Cobelfret Bulk Carriers NV v Swissmarine Services SA

This is an appeal from the award of a panel of three arbitrators dated 5 May 2009. Permission to appeal was given by Cooke J.

The dispute arises out of a charter-party of the MV “Lowlands Orchid” made between the applicant, Cobelfret Bulk Carriers NV, (“the owners”), and the respondent, Swissmarine Services SA (“the charterers,”). The charter was for a voyage with 165,000 MT 10% more or less in owners’ option coal in bulk from Richard’s Bay Coal Terminal to Rotterdam and Immingham. The arbitrators, by a majority, rejected a claim by the owners for demurrage in respect of the discharge of the cargo at Immingham and accepted the claim by the charterers for dispatch money.

The agreement was contained in an email from the brokers to both parties (“the fixture recap”) dated 2 November 2007. This states:

The charter-party for the MV “Eurosailor” referred to in the fixture recap was a contract between Fairweather Shipping Limited as owner and Swissmarine Services SA as charterer. The “Eurosailor” charter-party, (hereafter “the pro-forma charter-party”) contained the following provisions:

The vessel loaded 168,444 MT bulk coal and discharged part of its cargo at Rotterdam between 19 and 22 December 2005. It discharged the remainder at Immingham between 23 and 28 December 2005. The central issue in the arbitration was whether laytime counted during the Super Holidays at Immingham during the period between 1800 hours on 24 December 2007 and 0600 hours on 27 December 2007. This involved considering whether, and if so to what extent, terms from the pro-forma charter-party were to be incorporated into the negotiated contract contained in the fixture recap. This in turn turned on whether the words “25,000 metric tons Sundays and Holidays included, excluding Super Holidays” in clause 63 of the pro-forma charter-party were inconsistent with the words “25,000 MT SHINC” in the fixture recap.

A majority of the arbitrators held that there was no inconsistency between the fixture recap and clause 63. Mr Crouch, the arbitrator appointed by the owners, dissented. He considered that “SHINC” in the fixture recap included all holidays and was completely at odds with clause 63 of the pro-forma charterparty. On the approach of the majority the charterers were entitled to US$ 106,500 dispatch money. On Mr Crouch’s approach the owners were entitled to US$ 142,177.25 demurrage.

Paragraph 15 of the Reasons of the majority arbitrators states that the term “’Super Holidays’ is one which is widely used in contracts for the shipment of large bulk cargos as an exception to the normal meaning of SHINC terms”. Paragraph 16 states that “the term SHINC is essentially a shorthand term for ‘Sundays and Holidays included’”. The majority stated they considered SHINC “is not a term which has a specific and independent meaning but “rather a shorthand term that is capable of qualification and should not be seen, in the context of a fixture recap, as a definitive term which will override provisions in the pro-forma charterparty”.

Paragraph 17 states:

The reasons of the majority arbitrators also refer to a letter dated 25 July and an email dated 26 November 2008 from Ifchfor, the brokers. The letter states that the words ‘excluding super holidays’ were removed from the working copy of the charter-party they had issued by a clerical mistake and an amended working copy was sent. The email states that the P & I Club considered the original working copy had been issued correctly but Ifchor’s staff had misunderstood what the Club said and sent the amended working copy in error. The majority arbitrators found the email sent over a year after the fixture had been concluded unconvincing. In paragraph 22 of the Award they state that since the earlier letter “supported our view of the parties’ agreement we therefore found that the correct construction of the agreement was that the words “excluding super holidays” should remain in clause 63 in the charter-party”.

Mr Crouch, the arbitrator who dissented, stated that, at the recap stage, the parties could have explicitly listed out specific exceptions to SHINC but did not choose to do so. He states:

He stated that he did not find the brokers’ letter of 25 July more persuasive than the subsequent email on 26 November.

He concluded that the “clear and direct conflict” between the recap and the pro forma charterparty must be objectively resolved by use of the parties’ own formula for doing so which is, as per the recap, to “logically amend” the pro-forma charterparty. He stated that in this case this was to be done by deleting the words “excluding Super Holidays” from the pro-forma charterparty as had indeed been done by the broker in the first draft of the charter sent out to the parties.

