Imperator I Maritime Company v Bunge SA and C Transport Panamax Ltd - The “Coral Seas
Imperator I Maritime Company v Bunge SA and C Transport Panamax Ltd (The “Coral Seas”)
English Commercial Court: Phillips J:  EWHC 1506 (Comm): 24 June 2016
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2016/1506.html
Tom Whitehead (instructed by Marine Law Solicitors) for Imperator (Head Owners)
David Walsh (instructed by Mills & Co) for Bunge (Disponent Owners)
Michael Nolan QC (instructed by Laurence Marron Solicitors) for C Transport (Charterers)
ARBITRATION ACT 1996 SECTION 69 APPEAL ON POINT OF LAW: TIME CHARTERPARTY: CONTINUING WARRANTY OF SPEED AND CONSUMPTION: VESSEL SUSTAINED UNDERWATER FOULING DUE TO PROLONGED STAY IN TROPICAL WATERS RESULTING IN UNDERPERFORMANCE: WHETHER A DEFENCE FOR OWNERS TO PROVE THAT VESSEL UNDERPERFORMED BECAUSE OF COMPLIANCE WITH CHARTERERS’ ORDERS
In dismissing Owners’ appeal, on a point of law against a final arbitration award, the High Court held that it was not a defence to an underperformance claim under a continuing speed and consumption warranty in a time charter to prove that the underperformance was caused by complying with Charterers’ orders for the vessel to undertake a prolonged stay in tropical waters to await cargo loading, which resulted in the hull and propeller suffering marine fouling – which the Tribunal had found amounted to fair wear and tear in the course of contractual trading.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor of England & Wales, LMAA Supporting Member and International Contributor to DMC’s Case Notes
C Transport time chartered the vessel “Coral Seas” from Bunge (who were disponent owners, having themselves chartered her from Imperator) (together, the “Owners”) for two laden legs.
The second leg involved a prolonged stay of about one month to load cargo in tropical waters at Guaiba Island, close to Rio de Janeiro in Brazil, which led to marine fouling on the hull and, in particular, the propeller.
The vessel consequently underperformed and C Transport deducted from hire for the about 90 hours’ time loss caused, which Imperator and Bunge disputed.
The charter was on an amended NYPE 1946 form with additional rider clauses and included, amongst others, the following continuing warranty:
“Clause 29 …
(b) Speed Clause
Throughout the currency of this Charter, Owners warrant that the vessel shall be capable of maintaining and shall maintain on all sea passages, from sea buoy to sea buoy, an average speed and consumption as stipulated in Clause 29(a) above, under fair weather condition not exceeding Beaufort force four and Douglas sea state three and not against adverse current. [In the case of the sub-charterparty the equivalent provision concluded “… not exceeding Beaufort Force 4 and Douglas Sea State 3 with not against adverse current (sic).”
The Tribunal found that the vessel did not maintain her warranted speed, which was caused by marine fouling due to the prolonged stay, although the marine growth could not be regarded as unusual or unexpected, but constituted fair wear and tear incurred in the ordinary course of trading.
The Tribunal determined that on the true construction of clause 29(b) the speed warranty applied to all sea voyages, including those after the prolonged stay, and that it was Imperator and Bunge who had assumed the risk of a fall-off in performance as a result of the bottom fouling consequent upon compliance with C Transport’s lawful orders. Accordingly, in the final award, the Tribunal dismissed Owners’ claim for hire.
Imperator and Bunge appealed to the High Court accordingly, contending that the Tribunal’s reasoning was wrong, being directly contrary to the principle of law as stated in Time Charters (7th Ed., 2014) paragraph 3.75 as follows:
“Where the owners give a continuing undertaking as to performance of the ship, and the ship has in fact underperformed, it is a defence for the owners to prove that the underperformance resulted from their compliance with the charterers’ orders: see The Pamphilos  2 Lloyd’s Rep 681 per Colman J., at page 690. In that case, the ship’s failure to achieve the promised performance resulted from marine fouling, which was in turn the result of the owners’ complying with the charterers’ order to wait for 21 days at a tropical port.”
