Regal Seas Maritime SA v Oldendorff Carriers GmbH & Co Kg (New Hydra)

This is an appeal from an arbitration award dated 20 July 2020 (“the Award”) pursuant to section 69 of the Arbitration Act 1996. Permission to appeal was granted by Jacobs

The dispute in question arose out of a time charter dated 22 November 2013 (“the charter”) on an amended NYPE form pursuant to which the Charterers agreed to charter the Owners’ vessel mv NEW HYDRA (“the Vessel”) for a period of 3 years with options for the Charterers to extend the Charter by two further periods of 1 year. Ultimately, both options were exercised.

The Vessel, a Cape size bulk carrier built in 2011 of 179,258 tonnes, was delivered into the charter service on 1^st January 2014.

The relevant part of the hire clause provided as follows:

“Hire payable every 15 days in advance including overtime. The gross daily hire to be calculated basis the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days plus 4% for size adjustment.”

The background to the hire clause can be summarised briefly as follows (by reference to the Award):

The Tribunal explained that owners and charterers of Cape size vessels started using the published time charter routes (usually the average thereof) as the basis for calculating hire for period time charters – the principle being that both parties would share the risks and benefits of large movements in the market. The published figures were also used by the “forward freight agreement” market (“the FFA”).

The basic issue between the parties is how the hire clause is to be applied in the event, which occurred, of a change to the deadweight tonnage of the benchmark Cape size ship in respect of which the rates were published.

In December 2013, very shortly after the parties concluded the fixture, the Baltic announced that changes would be made to the BCI, which eventually resulted in the benchmark ship being increased to 180,000 tonnes, that is, almost exactly, but not quite, the size of the Vessel.

In May 2015 the Baltic Exchange announced, “following extensive discussion with market participants”, the planned changes. It is necessary to understand the terminology used. “172 4TC” referred to the equally weighted average of the 4 routes. “180 5TC” referred to the unequally weighted average of 5 routes (effectively the original four plus a fifth route). “180 4TC” referred to the equally weighted average of, effectively, the four original routes.

The new scheme was to have these features:

On 31 July 2015 the Baltic announced the dollar differentials which were to be applied to “generate the published value for the 172,000 4TC average”. From 3 August 2015 it was to be -$1120 and from 2 January 2017 it was to be -$1064. “These have been established basis the data from 1 August 2014 until 31 July 2015.”

On 22 December 2017 the Baltic stopped publishing the 172 4TC figure. However, in accordance with the announcement in May 2015 the 172 4TC rate was to continue to be calculated by applying the differential to the 180 5TC rate until all FFA interest had settled.

The change to the Baltic’s benchmark vessel in fact made no difference to the manner in which hire was calculated and paid under the charter by the parties. Rather, from 1^st August 2015 onwards the Owners produced hire statements which continued to calculate the hire due by taking the 172 4TC figure and adding 4% to it.

By an Addendum No.5 dated 16^th November 2017 the charter was extended for a further period of one year in the following terms:

“TODAY IT HAD BEEN AGREED THAT:

Charterers hereby declare the option for the second optional year with 3 months more or less in Charterers’ option on final period at 104% BCI 4TCS less 3.75% address commission.”

It was not until July 2018 that the Owners alleged that the parties had been calculating the hire due for the previous three years in the wrong manner. The Charterers did not agree and the ensuing dispute was submitted to the Tribunal for determination.

The Owners’ case was that the Charterers should have been paying hire since August 2015 on the basis of the 180 4TC rate plus 4%. Alternatively, the Owners contended that the Charterers should have been paying hire on the basis of the 180 4TC rate but with a reasonable size adjustment (which was said to be nil since the Vessel’s tonnage was almost that of the benchmark vessel.)

By contrast, the Charterers’ case was that the hire should have been calculated in exactly the same manner in which the parties had been calculating it at all material times, i.e. by using the 172 4TC as the base rate and adding 4%. Up until December 2017, this simply involved the parties adopting the 172 4TC rate as actually published by the Baltic. Thereafter, the parties were to use the fixed dollar differential and apply that to the published daily rate for 180 5TC (which is how the parties had in fact calculated the hire due from January 2018 until July 2018).

The Charterers contended in the alternative that, if they were wrong on the construction of the Hire Provision, then in the light of the parties’ conduct, inter alia, there had been a variation to the Charter and/or the Owners were estopped from claiming any further sums by way of hire.

