E.N.E. Kos v Petroleo Brasileiro S.A. (Petrobas)

This case concerns claims by the Owners of a ship after they have withdrawn her from the service of the Charterers because of a failure to pay hire under a time charter. More specifically, it is about whether the Owners are entitled to compensation for (i) the detention or use of the ship while the Charterers’ cargo remained on board after the ship was withdrawn; (ii) bunkers consumed while the Charterers’ cargo remained on board after the ship was withdrawn; (iii) bunkers consumed in unloading cargo; and (iv) expenses incurred in providing and maintaining a bank guarantee after the Charterers asserted that the withdrawal was wrongful and that they were entitled to security for their claim. The case raises questions of some general importance and, to my mind, some difficulty, and I am very grateful to counsel for their helpful submissions.

By a charterparty on Shelltime 3 form dated 2 June 2006, the claimant Owners chartered the M/T Kos to the defendant Charterers for 36 months (plus or minus 15 days at Charterers’ option). She is a 300,965 mt, double hulled Very Large Crude Carrier (VLCC) built in 2001, and is of high quality.

Hire under the charterparty was payable in advance, and if it was not paid the Owners had the right to withdraw the vessel “without prejudice to any other claim Owners may otherwise have on Charterers under this charter”. The charterparty had no anti-technicality clause. It did have in clause 13, which has a side-note “Bills of lading”, a provision that, “The Master (although appointed by Owners) shall be under the orders and direction of Charterers as regards employment of the vessel, agency or other arrangements ... Charterers hereby indemnify Owners against all consequences or liabilities that may arise … from the Master otherwise complying with Charterers’ or their agents’ orders …”. Clause 14 provided that the Charterers should accept and pay for all bunkers on board at the time of delivery of the vessel and “Owners shall, on the expiry of this charter, pay for all bunker oil then remaining on board at actual purchase price …”.

The charterparty provided that it was to be construed and the relationship between the parties governed by English law. It included an agreement that any dispute should be determined by “the English Courts”, and went on to provide that “without prejudice to any party’s right to arrest or maintain the arrest of any maritime property” either party might elect for London arbitration “in accordance with the provisions of the Arbitration Act 1950, or any statutory modification or re-enactment thereof for the time being in force”. (Neither party has so elected.) The charterparty also provided that

“It shall be a condition precedent to the right to a stay of any legal proceedings in which maritime property has been, or may be, arrested in connection with a dispute under this charter, that that party furnishes to the other party security to which that other party would have been entitled in such legal proceedings in the absence of a stay”.

The Owners applied for summary judgment for a declaration that the vessel was validly and lawfully withdrawn. The Charterers were given conditional leave to defend, but, as Field J determined on 8 April 2009, they did not fulfil the condition and judgment was entered for the Owners for a declaration that the withdrawal was “lawful and valid”. The Charterers’ counterclaim for damages for breach of the Charterparty based upon their contention that the withdrawal of the vessel was wrongful was dismissed. The Charterers were given permission to appeal, and are appealing, against the determination of 8 April 2009, but I must deal with the issues before me on the basis that judgment was properly entered and therefore on the basis that the withdrawal was lawful and valid. The position with regard to payment of hire and bunkers up to the time when the ship was withdrawn has been settled by agreement: the remaining dispute is about use of the vessel and expenses incurred thereafter. This is the trial of those issues.

When notice of withdrawal was given, the vessel was at Angra dos Reis, Brazil, where she had been ordered to proceed by the Charterers for discharge and backloading. She tendered Notice of Readiness on 30 May 2008 to backload two parcels of cargo owned and nominated by the Charterers and to take on bunkers arranged by the Charterers. She began to load the first parcel on 31 May 2008, and completed loading it on 1 June 2008. She also took on bunkers on 1 June 2008. The second parcel was not available for loading until (at the earliest) 2 June 2008 and in the event was not loaded.

On 2 June 2008, after checking that hire had not been received, the Owners, by their agents, gave the Charterers notice of withdrawal at 14.41 hrs GMT. They wrote “Accordingly, Owners are instructing Master to stop further cargo operations and Owners now call upon Charterers to make arrangements for receipt ashore at Angra dos Reis their cargo presently on board the vessel”. They went on to say, “wholly without prejudice” to that, that they would perform the voyage ordered by the Charterers at the time of the notice of withdrawal on the terms of the charterparty other than the contractual rate of hire.

In subsequent exchanges, the Charterers sought to persuade the Owners to revoke the withdrawal, but the Owners declined to do so. Thus on 2 June 2008 at 20.12 hrs the Charterers wrote: “We would … kindly ask Owners cancel the message withdrawing the vessel from service. Indeed we would like to meet with you at your convenience to confirm our wish to build good working relations for the future between our companies”. On 3 June 2008 at 11.30 hrs the Owners wrote this:

“The present position is that the vessel has been withdrawn and Charterers must decide if they wish to reinstate the time charter or continue with the voyage instructions on a voyage charter basis. If they do wish to continue on one of these bases then they must do so at the current market rates which Owners have indicated to Charterers. If Charterers consider the market rate to be different then please advise so Owners can consider.

Alternatively if Charterers do not wish to reinstate the time charter or continue on a voyage basis then they must make prompt arrangements for receipt back of their cargo.

While Charterers are deciding how they wish to proceed or (if that is what they decide to do) making arrangements for off-loading of their cargo, Owners will proceed on the basis that Charterers have requested that Owners store Charterers’ cargo on board and reserve the right to claim remuneration at current market rates for such storage.”

At 15.02 hrs on 3 June 2008 the Charterers repeated their request: “… Charterers once again expect Owners to reconsider latest decision and keep vessel on service and the [charterparty] in force. Charterers look forward to hearing asap from Owners in order to decide next steps, considering we have cargo on board, to decide if we authorize terminal to receive it back or proceed loading operation”. At 16.16 hrs the Owners confirmed their decision to withdraw the vessel. At 18.25 hrs on 3 June 2008 the Charterers wrote asserting that the Owners had waived their right to withdraw the vessel, and continued, “In view of Owners’ clear breach of Charter, unless Owners are now prepared to confirm that they will continue with the charter as it stands, Owners should contact the terminal to arrange for discharge of the cargo and discharge of Charterers’ bunkers. Please note that in such circumstances, Charterers will immediately be taking such steps as are open to them to secure all losses suffered as a result of Owners’ unjustified withdrawal of the vessel”. The Owners replied at 20.22 hrs that they were no longer under any obligation to perform the charterparty and therefore it was for the Charterers to make arrangements with the terminal: they requested the Charterers to “take the necessary steps without delay”. At 21.36 hrs the Charterers wrote that they would contact the terminal to arrange for it to receive the cargo and that they would consider the Owners’ request about bunkers. Mr. Bernard Eder QC, who represented the Owners, accepted that, for the purpose of determining the matters before me, I should accept that the Charterers went about arranging for the discharge of the cargo shortly thereafter, some 1.29 days after the vessel was withdrawn from service.

At 01.55 hrs on 4 June 2008 the Charterers wrote that they would contact the terminal to receive back the cargo. They threatened proceedings for wrongful withdrawal of the vessel and requested security before the vessel departed from the terminal. At 02.23 hrs the Owners were informed by the brokers that the Master was refusing to discharge the cargo without authority from the Owners to do so, but at 03.07 hrs the Owners confirmed to the Master that he had that authority.

At 14.15 hrs on 4 June 2008 the Charterers again wrote that they considered that the withdrawal of the vessel was wrongful and required the immediate provision of security in the sum of US$18 million by way of bank guarantee or club letter “failing which Charterers will take all necessary steps to secure their claims without any further notice”. They attached to this communication draft wording of the guarantee that they required. It referred to the nature of the secured claim as “damages arising from the withdrawal of the vessel from service” and provided for a guarantee given “[i]n consideration and upon condition that [the Charterers] release and/or refrain from arresting or otherwise detaining [the MT Kos or any sistership] and that [the Charterers] refrain from commencing and/or prosecuting legal or arbitration proceedings (otherwise than before the court or tribunal referred to below) against” the Owners. The draft wording did not in fact refer to a specific court or tribunal but simply to “the Competent Court or Tribunal”, but it did provide for an undertaking by the guarantor that it was irrevocably authorised to appoint London solicitors to accept service of legal or arbitration proceedings or notices on the Owners’ behalf. It also contemplated that the guarantee would be governed by and construed in accordance with English law and that the guarantor submitted to the exclusive jurisdiction of the English High Court in respect of any dispute arising under the guarantee.

The Owners responded at 17.04 hrs that they maintained their position about the withdrawal being legitimate and asserted that the demand for security was unfounded and excessive in amount. Nevertheless, they agreed to provide security without prejudice to their right to claim that the demand was unjustifiable and reserving their right to make a claim to recover the costs of providing it.

The cargo was discharged and disconnection of the hoses was completed at 06.00 hrs GMT on 5 June 2008. The MT “Kos” sailed for the Arabian Gulf, and her next engagement was fixed on the spot market on 16 June 2008 (although the fixture was reported on 13 June 2008 and therefore terms of the engagement, including the rate of hire, were probably agreed then, subject to conditions). It was with Shell for loading at Mina al Fahal a cargo for carriage from the Arabian Gulf to the Far East, and the recap for the fixture gave her estimated time of arrival at Mina al Fahal as being 26 June 2008: this was agreed as the laycan.

In response to the Charterers’ demand for security and in order to avoid the vessel being arrested or their assets being attached, the Owners provided a bank guarantee dated 13 June 2008 from the Royal Bank of Scotland (“RBS”) in the sum of US$18 million. The cost to the Owners of providing this guarantee (the “RBS guarantee”) to 12 June 2009 has been US$184,125, and costs of US$375 per day are continuing to accrue.

The wording of the RBS guarantee is standard, and reflects the draft wording put forward by the Charterers: RBS gave an undertaking, in consideration of the Charterers not arresting the vessel or detaining the vessel or a sistership and not bringing proceedings except before the English courts or a London arbitration tribunal, to pay within 14 days of demand any sum up to US$18 million that the parties agreed to be due to the Charterers in respect of their claim for damages arising from the withdrawal of the vessel or that was adjudged due to the Charterers in respect of the claim by the English court or a London Arbitration Tribunal with jurisdiction over the dispute (or upon appeal therefrom).

