Bunge SA v Kyla Shipping Company Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Flaux J |
| Judgment Date | 10 December 2012 |
| Date | 10 December 2012 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Flaux J.
Dominic Kendrick QC and Noel G Casey (instructed by Reed Smith LLP) for the appellants.
Steven Berry QC and James Turner (instructed by Holman Fenwick Willan LLP) for the respondents.
The following cases were referred to in the judgment:
Admiral Shipping Co Ltd v Weidner, Hopkins & CoELR [1916] 1 KB 429.
Assicurazioni Generali v SS Bessie Morris Co LtdELR [1892] 2 QB 652.
Bank Line Ltd v Arthur Capel & CoELR [1919] AC 435.
Blane Steamships v Minister of TransportELR [1951] 2 KB 965.
Davis Contractors Ltd v Fareham Urban District CouncilELR [1956] AC 696.
Denny Mott & Dickson Ltd v James B Fraser & Co LtdELR [1944] AC 265.
Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The Sea Angel)UNK [2007] EWCA Civ 547; [2007] 1 CLC 876.
Hirji Mulji v Cheong Yue Steamship Co LtdELR [1926] AC 497.
J Lauritzen AS v Wijsmuller BV (The Super Servant Two)UNK [1990] 1 Ll Rep 1.
Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp LtdELR [1942] AC 154.
Kulukundis v Norwich Union Fire Insurance Society LtdELR [1937] 1 KB 1.
Lister v Romford Ice and Cold Storage Co LtdELR [1957] AC 555.
Maritime National Fish Ltd v Ocean Trawlers LtdELR [1935] AC 524.
Moss v SmithENR (1850) 9 CB 94.
National Carriers Ltd v Panalpina (Northern) LtdELR [1981] AC 675.
Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal)ELR [1983] 1 AC 854.
Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema)ELR [1982] AC 724.
Taylor v CaldwellENR (1863) 3 B & S 826.
Telfair Shipping Corp v Athos Shipping Co SA (The Athos)UNK [1981] 2 Ll Rep 74.
Terkol Rederierne v Petroleo Brasileiro SA and Frota Nacional de Petroleiros (The Badagry)UNK [1985] 1 Ll Rep 395.
Yero Carras (owners of) v London and Scottish Assurance (The Yero Carras)ELR [1936] 1 KB 291.
Shipping — Insurance — Marine insurance — Time charterparty — Frustration — Charter of old Capesize bulk carrier — Time charter on amended NYPE 1946 form for 12–15 months in charterers' option — Vessel damaged by collision whilst berthed without owner's fault — Owner considered charterparty frustrated because cost of repair ($9m) would exceed vessel's sound market value ($5.75m) — Charterer relied on warranty in charter to maintain full hull and machinery cover of $16m — Owner had assumed obligation to repair vessel irrespective of actual value up to US$16m and commercial total loss would only arise if repair cost exceeded that sum — No inflexible rule that charter frustrated where repair cost exceeded value — Contract catered for contingency which had occurred and risk allocated to owner — Repairing vessel not commercially impossible in light of insurance warranty — Appeal allowed against arbitrator's decision that charter frustrated — Marine Insurance Act 1906, s. 27(4).
This was an appeal by charterers against an arbitrator's award deciding that the time charterparty of the owners' vessel had been frustrated.
The vessel was a Capesize bulk carrier built in 1982. In February 2009 the parties entered into the time charter on an amended NYPE 1946 form for a period of 12 to 15 months in the charterers' option.
By clause 41 of the charter the owners warranted that throughout the charter the vessel would be fully covered by hull and machinery insurance to the value of US$16m.
In May 2009 the vessel was damaged in a collision while loading cargo at Santos, Brazil, through no fault of the owners. On the basis that the probable cost of repairing the vessel was US$9 million, the owners tendered notice of abandonment to their hull and machinery underwriters, asserting that the vessel was a constructive total loss.
On the same day the owners informed the charterers that the cost of repairing the vessel was uneconomic and as a result the voyage could not be performed. It was common ground that at the date of the collision the sound market value of the vessel was US$5,750,000.
The arbitrator found that, as the owners had submitted, there was a general principle that a charterparty would usually be frustrated where the vessel was damaged such that the cost of repair exceeded the value of the vessel and that a very clear provision, which clause 41 was not, would be required to oblige an owner to repair in those circumstances. Accordingly, he held that the charterparty had been frustrated at the date of the collision.
