Changes

'''Hyundai Merchant Marine Company Limited v Trafigura Beheer BV and Daelim Corporation (The “Gaz Energy”)'''

The time charter provisions created an “all weathers” warranty of Over performance (a bunkers saving through under consumption) would only occur where the bunkers consumption figure fell below the lowest figure in the vessel’s speed and warranted consumption performancerange because bunkers consumed within the range only represented consumption on the basis of what was warranted, not better than what was warranted. Over performance in that speed and the first period could not be credited against under performance was to be assessed throughout (over consumption of bunkers) in the entire second period of because the time charter, and not limited to periods during which wind speed provisions did not exceed Beaufort Scale 4envisage a single calculation being done for the entire charter period.

Case note by Jim Leighton, BSc (Hons), LLB (Hons), LLM (Maritime Law), Solicitor of England & Wales, Foreign Qualified Lawyer (Practising Foreign Law) in Singapore, Associate at Hill Dickinson LLP and International Contributor to DMC’s CaseNotes:[http://www.jimleighton.co/1]

'''Background'''

The vessel, a LNG carrier, was time chartered on an amended Shelltime 3 form with various additional clauses; it also incorporated Gas Form C.

The relevant provisions were 24. Owners warrant that at the date of delivery under this charter the vessel shall be of the description set out in Gas Form C attached hereto and signed by them and undertake to use their best endeavours so to maintain the vessel during the period of her service hereunder. Further but otherwise [without] prejudice to the generality of this clause 24 as amendedOwners guarantee that the average speed of the vessel will be not less than …. knots in ballast and …. knots fully laden, additional clause with a maximum bunker consumption of …. tons diesel oil/…. tons fuel oil per day for all purposes excluding cargo heating and tank cleaning. See Additional Clause 42 attached which also overrides any references to over performance herein. [lines 209-216] The aforesaid average speeds shall be calculated in each yearly or other less period, as defined hereinafter by reference to the observed distance from pilot station to pilot station on all sea passages and Gas over the whole of the time the vessel is on hire during such period [lines 217-219]…  In the event of any conflict between the particulars set out in the aforesaid Form Cand any other provision (including this clause) of this charter, such other provision shall prevail. [lines 241-242]  If during any year from the commencement of the charter period the vessel falls below or exceeds the performance guaranteed in this clause then…. (b) If such shortfall or excess results respectively from an increase or a decrease in the vessel’s average daily bunker consumption, as herein defined, in relation to the average daily consumption guaranteed hereunder, which stated:hire shall be reduced or increased as may be appropriate by an amount equivalent to the value of the excess or saving in bunkers involved based on the average price paid by Charterers for the vessel’s bunkers in this period.”

“Clause 2442. Detailed Description and Performance Speed/Consumption

Owners warrant that Speed about 15 knots average Consumption about 40 mts IFO 380 CST at the date of delivery under this charter the vessel shall be of the description set out in Gas Form C attached hereto and signed by them and undertake to use their best endeavours so to maintain the vessel during the period of her service hereundersea plus about 0. Further but otherwise [without] prejudice to the generality of this clause Owners guarantee that the average speed of the vessel will be not less than knots in ballast 2 mts GO and knots fully laden, with a maximum bunker consumption of tons diesel oil/ tons fuel oil per day for all purposes excluding cargo heating and tank cleaningabout 10 mt IFO 380CST at port plus about 0. See Additional Clause 42 attached which also overrides any references to over performance herein2 mt GO. [lines 209-216]The aforesaid average speeds shall be calculated in each yearly or other less period, Otherwise as defined hereinafter by reference to the observed distance from pilot station to pilot station on all sea passages and over the whole of the time the vessel is on hire during such period [lines 217-219]……In the event of any conflict between the particulars set out in the aforesaid per Gas Form and any other provision (including this clause) of this charter, such other provision shall prevailC. [lines 241-242]

Clause 42: Speed/ConsumptionCharterers will not be liable for any over performance of the vessel during the course of this charter party. Speed about 15 knots averageConsumption about 40 mts IFO 380 CST at sea plus about 0.2 mts GO and about 10 mt IFO 380CST at port plus about 0.2 mt GO.Otherwise as per Gas Form CHowever, any overperformance will be credited against any underperformance due charterers for the purposes of calculation.”

Gas Form C

A.5 SpeedGuaranteed average speed on a year's period and max wind force 4 in Beaufort scale: Loaded about 14.5 knots, Ballast about 15.5 knots

A.6 Consumption in metric tons per day: At sea In portMain engine/HFO 35 mt -Aux. engine/HFO/GO 6/0.2 mt 9/0.2 mtBoiler/HFO 2.5 mtInert gas generator/gasoil 285 kg/h”

Other relevant provisions included those for off-hire (clause 21) and a further one following directly after clause 40 of the amended standard form, which stated:

A saving of USD206,023.33 would exceed Charterers contended that ' speed and consumption claim for the proper interpretation of the charter was that first period. Owners wished to offset the excess against Charterers' speed and performance of the vessel had to be assessed in all weather conditions across consumption claim for the second period of the charter– Issue 3.