By the Award the Tribunal dismissed the claims by the Owners for hire, which the Owners said had been substantially underpaid over a number of years. The Tribunal accepted the Charterers’ construction of the hire provision and so did not deal with the alternative cases of variation and estoppel. It is accepted by the Owners that if they succeed on this appeal the Award will have to be remitted to the Tribunal so that the alternatives defences of variation and estoppel can be dealt with.

In Financial Conduct Authority v Arch Insurance and others [2020] EWHC 2448 (Comm) Flaux LJ and Butcher J summarised the principles underlying the construction of contracts as follows:

The Supreme Court approved that summary; see Financial Conduct Authority v Arch Insurance and others [2021] UKSC 1 at paragraph 47. Thus, as the Supreme Court observed;

“the core principle is that [a contract] must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean.”

The Owners’ case is that the base rate is and always has been the same, namely, the average of the four published rates for the current benchmark ship. There was no provision to alter it. Thus the base rate was 180 4TC after August 2015.

As regards the size adjustment, the Owners accept that there is no express provision which provides for this to be altered so that it remains at 4%. This was and remains the Owners’ formal primary case. However, the Owners recognise that it is natural to doubt whether the size adjustment can sensibly remain at 4% if the benchmark ship increases in size, since that would result in a windfall. Accordingly, the Owners’ alternative case is that the percentage size adjustment should be reduced, pursuant to an implied term that it should be reasonably revised in the light of a change to the benchmark ship, so as to become a reasonable percentage size adjustment. Applying that implied term approach the Owners contended that the size adjustment should be zero, on the simple basis that - as was common ground - the ship has characteristics very similar to that of the 180k benchmark ship. Thus on this approach the size adjustment was 0% (nil) after August 2015. It is fair to say that the Owners did not press their primary case but concentrated upon their alternative, implied term, case.

The Charterers’ case is that the parties intended the base rate to be a rate for the 172,000 tonnes vessel throughout the life of the Charter. The 4% uplift was fixed and unalterable. It must follow that the parties intended the base rate of hire to be calculated by reference to a rate for the 172k vessel throughout the life of the Charter, because the 4% uplift was only applicable to a base rate for such a vessel. Ergo, to the extent that a rate for the 172k vessel continued to be published or made available by the Baltic, the parties must have intended to adopt that rate.

I set out again the clause in question:

“Hire payable every 15 days in advance including overtime. The gross daily hire to be calculated basis the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days plus 4% for size adjustment.”

The clause refers to the average of 4 routes published by the Baltic over the previous 15 days. No mention is made of the size of the vessel assumed for those routes, the benchmark vessel. However, the parties can be taken to have known that which was known in the market, namely, that the benchmark vessel was 172,000 tonnes. Since the tonnage of the chartered vessel was greater, almost 180,000 tonnes, it was necessary for there to be a “size adjustment”. The parties agreed plus 4% for that purpose. From the date of the charter until 31 July 2015 the Baltic published the average of the 4 routes for the benchmark Cape size vessel of 172,000 tonnes. There was thus no controversy as to how hire should be calculated from the date of the charter until 31 July 2015.

However, the hire clause did not expressly deal with the calculation of hire in the event that the size of the benchmark vessel used by the Baltic was changed. The question raised by the Owners’ case is whether the clause, on its true construction, encompassed any such change because it referred to the average of the 4 routes published by the

The scheme of the hire clause was one which recognised that if the size of the benchmark vessel was different from the size of the chartered vessel a size correction was required. As a matter of language the definition of the base rate, “the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days”, is not restricted to a particular size of benchmark vessel and so can apply to whatever size of benchmark vessel is from time to time used by the Baltic for the BCI. That suggests that the average rate of the four published rates could be used so long as an appropriate size adjustment is made. Such a construction would also give effect to the commercial purpose of the hire provision, namely, that both parties share the risks and benefits of large movements in the market. But against that suggestion stands the fact that the hire clause did not provide for a reasonable size adjustment but only made reference to a plus 4% size adjustment which was what the parties agreed to be appropriate for the average of four published rates for a 172,000 tonnes vessel. That is the difficulty with the Owner’s construction.