The owners appeal on the ground that the Arbitral Tribunal failed to give effect to the term agreed in the fixture recap that discharge was to occur at the specified rate “SHINC”. Mr Ashcroft submitted on their behalf that because it had been agreed in the fixture recap, the express main terms of the charter, that discharge was to be “SHINC”, the inconsistent wording in the pro-forma charterparty was not included in the contract or, if it was incorporated, its wording required amendment to give effect to the agreed term in the fixture recap. The Reasons of the majority are also criticised on two other grounds. The first is for inverting the question to be asked and asking (paragraph 4) whether the main terms of the fixture recap were to be incorporated into the pro-forma charterparty. The second is for relying on the brokers’ statement as to what the contract was intended to mean.

On behalf of the charterers, Mr Kimmins submitted that clause 63 did no more than qualify the words in the fixture recap and were not inconsistent with them let alone clearly and directly inconsistent as is required by the cases. He submitted that such recaps set out the basics, “the main terms”, but do not tell the whole story. That is to be found in standard terms or, as in this case, a pro-forma charterparty. In this case the term “SHINC” in the fixture recap could, he argued, sit happily alongside the provision in clause 63 that Super Holidays were excluded.

I can deal with the complaints about paragraph 4 of the Reasons and the reliance by the majority arbitrators on the brokers’ letter of 25 July briefly. There is an error in paragraph 4 but the remainder of the reasons make it clear that the majority arbitrators understood that the question they had to answer was whether all of clause 63 should be incorporated into the fixture recap: see paragraphs 9, 12-13, 17 and 22. As to what was said about the brokers’ letter, paragraph 22 of their reasons suggests that they thought it was relevant to the construction of the contract and that was, at its lowest, unfortunate. However, the majority arbitrators had made their decision (in paragraph 17) before referring to the letter. Although Mr Ashcroft referred to these points as basic errors, they were not included in the grounds of appeal.

The owners’ primary case is that, for two reasons, clause 63 is not incorporated into the charterparty at all. First, holidays were dealt with in the fixture recap by the “H” in “SHINC” and the words “o/wise as per Eurosailor” mean that only matters not dealt with in the fixture recap were to be incorporated. Secondly, the exclusion of Super Holidays from clause 63 is inconsistent with the fixture recap and therefore cannot be incorporated into the contract.

Mr Ashcroft relied on the acceptance by all three arbitrators that “SHINC” would normally include Super Holidays. Paragraph 15 of the majority reasons states that the term Super Holidays is “an exception to the normal meaning of SHINC terms”. The dissent states that “Sundays and Holidays included is plain English and includes, for instance, Christmas Day”. Clause 63 itself assumes that, but for the express exclusion, Super Holidays would fall within the scope of the “H” in SHINC.

Alternatively, Mr Ashcroft submitted that, if clause 63 is incorporated, it must be “logically amended to reflect” and to accord with the main terms agreed in the fixture recap.

Because the issue of inconsistency between the fixture recap and the pro-forma charterparty is at the heart of this dispute, I shall deal with that before considering Mr Ashcroft’s submission that clause 63 was not incorporated into the contract in the fixture recap. Although he says the non-incorporation point is the owners’ primary case, in his written submissions he also dealt with it (in paragraph 27) after he had dealt with inconsistency.

Where there is an inconsistency between negotiated terms (here those in the fixture recap) and incorporated proforma or standard terms (here the “Eurosailor” charterparty) those in the former will prevail: see Modern Building Wales Ltd v Limmer & Trinidad Co Ltd [1975] 1 WLR 1281, at 1289 per Buckley LJ; Société Cooperative Swiss de Céréales et Matieres Fourrageres v La Plata Cereal Company SA (1947) 80 Ll.L.R. Rep 530 at 537 per Morris J; The “Leonidas” [2001] 1 Lloyd’s Rep 533, at 536 per Langley J, and The “Eternity” [2009] 1 Lloyds Rep 107 at 113 per David Steel J who said the inconsistency must be “clear and direct”. In Modern Building Wales Ltd v Limmer & Trinidad Co Ltd Buckley LJ stated:

Mr Ashcroft’s submissions are attractively straightforward and have force. If SHINC alone includes all holidays, even Super Holidays, since the fixture recap, which records the main terms agreed defines the laytime as including SHINC, the exclusion of Super Holidays in clause 63 can be seen as contradicting the main terms by defining the laytime differently. Mr Ashcroft submitted there is thus a conflict of language. Mr Ashcroft initially submitted that there was also a conflict or contradiction of effect. He did so because, given the dates on which the vessel discharged its cargo, laytime on the basis of the fixture recap alone was 6.74 days but on the basis of clause 63 it was 9.24 days. In a supplemental note on The “Northgate” [2008] 1 Lloyd’s Rep. 511 Mr Ashcroft states that whether the contradiction of language produces a different result in a given case will depend on the facts. In this case it did because of the Super Holidays at Immingham when the vessel was discharging.