Owners contended that only periods during which weather conditions did not exceed Beaufort Scale 4 were to be taken into account in assessing Charterers disagreed with Owners’ interpretation of the speed and performance across the charter periodconsumption provisions.

Applying the relevant principles of construction to the present case “all weathers” issue and seeking to construe the time charter as a whole and to determine what a reasonable person would have meant by the terms used, the judge concluded that Charterers' construction of the charter was to be preferred.

The starting point was that Additional Clause 42 made no sense unless it was read with clause 24. In effect, it filled the gaps in lines 214-215, as was made clear by the added text after line 216, namely "See Additional Clause 42 attached which also overrides any references to over performance herein". Those concluding words meant that clause 42 overrode references to exceeding performance elsewhere in clause 24. While the parties could have inserted the words in clause 42 into the standard text of clause 24, with some deletions, they evidently found it more convenient to incorporate the speed and consumption figures in clause 42 by reference. The parties therefore did not leave the speed and consumption warranty in the standard form in clause 24 "blank", but instead filled it by incorporating Additional Clause 42 by reference. Clause 24 then provided in lines 217 to 219: "The aforesaid average speeds [i.e. those incorporated by reference from Clause 42] shall be calculated in each yearly or other less period…on all sea passages and over the whole of the time the vessel is on hire during such period". It was clear, said the judge, from those words that the warranty as to average speed applied in all sea conditions and whatever the weather.

Turning back to Additional Clause 24 then provided in lines 217 to 220: 42, the judge considered that the words "Otherwise as per Gas Form C"The aforesaid average speeds [iwere capable of more than one construction.e. those incorporated by reference from They could mean, as Owners contended, that everything in Clauses A5 and A6 of Gas Form C should be read into Additional Clause 42] shall be calculated in each yearly or , other less period…on all sea passages than the actual speed and over consumption figures, including the whole of the time the vessel is on hire during such periodwords "and max wind force 4 in Beaufort Scale". It was clearEqually, they could mean, said the judgeas Charterers contended, from that only those words that the warranty as to average speed applied matters set out in all sea conditions Clauses A5 and whatever A6 of Gas Form C which had not been expressly dealt with in Clause 42, namely the consumption of the weatherinert gas generator, "otherwise" applied.

Turning back to Additional Clause 42Overall, the judge considered that preferred Charterers’ construction of the words "Otherwise as per Gas Form C" were capable of which seemed to be more than one construction. They could mean, as Owners contended, that everything in Clauses A5 and A6 accord with the overall commercial purpose of Gas Form C should the charter. It also avoided (for reasons to be read into Additional Clause 42, other than elaborated below) any internal conflict between the actual speed and consumption figures, including provisions and the words "and max wind force 4 “all weathers” warranty in Beaufort Scale". Equally, they could mean, as Charterers contended, that only those matters set out in Clauses A5 and A6 of Gas Form C which had not been expressly dealt with in Clause 42, namely the consumption of the inert gas generator, "otherwise" appliedclause 24.

OverallAccordingly, the judge preferred Charterers’ construction held that, so far as speed and fuel oil/gas oil consumption of the words "Otherwise main and auxiliary engines and boiler were concerned, those were as per stated in Clause 42 and this overrode any contrary provision in Gas Form C. The "otherwise" which seemed referred to be more those matters set out in accord Clause A5 of the Gas Form C which had not been expressly dealt with in Clause 42, namely the overall commercial purpose consumption of the charterinert gas generator. It also avoided (for reasons to be elaborated below) any internal conflict between The judge agreed with Charterers that the use of the word "otherwise" as a matter of language more naturally conveyed something which supplemented clauses 24 and 42, not replaced or contradicted them, which was one of the speed problems which Owners’ construction faced. Owners’ approach would, instead, elevate clauses A5 and consumption provisions A6 of Gas Form C into clauses which become paramount over clauses 24 and 42, which gave the “all weathers” warranty in clause 24word "otherwise" a strained and extended meaning it would not bear.

Accordingly, Owners’ construction led to the judge held thatdifficulty of internal inconsistency, so far as with inconsistent speed and fuel oil/gas oil consumption of the main and auxiliary engines and boiler were concerned, those were as stated figures in Additional Clause 42 and this overrode any contrary provision in Gas Form C. The "otherwise" referred Owners were unable to those matters set out in Clause A5 of the Gas Form C which had not been expressly dealt with in Clause 42, namely the consumption of the inert gas generator. The judge agreed with Charterers that the use of the word "otherwise" as provide a matter of language more naturally conveyed something which supplemented clauses 24 and 42, not replaced or contradicted them, which was one of satisfactory explanation for the problems which Owners’ construction faced. Owners’ approach would, instead, elevate clauses A5 cause and A6 resolution of Gas Form C into clauses which become paramount over clauses 24 and 42, which gave the word "otherwise" a strained and extended meaning it would not bearthose inconsistencies.

