Tropwood A.G. of Zug v Jade Enterprises Ltd (Tropwind)
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE DUNN,LORD JUSTICE FOX |
| Judgment Date | 18 December 1981 |
| Judgment citation (vLex) | [1981] EWCA Civ J1218-1 |
| Docket Number | 81/0515 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 December 1981 |
[1981] EWCA Civ J1218-1
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
(MR. JUSTICE ROBERT GOFF)
Royal Courts of Justice.
The Master of the Rolls
(Lord Denning)
Lord Justice Dunn
and
Lord Justice Fox
81/0515
MR. A.G. POLLOCK, Q.C. and MR. V. LYON (instructed by Messrs. Holman Fenwick & Willan) appeared on behalf of the Respondents.
MR. D. JOHNSON, Q.C. and MISS P. PHELAN (instructed by Messrs. Richards Butler & Co.) appeared on behalf of the Appellants.
This is another "withdrawal case" dated back to 1973. The story is familiar. When the market rates are rising, the shipowners keep close watch on payments of hire. If the charterer makes a slip of any kind—a few minutes too late—or a few dollars too little—the shipowners jump on him like a ton of bricks. They give notice of withdrawal and demand thenceforward full payment of hire at the top market rate. Very rarely is the vessel actually withdrawn. Arrangements are made by which she continues in the service of the charterers just as if nothing had happened. Then there is a contest before the arbitrators or in the courts. It is as to whether the notice of withdrawal was justified or not. In the ensuing discussion, as I said in The Laconia (1976) Queen's Bench at page 548, "the merits have become submerged in a sea of technicalities. They have deteriorated into a game of wits which is played out between shipowners and charterers, backed up by lawyers and banks". To my mind, the withdrawal clause is nothing more nor less than a penalty clause or a forfeiture clause. I welcome the suggestion recently thrown out by Mr. Justice Lloyd that equity may in a proper case grant relief against it, see The "Afovos" (1980) 2 Lloyd's Law Reports, page 469; and The Scaptrade (1981) 2 Lloyd's Law Reports at page 425.
Our present case goes back to the year 1973. The Tropwind was of deadweight capacity 37,767 tons. She was employed on a time charter for twelve months from the 8th January, 1973 to the 8th January, 1974. The hire under the charter was $3.70 per ton. During the 12 months the market rate rose to $8.50 a ton. That tremendous rise was very tempting to the shipowners. They twice found an excuse to give notice of withdrawal. The first was on the 3rd October, 1973. They said that the charterers had failed to remit "in due time" an additional premium for war risk insurance, but were an hour or so late. That issue was tried out three years later by Mr. Justice Kerr sitting in the Commercial Court. He held that the shipowners were not justified in giving the notice of withdrawal. The charterers had paid the additional premium in due time in accordance with the established practice, see The Tropwind (1977) 1 Weekly Law Reports 397.
Two months later—on the 14th December, 1973—the shipowners tried again. They again purported to withdraw the vessel. This time on the ground that the charterers had not paid the full amount due for the last month's hire. The shipowners contended that the charterers had deducted the estimated cost of bunkers $12,690 from the last payment, whereas they should have waited till redelivery and deducted it then. Assuming that this allegation was correct, the shipowners had only lost the interest on $12,690 for four weeks. That is a loss of about $1,000. Yet they claimed, by reason of the notice of withdrawal, to be entitled to the market rate of $8.50 in lieu of $3.70 for the four weeks, that is, an extra $250,000. What a penalty for so slight a fault!
On this second attempt the shipowners failed in the arbitration. Both the arbitrators and the umpire agreed that the charterers were entitled to make the deduction: and that the shipowners had wrongfully withdrawn the vessel and were entitled to nothing. But the Commercial judge (Mr. Justice Robert Goff) has held that the notice of withdrawal was good and that the shipowners are entitled to receive the market rate of $8.50 for the last month.
Such being the outline, I must now go into some detail about this second occasion. The vessel was due for redelivery on the 8th January, 1974. On the 22nd November, 1973 she started on her legitimate last voyage ( The London Explorer (1972) Appeal Cases 1). She was then at Tobata in Japan. Her eventual destination was only about 200 miles away to Pohang in South Korea. But she had to go many thousands of miles for a cargo of ore. She was due to go in ballast to a port on the East Coast of India called Paradip, south of Calcutta, and load cargo there. But it turned out that there was no cargo available at Paradip. So she was directed instead to go to a port on the western coast of India called Belikeri, south of Bombay. It was reasonable to expect that she would reach Belikeri, load, reach Pohang and discharge on or before the 8th January, 1974.
