Gard Shipping AS v Clearlake Shipping PTE Ltd

By a voyage charterparty dated 9 December 2015 (“the Charterparty”), Owners agreed to let and Charterers agreed to hire MT “ZALIV BAIKAL” (“the Vessel”), a 104,532 SDWT crude oil tanker, for one voyage from one safe port Ust-Luga (with further options as to a second and third load port) to one or two safe port(s) “UK CONT NORTH SPAIN – HAMBURG RANGE”, (with certain exceptions) with optional discharges at up to four interim ports. The Charterparty was varied by an Addendum dated 22 December 2015, which provided for a second voyage in direct continuation from the first, with the loadport specified as one safe port Ust-Luga or St Petersburg and the discharge range as before.

The dispute arises out of the second voyage and the issue is whether or not Owners are entitled to claim demurrage at an escalated rate, and the value of the bunkers consumed, over a period of 64.7083 days, during which the Vessel was waiting to discharge cargo at Rotterdam between 26 January 2016 and 31 March 2016. Charterers accept that they gave no discharge instructions during this period, and that the Vessel’s delay in berthing and discharging her cargo was caused by them “for their own commercial purposes”.

There are no material disputed questions of fact between the parties and the issue between them turns on the construction of the terms of the Charter or alternatively the existence of an implied term. Whilst Owners claim the sum of $976,731.79 on the basis of their construction of the Charter or the term which they submit is to be implied into it, Charterers contend that, even if Owners are correct on either point, they cannot recover the full sum claimed.

No formal charterparty document was ever drawn up but it is common ground that the Charterparty consisted, so far as material, of the fixture recap, dated 9 December 2015 (“the Recap”) which provided for a number of amendments to the terms of a previous fixture between Owners and Charterers for the Vessel dated 12 November 2015 (“the Gard/Clearlake Terms”) and otherwise incorporated the printed BPVOY4 form, with amendments. The key clauses upon which argument turned were Additional Clause 11 (AC 11) of the Gard/Clearlake terms and Clause 22 of the BPVOY4 form, as amended.

The Recap contained the following material express terms:

“DEM : USD 32,500 PDPR

LAYTIME : 72 HRS SHINC

…

COMMISSIONS

2.50

PCT TO CHARTERERS ON FREIGHT/DEADFREIGHT/DEM…”

Part 2 of the BPVOY4 form, as amended (with amendments to the printed form underlined or struck through for ease of reference), contained the following material express terms:

AC 11 has passages in different typescripts, as set out below, and although not set out in three distinct paragraphs, can be broken down thus:

There was additionally a bespoke Interim Ports Clause which provided for the Charterers to pay for additional interim loading or discharging ports within the agreed ranges, by paying for actual additional time spent in steaming to and from such additional ports, for all time spent from the moment of arrival at such ports until the point of departure at the demurrage rate and for all bunkers consumed in those periods.

It was accepted that Notice of Readiness at the load port, Ust-Luga, was effectively served at 2300 on 30 December 2015 and laytime accordingly commenced at 0500 on 31 December 2015. The Vessel used 0.8125 days laytime at the load port.

Between Ust-Luga and the Vessel’s final discharge port, Rotterdam, her itinerary was as follows:

The Vessel completed her passage to Rotterdam at 2230 on 26 January 2016. NOR was tendered at 2250 on 26 January 2016.

Charterers did not give any discharge instructions until the afternoon of 31 March 2016. It is common ground that the Vessel was therefore waiting at Rotterdam for a total of 64.7083 days.

The Vessel was all fast at the berth at 2020 on 31 March 2016. She commenced discharge at 0345 on 1 April 2016 and completed discharge at 0124 on 4 April 2016, with hoses disconnected at 0340 on 4 April 2016. Counting running time from when she was all fast at the berth, the Vessel used 3.3056 days during the course of the discharge operation. The sums in issue as between Owners and Charterers relate to the waiting time at Rotterdam prior to orders to discharge which Owners have calculated at the escalated rates for which, it is said, AC 11 and Clause 22 provide and for bunkers used during that time accordingly. Allowing for the deduction of address commission, the figure now claimed by Owners is $976, 731.79.