But the Charterers’ construction also has a difficulty. The hire clause provided for the base rate to be fixed by reference to the average of the 4 routes published by the Baltic over the previous 15 days. But from 31 July 2015 no such rate was published for a 172,000 tonnes vessel because the rates for such a vessel on the 4 routes were no longer assessed or published. Instead a rate was published - the 172 4TC rate - which was calculated by reference to the average of the 4 (later 5) routes published by the Baltic for a 180,000 vessel less a discount calculated by reference to the difference between the average rate of the 172,000 tonnes benchmark vessel and the average rate of the 180,000 tonnes benchmark vessel in the period before 31 July 2015. It is not, I think, possible to describe such a rate as “the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days”. The 172 4TC rate is not an average of 4 routes but a rate derived from such an average reduced by a

I consider that the difficulties facing the Charterers’ construction are formidable. They can only be overcome by reading the reference to an “average” rate published by the Baltic as encompassing what the Baltic itself described as a “daily rate for the 172 4TC ….derived from the 180 4TC [later the 180 5TC] at a constant dollar differential”. I do not consider that such a rate can be regarded as within the words of the hire provision. In truth it amounts to a re-writing of the hire provision. With regard to the period after December 2017 it would be necessary to say that the formula announced by the Baltic for the calculation of the 172 4TC rate for use in the FFA market was an average published by the Baltic even though no 172 4TC rate was published at all. That would require further re-writing. Such re-writing is reflected in the phrase used by counsel for the Charterers to describe the rate capable of being calculated after July 2015 as “an official rate endorsed by the Baltic.”

I have noted that in July 2015 the Baltic announced the differentials which were to be used “to generate the published value for the 172,000 4TC average”. Although the Baltic uses the word “average” the published value was not in fact an average for the 172,000 vessel, but was, as the Baltic made clear in May 2015, “a daily rate for the 172

It can of course be said that the difficulty facing the Owners’ construction is that it also requires a re-writing of the hire clause by making provision for a reasonable size adjustment in the event that the size of the benchmark vessel changed. However, the Owners say they do not have to re-write the hire clause because the hire clause can be properly regarded as including an implied term to the effect that the size adjustment should be reasonably revised in the light of a change to the benchmark ship, so as to become a reasonable size adjustment.

But before one can imply a term it is first necessary to construe the hire provision; see Marks and Spencer PLC v BNP Paribas [2016] AC 742 at paragraphs 26 and 28 per Lord Neuberger. As a matter of language the words “plus 4% for size adjustment” do not allow for any adjustment other than plus 4%. However, that linguistic meaning gives rise to the difficulty that if the benchmark vessel is altered by the Baltic the stated differential will produce an inappropriate adjustment. That is not consistent with business common sense. What is consistent with common sense is that the “plus 4% for size adjustment” was intended to apply to the benchmark vessel at the date of the charterparty, namely, 172,000 tonnes. That, I consider, is the intended meaning of the stated size adjustment. On that basis the hire provision makes no provision for the size adjustment in the event that there is a change to the benchmark vessel. Having so construed the hire provision there is scope for an implied term that the appropriate size adjustment in the event of a change to the size of the benchmark vessel was intended to be a reasonable adjustment.

There are circumstances in which the law will imply what is reasonable. Thus in Hillas v Arcos [1932] 147 LT 503 at p.514 Lord Wright referred to the ability of the court to imply;

“what is just and reasonable ……..as a matter of machinery where the contractual intention is clear but the contract is silent on some detail. Thus in contracts for future performance over a period, the parties may neither be able nor desire to specify many matters of detail, but leave them to be adjusted in the working out of the contract. Save for the legal implication I have mentioned, such contracts might well be incomplete or uncertain; with that implication in reserve they are neither incomplete nor uncertain. As obvious illustrations I may refer to such matters as prices or times of delivery in contracts for the sale of goods, or times for loading or discharging in a contract of sea carriage.”.

In Mamidoil and Jetoil v Okta [2001] EWCA Civ 406 Rix LJ expressed this principle shortly as follows:

“Particularly in the case of contracts for future performance over a period, where the parties may desire or need to leave matters to be adjusted in the working out of their contract, the courts will assist the parties to do so, so as to preserve rather than destroy bargains, on the basis that what can be made certain is itself certain. Certum est quod certum reddi potest .

The size of the benchmark vessel had been increased in 2004 from 161,000 tonnes to 172,000 tonnes. Thus by the date of the charterparty the size of the benchmark vessel had not been changed for almost 10 years. The formula adopted by the parties for determining the rate of hire was clear. It involved using the average of the 4 routes published by the Baltic and then applying a size adjustment to that average. The parties agreed upon an appropriate size adjustment for the benchmark vessel current at the date of the charterparty but made no provision for the size adjustment in the event that the size of the benchmark vessel were increased.