The Owners’ claim in respect of the use or detention of the ship after notice of withdrawal relates to the period of 2.64 days between 14.41 on 2 June 2008 and 06.00 on 5 June 2008. The vessel would not, of course, have been able to leave Angra dos Reis immediately upon giving notice of withdrawal however the Charterers responded to the notice. I conclude that, had the Charterers gone about making arrangements to discharge the cargo immediately upon receiving notice of withdrawal, the time lost would have been only a day, and therefore that the additional time lost because they did not do so was 1.64 days. The evidence about this is exiguous, but this was the suggestion put on behalf of the Charterers to Mr Pearce, to whose evidence I shall refer, and he considered it to be a fair suggestion. It is consistent with the chronology of events, and is the best estimate that I can make of what would have happened in these circumstances on the basis of such evidence as is before me. I do not overlook the short time when it seems that the Master might have been refusing to unload the cargo, but his authority was soon confirmed and any slight delay on this account is of no significance given that these assessments are necessarily imprecise.

The Owners say that the market rate during this period for a vessel such as M/T Kos was US$155,407 per day. Their claim for the delay of 2.64 days is for US$410,274.

During the same period of 2.64 days the vessel consumed 80.11 mt of IFO at a cost of US$504.50 per mt. Therefore the claim for bunkers is for US$40,415. These figures are not in dispute. I understand that it is also common ground, and in any case I find it to be the case, that of this amount the vessel would have consumed some 9 mt per day, or some 23 mt over the period of 2.64 days, if she had not discharged the cargo, and that some 57 mt of IFO, costing some US$28,756, were consumed in discharging the cargo.

I return to the market rate for hire used to calculate the claim for US$410,274 in respect of the time that the vessel was at Angra dos Reis before the cargo was discharged. The Owners adduced expert evidence from Mr Colin Pearce of Causeway Tanker Consultancy Limited about the market for chartering a vessel such as the MV “Kos” in early June 2008. He has great experience of tanker chartering, including experience from being Head of Global Crude Chartering at Shell International Shipping between 1991 and 1996. The Owners have in my judgment established through his evidence the factual matters upon which they rely in support of their claim for compensation: specifically (i) that the market rate at the relevant time for the hire of the “Kos” was US$155,407 per day; and (ii) (if they need to establish this) that, had the vessel been able to leave Angra dos Reis earlier than she did, she would have found employment correspondingly earlier than she did at a similar rate.

There is, as Mr Pearce unsurprisingly confirmed, no market to hire a VLCC in Brazil for 2 or 3 days. The market value of use of the vessel for such a short period must be assessed on some other basis.

In June 2008 the spot market for chartering VLCCs was extremely high. VLCC spot market rates are conventionally expressed in terms of Worldscale (“WS”) points (which are multiplied by a WS flat rate for a voyage and the amount of cargo, in order to calculate a lumpsum revenue), and by reference to a voyage from the Arabian Gulf to the Far East. According to Clarksons Shipping Intelligence Weekly, an established and respected source of market information, over the relevant period the WS rates were as follows: 185 on 30 May 2008; 175 on 6 June 2008; 193 on 13 June 2008; and 218 on 20 June 2008. With regard more specifically to the market on 2 June 2008, Mr Pearce’s assessment was that the average of fixtures for voyages from the Arabian Gulf to the Far East reported on 2 June 2008 was WS 178.28 for a cargo of 270,000mt. This is entirely in accordance with the pattern shown by the Clarkson Shipping Intelligence Weekly and I accept this evidence.

In order to calculate a market rate for the hire of a vessel, it is conventional, and in my judgment appropriate, to calculate the Time Charter Equivalent (or TCE) earnings, which is done by deducting from the revenue generated by a voyage all costs that are incurred only as a result of performing the voyage, including vessel’s bunkers. This leads to the question by reference to precisely what voyage are TCE earnings to be calculated, and where that notional voyage is to be regarded as starting and finishing. Mr Pearce considered two descriptions of voyage might be candidates, a “ballast/laden voyage” and a “round voyage”: it was not suggested to him that there were others.

If the calculation is made by the ballast/laden voyage method, the voyage is taken to be from the completion of discharge of cargo on the previous voyage to the completion of discharge of cargo on the subject voyage. In this case, it is uncontroversial that if the ballast/laden method of assessment is adopted, it is appropriate to measure it by reference to the daily rate for a ballast voyage from Brazil to the Arabian Gulf and then a laden voyage to the Far East, and that this would give a daily rate of US$118,674.

Mr Pearce acknowledged that the ballast/laden voyage method of calculation is conventionally used by owners who wish to analyse what the commercial performance of a vessel has been over a period of time, and observed that the Owners in this case had made such a calculation about the charter fixed on the spot market on 16 June 2008. However, he explained that it is not the conventional or an appropriate method to use to calculate the value to an owner of a particular voyage because it leaves out of account the consideration of where the voyage ended: whether at the end of the voyage the vessel was better placed or worse placed than at the end of her previous voyage to load her next cargo. This is a particularly important consideration in the case of a VLCC because of the concentration of loading in the Arabian Gulf. (Mr Pearce said that 80% of the global market is loaded there) I found this reasoning convincing, and conclude that the daily rate in a case such as this is better assessed by using the round voyage method.

If the calculation of TCE is to be made by reference to a round voyage, there is a difference between the parties which round voyage should be taken as the basis for it, although all the suggested voyages contemplated the vessel loading in the Arabian Gulf. It was common ground that, in the case of round voyages between the Arabian Gulf and either the US Gulf or Brazil, the calculation should recognise that, when the market is as high as that it was at the relevant time, if returning to the Arabian Gulf in ballast, a VLCC would go though the Suez Canal.

The Owners argued that the round voyage calculation should be made by reference to a round voyage to the Far East, and on this basis argued that the daily rate was US$155,407, this being calculated by reference to the WS rate of 178.28. I received evidence about the rates for two other round voyages. If a round trip to the US Gulf is used, Mr Pearce’s evidence was that the daily rate was US$114,202: that calculation was not challenged and I accept it. If a round trip to Brazil is used, I conclude that the daily rate was US$118,864, or at the least that the Owners have not established that it was a higher rate.

The rate of US$118,864 is lower than the rate that Mr Pearce initially suggested when he gave evidence, a daily rate of US$131,330. Mr Andrew Baker QC, who represented the Charterers, challenged that evidence on the basis that Mr Pearce had calculated it on the basis of too high a WS rate. Mr Pearce had used a WS rate of 155. This was apparently based upon a fixture of the MV “Olympic Legacy” on 22 May 2008 at a WS rate of 153, but this cannot, in my judgment, be taken as a reliable guide because the market dipped between 22 May 2008 and 2 June 2008. Mr Baker suggested (i) that the relevant WS rate for a trip to the US Gulf was 135; and (ii) that a voyage to Brazil commanded a premium of no more than 10 points over a trip to the US Gulf. Mr Pearce, as I understood his evidence in cross-examination, accepted these points, or at least acknowledged the force of them and provided no cogent reason for rejecting what Mr Baker put to him. I accept the Charterers’ submission that the daily rate for this voyage should be calculated on the basis of a WS rate of 145, and that therefore the daily rate for it was US$118,864.

Mr Pearce explained that conventionally a round trip between the Arabian Gulf and the Far East is used to calculate a TCE daily rate, and he gave a compelling reason for preferring this to a calculation by reference to a round voyage to and from the US Gulf or Brazil. The calculations by reference to a round voyage to and from the US Gulf or Brazil assume that the vessel returns to the Arabian Gulf in ballast, whereas, as Mr Pearce testified and as I accept, there is “a very real prospect of a back-haul cargo from various ports, in particular West Africa”. In this respect, a round trip from the Arabian Gulf to the West differs from a round trip from the Arabian Gulf to the East, and this is reflected in the fact that, and is the reason (or at least a reason) that, a round trip going west from the Arabian Gulf commands a lower WS rates than one going east. The calculations for the round trips to the US Gulf and Brazil leave this consideration out of account; to my mind it would be wrong to do so when determining a market rate to quantify the Owners’ claim. I accept Mr Pearce’s evidence that the calculation that best produces a market rate that is appropriate for this purpose is one based upon the round voyage method and using a round voyage between the Arabian Gulf and the Far East.

Mr Pearce gave evidence that, if the MT Kos had departed from Angra dos Reis earlier than she did, in his opinion she would have been employed on her next fixture correspondingly earlier. First, Shell at Mina al Fahal do not usually charter vessel for their own cargoes and therefore the inference to be drawn from them arranging on 13 June 2008 to hire the MT Kos is that they wanted to move cargo from Mina al Fahal as soon as they could do so. It seems likely that they would have agreed to, indeed preferred, an earlier fixture had the vessel been available earlier. Secondly, Mr Pearce identified other reported fixtures (including one for the “Elizabeth I Angellicoussis”), which might have been available for the MT Kos, and added that the list of fixtures available to him was unlikely to be complete. Not least because of Mr Pearce’s experience working for Shell, I am persuaded by this evidence. I do not overlook that Mr Pearce was prevailed upon in one answer in cross-examination to describe the prospect of an earlier fixture with Shell as a possibility (rather than a probability), but I consider on the basis of his evidence taken as a whole that on the balance of probabilities an earlier fixture, if not with Shell elsewhere, would have been obtained. It was not suggested that an earlier fixture would have made a difference to the rate of hire nor that the earlier employment of the vessel would have affected her subsequent fixtures in a way that might affect the measure of loss. If the Charterers contended that any such matters should be brought into account, it would be for them to establish their value, and they have not sought to do so: see The Owners of the Andros Springs v Owners of rhe World Beauty (The “World Beauty”), [1970] P 144 and UBC Chartering Ltd v Liepaya Shipping Co Ltd (The “Liepaya”), [1999] 1 Lloyd’s LR 649, 672.

The Owners put forward a number of arguments that the Charterers are liable to them in the sum of US$410,274 in respect of the detention or use of the vessel and US$40,415 in respect of bunkers, because the Charterers were party to the charterparty or because the Owners were acting at their request or because the Charterers were the owners and bailors of the cargo. They are, however, unable to cite any decided case in which an owner has recovered such compensation from a charterer or a cargo owner and bailor following withdrawal of a vessel under a time charterparty in such circumstances as these.

