Isabella Shipowner Sa v Shagang Shipping Company Ltd

Hearing dates: 18 April 2012

Introduction

The claimant ship owners challenge an award made by Mr William Robertson dated 6 September 2011 on two grounds. First, with permission, the owners appeal under section 69 of the Arbitration Act 1996 on the following question of law: "Whether, as a matter of law, owners were entitled to refuse early re-delivery of the Aquafaith (the vessel) at Jintang on 9 August 2011 and affirm the charter, or whether they were bound in law to accept early re-delivery and merely entitled to sue for damages". Secondly, the owners contend that there was serious irregularity affecting the proceedings and/or the Award, within the meaning of s68 of the Arbitration Act, inasmuch as the arbitrator failed to give any, or any sufficient, weight to the owners' submissions dated 22 August 2011 when deciding the issues which arose between the parties. In so doing, he failed to comply with section 33 of the same Act.

Under a charterparty on amended NYPE form dated 19 September 2006 (the charter), the vessel was chartered by the owners to the defendant charterers for a duration of 59–61 months. The charter also included an express warranty "that the vessel will not be re-delivered before the minimum period of 59 months".

In admitted anticipatory breach of the charter, on 6 July 2011, the charterers stated that they would re-deliver the vessel on dropping the last outward sea pilot after discharge in China under the then current voyage. The charterers made it plain that they had no further use for the vessel for the balance of the minimum period of charter, which expired (at the earliest permissible date) on 10 November 2011.

The owners commenced arbitration on 25 July 2011, before re-delivery occurred, seeking a partial final award declaring that the owners were entitled to refuse such re-delivery, as they had done, and to affirm the charterparty, holding the charterers liable for hire for the balance of the minimum period. Submissions were made in writing to the arbitrator both before and after the re-delivery of the vessel on 9 August and in his award of 6 September 2011 the arbitrator held that the owners were required to take re-delivery of the vessel, trade the vessel on the spot market by way of mitigation and claim damages in respect of their loss.

The Question of Law

The issue of law turns on the principles enunciated in the decision of the House of Lords in White and Carter (Councils) Limited v McGregor[1962] AC 413 and a series of authorities following on from that decision. There were two major areas of controversy between the parties, arising from the speech of Lord Reid, but not from the speeches of the other two Law Lords who arrived at the same conclusion without reference to these two points. All three of their Lordships, whose majority decision carried the day, reiterated the basic principle that, if one party to a contract repudiates it, in the sense of making it clear to the other party that he refuses or will refuse to carry out his part of the contract, the innocent party has the option of either accepting that repudiation and suing for damages for breach of contract, or refusing to accept the repudiation and affirming the continuation of the contract. If then the innocent party can complete the contract himself, without the need for any action on the part of the contract breaker, he will be in a position to sue for the agreed price. The following key passages appear in the speech of Lord Reid:—

".. The respondent points out that in most cases the innocent party cannot complete the contract himself without the other party doing, allowing or accepting something, and that it is purely fortuitous that the appellants can do so in this case. In most cases by refusing co-operation, the party in breach can compel the innocent party to restrict his claim to damages."

..

[Having referred to an earlier decision, he went on as follows:-]

"If it had been necessary for the defender to do or accept anything before the contract could be completed by the pursuers, the pursuers could not and the court would not have compelled the defendant to act, the contract would not have been completed and the pursuers' only remedy would have been damages. But the peculiarity in that case, as in the present case, was that the pursuers could completely fulfil the contract without any co-operation of the defender."

..

"It might be but it never has been the law that a person is only entitled to enforce his contractual rights in a reasonable way, and that a court will not support an attempt to enforce them in an unreasonable way. One reason why that is not the law is, no doubt, because it was thought that it would create too much uncertainty to require the court to decide whether it is reasonable or equitable to allow a party to enforce his full rights under a contract."

In dealing with the argument that there was some general equitable principle or element of public policy which required there to be a limitation on the exercise of contractual rights by the innocent party, Lord Reid said this:—

"It may well be that, if it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an additional burden with no benefit to himself. If a party has no interest to enforce a stipulation, he cannot in general enforce it: so it might be said that, if a party has no interest to insist on a particular remedy, he ought not to be allowed to insist on it. And, just as a party is not allowed to enforce a penalty so he ought not to be allowed to penalise the other party by taking one course when another is equally advantageous to him. If I may revert to the example which I gave of a company engaging an expert to prepare an elaborate report and then repudiating before anything was done, it might be that the company could show that the expert had no substantial or legitimate interest in carrying out the work rather than accepting damages: I would think that the de minimis principle would apply in determining whether his interest was substantial, and that he might have a legitimate interest other than an immediate financial interest. But if the expert had no such interest then that might be regarded as a proper case for the exercise of the general equitable jurisdiction of the court. But that is not this case. … It is in my judgment impossible to say that the appellant should be deprived of their right to claim the contract price merely because the benefit to them, as against claiming damages and re-letting their advertising space, might be small in comparison with the loss to the respondent: that is the most that could be said in favour of the respondent."

The charterers submitted to the arbitrator that, on the facts here, the owners could not complete the charter without the charterers doing something and that the charter involved co-operation between them so that the principle set out by the House of Lords was of no application. Additionally, it was said that, in any event, the owners had no legitimate interest, financial or otherwise in performing the contract rather than claiming damages and ought not to be allowed to saddle the charterers with an additional burden without benefit to themselves. The arbitrator accepted both of the charterers' arguments, holding that a time charter was not a contract that could be performed without the charterers needing "to do or accept anything". He held that co-operation in that limited sense was necessary for the running of a time charter, stating by way of example the obligation of the charterers to provide fuel for the vessel to enable it to conduct its required operations. This he held took the present case outside the ratio of the House of Lords decision. Further, he held that the limitation on the general principle of freedom to elect to hold a party to performance of its obligations, where there was no legitimate interest on the party of the innocent party to do so, was potentially applicable to a time charter and expressly found that the owners had no legitimate interest in insisting that the charter remained alive.

The owners, on appeal to this court, submitted that the arbitrator was wrong in law both to hold that time charters fell outside the scope of the rule in White and Carter and to hold that the owners had no legitimate interest in refusing early re-delivery, whilst wrongly holding that owners could only avoid the limitation on the White and Carter principle if they could show that the facts here constituted an exceptional case.

The Subsequent Authorities

Both parties relied on the decision of the Court of Appeal in Attica Sea Carriers Corporation v Ferrostaal Poseidon Bulk Reederei Gmbh (The Puerto Buitrago) [1976] 1 Lloyds Rep 250, the decision of Mr Justice Kerr (as he then was) in The Odenfeld [1978] 2 Lloyds Rep 357, the decision of Lloyd J (as he then was) in The Alaskan Trader [1984] 1 AER 129 and the decision of Simon J in The Dynamic [2003] 2 Lloyds Rep 693. My attention was also drawn to the decisions of Clarke J (as he then was) [1995]...