Unless one implies the term suggested by the Owners the hire provision would not be capable of being applied in the events which happened after July 2015. This cannot have been what the parties intended. Counsel for the Charterers suggested that there was no need to imply the suggested term to “save” the charterparty because it would be saved on the Charterers’ construction. But I am unable to accept the Charterers’ construction. The published 172 4TC figure derived from the average for the 180,000 tonnes benchmark vessel less a discount calculated by reference to rates before July 2015 cannot be brought within the words used by the parties, “the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days”. Thus the suggested implied term is necessary to make the agreed hire provision work in the events which happened after July 2015. The term is to be implied, as it is put in the cases, to give “business efficacy” or “commercial or practical coherence” to the charterparty; see Marks and Spencer PLC v BNP Paribas [2016] AC 742 at paragraph 21 per Lord Neuberger.

Counsel for the Charterers raised several objections to the suggested implied term.

First, it was suggested that, in circumstances where the Owners could withdraw the vessel for non-payment of the hire said to be due, there would be no time for the tribunal to determine the reasonable size adjustment and so quantify the hire which was payable.

In this regard reliance was placed on BJ Aviation v Pool Aviation [2002] EWCA 163. That case concerned a contract for the management of an airport for 7 years with an option to renew for a further 7 years. Clause 4 of the agreement provided as follows:

“This Agreement shall operate for a period of seven years from the date hereof and if during the six months prior to the expiration of the said term the Operator shall serve written notice upon the Owner requesting the renewal of the Agreement for a further period of seven years then subject to the re-negotiation of the rent payable in no less a sum than that which shall be payable under the terms of this Agreement at that date the Owner shall grant to the Operator a fresh agreement in the same terms hereof save and except for this clause for a further period of seven years.”

It was held that that was an agreement to agree and thus was unenforceable; see paragraph 30. One of the reasons for not implying a term that the amount of the rent could be determined by what was fair and reasonable, in the absence of agreement, was that notice could have been given just before expiry of the original term and so there

I accept that the ability of the tribunal to determine the size differential in time to avoid a withdrawal is a relevant factor to take into account when considering whether the suggested term can be implied. However, it is only one factor and in my judgment it is outweighed by the circumstance that the suggested implied term is required to make the agreed hire provision work. BJ Aviation was a very different case. The contract required a “re-negotiation of the rent” as a condition precedent to the contract being extended.

Second, it was said that there was no objective benchmark against which a reasonable size adjustment could be determined by the tribunal. Reliance was placed on Morris v Swanton Care [2018] EWCA Civ 2763. That case concerned a claim for “earn-out consideration” pursuant to a contract for the sale of a company. The relevant clause provided as follows:

It was held that that clause was an agreement to agree the further period and as such was unenforceable; see paragraph 26. With regard to the suggestion that the court could assess the length of the further period in the absence of agreement it was said that that was not possible because there were no objective criteria by reference to which the length of the further period could be assessed; see paragraphs 37-38.

The assessment of a “further period” for earning “earn-out consideration” in a contract that gives no assistance as to the assessment of the further period is a very different contract from the present charterparty which contains a formula for the calculation of hire based upon the BCI and a size adjustment. The only matter requiring assessment by the Tribunal in the absence of agreement is the size adjustment in the event that the size of the benchmark vessel is changed. The Tribunal held that the size adjustment was to reflect “the increased value” which the actual 180,000 tonnes vessel had over the benchmark vessel of 172,000 tonnes. The Tribunal had evidence of the increased earning capacity of a 180,000 vessel and if there is a difference in earning capacity between a vessel of 179,258 (the actual vessel) and a vessel of 180,000 (the benchmark vessel after July 2015) that evidence could be put before the Tribunal. In those circumstances the Tribunal would be able to assess the appropriate size adjustment, if any, which was required to reflect the difference in earning capacity between the actual and benchmark vessels. Just as the parties agreed a size adjustment at the date of the charterparty which was appropriate when the benchmark vessel was 172,00 tonnes, so the Tribunal can fix a reasonable size adjustment, if any is required, as at the end of July 2015 when the benchmark vessel was changed to 180,000 tonnes.