The question is whether, notwithstanding their force, this reflects the approach of the courts to the determination of whether there is “conflict”, “inconsistency”, or “contradiction” between negotiated terms and printed or pro-forma terms which the parties have incorporated into the contract.

The starting point is Pagnan SpA v Tradax Ocean Transportation SA [1987] 2 Lloyd’s Rep 342. That case was concerned with the relationship between the special conditions in a fob sale and the printed clauses of GAFTA 119 which was incorporated into the contract. The special conditions were to “prevail in so far as they may be inconsistent” with the printed clauses. One of them required “sellers to provide for export certificate”. Clause 19 of GAFTA 119 provided that:

Bingham LJ stated (at 350) “it is not enough if one term qualifies or modifies the effect of another; to be inconsistent a term must contradict another term or be in conflict with it, such that effect can not fairly be given to both clauses”. He concluded (351) that the natural construction of the contract is that the sellers were to provide for the export certificate, but, in case of prohibition of export by the government, the unfulfilled portion of the contract was to be cancelled. He stated:

Woolf LJ stated (at 352) that clause 19, if allowed to operate, “does not directly deal with the sellers’ obligations to obtain an export certificate, but it can clearly affect that obligation of the seller”. He stated that the qualification that in some circumstances if clause 19 operated an export certificate will no longer be required does not mean that clause 19 is inconsistent with the special condition. He stated that “clause 19 supplements the special condition and deals expressly with circumstances which the special condition could have dealt but did not deal”. He also cautioned against elevating the special conditions to a status that is inappropriate.

Although other decisions on different words in other agreements may, see Dillon LJ in Pagnan v Tradax Ocean at 353, be of limited assistance, the distinction between a conflicting provision and a qualifying one is generally accepted. For example, The “Leonidas” [2001] 1 Lloyd’s Rep 533 dealt with the relationship between a speed warranty in the typed clauses of a charterparty which provided that the vessel would perform “at 11 knots weather and safe navigation permitting” and the Hague Rules exceptions included in the charter by virtue of the clause paramount. David Steel J held that the speed warranty applied subject to the exceptions incorporated by the clause paramount; that is it was qualified by those exceptions.

Again, in The “Northgate” [2008] 1 Lloyd’s Rep 511 the court considered the relationship between the contents of a fixture recap email which allowed for the tender of Notice of Readiness, “whether in berth or not, whether in port or not…” (hereafter “WIBON”, “WIPON”), i.e. including at the outer anchorage, and a term in the pro-forma charterparty that Notice of Readiness could not be tendered at the outer anchorage if there was room at the inner anchorage. Mr Siberry QC held that there was no inconsistency between the proforma charterparty and the fixture recap; that is the provision in the charterparty qualified the fixture recap.

So, the question is what will make two contractual provisions contradictory or put them in conflict, and what will amount only to a qualification? In Pagnam v Tradax Bingham LJ was less hostile than Dillon LJ to cases concerned with the construction of different words in other agreements. He stated (at 350) that such cases help to define inconsistency and provide guidance as to the general approach of the court to the question. His view reflects the approach of the courts in other contexts, for example, in relation to the approach to be used in construing exemption clauses.

The cases show that the negotiated term is to be construed “fairly in the context of the contract as a whole and in its factual setting” and without an assumption “as to what the parties meant, whether a predisposition to find inconsistency between” the negotiated term and the pro-forma term or “an assumption that there is no inconsistency”: Pagnam v Tradax at 348-351. In that case Bingham LJ considered that the documents should be approached “in a cool and objective way to see whether there is inconsistency or not”. One reason he considered it “quite wrong to approach this question of construction with any predisposition to find inconsistency” is that the provisions are both part of the same contract, “and the parties expressly chose to make their contract subject to the terms of GAFTA 119”. In The Leonidas [2001] 1 Lloyd’s Rep 533, at 536, Langley J stated that the court should ask whether a “reasonable commercial construction of the whole [contract] can reconcile two provisions (whether typed or printed)” and if it can it should be adopted.

