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WAS A PERFORMANCE WARRANTY IN A TIME CHARTERPARTY LIMITED BY A “GOOD WEATHER” REQUIREMENT?: HYUNDAI MERCHANT MARINE CO LTD (“HYUNDAI”) V TRAFIGURA BEHEER BV (“TRAFIGURA”) (2011)
As a preliminary issue, the Court had to decide, as a matter of construction, whether a charterparty contained an “all weather” warranty or a warranty applying only in weather conditions up to a maximum of Force 4 on the Beaufort Scale.
The Background Facts
Trafigura, as disponent owners chartered the vessel to Daelim who sub-chartered her to Hyundai on materially identical terms. A dispute later arose as to whether the vessel had failed to perform in accordance with the charter provisions as to speed and consumption. The Court ordered that the action should be between Trafigura (as “Owners”) and Hyundai (as “Charterers”).
The terms of the charters were each contained, in an amended Shelltime 3 form together with additional clauses and by reference to Gas Form C.
The Relevant Terms of the Sub-Charter
Clause 21 of the Shelltime 3 form provided that the vessel would be off-hire if she performed at below her warranted speed in certain circumstances. Clause 24 of the Shelltime 3 form contained speed and consumption warranties but the figures were left blank.
Clause 24 went on to read:
“See Additional Clause 42 attached which also overrides any references to over-performance herein.
The aforesaid speeds shall be calculated in each yearly or other less period …on all sea passages and over the whole of the time the vessel is on hire during such period.”
…
In the event of any conflict between the particulars set out in the aforesaid Form and any other provision (including this clause) of this charter, such other provision shall prevail.”
Additional Clause 42 reads:
“Speed about 15 knots average
Consumption about 40mts IFO 380 CST at sea plus about 0.2mts GO and about 10mt IFO 380CST at port plus about 0.2 mt GO.
Otherwise as per Gas Form C.”
Gas Form C contained different speed and consumption figures at clauses A5 and A6, which read:
“A.5 Speed
“Guaranteed average speed on a year’s period and max wind force 4 in Beaufort scale: Loaded about 14.5 knots, Ballast about 15.5 knots.”
A.6 Consumption in metric tons per day:
At
sea
In port
Main
Engine/HFO
35mt -
Aux. engine/HFO/GO
6/0.2mt
9/0.2mt
Boiler/HFO 2.5mt
nert gas
generator/gasoil 285
kg/h”
The Charterers case was that the Owners had given a performance warranty that applied whatever the weather. The Owners on the other hand sought to limit the period for which the vessel was off-hire by arguing that the performance warranty was qualified by the “good weather” provisions in Gas Form C and would only apply in weather conditions up to Beaufort Force 4.
The Judgment
The Court referred to established case law principles to be adopted when deliberating on the construction of contracts, as set out in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, in particular:
- the need to ascertain what a reasonable person (having all the necessary background information) would have understood the parties to have meant by the language used in the charterparty;
- where the parties have used unambiguous language, the court must apply it. However, if the provisions are capable of more than one construction, effect must be given to the commercial purpose of the agreement;
- the importance of not approaching a question of construction with any predisposition to find inconsistency as to how narrowly inconsistency is to be defined.
With those principles in mind, the Court concluded that, despite the absence of any express wording, Clause 24 was unambiguous and clearly constituted an all weathers warranty. Indeed, the Court noted that had the parties wanted to avoid having an “all weather speed warranty” they could have used the Shelltime 4 form which has been available since 1984 and which contains a qualified “good weather” warranty.
Additional Clause 42 would make no sense unless read alongside Clause 24. When it is so read, it fills in the gaps, as is clearly intended by the wording “See Additional Clause 42 attached which also overrides any references to over-performance herein” at the end of clause 24.
The wording "otherwise as per Gas Form C” was ambiguous in that it could be read to mean more than one thing. The Charterers argued that it meant the only provisions of Gas Form C that should be incorporated into the contract were those that were additional to or did not conflict with the terms of clause 42, i.e. as to the consumption of the inert gas generator.
The Owners argued that the wording served to incorporate the whole of Gas Form C’s performance provisions at A.5 and A.6 into clause 42.
The Court preferred the Charterers’ construction which it found was a more natural reading of the language used and was consistent with the commercial purpose of the contract.
The Owners’ construction would create inconsistency and conflict between two provisions of the charterparty. Clause 24 confirms that in the event of any conflict or inconsistency between the provisions of the Form and any other provision, the other provision will prevail. The other provision in this instance is clause 24 as supplemented by clause 42, and it is those performance provisions that would prevail. Accordingly, it was held that on proper construction, the all weather warranty applied and the preliminary issue was, therefore, determined in favour of the Charterers.
