Frontier International Shipping Corp v Swissmarine Corporation Inc

This is an appeal from an arbitration award of Mr.Timothy Rayment, Mr.William Packard and Mr.Patrick O’Donovan dated 23 April 2004 which is brought pursuant to permission for appeal granted by Cooke J. on 17 August 2004. Permission to appeal was granted because the questions of law raised are of general importance in relation to strikes clauses and Cooke J. considered that the arbitrators’ decision was at least open to serious doubt.

The issues raised stem from a voyage charterparty dated 9 October 2001 on the Americanised Welsh Coal Charter Form (amended 1979). Pursuant to that charter Swissmarine Corporation Inc. as owners chartered the vessel CAPE EQUINOX to Frontier International Shipping Corp. for a voyage from Dalrymple Bay Coal Terminal in Australia to Lazaro Cardenas in Mexico.

The vessel arrived at the discharge port on 12 December 2001 and discharge commenced on 13 December 2001. There was then a strike of employees of Sicartsa (who were the receivers and consignees of the cargo) which commenced on 17 December 2001 and did not end until 16 January 2002. Discharge was completed on 17 January 2002. The arbitrators upheld a claim by the Owners for demurrage in the sum of US$236,763.51.

The charterparty provided as follows:

“9.

The cargo to be discharged by the consignee at port of discharge, free of expense and risk to the vessel, (See Clause 30). If longer detained, consignee to pay vessel demurrage at the rate of $10,500 US Currency per day (or pro rata for part thereof) dispatch money for lay time saved (See Clause 30) In case of strikes, lockouts, civil commotions, or any other causes or accidents beyond the control of the consignee which prevent or delay the discharging, such time is not to count unless the vessel is already on demurrage. ………..

26.

The Charterer’s liability shall cease as soon as the cargo is shipped except for all other matters provided for in this CP where Charterers liability is specified, and the freight, dead freight and demurrage in loading/discharging (if any) are paid, the Owner having a lien on the cargo for freight, demurrage and average.

30.

……….

B. The cargo to be discharged free of risk and expense to the vessel at the average rate of 10,000 metric ton, per weather working day of 24 (twenty four) consecutive hours including Saturdays, Sundays and holidays.

44.

Force Majeure

Any time lost through war or the anticipated imminence thereof, between any nations, restraints or rulers, governments or peoples, legislation, decrees, regulations or the like in the country of origin or receipt or of vessel’s flags; blockade, sanctions, civil commotion, political disturbances, revolution, revolt or riot, strikes, lockout, industrial disturbances accidents or stoppages, whether total or partial, at mines, ports, railways, roadways, or other means of transportation, epidemics, acts of God, storms, frost, floods, snow, tempest or washaway, or any other event or occurrence of any nature or kind whatsoever beyond the control of the Charterers, not to be computed as part of the loading time unless vessel already on demurrage (unless any cargo be actually loaded during such time.) ………………

In the event of any stoppage or stoppages arising from any of these causes continuing for the period of 6 (six) running days from the time of the vessel’s being ready to load, this Charter shall become null and void; ……………..”

The arbitrators found that although the Charterers could not have avoided the strike it was not outside the control of the consignee. The Owners maintained and the arbitrators held that in order to rely upon clause 9 the Charterers had to prove not merely the existence of a strike which prevented or delayed discharging but one which was beyond the control of the consignee.

On behalf of the Charterers Mr.Michael Ashcroft submitted that the natural reading of clause 9 of the charterparty was that (i) in the event of a strike preventing or delaying discharge the laytime clock will stop and (ii) in the event of some different cause (ie other than the named causes) preventing or delaying discharge the laytime clock will stop – but only if that other cause is beyond the control of the consignee. It was said that the words “any other cause beyond the control of the consignee” were intended to enlarge the protection conferred by the clause, not to diminish the protection afforded by the prior exceptions of “strikes, lockouts, civil commotions”. This construction of the clause was said to be illustrated by the approach of Wright J. to an identical strike clause in The Antonios Stathatos (1931) 40 Ll.L.Rep.274. It was emphasised that clause 9, so construed, did not enable the Charterers to rely upon the mere existence of a strike so as to interrupt the running of laytime. They had to show that it was causative of delay in discharge which they could not do if there was a means by which the Charterers could discharge notwithstanding the existence of the strike.

On behalf of the Owners Mr. Charles Kimmins submitted that the word “other” in the phrase “or any other cause beyond the control of the consignees” referred, not only to the unspecified causes, but also to the specific events and therefore meant that the specific events had to be beyond the control of the consignees as well as the unspecified causes. This approach to the construction of the words was said to be supported by the approach of Kerr J in The Mareva AS [1977] 1 Lloyds Rep.368 and of Aikens J. in Mamadoil-Jetoil v Okta [2003] 1 Lloyds Rep.1. In the event that the meaning of the clause was ambiguous the clause was to be construed against the Charterers. In this regard reliance was placed on The Mozart [1985] 1 Lloyds Rep. 239 and The Solon [2000] 1 Lloyds Rep.292.

