Pacific Basin IHX Ltd v Bulkhandling Handymax as [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Teare J. |
| Judgment Date | 08 November 2011 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 08 November 2011 |
[2011] EWHC 2862 (Comm)
Queen's Bench Division (Commercial Court).
Teare J.
Michael Nolan (instructed by Swinnerton Moore LLP) for the Claimant.
Julian Kenny (instructed by Ince and Co LLP) for the Defendant.
The following cases were referred to in the judgment:
Abu Dhabi National Tanker Co v Product Star Shipping (The Product Star) (No. 2)UNK [1993] 1 Ll Rep 397.
Koufos v C Czarnikow Ltd (The Heron II)ELR [1969] 1 AC 350.
Socimer International Bank Ltd v Standard Bank London LtdUNK [2008] 1 Ll Rep 558.
Spain v North of England Steamship Co LtdUNK (1938) 61 Ll L Rep 44.
Whistler International Ltd v Kawasaki Kisen Kaisha Ltd (The Hill Harmony) [2001] CLC 502.
Shipping — Arbitration — Piracy — Time charter — War risks — CONWARTIME 1993 clause — Claimant charterer instructed vessel to carry potash in bulk from Hamburg to China via Suez and Gulf of Aden — Disponent owner refused to proceed via Suez and Gulf of Aden on account of risk from pirates and instead proceeded via Cape of Good Hope — Extra cost of proceeding via Cape to be borne by charterer — Meaning of words “may be, or are likely to be, exposed to War Risks”— Phrase intended to express single degree of possibility or probability — Master or owner to form reasonable judgment of real likelihood that vessel would be exposed to acts of piracy — Passage round Cape not deviation but fulfilment of duty to prosecute voyage with due despatch.
This was an appeal by charterers (Pacific) from an arbitrators' award deciding that Pacific should pay the extra costs of proceeding via the Cape after the respondent owners (Bulkhandling) refused to proceed from Hamburg to China via Suez and the Gulf of Aden because of a risk from pirates.
The time charter of the vessel included the CONWARTIME 1993 clause. That provided that “the Vessel, unless the written consent of the Owners be first obtained, shall not be ordered to or required to continue to or through, any port, place, area or zone (whether of land or sea) or any waterway or canal, where it appears that the Vessel, her cargo, crew or other persons on board the Vessel, in the reasonable judgement of the Master and/or the Owners, may be, or are likely to be, exposed to War Risks”. War risks included acts of piracy “which, in the reasonable judgement of the Master and/or the Owners, may be dangerous or are likely to be or to become dangerous to the Vessel, her cargo, crew or other persons on board the Vessel”.
The arbitrators concluded that Bulkhandling was entitled to refuse to obey the order to proceed to China via Suez and the Gulf of Aden pursuant to CONWARTIME 1993. Bulkhandling was not obliged to have the vessel proceed to Suez, because that was prohibited by CONWARTIME 1993, or wait at Gibraltar until a lawful order was given, because that was not commercially realistic. Thus there was no deviation in proceeding via the Cape of Good Hope.
Pacific submitted that the arbitrators erred in law in their construction of CONWARTIME 1993, in particular, as to (i) the meaning of the words “may be”; (ii) the reasonable judgment of the owners; and (iii) whether the clause gave the owners a discretion and if so whether they were obliged to make proper enquiries before exercising it. Pacific further submitted that the arbitrators erred in law in holding that the passage round the Cape of Good Hope was not a deviation.
Held, ruling accordingly:
1. The clause operated where the master or owners formed a reasonable judgment, first, that the vessel, her cargo or crew “may be, or are likely to be, exposed” to acts of piracy and second, that such acts of piracy “may be dangerous or are likely to be or to become dangerous”. The words “may be, or are likely to be, exposed” to war risks did not clearly state what the degree of risk had to be. The right of a charterer to give directions as to the employment of the vessel was a key right of the charterer. It followed that any limitation on that right had to be clearly expressed. The reasonable construction was that the phrase “may be, or are likely to be, exposed” to war risks was intended to express a single degree of possibility or probability, the word “or” being used in the sense of “that is”. It was not reasonable to construe “likely to be” to mean that it was more likely than not that the vessel would be exposed to acts of piracy. The parties” intentions were best captured by the concept of a “real likelihood”, “real danger” or “serious possibility”.
