Regal Seas Maritime S.A. v Oldendorff Carriers GMBH & Company KG ‘New Hydra’
| Jurisdiction | England & Wales |
| Judge | Sir Nigel Teare |
| Judgment Date | 11 March 2021 |
| Neutral Citation | [2021] EWHC 566 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2020-000528 |
[2021] EWHC 566 (Comm)
Sir Nigel Teare SITTING
AS A JUDGE OF THE HIGH COURT
Case No: CL-2020-000528
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Michael Coburn QC (instructed by HFW LLP) for the Claimant
Chris Smith QC (instructed by MFB Solicitors) for the Defendant
Hearing date: 01 March 2021
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is an appeal from an arbitration award dated 20 July 2020 (“the Award”) pursuant to section 69 of the Arbitration Act 1996. Permission to appeal was granted by Jacobs J. on 2 November 2020 on the basis that the Award was “obviously wrong”; see section 69(3)(c)(i) of the Act. The point of law in respect of which permission to appeal was granted concerns the true construction of a hire provision in a time charterparty. On the application for permission to appeal Jacobs J. formed his view, for which he gave reasons, without the benefit of oral argument. Now that permission to appeal has been given the question for me is whether the Tribunal reached the correct decision in law or not. The Tribunal considered, initially, that the answer to the question of construction was “not simple”. I agree that the answer is not simple even with the benefit of the clear and forceful arguments by counsel on both sides.
The dispute in question arose out of a time charter dated 22 November 2013 (“the charter”) on an amended NYPE form pursuant to which the Charterers agreed to charter the Owners' vessel mv NEW HYDRA (“the Vessel”) for a period of 3 years with options for the Charterers to extend the Charter by two further periods of 1 year. Ultimately, both options were exercised.
The Vessel, a Cape size bulk carrier built in 2011 of 179,258 tonnes, was delivered into the charter service on 1 st January 2014.
The relevant part of the hire clause provided as follows:
“Hire payable every 15 days in advance including overtime. The gross daily hire to be calculated basis the average of the 4 Baltic Cape Size Time Charter routes published by the Baltic Exchange over the previous 15 days plus 4% for size adjustment.”
The background to the hire clause can be summarised briefly as follows (by reference to the Award):
a) Since 1988, the Baltic Exchange has published information about market rates in the various shipping markets. Since 1999 this has included the “ Cape size” sector. This was known as the Baltic Capesize Index (“BCI”)
b) The Cape size rates published daily by the Baltic are based on assessments by market panellists (or brokers) of rates for various specified routes, either on a voyage or on a time charter basis.
c) The time charter rates have to reflect a standard “ benchmark” ship with a defined size and other characteristics.
d) At the time of the charter, the benchmark ship for the Cape size sector was a 172,000 tonnes ship, for which four time charter routes were assessed by panellists. Prior to 2004 the benchmark ship had been a 161,000 tonnes ship.
e) The Baltic published daily in US dollars both (a) the four individual time charter route rates and (b) the average of those four rates.
The Tribunal explained that owners and charterers of Cape size vessels started using the published time charter routes (usually the average thereof) as the basis for calculating hire for period time charters – the principle being that both parties would share the risks and benefits of large movements in the market. The published figures were also used by the “forward freight agreement” market (“the FFA”).
The basic issue between the parties is how the hire clause is to be applied in the event, which occurred, of a change to the deadweight tonnage of the benchmark Cape size ship in respect of which the rates were published.
The Change to the Benchmark Ship
In December 2013, very shortly after the parties concluded the fixture, the Baltic announced that changes would be made to the BCI, which eventually resulted in the benchmark ship being increased to 180,000 tonnes, that is, almost exactly, but not quite, the size of the Vessel.
In May 2015 the Baltic Exchange announced, “following extensive discussion with market participants”, the planned changes. It is necessary to understand the terminology used. “172 4TC” referred to the equally weighted average of the 4 routes. “180 5TC” referred to the unequally weighted average of 5 routes (effectively the original four plus a fifth route). “180 4TC” referred to the equally weighted average of, effectively, the four original routes.
