Action Navigation Inc v Bottiglieri Navigation Spa

Background

On 2 March 2000 the Charterers sub – chartered the vessel to Kleimar NV (“the sub – charterers”). That sub – charterparty was on an amended NYPE form. The terms were identical to those of the Charterparty apart from the provisions relating to the period of the charter and the hire. The sub – charterers then sub – sub chartered the vessel to Pan Ocean Shipping Co Ltd, for a time charter trip for the carriage of coal from South Korea to Visakhapatnam (“Visak”), India. That charterparty, dated 20 March 2000 (“the sub – sub charterparty”) was also on an amended NYPE form.

Disputes also arose under the sub – charterparty and the sub – sub charterparty. Each of the three charterparties provided for disputes to be referred to arbitration in London. All three parties had the good sense to appoint the same arbitrators to consider the disputes that arose out of the three charterparties. The three arbitrators were Mr George Lugg, Mr Robert Gaisford and Mr Ian Kinnell QC, who was appointed by the first two arbitrators.

The claim of the Owners against the Charterers under the head – charter fell under two heads. The first was for a balance due on the final account at the end of the charterparty. This claim turned mostly on what hire was due. The second dispute concerned the Owners’ claim for the expenses incurred in consequence of bottom fouling which the vessel suffered when she was ordered to discharge her cargo at Visak, India. The vessel arrived there, laden, on 4 May 2000. Discharge of the cargo was delayed and so she remained at the port for over three weeks. The Owners claimed that, whilst at Visak, the vessel’s hull became seriously fouled by barnacles. The Owners undertook de – fouling work at Portland, Dorset (UK), in November 2000. They claimed that the cost of de - fouling the vessel at Portland, which was approximately US$ 180,000, should be paid for by the Charterers. The Owners relied on a right to an “implied indemnity” under the Charterparty. They said that they were entitled to be indemnified for the consequences of obeying the lawful order of the Charterers that the vessel go to Visak. The Owners also claimed that the Charterers had wrongfully put the vessel off - hire for the period whilst the de – fouling work was being done at Portland. The Owners therefore claimed unpaid hire in the sum of US$ 47,811.00 for that period.

The Charterers resisted these claims in the arbitration. They said that, given the circumstances in which the fouling had occurred, the costs of de – fouling were not within the scope of the “implied indemnity” under the Charterparty. They also maintained that the vessel was off – hire during the de – fouling work. The Charterers alleged that they had claims against the Owners based on the under – performance of the vessel and other matters.

The arbitrators made three separate Awards; one in respect of each charterparty. In relation to the Charterparty disputes, the arbitrators rejected the Owners’ claim that the Charterers should indemnify them for the cost of de – fouling the vessel at Portland. They held that, given the circumstances in which the fouling of the hull had occurred at Visak, the cost of de - fouling was not within the scope of the “implied indemnity” in the Charterparty.

The arbitrators also rejected the Owners’ submission that hire was payable during the period that the de – fouling work was carried out. They concluded that, under the terms of the Charterparty, the vessel was off – hire during this time.

The arbitrators gave one set of Reasons for the three Awards. Most unfortunately there was a gap of almost a year between the conclusion of the hearings before the arbitrators in July 2003 and the publication of the Awards and Reasons to the parties on 30 June 2004. (I was told that during this time two of the arbitrators were seriously ill, although the main reason for the delay was pressure of work). I fear that this gap has led to the Reasons being less well structured than would normally be the case from three such experienced arbitrators. This has meant that the arbitrators’ reasons are, with respect, sometimes less clear than they would normally be, although never sufficiently opaque as to require that the Award and Reasons be remitted for clarification.

The two points of law on which leave to appeal was given

One of the submissions of Mr Michael Nolan (for the Charterers) before me was that these questions of law do not arise given the terms of the Award and Reasons of the arbitrators. He submitted that the appeal must therefore fail at the outset. I will have to consider this argument in due course.