Both Counsel submitted that commercial considerations favoured their construction of the clause.

Firstly, the contractual context in which clause 9 is found must be noted.

Secondly, an ambiguous clause cannot give the Charterers any protection. Thomas J. explained why this is so in The Solon [2000] 1 Lloyds Rep.292 at pp.297-298; charterers are seeking to be exempted from their primary obligation to load within the laydays. However, before this principle is applied there must be a credible alternative construction narrower than the construction relied upon by the charterers; per Mustill J. in The Mozart [1985] 1 Lloyds Rep.239 at p.242.

Clause 9 provides for both specified and unspecified events to interrupt the running of laytime. In my judgment, the natural construction of clause 9, which states that the “consignee” is to pay demurrage, is that the words “beyond the control of the consignee” apply not only to “any other causes or accidents” but also to the specified events of strikes, lockouts and civil commotions. I have reached that conclusion essentially for two reasons. Firstly, by reason of the word “other”, the words “beyond the control of the consignee” are capable of referring both to the specified events and to the unspecified causes. Secondly, it makes sense to exclude from the running of laytime events which are beyond the control of the consignee but does not make sense to exclude from laytime causes which are not beyond the control of the consignee. I accept that the words “beyond the control of the consignee” are also capable, as a matter of language, of applying only to the unspecified causes but I do not consider that such a construction can have been the intention underlying clause 9. That is because there is sense in interrupting the running of laytime where a strike is beyond the control of the consignee but it is difficult to identify any reason for interrupting laytime where a strike is not beyond the control of the consignee.

If, as accepted by the Charterers, the effect of the amendment to clause 26 (the addition of the word “discharging”) is to make the Charterers liable for demurrage at the discharge port, the question arises whether that indicates that clause 9 is to be construed so that the words “beyond the control of the consignee” apply only to “any other causes or accidents” and not to the specified causes of strikes, lockouts and civil commotions. I do not consider that the amendment to clause 26 indicates that clause 9 should be construed in a different sense from its natural construction in the absence of that amendment. Although the Charterers may be made liable to pay demurrage the consignee will still arrange or participate in the work of discharge and in that context it still makes sense that laytime should be interrupted where either a specified event or any other cause prevents or delays discharge provided that the specified event or other cause is beyond the control of the consignee.

The Charterers argue that it makes no sense to interrupt laytime so long as the strike is beyond the control of a third party to the charterparty rather than beyond the control of the Charterers. I do not accept that this is so for the reason which I have given in the preceding paragraph. The parties used, as the basis for their charterparty, the Americanised Welsh Coal Charter Form (amended 1979) which, with its cesser clause, necessarily focused upon the role of the consignee at the discharge port. If the parties had intended to focus upon the role of the charterer at the discharge port they could have amended clause 9 to do so and made clear that the operation of exceptions from laytime depended upon the events or causes being beyond the control of the charterers. But they did not do so. By contrast clause 44, which related to demurrage at the loadport, referred to “any other event …. beyond the control of the Charterers”.

Much reliance was placed by the Charterers upon the causation requirement inherent in the words “which prevent or delay discharging” which, it was accepted, governed the specific events as well as the unspecified causes. However, it does not follow from the presence of that causation requirement that the words “beyond the control of the consignee” should be construed as not governing the specific events. In the case of the unspecified causes the clause clearly provides that two conditions must be satisfied, firstly, that the cause is beyond the control of the consignee and, secondly, that it prevents or delays discharging. Since that is so with regard to the unspecified causes I do not consider that the existence of the causation requirement requires that the words “beyond the control of the consignee” be read in a manner different from their natural construction.

It was argued that this construction, which was accepted by the arbitrators, led to results which, having regard to commercial realities, are unlikely to have been intended.

Firstly, it was said that on the arbitrators’ construction the lockout exception would be deprived of any real effect. The basis of this argument was that a lockout by the consignee would necessarily be within the control of the consignee. However, there could be a lockout at the discharge port by employers other than the consignee, for example, by employers of stevedores. In the present case, as found by the arbitrators, the quay at the discharge port was operated by Cobalsa, who owned the facilities, and Admar, who employed the stevedores. The workers who went on strike were employed by Sicartsa, who import coke, and by Ispat, who import pellet feed. Thus I do not accept that the arbitrators’ construction deprives the lockout exception of real effect.

Secondly, it was said that the strikes exception would rarely apply because a consignee could always give in to the demands of his workforce and so avoid a strike. However, this argument ignores the possibility that there might be a strike of workers not employed by the consignee, such as by stevedores. Secondly, the cause of a strike by the consignee’s own workforce may not be related to the pay and conditions of work of the workforce but may relate to grievances of a political nature which an individual employer may not be able to satisfy. It seems to me that in any case where the consignee’s own workforce is on strike it will be a question of fact whether the strike was beyond the control of the consignee.