First the Owners argue that they are entitled to an indemnity under clause 13 of the charterparty. Their argument is straightforward: that their claim is to be indemnified against a consequence that has arisen from the Charterers’ order that the first parcel of the cargo be loaded on the vessel. This was an order that fell within the ambit of clause 13; the cargo was loaded through the Master complying with the order; as a consequence of the cargo being loaded, when the vessel was withdrawn the cargo was on board and had to be unloaded before the vessel sailed; and since the Owners are entitled to an indemnity against “… all consequences or liabilities that may arise...” from the Master complying with the Charterers’ orders, they are entitled to be indemnified against the detention of the vessel and the cost of bunkers consumed during the period of detention and in discharging the cargo.

Mr. Eder cited in support of this argument the judgment of Mustill J in The “Athanasia Comninos”, [1990] 1 Lloyd’s LR 227, in which he considered whether owners were entitled to be indemnified by charterers against the consequences of an explosion of coal that resulted from the ignition of a mixture formed between air and methane gas emitted from the coal after loading. Having concluded that it was impossible to know the cause of the explosion and therefore impossible to conclude that the coal was a dangerous cargo or in any way unusual, Mustill J decided that nevertheless the owners were entitled to an indemnity (as a matter of general law, not under a specific contractual provision). The reasoning of Mustill J (at p.296) was simple:

“In the present case, if one asks the question (eliminating the possibility of fault on the part of the shipowner) “Why was there an explosion?”, the answer is – “Because there was methane in the hold”. And if one goes on to ask “Why was there methane in the hold?” the answer is – “Because the Time Charterers called on the vessel to load coal”. The answer is in my opinion sufficient to found an indemnity, without proof that the coal was in any way unusual”.

Mr. Eder submits that in this case similar reasoning justifies the claim for an indemnity under clause 13: if one asks, “why was this ship sitting off Brazil for 2.64 days?”, the answer is “Because there was cargo on board as a result of the Charterers’ orders, and unless and until it was removed by the Charterers, she had to stay there”.

The Charterers’ answer to the claim under clause 13, as presented by Mr. Baker, is that the detention of the vessel and the cost of bunkers expended in discharging the cargo on the vessel are not “consequences” within the meaning of clause 13 of the Charterers’ order to load (or to backload) it. The starting point, he submitted, is to ask against what harmful event the Owners seek an indemnity and in light of the answer to that question to consider whether it can properly be characterised as a consequence of the Charterers calling upon the vessel to load the cargo. Unlike the position considered by Mustill J in The “Athanasia Comninos”, the presence of the cargo on the vessel was not itself harmful in any way. The complaints are (i) that the vessel was not profitably deployed for a period of some 2.64 days, and (ii) that she consumed bunkers during that period, in part in discharging the cargo. This, Mr. Baker submitted, was a consequence of the Owners’ (lawful) decision to withdraw the vessel, rather than a consequence of the Charterers’ order to backload cargo.

It is not a sufficient answer to the Owners’ claim simply to say that the vessel was delayed and bunkers consumed as a consequence of their decision to withdraw the vessel. It does not follow that these were not consequences of compliance with the Charterers’ orders. The law in this area, and as a general rule, is not concerned with sole causes, and does not seek to identify the cause of consequences. Nevertheless I accept the Charterers’ submission that the claim is not covered by clause 13. Of course the vessel would not have needed to wait at Angra dos Reis and would not have had to discharge the cargo had the Charterers not ordered the vessel to backload the first parcel or had the Master not complied with that order, but this does not mean that there is a sufficient nexus for the purposes of clause 13 between compliance with the Charterers’ order and the loss and expense in respect of which the Owners seek an indemnity. The application of clause 13 is curtailed as a matter of construction, and the expression “all consequences” is not interpreted entirely literally and applied immoderately. The proper restriction upon its application can be seen in terms of whether the consequences or liabilities were directly caused by the order about the employment of the vessel: see Action Navigation Inc v Bottigliere di Navigazione SpA, (The “Kitsa”), [2005] EWHC 177 (Comm), [2005] 1 Lloyd’s LR per Aikens J at para 28. Principles of remoteness, as well as proximity of causation, can also limit the application of a contractual indemnity: see Total Transport Corp v Arcadia Petroleum Ltd., (The “Eurus”), [1996] 2 Lloyd’s LR 408, 432 and [1998] 1 Lloyd’s LR 351. However, in the end the question is what the parties to the charterparty are to be understood to have intended that the indemnity should cover.

In Ulisses Shipping Corp. v Fal Shipping Co Ltd., (The “Greek Fighter”), [2006] EWHC 1729 (Comm), [2006] Lloyd’s Rep Plus 99 para 302 (which I cited in Antiparos ENE v SK Shipping Co Ltd., (The “Antiparos”), [2008] EWHC 1139 (Comm), [2008] 2 Lloyd’s LR 237), Colman J considered the application of the indemnity in clause 13 of the Shelltime 4 form against “all consequences and liabilities” that might arise from the master complying with the charterers’ orders and other matters, and said that “it is in a commercial setting improbable that a charterer would be prepared to assume the risk of eventualities remote from his own orders”. In Transfield Shipping Inc. v Mercator Shipping Inc., (The “Achilleas”), [2008] UKHL 48 at para 36, Lord Hope, referring to an observation of Mr. Christopher Moss, the minority arbitrator whose view was upheld in the House of Lords, said that “a party cannot be expected to assume responsibility for something that he cannot control and, because he does not know anything about it, cannot quantify”. I cannot accept that the parties intended that the indemnity in clause 13 should cover the Owners’ claims: they are too remote from the order to backload the cargo and the vessel’s compliance with it, and resulted from the Owners’ decision to withdraw the vessel, a decision over which the Charterers had no control and the results of which they could not quantify.

Next, the Owners claim that their loss from the vessel being delayed at Angra dos Reis after the notice of withdrawal pending and during the discharge of the backloaded cargo is recoverable as damages for the Charterers’ breach of the charterparty in that they failed to pay hire when it was due.

In presenting this part of the Owners’ argument, Mr Eder emphasised that the Owners do not contend that it was a repudiation of the charterparty not to pay hire, at least in the case of a failure to pay for as short a period as in this case. The point is not straightforward: as Rix LJ said in Stocznia Gdanska v Latvian Shipping, [2002] EWCA Civ 889, [2002] 2 Lloyd’s LR 436 at para 80, there must be a good argument that “the express right to withdraw in the case of unpunctual payment under such a clause is a breach of a condition of the contract, breach of which is in itself repudiatory”. However, the general view is, I think, that a failure to pay hire when it is due is a breach of an intermediate term, and not necessarily repudiatory and does not in itself entitle the owner to claim damages for loss resulting from the termination of the charterparty: see Time Charters (2008) 6^th Ed at paras 16.128, 16.132. Even if the Owners had argued otherwise and I had been persuaded to award damages for such loss, the damages resulting from the termination of the charterparty would not be based upon the market rate of hire but the contractual rate, and no such claim has been advanced.

In these circumstances, I cannot accept that the Owners’ claim is recoverable as damages for the failure to pay hire. I agree with the Charterers’ submission that, once the breach is not said to be repudiatory, it is an answer to the claim that the loss was not effectively caused by their failure to pay hire on time because the Owners’ decision to withdraw the vessel breaks the chain of causation. This is, I think, why Lord Denning MR said in Tropwind AG of Zug v Jade Enterprises Ltd., (The “Tropwood”) (No 2), [1982] 1 Lloyd’s LR 232 at p.237 (in a passage to which I refer further below), “The damages for such a breach would be trifling”. Moreover, as is clear from the speeches of the majority in The “Achilleas” (cit sup), those of Lord Hoffmann, with whose reasons Lord Walker agreed, and Lord Hope, the discerned intention of the parties (objectively ascertained) defines the scope of secondary contractual obligations as well as primary obligations, and the Owners’ argument is answered by essentially the same reasons as the claim for an indemnity under clause 13.

The Owners also put their claim on the basis that they are entitled to recover under an implied term of the Charterparty. They formulate the implied term that they assert in two ways:

I see force in the submission that the implication of the charterparty is that the Charterers are responsible for ensuring that, when it ends and the vessel is redelivered to the Owners, she is free of cargo. Indeed, it is stated in clause 2 that the vessel is to be redelivered to the Owners at the same port as the port of delivery and is to be “redelivered free of slops”: a fortiori she is to be redelivered free of cargo. I am prepared to accept that similarly, if she is withdrawn for non-payment of hire, the Charterers are to make arrangements for the discharge of any cargo on board. It does not follow that the obligation was to make arrangements forthwith, rather than, say, as Mr. Baker suggested, within a reasonable time. But the obvious and fundamental difficulty in the Owners’ case based upon an implied term, to my mind, is in showing that an obligation to make payment is to be inferred.

Mr. Eder cited the decision of the Privy Council in A G of Belize v Belize Telecom Ltd., [2009] UKPC 11, in which Lord Hoffmann, delivering the advice of the Privy Council, reviewed the familiar tests for determining whether a written contract includes an implied term and emphasised the danger of “treating these alternative formulations as if they had a life of their own” (at para 22), separate and distinct from the essential question, “what the instrument, read as a whole against the relevant background, would reasonably be understood to mean” (at para 21). However, it is important not to overlook Lord Hoffmann’s starting point for the inquiry, stated in these terms (at para 17):

“The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.”

Applying this approach, I am unable to accept that the “most usual inference” should not be made here. In my judgment, there being no obligation expressly placed upon the Chaterers to make payment in these circumstances, it should be inferred that the parties did not intend that there should be any such obligation.

