VTC v PVS
[2012] EWHC 1100 (Comm)QBD, COMMERCIAL COURT
Mr Justice Hamblen
26 April 2012
Arbitration – Appeal-Shipping – Carriage by sea – Damages for breach of contract – Oil leaking from vessel – Defect in vessel becoming apparent in course of voyage – Sub-charterers cancelling sub-charter – Charterer alleging breach of charterparty – Arbitrators finding owners not in breach of charterparty – Charterers appealing – Whether arbitrators erring.
Judgment
APPROVED JUDGMENT
I DIRECT THAT PURSUANT TO CPR PD 39A PARA 6.1 NO OFFICIAL SHORTHAND NOTE SHALL BE TAKEN OF THIS JUDGMENT AND THAT COPIES OF THIS VERSION AS HANDED DOWN MAY BE TREATED AS AUTHENTIC.
MR JUSTICE HAMBLEN:
Introduction
1. This is an appeal under section 69 of the Arbitration Act 1996 on a question of law arising out of an award made by Mr Timothy Marshall and Mr Bruce Harris dated 24 October 2011 (“the Award”).
2. The case concerns a charter on an amended Shelltime 4 form dated 23 September 2005 (“the Charterparty”) by which the defendant Owners (“Owners”) time chartered their vessel to the claimant Charterers (“Charterers”) for a period of about 10 years.
3. During the charter, the Charterers deducted US$455,432 from hire on the basis of an alleged breach of clause 64 of the charterparty which concerned “Tanks, Lines and Pumps Suitability”. The arbitrators held that there was no such breach and awarded the Owners US$455,432 together with interest and costs.
4. The Charterers appeal that decision. The appeal comes before the Court because the charter contained (at clause 41(c)(ii)) an agreement (within the meaning of section 69(2)(a) of the Act) to allow appeals on questions of law. As a result, this is not a case where permission to appeal has been given.
Factual background
5. The relevant background facts are short to recite and are set out in the Reasons for the Award at paragraphs 1-4.
6. In summary, by a sub-charter dated 9 December 2010 the vessel was chartered to load a cargo of gasoline in Rotterdam for carriage to a range of ports in Mexico, the USA and the Caribbean with a laycan of 18 to 20 December 2010.
7. The vessel sailed from Boston on 10 December 2010 for Falmouth to bunker on the way to Rotterdam. On 14 December 2010, before reaching Falmouth, oil was found on the surface of the ballast water in one of the ballast tanks. Two days later investigations revealed that this was due to a 12mm crack in the port side slop tank.
8. The Owners advised the Charterers that permanent repairs would take place at Rotterdam but that this could not be done before the end of the cancelling date under the sub-charter. On 17 December 2010 the sub-charterers cancelled the sub-charter. The vessel sailed to Rotterdam nevertheless on 20 December 2010, arriving at 22.00 hrs. She was repaired there over the next two days.
9. Following her repairs, the Charterers ordered the vessel to the UK West Coast to load an alternative cargo.
The Charterparty
10. Clause 64 provided:
“64) Tanks, Lines and Pumps Suitability
Owners warrants that vessel will arrive at each load port with all cargo tanks, pumps and lines suitable to load the intended cargo as per Charterers’ representative and/or independent surveyor’s satisfaction which always is subject to tank cleaning / squeeging Clause 102. All damages, time lost and costs incurred due to noncompliance will be for Owners’ account and deducted from monthly hire.”
11. The Charterparty also contained a general maintenance obligation in clause 3(i) which provided:
“Throughout the charter service Owners shall, whenever the passage of time, wear and tear or any event (whether or not coming within Clause 27 hereof) requires steps to be taken to maintain or restore the conditions stipulated in Clause 1 and 2(a), exercise due diligence so as to maintain or restore the vessel”.
12. Clause 102, which is referred to in clause 64, provided:
“102) Tank Cleaning/Squeeging
Tank cleaning between cargoes/voyages is to be done by the crew with vessel’s equipments in accordance with Owners’ cleaning instructions. The cleanlines and readiness of the cargo tanks shall always remain the full responsibility of the master/Owners unless master/vessel is instructed to carry out tank cleaning in accordance with Charterers’ instructions ….”
