Federal Commerce & Navigation Company Ltd v Molena Alpha Inc. (Benfri, Lorfri, Nanfri)
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE GOFF,Lord Justice Cumming-Bruce,LORD JUSTICE CUMMING-BRUCE |
| Judgment Date | 18 April 1978 |
| Judgment citation (vLex) | [1978] EWCA Civ J0418-2 |
| Date | 18 April 1978 |
| Court | Court of Appeal (Civil Division) |
In the Matter of the Arbitration Act 1950
and
In the Matter of an Arbitration
[1978] EWCA Civ J0418-2
The Master of the Rolls
(Lord Denning)
Lord Justice Goff and
Lord Justice Cumming-Bruce
In The Supreme Court of Judicature
Court of Appeal
On Appeal from the High Court Of Justice
Queen's Bench Division
Commercial Court
(Mr. Justice Kerr)
MR. A.G.S. POLLOCK (instructed by Messrs. Ince & Co., Solicitors, London) appeared on behalf of the Claimants (Appellants).
MR. A. EVANS, Q.C., MR. N. PHILLIPS and MR. A.N. GINSBERG (instructed by Messrs, Richards Butler & Co., Solicitors, London) appeared on behalf of the Respondents.
Time charters have become the sport of the shipping markets. There is always a provision by which the hire is to he paid punctually in advance. There is also a withdrawal clause which enables the shipowner to withdraw the vessel if the charterer makes default in payment. In the days when vessels were fully employed - and the freight market was rising - shipowners used to watch for a chance to determine the charter and withdraw the ship - long before the expiry date. If the charterer made the slightest slip, the shipowner used to pounce and give notice of withdrawal: and thus force the charterer to pay the high current rate. You will find the story in Mardorf v. Attica (The Laconia) (1976) 1 Queen's Bench at pages 848/9. Since those cases, some shipping people have made alterations in the terms of the charter-parties. They have inserted a provision by which the owners are not allowed to invoke their right of withdrawal unless they give 24 hours' notice in banking hours. This gives the charterers an opportunity to remedy their slip and avoid the withdrawal.
The market has now gone into reverse. There has been a disastrous slump in shipping. Shipowners are seeking employment for their vessels and the freight market has dropped dramatically. When ships are on long time charters, it is now the charterers who wish to bring them to an end - if a chance arises - and it is the shipowners who wish to keep them in force. The shipowners want to receive their full hire. The charterers want to get out of paying it. Sometimes they adopt unusual tactics for the purpose. A familiar device is to manufacture counterclaims as a pretext for getting out of the hire. You will find it described in a recent case Associated Bulk Carriers v. Koch Shipping Inc. (1978) All England 11. No unusual tactics however by the charterers in this case. They are of first-class standing: and are and always havebeen ready and willing to pay the full hire if properly due from them.
THE TIME CHARTERS
There are three vessels - the "Nanfri", "Benfri" and "Lorfri". They fly the Liberian flag. They were built for Great Lakes trading. They carry grain cargoes from the Great Lakes to Europe, and on return carry steel cargoes from Europe to the Great Lakes. Most of such cargoes are carried on c.i.f. terms: so that the shippers pay the freight for the carriage in advance and receive bills of lading marked "Freight pre-paid".
All three vessels are operated as part of a single fleet. Each is owned by a one-ship company and is mortgaged up to the full amount of the present value. They are operated from New York. Each was let on time charter in 1974 to first-class charterers - The Federal Commerce Company of Canada. They operate from Montreal. The charters were for six years. They were on the Baltime 1939 form, and contained several variations and addenda. I will take the "Lorfri" as typical.
THE PROVISION FOR PAYMENT OF HIRE
The vessel carried about 35,700 tons deadweight. The charterers were to pay as hire $5.00 per ton deadweight per calender month. That is, $178,500 a month.
(Clause 6):
"Payment of hire to be made in cash, in Montreal, on the 1st and 16th day of each month, without discount, in advance, to owner's account … in default of payment, the owners to have the right of withdrawing the vessel…".
(Clause 12 of Addenda No. 2):
"In the event that any payment of hire is not paid … owners, before invoking any right or remedy … must notify charterers inwriting … that the hire payment was not received when due…
THE PERMISSIBLE DEDUCTIONS
Clause 11A: "In the event of … breakdown of machinery … no hire is to be paid in respect of any time lost thereby during the period in which the vessel is unable to perform the services immediately required. Any hire paid in advance to be adjusted accordingly".
