ST Shipping & Tranport Inc v Kriti Filoxenia Shipping Co - The Kriti Filoxenia

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DMC/SandT/17/01

England

ST Shipping & Transport INC v Kriti Filoxenia Shipping Co SA (The “Kriti Filoxenia”) High Court: Queen’s Bench Division (Commercial Court); Mr Justice Walker; [2015] EWHC 997 (Comm); 14 May 2015

Mr Richard Waller QC, instructed by Clyde & Co LLP, for the appellant charterers, ST Shipping

Mr Simon Bryan QC, instructed by Mills & Co, for the respondent shipowners, Kriti Filoxenia Shipping

CHARTERPARTY: WHETHER THE CHARTERERS’ RIGHT TO CANCEL THE CHARTERPARTY PURSUANT TO THE LAYCAN PROVISION SURIVIVES A RE-NOMINATION OF THE LOAD PORT

Summary

Without specific provision governing the right of cancellation in the event of re-nomination of the load port, charterers will lose their right to cancel under the laycan provision if they re-nominate the load port.

This note has been contributed by Pak Hei Li, LLB(Hons), PCLL (University of Hong Kong).

Background

ST Shipping & Transport INC (“Charterers") and Kriti Filoxenia Shipping Co SA (“Owners”) entered into a voyage charterparty (“Charterparty”) regarding the Kriti Filoxenia (“Vessel”). Clause 17 of the Charterparty was the laycan provision. It stated that the laytime period would start at 6am on 1 April 2003 (“Commencement Date”) and end at 4pm on 3 April 2003 (“Cancelling Date”). It further provided that, when it appeared to the Charterers that the Vessel would not meet the Cancelling Date, they had the right to require the Owners to notify them of the expected time of arrival (“ETA”). If the ETA was after the Cancelling Date, then the Charterers had the option to cancel the Charterparty within 96 hours of the Owners’ notification.

Clause 24 of the Charterparty gave the Charterers the right to revise their load port orders. It also provided that “any period by which the steaming time taken to reach the alternative port or place exceeds the time which should have been taken had the Vessel proceeded thither directly shall count as laytime or, if the Vessel is on demurrage, as demurrage”. The Charterers would also pay the Owners for the additional bunkers consumed during the excess time.

On 28 March 2003, the Charterers nominated Tuapse as the load port. The Vessel sailed from the previous discharge port on 30 March with an ETA Tuapse on 3 April. On 31 March, the Charterers requested ETAs for Tuapse and two other ports, which were Sevastopol and Batumi. The ETAs were given on the same day and they were 12.00hrs on 3 April (for Tuapse), 03.00hrs on 3 April (for Sevastopol) and 03.00hrs 4 April (for Batumi). Two hours after the ETAs were given, the Charterers re-nominated Batumi as the load port. On 1 April, the master confirmed 03.00hrs 4 April as the ETA for Batumi and the Charterers subsequently gave notice to cancel the Charterparty on the basis that the ETA was after the Cancelling Date. The Owners alleged that such cancellation was wrongful and they accepted it as a repudiatory breach of the Charterparty.

The Owners claimed damages against the Charterers for the alleged repudiatory breach and the arbitral tribunal found in favour of them. The Charterers appealed to the English Commercial Court. There were two issues before the court: 1) whether the Charterers’ right to cancel the Charterparty pursuant to Clause 17 survived a re-nomination of the load port, and 2) if such right to cancel did survive a re-nomination, whether the Charterers were entitled to cancel the Charterparty if the re-nomination was made at a time when the ETA for the re-nominated port was after the cancelling date.


Judgment

The first issue: contractual construction

The general principle is that, in the absence of a provision for re-nomination, charterers cannot change the nominated port once the nomination is made. Walker J agreed with the arbitral tribunal that Clause 24 did not address the applicability of the right to cancel in the event of a re-nomination. While Clause 24 set out an agreed mechanism for compensating the Owners for extra steaming time and bunker consumption, there was no reference to Clause 17. Equally, Clause 17 did not address the issue of whether and, if so, how the cancellation mechanism would operate when the Charterers re-nominated the load port. Since the Charterparty was based on the BPVOY3 form, a standard form which was drafted with considerable care, the lack of cross-reference suggested that Clause 24 was intended to give the Charterers unfettered liberty to re-nominate the load port. Had there been an intention that cancellation rights should survive, express words would have been used to that effect.

The first issue: commercial considerations

The Charterers argued that Clause 24 was intended to equate a re-nominated load port with the originally nominated load port and thus all the entitlements under the charterparty regarding the original load port would automatically apply to the re-nominated load port. Walker J rejected this argument because there were both practical and conceptual problems with such proposition. If the Charterers were right, the Owners could not steam to the original load port at an economical speed but would have to proceed at a speed enabling the Vessel to reach the furthest port (in the contractually agreed load port range) in case of a re-nomination. That way the Owners would suffer loss for the additional bunker consumption and during the waiting time if the Charterers did not re-nominate the load port.

Conceptual inconsistency also arose. On the one hand, the Charterers acknowledged that their right to nominate the load port was fettered by the implied duty of co-operation, which included the duty not to impair cancelling date achievability (that is, the Charterers were obliged to nominate a load port not so late that, because of the lateness of the re-nomination, the Vessel would not be able to meet the Cancelling Date). On the other hand, the Charterers also acknowledged that Clause 24 gave them an unfettered right to re-nominate the load port (namely, that the Charterers had liberty to re-nominate the load port even if the re-nomination was made so late that the Vessel could not meet the Cancelling Date).

Walker J held that the presence of a laycan provision meant that the Charterers always had the duty not to impair cancelling date achievability under the Charterparty. Hence, the survival of the cancellation regime would be incompatible with Clause 24, which conferred an unfettered right to re-nominate.

Conclusion on the first issue

Based on these reasons, the Judge upheld the arbitral tribunal’s decision that the Charterers’ cancellation rights did not survive the re-nomination of the load port.

The second issue

Given the court’s decision on the first issue, the Judge’s consideration of the second issue was entirely obiter dicta (that is, things said ‘by the way’, which are not legally binding).

Walker J endorsed the tribunal’s finding that the Vessel had all along been proceeding to Tuapse in accordance with her contractual schedule. The duty of cooperation required that the Charterers could not cancel if the re-nominated port was a port for which, at the time of the re-nomination, the ETA was already after the Cancelling Date. In other words, the “direct cause” of the lateness in this case was the re-nomination itself, which was given when the Vessel’s ETA for Batumi was already after the Cancelling Date.

Therefore, the Charterers’ appeal on the second issue was also dismissed. The Charterers were not entitled to cancel the Charterparty even if such right survived re-nomination.

Comment

Commercial parties should note that when standard forms, such as BPVOY3 in this case, are adopted, the courts are likely to favour a literal approach in interpreting the contract. Where two provisions will affect each other, the intended effect of such interaction should be spelt out clearly. If charterers want to insist on their cancellation rights in the event of a re-nomination, cross-reference between the relevant clauses should be made. The charterparty should also state expressly how the cancelling date would be altered to account for any deviation arising out of a revised order.