In Tropwind AG of Zug v Jade Enterprises Ltd, (The “Tropwood”) (No 2), [1981] 1 Lloyd’s LR 45, Robert Goff J considered a case in which the owners had purported to give notice of withdrawal but the charterers disputed its validity. Thereafter the vessel loaded further cargo at the charterers’ request and proceeded to the delivery port for that cargo, where it was discharged. Robert Goff J concluded that the owners had lawfully and validly withdrawn the vessel, and so had to decide whether the owners were entitled to be paid by the charterers for use of the vessel, and if so on what basis. He decided that they were contractually entitled to remuneration at the market rate prevailing when the owners continued loading the vessel at the charterers’ request. He said this (at p.53): “… the first question to be asked is whether the services were rendered at the request (express or implied) of the charterers, in which event the charterers will ordinarily be liable to pay a reasonable remuneration for the services rendered, a liability which can probably be categorized as contractual. If however there was no such request, then there can be no contractual liability on the charterers; and their liability (if any) to pay remuneration for the services so rendered can only derive from the principles of restitution”. He held on the facts of that case that there had been an implicit request for services and therefore that the charterers were liable to pay “a reasonable remuneration, i.e. remuneration at the market rate prevailing at the time when, after [the date of withdrawal] the owners complied with the charterers’ request …”. In these circumstances, he did not need to “explore … the nature of the liability which might arise, in the absence of any request, under principles of the law of restitution”.

Upon appeal from his decision, the Court of Appeal (loc cit) concluded that the vessel had not been withdrawn and so the issue about remuneration for services after withdrawal did not arise. However, Lord Denning MR expressed disagreement with Robert Goff J: “Even if the notice of withdrawal were effective …, I cannot see any basis on which the shipowners could recover any sum from the charterers. The charterer who is a few minutes late or pays a few dollars too little is not thereby guilty of a repudiation of the charter. The damages for such a breach would be trifling. If there is cargo on board at the time of the notice of withdrawal – and the shipowner carries it to its destination – he does so by way of fulfilling the original charter or bill of lading – and not by way of any new request by the charterer. So he cannot recover the market rate either on a quantum meruit or otherwise” (emphasis added, at p.237). Dunn LJ, having decided that the vessel had not been withdrawn, said (at p.239) that he expressed no view about this question, except that, if the matter arose for decision, he would not necessarily agree with the view of Lord Denning. Fox LJ (at p.240) expressed his agreement with Dunn LJ, and not with Lord Denning.

Despite the opinion of Lord Denning, the editors of Time Charters (2008) 6^th Ed at paras 16.111-112 express the view that the owners are entitled to remuneration in these circumstances: “Where, after [a valid] withdrawal, the owners perform further services at the request of the charterers, they may become entitled to remuneration for those services under a new contract. Given the development of the law since The Tropwood (No 2), it is suggested that Robert Goff, J’s view would now prevail if the matter came before the courts again”.

I cannot accept that if, in a commercial context such as this, the Owners have conferred upon the Charterers a service that the Charterers requested, the Charterers should not compensate the Owners for it at all. It might be that Lord Denning did not really intend to suggest this: I acknowledge this is indicated by the first sentence from his judgment that I have cited, but I do not find it easy to reconcile that with his reference to the owner carrying the cargo by way of fulfilling the original charter or bill of lading. Certainly one point that appears to have concerned him, and perhaps this was his real point of disagreement with Robert Goff J, is whether, if the owners exercised a right to withdraw the vessel but continued to provide a service at the request of the charterers by carrying the goods to the destination, they should be entitled to remuneration or compensation measured by the market rate then prevailing and without regard to the contract rate under the charterparty. It might be thought more natural to suppose that, in acceding to the charterers’ request, the owners were to be taken to be agreeing to carry out the service, in that case carry the goods to their destination, as if to that extent the charterparty were still in force and that the contractual rate under the charterparty should be the measure of reasonable remuneration or compensation for those services. After all, when the courts determine a reasonable rate for services, whether by way of determining a reasonable sum payable under a contract or by way or quantum meruit for services provided pursuant to a request or by way of restitution, it is often relevant to have regard to what the parties contemplated should be paid for such services and the courts are not driven to ignore this and be guided only by a market rate: see, for example, Way v Latilla, [1937] 3 All ER 759 at p.764 per Lord Atkin and Goff and Jones, The Law of Restitution (2007) 7^th Ed para 1-036. So too in The “Tropwood” (No 2) Lord Denning MR was, as I read his judgment, unwilling to accept that the owners were entitled to be remunerated at a market rate for a service that they would have performed under the charterparty if the vessel had not been withdrawn.

However that may be, in this case the services that the Owners claim to have performed, keeping the vessel at Angra dos Reis for her to discharge the loaded cargo and providing bunkers for that operation, were not services that would have been performed under the charterparty had it continued. If they are right that they provided services for which they are entitled to be remunerated, then those services were, as Saville J put it in Greenmast Shipping Co SA v Jean Lion et Cie SA, (The “Saronikos”), [1986] 2 Lloyd’s L R 277, 279, “services performed extra-contractually”, providing the vessel as “in effect, a floating warehouse”, and the remuneration is to be measured “by simply asking what would be a fair commercial rate for the services provided outside the charter-party”. The Charterers did not argue that, if the Owners are entitled to remuneration at a reasonable rate, it should be measured by the charterparty rate, rather than the market rate. It was not suggested by Mr Baker, and in my judgment rightly not suggested, that there would be anything curious about the Owners being so compensated whether or not they did in fact lose valuable employment for the vessel as a result of the delay at Angra dos Reis. The market rate would be adopted because it is a measure of the benefit to Charterers, not as a measure of the loss to the Owners. In any case, even if it were in point to measure the loss of the Owners and if their compensation were to be measured in some way analogous to damages, the proper approach was explained by Lord Lloyd in Inverugie Investments Ltd v Hackett, [1995] 1 WLR 713 at p.717:

“[It is established] beyond any doubt that a person who lets out goods on hire, or the landlord of residential property, can recover damages from a trespasser who has wrongfully used his property whether or not he can show that he would have let the property to anybody else, and whether or not he would have used the property himself”.

(If it be relevant, I would reject any suggestion that in circumstances such as these the approach to damages adopted in such cases as The “Greta Holmes”, [1897] AC 596 and The “Mediana”, [1900] AC 113 is confined to non-profit earning vessels and has no application to trading vessels: indeed, Mr Baker said that he argued for no such a distinction.)

This leads to the question whether the Owners acted upon a request made by the Charterers. The Owners say that in the exchanges after the notice of withdrawal the Charterers effectively and by implication requested that the vessel remain at Angra dos Reis: that it was implicit in the position that they took that the Charterers wanted the vessel to stay where she was. Firstly, they asked the Owners to reconsider their decision to give notice of withdrawal, and this necessarily would involve the vessel in remaining at the port and keeping the cargo on board while they did so. They could not have been expected to change their decision about withdrawal of the vessel after she had discharged the cargo or left port or both. Then at 21.36 hrs on 3 June 2008 the Charterers told the Owners that they had made arrangements to discharge the cargo, and the implication was that they wished, and requested, the Owners to remain at Angra dos Reis while this was done.

I am prepared to accept the submission that the implication of the communications from the Charterers was that they requested the Owners to remain at Angra dos Reis. I am, however, unable to accept that the Owners acted as they did, and in particular that they had the vessel remain at Angra dos Reis until 06.00 hrs on 5 June 2006, in response to the implicit request of the Charterers. They did so because, while the vessel was loaded with the Charterers’ cargo, they had no practical alternative, and also, it seems to me, because the Owners, admittedly without prejudice to their position with regard to termination of the charterparty, were proposing that the vessel be hired by the Charterers and perform the voyage on new terms. The positions adopted by both parties demanded that the status quo be maintained during the exchanges. I consider it unrealistic to draw the inference that in the exchanges or their response to them the Owners were complying with any request of the Charterers.

As I understand Mr. Eder’s submissions, he argued that the Owners would nevertheless be entitled to recover on a quantum meruit from the Charterers because the Charterers had been parties to the charterparty that had been terminated. In this context he referred to the decision of Pearson J in Société Franco Tunisienne d’Armement v Sidermar SpA, [1961] 2 QB 278 at pp. 312ff. A charterparty had been frustrated because it was impossible for a voyage from Masulipatan, India to Genoa to be routed through the Suez Canal as the charterparty contemplated, and therefore the goods were carried round the Cape of Good Hope. It was held (at p.314), “[The shipowners] carried the goods from Masulipatan to Genoa for the charterers’ benefit and with the consent of the charterers. In my view the law implies or imposes an obligation for the charterers to pay reasonable freight …”. Pearson J considered that this followed from Craven-Ellis v Canons Ltd, [1936] 2 KB 403, in which a claimant who worked under a void appointment as managing director of the defendant was held to be entitled to remuneration on the basis of a quantum meruit, and from dicta of, in particular, Lord Wright in Hain SS Co Ltd v Tate & Lyle Ltd., [1936) 52 TLR 415 about a shipowner’s entitlement to reasonable remuneration on a quantum meruit in a case of deviation.

The basis of quantum meruit claims in these circumstances is restitution (see Goff & Jones, The Law of Restitution, (2007) 7^th Ed para 20-54), but in these cases the party ordered to pay a quantum meruit received the service which he contemplated receiving under a contract. In the carriage by sea cases, the cargo was delivered to the contemplated port of discharge. As Goff & Jones (loc cit) observes, it appears that, if delivery were to another port, the position would be different, and the charterer might have to show that he had requested the services or at least chosen to accept them: see Hopper v Burness, (1876) 1 CPD 137. I do not consider that this line of reasoning justifies a claim by the Owners on a quantum meruit basis.

When the vessel was withdrawn from hire, the contract under which the Owners were bailees of the cargo came to an end, but they remained the bailees of it, albeit the bailment for valuable consideration became a gratuitous bailment. The general principle is that, except by contract, a bailee is not obliged to take a chattel to its owner: see Capital Finance Ltd v Bray, [1964] 1 All ER 603. It was not submitted, and in my view it could not be argued, that the Owners were under any duty under the charterparty or otherwise to arrange for the discharge of the cargo in the circumstances of this case.

