Charterparty - Construction

Hyundai Merchant Marine Company Ltd v Trafigura Beheer B.V.: Queen's Bench Division, Commercial Court (Mr Justice Flaux): 29 November 2011

By a time charterparty dated 21 November 2005, the owner let a vessel to a company, D (the head charter). By a further time charterparty, on the same date, on materially identical terms to the head charter,save for hire, D sub-let the vessel to the claimant company (the sub-charterer).

The terms of both charters were contained in (i) an amended Shelltime 3 form; (ii) additional clauses and (iii) Gas Form C. Clause 24 of the charterparty stated to the effect that the owner guaranteed that the average speed of the vessel would be not less than knots in ballast and knots fully laden, with a maximum bunker consumption of tons diesel oil/ tons fuel oil per day for all purposes excluding cargo heating and tank cleaning. In the event of any conflict between clause 24 and any other provision of the charter, such other provision was to prevail.

Clause 24 ended with the words ‘see additional clause 42 attached which also overrides any references to over performance herein'. Clause 42 was in regard to speed and consumption and stated that speed was about '15 knots average consumption about 40 mts IFO 380 CST at sea plus about 0.2 mts GO and about 10 mt IFO 380CST at port plus about 0.2 mt GO. Otherwise as per Gas Form C.' Gas Form C states, inter alia, that 'guaranteed average speed on a year's period and max wind force 4 in Beaufort scale'. The vessel was delivered under both charters on 14 January 2006. The claimant traded the vessel in accordance with the terms of the charters. Disputes subsequently arose between the parties under both charters as to whether the vessel had failed to perform in accordance with the speed and consumption provisions in the charters and as to how those provisions were to be construed. Those disputes were sought to be resolved in principle by a preliminary issue.

It fell to be determined whether the head charterparty and the sub charterparty contained an all weather warranty or a weather warranty applying only in weather conditions up to a maximum of Force 4 on the Beaufort Scale. The sub-charterer submitted, inter alia, that clause 24 created an 'all weather warranty', a guarantee of performance as regards average speed and maximum daily bunker consumption, measured over the whole period that the vessel was on hire under the charter, regardless of weather conditions. The sub-charterer further submitted that although the words 'in all weather condition' were not used expressly, the clear meaning of the words was that the average speed and consumption under clause 24 was calculated in all weather conditions and was not qualified by reference to Beaufort Force 4 in Gas Form C. The owners submitted, inter alia, that by virtue of Gas Form C, the speed warranty was qualified by reference to Beaufort Force 4.

The court ruled: It was established law that the ultimate aim of interpreting a provision in a contract, especially a commercial contract, was to determine what the parties had meant by the language used, that involved ascertaining what a reasonable person would have understood the parties to have meant. The relevant reasonable person was one who had all the background knowledge which would reasonably have been available to the parties in the situation in which they had been at the time of the contract.

Where the parties had used unambiguous language, the court had to apply it. However, if it was capable of more than one construction, one chose that which seemed most likely to give effect to the commercial purpose of the agreement. It was necessary when construing a commercial document to strive to attribute to it a meaning which accorded with business common sense. It would be wrong to approach a question of construction with any predisposition to find inconsistency between the relevant clauses. Documents should be approached in a cool and objective spirit to see whether there was inconsistency or not. It was not enough if one term qualified or modified the effect of another; to be inconsistent a term had to contradict another term or be in conflict with it, such that effect couldn not fairly be given to both clauses (see [10], [11] of the judgment).

In the instant case, applying the relevant principles of construction and seeking to construe the charterparty as a whole and to determine what a reasonable person would have meant by the terms used, the charterers' construction of the charter was to be preferred. The starting point was that clause 42 made no sense unless it was read with clause 24. Clause 42 overrode the references to exceeding performance elsewhere in clause 24. The parties had not left the speed and consumption warranty in the standard form in clause 24 blank. Rather they had filled it by incorporating additional clause 42 by reference (see [14], [15] of the judgment).

Upon its proper construction, the charter had contained the all weather warranty for which the sub-charterer contended (see [50] of the judgment).

Exmar NV v BP Shipping Ltd, The Gas Enterprise [1993] 2 Lloyd's Rep 352 distinguished; Pagnan SpA v Tradax Ocean Transportation SA [1987] 1 All ER 81 considered; Co-operative Wholesale Society Ltd v National Westminster Bank plc [1995] 1 EGLR 97 considered; Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352 considered; Investors Compensation Scheme Ltd v West Bromwich Building Society [1999] All ER (D) 23 considered; Chartbrook Ltd v Persimmon Homes Ltd [2009] All ER (D) 12 (Jul) considered; Pink Floyd Music Ltd v EMI Records Ltd [2010] All ER (D) 154 (Dec) considered; Rainy Sky SA v Kookmin Bank [2011] All ER (D) 19 (Nov) considered.

Per curiam: reliance on a subsequent contract to construe a written contract is, to say the least, a heretical approach to construction. Although [the point was not pressed] I consider it should be addressed, if only to dismiss it. The inadmissibility of a subsequent contract as an aid to construction of a written contract is merely one aspect of the general principle of English contract law that (save in exceptional circumstances not applicable in the present case) the subsequent conduct of the parties cannot be looked at to interpret a written contract (see [13] of the judgment).

Stephen Kenny QC (instructed by MFB Solicitors) for the sub-charterer; David Semark (instructed by Reed Smith LLP) for the owner.