SK Shipping Europe Ltd v Capital VLCC 3 Corp & Capital Maritime & Trading Corp - The C Challenger
SK Shipping Europe Ltd v Capital VLCC 3 Corp and Capital Maritime & Trading Corp (The “C Challenger”)
English Court of Appeal: Males, Phillips and Carr LLJ:  EWCA Civ 231: 25 February 2022
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWCA/Civ/2022/231.html
Chris Smith QC and Mark Stiggelbout (instructed by Preston Turnbull LLP) for SK (Owners)
Simon Rainey QC and Marcus Mander (instructed by Reed Smith LLP) for Capital (Charterers)
TIME CHARTER: SPEED AND CONSUMPTION: REPRESENTATIONS AND WARRANTIES: CONSUMPTION WARRANTY QUALIFIED BY 0.5 KNOT MARGIN: VESSEL UNDERPERFORMED: WHETHER PRE-CONTRACTUAL MISREPRESENTATIONS OF PERFORMANCE “EMBEDDED” IN CHARTER: WHETHER MISREPRESENTATIONS INDUCED CHARTERERS TO ENTER INTO CHARTER: WHETHER CHARTER AFFIRMED BY CHARTERERS ORDERING VESSEL ON LONG VOYAGE DESPITE GENERAL RESERVATION OF RIGHTS
N.B. Charterers are understood to have sought permission to appeal to the UK Supreme Court and a case note will follow on any such judgment
In the context of a long-term time-charter, which the Charterers had repudiated by reason of the Vessel’s repeated failure to meet the speed and consumption warranties given in the charter, the Court of Appeal, in reaffirming the High Court judgment, available here [], held that:
(1) Misrepresentation: the representations of the vessel’s performance were no more extensive than the High Court had held and the 0.5 knot margin on the warranty made no difference to that conclusion, and the representations were not repeated during negotiations, so were not “embedded” into the charter;
(2) Inducement: the vessel’s performance data had not induced Charterers to enter into the charter; it was relevant to compare what happened in this case to what usually happens when negotiating time charters, which is that no representations are made but warranties are offered, so Charterers would have agreed to the charter even if no representations were made; and
(3) Affirmation: on the evidence taken as a whole, despite repeated general reservations made by them, Charterers’ order for the vessel to proceed on a voyage of about two months to the Far East substantially altered Owners’ position, and was wholly incompatible with a reservation of rights. As such, it amounted to an affirmation of the charter.
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
SK Shipping entered a long-term time-charter of their very large crude carrier “C Challenger” with Capital VLCC 3 as Charterers, with a parent company guarantee provided by Capital Maritime Trading.
SK had prepared speed and consumption data for the performance of the vessel based on prior experience, which was a matter left to a relatively junior member of the operations team. The data thus prepared did not, in the event, receive any input from the technical team or the vessel’s master, and only a limited amount of input from the chartering team, for the purposes of marketing the vessel to potential charterers.
In the event, the parties contracted and during the performance of the charter the vessel was found substantially to be unable to meet the continuing speed and consumption warranties given in the charter, which reflected the performance data for the vessel provided to Charterers before entering into the charter.
Various speed and consumption claims were made by Charterers, with the repeated reservation of rights in relation to other claims. Eventually, as Owners had been slow to provide explanations and evidence that satisfied Charterers’ queries about the underperformance issues, Charterers withheld hire and later purported to terminate/rescind the charter.
Owners, in turn, purported to accept Charterers’ conduct as a renunciation of the charter and terminated the charter accordingly. Each party sought damages from the other and, having been unable amicably to settle their differences, they pursued the dispute to final judgment in the High Court. That judgment went against Charterers, who appealed to the Court of Appeal.
The judgment of the Court of Appeal was given by Males LJ (with whom Phillips and Carr LLJ agreed). The key grounds of appeal (relating to misrepresentation, inducement and affirmation) were each considered in turn by Males LJ.
(1) The issues here were whether the High Court judge should, where the offered warranty was qualified by a 0.5 knot margin, further have found that: (a) the charter amounted to a representation as to the vessel’s current or recent performance; (b) Owners expected the vessel to be able to meet the stated consumption; (c) Owners had no reason to believe that she would not be able to do so; and (d) the representations were repeated in each of the subsequent communications by the restatement of the same data.