The Owners rely upon their duties as bailees of the cargo to bring a claim for expenses that they incurred in fulfilling those duties, citing the decision of the House of Lords in China Pacific SA v Food Corporation of India, (The “Winson”), [1982] AC 939. That case concerned some salved wheat that the salvors, acting under a Lloyd’s Standard Form of Salvage Agreement No Cure-No Pay, had brought to safety in Manila and stored in a suitable accommodation, some of it on a vessel lying in Manila harbour and the rest in a bonded warehouse ashore, so that it did not deteriorate from exposure to the elements. In doing so, the salvors incurred expenses for stevedoring, charter hire for the vessel and warehousing charges. It was common ground between the salvors and the cargo owners that the Lloyd’s Open Salvage Agreement came to an end separately in respect of each individual parcel of wheat upon arrival of the barge on which it was being carried to a place of safety in Manila Harbour (although that common ground was not endorsed in the speeches in the House of Lords). The salvors claimed for these expenses against the owners of the wheat. The owners of the wheat accepted the claim for charges from the date when the owners of the vessel carrying it gave notice of abandonment of the voyage, but the claim for earlier charges was disputed.

The House of Lords upheld the salvors’ claim on the basis that the expenses were reasonably incurred by them in carrying out their duty owed to the owners of the wheat to take such measures to preserve it as a man of ordinary prudence would take for the preservation of his own property. The salvors had written to the owners of the wheat two weeks after the first barge-load had arrived in Manila Harbour, advising them that the salvage work was being carried out and asking that arrangements be made to accept delivery of the cargo. They had received no reply. However the expenses that the salvors recovered were not only those incurred after this inquiry had been made and the owners of the wheat had failed to respond to it, but included expenses incurred from the time that the cargo had arrived in Manila Harbour. The basis on which Lord Diplock, with whom Lords Keith, Roskill and Brandon agreed, decided that the salvors were so entitled was this (at p.960F):

“For any breach of [his duty to take proper steps to preserve bailed goods] the bailee is liable to the bailor in damages for any diminution in value of the goods consequent upon his failure to take such measures; and if he fulfils that duty he has, in my view, a correlative right to charge the owner of the goods with the expenses reasonably incurred in doing so”.

In support of his conclusion that the bailee enjoyed this “correlative right”, Lord Diplock cited Cargo ex Argos,[1873] LR 5 PC 134, from which case he derived the expression “correlative right”; Great Northern Railway Company v Swaffield, (1874) LR 9 Ex132; Notara v Henderson, (1872) LR 7 QB 225; and a Scottish case, Garriock v Walker, (1873) 1 R 100.

The Charterers argued that it is not sufficient to establish a claim against them as owners of the cargo that they received a benefit, which, they say, they had no real option but to accept. But this argument does not provide an answer to the Owners’ claim, as is clear from the decision in Garriock v Walker, of which Lord Diplock approved. That case established, as Lord Diplock explained, that the right to recover expenses does not depend upon the owners of the chattel acquiescing in the bailee incurring the expenses. It suffices that the bailee took the benefit of them by taking delivery of the chattel preserved from deterioration.

In this case the Owners do not claim in respect of expenses incurred in fulfilling their duty with regard to preserving the cargo. The questions that arise here about the ambit of the principle explained in The Winson are (i) whether the Owners are entitled to recover their expenses notwithstanding they were not incurred in order to preserve the cargo from deterioration, and (ii) whether they are entitled to recover not only expenses (by way of bunkers) that they incurred, but also remuneration for the time when the vessel was at Angra Dos Reis between the notice of withdrawal of the vessel and completion of the discharge of the cargo.

Although a bailee is not obliged himself to return bailed goods to the bailor (unless he has contracted to do so), he is obliged to make them available to the bailor and not to prevent the bailor from recovering them: see Capital Finance Ltd v Bray (loc cit), in which (at p.607) Lord Denning MR cited with approval the rule in Salmond on the Law of Torts (13th Ed.) at p.264 stated in these terms: “No one is bound, save by contract, to take a chattel to the owner of it; his only obligation is not to prevent the owner from getting it when he comes for it”. The Owners, as it seems to me, incurred the expense of consuming bunkers because they stayed at Angra dos Reis so that the reloaded cargo would be available to the Charterers and because they then co-operated in the discharge of that cargo.

Since, as is established in The Winson, if the Owners had incurred expenses in taking proper steps in accordance with their duty to preserve the cargo, they could have recovered them from the bailors, they should, in my judgment, also be entitled to recover expenses incurred in fulfilling their duty to make the cargo available to the Charterers and not to prevent them from recovering it. I find support for this view in the speech of Lord Simon in The Winson. He identified the following circumstances that led him to conclude that the salvors in that case were entitled to recover reasonable expenses on the basis that they were bailees of the goods without establishing an “element of necessity” or that “the emergency imposes obligations on the bailee beyond what will generally be contemplated on a bailment”: “(1) the contract of bailment was a commercial one; (2) it came to an end when the salved goods were brought to a place of safety, which, it has been the common assumption, was the entry into the port of Manila …; (3) the bailee then continued in possession as a gratuitous bailee; (4) he incurred reasonable expenses in safeguarding and preserving the goods to the benefit of the bailor; (5) the bailor stood by, knowing that the bailee was so acting to his (the bailor’s) benefit”. It seems to me that all those circumstances (mutatis mutandis) are present here, other than the fourth. I cannot accept that, the other considerations identified by Lord Simon being present and the Owners acting in accordance with their duty to the Charterers as bailors of the goods, the circumstances of this case do not similarly justify a claim for expenses correlative to the duties to which I have referred.

In Guildford Borough Council v Hein, [2005] EWCA Civ 979 at para 33 Clarke LJ contemplated that the correlative right explained in The Winson might allow recovery not only of reasonable expenses but also of reasonable remuneration. Certainly in principle, as it seems to me, if the Owners might have recovered the reasonable expense of hiring a facility to store the goods at Angra dos Reis, there seems no reason that they should not recover reasonable remuneration for providing the facility themselves by way of holding the cargo so that it should be available for the Charterers to recover it. As Lord Diplock made clear in The Winson (loc cit at p.961B), the bailor’s liability arises because he had enjoyed the benefit of the bailee’s services and generally a party paying in respect of the benefit of services is not liable only for the actual expenses incurred by the party conferring it.

I therefore consider that the principle explained by Lord Diplock entitles the bailee to remuneration as well as expenses and is not confined to expenses and remuneration correlative to the bailee’s duty with regard to reserving the chattel rather than his duty to hold it available to the bailor. There is authority in Cargo ex Argos, loc cit, for both these conclusions. In that case the Privy Council held that the owners were entitled to recover freight for bringing back to England petroleum that they had been unable to discharge in France: “Their Lordships have no doubt that bringing the goods back to England was in fact the best and cheapest way of making them available to the Defendant, and that they were brought back at less charge in the Argos than if they had been sent back in another ship”, per Sir Montague E Smith at p.165.

I therefore conclude that the claims for use of the vessel and bunkers succeed in the sum of US$450,689, the amount claimed, because the Charterers were bailors of the cargo. I reject the arguments that the Owners are entitled to recover under or for breach of the charterparty or because they supplied services in compliance with the Charterers’ request.

I add that no claim has been made against the Charterers for damages for breach of an obligation in the charterparty with regard to unloading the cargo or making arrangements to do so. It seems to me that a time charterer might well be under a contractual obligation in this regard if the vessel is withdrawn for non-payment of hire, but, since no such claim is before me, I do not so decide. If such a claim were brought, it might be necessary to engage with the question whether (as I am inclined to think) damages should be measured simply by reference to the time for which the vessel was detained without the claimants being required to establish the financial impact upon them: I have already referred to Inverugie Investments Ltd v Hackett, [1995] 1 WLR 713, 717.

The Owners also claim that they are entitled to recover in respect of providing the RBS guarantee:

On 8 April 2009 Field J ordered that:

“The Defendant shall pay the Claimant’s costs of (i) the Application, (ii) the Claimant’s claim for a declaration, and (iii) the Defendant’s counterclaim. The basis of assessment shall be determined following trial of the remaining issues in the action.”

The expression “basis of assessment” refers, as I understand it, to whether the assessment should be made on the standard basis or the indemnity basis. He gave no direction as to whether the costs should be assessed summarily or on a detailed assessment.

I consider first the argument that the expenditure is recoverable as costs because, if it is so recoverable, the Owners have no claim for more than nominal damages. This is because, as is explained by Louise Merrett in her article “Costs as Damages”, (2009) 125 LQR 468, “The basic rule of English law is that, unless the claimant can rely upon a separate cause of action, litigation costs can only be recoverable as costs, and not as damages”. This is so notwithstanding “the costs of litigation would, if ordinary principles governing the recoverability of damages were applicable, represent recoverable damages”: Seavision Investment SA v Evennett (The “Tiburon”), [1992] 2 Lloyd’s LR 26 at p.34 per Scott LJ. This principle can work in favour of the paying party: for example, if costs are to be assessed on a standard basis, the amount recoverable is limited by considerations of proportionality as well as reasonableness. Nevertheless, in this case the Owners argued that the expense incurred in providing and maintaining the RBS guarantee is recoverable as costs, and accept that, if this is so, it is not recoverable as damages even if some of it is disallowed upon an assessment. The Charterers dispute that the expense is recoverable as costs.

Before I consider this issue, I should refer to Mr Baker’s submission that I should not determine this part of the dispute, and that the proper course is to defer the Owners’ claim in respect of the RBS guarantee pending determination by a costs judge as to whether the expense of providing and maintaining it is recoverable as costs, with a view to the matter being restored before the Commercial Court, if necessary, to consider the claim for damages.

This, to my mind, is an unfortunate procedural dispute, the more so because the Charterers raised their objections to me determining this part of the case only shortly before the hearing arranged for the purpose. Mr Eder, in compliance, as I understand it, with a suggestion made by the Charterers, had proposed that, in order that I might resolve all the substantive issues between the parties, I should determine an application under CPR part 44.3(8) for a payment on account of the costs ordered by Field J in respect of the expense of providing the RBS guarantee, this being designed to be a vehicle to decide whether the expense is recoverable as costs. On reflection, however, the Charterers resiled from the course that they had suggested on the grounds that any decision upon such an application would not finally resolve the issue.

I therefore proposed to determine the claim based upon the implied term in the charterparty, observing that this would require me to determine whether the expense is recoverable as costs. Having done so, as I explained, I would consider determining the basis upon which the Owners might have the costs ordered by Field J assessed, and having done so, I would in a position, if I thought it proper, to make a summary assessment of the costs.

