UK: When Is A Time Charterparty Performance Warranty Limited By A "Good Weather" Requirement?

Last Updated: 16 January 2012
Article by Jonathan Elvey and Evangelos Catsambas

Hyundai Merchant Marine Company Ltd v. Trafigure Beheer BV (Gaz Energy) [2011] EWHC 3108 (Comm)

This is what the English High Court considered recently, in the Gaz Energy.

The background facts

The charterers time chartered the LPG tanker Gaz Energy from her disponent owners on the Shelltime 3 form – which attached rider clauses and a Gas Form C.

Disputes arose regarding the vessel's performance.

The charterparty provided as follows:

  1. Clause 24 ("Detailed Description and Performance")

    "Owners warrant that at the date of delivery...the vessel shall be of the description set out in Gas Form C...and undertake to use their best endeavours so to maintain the vessel during the period of her service hereunder. Further...Owners guarantee that the average speed of the vessel will be not less than [blank] knots in ballast and [blank] knots fully laden, with a maximum bunker consumption of [blank] tons diesel oil/[blank] tons fuel oil per day...See Additional Clause 42 attached which also overrides any references to over performance herein.

    The aforesaid average speeds shall be calculated...on all sea passages and over the whole of the time the vessel is on hire...

    ...In the event of any conflict between the...Form and any other provision (including this clause) of this charter, such other provision shall prevail".
  2. Clause 42 ("Speed/Consumption")

    "Speed 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".
  3. Gas Form C

    "...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".

    Daily consumption

     

    At sea

    In port

    Main engine/HFO

    35 mt

    -

    Aux. engine/HFO/GO

    6/0.2 mt

    9/0.2 mt

    Boiler/HFO

     

    2.5 mt

    Inert gas generator/gasoil

    285 kg/h

     


  4. Clause 21 placed the vessel off-hire if her clause 24 guaranteed average speed was reduced by specific off-hire causes.

The owners said that, under the Gas Form, they had warranted the vessel's performance in "good weather" (Beaufort Force 4 or less) and so, pursuant to the Gas Enterpise [1993] 2 LLR 352 and the Didymi [1987] 2 LLR 166, her "good weather" performance was established and then applied over the whole voyage.

The charterers argued that the performance warranty applied irrespective of the weather (more onerous than a "good weather" warranty).

The Commercial Court decision

The court held that the charterers were right.

It noted the following guiding principles (the first three given this year by the Supreme Court in Rainy Sky SA v. Kookmin Bank [2011] UKSC 50, and the fourth by the Court of Appeal in Pagnan v Tradax [1987] 2 LLR 342):

  1. The court must determine what a reasonable person (bearing in mind the background which was reasonably available to the parties at the time) would have understood the contract provisions to mean.
  2. If the language is unambiguous (i.e. had just one construction), the court must apply it – even if the result is uncommercial.
  3. If the language has more than one possible construction, the court must choose the one which most likely gives effect to the commercial purpose of the contract.
  4. A term of a contract is inconsistent with another if it contradicts/conflicts with it, so that effect cannot fairly be given to both.

Applying these principles, the court held as follows:

  1. Clause 24's first sentence gave a general vessel description. So, when it referred the reader to the Gas Form, it did so with respect to the general description items.
  2. It was the remainder of clause 24 which dealt with performance. It unambiguously gave an ongoing warranty as to performance in all weather conditions ("on all sea passages and over the whole of the time the vessel is on hire"). So the court need not consider if the result was commercial. That said, this did not mean that an "all weather" warranty gave an uncommercial result; this warranty was a feature of the Shelltime 3 form and the parties may have chosen it (rather than a Shelltime 4 "good weather" warranty) to avoid disputes as to when the weather was "good".
  3. Clause 24's performance provisions left blanks for the figures and referred to clause 42 for them to be filled in ("See Additional Clause 42 attached which also overrides any references to over performance herein"). So the two clauses were read together.
  4. Clause 42's concluding words "Otherwise as per Gas Form C" were ambiguous in that they were capable of more than one construction. One construction (per the owners) was that the entire Gas Form performance section (including the "good weather" requirement) was incorporated into clause 42. The alternative construction (per the charterers) was that only the performance items in the Gas Form which were additional to those in clause 42 (i.e. inert gas operator consumption) were read into clause 42.
  5. The second (charterers') construction was to be preferred because:

    1. It was consistent with the commercial purpose of the charterparty.
    2. It was the more natural construction. "Otherwise" involves one thing supplementing another, not replacing or contradicting it. The owners' construction meant incorporating into clause 42 performance figures taken from the Gas Form which were different to (and inconsistent with) clause 42's figures. Clause 24 made clear that clause 42 prevailed over the Gas Form where they conflicted; a further reason why the owners' construction could not be right.
    3. It was also commercial; it was possible that (1) the Gas Form and its limited "good weather" warranty came from the head owners who were more conservative; whereas (2) the owners were prepared to warrant performance in all weather given their experience of the vessel during her actual service.
    4. Finally, it was consistent with off-hire clause 21, which contemplated an "all weather" performance warranty rather than a "good weather" warranty.

Comment

The decision is a useful reminder of the legal principles which a court or tribunal will apply when construing contractual provisions which seemingly conflict with each other. In doing so, they will not consider the parties' subjective drafting intentions. Here, the owners (to their apparent surprise) were held to have given an "all weather" performance warranty. This makes it all the more important to choose the correct charterparty form and to ensure that its performance terms are set out properly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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