Mr Ashcroft submitted that there is a difference between the construction of a single document where the court strives to harmonise clauses if this is possible and the construction of a contract which is partly contained in main terms which have been negotiated and partly in another pro-forma document. While there may be some differences, the indications from the cases are that it is only one of nuance, and that the first question is to ask whether there is a conflict or inconsistency. Pagnam v Tradax, decided since Modern Building Wales v Limmer, was concerned with special conditions which were negotiated and GAFTA 119 which was incorporated. Dillon LJ stated that the first task of the court is to see if “the clauses can sensibly be read together”. Société Cooperative Swiss de Céréales et Matieres Fourrageres v La Plata Cereal Company SA on which Bingham relied, was concerned with the relationship of special conditions and the London Corn Trade Association Form 64. Langley and David Steel JJ in The Leonidas and The Eternity were dealing with contracts made up of typed and printed clauses.

What of the approach to inconsistency? In Modern Buildings Wales v Limmer Buckley LJ did not deal with the test for ascertaining whether there was a conflict or contradiction, and it was not alleged that the pro-forma incorporated contract was inconsistent with the main contract. Mr Ashcroft relied on the reference by me in General Trading Company (Holdings) Ltd v Richmond Corporation Ltd [2008] 2 Lloyds Rep 475, at [70]-[81] to the test in that case. The General Trading Company case, like Modern Buildings Wales v Limmer, did not consider the test for ascertaining inconsistency. At [81] I state that the passage from Buckley LJ’s judgment does not suggest a narrow or technical approach to the issue of inconsistency and conflict. However, on the hypothesis considered in that paragraph there was a clear conflict between the incorporating provision and the incorporated document, in that case an email.

Pagnam v Tradax did consider the test for ascertaining whether there was a conflict or inconsistency and other cases on the point. One of these was The Brabant [1965] 2 Lloyd’s Rep 546, at 554. In that case McNair J considered there was inconsistency where the application of one clause would “almost entirely” deprive the other clause of any effect. In The Leonidas there was a reference (at 536) to one of the clauses being “emasculated” in a manner which is contrary to its express terms (although the claim was that the printed clause paramount and not the negotiated provision would be emasculated). In Pagnam v Tradax in the passage quoted at [24] Bingham LJ said that to be inconsistent the contradiction or conflict must be “such that effect cannot fairly be given to both clauses”. Mr Ashcroft submitted that this is so in this case because, if clause 63 operates, there is no room at all for the operation of the SHINC term in the fixture recap which includes all holidays because clause 63 deals with SHINC and Super Holidays and means that in no case can Super Holidays be included in the laytime.

He also argued that Modern Buildings Wales v Limmer shows that the test is not “of no effect” or “emasculated” and that clauses can be inconsistent without one of them being “emasculated” or of no effect. This, however, is to propose a different test to that laid down in Pagnam v Tradax and the other cases I have discussed.

What of his other two submissions? The first is that the fixture recap deals with holidays and includes all holidays. This is put as a distinction from cases such as Pagnam v Tradax where the special condition dealt with export certificates and, read on its own, “imposed an absolute obligation on the sellers to provide for the export certificate”, while the pro-forma contract dealt with prohibition of export which was not the same. The difficulty with this submission is that in The Leonidas the tailor made negotiated clause made provision for a warranty as to speed and did so in an unqualified way but it was held that the provisions of the printed clause paramount qualified rather than contradicted it. Again, in The “Northgate” the tailor made clause in the “main terms” in the recap dealt with NOR and stated it could be tendered WIBON and WIPON but the pro-forma charterparty stating NOR could only be tendered from the outer anchorage where there was no room at the inner anchorage was held to qualify not contradict the recap.