13. The vessel’s description was set out in clause 110 which provided so far as material:
“Deadweight and Capacity
Summer DWT (designed) :Appx 40.059 mt
Summer DWT (scantling) :Appx 51,007 mt
Tank-Capacity incl Sloptanks :Appx 54,554 m3 (100%)
Slop Tanks Capacity :Appx 1,444 m3 (100%)
Residue tanks (not for cargo) : Appx 99.5m3 (100%)
Water Ballast Tanks :Appx 24,155.5 m3
HFO Tanks :Appx 1,568 m3
Diesel Tanks :Appx 121.2 m3
MGO Tank :Appx 114.5 m3
Freshwater Tanks :Appx 401.6 m3
Segregation and Cargo Pumping System
Cargo Tanks :12
Slop Tanks :2
Residue Tank : 1
Segregations (2-valves) :6
Cargo Pumps
Cargo Tanks : (Twelve) 12
Type :submerged, centrifugal
Capacity :600 m3/h x 125 mlc
Slop Tanks :Two(2)
Type : submerged, centrifugal
Capacity :300 m3/hr x 125mlc”
The arbitrators’ reasons
14. Against the factual background set out above the Charterers allege that the Owners were in breach of clause 64 of the charter.
15. Their case is that the Owners were in breach of clause 64 when they informed the Charterers that by reason of the need to carry out repairs to the crack in the slop tank the vessel would not meet her cancelling date under the sub-charter.
16. The arbitrators found that there was no breach of clause 64. They stated as follows at paragraphs 10-14 of their Reasons:
10. “Clause 64 has to be seen in the context of the charter as a whole, including the fact that it was for 10 years’ trading. It contains a warranty that is not a bare warranty as to fitness, but one that is focused on satisfying the charterers’ representative and/or their surveyor as to the fitness – in particular, we consider the cleanliness – of certain parts of the ship at each loading port. It is a type written clause, and one that is plainly for the charterers’ benefit. The printed charter form, in particular for present purposes clause 3 read in conjunction with clause 1, contains continuing obligations as to, inter alia, the tightness of the ship’s tanks, pipelines and valves. Clause 64, in contrast, seems to us to add an obligation that “bites” at each loading port, but it is one that is not absolute: rather it depends only on satisfying that charterers’ representative and/or surveyor, essentially as to cleanliness. That satisfaction is required only in respect of cargo tanks, pumps and lines.
11. We cannot see that the phrase “cargo tanks” can be read as including slop tanks (or, for that matter, ballast tanks) in this context. An inspector is, by virtue of the clause and as a matter of common sense, going to inspect the tanks into which cargo is going to be loaded, essentially for cleanliness and, to the extent he can, he may also inspect the relevant lines and pumps. But there is no reason for him to go round checking all the other spaces on the ship. The references to tank cleaning and squeegeeing reinforce this view of the clause.
12. Any protection the charterers require as to other parts of the ship, such as slop and ballast tanks, is provided for in clause 3. If they had wanted to extend the scope of the clause 64 to tanks other than cargo tanks it would have been the easiest thing to delete the word “cargo”.
13. We suppose it might have been argued (although it was not) that “cargo tanks” is to be read as contrasted only with “bunker tanks”, but even if that case had not been put forward we would not have accepted it, for such an interpretation would not seem to us to fit at all with what we see as being is the real purpose of the clause as we have endeavoured to explain it.
14. For these brief reasons we do not think that clause 64 has any relevance here and therefore the charterers cannot be heard to say that the owners were in breach of it. Accordingly the owners are entitled to recover that part of the charterers’ deduction from hire that represents the damages for alleged breach of the clause.”
Discussion
17. The Charterers criticise the arbitrators’ reasoning and decision. However, the sole ground of appeal put forward is that the arbitrators “should have held that the phrase in cl 64 “all cargo tanks” encompassed the vessel’s slop tanks” and that they should therefore have held that the Owners were in breach of the charter by reason of the crack in the port side slop tank.
18. In support of their case the Charterers contend that slop tanks may be used to carry oil cargoes as if they were one of the main cargo tanks, and that this is borne out by clause 110 of the Charterparty.
19. In this connection the Charterers point out:
(a) Under the heading “Deadweight and Capacity”, the figure given for the vessel’s capacity (of 54,554m3) is expressly stated to include the slop tanks. That can be contrasted with the “Residue tanks”, expressly stated to be “not for cargo”.
(b) The pumps in the slop tanks are described under the heading “Cargo Pumps”. The same heading also refers to the pumps in the main cargo tanks.
20. The Charterers also make reference to reported cases in which cargoes were contemplated as being or were loaded in slop tanks.
21. The Owners object to any reference being made to any factual background matters that are not the subject of findings in the Award – see, for example, The Savina Caylyn [2011] 1 LLR 550 at [30](4] in which Simon J stated as follows:
“30(4) Although all contracts must be construed against the commercial background which would have been available to the parties at the time the contract was made, see Investors Compensation Scheme Ltd v West Bromwich Society [1998] 1 WLR 896 (Lord Hoffmann at pages 912 and 913), the only admissible findings in relation to the commercial background are those in the award.”
