Fastfreight v Bulk Trident Shipping - The Anna Dorothea

DMC/SandT/23/02

England

Fastfreight Pte Ltd v Bulk Trident Shipping Ltd (The Anna Dorothea)

English Commercial Court: Henshaw J: [2023] EWHC 105 (Comm): 24 January 2023

Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2023/105.html

Patrick Dunn-Walsh (instructed by MFB Solicitors LLP) for Fastfreight (Charterers)

Henry Byam-Cook KC (instructed by Holman Fenwick Willan LLP) for Bulk Trident (Owners)

CHARTER TRIP: CHALLENGE TO PARTIAL FINAL AWARD FOR HIRE NOT PAID IN RELATION TO PURPORTED COVID-19 RELATED OFF-HIRE EVENT: WHETHER NON-PAYMENT A ‘DEDUCTION’ UNDER A PROVISION THAT PROVIDED FOR NO DEDUCTIONS FROM HIRE (INCLUDING FOR OFF-HIRE OR ALLEGED OFF-HIRE) WITHOUT OWNERS’ CONSENT: APPEAL ON QUESTION OF LAW UNDER SECTION 69 OF THE ARBITRATION ACT 1996

Summary

In dismissing Charterers’ appeal – and thereby upholding the arbitral tribunal’s partial final award for hire – the High Court held that the words “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. … Deduction from the hire are never allowed except for estimated bunker on redelivery…” meant Charterers were not entitled to avoid paying hire pursuant to an alleged off-hire defence if the non-payment was not agreed to by Owners in writing.

Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes

Background

Owners of bulk carrier “Anna Dorothea” trip time-chartered her to Charterers on an amended NYPE 93 form with additional clauses, for a voyage from India to China, carrying iron ore pellets. The charterparty was subject to English law and London arbitration.

The vessel loaded a cargo of iron ore pellets at Visakhapatnam, India for carriage to the People’s Republic of China, and was ordered by Charterers to sail to Lanqiao for discharge. She arrived off that port on 4 May 2021 but was not able to obtain a berth. In the event, the cargo was not discharged, and the vessel was not redelivered by Charterers to Owners until 28 August 2021.

Except for a period of five days between 22 and 26 May 2021, Charterers did not pay any hire for the vessel between 4 May and 28 August 2021. Charterers contended that the vessel went off-hire on 4 May 2021 and remained off-hire thereafter on the basis that three crew members had positive rapid lateral flow tests for Covid on 1 May 2021. Charterers relied in this regard on clause 67 quoted in footnote 1 below.

Owners disputed that the vessel was off-hire for any period, relying in particular on line 146 (which is quoted in the summary above) of clause 11(a), and applied for a partial final award for the hire unpaid by Charterers, in the amount of USD2,147,717.79.

A partial award was made in Owners’ favour which Charterers sought to challenge by appeal on a question of law under section 69 of the Arbitration Act 1996. Andrew Baker J granted Charterers leave to appeal on the following issue:

“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?”

Judgment

Having set out the background to the dispute and the terms of the charter, which also included the general off-hire provision at clause 17 (fn.2), the judge first considered the final partial award, the approach to section 69 appeals, the general principles to be applied to interpreting contracts, including those relevant to the payment of hire under time charters, before then turning to address Charterers’ submissions on the basis of the appeal against the award.

The thrust of Charterers’ criticisms was that the tribunal started with the assumed commercial objective of line 146, rather than with the words actually used by the parties. This had led, Charterers said, to the tribunal rewriting the parties’ bargain.

When the parties’ language was addressed instead, the word ‘deduction’ pre-supposed that a sum was due in the first place. As such, line 146 was an ‘anti set-off’ provision, restricting Charterers’ ability to set-off, against an accrued obligation to pay hire, sums owed to them. But that did not restrict Charterers’ right not to pay hire on the basis that the obligation to pay hire had not accrued.

Further, the tribunal were wrong not to have accepted Charterers’ submission that line 146 applied only to set-offs and cross-claims on the grounds that off-hire is a defence; it does not operate by way of a set-off or cross-claim.