The charterers submitted that clause 41 was part of a scheme whereby the owners were obliged to repair the vessel up to the insured value of US$16 million and could not rely on the fact that the cost of repair exceeded the sound arrived value as a matter which frustrated the charterparty.
Held , allowing the charterers' appeal:
1. Clause 41 of the charterparty went much further than clauses 1 and 26 of the standard NYPE 1946 form in relation to the insurance obligations of the owners. The opening words of the clause made it clear that the owners were warranting that the full hull and machinery cover would be in place throughout the charterparty. It would not have been open to the owners to take out hull insurance which did not contain the almost invariable by-pass of the Marine Insurance Act 1906, s. 27(4) whereby the policy provided that the insured value should be the repaired value for the purposes of ascertaining whether there had been a constructive total loss. If, unusually, the policy had not contained that provision, the vessel would not have been “fully covered” with a “full … value” of US$16 million and the owners would have been in breach of the warranty.
2. It was clear that, absent non-payment by the insurers for some reason, there would normally be an expectation on the part of the charterers that the hull and machinery insurance would be available to cover the cost of repairs up to the insured value. That was probably the principal purpose of the provision.
3. The fact that the charterparty contained an express continuing warranty as to the hull insurance and its amount meant that the usual principle that the insurance position would be disregarded did not apply.
4. The presence of the insurance warranty in clause 41 made it impossible for the owners to say that what had occurred was a frustrating event. By virtue of the continuing warranty in clause 41 the charter allocated to the owners the risk that if a casualty occurred, the vessel required repair, where the cost of repair was within the insured value. Equally, the presence of the insurance warranty meant that the owners could not argue that repairing the vessel and continuing with the charterparty were commercially impossible or that the vessel was a commercial loss. It followed that, even if there was some general principle of law peculiar to charterparties, that a charterparty was discharged where the cost of repair exceeded the value of the vessel, that principle could not and did not have any application where there was, as in the present case, a specific warranty as to the hull insurance and the insured value to be maintained. Accordingly, contrary to the arbitrator's conclusion, the charterparty was not frustrated.
1. The appellants (to whom I will refer as “the charterers”) appeal (with the permission of Hamblen J) a question of law arising out of the Partial Final Award of the sole arbitrator, Mr Simon Rainey QC dated 11 April 2012, whereby the arbitrator decided in favour of the respondents (to whom I will refer as “the owners”) that the time charterparty of the owners” vessel KYLA (“the vessel”) was frustrated on 4 May 2009.
2. The essential facts as found by the arbitrator which are relevant for the purposes of this appeal are as follows. The vessel was an elderly Capesize bulk carrier built in 1982, whose fifth special survey was due in May 2010. On 6 February 2009, the parties entered into the time charter, although the vessel had previously been chartered to the charterers by an intermediate disponent owner. The time charter was on an amended NYPE 1946 form for a period of 12 to 15 months in the charterers' option.
3. The relevant terms of the charterparty were as follows:
“Clause 1 That the Owners shall provide and pay for all provisions, wages and consular shipping and discharging fees of the Crew; see also Rider Clauses shall pay for the insurance of the vessel … and maintain her class and keep the vessel in a thoroughly efficient state in hull, and holds, machinery and equipment.
Clause 15 That in the event of the loss of time from … damages to hull, machinery or equipment … the payment of hire shall cease for the time thereby lost …
Clause 16… The Act of God, enemies, fire, restraint of Princes, Rulers and People, and all dangers and accidents of the Seas, Rivers, Machinery, Boilers and Steam Navigation, and errors of Navigation throughout this charterparty, always mutually excepted.
Line 138 (below clause 21 which was deleted) In case of unforeseen circumstances/ emergency it is Owners' privilege to dry-dock and/or repair the vessel at any time during the currency of this Charter Party.
Clause 26… The Owners to remain responsible for … insurance … same as when trading for their own account.
Clause 35 Trading
35.3 Any trading in areas declared as war zones by Lloyd's or banned by the UN/ USA/EU or by the flag state is not allowed unless Owners' prior consent has been given, and against Charterers paying any extra insurance premiums and any crew bonuses which is not to exceed Lloyd's scale.
Clause 41 Insurance/P&I Cover
41.1 Owners warrant that throughout the currency of this Charterparty the vessel shall be fully covered by leading insurance companies/International P&I Clubs acceptable to the Charterers against Hull and Machinery, War and Protection and Indemnity Risk. Cost of such cover to be at the sole expense of the Owners with the exception of extra...
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