As might be expected, the parties did not differ on the relevant principles of construction but cited dicta which reflected the different emphases in their own approach to this Charterparty. Owners’ skeleton referred to Wood v Capita Insurance Services Ltd [2017] 2 WLR 1099. The Court’s task “… is to ascertain the objective meaning of the language which the parties have chosen to express their agreement … this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but … the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning”: Wood, at § 10.

It was said that Wood also made clear that the approach to construction set out by the Supreme Court in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 was not in any way abrogated by its subsequent decision in Arnold v Britton [2015] AC 619. It thus remains the case that where there are rival constructions open to the Court on the language used, the Court should adopt that which is more consistent with business common sense, and that is particularly so where the clause is poorly drafted (see Wood at § 11).

At § 12 of Wood, Lord Hodge JSC (giving the judgment of the Supreme Court, with whom Lords Neuberger of Abbotsbury PSC, and Lords Mance, Clarke of Stone-cum-Ebony and Sumption JJSC agreed) emphasised that construction was a “unitary exercise” involving “an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated”.

Charterers submitted that Lord Hodge made it clear in Wood that “on the approach to contractual interpretation, the Rainy Sky and Arnold were saying the same thing” (paragraph 14) but in each of the various re-statements, the Court had been focused on a particular different element of the (single, uniform) approach. In Arnold v Britton, the Supreme Court was focusing on the limits of impact of “commercial common sense” on construction. Lord Neuberger made the following points (amongst his “seven factors” which he “emphasise[d]” in paragraphs 16-23).

“17.

First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.

18.

Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve.

...

20.

Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party’.”

Charterers submitted that the Court should bear these principles in mind when construing the Charterparty, saying that it was not the Court’s function to rewrite the bargain the parties have struck, but to identify and give effect to that bargain.

Owners contended that the terms of the Charterparty, including in particular Clause AC 11 and Clause 22 of BPVOY4 (as amended) meant that Charterers were not permitted to instruct the vessel to stop and wait for orders for longer than 3 days, were not entitled to use the vessel as floating storage and that the vessel was to be considered as being used for floating storage if stopped for more than five days over the course of the voyage, whether before or after reaching the disport or giving NOR. If the vessel was to be considered as used for floating storage then Charterers would be obliged to pay demurrage at the escalating rates provided and for bunkers consumed in the relevant period.

In this context, Owners submitted that the key provision of the Charterparty for the Court to construe was AC 11. Clause 22 as amended was materially identical and accordingly did not need to be separately considered. Owners said that AC 11 operated in respect of the waiting time at Rotterdam, given that the Vessel had been stopped during the voyage for more than five days and given also that she was in fact being used as floating storage.

In my judgment it is clear that the primary clause with which the Court should be concerned is AC 11 and not Clause 22. Clause 22, as amended in subclauses 22.1-22.3, has no application to the situation at Rotterdam because it is a clause which is concerned with the giving of revised voyage orders to divert the vessel to an alternative port, within the contractual ranges, notwithstanding any prior nomination of a load port or disport. The potential order to stop provision in the original form Clause 22.1 was deleted as were the original subclauses 22.2.2 and 22.2.3 which made provision for the effect of waiting in accordance with such an order and provided for payment under the laytime/demurrage provisions of the Charterparty. Clause 22.3 governed the position where the steaming time taken in reaching the alternative port exceeded the time that would have been taken if it had been ordered to go there directly and provided that the Interim Ports clause should apply, with its provision for payment for such time at the demurrage rate and payment for the additional bunkers consumed.

The additional wording in Clause 22 in capital letters, which repeats verbatim the wording of what is referred to as the second paragraph of AC 11 does not appear to fit with the rest of the clause because of the deletion of the “stop” and “await orders” provisions in Clause 22.1 and Clause 22.2.2 and 22.2.3: nor does the reference to “for max 3 days” in the fourth line which would also appear to relate to the deleted “stop” order provision. Inasmuch as Clause 22.3 goes on to repeat the terms of AC 11 which appear in a different context under the heading of the Orders Clause, Clause 22 can add nothing to the terms of AC 11 and its express provision for the circumstances where orders may be given to stop and wait. Clause 22 contains no such express provision at all, save that the last sentence, read in isolation, could be taken to give Charterers an “option to order the ship to wait at an offshore position provided that a final destination is declared with an expected cargo delivery window”, which, if unchanged, would result in no liability to pay escalated rates of demurrage, but if changed, would so result.