However, the judge was not minded to accept Charterers’ criticisms. In rejecting them, he concluded that the tribunal’s decision was correct in law, because:

Whilst making clear its overall breath of application, line 146 singled out clause 17 as the one it qualified. That was significant because clause 17 was not primarily directed at allowing the offsetting of overpaid hire, rather it was mainly directed at the prior question, of whether hire accrued or ceased to accrue at all.

The words “no deductions from hire may be made for any reason under clause 17 or otherwise (whether … alleged off-hire underperformance, overconsumption or any other cause whatsoever)” in line 146 indicated it was directed at the whole of clause 17, not merely the final sentence. That would have made little sense because the final sentence contained its own bespoke prohibition on deductions from hire by Charterers without Owners’ consent.

On that basis, the judge concluded that, when read as a whole and in context, the restriction on ‘deductions’ in line 146 applied to any exercise of rights that would otherwise arise under or by reason of clause 17 to reduce (wholly or partly) a hire payment based on the vessel being off-hire. The fact that clause 17, as a whole, was a primary target of line 146 clearly indicated it was intended to restrict, amongst others, such rights as would otherwise arise under clause 17 to refuse to pay hire.

That view was consistent with “whether/ or alleged off hire …” (which was suspected to be a typo for “whether for alleged off hire …”), the word ‘alleged’ connoting a situation where the vessel was said to be off hire, but that might or might not ultimately be found to have been the case. That underlined the point that line 146 was designed to cater for situations where a dispute existed about whether the vessel was or was not off-hire, and to address the situation by requiring the hire to be paid, leaving the argument to be resolved later.

This conclusion was reinforced, as the tribunal pointed out, by there being good commercial reasons for such a clause to be inserted, to protect owners from losing critical hire income based on potentially spurious allegations that the vessel was off-hire. Conversely, Charterers retained important remedies. Owners did not have an unfettered discretion when deciding whether or not to agree to an alleged off-hire, as they had to exercise that discretion rationally and for a contractually appropriate purpose (in other words, there had to be a genuine dispute about the deduction). Charterers also had a cross-claim for a debt for any overpaid hire which was not returned to them, for which they had the security of a lien on the vessel under clause 23 (fn.3).

As to the various other points of criticism made by Charterers, the judge did not consider there to be any ambiguity in the language used, as line 146 expressly qualified the off-hire provisions and reinforced the clause 11 payment obligation.

While the use of the word ‘deduction’, rather than ‘withhold’, was slightly slipshod, in the judge’s view, this led him to suspect that the tribunal had been right to assume that the amendments to the charterparty had not been drafted by lawyers. By comparison, the cases cited by Charterers where ‘withhold’ was part of the language used (fn.4) involved contracts likely to have been drafted by lawyers. In any event, the judge did not consider this to be critical – the key point was how the word ‘deduction’, in the context of line 146 and the charterparty as a whole, should be interpreted.

Comment

This judgment tackles the ever increasing use of ‘pay now, argue later’ provisions, intended to preserve owners’ hire revenue during the course of performing time charters, while deferring the resolution of disputes until later.

Whilst the commercial intent behind using such provisions is clear, and despite the conclusion in this case, one should not underestimate the importance of the language actually used and the correct analysis of its effect as a whole in context.

In this instance, the judge felt inextricably drawn towards the conclusion that line 146 excluded the right of Charterers not to pay, because of its effect on the charter as a whole, despite what he termed the slipshod use of the word ‘deduction’.

Whilst experienced lawyers would – in order to be precise – have used the word ‘withhold’, the lay parties’ inappropriate use of the word ‘deduction’ was less significant than its effect taken as a whole, reflecting the holistic English law approach to the interpretation of contracts.

Footnote 1:

“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.”

Footnote 2:

Clause 17, headed “Off Hire”, stated:

"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).”

Footnote 3:

Clause 23, headed “Liens”, stated: “… 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.”

Footnote 4:

BOC Group v Centeon LLC [1999] 1 All ER (Comm) 970 (CA) and Lotus Cars v Marcassus [2019] EWHC 3128 (Comm)