Agrimex Ltd v Tradigrain SA & Ors

MR JUSTICE ANDREW SMITH: This is an appeal under section 69 of the Arbitration Act 1996, leave having been given to the appellant sellers, Agrimex Limited ("Agrimex"), to appeal on one of the points that they raised in their application of 28th November 2003. They formulate the question as follows:

This formulation, specifically the reference to the notice being validly tendered, was criticised by Mr Graham Charkham who appears for the respondents, Tradigrain SA ("Tradigrain"), but it suffices to set the scene.

There are two relevant sale contracts, one numbered 982852 concluded on 9th July 1998, and one numbered 982928 concluded on 16th July 1998. Both contracts were confirmed in written documents signed by or on behalf of the parties. Under them Agrimex agreed to sell to Tradigrain quantities of Ukrainian or Russian feed wheat, FOB 1/2 berths Illychevsh. They provided for GAFTA arbitration. The award against which Agrimex appeal is one of the GAFTA Board of Appeal, dated 31st October 2003.

The contract of 9th July 1998 contained the following provisions:

The contract of 16th July 1998 contained the following provisions:

As Mr Charkham observed, the side headings do not indicate the full content of the clauses.

At the time of the contract no relevant charterparty had been agreed. In due course on 26th February 1999 Tradigrain chartered from Tradigrain Shipping SA the MV Mastra Giorgis and the vessel was nominated under the sale contract on 2nd March 1999. The charterparty, which was on Synacomex 90 form, provided at clause 8 against the side heading "Laytime" as follows:

The charterparty also provided at clause 9:

The vessel anchored at Illychevsh on 11th March 1999 at 02.30 hours and tendered notice of readiness stating that the vessel was "in all respects ready to load her cargo ... in accordance with the terms and conditions of the charterparty." However, on 10th March 1999 the port had been reported to be congested, and on 12th March 1999 the buyer's agent advised that the loading berth was occupied. On 26th March 1999 the vessel left anchorage at 11.20 hours and berthed at the grain loading terminal at 12.55 hours. Later that day, after an inspection, the holds were rejected for loading grain due to rust on the hatch covers. Rust was removed and on 27th March 2003 her holds were passed fit to load wheat and loading began the same day.

The Tribunal found that, when the vessel tendered notice of readiness on 11th March 1999, her holds were not in a fit condition to load the cargo, and that she required cleaning of her cargo spaces and hatch covers before she was in a fit state to load the contractual cargo; and that she was fit to load the cargo once the remedial cleaning works had been carried out, that is to say from 1000 hours on 27th March 1999.

Tradigrain made a demurrage claim in an invoice of 15th June 1999 in the sum of US $312.445.73. Agrimex disputed the calculation of demurrage. One issue was whether the notice of readiness of 11th March 1999 was valid and effective under the contracts of sale, and the Tribunal upheld Tradigrain's contention that it was. The appeal challenges that finding.

There can be no dispute that prima facie a valid notice of readiness can only be tendered by a vessel if she is physically ready in all respects to load her cargo: The Tres Flores, [1973] 2 Lloyd's Law Reports 247. The question is whether the wording of the sales contracts displaces that prima facie rule, and so is one of interpretation of the sale contracts and specifically what terms from the charterparty were imported into them.

Here again the ambit of the difference between the parties is limited. I shall identify the common ground. First, the references to a charterparty in the sale contract are to be taken to be references to the charterparty of 26th February 1999. Secondly, the charterparty provided that the vessel might tender notice of readiness if she was in berth and in all respects ready to load, in which case, if on subsequent inspection the holds were rejected, the holds had to be cleaned and a fresh notice of readiness tendered before laytime started to run; or if, because a berth was not available, the vessel was not in berth but at a usual waiting place or anchorage and the Master warranted that she was in all respects she was ready. In the latter case laytime started, and if on subsequent inspection the holds were rejected, laytime was interrupted while the holds were cleaned, but no fresh notice of readiness was then required. Thirdly, on 11th March 1999 the loading berth was not available. Fourthly, on 11th March 1999 the Master warranted that the vessel was in all respects ready and tendered notice of readiness from a usual waiting place or anchorage. Fifthly, and consequently, under the charterparty and as between the Owners and the Charterers a valid and effective notice of readiness was served on 11th March 1999.

The issue is whether the words of the charterparty permitting the tender of a notice of readiness in some circumstances when the vessel was not in berth were incorporated to the sale contracts, so that a notice of readiness tendered in such circumstances would start laytime under the terms of those contracts. Tradigrain's case is that they were; Agrimex say that they were not. The question is a nice one and the arguments advanced by the parties can really be stated quite shortly.

