Lansat Shipping Company Ltd v Glencore Grain BV
| Jurisdiction | England & Wales |
| Judge | Lord Clarke of Stone-cum-Ebony MR,Goldring,Patten L JJ. |
| Judgment Date | 31 July 2009 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 July 2009 |
Court of Appeal (Civil Division).
Lord Clarke of Stone-cum-Ebony MR, Goldring and Patten L JJ.
Andrew Baker QC (instructed by Ince & Co) for the appellant.
Jonathan Hirst QC and Simon Birt (instructed by Birketts LLP) for the respondent.
The following cases were referred to in the judgment:
Alfred McAlpine Capital Projects Ltd v Tilebox LtdUNK [2005] BLR 271.
Alma Shipping Corp of Monrovia v Mantovani (The Dione)UNK [1975] 1 Ll Rep 115.
Cine Bes Filmcilik ve Yapimcilik v United International PicturesUNK [2003] EWCA Civ 1669; [2004] 1 CLC 401.
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co LtdELR [1915] AC 79.
General Trading Co (Holdings) Ltd v Richmond Corp LtdUNK [2008] 2 Ll Rep 475.
Hyundai Merchant Marine Co Ltd v Gesuri Chartering Co Ltd (The Peonia)UNK [1991] 1 Ll Rep 100.
Jeancharm Ltd v Barnet Football Club LtdUNK [2003] EWCA Civ 58.
Lordsvale Finance plc v Bank of Zambia [1996] CLC 1849; [1996] QB 752.
Murray v Leisureplay plcUNK [2005] IRLR 946.
Stoomvaart Maatschappij Nederlandsche Lloyd v General Mercantile Co Ltd (The Olanda)ELR [1919] 2 KB 728n.
Philips Hong Kong Ltd v A-G of Hong KongUNK (1993) 61 BLR 41.
Rederi Sverre Hansen A/S v Phs Van OmmerenUNK (1921) 6 Ll Rep 193.
Shipping Corp of India Ltd v NBB Niederelbe Schiffahrtsgesellschaft GmbH & Co (The Black Falcon)UNK [1991] 1 Ll Rep 77.
Steven v Bromley & SonELR [1919] 2 KB 722.
Torvald Klaveness A/S v Arni Maritime Corp (The Gregos) [1994] CLC 1188; [1994] 1 WLR 1465.
Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas)UNK [2007] EWCA Civ 901; [2007] 2 CLC 400; [2008] UKHL 48; [2008] 2 CLC 1; [2009] 1 AC 61 (HL).
Shipping — Charterparty — Penalty — Charter on New York Produce Exchange form — Provision that if last voyage exceeded maximum period, charter hire adjusted to market rate from 30th day prior to maximum period date until actual redelivery of vessel — Vessel redelivered just over six days late — Charterers accepted liability to pay hire at market rate for overrun period — Giving of order for illegitimate last voyage did not lead to non-contractual voyage — No basis for implying request by charterers that owners should perform such voyage outside charterparty and on terms that they would pay for voyage at market rate — If voyage would be illegitimate, owners could refuse to perform it but, if they did perform it, they did so under charterparty and were entitled to damages at the market rate if redelivery took place after end of charterparty period — Clause providing for payment of market rate for 30 days before overrun period as well as for overrun period unenforceable as penalty — Clause deterrent and not genuine pre-estimate of damages.
This was an appeal against a decision ([2009] 1 CLC 379) that a provision in a charterparty was unenforceable on the ground that it was a penalty.
The charterparty was on an amended New York Produce Exchange form under which the respondent charterers chartered the vessel Paragon for “about minimum 3 to about 5 months (about means +/-15 days)”. Under cl. 101 charterers were obliged, first, to ensure that the last voyage would not exceed the maximum period under the charter. The second sentence of the clause provided that, if the last voyage exceeded the maximum period under the charter and the market rate was higher than the charter rate, the charter hire would be adjusted to reflect the prevailing market level from the 30th day prior to the maximum period date until actual redelivery of the vessel to the owners.
In the event the vessel was redelivered 6.166 days after the latest permissible time for redelivery under the charterparty.
The owners claimed damages for breach of the charterparty by reference to clause 101. They said that the prevailing market rate was US$46,083.22 per day as compared with the charterparty rate of US$29,500 per day. The charterers accepted that the owners were entitled, as damages for late delivery, to the market rate for the period between the last permissible date for redelivery and the date of actual redelivery, in the sum of $89,560.87, which they had paid to the owners. The owners claimed an additional sum of US$471,603.32 calculated in accordance with cl. 101.