22. I accept that this is the correct general approach but I consider that it is open to the Charterers to contend that the Charterparty itself contemplated the possibility of carriage of cargo in the slop tanks.
23. Even if that be so, the Owners contend that the arbitrators made a finding of fact in paragraph 11 of their Reasons that cargo was only going to be loaded into the cargo tanks which finding Charterers cannot challenge or go behind.
24. Whilst I accept that this is an important finding, I am not satisfied that the arbitrators were thereby finding that cargo could never be loaded in the slop tanks. I am therefore prepared to accept that it is open to the Charterers to argue that the “cargo tanks” may include the slop tanks.
25. The main difficulty facing the Charterers, however, is that even if “cargo tanks” may include slop tanks the Charterers do not have any findings to support the conclusion that that is how the clause should be applied in this case. If a case arose where cargo was ordered to be loaded into the slop tanks and those tanks were the subject of an inspection by the Charterers’ representative and/or independent surveyor, arguments could arise as to whether in that context “cargo tanks” should be construed as encompassing slop tanks. However, that is not this case and there are no findings to that or like effect.
26. The Charterers are therefore driven back to the argument that “cargo tanks” in clause 64 must be construed as always including slop tanks, an argument that has been firmly rejected by the arbitrators. It is clear from the arbitrators’ Reasons that they considered that there is an important distinction between the cargo tanks and the other parts of the ship, such as the slop tanks, and that clause 64 is generally to be considered as referring to the cargo tanks only. That is consistent with clause 110 which itself draws a distinction between “cargo tanks” and the “slop tanks”. The natural reading of clause 64 is therefore that it is referring to cargo tanks in contradistinction to other ship’s tanks.
27. Further, the “context” as found by the arbitrators was one which depended on satisfying the Charterers’ representative or surveyor as to the suitability of the cargo tanks, pumps and lines. They found that an inspector was only “as a matter of common sense going to inspect the tanks into which the cargo is going to be loaded”. They were therefore finding that this was not a case in which cargo was going to be loaded into the slop tanks, that the slop tanks were not tanks that the Charterers’ representative or surveyor would inspect, and that “in that context” the slop tanks were not cargo tanks for the purpose of clause 64. Those findings as to context cannot be challenged and they are a further reason why the arbitrators were correct to conclude that in the present case clause 64 related only to the cargo tanks.
28. There is, in any event, a wider issue which arises in relation to clause 64, as set out in the Owners’ Respondent’s Notice.
29. Clause 64 is concerned with the cargo tanks, pumps and lines being suitable to load the intended cargo to the “Charterers’ representative and/or independent surveyor’s satisfaction”. Its application depends on whether or not they are so satisfied. If they are so satisfied then there will be no breach of the clause even if as a matter of fact the tanks, pumps or lines were not suitable for loading the cargo. If they are not so satisfied then on the face of it there will be a breach of the clause regardless of the actual suitability of the tanks, pumps and lines, although there may be an implied limitation that the inspectors should act in good faith and on reasonable grounds – see Voyage Charters (3rd ed.) para. 68.2. Owners are only in breach of clause 64 if the vessel actually arrives at a loading port and her cargo tanks, pumps or lines were actually found not to be suitable to the satisfaction of the Charterers’ representative or of an independent surveyor.
30. The scheme of the Charterparty was as follows:
(a) The Owners were subject to a general maintenance obligation by the terms of clause 3 of the charter.
(b) As the words of the clause indicate, this maintenance obligation was a continuing obligation which applied throughout the duration of the charter but only imposed a due diligence obligation on the Owners. There is no suggestion that the Owners were in breach of this clause.
(c) Against that background, clause 64 imposes an additional obligation on the Owners, separate from the general maintenance obligation in clause 3. However, by contrast, it is not a continuing obligation. On the contrary, it is an obligation which only applies at certain specific points in time, namely at each load port.
(d) Furthermore, the obligation on the Owners is to ensure that when the vessel arrives at each loadport her “cargo tanks, pumps and lines” are “suitable to load the intended cargo as per Charterers’ representative and/or independent surveyor’s satisfaction”. In other words, the Owners’ obligation is to satisfy the Charterers’ representative or the independent surveyor – nothing more.