Mr Lawrence Akka, who represents Agrimex, says that first it would be inconsistent with the terms of the contracts to import the relevant words from the charterparty because the sales contracts, in terms, require the service of a valid notice of readiness and that connotes, in ordinary commercial and legal usage, that the vessel must be ready to receive cargo at the time that it is tendered. Secondly, he says that, properly interpreted, the contracts of sale should not be understood to incorporate from the charterparty more than the rate of demurrage and despatch, or at least should be not interpreted to include the words upon which Tradigrain rely. He says that the parties are not to be taken to have intended that the terms which they agreed should be vulnerable to so important a change through a charterparty made some seven months later.

Mr Akka cites The Northern Progress [1996] 2 Lloyd's Law Reports at 319, in which Rix J considered the impact upon a sale contract which provided "All terms conditions and exceptions as per charterparty", of the terms of a charterparty entered into subsequently to the sales contract. Having observed that contracting parties are free to incorporate terms of another contract not yet made (a point not in dispute in this case), he said that the danger of one party entering into terms over which the other had no control would "be in any event limited by the well-known doctrines such as the requirement that any terms to be incorporated must be capable of being read sensibly and consistently in the context of the parent contract." Later in his judgment he cited the statement in the 19th edition of Strutton on Charter Parties (in the 20th edition at page 75), which was made in the context of incorporation of terms from charterparties into bills of lading, that:

Against this Mr Charkham submits the starting point for interpreting the relevant provisions of the sale contracts is to recognise that in commercial terms the intention of the parties evinced in the provision that demurrage would be "as per charterparty" was that the liability of Agrimex for demurrage should reflect and correspond with the liability of Tradigrain under the charterparty unless there are irreconcilable differences between the charterparty and the sale contracts. Moreover, he says, the parties are to be taken to have intended that the same notice of readiness should be valid and effective under the terms of both the sales contracts and the charterparty unless they stated otherwise.

While recognising that general considerations of this kind must bow to the interpretation of the words of the particular contract I consider that there is force in these points. Moreover, this is not a case in which it has been or could be suggested that the provisions which the sellers argue were incorporated into the contracts of sale were unreasonable or unusual ones. They were from a continental grain charterparty in Synacomex 90 form which was entered into without significant variations from the standard form.

Of course, as Mr Akka observes, it would have been possible for the parties to the sale contracts to have provided for the sellers' liability for demurrage in terms of an indemnity, but that does not gainsay that in general terms it is to be expected there will be some degree of correspondence between the buyers’ liability under the sale contracts and the sellers’ liability under the charterparty. Further, the consequence of Agrimex's position is that, although the Master had served a valid notice of readiness under the charterparty, he might be required by the charterers and buyers to serve a second notice of readiness, which would be unnecessary and of no consequence in terms of the charterparty, because otherwise there would be no notice of readiness that had any effect under the contracts of sale and laytime would not begin to run as against the buyers. This is not an impossible consequence, but I would not readily accept to be one that the parties contemplated in the absence of a clear indication the contracts of sale that they did so. I find support for this view in the case of Gill & Duffus SA v Rionda Futures Limited [1994] 2 Lloyd's Law Reports 67, to which I shall refer later in this judgment. In the case of these contracts, far from suggesting in their express terms that a notice of readiness validly tendered under the charterparty might be ineffective under the sale contracts, they provide in the case of the contract of 9th July 1998, "calculation to be done as per notice of readiness [NOR] and statement of facts [SOF], both signed by master..." And in the case of the contract of 16th July 1998, "calculation to be according to the statement of facts and valid NOR signed by the Master ..."

I next refer to OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd's Law Reports 160, in which Colman J considered a sales contract that contained a provision, "Demurrage: As per charterparty ...". The sellers were claiming demurrage from the buyers. One issue was whether a time bar in the relevant charterparties, which were on Asbatankvoy form, were incorporated into the contract of sales and, unsurprisingly, Colman J held that they were not. However, the buyers also contended that none of the laytime or demurrage provisions were incorporated from the charterparty into the sale contract. Of this contention Colman J said at page 164:

Turning to Mr Akka's first argument of inconsistency, I do not consider there to be any inconsistency or tension between the relevant provision of the charterparty and the terms of the sale contracts. Specifically, it does not seem to me to assist Agrimex that sale contracts refer to valid notices of readiness. The argument is circular. It is not in point that the notice of readiness of 11th March 1999 would not have been valid but for the terms of the charterparty. The validity of the notice is to be governed by the terms of the sale contracts, and hence by the terms of the charterparty in so far as they are imported into the sale contracts.

Mr Charkham advanced a further argument in relation to the sale contract of 9th July 1998, that because it refers to the notice of readiness being validly tendered rather than a valid notice of readiness being tendered, the requirement of validity goes only to what might be called the mechanics of tendering, such as whether it was tendered during the permitted hours and at the permitted place. I cannot accept this argument. If a notice of readiness is tendered in impermissible circumstances so that it is ineffective, it is an equally natural use of language to say that it was not a valid notice or to say that the notice was not validly tendered. However, I do not consider that Tradigrain need rely upon this argument.

