Osmium Shipping Corp v Cargill International SA

This is an appeal from an arbitration award dated 27 July 2011 issued by two well known commercial arbitrators with a commercial silk, Stephen Males QC, as the third arbitrator. It raises a point of construction of a charter party on an amended NYPE (1946) form dated 28 August 2008, which was determined as a preliminary point by the Tribunal on an agreed statement of facts.

The agreed statement of facts was as follows:-

The preliminary question which the Tribunal were asked to decide was whether or not, on these agreed facts, the Vessel was off-hire between 21 September 2008 and 6 December 2008 whilst subject to the hijacking.

The relevant off-hire provision is clause 56 which provides:-

“Clause 56- Off-hire

Should the vessel put back whilst on voyage by reason of any accident or breakdown, or in the event of loss of time either in port or at sea or deviation upon the course of the voyage caused by sickness of or accident to the crew or any person onboard the vessel (other than supercargo travelling by request of the Charterers) or by reason of the refusal of the Master or crew to perform their duties, or oil pollution even if alleged, or capture/seizure, or detention or threatened detention by any authority including arrest, the hire shall be suspended from the time of the inefficiency until the vessel is again efficient in the same or equidistant position in Charterers’ option, and voyage resumed therefrom. All extra directly related expenses incurred including bunkers consumed during period of suspended hire shall be for Owners’ account.”

It was not contended, and in view of The Saldanha [2011] 1 Lloyd’s Rep 187, could not be contended, that the vessel was off-hire pursuant to the standard clause 15 of the NYPE form. In essence, therefore, the point in dispute turned on the construction of the words “capture/seizure” in clause 56, in the context of the clause and the charter as a whole. The Owners submitted that those words were qualified by the further words “by any authority” and that pirates did not constitute such an authority, whereas the Charterers said that the words were unqualified and a seizure by pirates was an off-hire event.

The Owners also relied on other clauses as relevant:-

Whilst there was a difference of emphasis between the parties, as might be expected, there was no real difference between them as to the principles to be applied in construing the Charterparty. As many authorities state, hire is payable continuously unless the Charterers can bring themselves within an exception, the onus being on the Charterers to do so. Doubt as to the meaning of exceptions is to be resolved in favour of the Owners.

Otherwise, the Court’s approach is to look at the words used in the clause in question and to construe them in the context of the clause itself and the Charterparty as a whole. The Owners relied upon paragraphs 21 and 28 of the judgement of Lord Clarke in Rainy Sky SA v Kookmin Bank [2011] 1WLR 2900, a decision of the Supreme Court, where he emphasised the need for a unitary exercise of construction and an iterative approach, in which the rival meanings were checked against the other provisions of the contract and the commercial consequences. The following appears:-

“The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other ... Where the parties have used unambiguous language, the court must apply it ... As stated in a little more detail in Para 21 above, it is in essence that, where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense.”

The Owners submitted that the Charterparty, taken as a whole, particularly when regard was had to the Conwartime Clause, placed the risk of piracy upon the Charterers and not upon the Owners and that the off-hire clause had to be read with this business purpose and allocation of risk in mind.

The difficulty about such an approach is that the off-hire provisions of a charter do not necessarily, nor indeed usually, tie in with the provisions of the charter which relate to breach of obligation by one party or the other. As Staughton LJ said in the The Berge Sund [1993] 2 Lloyds Rep 453 at 459, as quoted by the tribunal:-

“A charter party might provide that the Vessel would remain on hire except during delay caused by breach of contract on the part of the owner; or it might provide that the vessel should be off-hire in the event of delay, unless caused by breach of contract on the part of the Charterers. Either solution would provide a rule that was tolerably clear and workable. But those who make charterparties prefer something more complicated. They provide for a vessel to be off-hire in some events which were not a breach of contract by either party for example, interference by authorities in the present case. As is fashionable nowadays, the clause is said to deal with allocation of risks. The only general rule that can be laid down is that one must consider the wording of the off-hire clause in every case.”

It is also to be borne in mind, as the Charterers submit, that standard form charterparties are often used with a series of “add-on” special clauses which do not always fit together immaculately or happily. Where there are one or more clauses which deal with off-hire events, they must clearly be looked at together and reconciled but where the Charter provides for off-hire in some provisions and charterparty obligations and remedies for breach in others, the focus must inevitably be upon the off-hire clauses when determining whether an off-hire event has occurred.