The terms of the Charterparty

The following clauses of the Charterparty are relevant to this appeal:

Preamble lines 1 – 12, 13 - 15 and 21 - 22:

“This Charter Party, made between …… Owners of the good …… Motorship “LA ENSENADA” to be renamed “KITSA” …… with hull, machinery and equipment in a thoroughly efficient state, …… and capable of steaming, fully laden under good weather conditions about (See specification) …… and …… Charterers ……

…the said Owners agree to let, and the said Charterers agree to hire the said vessel, from the time of delivery, for a Timecharter period of minimum 4 months to about 6 months….always via safe port(s), safe berth(s), safe anchorage(s), always afloat, always within Institute Warranty Limits…within below mentioned trading limits…

….Vessel on her delivery or on her arrival at the first load port to be ready to receive in all respects any permissible Charterers’ intended cargo …… and tight staunch, strong and in every way fitted for the intended cargoes, service, ……”

The first issue: can the Owners recover the cost of de – fouling under the “implied indemnity”?

The arbitrators’ conclusions on this issue are set out in paragraphs 29, 30, 31 and 32 of the Award. Mr Turner, for the Owners, criticised those Reasons in argument before me. I therefore set out the material parts:

The first issue: the arguments of the parties on the appeal

Mr Turner, who appeared for the Appellant shipowners on the appeal (but who had not appeared in the arbitration), submitted that when the arbitrators considered the question of whether the Owners were entitled to recover the cost of de – fouling under the “implied indemnity”, they did not ask the correct questions. The correct questions should have been: first, on the true construction of the Charterparty, was it agreed between the parties that the Charterers would indemnify the Owners for an expense of this type if it resulted directly from an order of the Charterers as to the employment of the vessel? Secondly, was the cost of de – fouling directly caused by the orders of the Charterers (through the sub – sub chartererers) to send the vessel to Visak and discharge her cargo there? Mr Turner submitted that the order to send the vessel to Visak must be one as to the employment of the vessel. He also maintained that the arbitrators had found, as a fact (Footnote: ³), that the fouling had been caused by the vessel remaining at Visak for 22 days.

Mr Turner submitted that the tribunal had erred in its reasoning in two principal respects. First, he said that they appeared to attempt to construe the Charterparty by reference to the actual use of the vessel during its term, ie. being ordered to Visak and also by what happened there. He said that this was clear from the phraseology used in paragraphs 29 to 32 of the Reasons. Secondly, Mr Turner said that the arbitrators appeared to consider the right to an indemnity by reference to the vessel’s particular employment which led to the fouling at Visak, which the arbitrators characterised (in Paragraph 32 of the Reasons) as “entirely ordinary employment to the sub – continent”. Mr Turner submitted that the arbitrators had wrongly concluded that because such employment (which was within Institute Warranty Limits – “IWL”) was permitted under the Charterparty, therefore the Owners had agreed to accept the risks (falling short of danger) ordinarily incident at the ports of the sub – continent, including fouling of the hull and the costs of removing it.

Mr Turner submitted that the fact that the parties to the Charter had agreed that the vessel could trade anywhere within a very wide range of ports (within IWL) and could carry a variety of cargoes (Footnote: ⁴) meant that the Charterers had a very wide freedom of choice in how to employ the vessel. This very freedom of choice gave rise to the implication of a right to indemnity for losses and expenses that resulted from the utilisation of that choice by the Charterers. (Footnote: ⁵) He submitted that it is well – established that the right to an indemnity was not dependent upon proof of a breach of contract by the Charterers (Footnote: ⁶); nor is the right necessarily excluded in cases where the loss or expense resulted from a particular risk that was notorious.

Mr Nolan, for the Charterers, submitted that the first question of law on which leave to appeal was given is not one that arises out of this Award. The point, as phrased in paragraph 1(a) of the Application Notice that sought leave to appeal from the Award, (set out at paragraph 9 above), was not the basis of the argument in the arbitration and the arbitrators did not expressly or impliedly rule on it. The arbitrators correctly applied the law to the facts as they found them and so the appeal on the first point of law must be dismissed.

Further, he submitted, if the Court considers the issue more broadly, as opposed to the point of law on which leave has been granted, the arbitrators did not err in law, given their findings of fact. Mr Nolan submitted that there are three key findings of fact by the tribunal. First, that it is well known that hull fouling “is a possible, likely, or even virtually inevitable consequence” of a vessel’s “more or less prolonged inactivity in the warmer waters of the world” (Footnote: ⁷). Secondly, that the hull fouling occurred at Visak because the vessel was kept alongside there for 22 days or more. (Footnote: ⁸) Thirdly, that the vessel remained there not because of anything that the Charterers did (or failed to do), but because of operational considerations at the port. And, because the vessel was gearless, she was in the hands of the shore as to the rate and manner of her discharge. (Footnote: ⁹)