(e) This conclusion is supported by the Court of Appeal’s decision in Petrofina SA v Compagnia Italiana Trasporto Olii Minerali (1937) 57 L L1 Rep 248 in which they considered a clause providing that “steamer to clean for the cargo in question to the satisfaction of charterers’ inspector”. Lord Wright MR said of this clause (at page 252 lhc):
“It gives, as I think, an added right to the charterer. He is entitled before he loads the cargo to have an inspection and to have a certificate, or whatever the form of the evidence is, that his inspector is satisfied. … From the point of view of the charterers this super-added right is something which it is worth their while to have. It gives them some sort of guarantee against their being involved in questions such as this, where unfortunately, notwithstanding the inspection, there has been a failure to provide tanks sufficiently clean and in proper condition.”
31. The arbitrators recognised that the application of the clause depends on “satisfying the Charterers’ representative and/or surveyor”. In their Reasons at paragraph 10 they said: “Clause 64, in contrast, seems to us to add an obligation that “bites” at each loading port, but it is one that is not absolute: rather it depends only on satisfying the charterers’ representative and/or surveyor, essentially as to cleanliness”.
32. In the present case it is not in dispute that: (i) when the vessel arrived there, Rotterdam was not a loading port (the sub-charter having been cancelled on 17 December and the vessel only arriving at Rotterdam on 20 December for repairs); and (ii) the vessel’s cargo tanks, pumps and lines were never inspected at Rotterdam by, or found not to be suitable to the satisfaction of, the Charterers’ representative or an independent surveyor. In such circumstances I agree with the Owners that there was no breach of clause 64 in this case in any event.
33. The Charterers dispute this construction of clause 64 and contend that it had been rejected by the arbitrators in the following passage of the reasons:
“8. The owners argued that under clause 64 their obligation was to ensure that the cargo tanks etc. were suitable at the time the ship was presented for loading only, suggesting that the ship had not only to have arrived at the loading port for the obligation to be triggered, but also that she had to be arrived – as we understood the argument – in the technical, voyage charter sense. That simply does not sit with the words the parties used in clause 64, however. There is no warrant in the clause for giving the words “will arrive at each load port” any meaning other than the natural one.”
34. I read that passage as rejecting any argument that arrival at the load port means arrival in the technical voyage charter party sense. It does not address the point of whether the application of the clause depends on “satisfying the charterers’ representative and/or independent surveyor”.
35. The Charterers contend that the warranty looks forward and is concerned with the state in which the vessel “will” arrive at the load port. However, “will” in the context of this clause in a 10 year charterparty means “shall” and is the language of obligation rather than futurity. It is not to be construed as imposing an obligation which must be met prior to arrival at the load port, and any such construction would lead to real difficulties in identifying when the time for performance of the obligation arises. Moreover, the clause must be read as a whole and the satisfying the Charterers’ representative or surveyor is an intrinsic and necessary part of the obligation undertaken. It cannot be salami sliced in the manner suggested by the Charterers.
36. The Charterers further submit that this construction should be rejected because if correct, it would make the warranty too easily open to abuse. They submit that its operation might become impractical and uncommercial, in a way that the parties to the Charterparty could not possibly have intended. By way of illustration:
(a) On Owners’ construction, they could entirely prevent the warranty from being triggered by the simple expedient of remaining off the port for repairs and preventing the vessel from presenting herself for loading.
(b) Or they could simply make Clause 64 redundant by notifying Charterers, whilst en route to a port, that the tanks were not suitable for the intended cargo and that they would need to be repaired elsewhere.
(c) Or they could prevent the application of Clause 64 by refusing to present the vessel for loading at the load port, and by insisting that repairs would need to be carried out before loading could commence.
37. On one view, however, these somewhat artificial examples are more examples of Owners performing their maintenance obligations under the Charterparty than of them “preventing” the application of clause 64. The Charterers have the protection of that obligation in any event and Owners can hardly be criticised for performing it, as they did in this case.
38. In any event, the examples taken are extreme. The most common application of the clause is likely to be where the Owners present a vessel with cargo tanks, pumps and lines which they considers to be in a fit state for loading, but the Charterers’ representative or surveyor decides otherwise. The clause has full and meaningful content in such a case.
39. The Charterers’ case can be usefully tested by asking the simple question what facts it would be necessary to plead in order to allege an actual breach of clause 64. The obvious answer in the light of the wording of the clause is that the cargo tanks and/or pumps and/or lines had not been found to be suitable to load the intended cargo to the satisfaction of the Charterers’ representative or surveyor. That is not and cannot be averred in this case.
Conclusion
40. For all these reasons the appeal must be dismissed both for the reasons given by the arbitrators, as explained above, and for the reasons given in the Respondents’ Notice. There was on the findings made by the arbitrators, no breach of clause 64.