This Charterparty contains 2 off-hire clauses, Clause 15 and Clause 56. The Owners submit that Clause 56, on its own, gives the lie to the Charterers’ construction, because of the language used and the general approach that all the off-hire events relate in one way or another to the characteristics or condition of the Vessel. In the context of the Charter as a whole, the Conwartime 2004 clause specifically deals with War Risks, which expressly include “actual threatened or reported” acts of piracy. This does not however purport to be an off-hire clause. It sets out the rights, liberties and obligations of the parties in the circumstances set out, where the Vessel might be exposed to such War risks, including piracy. Under its terms, the Charterers are not to order the Vessel to go to War Risk Zones unless the Owners agree in writing and the Charterers are then to pay any extra War Risks Insurance premia and crew bonuses earned, should the Vessel enter such zones.

Sub-clause (f) entitles the Owners to comply with the resolutions of the UN Security Council, orders of supranational bodies and national laws to which they are subject (sub clause(iii)), to comply with the orders or recommendations of War Risk underwriters (sub clause (ii)) and to comply with the orders, recommendations and advice given by the Government of the Flag Nation, any other Government to whose laws the Owners are subject, “or any other Government, body or group whatsoever acting with the power to compel compliance with their orders or directions.”

The Owners submitted that this latter phrase included the orders of pirates and that, in consequence, sub clause (h) had the effect that compliance with such orders was deemed not to be a deviation but “due fulfilment of the Charterparty”. It followed, they said, that an off-hire event could not arise from obeying such orders.

Moreover Owners submitted that the Conwartime Clause had the effect of allocating to the Charterers all risks of piracy. They contended that it made no sense for the Owners to be at liberty to comply with such orders from pirates, but for the Vessel to be off-hire during such a period of compliance. Whether the Vessel was seized by pirates who operated the Vessel or by pirates who ordered the Vessel to comply with their orders to deviate, the Conwartime clause was apt to put all the risks of that upon the Charterers. The Owners were deemed to have fulfilled their obligations under the Charter and they must be deemed to have fulfilled the service required at the time, with the consequence that the off-hire clause was not engaged at all.

The Arbitrators were criticised by the Owners for starting with the words of the clause without reference to what they said was the overall allocation of risk in the Charterparty. That however, as indicated above, is, to my mind, the obvious place to start. The initial search must be for the ordinary and natural, or conventional, meaning of the language used, in the context of the agreement, the parties’ relationship, and all the relevant facts surrounding the transaction, so far as known to the parties. The primary source for understanding what the parties meant is the language used by them in the Charterparty, interpreted in accordance with conventional usage. Regard must be had to the particular words used and the grammatical structure and syntax of the clause in question.

In my judgment, the wording used, the structure of the clause, its punctuation and its grammar all clearly support the Charterers’ submissions. When regard is had to the various events of off-hire which are set out, the use of the word “or”, the linkage of “capture” with “seizure” by the use of an oblique stroke, and the positioning of the commas, the clause to my mind clearly sets out that it is only “detention or threatened detention” which is qualified by the expression “by any authority”. The words “capture/seizure” are free standing and constitute a separate head of off-hire, quite apart from “detention or threatened detention by any authority including arrest”.

The clause can be broken down into a number of distinct off-hire events, the first two of which refer to the position where the Vessel “puts back”. The balance of the named off-hire events are those which occur in port, at sea or in the course of the voyage where “loss of time” is caused thereby. The Charterers analyse the clause in this way:-

“(A)

Should the vessel put back whilst on voyage by reason of any (A1) accident or (A2) breakdown, (B) or in the event of loss of time either in port or at sea or deviation upon the course of the voyage caused by (B1) sickness of or accident to the crew or any person onboard the vessel (other than supercargo traveling by request of the Charterers) or (B2) by reason of the refusal of the Master or crew to perform their duties, (B3) or oil pollution even if alleged, (B4) or capture/seizure, (B5) or detention or threatened detention by any authority including arrest, the hire shall be suspended from the time of the inefficiency until the vessel is again efficient in the same or equidistant position in Charterers’ option, and voyage resumed therefrom. All extra directly related expenses incurred including bunkers consumed during period of suspended hire shall be for owners’ account.”

The structure of the clause, from B onwards, regardless of commas, sets out causes of loss of hire, with each separated by the word “or”. There are five such clauses or six, if “threatened detention” is read separately from “detention”. Thus the clause provides that “in the event of loss of time”….. “caused” “by sickness of”…. “or by any refusal”…. “or oil pollution or capture/seizure or detention or threatened detention by any authority”… the hire shall be suspended.

