Hyundai Merchant Marine Co Ltd v Daelim Corporation

This is the second judgment of the Commercial Court in respect of a speed and consumption claim by Hyundai Merchant Marine (“HMM”) as “Charterers” and Trafigura as “Owners”. In the first judgment, [2011] EWHC 3108 (Comm), Flaux J. set out the charterparty chain at paragraphs 2 and 3. As Flaux J. explained there was in fact another charterer between HMM and Trafigura, namely, Daelim, but Daelim has taken no active part in the argument. The two charterparties were essentially back to back.

Flaux J. determined a preliminary issue, namely, whether the charterparties contained an all weather warranty as to speed and consumption or a warranty applying only in weather conditions up to a maximum of Force 4. He determined that the charterparties contained an all weather warranty.

The parties have now identified further questions of construction regarding clause 24 of the Shelltime 3 form (as amended) and additional clause 42 which the court has determined should be decided as further preliminary points. Those two clauses provide as follows:

“24.

Owners warrant that at the date of delivery under this charter the vessel shall be of the description set out in Gas Form C attached hereto and signed by them and undertake to use their best endeavours so as to maintain the vessel during the period of her service hereunder. Further but otherwise without prejudice to the generality of this clause Owners guarantee that the average speed of the vessel will be not less than knots in ballast and knots fully laden, with a maximum bunker consumption of tons diesel oil/ tons fuel oil per day for all purposes excluding cargo heating and tank cleaning. See Additional Clause 42 attached which also overrides any references to overperformance herein.

…

If during any year from the commencement of the charter period the vessel falls below or exceeds the performance guaranteed in this clause then

…

(b)

If such shortfall or excess results respectively from an increase or a decrease in the vessel’s average daily bunker consumption, as herein defined, in relation to the average daily consumption guaranteed hereunder, hire shall be reduced or increased as may be appropriate by an amount equivalent to the value of the excess or saving in bunkers involved based on the average price paid by Charterers for the vessel’s bunkers in this period.” [emphasis per original]

42.

Speed/Consumption

Speed about 15 knots average

Consumption about 40mt IFO …..

Otherwise as per Gas Form C

Charterers will not be liable for any over performance of the vessel during the course of this charter party. However, any overperformance will be credited against any underperformance due charterers for the purposes of calculation.”

The further questions of construction are:

Whether the Defendant Owners are entitled to a credit for bunkers saved during the first period of the charter. Specifically:

(i)

Whether, in circumstances where the vessel has performed within the consumption warranty of about 40 MT IFO ie a daily consumption of IFO of between 38 and 42 metric tons to include a 5% tolerance for the word “about”, there has been a saving of bunkers and whether the saving is to be calculated by reference to the lower figure of 38 metric tons or the higher figure of 42 metric tons; and

(ii)

If so, whether the Defendant Owners are entitled to credit such a saving of bunkers in the first period of the charter against the agreed underperformance by the vessel in the second period of the charter.

The first period referred to in that further question of construction is the year from delivery at 0845 on 14 January 2006 and the second period is from 0845 on 14 January 2007 until redelivery later the same year.

The parties have helpfully agreed the following figures:

A saving of US$206,023.33 would exceed the Charterers’ speed and consumption claim for the first period and so the Owners wish to offset the excess against the Charterers’ speed and consumption claim for the second period.

In essence the argument of Mr. Kenny QC, for HMM, on the first point is that, in circumstances where the warranted consumption of IFO is “about 40 mt” ie between 42 and 38 mt per day the Owners can only claim that they have “over performed” in that regard if the consumption is less than 38 mt per day. If consumption is between 42 and 38 mt per day the Owners will simply have performed in accordance with their warranty.

In essence the argument of Mr. Semark, for Trafigura, on the first point is that, in circumstances where the Owners guarantee a maximum consumption of “about 40 mt” per day the maximum consumption inherent in such warranty is 42 mt per day. It follows that there has been overperformance if the consumption is less than 42 mt per day.

Clause 24 provides for the hire to be increased in the event of the vessel’s bunker consumption exceeding the warranted daily consumption. However, clause 24, as amended in these charterparties, also provides that additional clause 42 “overrides any references to overperformance herein.” I respectfully agree with Flaux J. that those words mean that clause 42 overrides the references to exceeding performance elsewhere in clause 24; see paragraph 15 of Flaux J.’s judgment. Thus, whereas clause 24 provided for the hire to be increased in the event of the vessel’s bunker consumption exceeding the warranted daily consumption, clause 42 provided that the charterers will not be liable for any overperformance, which must mean that the increase in hire contemplated by clause 24 was no longer applicable. But clause 42 went on to provide that “any overperformance will be credited against any underperformance due Charterers.” That means that if hire fell to be reduced pursuant to clause 24 as a result of the vessel’s average speed falling below that warranted (“underperformance”) the amount of any “overperformance” on bunker consumption could be set-off against that reduction of hire.

The important question is the meaning of “overperformance”. I consider that that means a performance better than that warranted. The relevant consumption warranted was “about 40 mt” which, it is agreed, means between 38 and 42 mt per day. If the consumption is less than 38 mt per day the vessel is clearly performing better than warranted. However, if the consumption is between 42 and 38 mt per day the vessel is performing in accordance with the warranty, not better than the warranted performance. That is how the clause would be understand by the reasonable man and is, in my judgment, the true construction of clause 42.

