Western Bulk Carriers K/S v Li Hai Maritime Inc. (The "Li Hai")
| Jurisdiction | England & Wales |
| Judge | Jonathan Hirst QC |
| Judgment Date | 05 May 2005 |
| Neutral Citation | [2005] EWHC 735 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 05 May 2005 |
| Docket Number | Case No: 2003 Folio No 1114 |
[2005] EWHC 735 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Jonathan Hirst QC
Sitting as a Deputy Judge of the High Court
Case No: 2003 Folio No 1114
Nicholas Hamblen QC (instructed by Ince & Co) for the Claimant
Jeremy Russell QC and James M. Turner (instructed by DLA (Hong Kong)) for the Defendant
Hearing dates: 28 th February—3 rd March 2005
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of the Judgment and that copies of this version as handed down may be treated as authentic
Mr Hirst Q.C.:
This case represents commerce, red in tooth and claw. The issue is whether the Defendant owners were entitled to withdraw the m.v. "Li Hai" from the Claimant time charterers, after it had been on more or less continuous hire to the Charterers for some 4 1/2 years, for non-payment of US$500, after the market had risen in the space of 10 months to about 2 1/2 times the charter rate. Although $500 represented less than two hours hire, no-one suggested that this sum was de minimis; nor was it. So, there can be no doubt that if it was owing and the appropriate "anti-technicality" notice was given, and in the absence of any estoppel, the Owners were entitled to withdraw the vessel. The Court has no power to relieve from forfeiture on the grounds that this is a harsh case.
The Charterparty
M. V. "Li Hai" ("the vessel") is 27,000 ton "handymax" bulk carrier. It was owned by the Defendants, a Panamanian corporation, but managed by Cosco Bulk Carrier Co. Ltd of Tianjin, China. The vessel was first chartered to the Charterers under a charterparty dated 23 March 1999. The third charter expired on 28 December 2002. The vessel was immediately delivered into the fourth charter, dated 27 September 2002. The vessel was performing under this charter when she was withdrawn.
The charterparty was on the New York Produce Exchange form as amended by the parties. It provided as follows:
"The said owners agree to let and the said Charterers agree to hire the said vessel from the time of delivery, for about 5/7 months period in Charterers' option (about meaning +/- 15 days)—charterers option for further about 5/7 months … on the following conditions:
cl.4 That the charterers shall pay for the use and hire of the said vessel at the rate of $8,100 per day including overtime for first 5/7 months, $9,100 per day including overtime counting from the maximum time of the first period i.e. 28 th July 2003, 10:20 hrs GMT United States currency …
cl.5 Payment of said hire to be made by charterers to Owners' nominated bank in cash in United States currency, 15 days in advance, … otherwise 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 …
Cash for vessel's ordinary disbursements at any port may be advanced with Owners' prior approval as required by the Captain, by the Charterers and their agents, subject to 2 1/2% commission and such advances shall be deducted from the hire.
cl. 10 Owners to victual Pilots and customs officers [etc.] …Charterers paying for all victualling US$1,200 lumpsum per month or pro rata including communication/entertainment which to be paid directly to Owner's bank.
cl.18 … the charterers to have a lien on the Ship for all monies paid in advance and not earned, and any overpaid hire or excess deposit to be returned at once.
cl. 47 Punctual Payment/Breach of charter
With reference to Cl. 5 it is agreed that the hire to be considered paid upon charterers instructing their bankers to irrevocably remit the hire to Owners' bank [in Tianjin].
Before exercising the option of withdrawing the vessel from the charter the Owners will give the Charterers seventytwo hours (Saturdays, Sundays and Holidays and Banking Holidays excluded) official notice in writing and will not withdraw the vessel if the hire is paid or the alleged breach is rectified within the seventytwo hours allowed for notice from time the Charterers received such notice. …'
The market
The charter rate was $8,100 until 28 July 2003, when it rose to $9,100 in the event the option was exercised, as it was. As from early 2003, the market for handymax vessels started to rise ever more steeply, driven by Chinese demands for imported raw materials. Between September and December 2003 alone, the market rate more or less doubled. At the time of the withdrawal, the market rate was about 2 1/2 times the charter rate. This made the charter very valuable to Charterers. It also made it extremely tempting to the Owners to find a way out if they could.
The withdrawal
A practice had developed between the Charterers and the Owners that a few days before a hire payment was due, the Charterers would e-mail the Owners, via their brokers Rodskog Shipbrokers Limited of Hong Kong ("Rodskog") a hire statement setting out the hire that they would instruct their bankers to pay and indicating the deductions that they intended to make. A hard copy would also be sent to Rodskog, enclosing copies of the vouchers. This hard copy would not arrive until after the hire had become due for payment. So at that time, the Owners might not be in a position to judge the propriety of the deduction. From time to time disputes would arise as to whether a deduction ought to have been made. These were resolved by agreement. I shall have to revert later to the question whether this created any kind of estoppel.
