Regal Seas Maritime v Oldendorff Carriers - The New Hydra

From DMC
Jump to navigationJump to search
The printable version is no longer supported and may have rendering errors. Please update your browser bookmarks and please use the default browser print function instead.



Regal Seas Maritime S.A. v Oldendorff Carriers GmbH & Co KG (The “New Hydra”)

English Commercial Court: Teare J: [2021] EWHC 566 (Comm): 11 March 2021

Judgment Available on BAILII @

Michael Coburn QC (instructed by HFW LLP) for Regal (Owners)

Chris Smith QC (instructed by MFB Solicitors) for Oldendorff (Charterers)



The High Court, in finding for Owners, held that, where a period time charter was for 3 to 5 years and provided for the hire rate to be based on a defined index rate which included an adjustment for the difference between size of the index vessel and the vessel chartered but made no provision for what would happen if the index vessel size changed during the charter period, there was a term to be implied into the charter that the hire rate was to be based upon the average of the published routes of the index and, if necessary, a reasonable size adjustment to reflect any difference in earning capacity resulting from the difference in size.

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


Regal entered into a period time charter of their capesize bulk carrier “New Hydra” with Oldendorff on an amended NYPE form dated 22 November 2013 for three years, plus an option in Oldendorff’s favour to extend the charter by two further periods of one year. The hire rate, in order to share the risks and benefits of large movements in the market, was based on the Baltic Capesize Index (“BCI”) and stated:

"Hire payable every 15 days in advance including overtime. The gross daily hire to be calculated basis the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days plus 4% for size adjustment."

The BCI was based on a ‘benchmark’ 172,000 (“172”) deadweight tonnes (“DWT”) vessel using data from Baltic shipbroker market panellists over four time charter routes. The Baltic Exchange in December 2013 announced that the BCI would be changed, which eventually resulted in the ‘benchmark’ vessel being revised to 180,000 (“180”) DWT, which was just slightly larger than “New Hydra” – 179,258 DWT. There was also an addition time charter route later added to the original four used to calculate the BCI published daily rate. “New Hydra” was delivered into Oldendorff’s service on 14 January 2014.

Because there were forward freight agreements (“FFAs”) that remained open based on the prior BCI, and so would require an appropriate index conversion to continue to exist for the 172 rate pending all FFAs being closed out in due course, the Baltic Exchange formulated a basis for a dollar differential rate, so that BCI 180 rates could be converted to BCI 172 rates for the FFAs.

The change to the BCI in fact made no difference to the manner in which Regal calculated and Oldendorff paid hire under the charter, with Regal continuing to use the same methodology defined in the charter after the changes to the BCI took effect. In due course, Oldendorff exercised its option in November 2017 to extend the charter by a period of one year on the same terms as before.

However, Regal later alleged that the parties had been calculating the hire due for the previous three years in the wrong way. Oldendorff did not agree. As a result, the dispute was submitted for determination in accordance with the London arbitration and English law dispute resolution agreement in the charter.

Regal took the position that Oldendoff should have been paying hire, since the change to the BCI took effect in August 2015, on the basis of the 180 rate plus 4% or, alternatively, at the 180 rate with a reasonable size adjustment (being nil as the DWT of “New Hydra” was almost that of the new BCI ‘benchmark’ vessel).

Oldendorff took the position that hire should have continued to be calculated in exactly the same manner in which it had been done before; namely, using the 172 rate as the base rate and adding 4%. Until December 2017, this involved the parties adopting the 172 rate as actually published by the Baltic. Thereafter, the parties were to use the Baltic fixed dollar differential and apply that to the published daily rate for the 180 rate (which is how the parties had in fact calculated the hire due from January 2018 until July 2018).

The Tribunal found in favour of Oldendorff, as a result of which Regal, who claimed that hire had been substantially underpaid over a number of years, sought to challenge the award on a point of law under section 69 of the Arbitration Act 1996.


The Judge first outlined the facts (above) and then, before determining the issue in light of the parties’ respective contentions, set out the correct approach to determining the true meaning of the contract.

In essence, the Court must ascertain what a reasonable person, who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contracting, would have understood the contracting parties to have meant by the language used (fn.1).

Having pointed out that neither party’s approach to the interpretation of the charter was free from difficulties, the Judge noted that, before the implication of a term could be considered, it was first necessary to construe the language of the hire clause (fn.2).