Mr Baker objected to that course, advancing three arguments against it. The first was based upon the definition of “summary assessment” in CPR 43.3: “’Summary assessment’ means the procedure by which the court, when making an order about costs, orders payment of a sum of money instead of fixed costs or detailed assessment”, a detailed assessment being a procedure whereby a costs officer decides upon the amount of costs. Mr Baker argued that this means that the court can order a summary assessment only when, that is to say at the same hearing as, making an order about costs.

I do not so interpret the definition of “summary assessment”, or the CPR generally. It would be a pointless restriction to confine the court’s power to order a summary assessment to the hearing at which it orders where the costs are to fall, and it would be odd to introduce this limitation through the definition of “summary assessment”. I interpret the expression “when making an order about costs” as meaning “in cases in which the court makes an order about costs”. This, rather than the interpretation advanced by Mr Baker, is required both by the ordinary and natural meaning of the words and by regard to the overriding objective. Besides, as Mr Eder pointed out, if I pursue the course that I propose, I shall be making an order “about costs” after delivering this judgment, because I shall, in accordance with Field J’s order, be determining the basis upon which costs are to be assessed.

Secondly, Mr Baker submitted that in some way the course that I proposed was inconsistent with the order of Field J, because Field J envisaged that the remaining issues in the action should be tried before costs were determined. I cannot accept that the order of Field J prevents the court from making any order affecting costs before trying the remaining issues in the action, and in any case I could, and if necessary would, vary any case management decision to that effect. In any case, the order cannot be interpreted as preventing me from considering issues about costs that necessarily affect the substantive claim for damages, and the course that I propose does not involve a decision about costs being made before the remaining issues in the action are tried. The course suggested by Mr Baker, on the other hand, would do so.

Thirdly, Mr Baker argued that the question whether costs for the RBS guarantee should be awarded requires the experience of a costs judge. If that be so – and I am not persuaded that it is so, but shall invite further submissions about that – it is not a proper reason to prevent me from deciding whether the court has jurisdiction to allow the expense of the guarantee to be recovered as costs. For the purposes of making any assessment, I could, if it were justified, sit with an assessor.

I therefore reject the procedural arguments raised by the Charterers that I should defer consideration of the Owners’ arguments about their entitlement to recover from the Claimants the expense incurred in respect of the RBS guarantee. To do so would cause unjustified costs and delay.

Section 51 of the Supreme Court Act, 1981 provides that “the costs of and incidental to” proceedings in the High Court are in the discretion of the Court and the Court has “full power” to determine by whom and to what extent costs are to be paid. There is no statutory definition of the word “costs” or the expression “costs of or incidental to”. The rules about costs in the CPR part 43 et seq apply to all costs that the court has power under the statute to determine be paid, and do not define or indicate what expenses constitute “costs of or incidental to” proceedings, save that CPR 44.3(6)(d) expressly recognises that costs may be incurred before proceedings have begun. The essential question, therefore, is whether the expense of providing and maintaining the RBS guarantee is covered by the statutory expression “costs of or incidental to” the proceedings within the meaning of section 51.

As far as I have traced its origins, the expression “costs of and incidental to” proceedings, which survives through various re-enactments into the Supreme Court Act, 1981, derives from Order LV in the First Schedule to the Judicature Act, 1875, which provided that “Subject to the provisions of the Act … the costs of and incident to all proceedings in the High Court shall be in the discretion of the Court…Provided that where any action or issue is tried by a jury, the costs shall follow the event, unless upon application made at the trial, for good cause shewn, the Judge before whom such action or issue is tried, or the Court, shall otherwise order”.

Mr. Eder was unable to cite any authority under the CPR or the earlier rules of court that holds that the expense of providing security in circumstances such as these is recoverable as costs. Indeed, it was decided in three cases in the 1880s that the costs of putting up a bail bond against an arrest were not recoverable: The British Commerce, (1884) 9 PD 128, a decision of Butt J, and The Collingrove and The Numida, (1885) 10 PD 158, which were heard together and in which the judgment of the Court was delivered by Sir James Hannen P. However, it is important to see these cases in their historical context.

Before the Judicature Act, 1875 the general position as to costs in the courts of common law was different from that in the courts of equity: in the courts of equity, costs were in the discretion of the judge; the common law courts had no such discretion and their awards of costs were made under various statutes, starting in 1275 with the Statute of Gloucester, 6 Ed 1. Generally they bound the common law judges to the rule that costs followed the event (“in expensarum causa victus victori condemnandus est”: Blackstone, Comm 3.1.6) - subject to statutory exceptions that were said to have been “difficult of construction” and “not always capable of satisfactory reconciliation” and to have “embarrassed counsel and puzzled Judges”, per Lord O’Hagan, Garnett v Bradley, (1878) 3 App Cas 944, 958.

Against this background, two schools of thought developed soon after the Judicature Acts about the effect of Order LV. One was that it conferred upon the courts power to award costs where they had not previously had jurisdiction to do so: see Ex parte Mercers’ Company, (1879) 10 Ch D 481 per Jessel MR. In Foster v Great Western Ry Co, (1882) 8 QBD 515 and In re Mills’ Estate, (1886) LR 34 Ch D 24 that view was rejected. In the latter case Cotton LJ asked (at p.33), “What is the object of these Rules and Orders? Was it to give to the Court a jurisdiction, which did not previously exist, or was it not rather to regulate the manner in which the jurisdiction given to the Court, and which the Court had independently of this rule, was to be exercised”. He considered that, the object of the Judicature Acts being not to confer new jurisdiction upon the courts but to provide for the High Court to exercise the jurisdiction previously exercised by different courts, Order LV was intended only to regulate how the courts should exercise their powers to deal with costs. Accordingly, it was established that Order LV “did not assume to give the Court power over costs, or jurisdiction over costs, where the Court had never had jurisdiction before, but it gave to the Court power to deal with costs in a particular way, different from that in which the costs had been dealt with before in cases where the court had jurisdiction over the costs. That altered the practice, but did not establish the jurisdiction”: London County Council v Churchwardens etc of West Ham, [1892] 2 QB 173, 175 per Lord Esher MR.

As far as admiralty cases are concerned, before the Judicature Acts the Lord High Admiral’s Court had assumed a jurisdiction over costs. The practices are described in some detail in the first edition in 1878 of Roscoe’s Jurisdiction & Practice of the Admiralty Court (at pp. 209 et seq) where it was observed that, although costs were said by Order LV to be in the discretion of the court, this was subject to “certain rules defined with more or less preciseness by which the Court is ordinarily governed in the exercise of its discretion”. The British Commerce (cit sup) and The Collingrove and The Numida, (cit sup) were decided against this background. As I understand those decisions, the basis for them was that it was not the practice of the court to award by way of costs the expense incurred by way of providing a bail bond: in his judgment Sir James Hannen said that such expense had never been treated as costs since the practice of obtaining bonds on a commission had grown up and that the court would not be justified in creating “a new head of costs”. In these cases the court was not interpreting the expression “costs of or incident to” proceedings in Order LV but (understandably, since the Court of Appeal had decided Foster v Great Western Ry Co some three years earlier) considering what jurisdiction had conventionally been assumed by the courts in admiralty cases.

This understanding of the authorities is supported by the judgments in the Scottish case of Ellerman’s Wilson Line Ltd v Commrs of Northern Lighthouses, (1920) 58 Sc LR 29, in which the Scottish court refused to allow the expense of procuring a bail bond to be recovered as costs. Lord Salveson said:

“I think that was the rule established long before 1885, because it is in accordance with my earliest experience of shipping law that the expense of procuring a bail bond, being in the interest of the person who made the application for the release of the vessel, fell to be borne by himself. The pursuer in the action was entirely indifferent as to whether he had the ship secured for his debt or money deposited in lieu of it. But it was to the interest of the defender, who desired the release of his vessel for its profitable employment, to obtain its release on such terms as the Court would sanction.

Now that having been the practice in Scotland so far back as I can recollect, I see no warrant for changing that rule in the fact that the English Courts have now, in the exercise of jurisdiction conferred upon them by Parliament, issued a rule that in England such expense shall be treated as part of the expenses of process. These rules are not binding upon us, and we have no equivalent rule in Scotland.”

The Lord Justice-Clerk, Lord Dickson, said this:

“This is a pure question of practice. As regards the Scots practice I entertain no doubt. When expenses generally are allowed only those expenses are to be included in the account which are expenses necessitated by the steps of process in the cause. I cannot understand how procuring a bail bond in order to liberate a ship which had been arrested can be regarded as in any sense a step of process. It is a step which the owners of the ship take for their own convenience, because they think it is better for them to have their ship at their disposal, and to pay the expenses necessary to procure a fund which may remain as a surrogatum, rather than let the ship remain under arrest. ”

As is apparent from the passage from Lord Salveson’s judgment set out above, by the time of the decision in the Ellerman’s Wilson Lines case, the position in England had been changed by legislation. The Judicature Act 1890 had conferred on the courts the power that they had denied themselves by the restrictive interpretation that they had adopted of Order LV. It was provided by s.5 that:

“Subject to the Supreme Court of Judicature Acts and the rules of Courts made thereunder, and to the express provisions of any Statute, whether passed before or after the commencement of this Act, the costs of and incident to all proceedings in the Supreme Court, including the administration of estates and trusts, shall be in the discretion of the Court or Judge, and the Court or Judge shall have full power to determine by whom and to what extent such costs are to be paid.”