The new scheme was to have these features:
a) From 31 July 2015, the 180,000 tonnes ship was the only ship being assessed by the Baltic's panellists. The 172,000 tonnes ship was no longer assessed.
b) Accordingly, from that date the Baltic no longer published individual panellist-based rates for the 172,000 tonnes ship on the four time charter routes. Instead, from 3 August 2015 until 23 December 2016 the Baltic would publish a “daily rate for the 172 4TC ….derived from the 180 4TC at a constant dollar differential”. The differential was to be established by reference to the “average differences between the panellist-reported 172 4TC and 180 4TC for the preceding 12 months.”
c) The Baltic also announced what would happen from 2 January 2017 “until all relevant FFA open interest has settled”. The Baltic would publish a “daily rate for the 172 4TC ….derived from the 180 5TC at a constant dollar differential”. The differential was to be established by reference to the “average differences between the panellist-reported 172 4TC and 180 5TC for the preceding 12 months.”
d) The “two-step” approach was necessary because there was “existing options open interest in the 172 4TC which expires before the end of 2016 and the 172 4TC and 180 5TC may have differing volatility profiles.” The Baltic added that “in the event new open Interest in options in the 172 4TC is opened for settlement beyond 2016 it will settle based on the then prevailing calculation (i.e. the differential derived from the 180 5TC.)”
On 31 July 2015 the Baltic announced the dollar differentials which were to be applied to “generate the published value for the 172,000 4TC average”. From 3 August 2015 it was to be -$1120 and from 2 January 2017 it was to be -$1064. “These have been established basis the data from 1 August 2014 until 31 July 2015.”
On 22 December 2017 the Baltic stopped publishing the 172 4TC figure. However, in accordance with the announcement in May 2015 the 172 4TC rate was to continue to be calculated by applying the differential to the 180 5TC rate until all FFA interest had settled.
The payment of hire
The change to the Baltic's benchmark vessel in fact made no difference to the manner in which hire was calculated and paid under the charter by the parties. Rather, from 1 st August 2015 onwards the Owners produced hire statements which continued to calculate the hire due by taking the 172 4TC figure and adding 4% to it.
By an Addendum No.5 dated 16 th November 2017 the charter was extended for a further period of one year in the following terms:
“TODAY IT HAD BEEN AGREED THAT:
Charterers hereby declare the option for the second optional year with 3 months more or less in Charterers' option on final period at 104% BCI 4TCS less 3.75% address commission.”
It was not until July 2018 that the Owners alleged that the parties had been calculating the hire due for the previous three years in the wrong manner. The Charterers did not agree and the ensuing dispute was submitted to the Tribunal for determination.
The respective cases and the Award
The Owners' case was that the Charterers should have been paying hire since August 2015 on the basis of the 180 4TC rate plus 4%. Alternatively, the Owners contended that the Charterers should have been paying hire on the basis of the 180 4TC rate but with a reasonable size adjustment (which was said to be nil since the Vessel's tonnage was almost that of the benchmark vessel.)
By contrast, the Charterers' case was that the hire should have been calculated in exactly the same manner in which the parties had been calculating it at all material times, i.e. by using the 172 4TC as the base rate and adding 4%. Up until December 2017, this simply involved the parties adopting the 172 4TC rate as actually published by the Baltic. Thereafter, the parties were to use the fixed dollar differential and apply that to the published daily rate for 180 5TC (which is how the parties had in fact calculated the hire due from January 2018 until July 2018).
The Charterers contended in the alternative that, if they were wrong on the construction of the Hire Provision, then in the light of the parties' conduct, inter alia, there had been a variation to the Charter and/or the Owners were estopped from claiming any further sums by way of hire.
By the Award the Tribunal dismissed the claims by the Owners for hire, which the Owners said had been substantially underpaid over a number of years. The Tribunal accepted the Charterers' construction of the hire provision and so did not deal with the alternative cases of variation and estoppel. It is accepted by the Owners that if they succeed on this appeal the Award will have to be remitted to the Tribunal so that the alternatives defences of variation and estoppel can be dealt...
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