Mr Nolan submitted that the question of law that the arbitrators had to answer was: on the true construction of the Charterparty and those facts as found, did the Charterers agree, impliedly, to indemnify the Owners for the loss or expense of hull cleaning which was a consequence of ordering the vessel (legitimately) to discharge her coal cargo at Visak? Or, to put it conversely, had the Owners impliedly agreed to bear the risk of loss or expense of cleaning the hull - fouling that resulted from such an order. Mr Nolan accepted that the order to go to and discharge at Visak was an order as to the “employment” of the vessel. But he submitted that the arbitrators’ conclusion, in paragraph 32 of the Award, that “the risk of fouling as a result of that employment was not a risk that the Owners in the present case cannot be taken to have accepted”, was one that they were entitled to reach on the facts and cannot be characterised as an error of law. Therefore the arbitrators did not err in law in concluding that the Owners were not entitled to be indemnified for the cost of de – fouling at Portland.

Discussion and Conclusion on the Implied Indemnity point

On my reading of the arbitrators’ Reasons, the arbitrators concluded that the risk of the vessel suffering hull – fouling by being inactive at a warm water port for 22 days as a result of a legitimate order of the Charterers as to the employment of the vessel was something that was foreseeable and foreseen by both sides at the time the Charterparty was made. Further, as I read the arbitrators’ Reasons, the risk that the vessel’s performance would suffer as a result of hull fouling and that if that happened this could mean that the Owners would have to clean her hull as soon as they could, were also foreseeable and foreseen by both parties at the time the Charterparty was concluded. Those further conclusions of fact and law can be derived from the arbitrators’ Reasons at paragraphs 27 – 33, 36, 37, 62, 64 and 65. All these conclusions were not and could not be challenged before me.

I accept Mr Turner’s submission that just because a particular risk of loss or expense is foreseen or foreseeable at the time a charterparty is made, that is not conclusive to determine whether that loss or expense is within the scope of an implied indemnity. But it is clear from the judgments of both Evans LJ and Nicholls V-C in “The Island Archon” (Footnote: ¹³) that if, at the time that the charterparty is concluded, the occurrence and type of loss or expense to the shipowner flowing from the order as to employment of the vessel were unforeseen, then that will be a potent factor in deciding that the loss or expense will fall within the scope of the implied indemnity: particularly when the order was lawful. (Footnote: ¹⁴)

It is also apparent from the decision of the Court of Appeal in “The Island Archon” that when a tribunal of fact has to decide whether particular expenses are within the scope of an implied indemnity under an NYPE charterparty, it is entitled, as a matter of law, to ask the question: was this type of risk one that the shipowners agreed to bear, at the time the charter was concluded: see page 236. In the present case “this type of risk” means the risk that the vessel will suffer hull – fouling because the vessel was inactive at a warm water port for 22 days as a result of a legitimate order as to employment by the Charterers and the risk that the Owners will suffer expense in hull – cleaning as a consequence. If, as I find, the arbitrators have concluded that “this type of risk” was one that was foreseeable and foreseen by both parties at the time the Charterparty was concluded, then, given the approach of the Court of Appeal in “The Island Archon”, the arbitrators were entitled to conclude that “this type of risk” was one that the Owners agreed to accept at the time the Charterparty was made. That is, essentially, a finding of mixed fact and law. It is precisely the conclusion that the arbitrators did reach in paragraph 32 of their Award.

Moreover, taking the arbitrators’ findings in their Reasons as a whole, with particular reference to paragraphs 27 to 33, I conclude that the arbitrators found that the expenses of cleaning the hull – fouling were ordinary expenses of trading under this Charterparty and that the parties (at the time the Charterparty was made) would have so regarded this type of expense. Moreover, as I read their Reasons, the arbitrators concluded that de – fouling had to be carried out by the Owners because of their obligation to keep the vessel in a thoroughly efficient state throughout her service. (Footnote: ¹⁵)

In Actis Co Ltd v The Sanko Steamship Co Ltd (“The Aquacharm”) [1980] 2 Lloyd’s Rep 237 at 244 – 5, Lloyd J had held that the costs of transhipment, so as to reduce the draft of the vessel during her transit of the Panama canal, could not be recovered by shipowners from charterers under an implied indemnity pursuant to an NYPE form of charter. Lloyd J said that those costs were “an ordinary expense incurred in the course of navigation”. Subsequently, in the well – known text book, Wilford on Time Charters (3^rd Ed: 1989), the authors stated the proposition, based on Lloyd J’s statement, that:

“…the owners are not entitled to recover from the charterers under their indemnity the ordinary expenses and losses of trading, despite the fact that in a broad sense these are incurred as a result of their obedience to the orders of the charterers”. (Footnote: ¹⁶)

In “The Island Archon” Evans LJ concluded that the statement of Lloyd J in “The Aquacharm” and that in Wilford demonstrated that even if, “in a broad sense”, a loss by shipowners was a consequence of a lawful order of the charterers, if the loss (or expense) had arisen from a risk that the shipowner has agreed to run, then there is no right to an indemnity. (Footnote: ¹⁷) That conclusion can be analysed in terms of causation, by regarding the loss or expense as being not directly caused by the order as to employment of the vessel. Alternatively it can be analysed as a conclusion on what risks the parties agreed that the shipowner would bear.

Whichever approach is adopted, given the arbitrators’ conclusions as I read them, the arbitrators were entitled, on the law, to hold that the Owners’ expenses of de – fouling were outside the scope of the implied indemnity provided by the Charterparty.

Therefore I do not need to decide whether, strictly speaking, the point of law for which the Owners were given leave to appeal arises on the Reasons given by the arbitrators. I can understand why the point of law was framed in the terms set out in the Arbitration Application, because that formulation makes it look like a stark point of law that is of general public importance in the shipping world. However, in my view those who apply for leave to appeal from an arbitration award must be astute to analyse and identify with precision the particular point of law that arises on the facts of the case. Here the point of law could have been expressed simply as: “whether on the facts found and on the true construction of the Charterparty dated 17 November 1999, the Owners were entitled to be indemnified by the Charterers for the cost and expenses incurred in relation to de – fouling the hull of the vessel at Portland, in November 2000”. If the point of law had been put in those terms, I doubt whether leave to appeal on the issue would have been given.

The second issue: was the vessel off – hire at Portland?

The arbitrators stated as follows:

There is no mention of clause 15 of the Charterparty in either passage, nor indeed in any earlier passage in the Reasons except in paragraph 20. There the arbitrators say that they “will have to take account of its [ie. clause 15’s] provisions in due course”. But, in fact, they do not expressly do so later in the Award. Nor is there any reference to clause 54, (Footnote: ¹⁸) which is headed “Deviation/Put Back” and which provides that the vessel will be off – hire “from the time of inefficiency” if the vessel “deviates from the course of the voyage caused by…any Owners’ matters” until the vessel is “again efficient” and, broadly, in the same position as she had been or in an equivalent position.

So the somewhat laconic remarks in paragraphs 65 and 73 are the sum total of the arbitrators’ reasons for holding that the vessel was off – hire at Portland. At no point in the Reasons do the arbitrators expressly state whether they had decided that the vessel was off – hire under clause 15 or clause 54 of the Charterparty.

Mr Nolan submitted that the reference to “Owners’ purposes” in paragraph 73 of the Reasons makes it tolerably clear that the arbitrators were founding their decision on clause 54 of the Charterparty. He said that the minor verbal difference between “Owners’ purposes” and “Owners’ matters” is insignificant.

Mr Turner submitted that there are five pointers which together lead to the conclusion that the arbitrators were holding that the vessel was off – hire under clause 15, not clause 54. First, he submitted that the use of the words “in so far as” in paragraph 73 suggested that the tribunal were referring on a “net loss of time” off - hire clause (ie. clause 15), rather than a “period” off – hire clause (ie. clause 54). But just before those words in paragraph 73, the arbitrators had written “the vessel was off hire during the period spent cleaning there”. Those words suggest a reference to a “period” clause.

Secondly, Mr Turner notes that the arbitrators use the phrase “Owners’ purposes” and not “Owners’ matters”. He submits that this is significant. I regard the use of the different word as insignificant. Of more importance is the fact that there is no expression like “Owners’ matters” or “Owners’ purposes” in clause 15 at all. Therefore the use of this wording points, if anything, to an intention to refer to clause 54, not clause 15.