The arrangements for this legitimate last voyage were made, not by the charterers themselves, but by sub-charters, Fedcom. The sub-charterers Fedcom had made an agreement direct with the shipowners whereby the bunkers were to be procured by the shipowners, and in return the shipowners were to take 50 per cent of the profits. The owners, therefore, had a vested interest in the continuance of the charter and sub-charter.
THE LAST INSTALMENT OF HIRE
The last instalment of hire was due on the 8th December, 1973. In the previous few days the vessel was approaching Belikeri. She actually reached Belikeri on that very day, the 8th December, 1973. The charterers had, of course, to make beforehand their calculations for the last payment of hire. They believed that the vessel would be redelivered at Pohang no later than the 4th January, 1974. So they calculated and paid the last month's hire in two instalments on the 4th and 7th December,1973 on this basis (omitting immaterial items):
| Hire from 8th December, 1973 to 24th December, 1973 | $70,835.05 |
| Hire from 24th December, 1973 to 4th January, 1974 | $48,699.65 |
| $119,534.70 | |
| Deduct: | |
| Provision for estimated Owners' disbursements | $5,000.00 |
| Provision for costs of bunkers at redelivery (330 L.T. fuel oil 203 L.T. diesel oil) | $12,680.00 |
| $17,690.00 | |
| $17,690.00 | |
| $101,844.70 |
THE NOTICE OF WITHDRAWAL
The shipowners accepted the payments but said they were inadequate. They estimated the redelivery date as the 8th January, 1974. They also asserted that the charterers were not entitled to deduct any sum for owners' disbursements or for bunkers on redelivery. The owners extended the time for payment till close of business at Chicago on the 13th December, 1973. They said that they would withdraw the vessel unless the deficiency was made good.
On the 14th December, 1973 the owners' solicitors sent this telex to the charterers' solicitors:
"On behalf of owners we formally give you notice that vessel is formally withdrawn from Time Charter service. Please inform your clients accordingly".
NO WITHDRAWAL IN FACT
At that time the vessel was still at Belikeri. She had started to load the cargo of ore on the 11th December, 1973. By the time the telex of withdrawal was sent on the 14th December, 1973 some 4,500 tons of cargo (out of a total of some 35,000 tons) had been loaded. The owners did nothing to interfere with the loading of the remainder. They did nothing to interfere with the continuance of the charter or sub-charter. They gave no instructions to the master by which to implement the withdrawal. The vessel finished the loading. She left Belikeri on the 25th December, 1973. The charterers directed her to proceed to Pohang. She did so and discharged her cargo. She was "redelivered" to the owners on the 15th January, 1974.
The sub-charterers duly paid the hire under the sub-charter to the charterers up to the 15th January, 1974, and the charterers paid the charter-hire up to that date to the owners. But the shipowners claimed that that was not enough. They claimed that they were entitled to the market rate as from the 14th December, 1973 when the notice of withdrawal was given.
THE ARBITRATORS AND UMPIRE'S AGREEMENT
The dispute went to arbitration. The two arbitrators (Mr. John Potter for the owners, and Mr. Donald Davies for the charterers) agreed together on their award, and the umpire (Mr. Kingsley) said he agreed fully with them. They said that the owners were not entitled to withdraw the vessel on the 14th December, 1973 and that the charterers had paid in full. They stated a special case. The judge (Mr. Justice Robert Goff) reversed their decision. He held that the owners were entitled to withdraw the vessel on the 14th December, 1973 and were entitled to the market rate from that date onwards until the 15th January, 1974. Now the charterers appeal to this court.
FINDINGS OF THE ARBITRATORS
The arbitrators made findings to the effect that the payment of hire on the 7th December, 1973 was a fair and reasonable sum paid by the charterers to cover the time up to redelivery. They made these three findings:
"The Charterers' belief that the vessel would be redelivered no later than 4th January, 1974 was bona fide and reasonable.
"The Charterers' belief that the vessel would be redelivered with 330 L.T. fuel oil and 203 L.T. diesel oil on board was bona fide and reasonable.
"The Charterers' belief that there were outstanding Owners' disbursements in the sum of U.S. $5,000 was bona fide and reasonable. In fact disbursements in a greater sum had already been paid for on behalf of the Owners".
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