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Saturday, October 20, 2018

ENGLISH HIGH COURT CONSIDERS SPEED WARRANTY AND APPLICATION OF THE CLAUSE PARAMOUNT DEFENCES

The English High Court in The Leonidas case held that the owners could rely on the Hague Rules’ exceptions as a defence to a breach of a speed warranty on the basis that there was no conflict between the provisions.

The Leonidas was chartered for a voyage from the Arabian Gulf to the US Gulf for the carriage of a cargo of Iraqi crude. The charterparty included the Scanport clauses 1-47, clause 20 of which provided:

QUOTE:

’Vessel shall perform a laden passage at 11 knots weather and safe navigation permitting.

UNQUOTE

The charter also included a clause paramount which incorporated the Hague Rules.

Loading of the cargo was completed on 18 December. On 25 December the vessel suffered a main engine breakdown, which resulted in the vessel not being able to perform the rest of the voyage at the warranted speed. Charterers arranged for the cargo to be discharged in South Africa.

Various disputes arose between the parties which were referred to arbitration. The arbitrators were asked to consider two preliminary issues, namely: 1) whether the vessel failed to perform a laden passage at 11 knots weather and safe navigation permitting; 2) whether the exceptions contained in the Hague Rules were applicable as a defence to a breach of the speed warranty. The arbitrators answered these questions with No and Yes respectively. The charterers appealed to the High Court.

The Court held that there was no conflict between the two provisions. Although tailor-made clauses will normally prevail over typed ones, that is only the case where there is a conflict between the two. A Court will, however, seek to construe a contract as a whole and if a reasonable commercial construction of the whole can reconcile two provisions then such a construction should be adopted. In this case the Court concluded that the provisions could be sensibly and commercially read together so that the speed warranty was to apply but subject to the owners being able to establish that the vessel’s failure to maintain the warranted speed was due to one of the statutory exceptions.

In effect the speed warranty was construed to mean that the vessel was capable of a speed of 11 knots on “a” laden voyage rather than an absolute warranty that it would perform ‘the’ chartered voyage at that speed come what may, excepting weather or safe navigation.

The judge noted that if it were otherwise the effect of the paramount clause would be seriously weakened. Furthermore, the judge could not conceive of why an owner would choose to except from the speed warranty matters as to weather and navigation but not other matters which could arise without any semblance of fault on his part. Accordingly, the appeal was dismissed.

The case is reported at [2001] 1 Lloyd’s Rep. 533.

This case is a good example of the English approach to the construction of contractual provisions which at first sight appear to conflict but upon analysis the clauses can be reconciled.