To read this last sentence as providing a stand-alone option, however, is difficult because of its reference to “the above increase in rates”, which are set out in the paragraph in capital letters, which has no express order to wait on which to bite. Although the option can be read by reference to those rates and their disapplication or application, depending on the adherence to a designation of a port and cargo window, it would be a most unusual way to provide for such a stand-alone option, where the prior rates relate to a different set of circumstances which appear elsewhere in the Charterparty and which, cannot bite on their own in the context of this clause and precede the option given. Furthermore, to wait at a port (such as Rotterdam) does not seem to me to be the same as waiting “at an offshore position” within the meaning of this clause, as discussed below. If Clause AC 11 does not cover the position for which Owners contend, I am unable to see how Clause 22 could do so.

The debate in relation to AC 11 turns on the effect of giving Notice of Readiness (NOR). In Owners’ submission there is no commercial logic for any distinction between the position where a vessel is told either to wait en route to a port, or told to wait off shore or told not to give NOR on arrival at a port and the position where it arrives and gives NOR but is not given orders to berth. In all cases, Owners say, the vessel is to be considered as being used for storage, once 5 days waiting time has elapsed and the escalating demurrage provisions therefore apply, with payment for bunkers in the relevant period. If it were otherwise, Owners say, the effect of the clause could be avoided by the simple expedient of directing the vessel to a port and ordering it to give NOR on arrival as usual, whilst always intending that it should wait to discharge.

Owners rely on the provision that the maximum period of stoppage permitted is prescribed as 3 days and that any waiting time in excess of 5 days is to be treated as storage with increased rates of demurrage, together with payment for bunkers. The requirement on Charterers to inform Owners before the expiry of 35 days if they want more time for storage emphasises, in Owners’ submission, the key issue which is that higher rates apply whenever the vessel is to be treated as being used for storage or is actually being used for storage. It is, however, the position that there is no storage clause in the Charterparty. The storage clause, which, if agreed, would have provided for a specific rate, was deleted. Thus, “storage” and that which is to be considered as storage, as concepts, find expression only in AC 11 and only have the significance given them by this clause.

AC 11 on its express wording provides for Charterers to have the liberty, regardless of any other provision in the Charterparty “at any stage of the voyage” to give orders to the vessel to stop and wait for orders. There was debate as to the meaning of “the voyage” and whether or not, in a port charter, the words “at any stage of the voyage”, connoted the carrying voyage alone or the whole venture. There was further debate as to the meaning of “within the ranges agreed” and “at sea”, as well as “at an offshore position”, all of which are used, in one place or another in the clause, to designate potential waiting places.

The structure of AC 11 is, to my mind, clear. It is the first paragraph which sets out the liberty of Charterers, in the circumstances described, to give a positive order to the vessel to stop and wait for orders. The instruction can be given “at any stage of the voyage” for the vessel to stop and wait for no more than three days at a safe place within the ranges agreed - in this case, the disport range of “UK CONT NORTH SPAIN – HAMBURG”. The last two sentences of the first paragraph spell out the consequences of such an order - that time taken is to count as laytime/demurrage with a liability on Charterers to pay for bunkers consumed in that period of 3 days. Although there is no express provision for what is to happen in days 4 and 5, it was common ground between the parties that demurrage would necessarily be payable in that period (with concurrent liability for bunkers) because of the way in which the second paragraph was framed.

In the second paragraph the consequences of waiting time in excess of 5 days pursuant to such instructions was set out. Such an excess period was to be considered as storage time which justified increasing rates of demurrage the longer the wait continued. The reference to waiting for orders/discharge instructions at sea, was also the subject of argument, namely whether it covered waiting anywhere prior to reaching port, waiting anywhere prior to berthing, including waiting in port or at “an offshore position” or waiting in circumstances where no NOR had been given.