I come to Mr Akka's second point, that properly interpreted in its context the contracts of sales did not incorporate the relevant provision of the charterparty. Here Agrimex referred to the decision of Clarke J in Gill and Duffus SA v Rionda Futures Limited, (loc cit), an authority which is not referred to in the judgment in OK Petroleum AB v Vitol and The Northern Progress. It is apparent that it was not drawn to the attention of Rix J because he said (loc cit at page 327) that counsel found only one case, the OK Petroleum case, in which the problem of incorporation of specific contract had been specifically considered, and this problem was in fact considered by Clarke J at loc cit, page 73. I infer also that the Gill and Duffus case was not cited to Colman J either because, had it been, he would surely have mentioned it in his careful judgment.

One question that arose in the Gill and Duffus case was about the meaning and effect of the following provision of a contract of sale:

It was argued in that case that this provided for the buyers to indemnify the sellers in respect of demurrage. The argument was rejected by Clarke J who said, at page 77:

Clarke J also said that this provision was not like the one considered in Ets Soules et cie v Intertradex [1991] 1 Lloyd's Law Reports 378, in which it was held that the stipulation as to the time of discharge as between seller and buyer was that time should run from the moment the seller placed the goods at the disposal of the buyer because:

It is to be observed that in his judgment Clarke J examined the possibility of a notice of readiness being valid for the purposes of the charterparty but not valid for the purposes of the contract of sale. The buyers had argued that they were not liable for demurrage because the sellers had not validly tendered the proper documents. Clarke J rejected the argument observing (at page 78) that it:

Agrimex's argument that the words "As per charterparty" in these contracts, following as they do the provisions about the tender of the notice of readiness and the calculation of the laytime, refer only to the rate certainly derives some support from Gill and Duffus. Clarke J so interprets the words "demurrage as C/P half despatch" in the contract that he was considering, and said that he was encouraged to do so by the fact that they appeared in the contract after "detailed provisions as to when notice of readiness could be given and as to the calculation of laytime".

That said, as Clarke J observed, the question was one of the true construction of the contract before him, and while precedents may provide guidance, each particular contract must be construed according to its own terms. Moreover, the particular expression considered by Clarke J, and in particular the words, "half despatch" indicate that the parties intended only to refer to the rate of demurrage and despatch. In this case I do not consider that the expression "maximum 7,000/3,500" necessarily has a comparable connotation. Certainly that those words limit the effect of the words "as per charterparty" in that they limit the rate of demurrage and despatch which might be payable, but it by no means follows that the words are directed only to the rate of demurrage and despatch.

However, Agrimex have a further argument in support of their interpretation of the sale contracts. They submit that because the contracts contained explicit provisions for some matters governing when a notice of readiness might be served and effective so as to start laytime counting (such as "WIPON/WIBON/WIFCON/WECCON"), the inference is that the parties did not intend to incorporate the regime from the charterparty in respect of other matters of that kind. I cannot accept that argument. The effect and, as I infer, the purpose of those provisions were to limit the terms that the sellers might include in the charterparty if they wished the demurrage and despatch provisions in the sale contracts and the charterparty to correspond.

These being my observations the arguments presented and the authorities cited to me, I must interpret the particular sale contracts made between the parties. Taking first that of 16th July 1998, it seems to me that prima facie the parties are to be taken to have contemplated that a notice of readiness valid under the charterparty should be effective under that sale contract unless the parties stated the contrary, either expressly or by clear implication. I conclude that they did not do so and specifically that there is nothing in the words or context of the expression "As per charterparty" that limits its application to the rates of demurrage and despatch. I agree with what was said by Colman J in the OK Petroleum case, an authority that does not seem to me significantly undermined by the reasoning of the Gill and Duffus case or the fact that Gill v Duffus was not apparently cited to Colman J. I conclude that the words "As per charterparty" incorporate into the sale contract of 16th July 1998 the provision in the charterparty permitting the service of a notice of readiness when the loading berth was not available, and the provision about the position if a notice of readiness was served in such circumstances and the vessel was subsequently found to be unready.

The contract of 9th July 1998, but not that of 16th July 1998, contains the additional provision that "All other conditions as per relevant charterparty". I regard these words as confirming my interpretation of the expression "As per charterparty" in the demurrage/despatch clause. Mr Akka argued that the word "other" means that no provisions relating to laytime other than those previously mentioned were to be incorporated into the sale contract. I do not agree that this is what "other" suggests. Rather it refers, in my judgment, to those particular matters that had already been referred to in the contract of sale and which were terms of it, whether or not there were corresponding provisions in the charterparty.

For these reasons I uphold the decision of the tribunal, and the appeal is dismissed.