Eitzen Bulk v TTMI - The Bonnie Smithwick
EITZEN BULK A/S v. TTMI SARL - THE MV “BONNIE SMITHWICK”
English High Court; Eder J;  EWHC 202 (Comm); 14 February 2012
John Passmore (instructed by Elborne Mitchell LLP) for the Claimant, Eitzen Bulk A/S
Timothy Saloman QC (instructed by Clyde & Co.) for the Defendant, TTMI SARL
SHELLTIME 4: CONTRACTUAL INTERPRETATION: “BUNKERS ON DELIVERY/REDELIVERY” CLAUSE: MEANING OF ‘PRICE ACTUALLY PAID’
On an appeal under Section 69 of the Arbitration Act 1996, Eder J decided that the words “price actually paid” in Clause 15 of the SHELLTIME 4 charterparty mean the price paid when the bunkers were stemmed and not the price fixed by an intermediate charter along the charter chain. In dismissing the appeal, Eder J made various comments on contractual interpretation. .
This case note has been contributed by Justin Gan Boon Eng, LLB (Hons) (NUS), an advocate and solicitor of the Singapore Bar
TTMI SARL (“TTMI”), as Disponent Owners, chartered the MV “BONNIE SOUTHWICK” to Eitzen Bulk A/S (“Eitzen”) for 11-13 months on the SHELLTIME 4 form with rider clauses. TTMI was to pay for bunkers on redelivery “at the price actually paid, on a first-in-first-out basis. Such prices are to be supported by paid invoices.”
For her penultimate voyage, Eitzen employed the vessel on a trip timecharter to Cargill. Eitzen was to pay for bunkers on redelivery at a contractually stipulated rate, which for IFO was US$625/MT. Subsequently, Eitzen trip timechartered the vessel back to TTMI for her final voyage. Redelivery under both the head charter and the final trip timecharter took place simultaneously. The final trip timecharter recap provided that “BUNKERS: VSL TO REDELD WITH BUNKERS AS PER REQMNTS OF CURRENT PERIOD C/P… OWISE TERMS AND CONDS AS PER HEAD C/P”.
TTMI paid Eitzen for bunkers on delivery under the final trip timecharter at the Cargill charter rates, that is, US$625/MT for IFO. In the course of the charter, TTMI, as sub-charterers, bunkered twice, namely, 400 MT of IFO at US$283/MT and 900 MT of IFO at US$270/MT.
Disputes arose over (a) whether the redelivery was wrongful, (b) the price for bunkers payable by Eitzen to TTMI on redelivery under the final trip timecharter, and (c) the price for bunkers payable by TTMI to Eitzen on redelivery under the head charter. The arbitrators decided that (a) redelivery was proper, (b) Eitzen had to pay TTMI for bunkers on redelivery under the final trip timecharter at the Cargill charter rates, and (c) TTMI had to pay Eitzen for bunkers on redelivery under the head charter at the actual price paid for bunkers.
Eitzen appealed against (c), claiming that the words “price actually paid” in Clause 15 of the head charter referred to the price actually paid by the charterer redelivering the vessel (i.e. US$625/MT) and not the price paid to the bunker suppliers (US$283 or US$270/MT). Eitzen was not successful.
Eitzen argued that the arbitral tribunal’s interpretation of Clause 15 was unworkable because it required the “price actually paid” to be supported by invoices – in a charter chain, an intermediate charterer would naturally not have the receipts for bunkers issued to its sub-charterer. This argument failed before Eder J as the tribunal had concluded that it was not impossible for an intermediate charterer to obtain these bunker invoices and on a section 69 appeal he would not enquire into the tribunal’s findings of fact.
Eitzen further argued that the commercial purpose of Clause 15 was to eliminate any profit or loss making arising from changes in the market price of bunkers between the time parties entered into a charter, the time of delivery, and the time of redelivery.
This argument failed for two reasons. First, Eder J held that it was unbusinesslike to assume that the head owner would have agreed to pay for redelivery bunkers at a rate over which he had no control and which was unrelated to the price actually paid for the bunker stem. Secondly, the words “first-in-first-out” in Clause 15 referred to the physical acts of stemming and consuming bunkers, indicating that “price actually paid” referred to the price paid for bunkers being stemmed at the particular moment.
In so deciding, Eder J emphasised that questions of construction should start from the wording of the clause itself. He also considered at length the commercial context and purpose of the clause, but dismissed the history of the clause as unhelpful. Further, he rejected TTMI’s argument that there was a “market understanding” supporting TTMI’s construction of Clause 15, explaining that unless there was evidence of a custom, mere “market understanding” would be inadmissible.
Eitzen Bulk v. TTMI SARL provides an example of the difficulties that can arise even in what appear to be clearly worded clauses when standard form contracts are used in inappropriate situations. Both the tribunal and Eder J recognised that the SHELLTIME 4 form is unsuitable for governing a charter chain and parties intending to utilise SHELLTIME 4 should consider this accordingly.
With regard to contractual construction, Eder J’s rejection of the “market understanding” advanced by TTMI highlights the difficulties parties may face when relying upon some kind of market practice not amounting to a “custom” at law. It remains to be seen whether courts will be more receptive to similar arguments and evidence if they are presented as material assisting the court to understand the context in which the contract was made.
Finally, the dismissal of Eitzen’s argument that Clause 15 was unworkable highlights the need to disassociate - if possible - issues of law from issues of fact when bringing a section 69 appeal. By tying his decision to the tribunal’s finding of fact, Eder J was able to hold that a clause would not be unworkable as long as its operation was not impossible, and he so held without detailed reasoning or examination of the degree of difficulty in operation that should exist before a clause might be considered unworkable. In other words, a party drafting the question for such an appeal should take care to ensure that the question of law (and each argument raised in support) cannot be simply disposed of by reference to the arbitrators’ findings of fact. Otherwise, that party runs the risk of its application (or its arguments) being quickly dismissed by a court applying the policy of minimal curial intervention.