Arbitrators held that cl. 101 was unenforceable as a penalty clause and the judge agreed. The owners submitted that the giving of an illegitimate last order by charterers was to order the owners to carry out a voyage which was not a contractual voyage. The order was therefore given outside the contract and was a voyage for which, if the owners performed it, they were entitled to appropriate remuneration and it followed that the owners' claim for remuneration was not a claim for damages but a quasi-contractual or quantum meruit claim for hire, which, absent express agreement, would be at the relevant market rate at the time the voyage was carried out.
Held, dismissing the appeal:
1. An order to proceed on an illegitimate last voyage was a breach of contract, but not necessarily repudiatory, entitling the owners to damages if any harm had been suffered. The measure of damages was the market rate for the overrun period. (Alma Shipping Corp of Monrovia v Mantovani (The Dione)UNK[1975] 1 Ll Rep 115applied andShipping Corp of India Ltd v NSB Niederelbe Schiffahrtsgesellschaft GmbH & Co (The Black Falcon)UNK[1991] 1 Ll Rep 77approved.)
2. In the absence of some further agreement, where the owners chose to perform a last voyage order they were doing so under the contract, whether the voyage was a legitimate last voyage or an illegitimate last voyage and, in the latter case, whether they knew or suspected that the order was for an illegitimate last voyage or not. In the ordinary case in which charterers gave orders for an illegitimate last voyage there was no basis for implying a request by the charterers that the owners should perform such a voyage outside the charterparty and on terms that they would pay for the voyage at the market rate. On the contrary the charterers were instructing the owners to perform a voyage under the charterparty. If it was a non-contractual order because the voyage would be illegitimate, the owners could refuse to perform it, but if they did perform it, they did so under the charterparty but were entitled to damages at the market rate if redelivery took place after the end of the charterparty period. (Torvald Klaveness A/S v Arni Maritime Corp (The Gregos)[1994] CLC 1188; [1994] 1 WLR 1465andTransfield Shipping Inc v Mercator Shipping Inc (The Achilleas)UNK[2008] UKHL48; [2008] 2 CLC 1; [2009] 1 AC 61considered.)
3. Thus, in the absence of cl. 101, if the final voyage order was an illegitimate order, and thus a breach of contract, and the owners had performed the voyage, they would have been entitled to recover hire at the contractual rate until the contractual date for redelivery and damages at the market rate thereafter until actual redelivery.
4. The first sentence of cl. 101 was a provision similar to the ordinary obligation to give legitimate orders. The second sentence was an agreement as to what should happen in the case of breach and was thus a classic provision to which the law of penalties applied. It was therefore unenforceable unless the payment stipulated for was a genuine pre-estimate of the amount of loss caused by the breach. (Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co LtdELR[1915] AC 79applied.)
5. The first sentence of cl. 101 was not a condition. A breach of the clause at most gave the owners the option not to perform the last voyage. There was no reason not to treat the first sentence as a provision similar to the ordinary case where it was a breach of the charterparty to give an order for an illegitimate last voyage, but not necessarily repudiatory. On that basis the provision for payment, as compensation for late redelivery, of a higher market rate for the period of overrun and also for the last 30 days of the contracted period would be penal. On the authorities, since there was no repudiatory breach accepted by the owners, their loss was simply a figure to be calculated at the market rate for the 6.166 days between the contractual redelivery date and actual redelivery.
Lord Clarke of Stone-cum-Ebony MR:
1. This appeal arises out of the dismissal by Blair J (“the judge”) of an appeal by the appellant (“the owners”) from an interim award dated 7 May 2008 made by three arbitrators, namely Michael Baker-Harber, Alan Burbridge and Robert Gaisford, in which they decided that a provision in a charterparty is unenforceable on the ground that it is a penalty. The charterparty is dated 23 November 2006 and is on an amended New York Produce Exchange form under which the respondent (“the charterers”) chartered the vessel Paragon for “about minimum 3 to about 5 months (about means +/-15 days)”. By clauses 4 and 36, the rate of hire was US$29,500 “per day or pro rata”.
2. The critical clause is clause 101 which is in these terms:
“The Charterers hereby undertake the obligation/responsibility to make thorough investigations and every arrangement in order to ensure that the last voyage of this Charter will in no way exceed the maximum period under this Charter Party. If, however, Charterers fail to comply with this obligation and the last voyage will exceed the maximum period, should the market rise above the Charter Party rate in the meantime, it is hereby agreed the charter hire will be adjusted to reflect the prevailing market level from the 30th day prior to the maximum period date until actual redelivery of the vessel to the Owners.”
It is the second sentence of clause 101 that the arbitrators held to be a penalty.
3. The owners appealed to the High Court with the permission of Andrew Smith J but the decision was upheld by Blair J who gave permission to appeal to this court. His order was dated 25 March...
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