2. The arbitrators held that the phrase “may be, or likely to be” connoted a serious risk that the vessel would be exposed to acts of piracy. However, they had not understood “serious risk” in the sense of a real likelihood. They had focussed on the quality or nature of the event of which there was a risk rather than on the likelihood of the risk materialising. Instead of asking whether there was a serious chance that the vessel would be exposed to acts of piracy, the arbitrators asked themselves whether there was a chance that the vessel would be exposed to the risk of a serious event, namely acts of piracy. They had therefore erred in law. If the arbitrators were wrong in law as to their understanding of the phrase “may be, or are likely to be, exposed to war risks” then it followed that their conclusion that Bulkhandling formed a reasonable judgment was also wrong in law.
3. Assuming that CONWARTIME 1993 conferred a discretion or power on the owners to make a decision which could effect both parties there was no necessity to imply any term as to how that discretion or power was to be exercised because the clause said expressly that the owners” judgment had to be “reasonable”. An owner who wished to ensure that his judgment was objectively reasonable would make all necessary enquiries. If he made no enquiries at all it might be concluded that he did not reach a judgment in good faith. But if he made those enquiries which he considered sufficient but failed to make all necessary enquiries before reaching his judgment, his judgment would not on that account be judged unreasonable if in fact it was an objectively reasonable judgment and would have been shown to be so had all necessary enquiries been made.
4. In circumstances where the arbitrators held that there was no realistic likelihood that agreement would have been reached permitting the vessel to transit the Gulf of Aden there was no commercial purpose in proceeding to Suez, notwithstanding that the vessel could have proceeded to Suez before being exposed to acts of piracy. The refusal of Bulkhandling to follow Pacific's order to proceed from Gibraltar to Suez was therefore something “done or not done” in compliance with the clause. Further, in circumstances where Pacific had ordered the vessel to load and carry a cargo to China but where its order as to route was an order Pacific was not entitled to give, the vessel was not without orders and the decision to proceed to China via the Cape of Good Hope was in fulfilment of Bulkhandling's duty to prosecute that voyage with due dispatch.
Teare J:
1. This is an appeal from an award dated 14 December 2010 made by three LMAA arbitrators, Mr Clark, Mr O'Donovan and Mr Sheppard. The appeal has been brought with leave of the Court pursuant to section 69 of the Arbitration Act 1996. It concerns the risk of attack by pirates on merchant vessels in the Gulf of Aden and centres upon the true construction and implementation of the CONWARTIME 1993 clause which had been incorporated into a time charter of the vessel Triton Lark, a geared bulk carrier, built in 2005, with 5 holds, a summer deadweight of 56,025 m.t. and a speed of about 14 knots.
2. The Claimant (“Pacific”) chartered the vessel from the Defendant (“Bulkhandling”), the disponent owner of the vessel, and instructed the vessel to carry a cargo of potash in bulk from Hamburg to China via Suez and the Gulf of Aden. Bulkhandling refused to proceed via Suez and the Gulf of Aden on account of a risk from pirates and instead proceeded via the Cape of Good Hope. The extra cost of proceeding via the Cape was US$462,221.40. The tribunal held that the extra costs should be borne by Pacific as charterer. Pacific submits that such decision was wrong in law.
3. The head owners, Triton Navigation BV had let the vessel to Klaveness Chartering on the NYPE form dated 14 July 2006 on terms which incorporated the CONWARTIME 2004 which in all material respects contained the same wording as CONWARTIME 1993. Klaveness in turn entered into a Pool Participation Agreement dated 14 July 2006 with Bulkhandling on the same terms as the Head Owners/Klaveness charter.
4. Bulkhandling chartered the vessel to Pacific on the NYPE form dated 29 August 2008 at the rate of US$53,000 per day.
5. Pacific voyage chartered the vessel on the GENCON form to K & S Kali GmbH to carry 44,000 tonnes of bulk potash from Hamburg to Zhanjiang. The charter included the VOYWAR 2004 clause, parts of which are for all material purposes the same as CONWARTIME 1993.
6. The material terms are as follows:
“Clause 8:
The Captain shall prosecute his voyages with due despatch and … shall be under the orders and directions of the Charterers as regards employment and agency
...
Clause 75:
BIMCO Standard War Risk Clause for Time Charters, 1993
Code Name: ‘CONWARTIME 1993’
(1) For the purpose of this Clause, the words:
(a) ‘Owners’ shall include the shipowners, bareboat charterers, disponent owners, managers or other operators who are charged with the management of the Vessel, and the Master; and
(b) ‘War Risks’ shall include any war (whether actual or threatened), act of war, civil war, hostilities, revolution, rebellion, civil commotion, warlike operations, the laying of mines (whether actual or reported), acts of piracy, acts of terrorists, acts...
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