Thirdly, it was said that it cannot have been intended that the operation of the strikes exception would be dependant upon a detailed enquiry into the background of a strike to ascertain whether it was beyond the control of the consignee, especially where the consignee was a stranger to the charterparty. It was pointed out that the causes of a strike may lie in events which preceded the making of the charterparty and of which the Charterers have no knowledge. It was said that clause 9 should be construed in such a manner as enables the strike exception to be applied in a simple and straightforward manner without the need for a detailed investigation into the background of the strike.

However, such force as this point has is lost when regard is had to the circumstance that on any view, where a charterer relies upon another “cause or accident beyond the control of the consignee”, the charterer may well have to investigate events whose origins lie in circumstances which predate the charterparty and of which he has no knowledge.

Moreover, there is nothing unusual in a charterer having to investigate events of which he has no direct knowledge in order to determine whether he can rely upon an exception from the running of laytime. Thus, in order to show that a strike or civil commotion prevented or delayed discharge a detailed factual investigation may be required.

I therefore do not accept that, having regard to commercial realities, it cannot have been intended that the operation of the strikes clause might depend upon a detailed enquiry into events of which the Charterers had no knowledge.

Some reliance was placed upon comments of Wright J. in Stathatos Steamship v Cordoba Central Railway Company [1931] 40 Ll.L.Rep.274. That case concerned a voyage charterparty, a claim for demurrage incurred at the discharge port, a strike of stevedores and a clause which contained a strikes exception in the same terms as that which is found in the charterparty in this case. The argument of counsel for the shipowners is recorded as being that the consignees could have secured free labour at any time after the strike broke out. Counsel for the charterers argued that the consignees only had to do that which it was reasonably possible to do and that they in fact secured free labour when it was possible to do so. Wright J., at p.275, said there was no question of law in the case. He described, at p.276, the language of the strikes clause as being “strikes which prevent or delay the discharging” and said that the question which had been debated was one of fact, “whether the strike here did, as to the whole or any part of the period of discharge, prevent or delay the discharging and whether, in fact, if the charterers had done what was reasonable in order to obviate and assist in obviating the effects of the strike, the delay would have continued for the period which in fact it occupied.”

It is true that these comments of Wright J. are consistent with the Owners’ construction of the strikes clause in this case but there does not appear to have been any argument or issue before Wright J. as to whether, on the true construction of the strikes clause before Wright J., it had to be shown that the strike was beyond the control of the consignee. In those circumstances I do not consider that the comments of Wright J. assist in determining the issue of construction which the Court has been asked to determine in the present case.

Reliance was also placed upon Article IV rule 2(q) of the Hague Rules which provides that a carrier is not responsible for loss or damage arising or resulting from “any other cause arising without the actual fault or privity of the carrier or without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage”. It was said that it had never been suggested that a carrier who sought to rely upon the other exceptions in Article IVr.2 had to show that neither the actual fault or privity of the carrier nor the fault or neglect of his agents or servants contributed to the loss or damage and it was submitted that clause 9 of the charterparty in this case should be read in the same way. I do not consider that the Charterers can derive support for their argument from the construction of Article IV rule 2 of the Hague Rules. Firstly, the words “this exception” in Article IV rule 2(q) indicate that the words “without the actual fault or privity of the carrier or without the fault or neglect of the agents or servants of the carrier” apply only to exception (q). Secondly, the references to negligence and privity in Article IV r.2(a) and (b) show that the references to negligence and privity in Article IVr.2(q) cannot have been intended to refer to the other exceptions in Article IV r.2.

For these reasons I have reached the conclusion that the arbitrators’ construction of the clause was correct and therefore the appeal must fail.

In doing so I have not relied upon two cases to which reference was made in argument because, although they involved similar wording to clause 9, they concerned a different contract and a different context.

The first case was The Mareva AS [1977] 1 Lloyds Rep.368. That case concerned a time charter on the New York Produce Exchange form and, in particular, the off-hire clause which provided that “in the event of the loss of time from …. detention by average accidents to ship or cargo …. or by any other cause preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost.” The charterers argued that the words “preventing the full working of the vessel” did not qualify the words “detention by average accidents to ship or cargo.” Kerr J. held at pp.381-382, having regard to the general principle that hire was payable continuously so long as the vessel was fully efficient and able to render the service then required from her and that it was for charterers to bring themselves clearly within an exception clause, that the word “other” indicates that the specified events were “also only intended to take effect if the full working of the vessel in the sense just described was thereby prevented and time lost in consequence.” Save that this illustrates that the word “other”, when used in conjunction with a generic cause possessing a certain quality, is capable, as a matter of language, of referring back to a list of specified causes thereby indicating that those specified causes were also intended to possess the same quality, I do not consider that this decision can assist in determining the construction of a strikes clause in a voyage charterparty.

