View source for Eleni Shipping v Transgrain Shipping - The Eleni P

DMC/SandT/19/10

'''England'''

'''Eleni Shipping Limited v Transgrain Shipping B.V. (The “Eleni P”)'''

'''English Commercial Court: Popplewell J: [2019] EWHC 910 (Comm): 10 April 2019'''

Judgment Available on BAILII @ 
https://www.bailii.org/ew/cases/EWHC/Comm/2019/910.html

Robert Thomas QC (instructed by Watson Farley & Williams LLP) for Eleni (Owners)

Thomas Macey-Dare QC (instructed by Clyde & Co LLP) for Transgrain (Charterers)

'''TIME CHARTERPARTY: NYPE 46 FORM: VESSEL CAPTURED BY PIRATES IN THE ARABIAN SEA: WHETHER VESSEL WAS OFF-HIRE: ARBITRATION ACT 1996 SECTION 96 APPEAL ON POINTS OF LAW'''

'''Summary'''

In the context of a piracy for ransom case, where the vessel was off-hire for a seven months’ period of capture by pirates in the Arabian Sea, the High Court held that:

(i) under rider clause 49 of the charter, the word “capture[d]” could not be read disjunctively from the words that followed – “seized”, “detained” and “arrested” – where the four words were qualified by a requirement for the event to have been caused “by any authority or any legal process”.  These words did not include “pirates” or “piracy”, so that, in consequence, the vessel was not off-hire under this clause; but

(ii) under rider clause 101 of the charter, the arbitral tribunal’s factual finding (that “Gulf of Aden” was not a clearly defined geographical area in the context of a time charter) was not amenable to challenge, which was alone fatal to an appeal on a point of law.  Further, the natural construction of the allocation of risk in the clause, in view of the commercial background to the charter, was that the vessel was off-hire if detained by piracy as an immediate consequence of a voyage from Europe through the Suez Canal transiting the Gulf of Aden towards Asia (and vice versa).

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

'''Background'''

Pursuant to a time charter of the “Eleni P”, Charterers in 2010 ordered her to undertake a voyage from the Ukraine to the People’s Republic of China, which took her through the Suez Canal and the Gulf of Aden.  On that voyage, the vessel was captured by pirates at a position in the Arabian Sea and subsequently detained for seven months. Owners claimed USD4.5m in hire allegedly earned during this period.

Pursuant to the dispute resolution provisions in the time charter, the dispute was referred to arbitration in London.  In the event, the arbitration tribunal  decided against Owners, on the basis of clauses 49 and 101 of the time charter.  Owners appealed to the High Court, claiming that the tribunal, in finding against them, had erred on two points of law.  

'''Judgment'''

The judge first summarised the material facts (above), the relevant time charter terms (see below) and the correct approach to construction.

The judge first noted the general principles applicable to the construction of all contracts (the over-arching principle being to ascertain reasonably the objective meaning of the language used by the parties to express their agreement).

The judge then highlighted that time charters give rise to particular considerations because of the allocation of risk which is inherent in their nature.  As such, the judge noted that the risk of delay is fundamentally on the time charterer, who remains obliged and liable to pay hire in all circumstances unless exempt from doing so under an off-hire provision.

Accordingly, continued the judge, the burden of proof lies on a time charterer to bring itself within the plain words of an exception from the obligation to pay hire and, all other things being equal, doubts as to the meaning of such exceptions are to be resolved in the owner’s favour.

Having completed his summary, the judge next addressed in further detail the two points of law raised in the appeal, as follows.

'''Clause 49'''

This clause read as follows:

“Clause 49 – Capture, Seizure and Arrest

Should the vessel be captures [sic] or seized or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended for the actual time lost, unless such capture or seizure or detention or arrest is occasioned by any personal act or omission or default of the Charterers or their agents.  Any extra expenses incurred by and/or during the above capture or seizure or detention or arrest shall be for the Owners’ account…”

Owners’ contention was that the arbitral tribunal had erred on a point of law when they decided that the word “capture[d]” could be read disjunctively from the words that followed it - “seized”, “detained” or “arrested”.  If that were right, then the following general words (“by any authority or any legal process”) did not govern or qualify “captured”.  On this argument, “captured” became a freestanding word, with the result that “capture” by any cause or protagonist, including piracy and pirates, fell within the off-hire provisions of the clause.

The position taken by Charterers, with which the judge agreed, was that, in view of the grammatical structure of the clause and the meaning of the specific words used (where there is historical authority to indicate a vessel can be “captured” by a governmental authority), one of the four specific preceding words (“capture[d]”) could not be read more expansively (to apply to “pirates” and “piracy”) than the following general qualifying words (“by any authority or any legal process”) would allow.

Accordingly, the vessel was not off-hire under clause 49 and the judge allowed Owners’ appeal on this point.

'''Clause 101'''

This clause read as follows:

“Clause 101 – Piracy Clause

[1] Charterers are allowed to transit Gulf of Aden any time, all extra war risk premium and/or kidnap and ransom as quoted by vessel’s Underwriters, if any, will be reimbursed by Charterers.  [2] Also any additional crew war bonus, if applicable will be reimbursed by Charterers to Owners against relevant bona-fide vouchers.  [3] In case vessel should be threatened/kidnapped by reason of piracy, payment of hire shall be suspended…” [Numbers inserted for ease of reference.]