Mr. Semark emphasises that clause 24 refers to a “maximum bunker consumption of …… tons fuel oil per day.” He submits that it is that maximum daily consumption which is guaranteed and that the maximum bunker consumption implied by “about 40 mt” is 42 mt per day. I am unable to accept that submission. I accept that the owners gave a warranty of a “maximum” daily consumption. But that maximum daily consumption is agreed to be “about 40 mt” per day. The parties doubtless used the word “about” because a vessel’s main engine will rarely consume exactly 40 mt per day. The warranted maximum consumption is therefore expressed to be within a range, agreed to be 42-38 mt per day. Overperformance with reference to that range, which is the guaranteed maximum consumption, means a rate of consumption less than that range, ie, less than 38 mt per day.

Mr. Semark also relied upon two authorities. The first was the Larissa [1983] 2 Lloyd’s Rep. 325. That case also involved clause 24 of the Shelltime 3 form. The warranted maximum bunker consumption was “42 tons” per day. The bunker consumption was in fact 31-32 tons per day which gave rise to an increase in hire. Hobhouse J. said, at p.329:

“The decrease in consumption is that ascertained by reference to the figure inserted in the earlier part of clause 24 and is therefore in the present case a figure of 42 tons.”

Whilst this statement is consistent with Mr. Semark’s argument Hobhouse J. was not considering the issue which has arisen for decision in the present case and I am therefore unable to find it of any significant assistance.

In the Evanthia [1985] 2 Lloyd’s Rep. 154 this court again considered clause 24 of the Shelltime 3 form. The maximum consumption warranted by owners was 33 tons per day. In the course of his judgment Mustill J. referred, at p. 156, to:

“a contract where quantities expressed as maxima are used as the basis for adjustments whether the actual consumption exceeds or falls short of the guarantee.”

Whilst this statement is again consistent with Mr. Semark’s argument Mustill J. was not considering the issue which has arisen for decision in the present case and I am therefore unable to find it of any significant assistance.

Mr. Semark submitted that it accorded with principle to use the same single figure, namely 42 mt per day, to assess underperformance and overperformance with reference to bunker consumption and that, conversely, it would be wrong in principle to use one figure for underperformance, 42 mt tons per day, and another figure for overperformance, 38 mt per day. He pointed out that where a promisor (here the Owners) acts in breach of contract the measure of damages is assessed by reference to the performance which would have brought the least benefit to the promisee (here the Charterers). On that basis any claim for damages against the Owners for breach of the consumption warranty would be calculated by reference to the figure of 42 mt per day.

I do not accept that it would be contrary to principle to use one figure for underperformance (42 mt per day) and another figure for overperformance (38 mt per day). Where the guaranteed maximum consumption is expressed by reference to a range (“about 40 mt” per day) it seems to me to be right in principle to assess underperformance by reference to the upper limit of that range, 42 mt per day, and to assess overperformance by reference to the lower limit of that range, 38 mt per day. Similarly, whilst I accept that a claim for damages against the Owners for failing to perform in accordance with the consumption warranty would involve measuring damages by reference to 42 mt per day, as would a claim for a reduction in hire pursuant to clause 24, I do not accept that it is inconsistent with that to assess the credit due to the Owners pursuant to clause 42 for overperformance by reference to 38 mt per day. All such assessments are governed by the circumstance that the Owners’ warranted consumption is expressed by reference to a range, agreed to be 42-38 mt per day.

It follows that I accept HMM’s case and that in accordance with the agreed figures there is no credit to be given Trafigura for any overperformance pursuant to clause 42 of the charterparty.

This issue does not strictly arise for decision in the light of my decision on the first issue. It is however a very short point and I therefore express my view on it.

Clause 42 provides that “any overperformance will be credited against any underperformance due charterers for the purposes of calculation”. The question is whether an overperformance in one period can only be set off against an underperformance for the same period or whether it can, to the extent that it has not been set off against an under performance for the same period, be set off against an underperformance in a later period.

Mr. Kenny, for HMM, says that the calculation referred to in clause 42 must refer back to clause 24 which contemplates a calculation for a year and that during any year there may be an adjustment of hire for speed and an adjustment of hire for consumption. Mr. Kenny therefore submits that the calculation referred to in clause 42 is one for each year or part thereof. There is no basis for allowing an overperformance in one yearly calculation to be carried forward to another yearly calculation.

Mr. Semark, for Trafigura, emphasises the word “any” in “any overperformance will be credited against any underperformance.” That language is wide enough to permit an overperformance in one year to be set off against an underperformance in a subsequent year.

I prefer Mr. Kenny’s construction of clause 42. It gives effect to the reference in that clause to “calculation” which, in context, is a reference to the calculation envisaged by clause 24 and which is done on a yearly basis. Clause 24 does not envisage a calculation done over the whole period of the charterparty which is what Mr. Semark’s construction involves. His construction ignores the context in which clause 42 is found, namely as an adjunct to clause 24.

The answer to the first issue is 38 mt. The answer to the second issue is No.