As a matter of language, observed the Judge, the words “plus 4% for size adjustment” did not allow for any adjustment other than plus 4%. However, that linguistic meaning gave rise to the difficulty that if the Baltic altered the benchmark vessel the stated differential would produce an inappropriate adjustment. That would not be consistent with business common sense.

What would be consistent with common sense is that the “plus 4% for size adjustment” was intended to apply to the benchmark vessel at the date of the charter; namely, 172,000 DWT. That, the Judge considered, was the intended meaning of the stated size adjustment. On that basis the hire clause made no provision for the size adjustment in the event that there was a change to the benchmark vessel. Having so construed the hire clause there was, in the Judge’s view, scope for an implied term that the appropriate size adjustment in the event of a change to the size of the benchmark vessel was intended to be a reasonable adjustment.

The Judge next noted that there are some circumstances in which the law will imply what is reasonable, where there is to be future performance over a period but the contract is silent on some detail, as the parties may be unable or may not wish to specify many matters of detail, leaving the detail to be adjusted in the working out of the contract, and the Court will assist the parties to do so (fn.3).

With the above in mind, the Judge observed that the size of the benchmark vessel had been increased in 2004 from 161,000 DWT to 172,000 DWT. So, by the date of the charter, the size of the benchmark vessel had not been changed for almost 10 years. The formula adopted by the parties for determining the rate of hire was clear. It involved using the average of the 4 routes published by the Baltic and then applying a size adjustment to that average. The parties agreed upon an appropriate size adjustment for the benchmark vessel current at the date of the charter but made no provision for the size adjustment in the event that the size of the benchmark vessel were increased.

In that context, the Judge was of the view that, unless the term suggested by Regal was implied, the hire provision would not be capable of being applied in the events which happened after July 2015. That could not have been what the parties intended. Oldendorff suggested that there was no need to imply Regal’s suggested term to “save” the charter because it would be saved on their contruction. However, the Judge was unable to accept Charterers’ construction.

The published 172 4TC figure derived from the average for the 180,000 DWT benchmark vessel less a discount calculated by reference to rates before July 2015 could not be brought within the words used by the parties, "the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days". Thus, held the Judge, the suggested implied term was necessary to make the agreed hire clause work in the events which happened after July 2015. The term was to be implied to give “business efficacy” or “commercial or practical coherence” to the charter (fn.4).

As a result, the Judge considered that, far from subverting the hire clause and the parties’ bargain, the implied term ensured the charter continued to operate for the period intended by the parties. It would also be difficult to see how a hire rate based on the new benchmark vessel as reasonably adjusted to reflect any difference in earning capacity could fairly be said to give rise to a windfall to Regal.

Accordingly, the Judge held that the Tribunal was wrong to consider that there was no implied term of the charter in accordance with Regals’ alternative case.

As a result, the Award was set aside and the case remitted to the arbitration Tribunal to determine the other defences of contract variation and estoppel that Oldendorff had raised. The judge noted, however, that – if neither defence succeeded - it would be necessary, unless Oldendorff agreed that no size adjustment was required given that the chartered vessel was almost a 180,000 tonnes vessel, for the Tribunal to determine what reasonable size adjustment, if any, was required to reflect the difference in earning capacity in July 2015 when the benchmark vessel was changed.


This judgment, in which a term was held to be implied despite the complexity of the dispute, provides an interesting contrast with the recent judgment in The “Smart” [2021] EWHC 1157 (Comm) [[1]], which held that no term was to be implied into that charter.

As the present case shows, it is only if the contract is, in effect, silent on the precise issue that arises that a term may be implied if it is necessary to make the contract work, if it would otherwise lack practical or commercial coherence.

However, the exercise required to determine whether a term is to be implied remains mercurial, absent an authority sufficiently on all fours with the case in hand, because the legal test is somewhat qualitative in its nature.

In such scenarios, what is required, for this unitary exercise involving an iterative process, is to check the rival meanings against the provisions of the contract and to investigate their commercial consequences (fn.5).

Footnote 1: Financial Conduct Authority v Arch Insurance [2021] UKSC 1, [47].

Footnote 2: Marks and Spencers v BNP Paribas [2016] AC 742, [26]/[27].

Footnote 3: Hillas v Arcos [1932] 147 LT 503, p514, and Mamidoil v Okta [2001] EWCA Civ 406, [69].

Footnote 4: Ibid. fn.2, [21].

Footnote 5: Re Sigma Finance Corp [2009] 1 All ER 571, [12].