Federal Commerce & Navigation Company Ltd v Molena Alpha Inc. (Benfri, Lorfri, Nanfri)
|England & Wales
|Lord Wilberforce,Viscount Dilhorne,Lord Fraser of Tullybelton,Lord Russell of Killowen,Lord Scarman
|23 November 1978
|Judgment citation (vLex)
| UKHL J1123-2
|23 November 1978
|House of Lords
 UKHL J1123-2
Lord Fraser of Tullybelton
Lord Russell of Killowen
House of Lords
Upon Report from the Appellate Committee to whom was referred the Cause Federal Commerce and Navigation Co. Ltd. against Molena Alpha Incorporated (The "Lorfri"), Federal Commerce and Navigation Co. Ltd. against Molena Beta Incorporated (The "Nanfri"), Federal Commerce and Navigation Co. Ltd. against Molena Gamma Incorporated (The "Benfri") (Consolidated Appeals), That the Committee had heard Counsel as well on Tuesday the 3rd as on Wednesday the 4th, Thursday the 5th, Monday the 9th, Tuesday the 10th and Wednesday the 11th days of October last upon the Petition and Appeal of Molena Alpha Incorporated of 80, Broad Street, Monrovia, Liberia 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 18th day of April 1978 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 Petition and Appeal of Molena Beta Incorporated of 80, Broad Street, Monrovia, Liberia 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 18th day of April 1978 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 Petition and Appeal of Molena Gamma Incorporated of 80, Broad Street, Monrovia, Liberia 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 18th day of April 1978 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 (which said Appeals were by an Order of this House of the 13th day of June last ordered to be consolidated); as also upon the Case of Federal Commerce and Navigation Co. Ltd. lodged in answer to the said Appeals; 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 Orders of Her Majesty's Court of Appeal of the 18th day of April 1978 complained of in the said Appeals be, and the same are hereby, Affirmed and that the said Petitions and Appeals be, and the same are hereby, dismissed this House: And it is further Ordered, That the Appellants do pay or cause to be paid to the said Respondents the Costs incurred by them in respect of the said Appeals, the amount thereof to be certified by the Clerk of the Parliaments if not agreed between the parties.
This litigation arises from three charterparties in identical form dated 1 November 1974, and amended by addenda dated 12 June 1975, by which the appellants chartered three vessels called the Nanfri, the Benfri and the Lorfri to the respondents for six years. Because of the world recession in shipping the charters were, at the time when the relevant events occurred, advantageous to the owners and disadvantageous to the charterers. It is therefore in the charterers' interest to contend that the charters are at an end. Their contention is that the owners have committed a repudiatory breach of contract so that they were entitled, as they did in October 1977, to determine the charters. Separate litigation has arisen regarding each of the three ships, but this has been consolidated, and I shall deal with the dispute as a single identical issue which equally affects each contract.
The relevant facts are fully given in the award in the form of a special case made by the umpire (the matter having gone to arbitration) and these, with the relevant clauses in the charterparties, appear in the judgments of Kerr J. and of the Court of Appeal. No doubt they will be restated in the report of this appeal. I shall not set them out at length. The relevant points which, as it appears to me are necessary for the decision of these appeals, are the following.
1. The charters, being time charters on Baltime form 1939, provided for the payment of hire in advance on the 1st and 16th of each month. There was a clause (11) allowing deductions to be made from hire in specified events, one of which was the event of time being lost, or expense incurred, through slow steaming. It appears that in the initial years of the charters certain deductions from hire were made by charterers under clause 11, some of which were agreed with owners in advance; other were the subject of discussion and subsequent agreement. In 1975 charterers put forward a claim in respect of slow steaming of the Nanfri. Owners did not agree with this claim and suggested that it be taken to arbitration, but this suggestion was not taken up by charterers, and the claim remained dormant until September 1977. In July and September 1977 charterers made deductions in respect of each of the three vessels which owners did not agree: they contended that charterers had over-deducted some $46,000. On 19 September 1977 charterers resurrected the 1975 slow steaming claim and said that in respect of it they intended to deduct some $47,000 from the Nanfri hire due on 1 October. Owners rejected this claim. On 21 September they gave notice of arbitration in respect of the validity of the deductions of $46,000 and also on the question of principle whether the charterers had any right unilaterally to deduct sums not agreed as valid. Charterers proceeded to make the threatened deductions from the 1 October hire.
2. Early in October 1977, owners, having consulted lawyers in London and in New York, gave instructions to their masters to refuse to sign bills of lading marked "freight pre-paid" and to insist that all bills of lading should be "claused" so as to incorporate the terms of the charters. On 4 October owners, by telex of their managers, informed charterers of this action. Charterers protested against these instructions and insisted that they be withdrawn. Owners replied that they would withdraw the instructions if all unilateral deductions were immediately paid. On 5 October charterers telexed that they treated owners' conduct as repudiation of the charters and that they terminated the charters.
3. A "without prejudice" agreement was immediately entered into by which the three vessels remained in service, all disputed deductions were paid, the charterers agreed to make no more deductions without owners' approval, and freight pre-paid bills of lading were issued without any reference therein to the charterparties.
4. Findings made by the umpire include the following:
( a) The owners and their managers knew at all material times that charterers wished to use the vessels for Great Lakes trade, involving outward carriage of grain and inward carriage of steel. They also knew that each of these types of shipment was usually made on CIF terms in which it would be usual for freight pre-paid bills of lading to be issued clean of any reference to a time charter.
( b) The owners and their managers knew that refusal to issue freight pre-paid bills was likely to cause the charterers severe commercial embarrassment and possibly substantial liability to third parties.
( c) Owners intended that the effect of their action (as communicated in October telexes) would be that charterers would pay the disputed deductions under protest and that all issues would shortly be resolved by arbitration.
( d) The consequences for charterers of the orders issued by owners on 4 October were extremely serious since, unless charterers could ensure the issue of freight pre-paid bills of lading not claused by reference to a time charterparty, the vessels would be largely debarred from the grain and steel trade; charterers would be unable to comply with existing obligations to sub-charterers; charterers were likely to be blacklisted by Continental Grain (their sub-charterers and one of the world's largest shippers of grain) and likely to incur substantial liabilities to that company if cargoes currently being loaded or about to be loaded did not have promptly issued freight pre-paid bills of lading.
My Lords, before attacking the real question in these appealsï¿½which is whether the owners' actions were repudiatoryï¿½it is necessary to clarify the situation as regards the right of the charterers to make deductions. There are two separate questions: the first concerns the scope of the contractual right to make deductions, under clause 11 of the charterparties; the second the right, apart from clause 11, to make deductions by way of equitable set off. The nature of the latter was discussed to some extent, in relation to voyage charters, in the , and in earlier cases there referred to, but there is room for argument, at least in this House, how far what was there laid down applies to time charters.
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