In November 1900 the Rule Committee had introduced the rule to which Lord Salveson referred as “treating” the expense of procuring a bail bond as “part of the expenses of the process”. This new provision in RSC XII r.21a recognised that expenses of this kind might be party and party costs of the suit, but provided for a limit of £1 per cent of the amount of the bail bond. Its application was, as Mr. Baker observed, confined to in rem proceedings in Admiralty, but that is not important for present purposes. What is significant to my mind is that in 1900 the Rule Committee (on which by then there were representatives of the professions – see Supreme Court of Judicature Act, 1894 s.4 – as well as the Judiciary, including the Lord Chancellor, the Lord Chief Justice, the Master of the Rolls and the President of the Probate, Divorce and Admiralty Division – see Supreme Court of Judicature Act, 1881 s.19) considered that the power conferred by the 1890 Act to determine who should pay “costs of and incidental to” proceedings would allow the court to award costs of procuring a bail bond. Moreover the new rule covered forms of security other than bail bonds: the position is described as follows in Williams and Bruce, Admiralty Practice (or the 3^rd edition of Roscoe) (1902) 3^rd Ed p.293, fn(b):

“A practice previously unknown in the court of Admiralty has sprung up of recent years, whereby a commission, usually of 1l. per cent., is paid by the party giving bail to each of the sureties to the bail bond. This commission was formerly held to be no part of the costs of the action as between party and party (The Numida, The Collingrove, 10 P.D. 158), but might perhaps have been recovered as damages where the arrest had been improperly made. But it is now provided by R., S. C. Nov. 1900 (Order XII., rule 21a) that a commission or fee paid to a person becoming surety to a bail bond, or otherwise giving security, may be recovered on taxation, provided that the amount of such compensation or fee shall not in the aggregate exceed 1l. per cent, on the amount in which bail is given.”

The rule introduced in 1900 continued in materially the same form for some 80 years. In the 1979 edition of The Supreme Court Practice it appears in RSC Ord 62 Appx 2 in a Note to Items 93 and 94, which stated, “The commission or fee paid to a person becoming a surety to a bail bond or giving a guarantee or undertaking in lieu of bail, not exceeding £1 per cent of the amount for which the bond, guarantee or undertaking is given, shall be allowed on taxation”. The specific limitation on the amount recoverable was then removed, but the practice of awarding costs for bail fees and other security apparently continued: Mr. Eder, assisted by the industry of the costs department of his instructing solicitors, Messrs Ince & Co, put before me a minute of discussion of the Admiralty Solicitors Costs Draftsmen Association in September 1982, which includes a report of a decision of the Admiralty Registrar, Registrar Rochford, who had considerable experience in this field. It recorded a communication written to the Rules Committee by the Chairman of the Admiralty Solicitors Group, which referred to the note in the 1979 edition of the White Book and continued:

“This note does not appear in the 1982 edition of the White Book …. From discussion with Admiralty Solicitors and with Admiralty Registrar it is clear that two views could be put forward. The one view is that there is now no longer any limit to the amount of the bail fee which would be awarded on a taxation of costs. The other view is that by long established custom practice the bail fee allowable on taxation is 1%. The purpose of this note is not to advocate any increase in bail fees but to suggest that any doubt which might exist should be clarified one way or the other.”

The minute records that:

“The secretary reported that on a recent application before the Admiralty Registrar on a matter concerning bail fees. It was, perhaps somewhat tongue in cheek, put to the Registrar that there were no longer any rules governing the allowance of bail fees. He replied to the effect that it was deliberately left out of the new rules so that proper allowances could be made in respect of the actual costs providing security. In other words whilst bail fees will still be allowed, the Registrar’s discretion as to quantum is no longer fettered.”

The view was apparently taken, and as it seems to me rightly taken, by the Registrar that the power to award costs in respect of providing bail bonds or other security did not depend upon the specific provision in the rules that had been in force in somewhat different forms since 1900, but upon the statutory power to determine costs of or incidental to proceedings, which had recently been re-enacted in section 51 of the Supreme Court Act, 1981. I add that at that time the RSC required (by Ord 62 r.28) that the costs allowed on a taxation should be “all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed”: the Registrar took the view, it seems, that expenses of providing security might also satisfy that test.

The British Commerce, The Collingrove and The Nurnida were based upon the then conventional practice inherited from the Court of the Lord High Admiral. They provide no authority that such expenses may not be “costs of or incidental to” proceedings or that the expense of providing a guarantee is not recoverable under the modern statutory regime. On the contrary, the history shows that the Rule Committee in 1900 considered that the expense of providing a bail bond or other security might be “costs of or incidental to” proceedings. Moreover, by the time that the specific rule dealing with bail bonds and other security was removed, there had been a change in the practice upon which the decisions on the 1880s were based.

I come next to two unreported decisions of the Commercial Court upon which Mr. Eder relied, which held that a claimant who sought security for a substantive claim by arresting a vessel in a foreign jurisdiction in force could recover the expense of doing so as costs in proceedings in England and Wales. In Alsabah Maritime Services Co Ltd v Philippine International Shipping Corp, (29 March 1984), Neill J referred to the requirement of RSC Ord 62 r.28 cited above, and concluded that legal and other costs incurred in connection with an arrest in Amsterdam fell “within the category of costs which are necessary or proper for the attainment of justice”, and so that the costs of the action included the costs of the arrest carried out “as a preliminary to the present proceedings”. In The Standard SS P & I Assn (Bermuda) Ltd v Elpis Maritime Co Ltd, (The “Maria D”), (29 October 1993) Colman J referred to the decision of Neill J and observed that the wording of the rules had changed. RSC Ord 62 r.12 then provided that “On a taxation of costs on the standard basis there shall be allowed a reasonable amount in respect of all costs reasonably incurred…”. Colman J said of the Alsabah Maritime case:

“There must be many similar cases coming before the Commercial or Admiralty Courts where a vessel has been arrested in a foreign port and, pursuant to an agreement made either before or after the arrest, proceedings are subsequently brought before those Courts. It would be highly unsatisfactory if the costs incurred in arresting a vessel to secure a Plaintiff’s claim, even if the arrest took place abroad, could not be recovered as reasonable costs in the English courts now that the wording of the Rules has changed and a more general form of words is used in the current Rule, being Order 62, Rule 12”

Accordingly he decided that the change in the rules did not alter the position, and concluded that reasonable costs of an arrest in the United States were recoverable as costs in the Commercial Court proceedings.

These were cases that differed from that before me in that (i) the costs were incurred by the party making a claim for which security was sought, and not by the party against whom it might be made, and (ii) the cases involved at the actual arrest of a vessel, not the threat of an arrest. However the authorities provide support for the Owners’ submission in that (i) they enable Mr Eder to argue that the law would be less than even-handed if it allowed only the claiming party, and not the party against whom the claim is made, to recover expense incurred in respect of the arrest of a vessel abroad in support of a claim brought or to be brought in this jurisdiction; and (ii) that it would be uncommercial and unjust if it were necessary, in order for such an expense to be recovered as costs, that there be an actual arrest rather than security provided by way of a commercially sensible and appropriate response to the prospect of an arrest. These two decisions indicate that if the Owners had declined to provide security and the MT Kos had been arrested by the Charterers, and if then the Charterers had successfully pursued the claim advanced in their counterclaim in London (as contemplated by the jurisdiction clause in the charterparty) and been awarded costs, they could have recovered as costs the expense involved in the arrest. Mr. Eder’s argument, which to my mind has considerable force, is that, if this is so, justice requires that, if the vessel had been arrested and if the Owners had then defeated the claim in respect of which she had been arrested and been awarded their costs, they similarly should be able to recover as costs the expense of dealing with the arrest; and no less, in this case, justice and commercial reality require that they should be able to recover the reasonable costs of forestalling arrest.

Neither Neill J nor Colman J, as far as appears from the notes of their rulings with which I have been provided, expressly said that the expense involved in the arrest fell within the primary legislation and was costs of or incidental to the proceedings. It is tempting to think that they thought the answer too obvious to require them to do so. However I must consider whether the expense in respect of which the Owners claim falls within the ambit of that expression. More specifically, I think, the real question is whether the expense incurred by the owners in connection with the RBS guarantee is costs of or incidental to the Charterers’ counterclaim for damages for wrongful withdrawal of the vessel, because, if it is not, I cannot conceive that it would be costs of or incidental to the Owners’ claim.

I have explained that in my judgement the Rule Committee in 1900 considered that the expense of providing security to obtain release from or to avoid arrest might be costs of or incidental to proceedings. I also consider that, if this is so, it cannot matter whether the arrest is in England and Wales or elsewhere. The Alsabah Maritime case and The “Maria D” seem to me to lend support to this view. However, quite apart from this line of reasoning and on the basis of a more general consideration of the proper interpretation of the expression “costs of or incidental to” proceedings, I would conclude that it covers the expense of the Owners in providing and maintaining the RBS guarantee.

As Megarry V-C pointed out in Re Gibson’s Settlement Trusts, [1981] Ch 179, the costs “incidental to” proceedings go beyond those “of” the proceedings. I refer to four authorities of the Court of Appeal which provide some guidance as to the proper approach to the application of the expression and to deciding what may be recoverable as costs. They were decided before the introduction of the CPR, but, as Stanley Burnton J observed in Admiral Management Services Ltd. v Para-Protect Europe Ltd., [2002] EWCA 233 Ch at para 24, changes in the wording of the relevant costs rules subsequent to these decisions do not reflect a change of “principle or application”.

In Pêcheries Ostendaises (SA) v Merchants Marine Insurance Company, [1928] 1 KB 740 the Court of Appeal reversed the decision of a judge who had disallowed costs incurred by a plaintiff before the action had been brought. Lord Hanworth MR. said, at p757, “It appears to me … that there is power in the Master to allow costs incurred before action brought, and that if the costs are in respect of materials ultimately proving of use and service in the action, the Master has a discretion to allow these costs, which he probably will exercise in favour of the party incurring them, because they have been made use of in the course of the action”.

In Frankenburg v Famous Lasky Film Service Limited, [1931] 1 Ch 428 Lord Hanworth MR repeated the views that he had expressed in the Pêcheries Ostendaises case. The plaintiff had consulted solicitors and taken advice from an architect and surveyor before bringing proceedings about the erection of a building close to his home that interfered with his ancient lights. Lord Hanworth said (at p.435),

“It appears to me that [the Pêcheries Ostendaises case], to which reference has been made, is both a binding and a guiding authority to us on this point. I do not at all shrink from or desire to vary the words which I used in that case: [he cited the sentence set out above]. It is said that those words are too wide, and they ought not to be “in respect of materials ultimately proving of use and service in the action”, but they ought to be cut down to the words which Atkin LJ used, in the same case, “where necessary or proper for the attainment of justice”. As I say I do not shrink from the words I used. I think that when I speak of costs in respect of materials “ultimately proving of use and service in the action” I mean as being proper for the attainment of justice in that case. They would not be of value or use in the action unless they were relevant to some of the issues which had to be tried and in respect of which justice was sought. I do not desire to embellish or withdraw from the words I then used”.