Males LJ, in reaffirming the decision of the High Court, rejected these considerations, amongst other reasons, because:
(a) A prospective charterer would have understood the owner to be saying “this is how my vessel has performed on its most recent voyages and these are the warranties which I am prepared to give”, but nothing more. That would be enough for the prospective charterer to decide whether to pursue negotiations.
(b) A representation that the owner believed the vessel would be able to comply with the proposed warranty might be reasonable but did not necessarily follow from what was done, and other factors suggested that no such representation was intended. The introduction of the 0.5 knot margin meant that Owners were not prepared to warrant what was represented; as such, it was not a repetition of the representation. Furthermore, the warranty was – by clause 24 of the Shelltime 4 charter – to extend over a six months’ period, so it contained no representation of performance on any individual voyage.
(c) The position from the case law (fn.1) suggested that a misrepresentation should not be too easily found because, on the current state of the law (fn.2), a misrepresentation that induced a contract led to damages on the fraud basis (fn.3) and, further, could result in the drastic consequence that the contract might be rescinded. To do so could introduce considerable uncertainty into commercial dealings, when a remedy for breach of the contract alone was sufficient.
(d) Whilst Owners’ offer of the performance warranties that subsequently became contract terms were preceded by their earlier representations, those earlier representations were not effectively repeated in the parties’ later exchanges, and so were not “embedded” in the contractual terms eventually agreed. That was because an owner’s offer to contract on the terms of a proposed performance warranty involved no representation as to the vessel’s actual fuel consumption (fn.4). Further, here, the explanation forming the representation, that the figures were based on an average of the vessel’s last three voyages, was deliberately omitted once the parties began to negotiate, and so was superseded by the contractual terms being negotiated.
(e) The stated 0.5 knot margin, as well as a general “about” margin, is standard practice for qualifying a performance warranty, with the extent of the margin being a matter of negotiation. That Owners put forward this particular margin was not a representation about the figures to which the margin applied. The terms proposed spelled out what consumption Owners were warranting, and went no further than that. The result was that the original representations only continued to have whatever effect they had had on Charterers’ decision to enter the charter, which went to the next issue to be considered, namely inducement.
(2) The issues here were whether the High Court Judge should have found the charter would have been concluded on the same terms if the representations had not been made, and should have considered the charter would have been concluded at a daily hire rate reduced by USD500 had Charterers known of the vessel’s true performance.
Males LJ, again reaffirming the decision of the High Court, rejected these considerations, amongst other reasons, because:
(a) A misrepresentation need not be the only reason for a party’s decision to enter into a contract; the representee will have no grounds for complaint if it would have entered into the contract on the same terms had the representation not been made (fn.5). The relevant enquiry is whether the representee would have entered into the contract if the representation had not been made at all, not whether it would have done so if it had been told the true position (fn.6). That is a question of fact, although it is necessarily hypothetical. However, once a false statement that was likely to induce the contract is proven, it is a fair inference of fact that the representee was induced by the statement to enter into the contract, although that inference is capable of being rebutted.
(b) Of the three hypothetical possibilities canvassed in the High Court, the Judge had held that the third, namely that Owners had offered the same warranty but made no representation as to the vessel’s recent performance (in effect omitting the explanation that the figures were based on the last three voyages), was correct. Males LJ held that he was right to do so. That was because the scenario corresponded with what, on the evidence, was the normal situation, whereby actual data is not normally provided to prospective charterers and a shipowner would simply indicate the warranties that it was prepared to give.
(c) The result was that the finding of the High Court, that the charter would still have been concluded on the same terms as it was in fact concluded, was unchallengeable. This was so, despite the holding that the representations were material, taking into account that Owners had rebutted the inference that they had induced Charterers to enter into the charter. As such, there was no error of law and there was ample evidence to support the conclusion, which was fatal to any claim based on misrepresentation.
(3) The issues here were whether the Judge was correct in concluding that the charter had been affirmed, where Charterers had expressly reserved their rights before sending the vessel on a (long) voyage to Tanjung Pelepas, where Owners had themselves said that more data was needed and the position should be reviewed in six months’ time.