The third paragraph provides for what must be taken to be a different situation from the second paragraph, whether by reason of the different location where the vessel is to wait or as an exception to the situation otherwise covered by the second paragraph, where a final destination is designated and a cargo window specified.

In my judgment, what the first paragraph of the Clause has primarily in mind is waiting at one of the ports within the range, but both parties accepted that it allowed for waiting in the interlinking seas between them, whilst the third paragraph envisages waiting elsewhere. The phraseology of “at sea” in the second paragraph is apt to cover waiting in any place prior to berthing. The parties drew no real distinction between the places where the vessel might wait, since the Owners said that any period of waiting of more than 5 days brought the escalation provisions into play whilst the Charterers said that, although each expression meant the same, none of this could apply once NOR was given, since at that point, the ordinary laytime/demurrage provisions fell to be applied.

There are two examples of such instructions set out in the first paragraph, expressly without prejudice to the generality of the provision that such an order may be given. One example is of an instruction not to give NOR, which can only apply at the point where the vessel arrives at the “port or place” where such notice can validly be given. The other example is an order to delay arrival at “any port or place”, and in the context, those same words must be given the same meaning as “port or place” in the same sentence. “Place” here cannot be treated as a synonym for “berth” in the context of this port Charterparty - it obviously here has reference to the point where NOR is given. The order to stop and wait can therefore operate by stopping at the port before giving NOR or delaying the vessel’s arrival there.

I agree with Charterers that the wording “at any stage of the voyage”, despite the debate over its meaning, does not in itself restrict the giving of the instruction to the period when the carrying voyage is in progress prior to arrival at the nominated port but what is envisaged by the two examples is an order which is made at that stage – before the vessel is in a position to give NOR. Likewise, in the third paragraph of the clause, an order to wait in an offshore position does not sit happily with the notion of the vessel having already reached the port.

This does not, however, seem to me to be the critical point because the fundamental issue is whether a relevant order was given at all. The clause only operates where there is an instruction to the vessel “to stop and wait for orders”. It was submitted that there was no practical or commercial difference between the situation where an order was given to stop and wait or to delay arrival, and the situation where the vessel in fact had to wait, without such an order, because Charterers failed to give berthing instructions for their own commercial reasons. I cannot, however, accept Mr Wright’s argument for Owners, that a passive failure to give orders falls within the meaning of the wording used, because what is clearly envisaged is an instruction to stop and wait for further orders or to delay arrival.

It is not said that there was any such instruction or implied instruction here. What happened was that the vessel was instructed to sail to Rotterdam, where she gave NOR and thereafter no berthing instructions were given for some 64 days. That does not fall within the wording of the clause at all. Similarly, there was no order to wait at “an offshore position”, whatever that terminology may mean, within the scope of the third paragraph of the clause. In my judgment, in the absence of any relevant order, the provisions of the clause cannot be applied and the reliance on the lack of practical difference in the situations to which I have referred cannot counteract the need for the order that the Clause requires.

In addition to this point, the other critical point taken by Charterers through their counsel, Mr Pilbrow, as to the existence of separate regimes in the Charterparty, is, in my judgment, well founded. The Charterparty provides for a series of different situations where payments in the form of demurrage and/or payment for bunkers used, or other costs are imposed. Each constitutes a separate regime and the question is which regime is the operative one for the situation at Rotterdam in the present case. Taken together, the different regimes provide a reasonably comprehensive framework for the different types or kinds of event that can arise during the currency of the voyage charter which delay the vessel beyond the time required for it to perform its “basic” voyage from loadport to disport under the charter. The existence of such different regimes to deal with different situations or events means that the key to working out what the contract provides in respect of any given situation or event, is to identify in which regime the event or situation falls. That in turn requires the identification of the trigger for each regime, as provided by the terms of the Charterparty.

