Kuwait Rocks Company v AMN Bulkcarriers Inc. (The Astra) [QBD (Comm)]

JurisdictionEngland & Wales
JudgeFlaux J
Judgment Date18 April 2013
Date18 April 2013
CourtQueen's Bench Division (Commercial Court)

Queen's Bench Division (Commercial Court).

Flaux J.

Kuwait Rocks Co
and
AMN Bulkcarriers Inc (The Astra).

Josephine Davies and Rupert Hamilton (instructed by Watling & Co) for the appellants/charterers.

Robert Bright QC (instructed by Reed Smith LLP) for the respondents/owners.

The following cases were referred to in the judgment:

Afovos Shipping Co SA v R Pagnan (The Afovos)UNK [1983] 1 Ll Rep 355.

Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios)ELR [1985] 1 AC 191.

Bunge Corp v Tradax Export SAUNK [1980] 1 Ll Rep 294 (CA); [1981] 1 WLR 711 (HL).

China National Foreign Trade Transportation Corp v Evlogia Shipping Co SA of Panama (The Mihalios Xilas)WLR [1978] 1 WLR 1257; [1979] 1 WLR 1018 (HL).

Decro-Wall International SA v Practitioners in Marketing LtdWLR [1971] 1 WLR 361.

Empresa Cubana de Fletes v Lagonisi Shipping Co Ltd (The Georgios C)ELR [1971] 1 QB 488.

ENE 1 Kos v Petroleo Brasileiro SA Petrobras (The Kos)UNK [2009] EWHC 1843 (Comm); [2010] 1 Ll Rep 87; [2012] UKSC 17; [2013] 1 CLC 1; [2012] 2 AC 164 (SC).

Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri)ELR [1979] AC 757.

Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (The Hongkong Fir)ELR [1962] 2 QB 26.

Italian State Railways v MavrogordatosELR [1919] 2 KB 305.

Leslie Shipping Co v WelsteadELR [1921] 3 KB 420.

Lloyd Del Pacifico v Board of TradeUNK (1929) 35 Ll L Rep 217.

Lockland Builders v RickwoodUNK [1995] CLR 142.

Lombard North Central plc v ButterworthELR [1987] 1 QB 527.

Mardorf Peach & Co Ltd v Attica Sea Carriers Corp of Liberia (The Laconia)ELR [1977] AC 850.

Merlin Steamship Co Ltd v WelsteadUNK (1921) 7 Ll L Rep 185.

Office of Fair Trading v Ashbourne Management Services LtdUNK [2011] EWHC 1237 (Ch).

Owneast Shipping Ltd v Qatar Navigation QSCUNK [2010] EWHC 1663 (Comm); [2010] 2 CLC 42.

Parbulk II A/S v Heritage Maritime Ltd SAUNK [2011] EWHC 2917 (Comm); [2012] 1 Ll Rep 87.

Photo Production Ltd v Securicor Transport LtdELR [1980] AC 827.

Ross T Smyth & Co Ltd v TD Bailey Son & CoUNK [1940] 3 All ER 60.

Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade)UNK [1983] 2 Ll Rep 253.

Steelwood Carriers of Monrovia v Evimeria Compania Naviera SA of Panama (The Agios Giorgis)UNK [1976] 2 Ll Rep 192.

Stocznia Gdanska SA v Latvian Shipping Co [2003] 1 CLC 282.

Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] 1 CLC 134.

Tankexpress A/S v Compagnie Financiere Belge des Petroles SAELR [1949] AC 76.

Tenax Steamship v Owners of the Brimnes (The Brimnes)WLR [1973] 1 WLR 386; [1975] 1 QB 929 (CA).

Torvald Klaveness A/S v Arni Maritime Corp (The Gregos)WLR [1994] 1 WLR 1465.

United Scientific Holdings Ltd v Burnley Borough CouncilELR [1978] AC 904.

Shipping — Charterparty — Contract — Condition — Time charter — Termination — Damages — 5-year time charter on NYPE 1946 form — Charterer sought reduction in hire because of falling market — Failures to pay hire and anti-technicality notices served by owner — Addenda agreed providing for compensation for future loss of earnings if charter terminated for charterer's breach — Owner withdrew vessel and claimed for future loss of earnings — Owner's claim for damages for repudiatory breach succeeded before arbitrators — Arbitrators entitled to find that charterer intended to perform balance of charter in manner inconsistent with its terms — Compensation clause not penalty clause — Clause 5 of NYPE form condition of contract — Obligation for punctual payment of hire and anti-technicality clause made time of the essence — Express reservation of entitlement to compensation for future loss of earnings made clear that punctual payment a condition —The BrimnesWLR[1973] 1 WLR 386; [1975] 1 QB 929 (CA) distinguished.

This was an appeal by charterers from an arbitrators' award in favour of the respondent owners on their claim for damages arising out of the termination of a time charterparty of the vessel ASTRA.

The owners chartered the vessel to the charterers for a period of five years by a time charterparty on the NYPE 1946 form as amended.