This case usefully illustrates the need for caution when incorporating provisions from different sources into one contract so as not to create inconsistency and thus lead to an interpretation of the contract that was not intended.
Laura Neill / Susan Leonard
WAIVER AND ESTOPPEL; CONSEQUENCES OF INSURERS’ INITIAL FAILURE TO RELY SPECIFICALLY ON ASSURED’S BREACH OF WARRANTY: LIBERTY INSURANCE PTE LTD & ANOR (“LIBERTY”) V ARGO SYSTEMS FZE (“ARGO”) (2011)
This case involved considering the consequences of the insurers’ failure to rely specifically on the assured’s breach of warranty for refusing a claim for a period of seven years after it was first made and whether they had in the process waived their right to do so, in which they case they would be liable for an actual total loss.
The appeal had been brought by the insurers under a policy incorporating the Institute Voyage Clauses (1983) providing cover for total loss caused by perils of the sea in respect of a floating casino that was being towed from Alabama to India for scrap when it developed a list and sank mid-voyage in March 2003, thereby becoming an actual total loss. The policy was subject to English law and practice. The warranties in the policy included a “Hold Harmless Warranty” i.e. one that: “warranted no release, waivers or “hold harmless” given to Tug and Towers”. The tow was undertaken on the terms of the “Towcon” International Towage Agreement (Lumpsum), Clause 18 of which provides for extensive mutual exceptions of liability and cross indemnities between the hirer of the tug and the tug owner.
Liberty, through US lawyers, wrote to Argo on July 2003 declining cover on a number of grounds which did not expressly include breach of the Hold Harmless Warranty even though they were by then in possession of the Towcon agreement entered into by the assured. However, they reserved the right to rely on any other defences that might be discovered after further investigations. In particular, that letter declined the claim on the grounds that there was no evidence that the sinking was due to an insured peril, the tug and tow were in violation of a “weather state warranty” and there were indications that the assured had made several misrepresentations. The letter ended by say that Liberty “reserves the right to alter its position in light of the discovery of previously undisclosed information which would materially alter the facts and circumstances known….the foregoing is without prejudice to all the remaining terms and conditions and defenses which may be discovered after further investigation”.
Agro brought a claim in Alabama, USA in 2003 against Liberty, “DSI” (the US broker through whom the policy was effected) and “MIS” (who had written the policy for Liberty). Following the dismissal of the US action, Argo commenced the action in 2009 in England. In its Defence in the English action served in May 2010, Liberty raised the breach of the Hold Harmless warranty for the first time. Argo replied that Liberty had waived its right to make any allegation of breach of the Hold Harmless warranty under section 34(3) of the Marine Insurance Act 1906, alternatively that Liberty was estopped from relying on that breach. Argo said that had the point been taken earlier, it would have brought a corresponding claim against its broker for negligence but it would now be impossible to do so. It was held at first instance that Clause 18 breached the Hold Harmless Warranty, and there was no appeal in relation to that finding. Such a breach would discharge Liberty from liability under the policy under Section 33 of the Marine Insurance Act 1906 unless Argo could establish that Liberty had waived the breach. The Judge went on to hold that the combination of the letter from its US lawyers in 2003 in which cover was declined, its conduct in the US proceedings in not relying on the breach of the Hold Harmless Warranty and the fact that the breach of the Hold Harmless Warranty was not mentioned for nearly seven years, i.e. until Liberty served its defence in the English proceedings, amounted to an unequivocal representation by Liberty that it would not rely on that breach with the result that Liberty had waived its right to rely on that breach and that in any event Liberty had affirmed the contract and therefore lost the ability to deny liability.
Liberty’s appeal to the Court of Appeal
It was the question whether there was such waiver or whether Liberty were permitted to introduce a new point almost seven years after they could have been expected to first raise it that was the main subject of the appeal.
Two issues had to be considered: was there an unequivocal representation by Liberty that they would not rely on Argo’s breach of the Hold Harmless Warranty and if so, was there any reliance on that unequivocal representation? Without such a representation, the question of reliance did not arise. The House of Lords in The Good Luck [1992] had confirmed that discharge of an insurer’s liability under the policy occurs automatically upon the breach of warranty and no further positive action is needed to bring about the discharge. The insurer does not therefore “elect” whether to terminate the contract of insurance. Accordingly a “waiver” of a breach of warranty by the insurer for the purposes of Section 34 (3) of the Marine Insurance Act means that the insurer is estopped from relying upon it.
The Court of Appeal considered the letter of July 2003 and although the Hold Harmless Warranty was not referred to at all in it, the Court of Appeal disagreed with the High Court Judge that it represented that other defences would be relied upon only if new information came to light. There was nothing in that letter which indicated a representation to Argo that Liberty would not rely in the future on any legal rights it had because of Argo’s breach of the Hold Harmless warranty.