Owners had contended that the third sentence of the clause put the vessel off-hire only if the kidnap or threat of kidnap by piracy took place in the Gulf of Aden, which was a finite geographical area capable of identification.  As such, it did not extend to piracy that occurred in the Arabian Sea.

Whilst Charterers did not maintain that clause 101 applied to piracy anywhere in the world, they did support the finding by the majority of the arbitral tribunal that the clause was operative if the threat/kidnap took place within the Gulf of Aden, however defined, “or as an immediate consequence of her transiting or being about to transit the Gulf”.

The judge noted accordingly that the rival constructions were: whether the threat/kidnap must occur within a geographical area identified as the Gulf of Aden (Owners’ case) or whether the threat/kidnap must take place as an immediate consequence of the vessel being required to transit the Gulf of Aden (Charterers' case).  Both constructions required reading words into the third sentence of clause 101, which was silent as to its scope of application.

The judge noted the majority of the arbitral tribunal in the award had held that:

(A) “The expression ‘Gulf of Aden’ has no clear meaning in the context of a charterparty of this kind”; and

(B) “It is clear on the evidence that the parties will have known – as indeed the whole shipping community knew at the relevant time – that transiting the Gulf of Aden exposed ships to the risk of piracy not only in whatever might have been understood as the Gulf, but also in the Arabian Sea, on occasions hundreds of miles from the Somali coast; and that the risk of piracy was expanding”.

Against that background, the judge considered that, the construction of the majority of the arbitral tribunal was to be preferred for three reasons:

(1)  The majority had found that the expression “Gulf of Aden” was not capable of any geographical definition in the context of a time charter of this kind.  That was a finding of fact which was not susceptible to challenge on an appeal on a point of law.  That was in itself fatal to Owners’ construction.

(2)  Clause 101 as a whole was concerned with voyages through the Gulf of Aden.  Its principal and critical purpose in a term time charter of this nature was to enable Charterers to trade the vessel through the Suez Canal.  The effect of the Conwartime 2004 clause (which was also included in the time charter) was that, but for the liberty conferred by the first sentence of clause 101, Owners would otherwise have been entitled to refuse voyage orders to make a transit of the Gulf of Aden, which would have precluded trading between Europe and Asia, unless the vessel sailed via the Cape of Good Hope.  That would have made the vessel significantly less attractive to potential charterers.  It was therefore of benefit to Owners to agree to Gulf of Aden transit in return for the commercial advantage of being able to offer the vessel for such service, which was no doubt reflected in the other terms of the charter, including the rate of hire. 

The clause then allocated risk in relation to such transit by providing that Charterers were to bear the additional cost in insurance premium and crew war risk bonus but that Owners were to bear the risk of loss of time from piracy putting the vessel off-hire.  The natural construction of the allocation of risk in the third sentence against that background was that the vessel would be off-hire if the detention by piracy was an immediate consequence of the transit, rather than an occurrence that had taken place in a particular geographical area.

(3)  The allocation of risk in the second half of the first sentence of the clause (war risk and kidnap and ransom premium (“K&R”)) and in the second sentence (crew war bonus) was not defined by reference to a single geographical area.  Owners had referred to the Gulf of Aden transit area of the Joint War Committee – a Lloyd’s of London Market Association committee comprised of representatives who underwrite marine hull war business in the London market – in support of their contention that the Gulf of Aden was a defined geographical area.  But, said the judge, neither the Committee’s views nor its terms were said to be of universal application.  There was no evidence or finding that extra war risk premium or K&R premium was tied to a single and definable geographical area in all cases.  The same was true of crew war bonus.  These parts of the clause, therefore, referred to payments which arose by reason of transit of the Gulf of Aden, and not by reference to a single strictly defined geographical area which was capable of delineation.

Accordingly, the judge dismissed Owners’ appeal on the clause 101 point, as a result of which Owners’ claim for hire during the ransom period failed.

'''Comment'''

The decision on the clause 49 point is a conventional application of the principle that, in view of the grammatical structure of the clause and the meaning of the words used, one of a number of specific preceding words cannot be read more expansively than the following general qualifying words will allow.

The decision on the clause 101 point, in line with earlier authorities, ruled out attempts to challenge a factual finding made by an arbitral tribunal by “the backdoor” (namely, by dressing up that factual challenge as an appeal on a point of law).  However, the judge would have dismissed the appeal anyway. 

The reason was that Owners agreed by clause 101 that Charterers had an absolutely right to transit the Gulf of Aden, in return for Charterers paying all the additional expenses arising from doing so (e.g. additional premia for war risks and K&R required by Owners’ underwriters, and any crew bonus due under their contracts of employment).

But for that agreement, a Gulf of Aden transit would have been subject to CONWARTIME 2004, which would have entitled the Master and Owners to refuse to go to any place where in their reasonable judgment there appeared to be a risk that the vessel might be exposed to “War Risks”, which were defined as including “acts of piracy”, amongst others.

With Charterers having agreed the above arrangement with Owners, the off-hire wording in clause 101 was intended to apply where a piracy incident arose directly from a transit through the Gulf of Aden, as was necessarily required to pass through the Suez Canal for Europe to Asia (and vice versa) trading.