Third, it was said that, in the light of the Tribunal’s finding that the agreed size adjustment of plus 4% was a “negotiated” adjustment rather than a “calculated” adjustment, the parties cannot have intended that the size adjustment in the event of a change to the benchmark vessel would be calculated on a “reasonable” basis. I disagree. The fact that the parties negotiated the size adjustment required at the date of the charterparty to reflect the difference in earning capacity does not mean that the parties

A fourth argument was advanced based upon the Tribunal’s finding that to allow hire to be fixed by reference to the 180,000 tonnes benchmark vessel with no size adjustment (as contended by the Owner) would provide the Owner with a windfall. This was explained on the basis that a 180,000 tonnes vessel had traded at a higher level than the benchmark vessel of 172,000 tonnes plus 4%. To allow hire to be fixed by reference to a 180,000 tonnes benchmark vessel would therefore give the Owners a windfall. It was submitted that “the Tribunal was unwilling to imply a term into the Charter which would have the effect of subverting the bargain the parties had struck in this regard.”

However, the parties’ bargain was reached in the context of a 172,000 tonnes benchmark vessel. So long as that remained the benchmark vessel the agreed size adjustment of plus 4% was applied. The implied term is only necessary to make the hire provision work in circumstances where the tonnage of the benchmark vessel is changed by the Baltic during the course of the charterparty. In that event the hire will be based upon the average of the four routes published and, if necessary, a reasonable size adjustment. Far from subverting the hire provision and the parties’ bargain the implied term ensures that the charterparty continues to operate for the period intended by the parties. It is difficult to see how a rate of hire based upon the new benchmark vessel as reasonably adjusted to reflect any difference in earning capacity can fairly be said to give rise to a windfall, even if, as found by the Tribunal, the Charterers did well out of the agreed size adjustment to the average rate for a 172,000 tonnes vessel.

For all of these reasons I consider that the Owner’s construction of the charterparty is that which a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the charterparty, would have understood the language of the hire provision to mean and that the implied term suggested by the Owner is necessary to make the charterparty work for the full duration of the charterparty notwithstanding changes to the benchmark vessel by the Baltic. But before reaching a final conclusion on this matter it is necessary to mention the reliance placed by counsel for the Charterers on Addendum No.5 and, of course, the Tribunal’s reasoning.

It is submitted that the Tribunal’s finding in paragraph 29 of the Award that the “the parties agreed via Addendum No.5 that hire would continue to be paid on the basis of the 172k benchmark vessel, by reference to which the Charter had originally been agreed” is fatal to the Owners’ case. I do not understand why it is fatal to the Owners’ case. Given that the Tribunal did not consider the Charterers’ case on variation (see paragraph 32) the Tribunal cannot have been saying that the charterparty had been varied by Addendum no.5. At most the agreement relates to the final year of the charterparty because the addendum recorded the exercise of the Charterer’s option to extend the charterparty for the final year. However, I do not read the Tribunal as saying that the assessment of hire for the final year was agreed to be fixed on a different basis from years 1-4. The phrase “continue to be paid” is not consistent with any such suggestion. Rather, the Tribunal was relying upon the agreement embodied in

The Tribunal considered and decided the question of construction at paragraphs 26-31 of the Award.

At paragraph 27 the Tribunal concluded that the hire clause provided for the benchmark vessel to be fixed at 172,000 tonnes for the purpose of calculating hire for the full period of the charter. The Tribunal’s reason for so concluding was that when the charter was concluded the only “4TC average” which was published was that for the 172,000 tonnes vessel and that the Tribunal could see no basis in the wording of the clause for concluding that after August 2015 the parties’ bargain was now that hire should be calculated by reference to “the new (180k)” benchmark vessel. The Tribunal concluded that the hire clause provided for the benchmark vessel to be “fixed at 172K” for the period of the charter.

I accept that the fact the only average of the 4 routes published by the Baltic at the date of the charter was for the 172,000 tonnes benchmark vessel supports the Tribunal’s construction. However, that construction does not make provision for any change in the benchmark vessel. Without any such provision the hire clause cannot work in the event that the benchmark vessel is changed (as had happened in 2004 and happened again in 2015). It is unlikely that the parties contemplated that with a charter which would last for 3-5 years there would be no agreed formula for fixing the rate of hire in the event that the benchmark vessel was changed. That is a consideration which would cause the reasonable man reading the clause to doubt that it provided for the benchmark vessel to be fixed at 172,000 tonnes for the duration of the charterparty.