The Court of Appeal then considered Liberty’s failure to rely on the Hold Harmless Warranty in the US proceedings but given that the focus there was on jurisdictional issues, formed the view that again there was no unequivocal representation that Liberty would not rely on the Hold Harmless Warranty in the future.
Lastly, the Court considered Liberty’s failure to advert to the breach of the Hold Harmless Warranty for nearly seven years, even though Argo were taking the steps that it did in the US proceedings at the time, raising it only in its Defence in the English proceedings. On this, silence and inaction have long been regarded as being equivocal and in the absence of any special circumstances cannot constitute an unequivocal representation that legal rights will or will not be relied upon at a future date.
Argo’s position was also not improved by taking the three together, namely, the letter, the silence in the US proceedings and the silence over the seven-year period. As Liberty had not made an unequivocal representation to Argo that it would not rely on the breach of the Hold Harmless warranty, the question of reliance did not arise and Liberty’s appeal therefore succeeded.
Conclusion
Issues of waiver and estoppel are highly fact sensitive, as was repeatedly said in this case, and the judgment of the Court of Appeal must not be taken as general authority for any proposition that if a point, whether in a defence or a claim, is not raised at the time when they could have been first raised, it will remain open and can be relied upon in the future. The best policy is to take all points that are open to be taken under the applicable law in light of the knowledge that the party has or is deemed to have as soon as possible and to safeguard the ability to take further points in the future as best as possible. On slightly different facts, the outcome in this case could have been very different.
Laura Neill / Kamal Mukhi
CONFLICTING TIME BAR PROVISIONS: MH PROGRESS LINES SA V ORIENT SHIPPING ROTTERDAM BV: ORIENT SHIPPING ROTTERDAM BV V NORDANA PROJECT & CHARTERING (2011)
This case before the London Commercial Court concerned an appeal on a point of law against an award on a preliminary issue made by a London arbitration tribunal.
The case concerned the relationship between the time bar provision in a charterparty arbitration clause and the time bar provision in the NYPE Interclub Agreement 1996 (“ICA 96”). The relevant charterparty incorporated ICA 96, with the result that there were two competing time bar provisions.
The charterparty arbitration clause required that any claim be made in writing and an arbitrator appointed within 12 months of final discharge, failing which the claim was to be deemed waived and absolutely barred.
ICA 96, which deals with the allocation of responsibility for cargo claims, provides that recovery of an indemnity in respect of any cargo claim paid shall be deemed to be waived and absolutely barred unless written notification of the claim has been given to the other party to the charterparty within 24 months of the date of delivery of the cargo.
A cargo claim had been settled and paid by a sub-charterer. The sub-charterer sought an indemnity from the head charterer, who in turn sought an indemnity from the shipowner.
The shipowner sought to resist the indemnity claim on the basis that arbitration had not been commenced within 12 months of final discharge, as required by the charterparty arbitration clause. The charterers relied upon the time bar provision in ICA 96 (written notification within 24 months of delivery) as taking precedence over the charterparty arbitration time bar.
The arbitrators found in their award that, in relation to claims for indemnity made under ICA 96, the ICA 96 time bar provision did indeed prevail over the charterparty arbitration clause time bar provision.
The shipowner appealed to the Commercial Court. The shipowner argued that the relevant clause in ICA 96 deals only with the time limit for written notification of a claim, leaving the time limit for enforcement of such a claim through arbitration proceedings to be governed by the time limit stipulated in the charterparty arbitration clause. In effect, the shipowner was seeking to argue that, whereas the charterer had 24 months in which to submit a written claim, he had only 12 months in which to commence arbitration.
At first glance, one might consider that the apparent conflict between the time bar provision in the charterparty arbitration clause and the time bar provision in ICA 96 is resolved by the express provision of clause 2 of ICA 96:
“The terms of this Agreement shall apply notwithstanding anything to the contrary in any other provision of the charterparty; in particular the provisions of Clause (6) (time bar) shall apply notwithstanding any provision of the charterparty or rule of law to the contrary”.
The shipowner found support for its argument in Wilford on Time Charters. The single judge sitting in the Commercial Court nevertheless found against the shipowner and dismissed the appeal. The judge held that the effect of clause 2 of ICA 96 was to overrule the contrary time bar provision in the charterparty arbitration clause (insofar as claims in respect of the apportionment of cargo claims were concerned). In effect the court accepted that in the event of either party failing to meet its obligations as regards paying an indemnity under the terms of ICA 96 following due written notification within 24 months of delivery, the applicable time limit for commencing arbitration would be 6 years.
The judge also pointed to the fact that his conclusion as to the correct interpretation was the same as would be understood to be the case by a reasonable man having the background knowledge available to both the shipowner and the charterers.
Stuart Armstrong / Opey Mogbeyi