The 38 th hire payment was due on 30 June 2003. On 27 June, the Charterers sent a hire statement to Rodskog indicating an intention to deduct twelve items said to be owner's expenses totalling some $16,500. The Owners objected and demanded full payment immediately. The Charterers swiftly accepted that $6,657 had been mistakenly deducted and gave instructions for that sum to be paid. They faxed copies of the remaining vouchers. This was not acceptable to the Owners and on 2 July they sent the following notice to the Charterers:
"RE: MV LIHAI/WESTERN BULK CARRIERS K/S—NOTICE OF WITHDRAWAL
DEAR SIRS:
WE REFER TO OUR STATEMENT OF 38 TH HIRE WHICH WAS SENT TO YOU ON 27 TH JUNE 2003. BUT WE HAVE ONLY RECEIVED US99,515.10 FOR SAID HIRE PAYMENT, WHICH WAS DUE ON 30 TH JUNE 2003. THIS IS NOT THE FULL AMOUNT OF 38 TH HIRE INSTALLMENT OF US116,025.00 AS PER OUR HIRE STATEMENT.
CHARTERERS HAVE FAILED TO MAKE THE FULL AMOUNT AND SUFFICIENT PAYMENT OF THE 38 TH HIRE, WHICH WAS IN BREACH OF CLAUSE 5 AND CLAUSE 47 OF THE C/P DATED 27 TH SEPT. 2002. OWNERS HEREBY GIVE CHARTERERS FORMAL NOTICE THAT UPON THE EXPIRY OF THE NEXT 72 (SEVENTY TWO) HOURS, FAILURE OF WHICH WE SHALL ACCEPT YOUR ACTION AS BEING IN REPUDIATORY BREACH OF C/P AND OWNERS WILL WITHDRAW THE VESSEL FROM THE SERVICE OF THE CHARTERERS WITHOUT PREJUDICE TO ANY CLAIMS THAT OWNERS MAY OTHERWISE HAVE UPON THE CHARTERERS
THANKS AND BEST REGARDS"
The Charterers' immediate stance was to maintain the validity of the remaining deductions and to request that the notice be withdrawn. On 4 July, after receipt of the $6,657, the Owners sent a further notice:
"RE: MV LIHAI/WESTERN BULK CARRIERS K/S—NOTICE OF WITHDRAWAL
DEAR SIRS:
WE REFER TO OUR STATEMENT OF 38 TH HIRE WHICH WAS SENT TO YOU ON 27 TH JUNE 2003. SO FAR WE HAVE NOT RECEIVED THE FULL AMOUNT OF 38 TH HIRE INSTALLMENT OF USD116,025.00 AS PER OUR HIRE STATEMENT, WHICH WAS DUE ON 30 TH JUNE 2003.
CHARTERERS HAVE FAILED TO MAKE THE FULL AMOUNT AND SUFFICIENT PAYMENT OF THE 38 TH HIRE, WHICH WAS IN BREACH OF CLAUSE 5 AND CLAUSE 47 OF THE C/P DATED 27 TH SEPT. 2002. OWNERS HEREBY GIVE CHARTERERS FORMAL NOTICE THAT UPON THE EXPIRY OF THE NEXT 72 (SEVENTY TWO) HOURS, FAILURE OF WHICH WE SHALL ACCEPT YOUR ACTION AS BEING IN REPUDIATORY BREACH OF C/P AND OWNERS WILL WITHDRAW THE VESSEL FROM THE SERVICE OF THE CHARTERERS WITHOUT PREJUDICE TO ANY CLAIMS THAT OWNERS MAY OTHERWISE HAVE UPON THE CHARTERERS
THIS NOTICE OF WITHDRAWAL IS WITHOUT PREJUDICE TO THE VALIDITY OF ANY PREVIOUS NOTICE OF WITHDRAWAL.
THANKS AND BEST REGARDS"
This prompted reconsideration by the Charterers and on the same day they gave irrevocable instructions to their bankers to pay the remaining disputed deductions and notified the Owners accordingly. The threat of withdrawal was lifted. Subsequently, agreement was reached as to what could be deducted and the deduction was made from the 40 th hire payment.
The vessel had been sub-chartered to Oldendorff Carriers of Lübeck in early August 2003. On 12 August, the vessel bunkered in Santos and loaded 800 m.t. fuel oil. The vessel started to burn this fuel on 28 August. On 9 September, the Owners complained that the fuel was impure causing frequent stoppages to the fuel oil system and the need to wash the filters frequently. The Charterers requested a joint survey at the next port of call which was Singapore. On 23 September, there was a main engine breakdown, and the vessel was immobilised for a short period. Various piston rings were found to have been broken. The owners blamed the poor quality fuel. The fuel was tested in Singapore and found to be marginally off specification because of an excessive aluminium and silicon content.
The vessel then sailed to Hong Kong. Thereafter it was scheduled for a routine dry docking and special survey at Shanghai. The Owners estimated that, all going well, the dry docking would take about 8 days. On 30 September, the Charterers had given orders to the Master to stem 220 m.t fuel oil and 30 m.t. mgo at Hong Kong. On 5 October the Master required the Charterers to off-load the poor quality fuel oil and clean the tanks in which it had been loaded, and he indicated that the new bunkers could only be loaded after the poor quality...
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