In paragraph 28 the Tribunal “saw no attraction in the Owners’ proposition that the calculation should be switched to the 180k benchmark vessel since that was not the bargain between the parties when they agreed the charter.” This conclusion follows inevitably from the Tribunal’s conclusion in paragraph 27. Like paragraph 27 it makes no provision for any change in the benchmark vessel and it is unlikely that the parties intended to make no such provision because, if such a change occurred, there would be no agreed means of fixing the rate of hire.

The Tribunal went on to reject the Owners’ case that there should be no size adjustment when the benchmark vessel was 180,000 tonnes because that would give a windfall profit because a 180,000 tonnes vessel could be traded at substantially more than a 172,000 tonnes vessel plus 4%. This was said to be the reason why the Tribunal rejected the Owners’ implied term (though the Tribunal did not refer expressly to the implied term argument). As I have already said, the implied term is only necessary to make the hire provision work in circumstances where the tonnage of the benchmark vessel is changed by the Baltic during the course of the charterparty. In that event the hire will be based upon the average of the four routes published and any appropriate size adjustment. Far from subverting the hire provision and the parties’ bargain the implied term ensures that charterparty continues to operate for the period intended by the parties. It is difficult to see how a rate of hire based upon the new benchmark vessel as reasonably adjusted to reflect any difference in earning capacity can fairly be said to

The submission made by counsel for the Charterers was that the Owner’s approach involved switching the rate of hire to “a market rate for a 180,000 tonne vessel.” However, the parties had fixed the size adjustment at the date of the charterparty when the benchmark vessel was 172,000 tonnes in order to reflect the difference in earning capacity between that vessel and the chartered vessel of almost 180,000 tonnes. As it happened that proved to be beneficial to the Charterers because they were able to trade the vessel at a rate greater than the rate calculated in accordance with the hire provision. But once the benchmark vessel was changed by the Baltic to 180,000 tonnes that size adjustment was no longer appropriate and a reasonable size adjustment must have been intended in order to allow the charterparty to continue for the agreed duration of the charterparty.

In paragraph 29 the Tribunal relied upon the Addendum No.5 pursuant to which the Charterers exercised their option to extend the charterparty for a further year. The

In paragraph 30 the Tribunal noted that “the Baltic published data by reference to which it was possible to calculate the 172k 4TC rate”. However, the Tribunal did not, it appears, take into account that the published data was not, as required by the hire provision, the “average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days” for a 172,000 tonnes vessel.

In paragraph 31 the Tribunal said that “the hire could still be calculated in accordance with the parties’ intentions given the data that was then available to them from the Baltic”. The Tribunal concluded that both parties had the necessary data to enable them to calculate “the 172k 4TC average” at all material times. However, the Tribunal does not appear to have taken into account that the calculated rate was not “the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days” for a 172,000 tonnes vessel but a figure derived from the average of the routes published by the Baltic over the previous 15 days for a 180,000 tonnes vessel less a discount calculated by reference to the difference between the average rates for a 172,000 tonnes vessel and a 180,000 tonnes vessel published before July 2015.

With great respect to the Tribunal, who carefully considered this question of construction, against the backdrop of the BCI as it evolved over time, I have reached the conclusion that I am unable to agree with the Tribunal’s construction of the hire provision.

I consider that it is important to bear in mind that the parties contemplated that the charterparty would last 3-5 years with hire being fixed as provided by clause 37. That clause referred to “the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days plus 4% for size adjustment” without making express provision for what would happen in the event that the size of the benchmark was altered from what it was at the date of the charterparty. In the event that the benchmark vessel was changed from a 172,000 tonnes vessel, the hire provision, on the Tribunal’s construction, could not work so as to identify the agreed rate of hire. The Tribunal considered that it could be made to work by use of the data published by the

In my judgment the Owners’ (alternative) construction is that which a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the charterparty, would have understood the language of the hire provision to bear and the implied term suggested by the Owner is necessary to make the charterparty work for the full duration of the charterparty notwithstanding changes made to the benchmark vessel by the Baltic.

For these reasons the appeal must be allowed and the Award set aside. However, there remains to be decided the Charterers’ case on variation and estoppel. The Award must therefore be remitted to the Tribunal. If neither defence succeeds it will be necessary, unless the Charterers agree that no size adjustment is required given that the chartered vessel was almost a 180,000 tonnes vessel, for the Tribunal to determine what reasonable size adjustment, if any, was required to reflect the difference in earning capacity in July 2015 when the benchmark vessel was changed.