Whilst it is right to say that there is not total consistency or uniformity in the use of commas, since there is no comma after the passage in parenthesis, it cannot be said that the commas are insignificant. The bracket at the end of the passage in parenthesis effectively replaces a comma, but regardless of that, the fact is that there is a comma between the words “capture/seizure” and the words “detention or threatened detention” as well as an “or”, but there is not a comma between the word “detention” and the words “or threatened detention”. The effect is clear in separating “capture/seizure” from “detention or threatened detention”. Capture and seizure are linked by the oblique stroke between them, doubtless because they were thought to go together, as they have done historically in policies of marine insurance, whilst the words “detention or threatened detention” are put together because of their obvious link, after a comma and the word “or”. Thus, as a matter of syntax, the words “by any authority” qualify only the words “detention or threatened detention” and not the words “capture/seizure”. If the parties had wished “capture/seizure” to be qualified by the words “by any authority” it is, in my judgment, inconceivable that they would have written the clause in the way it appears. The most obvious way in which this could have been achieved, with limited alteration, would have been, not simply by omitting the comma, but also deleting the “or”, which follows “capture/seizure”.

The Owners submit that far too much weight is being put upon a comma here and point to a decision of the Privy Council in Sammut v Manzi [2009] 1 WLR 1834 at paragraphs 7 and 8, as a warning against reliance on the significance of punctuation in a word processed document. The Owners point also to other reported cases, such as The Fu Ning Hai [2007] 2 Lloyd Rep 223, where the words “capture/seizure or detention or threatened detention by any authority” appear without any comma, and the Doric Pride [2006] 2 Lloyds Rep 175, where the clause referred to the vessel being “captured or seized or detained or arrested by any authority”, as showing that all the words could quite naturally be read together with the qualification “by any authority”. They submitted that Charterers’ construction therefore depended on a comma, a weight that it could not properly bear.

The Owners relied also on paragraph 36 of the judgment of Gross J (as he then was) in The Saldanha [2011] 1 Lloyds Rep 187, where he said this:-

“Should parties be minded to treat seizures by pirates as an off-hire event under a time charterparty, they could do so straightforwardly and most obviously by way of an express provision in a “seizures” or “detention” clause. Alternatively and at the very least, they can add the word “whatsoever” to the wording “any other cause”, although this route will not give quite the same certainty as it presently hinges on obiter dicta, albeit of the most persuasive kind”.

[He was there referring to Clause 15 of NYPE].

The Owners agreed that the comma had to be given some significance, but submitted that, although it was a factor which was adverse to their construction of the clause, the effect of the contra-indication of the allocation of the risk in the Charterparty meant that the Charterers’ construction of clause 56, and that found by the Tribunal, could not be correct.

The Owners argued that the word “capture” connoted capture by an authority – “a taking by the enemy as prize in time of open war” as it is put by Hilbery J in Forestal Land v Rickards [1940] 4 All ER 96 at page 109. They submitted that as “detention” was unarguably qualified by the words “by any authority”, the word “seizure” (which the Owners accepted, was, in itself, wide enough to cover any seizure by pirates), which was sandwiched between “capture” and “detention” should also be construed as meaning “seized by any authority”.

However, Cory v Burr (1883) 8 App Cas 393, per the Lord Chancellor at page 395-6 and Lord Fitzgerald at page 405, is authority that “capture and seizure” have a wider meaning than capture alone, by reference to Kleinwort v Shepard 1E&E447. Their Lordships refer to “capture” as meaning an act of seizure by an enemy or a belligerent. There is however no suggestion that this connoted seizure by “an authority” let alone a “legitimate authority” as the Owners suggested in argument. “Seizure” is, as the Owners accept, a wide word, covering every act of taking forcible possession and its linkage with “capture” cannot restrict that meaning as the decision in Cory v Burr illustrates.

The commercial purpose and rationale of clause 56 on its own, according to the Owners, was that events arising from the characteristics or condition of the ship or the crew could count as off-hire events but not extraneous events. Reliance was placed on The Laconia Confidence [1997] 1 Lloyds Rep 139 at pages 150-151 in support of this suggestion, but there, the interference of authorities was referred to by the judge as an extraneous event, as indeed it often is, unrelated to the characteristics of the ship or crew. In Clause 56, capture, seizure and detention or threatened detention are all extraneous events which may or may not have any connection with the condition or characteristics of the ship or even the cargo. The Owners therefore gain no assistance from this suggestion, since they accept that detention by lawful authority is an off-hire event.