As Mr Pilbrow submits, there is a regime which is concerned with laytime and demurrage in respect of loading and discharging at the contractual ports within the ranges (“the loadport/disport regime”). This is a clearly defined regime, which has clearly defined provisions relating to it in clauses 6 and 7 of the BPVOY 4 form (as amended). The trigger for entry into this regime is tender by the Vessel of NOR, which is an act which is the Master’s responsibility on behalf of the Owners in accordance with the requirements of the Charterparty and over which the Charterers have no control. The regime does not come into operation simply by reason of the arrival of the vessel at the port – what triggers it is the NOR and once that is contractually done, the provisions of the laytime/demurrage regime automatically kick in, with calculation of laytime and demurrage in accordance with clause 7.

There are a series of clauses in the Charterparty which provide for delays in the voyage which are not to be the responsibility of Owners and for which payment falls to be made by Charterers in accordance with the laytime/demurrage regime as varied and incorporated into each clause. These include (though many of them could not apply to the contractual voyage) the Discharge/ Reload Clause, the Ice Clause, the Murmansk Entering Clause, the Outward Clearance Clause, the USCG Annual TVEL/Random boarding clause, the Lightering/STS Transfer Clause, AC1, the Turkish Straits clause, AC3, the BP Suez Canal clause, AC5, the Ice Strengthened Vessel clause and AC6, the delays at ice-bound ports clause and a catch all clause for delays which are beyond the reasonable control of Owners or Charterers – clause 12. The most relevant however are two further clauses which provide for delays caused by Charterers’ orders of one kind or another. The first is where Charterers order the vessel to load/discharge at an additional or interim port, or revise their orders as to the port to which the vessel is to proceed, which is covered by the “Interim Ports Clause” and Clause 22 to which I have already made reference; the other is where Charterers order the Vessel, during the currency of the voyage, to stop and wait for orders, which is governed by the “Orders Clause” – i.e. clause AC 11; this contains the “stop and wait for orders regime”.

The “trigger” for entry into the Interim Ports regime is the giving by Charterers of an order that the Vessel should load or discharge at an additional or interim port or a revision of orders to divert the vessel to a different port. That brings into play the terms of the relevant clauses, namely clause 11 of the Clearlake Voyage Chartering terms as amended (to be distinguished from AC 11) and clause 22 of the BPVOY 4 form Clause, as set out above. Demurrage is payable as is the cost of bunkers consumed.

The trigger for entry into what Charterers describe as the “stop and wait for orders regime” is necessarily the instructions of the Charterers referred to in AC 11, which provides the power to Charterers to give such instructions. The liberty to give such instructions applies “at any stage of the voyage”. Contractual instructions may thus be given during the voyage to stop and wait at a safe place within the range of contractual disports, with the consequences which are later spelt out. Since the clause goes on to refer to waiting “at sea”, it cannot be restricted to waiting at a port within the range, but there is nothing to suggest that arrival at a port makes any difference per se in relation to the escalation provisions, and the third paragraph of the clause (see above) indicates a further optional place to wait, with different consequences. The orders can be to wait at the nominated disport, before giving NOR, to wait en voyage or to wait “at an offshore position”, all of which must constitute “a safe place within the ranges agreed”. Where such instructions are given, including the particular examples set out, the escalation provisions apply.

The third paragraph of AC 11 sets out a further possible trigger where the escalation provisions do not apply. Instead of giving instructions during the voyage to wait at the disport but not tender NOR or to delay en route at sea, Charterers can order the vessel to wait “at an offshore position”. In those circumstances, provided the “final destination and expected cargo delivery window” is given and subsequently adhered to, the escalation provisions and bunkers payment obligations will not apply and, by necessary inference and reference to the earlier part of this clause, the laytime/demurrage regime will apply. Thus the vessel is treated much as if it had proceeded to the disport and given NOR. If however the final destination or cargo delivery window is later changed, the escalation and bunker provisions apply, because what then occurs is equivalent to a revised nomination under Clause 22.

The trigger, however, for entry into the ordinary loadport/disport regime is, self-evidently, the service of the NOR, in this case, at the disport. This is wholly distinct and clearly distinguishable from the orders to which AC 11 or Clause 22 refer. It brings about different consequences because the vessel is in an entirely different regime from the others set out in the Charterparty. The Owners case therefore must fail.