In Bolton v Mahadeva, [1972] 1 WLR 1009 a heating engineer sued for work done in installing a heating and hot water system, and the defendant, who had ordered the work, counterclaimed for damages, including fees for a report that he had obtained from his expert. Cairns LJ (with whom Sachs and Buckley LJJ agreed) said this:

“So far as the defendant’s claim in respect of fees for the report which he obtained from his expert is concerned, it seems to me quite clear that that report was obtained with a view to a dispute which has arisen and with a view to being used in evidence if proceedings did become necessary, and in the hope that it would assist in the settlement of the dispute without proceedings being started. In those circumstances, I think that the judge was right in reaching the conclusion that that report was something the fees for which, if recoverable at all, would be recoverable only under an order for costs. ”

This authority, together with a similar approach taken in Hutchinson v Harris. (1978) 10 LBR 19, another case in the Court of Appeal concerning the expense of obtaining expert reports, lead Louise Merrett, in Costs as Damages (cit sup), to suggest (at p.473) that the main consideration for determining whether an expense is recoverable as costs is the dominant purpose for which it was incurred. I do not disagree with that observation. However, as seems to me clear from the judgments of Lord Hanworth MR, it is also proper and necessary to have regard to whether the expense in fact proved useful in subsequent litigation. As Megarry V-C said in Re Gibson’s Settlement Trusts (cit sup) at p187D, “… if the dispute ripens into litigation, the question then arises how far the ambit of costs is affected by the shape that the litigation takes”.

This approach is reflected in the decision of HHJ Peter Coulson QC in McGlinn v Waltham Contractors Limited, [2005] EWHC 1419 (TCC), in which he decided that the expense of complying with a pre-action protocol in respect of claims which were brought in subsequent proceedings is by way of costs “incidental to” those proceedings, but “save in exceptional cases, costs incurred by a Defendant at the stage of a Pre-Action Protocol, in dealing with and responding to issues that are subsequently dropped from the action when proceedings are commenced, cannot be costs “incidental to” those proceedings” (at para 11).

In this case the purpose of the RBS guarantee was to provide security for a claim such as that brought in these proceedings by the Charterers when they brought their counterclaim. It was in respect of damages for the wrongful withdrawal of the vessel in breach of the charterparty, and was in respect of proceedings for such damages brought in England (or arbitration proceedings in London). Since the Charterers brought just such a claim in these proceedings, the RBS guarantee did in fact provide security for the counterclaim. I consider that, as a matter of ordinary use of language, the original provision of the guarantee and the expense of doing so proved to be incidental to these proceedings. A fortiori, the expense of continuing to provide the guarantee after the Charterers brought their counterclaim is incidental to the proceedings.

Against this, Mr Baker advanced, I think, two major arguments. The first echoed what the Lord Justice-Clerk and Lord Salveson said in the Ellerman’s Wilson Line case (cit sup): that the Owners chose to provide the RBS guarantee in their own interests, in order to avoid the Charterers obtaining other security by arrest or otherwise, and there is no reason that the expense should be regarded as costs which might be borne by any other party. I am not persuaded by that argument: in the Ellerman’s Wilson Line case the court was not considering the question whether the expense was costs of or incidental to the proceedings within the meaning of a statute. On the contrary, the judges referred to whether the expense was “part of the expenses of the process” and whether procuring a bail bond was “a step of process”; they did not consider the more expansive expression “incidental to” proceedings - no such statutory wording governed the position in Scotland. This argument of Mr Baker did not engage with the relevant question of statutory interpretation.

Mr Baker’s second main point was that the RBS guarantee was not directed only against the potential arrest of the vessel: indeed, the Charterers did not threaten arrest of the vessel specifically but more generally referred to “all necessary steps to secure their claims”, and the ambit of the RBS guarantee was correspondingly wide. If the expense of dealing with an arrest or forestalling an arrest were recoverable, then by parity of reasoning the expense of dealing with proceedings to obtain security in other jurisdictions or forestalling such proceedings would also be recoverable. This, Mr Baker submits, would not be an appropriate development: it should be a matter for the courts where such proceedings for security are taken and not for the English court to determine whether the costs of them are to be recoverable.

I am not persuaded by this argument. The Charterers’ request for security before the vessel departed from the terminal at 01.55 on 4 June 2008 suggested that it was in their mind that they might arrest her. In any case, there is no rule that the expense of bringing or dealing with ancillary proceedings in another jurisdiction is not recoverable as costs in English proceedings. That is illustrated by the rulings in the Alsabah Maritime Services case (cit sup) and The “Maria D” (cit sup). Indeed, Mr Baker acknowledged that, for example, the expense of proceedings in another jurisdiction for information in support of an English freezing order might be recoverable as costs in the English proceedings. It might be that, in the circumstances of the particular case, the fact that costs would not be recoverable in the other jurisdiction where they were incurred is a relevant consideration as to how the English court should exercise its discretion about costs, but that is a different matter.

I therefore conclude that, subject to questions to be considered upon assessment as to whether the expense was reasonable and, if and to the extent that this is relevant, whether it was proportionate, the expense of providing and maintaining the RBS guarantee is recoverable as costs.

As I have said, Mr Eder acknowledged that in these circumstances the Owners are not entitled to recover substantial damages in respect of the expense. Nevertheless, I should consider the Owners’ claim for these damages (i) because, if it is well-founded, they are entitled be awarded nominal damages; (ii) lest my conclusion about the expense being recoverable as costs be overturned on appeal; and (iii) because the issue was fully argued before me.

The Owners pleaded that the charterparty included implied terms that the Charterers “would not make any invalid claim against the [Owners] and/or demand security otherwise than in support of a valid claim”, and that “Following the withdrawal of the vessel, the Defendant wrongfully and/or in breach of one or both of the … implied terms asserted that (i) the … withdrawal was wrongful, (ii) [they were] entitled to damages in respect thereof, (iii) [they were] entitled to arrest the vessel and to security in respect of [their] claim against [the Owners]”.

There is an issue about the proper meaning of the pleading of the implied terms. Mr Eder submits that the reference to any invalid claim is to a claim in respect of which there was no reasonable or probable cause (that is to say, one which might be made, under English law, if an arrest were made on the basis of the claim, give rise to a claim for wrongful arrest: see The “Walter D Wallet”, [1893] P 202, 208), and that valid claim has a corresponding meaning. Mr Baker argues that it is to be understood to refer to any claim which is not well-founded. I agree with Mr Baker’s submission on this point. It reflects the natural meaning of the words both generally and in the context of the pleading in which the word “valid” is used to mean well-founded or lawful: for example, the Owners claim a declaration that the withdrawal of the vessel was “lawful and valid”.

Mr Eder also applies for permission to amend the Owners’ pleading so as to add after the reference to an “invalid claim” in the implied term that I have set out the parenthesis “(ie one in respect of which there was no reasonable or probable cause)”. The Charterers resist that application. Mr Baker pointed out that the amendment, although on its face a revision of the implied term that is alleged, also alters the allegation of breach of it. He told me that his instructions were that, if the original pleading had contained such a definition of an “invalid claim”, that would have affected how the Charterers responded to the claim, specifically that they might have adduced further evidence at the hearing before me.

Mr Eder invited me to conclude that it is so obvious that the Charterers would not be able to establish that they acted with reasonable or probable cause when they asserted that the withdrawal the vessel was wrongful and that they were entitled to damages and to arrest the vessel or to other security, that the Charterers would not suffer any prejudice from the amendment. In support of this contention he referred to the witness statement of Mr Juan Alegre, a partner in Thomas Cooper, the Charterers’ solicitors, dated 2 February 2009 and made in opposition to the Owners’ application for summary judgment. He pointed out that Mr Alegre recognised that the Charterers were not in a position to make a positive allegation in support of a defence of waiver of the failure to make prompt payment of hire that the Owners knew about the Charterers’ failure on 31 May or 1 June 2008. This being so, Mr Eder argued that it is safe to infer that the Charterers had no reasonable or probable cause justifying the threats that they made.

I see force in this submission, but it does not convince me that it would justify giving permission to amend the pleading. In view of Mr Baker’s submission that the Charterers would have conducted the case differently and might have adduced other evidence, it would not be right to decide whether they had reasonable or probable cause to communicate with the Owners in the terms that they did without offering the Charterers an adjournment to deal with the new allegation. That would not be justified in view of the relatively small sums involved, quite apart from my decision about costs.

There is another reason that I refuse permission to amend. In my judgment, the amended pleading would not advance an arguable implied term. As I shall explain, I reject the Owners’ contention for an implied term, and it seems to me that equally the amended case could not succeed.

I am unable to infer that the parties intended that the Charterers, or indeed the Owners or both parties, should give an undertaking as to the claims that they might bring under the charterparty, still less as to when they might exercise any rights they had to obtain security for a claim. No such term is generally introduced into a contract by way of an implied term, and I see no reason to do so in this case. It is to be observed that the terms that the Owners seek to assert would not only preclude claims brought mala fide. The proposed amendment is, as I have observed, designed to plead an implied term reflecting the English law as to when proceedings might be brought for the wrongful arrest of a vessel. While recognising that the charterparty provided that not only the charterparty itself but the relations between the parties were to be governed by English law, I see no reason that the parties are be taken to have intended to agree to restrict by reference to the English law of wrongful arrest the circumstances in which the Charterers might seek to bring claims or to seek security (by way of arrest or otherwise) in any jurisdiction.

I therefore reject the Owners’ application for permission to amend their pleading.

I do not consider that the charterparty contained the implied term that the Owners have pleaded. It would give the Owners more protection than they are given by the tort of wrongful arrest. There is no basis for inferring that the parties to the charterparty intended that the Owners should have any additional protection. Even if that inference were drawn, the parties cannot be taken to have shared an intention as to the nature and extent of any additional protection: see Phillips Electronique Grand Public SA v British Sky Broadcasting Ltd., [1995] EMLR 472 at p.482 per Sir Thomas Bingham MR.

I conclude that the Owners’ claim in respect of the expense associated with the RBS guarantee is not recoverable except to the extent that it is allowable as costs.

I invite submissions as to the order that I should make to give effect to this judgment.