The Conwartime Clause, upon which owners rely, cannot bear the weight which the Owners wish to give it. It is a clause relating to the performance of the Charterparty and to breach, and not to off-hire. Whilst it specifically deals with War risks and piracy in that connection, it is not directed at off-hire at all, which is distinct from breach.

It matters not for this purpose, whether the words “any other Government, body or group whatsoever acting with the power to compel compliance with their orders and directions”, in sub clause (f)(i) of the Conwartime clause are apt to include pirates. I doubt that they are and this was not the intended primary application, since this clause, when it refers to orders, is plainly directed towards orders by authorities. Sub section (h) however does not negate the off-hire provisions. It does not state that hire will continue (or that the Vessel will not be off-hire) on complying with any such orders, whether or not piratical orders are included as such orders. Although compliance is deemed not to be a deviation but to be a fulfilment of the charter, it is another thing entirely to say that this means that the Charterer is deemed to have had the service he requires for the purpose of the off-hire clause. The Owner is not in breach, but there is still a loss of time and, if there is an event which falls within the off-hire clause, it would need much more than this to provide that it was not to constitute such an off-hire event.

The Owners relied upon a passage in Wilford on Time Charters at paragraph 37.115 which states:-

“One effect of clause [(h)] of the present form is that hire will be payable, and the ship will not be off-hire, so long as the Owners are acting in accordance with any of sub clauses [(b) (c) (f) or (g)]”.

This is said without reference to any specific off-hire clause at all because, in the Owners’ submission it must apply across the board. It cannot in my judgment be taken as correct, whether looked at in isolation from standard off-hire clauses or in conjunction with any specific off-hire clause. It cannot have the effect suggested in the abstract and, a fortiori, it cannot have that effect when an off-hire clause specifically sets out an event as an off-hire event, whether or not that event results from “compliance with orders”, constitutes a “deviation” or a “deemed fulfilment of the charter” within the meaning of the Conwartime clause. Sub clause (h) is not apt to negate or derogate from the operation of the off-hire clause, when the off-hire clause specifically provides for the events in question.

Moreover, a seizure by pirates, without giving any orders to the ship, would not fall within sub clause (f) in the Conwartime clause at all, because of the absence of orders, and there is no logic in a distinction between pirates operating the Vessel themselves and pirates ordering the crew to operate the Vessel for them. The Owners recognised this but the point militates against their argument and demonstrates that the Conwartime clause does not impact on the off-hire provisions.

Nor can the Conwartime Clause be taken as an all-embracing allocation of risk of piracy to the Charterers, so as to affect the construction of the off-hire clause, as the Owners suggest. The off-hire clause deals specifically with capture, seizure and detention. The Conwartime Clause, on the Owners’ construction would negate not just a seizure by pirates but a capture by an enemy as an off-hire event. Yet clause 56 specifically sets out the events which are to qualify as off-hire events and that clause, in itself, is the allocation of the risk between the parties where hire is concerned. The Conwartime Clause does not deal with hire and off-hire, but allocates risks for additional costs if the Vessel goes to a War Zone (if the Owners agree) or provides for the Owners’ right to refuse to go and liberty to take various steps in the circumstances referred to.

There is therefore nothing in Clause 56, nor in the Charterparty as a whole which could provide the contra-indications that the Owners suggest to what, to my mind, is the plain and obvious meaning of the words used in the clause, given the structure and syntax used. The Charterers’ construction does not turn simply on a comma, “a jot or a tittle”, but upon the whole language of the clause, its grammatical form, and the usage of the word “or” throughout it, in a purposeful manner. The comma is however significant and the Owner’s construction seeks to ignore it, as well as these other factors to which I have referred.

There was no issue between the parties that the word “seizure” covered any “forcible possession” of the ship and was apt to include hijacking by pirates unless the words were qualified by the further words “by any authority”, which appear later in the clause. Reference to other charterparties where different words, different grammatical constructions and different punctuation were used, does not assist. The Arbitrators concluded, at paragraph 13 of their Reasons, that, in their view, it was clear that the relevant off-hire event was the “capture/seizure” of the Vessel and that such a seizure need not be carried out by any authority. They reached that conclusion because of the language and construction of the clause, including its punctuation, after considering all of the arguments raised by the Owners in the arbitration. Many of those arguments have been redeployed, with some additional submissions, but I am as clear as the Arbitrators were, that the Charterers’ construction is right and that the Charterers clearly bring themselves within the clause, discharging the onus of showing, on the agreed facts, that there was an off-hire event.

This appeal must therefore be dismissed, with costs, unless there are peculiar issues of costs about which I am unaware, upon which the parties can, if necessary, address me.