The second case was Mamidoil-Jetoil Greek Petroleum Company SA v Okta Crude Oil Refinery [2003] 1 Lloyds Rep.1. That case concerned a long term contract for the handling of crude oil and, in particular, whether a force majeure clause excused the defendant from liability to perform the contract. The clause in question listed certain particular events and then added “or other causes beyond the control of the party affected, whether or not similar to those enumerated.” Aikens J. noted that force majeure clauses are concerned to excuse performance of contractual obligations in circumstances where the events giving rise to the failure to perform are outside the control of the contractual party wishing to rely on the clause. He further observed that the final part of the clause “suggests that in this case the parties contemplated that the events enumerated in the clause on which a party might wish to rely should be ones that were beyond the control of the party concerned.” Again, although this shows that the use of the word “other” can refer back as well as forward and so bear the meaning which is attributed to it by the Owners in this case, the decision of Aikens J. cannot assist in determining the construction of a strikes clause in a voyage charterparty. The meaning of a strikes clause must depend upon the meaning of the words used in their own contractual setting.

In case I am wrong as to the construction of clause 9 I shall deal shortly with the further matter which was argued before me. The Owners submitted that even if the arbitrator’s construction of clause 9 was wrong in law the appeal must nevertheless fail because the arbitrators had found in paragraph 42 of their reasons that the Charterers had failed to demonstrate that they took reasonable steps to mitigate the consequences of the strike in breach of an implied term to that effect.

However, in paragraphs 43 – 47 of their reasons the arbitrators held that the Charterers could and should have discharged earlier than they did on to the patio de carbon so that the strike had not prevented discharge, but that the strike had made discharge slower than by the conventional means of moving the coal via conveyor belt to the consignee’s plant. Had the charterers adopted the alternative means of discharging the cargo the arbitrators “would not have been surprised if the consignees took until early/mid January” to discharge. The Charterers therefore said that so far as the causation requirement was concerned the arbitrators had found that the strike had delayed discharge and that if the appeal succeeded the award should be remitted to the arbitrators for them to make a specific finding as to the length of delay caused by the strike. The Charterers pointed out that this was the manner in which Cooke J. had understood the arbitrator’s reasons when giving permission to appeal.

The arbitrators appear to have considered the issues discussed in paragraph 42 and paragraphs 43-47 because they were issues raised by the Owners (see paragraph 5 of the arbitrators’ reasons). However, in paragraph 48 of their reasons the arbitrators stated that the discussion “as to what the Charterers/Consignees could or should have done when faced with the strike is, of course, academic in the light of our primary finding that the Charterers are unable to rely on the strike clause at all”. This must, I think, be a reference to the arbitrators’ finding as to the true construction of clause 9 of the charterparty. The arbitrators went on to say that if “the Charterers had persuaded us to the contrary” (ie if the arbitrators had found in favour of the Charterers on the construction of clause 9 of the charterparty) it would have been necessary to issue a Declaratory Award on points of principle “leaving the parties then to make appropriate calculations of laytime and demurrage.”

It is apparent from paragraph 48 that the arbitrators did not consider that the Charterers’ failure to demonstrate that they took reasonable steps to mitigate the consequences of the strike in breach of an implied term to that effect had the effect that their defence to the claim for demurrage failed, notwithstanding the finding that the strike delayed the completion of discharge until early/mid January.

In these circumstances I do not consider that it is possible for the Owners to maintain that even if the arbitrators’ construction of clause 9 were wrong then the appeal must necessarily fail. That was not the manner in which the arbitrators understood their own findings. Reading together all of the relevant passages in the award it appears to me that the arbitrators would have held, had they decided in favour of the Charterers on the construction of clause 9, that the strike would have delayed the completion of discharge until early/mid January and that the extent of that delay would have to be taken into account in the calculation of laytime at the discharge port. This is also the manner in which Cooke J. understood the arbitrators’ findings. The arbitrators cannot therefore have regarded the failure of the Charterers to demonstrate that they took reasonable steps to mitigate the consequences of the strike in breach of an implied term to that effect as a failure to establish a pre-condition necessary for reliance upon the strike as an event which could interrupt the running of laytime. The Owners did not lodge a respondents’ notice to the effect that the arbitrators should have so regarded the Charterers’ failure.

It follows that, had I determined that the arbitrators’ construction of clause 9 was wrong in law, I would have allowed the appeal but would have remitted the award to the arbitrators to make a specific finding as to the length of the delay caused by the strike so that the parties could make the appropriate laytime and demurrage calculations. However, since I have determined that the arbitrators’ construction of clause 9 was correct I must dismiss the appeal.