermore, post Erika such “approvals” clauses are not consistent with current vetting practice. This decision re-enforces the importance for owners to be careful to ensure that they are not making commitments in any clause which they cannot meet. For a summary of the decision, please see below.

 ______________ 

Recent English case law – The Court of Appeal’s decision in The Seaflower – Breach of oil major approval’s clause entitles charterers to treat that contract as having been repudiated

INTERTANKO has earlier reported on the decision of the English High Court in B S & N Ltd. v. Micardo Shipping Ltd (The Seaflower). The charterers appealed against the Court of first instance’s decision and the Court of Appeal has now delivered its judgment.

Summary of the facts

The case concerned the tanker Seaflower that was on time charter from 20 October 1997 for a period of 11 months, maximum 12 months at charterers’ option. The charter contained the following major oil company approvals clause:

“Vessel is presently MOBIL (expiring 27.1.98), CONOCO (expiring 3.2.98), BP (expiring 28.1.98) and SHELL (expiring 14.1.98) acceptable. Owners guarantee to obtain within 60 days EXXON approval in addition to present approvals. On delivery date hire rate will be discounted US$ 250 for each approval missing, i.e. MOBIL, CONOCO, BP, SHELL, EXXON. If for any reason, during the time-charter period, owners would lose even one of the acceptances they must advise charterers at once and they must reinstate same within 30 days from such occurrence failing which charterers will be at liberty to cancel charter party or to maintain same at reduced rate as stipulated above. Hire rate will be reinstated once owners will show written evidence of approvals from major oil companies.”

The vessel was delivered to charterers on 5 November 1997, at which time the vessel was not accepted by Exxon. Between delivery and 30 December 1997 the vessel performed three voyages for the carriage of fuel oil. On 30 December 1997 charterers fixed the vessel “on subjects” to load a cargo of Exxon products. Charterers’ broker then sought clarification from owners as to whether the vessel was now approved by Exxon. Notice was given requiring owners to obtain the Exxon approval by 5 January 1998. Owners replied that it was unlikely that the vessel would be so approved by that date. Consequently charterers terminated the charter and redelivered the vessel.  Charterers brought proceedings and claimed damages for the hire paid in advance and the bunkers remaining on board and other expenses. Charterers alleged that owners were in breach of a condition and therefore they were entitled to terminate the charter if the acceptance by Exxon was not obtained within 60 days of the charter. On an earlier application to the Commercial Court, Aikens J held that the guarantee given by owners to obtain Exxon approval was not a condition giving rise to an automatic right to terminate in the event of breach but an innominate term, which had no such automatic right.  Charterers then amended their claim and argued, amongst other things, that owners’ failure to obtain the

Exxon approval was a repudiatory breach of charter. Owners counter claimed for damages for wrongful repudiation of the charter.

The Court of Appeal’s decision

The question for determination by the Court was whether the parties intended that the consequence of the owners’ failure to obtain Exxon approval within the period of 60 days stipulated in clause 46 should be that the charterers should have the immediate right to treat the charter as having thereby been repudiated and to terminate the charter. The Court described the clause as having been drafted with insufficient consideration given to the precise meaning and effect of the terms. Therefore the Court had to consider more closely what were the parties underlying commercial aims and objectives in entering into the charter, with particular reference to the obtaining of the approvals of major oil companies.

The Court recognised that it was of commercial importance to the charterer that the owner should be under some obligation to ensure that the approvals of the major oil companies were maintained throughout the period of the charter, since in the absence of such obligation the charterers’ ability to sublet the vessel would be significantly restricted. It has not been suggested that the Exxon approval was any less commercially significant than the other approvals. The only reason the Exxon approval was treated differently was because at the date of the charter Exxon approval had not yet been obtained.

In the Court’s view it was apparent that any breach of the obligation to obtain Exxon approval would inevitably occur during the charter period. On a true interpretation of the clause the failure to obtain Exxon approval did not fall within the first sentence of the second paragraph, which would have allowed owners a further 30 days to obtain the approval failing which charterers could cancel the charter. Owners’ obligation to obtain Exxon approval within 60 days was a condition. There should be no distinction drawn between the Exxon approval and the other four approvals subject only to the fact that the Exxon approval was not present at the date of the charter. There was no commercial or logical reason why the failure to obtain an outstanding approval should not receive substantially the same contractual treatment as the failure to reinstate an existing approval. Accordingly, the charterers appeal was allowed.

Comment

This case is illustrative of the importance of ensuring that clauses are drafted with clarity so as to ensure certainty of their effect. Owners should be wary of making commitments that they cannot meet. The decision is not, perhaps, of general application as it concerned the construction of a particular approvals clause, which the Court recognised as lacking in clarity of drafting. Furthermore in the aftermath of the Erika incident the vetting practice of the oil majors has changed and such clauses no longer reflect current vetting practice.

Members should contact john.fawcett-ellis@intertanko.com should they wish to discuss this case further.