Whilst the conclusions on (1) and (2) meant that (3) was not a live issue, Males LJ reaffirmed the decision of the High Court that Charterers’ order had amounted to an affirmation of the charter, amongst other reasons, because:
(a) Affirmation of a contract after a representation, like affirmation after a repudiatory breach, is a form of waiver by election (fn.7). As such, a decision to affirm a contract must be communicated unequivocally to the other party, although this may be done by conduct or by necessary implication. The test is objective. The effect of a reservation of rights is (or at least may be) to prevent conduct that would otherwise amount to an unequivocal affirmation from having that effect, although this is not an invariable rule. The court must have regard to all the circumstances, including the nature and terms of any reservation of rights as communicated and the nature and consequences of any demand for future performance.
(b) However, where a party makes an unconditional demand of substantial contractual performance of a kind that will lead the counterparty to alter its position in significant respects, such conduct may be wholly incompatible with the reservation of some kinds of rights, even if the party demanding performance purports at the same time to reserve them. Determining whether particular conduct gives rise to an election is, ultimately, a matter of legal characterisation, rather than a question of what label a party attached to its own conduct (fn.8).
(c) It was clear that the High Court did not treat the giving of the voyage order as a special category of intrinsically affirmatory conduct, regardless of other matters. The other matters included that: the voyage in question would last almost two months and take the vessel to the Far East, where it would be difficult for Owners to obtain new employment without incurring significant ballast voyage costs; the order was given without any reservation of rights by Charterers; and while they had previously complained about the misdescription of the vessel, their recent complaints containing reservations of rights in general terms were directed to other complaints, such as the breakdown of the turbocharger and the issue of oil major approvals.
(d) In view of the above, the High Court was entitled on all the evidence, having evaluated all of the circumstances, to conclude that Charterers had affirmed the charter. Following a 10-day trial, the High Court was far better placed to make that evaluation than the Court of Appeal and, absent any error of law – there being none in this case – the Court of Appeal was reluctant to disturb the first instance conclusions unless something had clearly gone seriously wrong, which was not the position here.
Accordingly, Charterers’ appeal was dismissed, the judgment of the High Court, in Owners’ favour was affirmed, and, in addition, permission to appeal to the UK Supreme Court was refused by the Court of Appeal.
This judgment reaffirms that in most instances, apart from clear wording of the charter terms to achieve that purpose, there will be no actionable misrepresentation in relation to a vessel’s performance data or related warranties in time charters. This judgment highlights the many complexities and difficulties in succeeding in such a claim.
To the extent a misrepresentation were found and were to be deemed material, the factual presumption that the misrepresentation induced charterers to enter into the charter is likely to be rebuttable in most cases, given the normal negotiation scenario that the Court of Appeal reaffirmed is to apply to time charters.
Males LJ, on an obiter basis, also considered the effect of charterers continually reserving their rights, whilst making at the same time continued demands on owners for substantial contractual performance. His view was that Charterers’ on-going conduct was, when taken as a whole, incompatible with such reservations, being intrinsically affirmatory, so that the fresh voyage order to proceed to Tanjung Pelepas affirmed the charter.
Footnote 1: Avon Insurance v Swire Fraser  EWHC 230 (Comm) and Raiffeisen Zentralbank v Royal Bank of Scotland  EWHC 1392 (Comm)
Footnote 2: Royscot Trust v Rogerson  2 Q.B. 297 (C.A.)
Footnote 3: The significance is that, unlike the measure of damages where the tort is negligence at common law, in cases of fraud the claimant is entitled to any loss which flowed from the defendant’s fraud, even if the loss could not have been foreseen – see Doyle v Olby (Ironmongers) Ltd  2 Q.B. 158 (C.A.)
Footnote 4: The “Larissa”  2 Lloyd’s Rep. 325
Footnote 5: Raiffeisen v RBS (fn.1)
Footnote 6: Leni Oil & Gas v Malta Oil  EWHC 893 (Comm)
Footnote 7: Kosmar v Trustees of Syndicate 1243  EWCA Civ 147
Footnote 8: The “Kanchenjunga”  1 Lloyd’s Rep. 391 (H.L.)