Despite Owners’ reliance on the provision that, after 5 days waiting at sea, waiting for orders, the vessel is to be considered as being used for storage and the increased demurrage rates are to apply, I cannot see that the deeming of the use of the vessel as being for storage rather than carriage in truth adds anything to the debate. It was said that the use of the word showed the underlying commercial purpose of the provision which then meant that all situations which could be classed as storage should be treated in the same way. When the vessel was used for storage, then higher rates would apply. The storage clause which would have provided a distinct rate for storage as opposed to demurrage has, however, been deleted from the Charterparty and the reference to deemed storage is no more than a justification for a different rate of liquidated damages, which can only apply in the circumstances for which the Charterparty provides. It is of no application if the vessel is in the laytime/demurrage regime and not the orders regime. The use of the word “storage” for the defined situation here cannot outweigh the express wording used which brings the clause into play nor the overall structure of the Charterparty.

Whilst there remains an oddity, for which neither party had any real explanation, namely that Clause AC 11 provides for a maximum duration of three days for the order to stop and wait, but goes on to provide for what happens after the first 5 days “waiting for orders/discharge instructions at sea”, this cannot affect the overall scheme of the Charterparty, nor the issues between the parties. The maximum three-day period is specifically to qualify for calculation in the laytime/demurrage regime, but how does that tally with the provision for waiting for orders or discharge instructions for more than 5 days at sea, when three days is the maximum permitted? The answer may lie in the fact that 72 hours laytime is allowed in the Charterparty and therefore that is the maximum allowable as such, whilst anything beyond that is to count as demurrage time, because there is inevitable breach, with liquidated damages to follow in the shape of demurrage and escalated rates of demurrage once the 5 day, 15 day or 25 days have passed, as the case may be.

As however, Charterers point out, even on Owners’ case, there could be no entitlement to an enhanced rate of demurrage after day 35. There is no specific agreement as to the escalated rate of demurrage from day 36 onwards. The second paragraph of AC 11 provides that, “unless otherwise agreed, following increase of demurrage rate to apply” and rates are set out for Days 6-35. There is a requirement in the Charterparty that Charterers are to notify Owners of further time required for storage beyond 35 days and the parties are to agree any applicable rate in respect of such a period. There is no suggestion that this was ever done. In consequence, there is no agreement on an escalated rate for such a period and the terms of the first paragraph only could apply, with the ordinary rate of demurrage applying to that period, with payment for bunkers, in accordance with the first three-day provision, agreed by the parties to apply to waiting time beyond that, subject to escalation as specifically set out.

As set out above, given the agreed facts that there was no order to stop and wait prior to the service of the NOR at Rotterdam, I cannot see how the provisions of either AC 11 or Clause 22 can apply. Given the structure of the Charterparty, it is the ordinary laytime regime which applies and not the orders regime prescribed by AC 11. Demurrage at the ordinary contractual rate is payable, not at enhanced rates (with payment for bunkers), because AC 11 is of no application to the waiting time at Rotterdam, since no order was given to stop, wait or delay prior to giving NOR and, once given, the ordinary laytime/demurrage regime kicks in.

The applicable principles for the Court when deciding on the existence of an implied term were common ground between the parties, each of whom referred to the decision of the Supreme Court in Marks & Spencer v BNP Paribas [2015] UKSC 72, [2016] AC 742. Owners, apart from stressing Lord Sumption’s dictum that necessity meant only that without the implied term sought, the contract would lack commercial or practical coherence, also referred to the Privy Council decision to which reference was made in the Supreme Court, namely BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266. There at p. 283 Lord Simon of Glaisdale (delivering the opinion of the majority of the Board) said that: “for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract”. Whatever classic form of words is used as a shorthand for expressing the test, they only give effect to these principles and do not give rise to any difference in the result.