Owners’ construction led Therefore, it seemed to the difficulty of internal inconsistencyjudge much more likely that, with inconsistent so far as speed and consumption figures was concerned (except for gas oil consumption in the inert gas generator which was "otherwise" dealt with in Gas Form C), the intention was that the wording in Additional Clause 42 , which in turn was to be read into clause 24, would prevail over the provisions of Clauses A5 and A6 of Gas Form C. Owners were unable to provide a satisfactory explanation for the cause and resolution of those inconsistencies.

Therefore, While it seemed to was true that Charterers’ construction rendered the judge much more likely that, so far as speed words "and consumption was concerned (except for gas oil consumption max wind force 4 in the inert gas generator which was "otherwiseBeaufort Scale" dealt with in Gas Form C), the intention was that the wording in Additional Clause 42redundant, which in turn was to be read into clause 24, would prevail over the provisions of Clauses A5 presumption against surplusage had little value when construing charterparties and A6 of Gas Form Cother shipping contracts: e.g. The “Starsin” (fn.1).

While it was true that Charterers’ Even if Owners' construction rendered of the words "provisions in Additional Clause 42 and max wind force 4 in Beaufort Scale" in Gas Form C redundantwere correct, which the presumption against surplusage judge had little value when construing charterparties decided was not the case, all that led to was an inevitable conflict between Gas Form C and other shipping contracts: e.g. The “Starsin” (fn.1)clause 24 which, by virtue of lines 241-2, was resolved by clause 24, with its “all weathers” warranty, prevailing.

Even if OwnersIssue 2 Overperformance Applying the relevant principles of construction to the overperformance issue and seeking to construe the time charter as a whole to determine what a reasonable person would have meant by the terms used, the judge concluded that Charterers' construction of the provisions charter was to be preferred. Clause 24 provided for hire to be increased in Additional the event of the vessel's bunker consumption being less than the warranted daily consumption. However, clause 24, as amended, also provided that additional clause 42 "overrides any references to overperformance herein." . Clause 42 and Gas Form C were correctprovided that Charterers would not be liable for any overperformance, which must have meant that the increase in hire contemplated by clause 24 was no longer applicable. Nevertheless clause 42 went on to provide that "any overperformance will be credited against any underperformance due Charterers." That meant that if hire fell to be reduced pursuant to clause 24 as a result of the vessel's average speed falling below that warranted ("underperformance") the amount of any "overperformance" on bunker consumption could be set-off against that reduction of hire. In that context the judge considered that the important question was what was meant by “overperformance”. The judge considered that “overperformance” meant a performance better than that warranted. The relevant consumption warranted was "about 40 mt" which, as the parties had decided agreed, meant between 38 MT and 42 MT per day. If the consumption was not less than 38 MT per day the casevessel would clearly be performing better than warranted. However, all that led to if the consumption was an inevitable conflict between Gas Form C 42 MT and 38 MT per day the vessel would be performing in accordance with the warranty, not better than the warranted performance. The judge therefore concluded that because this would be how the reasonable man would understand clause 24 which42, by virtue this was the true construction of lines 241-2, was resolved by clause 2442. It followed that, in accordance with its “all weathers” warrantythe agreed figures, prevailingthere was no credit to be given to Owners for any overperformance pursuant to clause 42.

Some legal practitioners have The second question raised on consumption did not arise for decision given the view that it would be uncommercial answer to interpret speed the first question. However, the judge considered and performance provisions in such expressed an opinion on the question because the point was a way as to exclude references to maximum permissible weather conditions for short one. Again, the purpose of determining whether or not owners are judge found in breach favour of speed and performance guaranteesCharterers’ construction.

The resulting difference question was whether an overperformance in approach can mean one period could only be set off against an underperformance for the same period or whether it could, to the extent that a considerable sum of money turns on this issue. This is particularly so it had not been set off against an under performance for longer term chartersthe same period, particularly given the substantial rise be set off against an underperformance in the cost of marine fuels over the a later period of such charters.

The present judgment achieves Charterers’ construction of clause 42 gave effect to the result reference in that some argue againstclause to "calculation" which, in context, was a reference to the calculation envisaged by clause 24. That calculation was done on a yearly basis. NotablyClause 24 did not envisage a calculation done over the whole period of the charterparty, which was what Owners’ construction involved. Owners’ construction also ignored the judge considered that a decision in favour of owners context in this instance would have been uncommercialwhich clause 42 was found, given the greater potential for complex and low value speed and performance disputes namely as an adjunct to ariseclause 24.

'''Comment''' The present judgment does not stand alone. A London arbitration reported in LMLN (fn.2) achieved the same result. The circumstances of that arbitration resulted from a failure of the description of permissible weather conditions to be tied into the period during which performance was to be assessed.

Given that speed and performance provisions are not normally consolidated in one clause or contractual document, and are often subject to negotiation leading up to a clean fixture, the potential for disputes of this nature arising is ever present.

Footnote1:1. [2004] 1 AC 715, [2003] UKHL 12, per Lord Hoffmann at [112]

Footnote 2. : (2006) 682 LMLN 3