What of Mr Ashcroft’s submission that in this case there was no scope at all for the operation of the SHINC term in the recap? The recap provided that time counted during holidays. I do not consider that clause 63 of the pro-forma charterparty “emasculated” this provision or prevented “any effect” being given to it. Time would count during holidays unless they are super holidays, and during holidays that are not super holidays the fixture recap would apply. The terms of the recap were limited or qualified but not deprived of any operation. Again, this is what happened in The “Leonidas” and The “Northgate”. In The “Leonidas” it was held that the speed warranty could work where the exceptions in the clause paramount did not apply and in The “Northgate” the WIBON/WIPON provision in the recap could work where there was no space at the inner anchorage.

Mr Ashcroft sought to distinguish those cases on the ground that, in this case clause 63 of the pro-forma charterparty redefines the basic obligation in the negotiated main terms in the recap whereas in those cases a liberty (The “Northgate”) or an excuse for non-performance (The “Leonidas”) was given without redefining the basic obligation. There is nothing in the reasoning in those cases to support this and, as Mr Kimmins observed in his response to Mr Ashcroft’s note on The “Northgate”, it is a matter of semantics. It is, moreover, not consistent with the approach of Bingham LJ in Pagnam v Tradax and his statement (at 350) that it is a common place of documentary construction that an apparently wide and absolute provision is subject to limitation, modification or qualification by other provisions and that does not make the later provisions inconsistent or repugnant.

Mr Ashcroft also relied on the provision in the fixture recap that the pro-forma charterparty was to be “logically amended to reflect main terms agreed as above”. Those words do not mean that the “main terms” in the fixture recap cannot be qualified by the terms of the pro-forma charterparty. As Mr Kimmins submitted, the main terms relating to laytime and demurrage in a recap are invariably qualified by the charterparty which is incorporated into that recap. In the present case the words “25,000 MT” were qualified by a comprehensive laytime code contained in the pro-forma charterparty. That included the qualifications that the 25,000 metric ton rate of discharge applies only per weather working day (clause 9), that time does not count during shifting (clause 11), and that the rate applied only if the vessel can deliver at that rate (clause 9).

Since the port of Immingham did not work over Super Holidays (see paragraph 15 of the Reasons of the majority arbitrators referring to Mr Hatter’s evidence) it also made commercial sense for the parties to agree that time should not count during such a period.

Mr Kimmins submitted that the statement by the majority arbitrators in paragraph 16 of their Reasons, that SHINC is not a term which has a specific and independent meaning but rather a shorthand term that is capable of qualification, reflects the nature of fixture recaps as setting out the basics without telling the whole story. That does not sit comfortably with the statement of the majority arbitrators in paragraph 15 that the term “Super Holidays” is a term used “as an exception to the normal meaning of SHINC terms”. But, notwithstanding that, their view that there was no “clear and direct” conflict between the use of the term SHINC without qualification in the fixture recap and clause 63 of the pro-forma charterparty was not erroneous.

For these reasons I have concluded that there is no clear direct and irreconcilable conflict between clause 63 of the pro-forma charterparty and the fixture recap. The two clauses can be read together sensibly and in a commercially satisfactory way with the former qualifying the latter.

I turn to the owners’ primary case, that clause 63 was not incorporated into the contract in the fixture recap. In the light of my conclusion on inconsistency, only the first of Mr Ashcroft’s reasons for making this submission remains. This is that only terms addressing matters not “otherwise” dealt with in the fixture recap were incorporated by the language in it. He argued that, because the main terms in the recap include “SHINC” which defines the allowed laytime at the discharge port, and addresses the question of holidays, the express incorporation language did not incorporate clause 63 of the pro-forma charterparty.

I have dealt with his submissions based on the fact that the “H” in SHINC relates to holidays. For the reasons I have given that fact does not prevent a qualification of that term in the pro-forma charterparty or mean that any qualification is a contradiction. Does the term “o/wise” have that effect? I do not consider that it does. What is provided in the fixture recap is “25,000 MT SHINC”. That phrase is qualified by a comprehensive and detailed laytime code in the pro-forma charterparty including the provisions in clauses 9 and 11 to which I have referred (see [37]). I accept Mr Kimmins’s submission that anyone reading this phrase in the recap would know that it did not contain the entirety of the contractual provisions relating to laytime.

For these reasons this appeal is dismissed. I will hear the parties on any orders as to costs they may seek and as to whether the matter falls within section 69(8) of the 1996 Act.