The first question is to identify the term which it is sought to imply. The Particulars of Claim simply assert that the implied term should be to “like effect” as the plea as to the proper construction of the Charterparty as set out in paragraph 20 above. Owners contended that the terms of the Charterparty meant that Charterers were not permitted to instruct the vessel to stop and wait for orders for longer than 3 days, were not entitled to use the vessel as floating storage and that the vessel was to be considered as being used for floating storage if stopped for more than five days over the course of the voyage, whether before or after reaching the disport or giving NOR. If the vessel was to be considered as used for floating storage then Charterers would be obliged to pay demurrage at the escalating rates provided and for bunkers consumed in the relevant period.

In its skeleton argument however, Owners submitted that the implied term was capable of clear expression. All that was required was the implication of the words “OR AT PORT” after “AT SEA” in the second sub-paragraph of AC 11, but in argument, Mr Wright accepted that this might not be sufficient and settled for the words: “Whenever, after first 5 days waiting for orders/disch instructions at sea or in port, for reasons not beyond Charterers’ reasonable control, …”.

Owners maintained that the term contended for met the requirements spelt out in the authorities. It was a matter of business necessity to imply the term sought because if AC 11 (and Clause 22) did not cover a situation where the Vessel has tendered NOR at the discharge port but is then required to wait for discharge orders, a term along the lines proposed by Owners would have to fill in that lacuna, as otherwise the scheme would lack commercial or practical coherence. It would be commercially incoherent for the parties to have agreed a regime designed to compensate Owners for a delay caused by Charterers ordering the Vessel to wait for orders, if Charterers could finesse that regime by tendering NOR. That was exemplified by the accepted position that the escalated demurrage regime would apply in what were said to be materially identical circumstances, namely where Charterers had asked the Vessel not to tender NOR. Charterers could simply outflank that by the expedient of having the Vessel tender NOR and making the Vessel wait before coming into berth. Similarly, it would be commercially incoherent for there to be a scheme aimed at providing an escalated rate of demurrage (and the cost of bunkers) to Owners, should Charterers use the Vessel as floating storage, if Charterers could in fact use the Vessel as floating storage without paying those escalated rates or cost of bunkers.

Owners’ submitted that their proposed term further meets the criteria set out in BP Refinery inasmuch as it was reasonable and equitable, was necessary to give business efficacy to the Charterparty, to fill the lacuna otherwise present, and was so obvious as to go without saying. If the officious bystander was asked to consider AC 11 and clause 22 and then asked whether or not the parties intended that (assuming that those clauses do not do so as a matter of construction) there be a term implied to apply the escalated demurrage regime in the factual circumstances described above, there could be no doubt that he would respond “of course!”. It was said that it did not contradict any express term of the Charterparty, because the existing provisions of AC 11 do not preclude the operation of the escalated demurrage regime in these circumstances.

I cannot accept these submissions primarily because it is not necessary to imply the term into the contract and because the implication of the term is inconsistent with the Charterparty as properly construed. In my judgement, none of the criteria are satisfied here. Given the scheme of the Charterparty, it does not lack commercial or practical coherence and works perfectly well with the express allocation of differing liability in respect of different situations. Whilst it might be thought odd for the parties to have drawn a line between one regime and another, precisely where they did, it might also be thought odd that the different liabilities set out in the third paragraph of AC 11 should arise in the different circumstances there set out. In either case the vessel might have to wait around 64 days, as occurred here with the NOR given. Lines were drawn by the parties where they were in the Charterparty and it is not for the court to disturb the parties’ bargain by implying a term here, when, on its proper construction, as I have held, both on its wording and structure, the ordinary rate of demurrage is to apply once the laytime regime begins, rather than the enhanced rated which applies if orders of the kind referred to in AC 11 are given. Owners are compensated for waiting time, albeit not at the rate which is most favourable to them under other provisions of the Charterparty.

For the reasons given, Charterers are correct in the approach they have adopted and have paid Owners at the ordinary demurrage rate and therefore discharged their liability in respect of waiting time at Rotterdam. No further sums are owing whether in respect of demurrage or bunkers.

I was told that issues might arise on costs, so I say nothing further about that aspect. I trust that the parties will, however be able to agree most, if not all, of the consequential orders which must follow this judgment, but I will make any required ruling at a further hearing, if needed.