AET Inc. Ltd v Arcadia Petroleum Ltd (The Eagle Valencia)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Walker |
| Judgment Date | 08 October 2009 |
| Neutral Citation | [2009] EWHC 2337 (Comm) |
| Docket Number | Case No: 2008 Folio No. 797 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 08 October 2009 |
[2009] EWHC 2337 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: Mr Justice Walker
Case No: 2008 Folio No. 797
Mr Michael Ashcroft (instructed by Thomas Cooper) for the claimant
Mr Simon Croall QC (instructed by Clyde & Co) for the defendant
Hearing date: 24 June 2009
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Walker:
Introduction
This case is about how much demurrage is payable under a voyage charterparty (“the charter”) of an oil tanker, the EAGLE VALENCIA (“the vessel”). It was an express term of the charter that it was governed by English law. The only substantive matter calling for determination by the court, at least for the time being, concerns when time started to run at the second load port, Escravos.
It is common ground that notice of readiness (“NOR”) was tendered at Escravos at 1148 hours on 15 January 2007. The primary case advanced by the claimant owners (“owners”) is that the notice remained effective with the consequence under the charter that laytime commenced 6 hours later at 1748 hours on 15 January 2007. Lest their primary case be wrong owners advance alternative cases that further valid NORs were tendered by email at 1539 hours on 16 January 2007 or at 1553 hours on 16 January 2007. Charterers accept that NOR was tendered at 1148 hours on 15 January 2007. They say that it was invalidated because the vessel failed to secure free pratique – an official determination by port health authorities that a ship is without infectious disease or plague and that the crew is allowed to make physical contact with shore—within contractual time requirements. As to the alternative cases, they say that these are time-barred under the charter, and that in any event the emails of 16 January 2007 did not constitute NORs.
Principles governing interpretation of contracts
There was no dispute as to the principles I should apply when approaching the interpretation of the charter. The principles were set out in paragraph 25 of owners' skeleton argument. Omitting assertions about application of the principles to the present case, that paragraph stated:
a. The Court should not approach the task of interpretation … with too nice a concentration upon individual words. Whilst, of course, the words used are important, the language should be construed in a way that best effectuates the objective intention of the parties, with greater regard to the clear objective intention of the parties than to any particular words which they may have used to express their intent.
b. As part of the process of construction, the Court is entitled to restrict, transpose, modify, supply or reject words or terms in a document in order to give effect to the intention of the parties.
c. … the Court should strive to avoid an absurd or very unreasonable commercial result, for example one which would impose upon a party a responsibility or loss that it could not reasonably be supposed he meant to assume. Particularly where a contractual provision is badly drafted, the Court should be unwilling to be driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention if the language used is capable of an interpretation which attributes to the parties an intention to make provision for contingencies on a sensible and business like basis. Commercial documents must be construed in a business fashion and there must be ascribed to the words a meaning that would make good commercial sense.
d. … a provision that is solely for the benefit of [one party] and/or which seeks to diminish or qualify that party's basic obligation, is to be construed strictly against [that party]. As Brett MR said in Burton v. English (1883) 12 QBD 218: “The general rule is that where there is any doubt as to the construction of any stipulation in a contract, one ought to construe it strictly against the party in whose favour it has been made.” See also Staughton LJ in Youell v. Bland Welch & Co Ltd [1992] 2 Lloyd's Rep. 127, 134, indicating that “in cases of doubt, wording in a contract is to be construed against a party who seeks to rely on it in order to diminish or exclude his basic obligation”.
Principles governing the implication of terms
Much of the argument was concerned with parts of owners' case that terms could be implied into the charter. Questions as to the implication of terms arose in Attorney General of Belize v Belize Telecom Limited [2009] UKPC 10. The advice of the Board in that case given by Lord Hoffmann was adopted by the Court of Appeal in Mediterranean Salvage & Towage v Seamar Trading & Commerce Inc [2009] EWCA Civ 531. The principles are conveniently to be found in the judgment of Sir Anthony Clarke MR in the latter case as follows:
8. The correct approach to the question when to imply a term into a contract or other instrument, including therefore a charterparty, has recently been considered by Lord Hoffmann, giving the judgment of the Judicial Committee of the Privy Council, which also comprised Lord Rodger, Baroness Hale, Lord Carswell and Lord Brown, in Attorney General of Belize v Belize Telecom Limited [2009] UKPC 11. I predict that his analysis will soon be as much referred to as his approach to the construction of contracts in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 at 912–3. His analysis in the Belize case is extensive: see [16] to [27].
9. It repays detailed study but for present purposes it is I think sufficient to say that the implication of a term is an exercise in the construction of the contract as a whole: see Trollope & Colls Limited v North West Metropolitan Hospital Board [1973] 1 WLR 601, 609 per Lord Pearson, with whom Lord Guest and Lord Diplock agreed and Equitable Life Assurance Society v Hyman [2002] 1 AC 405, 459, where Lord Steyn said:
“If a term is to be implied, it could only be a term implied from the language of [the instrument] read in its commercial setting.”
See Belize at [19] and [20].
…
12. The central part of Lord Hoffmann's reasoning is from [21] to the first part of [25], where he focused on some of the tests which have historically been used to identify when a term is to be implied into a contract. He said this:
“[21] It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must “go without saying”, it must be “necessary to give business efficacy to the contract” and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?
[22] There are dangers in treating these alternative formulations of the question as if they had a life of their own. Take, for example, the question of whether the implied term is “necessary to give business efficacy” to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word “business”, is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. That was the basis upon which Equitable Life Assurance Society v Hyman… was decided. The second, conveyed by the use of the word “necessary”, is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.
[23] The danger lies, however, in detaching the phrase “necessary to give business efficacy” from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case (at p 459) when he said that in that case an implication was necessary “to give effect to the reasonable expectations of the parties.”
[24] The same point had been made many years earlier by Bowen LJ in his well known formulation in The Moorcock (1889) 14 PD 64, 68:
“In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men”
[25] Likewise, the requirement that the implied term must “go without saying” is no more than another way of saying that, although the instrument does not expressly say so, that is what a reasonable person would understand it to mean. …”
13. Lord Hoffmann then warned against considering the subjective state of mind of the parties or their representatives and stressed the need for the court to be satisfied that the proposed implication spells out what the contract would...
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