SK Shipping Europe v Capital VLCC 3 Corp & Another - The C Challenger
SK Shipping Europe plc v Capital VLCC 3 Corp and Capital Maritime & Trading Corp (The “C Challenger”)
English Commercial Court: Foxton J:  EWHC 3448 (Comm): 16 December 2020
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2020/3448.html
Chris Smith QC (instructed by Preston Turnbull LLP) for SK (Owners)
Stephen Phillips QC and Marcus Mander (instructed by Reed Smith LLP) for Capital (Charterers)
TIME CHARTER: SPEED AND CONSUMPTION: REPRESENTATIONS AND WARRANTIES: VESSEL UNDERPERFORMANCE: WHETHER OWNERS FRAUDULENTLY MISREPRESENTED VESSEL PERFORMANCE: WHETHER CHARTERERS ENTITLED TO RESCIND CHARTER AND CLAIM DAMAGES: WHETHER CHARTER REPUDIATED BY CHARTERERS: WHETHER OWNERS ENTITLED TO DAMAGES FOR UNPERFORMED CHARTER PERIOD
Note: this decision has been upheld by the Court of Appeal, see []
The High Court, in finding for Owners, held that there had been no fraudulent misrepresentation of the vessel’s performance despite there having been no reasonable basis to conclude that the performance data presented to Charterers was substantially correct, that the performance data had not induced Charterers to enter into the charter and, while the vessel had been substantially unable to perform in accordance with the continuing performance warranties in the charter (for which damages were claimable and due to Charterers), Charterers were not entitled to terminate or to rescind the charter, as they had purported to do – which had been accepted by Owners as a renunciation bringing the charter to an end. As such, Charterers were liable to Owners for a hire balance that had been wrongfully withheld and damages for the unperformed period of the charter.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, 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.
The judge first outlined the facts (above), considered the factual witness and expert opinion evidence, and then proceeded to consider the disputed issues.
The key legal considerations for the main issues in dispute involved those that relate to actionable misrepresentation in general, including amongst others:
(1) Whether an offer of speed and consumption warranties in a time charter involved a representation as to the vessel’s performance.
As to this, the Judge held that the mere offer of speed and consumption warranties in a time charter does not itself involve a representation as to the vessel’s current or recent performance; rather it only represents the terms of obligation on which an owner is prepared to contract (fn.1).
(2) Whether pre-contracting correspondence contained any representation from one party to the other party.
As to this, the Judge held that a reference to “the last three voyages” in the data constituted representations that the data provided had been checked against, and adjusted as necessary to be reasonably consistent with, the average performance of the vessel over three recent voyages at the date that exercise was undertaken. When that data was presented, Owners were also impliedly representing that they were not aware of any reason why that data had since ceased to be broadly representative of the vessel’s recent performance.
(3) Whether any representations made about the speed and consumption of the vessel were untrue.
As to this, the Judge held that there was no reasonable basis on which Owners could have believed the data was true, given that Owners’ internal processes in the preparation of that data were flawed, such that Owners had been negligent in making the representation. However, that fell short of proving that Owners had acted fraudulently, which would have required them to know that the data was untrue or to have been reckless, not caring whether it was true or not (fn.2).
(4) Whether there was any inducement to enter into the time charter by any misrepresentation.
As to this last, the Judge held that Charterers had not been induced (as is required for non-fraudulent misrepresentation if there is to be a remedy) to enter into the charter by the misrepresentation because, had Owners instead offered the same warranties but had made no representation about the vessel’s historic performance, the charter would have been concluded on the same terms on which it was concluded in any event.
On the remainder of the key disputed issues, the Judge held that whilst Owners were in breach of the performance warranties this only amounted to breach of an innominate term. As such, Charterers had no basis on which to terminate the charter for a repudiatory breach by Owners (fn.3). Having had no right to rescind the charter for misrepresentation, as Charterers had purported to do, Charterers were in renunciatory breach of the charter, which Owners had lawfully accepted to bring the charter to an end.
On that basis, subject to the damages claimable and due to Charterers for the vessel’s underperformance, the Judge held that Owners were entitled to the balance of hire wrongfully withheld and damages for the loss of the unperformed period of the charter.
This judgment confirms that in most instances there will be no actionable misrepresentation in relation to performance warranties in time charters, and highlights the many complexities and difficulties to succeed in such a claim.
Whilst not covered above, a number of additional interesting issues were addressed by the judgment, including, amongst others, that the findings related to Charterers’ misrepresentation case equally applied to the guarantee.
Further, the Judge dealt with the enforceability of the guarantee, which was held to be enforceable under section 4 of the Statute of Frauds 1677 (fn.4) because the intermediate broker had authority to forward the relevant written communications from the Guarantor.
Additionally, under the guarantee, there had been a dispute about whether Owners were also entitled to recover from the Guarantor the legal costs of their action against the Charterers under the charter. The Judge decided this issue in Owners’ favour.
Finally, the Judge considered the effect of the Charterers’ continually reserving their rights whilst making at the same time continued demands on the Owners for substantial contractual performance. The Judge’s view was that such conduct was wholly incompatible with such reservations, being intrinsically affirmatory, so that performance would cause the contract to be affirmed.
The significance of this latter point is that Charterers could not hide behind their persistent reservation of rights whilst continuing to order the vessel to perform voyages that were only consistent with an election to affirm the charter.
Footnote 1: The “Larissa”  2 Lloyd’s Rep. 325
Footnote 2: Derry v Peek (1889) 14 App Cas 337
Footnote 3: The “Hongkong Fir”  2 Lloyd’s Rep. 478
Footnote 4: “[N]o action shall be brought … whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriages of another person … unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.”