Next, Mr Turner points to the fact that there is no reference in paragraph 73 to the vessel “deviat[ing] from the course of the voyage” , which might have been expected if the arbitrators were concluding that the vessel was off – hire by virtue of clause 54. Mr Turner is correct as to the lack of those words in that paragraph. But it is clear from other passages in the Reasons that the principal reason that the vessel went to Portland was so that de – fouling work could be done, rather than for the Charterers’ trading purposes. The arbitrators had previously concluded that the Owners were obliged to do the cleaning in order to fulfil their obligation to maintain the vessel in a thoroughly efficient state under clause 1 of the Charterparty. (Footnote: ¹⁹) If the vessel had gone to Portland for “Owners’ matters” then that would bring the case within clause 54, provided that the Charterers could show that the vessel suffered a period of “inefficiency”.

Fourthly, Mr Turner notes that at paragraph 20 of the Reasons, the arbitrators refer to clause 15 of the Charterparty and comment that they will have to return to that clause “in due course”. Although there is no further reference to clause 15, he submits that the “due course” must refer to the two paragraphs later on in the Reasons that deal with off – hire, ie. paragraphs 65 and 73. However, I note that in paragraph 72 of the Reasons, the arbitrators had said that the vessel was off – hire during a stoppage that was attributable to breakdowns of the main engine, which would come within the words “breakdown to machinery” within clause 15 of the Charterparty. So the proleptic remark in paragraph 20 may refer equally to paragraph 72.

Lastly, Mr Turner points out that although there is no reference to clause 15 in the Reasons apart from paragraph 20, neither is there a reference to clause 54, other than at paragraph 14, where it is set out. That fact, although true, does not seem to me to advance the argument much.

It is unfortunate that the arbitrators did not state expressly which clause they intended to refer to when they held that the vessel was off – hire during the de – fouling at Portland. Neither side asked for the Reasons to be remitted for further clarification, doubtless because that would be tantamount to playing Russian roulette on this point.

I have concluded that the arbitrators made a finding that the vessel was off – hire within the terms of clause 54 of the Charterparty. My reasons for this conclusion are, first: the arbitrators concluded that the call at Portland was for “Owners’ purposes”. This is a reflection of the wording in clause 54. There is no equivalent in clause 15. Secondly, if the arbitrators had intended to refer to clause 15 then I would have expected them to make a finding of fact as to the loss of time actually suffered as a result of the call at Portland, but there is nothing in the Reasons to that effect.

Thirdly, if the arbitrators had intended to refer to clause 15 then their ruling would have been contrary to the decision of Mustill J (as he then was) in Santa Martha Baay Scheepvaart and Handelsmaatschappij NV v Scanbulk A/S (The “Rijn”) [1981] 2 Lloyd’s Rep 267 at 271 – 2. In that case Mustill J had to deal with an argument (raised on an appeal from arbitrators by way of Special Case), that the charterers could rely on clause 15 of the NYPE form (Footnote: ²⁰) to reduce the hire payable because the vessel lost time as a result of hull fouling caused by marine growth. Mustill J concluded that the arbitrators had found that the charterers had ordered the vessel to Lorenco Marques where she had been delayed for three months; the marine growth was the natural consequence of the vessel remaining in service; and that the claim to put the vessel off – hire related to the time spent in hull – cleaning at Capetown and time lost on the subsequent voyage from Capetown to Baltimore. Mustill J held that, (i) in the absence of a finding to the contrary, the hull – fouling by marine growth was not fortuitous; (ii) on the true construction of clause 15, non – fortuitous marine growth did not fall within the phrase in the first half of clause 15, that is “…any other cause preventing the full working of the vessel”; (iii) non - fortuitous marine growth was not a “defect in hull”, and so did not fall within the wording of the second half of clause 15; therefore (iv) neither the time spent hull – cleaning at Capetown, nor any subsequent loss in time during the voyage to Baltimore (because of a reduction in speed) fell within the wording of clause 15.

If the arbitrators had intended to hold in this case that the vessel was off – hire under the terms of clause 15 of the Charterparty, they would have had to distinguish Mustill J’s decision in The “Rijn”. Two of the arbitrators are very experienced shipping lawyers. I am sure that they would have been aware of Mustill J’s decision and would not simply have ignored it. Therefore I conclude that the arbitrators were not focusing on clause 15 at all, but decided the off – hire issue on the basis of clause 54.

Mr Turner accepted that if the arbitrators’ decision was not based on clause 15, then he could not challenge the Award and Reasons on this issue, because leave to appeal was only given on a point of law concerning clause 15. Accordingly this part of the appeal must fail.

Conclusions