Clause 5 provided that “failing the punctual and regular payment of the hire … the Owners shall be at liberty to withdraw the vessel from the service of the Charterers, without prejudice to any claim the Owners may otherwise have on the Charterers.” Clause 31 provided that Charterers would have two banking days to rectify any failure to pay hire promptly.

From the outset of the charterparty market rates of hire were falling and the charter rate was higher than the charterers could hope to command by way of sub-charter rates. The charterers repeatedly asked for the hire to be reduced. After an instalment was not paid on time and the owners served the two day anti-technicality notice provided for in clause 31, the parties entered into an agreement set out in an addendum to the charterparty. The addendum provided for a reduced rate of hire and contained a compensation clause which provided that in the event of termination or cancellation of the charter by reason of any breach by or failure of the charterers to perform their obligations, they would pay the owners compensation for future loss of earnings in respect of the unexpired period of the charter, in addition to any amounts due to owners at the date of termination or cancellation. The charterers continued to request a reduction in the rate of hire and to pay hire late. Further anti-technicality notices were served and a further addendum to the charter was agreed. Eventually the owners withdrew the vessel from the charterers' service and terminated the charterparty.

In the arbitration the owners claimed damages for loss of earnings for the remainder of the charter period, giving credit for the earnings made under a substitute charterparty, on the basis that the charterers were in breach of condition in not paying hire (entitling the owners not only to withdraw the vessel but to claim damages for breach of condition) and/or were in renunciatory and/ or repudiatory breach.

The arbitrators considered, having regard to The BrimnesWLR [1973] 1 WLR 386; [1975] 1 QB 929 (CA), that the generally accepted position under English law was that failure to pay charterparty hire was not a breach of condition. They also rejected the owners' alternative argument that the compensation clauses in the addenda elevated the payment obligation into a condition. However, they held that those clauses were not penal and entitled the owners to recover damages for future loss of earnings. They further held that the charterers' conduct evinced an intention not to perform the charter in accordance with its terms and that the owners' claim for repudiatory or renunciatory breach succeeded.

The charterers obtained permission to appeal under s. 69 of the Arbitration Act 1996 in respect of two questions of law said to arise out of the award: first, whether the arbitrators had applied the correct test for repudiation/ renunciation, and secondly whether the compensation clauses were penalty clauses. By respondent's notice the owners contended that the arbitrators should have found that clause 5 was a condition.

Held, dismissing the charterers' appeal:

1. There was no issue at the arbitration as to the test to be applied for repudiatory or renunciatory breach and the tribunal had not misapplied or misunderstood the test. The arbitrators were entitled to say that, on the totality of the evidence, the charterers intended to perform the balance of the charterparty in a manner which was not consistent with it, and that that amounted to a breach which went to the root of the contract.

2. The compensation clauses in the addenda were not penal. The reference to “any breach” in clause 5 was only to a repudiatory breach or a breach of condition, and it followed that the right to claim damages conferred by the compensation clause was not a general one applicable to any breach, but was limited to those breaches which were sufficiently serious to justify termination or cancellation, including breach of the obligation to make punctual payment of hire under clause 5 and/or 31. Furthermore, if the obligation to make punctual payment of hire in clauses 5 and/or 31 was not originally a condition, there was nothing penal in the amendment effected by the addenda making it clear, by providing for the right to claim damages for loss of bargain, that the obligation to make punctual payment of hire had become a condition. (Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios)ELR[1985] 1 AC 191applied andLombard North Central plc v ButterworthELR[1987] 1 QB 527considered.)

3. (Obiter) Clause 5 (whether accompanied by clause 31 or not, but a fortiori with the addition of that provision) was a condition of the contract. The wording of the clause made it clear that there was a right to withdraw, irrespective of whether the breach was otherwise repudiatory. That was a strong indication that it was intended that failure to pay hire promptly would go to the root of the contract and thus that the provision was a condition. Second, finding that the obligation to pay hire punctually was a provision where time was of the essence and hence a condition was consistent with the general rule in mercantile contracts and authoritative House of Lords dicta. Although the anti-technicality clause was granting the charterers an indulgence in terms of time for payment, it made the obligation to pay hire a condition of the contract. The presence in this case of the anti-technicality clause, which made time of the essence if it would not otherwise be so, was an obvious ground of distinction with The Brimnes. Finding that the obligation to make punctual payment of hire was a condition was also conducive to commercial certainty. Since the obligation was a condition, the owners had a right to claim damages on termination for loss of the bargain. Furthermore,...

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    • 18 Marzo 2015
    ...Navigazione arl (The Elena d'Amico)UNK [1980] 1 Ll Rep 75. Kuwait Rocks Co v AMN Bulkcarriers Inc (The Astra)UNK [2013] EWHC 865 (Comm); [2013] 1 CLC 819. Langfond (Owners) v Canadian Forwarding and Export Co (1907) 96 LT 559. Leslie Shipping Co v WelsteadELR [1921] 3 KB 420. Lombard North ......

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