Federal Commerce and Navigation Company Ltd v Tradax Export S.A. (Maratha Envoy)
| Jurisdiction | England & Wales |
| Judge | Lord Diplock,Viscount Dilhorne,Lord Simon of Glaisdale,Lord Edmund-Davies,Lord Fraser of Tullybelton |
| Judgment Date | 30 June 1977 |
| Judgment citation (vLex) | [1977] UKHL J0630-3 |
| Date | 30 June 1977 |
| Court | House of Lords |
[1977] UKHL J0630-3
House of Lords
Lord Diplock
Viscount Dilhorne
Lord Simon of Glaisdale
Lord Edmund-
Lord Fraser of Tullybelton
Upon Report from the Appellate Committee, to whom was referred the Cause Federal Commerce and Navigation Company Limited against Tradax Export S.A., That the Committee had heard Counsel, as well on Thursday the 19th, as on Monday the 23d, days of May last, upon the Petition and Appeal of Tradax Export S.A. of P.O. Box 1294, Panama in the Republic of Panama and c/o Richards, Butler & Co. 5, Clifton Street, London, EC2A 4DQ, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 25th of November 1976, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament, might seem meet; as also upon the Case of the Federal Commerce and Navigation Company Limited lodged in answer to the said Appeal and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled. That the said Order of Her Majesty's Court of Appeal, of the 25th day of November 1976, complained of in the said Appeal, be, and the same is hereby, Reversed, and that the Judgment and Order of the Honourable Mr. Justice Donaldson of the 23d day of May 1975, including his Order as to Costs, thereby set aside, be, and the same are hereby, Restored: And it is further Ordered, That the Respondents do pay, or cause to be paid, to the said Appellants the Costs incurred by them in the Courts below, and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Queen's Bench Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.
My Lords,
The freight market for chartered vessels still remains a classic example of a free market. It is world-wide in coverage, highly competitive and sensitive to fluctuations in supply and demand. It is a market in which the individual charterers and shipowners are matched in bargaining power and are at liberty to enter into charterparties in whatever contractual terms they please.
In practice the contracts negotiated in this market by the parties or their brokers are based upon one or other of a number of printed forms of charterparties appropriate to the various kinds of use to which vessels are put. These forms incorporate numerous standard clauses to which additions, often in the form of other well-known standard clauses, and deletions are agreed in the course of the bargaining process in which agreement is also reached upon such basic terms as rates of freight, demurrage and dispatch money.
So far as the profitability of the transaction to each party is concerned, there is an inter-relationship between rates of freight, demurrage and dispatch money and clauses of the charterparty which deal with the allocation between the charterer and shipowner of those risks of delay in the prosecution of the adventure contemplated by the charterparty which, being beyond the control of either party, have been conveniently called "misfortune risks" as distinguished from "fault risks". Among the most prevalent of misfortune risks is congestion at a loading or discharging port causing the vessel to wait idly until a berth falls vacant at which her cargo can be loaded or discharged. If it is to wait at the shipowner's expense he will endeavour to secure that this risk is covered in the freight rate that he charges. If it is to wait at the expense of the charterer and paid for as demurrage or by reduction in dispatch money he will expect this to be reflected in a lower freight rate charged.
No market such as a freight, insurance or commodity market, in which dealings involve the parties entering into legal relations of some complexity with one another, can operate efficiently without the use of standard forms of contract and standard clauses to be used in them. Apart from enabling negotiations to be conducted quickly, standard clauses serve two purposes. First, they enable those making use of the market to compare one offer with another to see which is the better; and this, as I have pointed out, involve considering not only the figures for freight, demurrage and dispatch money, but those clauses of the charterparty that deal with the allocation of misfortune risks between charterer and shipowner, particularly those risks which may result in delay. The second purpose served by standard clauses is that they become the subject of exegesis by the courts so that the way in which they will apply to the adventure contemplated by the charterparty will be understood in the same sense by both the parties when they are negotiating its terms and carrying them out.
It is no part of the function of a court of justice to dictate to charterers and shipowners the terms of the contracts into which they ought to enter on the freight market; but it is an important function of a court, and particularly of your Lordship's House, to provide them with legal certainty at the negotiation stage as to what it is that they are agreeing to. And if there is that certainty, then when occasion arises for a court to enforce the contract or to award damages for its breach, the fact that the members of the court themselves may think that one of the parties was unwise in agreeing to assume a particular misfortune risk or unlucky in its proving more expensive to him than he expected, has nothing to do with the merits of the case or with enabling justice to be done. The only merits of the case are that parties who have bargained on equal terms in a free market should stick to their agreements. Justice is done by seeing that they do so or compensating the party who has kept his promise for any loss he has sustained by the failure of the other party to keep his.
My Lords, in E. L. Oldendorff & Co. v. Tradax Export S.A. (The Johanna Oldendorff) (1974) A.C.479, the purpose of this House was to give legal certainty to the way in which the risk of delay from congestion at the discharging port was allocated between charterer and shipowner under a port charter which contained no special clause expressly dealing with this matter. The standard form of charterparty used in The Johanna Oldendorff was also that used in the instant case—the Baltimore berth grain charterparty— although in each case the destination of the carrying voyage was a port, not a berth. The allocation of this risk under this kind of charterparty depends upon when the vessel becomes an "arrived ship" so as to enable laytime to start running and demurrage to become payable once laytime has expired. Legal certainty on this subject had been impaired by the earlier decision of this House in The Aello [1961] A.C. 135, which had laid down a test ("the Parker test") of what was "an arrived ship" under a port charter. The Parker test had in the years that followed turned out in practice to be obscure and difficult to apply to the circumstances of individual cases. So The Johanna Oldendorff was brought up to this House for the specific purpose of re-examining the Parker test with a view to replacing it by one which would provide greater legal certainty. In order to ensure that the matter should be fully considered this House refused to adopt the leap-frog procedure for which Donaldson J. had given the necessary certificate. It required the ordinary course to be followed so that this House might have the benefit of the opinions of the members of the Court of Appeal as well. After a hearing extending over six days in the course of which the position of ports where the usual waiting-place lies outside the limits of the port of discharge was fully considered and cases dealing with such ports were cited, this House substituted for the Parker test a test which I ventured to describe as the "Reid test", which in its most summary form is stated by Lord Reid thus:
"Before a ship can be said to have arrived at a port she must, if she cannot proceed immediately to a berth, have reached a position within the port where she is at the immediate and effective disposition of the charterer",
(at p. 535).
My noble and learned friend Viscount Dilhorne stated specifically that for it to have "arrived" the place where the vessel is waiting must be within the port. A vessel ordered to wait outside the port is not an arrived ship. In the course of my own speech I spoke throughout of a waiting place within the port and this qualification was a necessary consequence of the analysis of the four stages of the adventure contemplated by a charterparty which led to my acceptance of the Reid test as correct.
My Lords, I am not aware that in practice the Reid test has proved difficult of application because of any doubt as to whether the usual place where vessels wait their turn for a berth at a particular port lies within the limits of that port or not. Neither in The Johanna Oldendorff nor in the instant case were counsel able to provide your Lordships with an example from real life. There may be one but if such a port exists it would seem to be too little used to be likely to suffer from congestion. It would be doing a grave disservice to the shipping community if this House were to allow the legal certainty introduced by the Reid test to be undermined.
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