Clause 11C: "If upon the voyage the speed be reduced by defect in or breakdown of any part of her hull, machinery or equipment, the time so lost and the cost of any extra fuel consumed in consequence thereof and extra expenses to be deducted from hire".
Clause 14: "The charterers or their agents to advance to the Master, if required, necessary funds for ordinary disbursement for the vessel's account - and such advance to be deducted front hire, when supported by vouchers signed by the Master".
During the first 2½ years of the charter, the charterers made deduction from hire in respect of those clauses, sometimes by agreement beforehand, and sometimes by deductions first and agreement afterwards. On at least one occasion the charterers deducted an item which the owners had indicated was disputed. But in June 1977 a meeting took place at which all outstanding disputed deductions from hire were settled.
THE EVENTS LEADING UP TO THE CRISIS
July 1977. In July 1977 the charterers deducted $65,274.22 from the hire due for the "Lorfri". The whole of this deduction was afterwards agreed, save for a small item of $l,808.63 which was disputed.
In the same month, the charterers also deducted $17,866.53 due for the "Benfri", all of which was afterwards agreed. The charterers also deducted $98,565.45 for the "Nanfri", all of whichwas afterwards agreed, save for a small item of $6,809.26.
August 1977. The charterers appear to have made no deductions.
September 1977. On the 1st September, 1977 the charterers made several deductions, and gave detailed justifications for them:- $67,775.39 for the "Nanfri" of which the larger part was afterwards agreed, but $23,184.78 was disputed.
$6,531.69. for the "Lorfri", all of which was afterwards agreed.
THE OPENING ROUND
The owners took exception to those deductions being made by the charterers. They now for the first time asserted that the charterers were not entitled to make any deductions which they (the owners) disputed. In order to enforce this assertion, the owners on the 2nd September, 1977 fired their opening shot. They telexed the charterers giving them notice under clause 12 that the hire payment had not been received when due. They thus opened the way for themselves to exercise "any right or remedy" available to them in respect of the non-payment. The charterers replied immediately, giving a breakdown of the deductions, and referring to the detailed Justifications previously sent to the owners.
By a telex of the 6th September the owners firmly asserted that the charterers were not entitled to make deductions in respect of any disputed item.
At all tines from the 6th September, 1977 onwards the owners have contended that the charterers were not entitled to make any deduction from hire by way of off-hire or set-off (even if the sum deducted was in fact due to the charterers) unless prior to such deduction -
(a) the owners had accepted the validity of the deduction; or
(b) it was supported by vouchers issued by the Master; or
(c) a proper tribunal had pronounced on its validity.
In answer the charterers did not agree to those limitations on their right to deduct from hire, but offered to place the amount of any disputed item in escrow: and this they have always remained ready and willing to do.
THE FIRST REFERENCE TO ARBITRATION
On the 21st September, 1977 the owners gave notice to the charterers requiring an arbitration to decide whether the charterers had correctly calculated the items deducted on the 1st September, 1977: and also on the question of principle whether or not the charterers were in any event entitled unilaterally to deduct disputed items from charter hire.
It is to be noticed that at that time there was no question of the owners withdrawing the vessel from charter. After all, the owners wanted the hire at the high rate: so they did not want to determine the charter. There was only a difference about the deduction of disputed items. This was referred to arbitration.
THE DEDUCTION BY THE CHARTERERS FOR THE SLOW STEAMING IN 1975
It was at this juncture that the charterers brought up an outstanding claim. As long ago as 1975 the "Nanfri" had suffered engine "breakdown whilst she was on a voyage from Antwerp to Durban. She had put into a port of refuge for repairs on two occasions. She was off-hire for the period of those repairs. Deductions had been made on that account and agreed. But the log abstract showed that, after the breakdown, the vessel's speed was reduced below normal. The charterers attributed this slow steaming to the engine breakdown. So they claimed to deduct $47,122.43 on account of it. They calculated the sum in this way: They took the vessel's optimum speed in good weather and smooth water. This was 15 knots. They assumed that she could have done that speed for every day on that voyage if she had not suffered the engine breakdown. Thiswas probably too favourable to themselves, because she may have encountered bad weather. Undoubtedly the charterers were entitled to make some deduction, but not as much as the sum claimed of...
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