The judge first summarised the material facts (above), referred to the relevant time charter clause (above), and stated that the question of law to be decided on appeal was:
“Where under a time charter the owner warrants to the time charterer that the vessel shall maintain a particular level of performance throughout the charter period, and the time charterer alleges underperformance in breach of that warranty, is it a defence for the owner to prove that the underperformance resulted from compliance with the time charterer’s orders?”
The judge noted that it was well established that, as a general rule, a shipowner had an implied right of indemnity against a time charterer in respect of the consequences of complying with the charterer's orders as to the employment of the ship, even if the orders were ones the charterer was contractually entitled to give. However, it was equally well established that such indemnity did not extend to the usual perils of the voyage in respect of which the owner must be taken to have accepted the risk: The “Island Archon” (fn.1).
Owners disavowed reliance on their implied indemnity, submitting that the Tribunal had been wrong to focus on that principle as Owners’ answer to the claim for breach of the continuing speed warranty. Owners’ case was that clause 29(b) warranty should be construed as being given on the basis that the vessel continued to have a clean hull and propeller.
On that basis, if the vessel suffered marine fouling in the ordinary course of Charterers’ use of the vessel, resulting in a drop-off in performance, Owners would be responsible for cleaning the hull (and/or could not claim damages on re-delivery), but Charterers would not be entitled to treat the vessel as off-hire, nor claim for a diminution in performance. Owners’ position was that to do otherwise could be unfair and flout business common sense.
Owners submitted that the above approach to the contractual “scheme” was recognised in The “Pamphilos” (fn.2) and was reflected in the passage in Time Charters set out above, neither of which was considered by the arbitrators.
Owners also argued that the fact that the Hague Rules were incorporated in the charterparties – under which there was the possibility that defence might be raised to an under-performance claim under Article IV rule 2 – was relevant to the overall construction of the scheme of the charterparties, since it militated against the conclusion that clause 29(b) was an absolute warranty as to speed.
Speed Warranty: Proper Construction
The judge noted that the speed warranty in clause 29(b) was expressed in wide and unqualified terms. As the warranty was that the vessel “shall be capable of maintaining and shall maintain on all sea passages” the specified performance, it was clear that the warranty was not limited to the vessel’s capacity as newly built, but related to her actual continuing performance.
Further, the parties included an express restriction on the extent of the performance warranty, limiting it to passages under fair weather conditions. It would have been open to the parties also to have excluded the performance warranty in respect of voyages after the vessel had been waiting in warm water ports, such clauses being now commonly included in time charters. Owners were, therefore, seeking to construe the warranty as containing a restriction that the parties chose not to include. The judge, therefore, held that there was no basis for reading the warranty in the way suggested by Owners, the language being clear and unambiguous. Nor did the judge regard the incorporation of the Hague Rules as undermining the above analysis. Indeed, the fact that it might have been open to Owners to prove that one of the exceptions applied only went to support the view that clause 29(b) should not be limited as a matter of construction.
Consequently, the judge considered that the proposition stated in paragraph 3.75 of Time Charters was too widely stated. Accordingly, he concluded that where a vessel has underperformed, it is not a defence to a claim on a continuing performance warranty for the owners to prove that the underperformance resulted from compliance with the charterers’ orders unless the underperformance was caused by a risk which the owners had not contractually assumed and in respect of which they were entitled to be indemnified by the charterers.
While Colman J expressed the opposite view in The “Pamphilos”, that was in the context of refusing leave to appeal. Further, the terms of the speed warranty were not set out in the report and it did not appear that the cases on the application of the implied indemnity had been cited.
This judgment highlights the risks faced with giving an unqualified speed and consumption warranty on a continuing basis under a time charter. It also goes to show that well-known legal practitioners’ works should not simply be relied on without first checking the substance of the proposition to be used in support.
It has since become frequent practice to include in time charterparties a marine fouling provision that operates to provide the owner with a defence and, often, to create an obligation on the charterer to clean the hull, or to pay liquidated damages for not doing so, before redelivery, whether or not there is a continuing warranty.
Footnote 1:  2 Lloyd’s Rep 227 (CA)
Footnote 2  2 Lloyd’s Rep 681