UK: "ELLI" / "FRIXOS" - Court Of Appeal Ruling

Last Updated: 19 June 2008
Article by Ben Knowles

On 23 May the Court of Appeal has handed down its much anticipated judgment in Golden Fleece Maritime & another v ST Shipping, "ELLI" & "FRIXOS" [2008] EWCA Civ 584, the outcome of which will be carefully noted in both the shipowning and chartering communities. Ben Knowles (partner), Ed Mills-Webb and Sam Atkinson of Clyde & Co LLP acted for the successful Respondent charterers.


In a Commercial Court judgment delivered in August last year Mr Justice Cooke found in favour of charterers in determining which of the two parties to long term time charters should bear the commercial risk of a change in international regulations coming into effect in the middle of the charter period, the result of which was to restrict the cargoes that the vessels Elli and Frixos could carry. Owners obtained leave to appeal against that decision and the Court of Appeal has now upheld the judgment of the Commercial Court.

The regulations that caused the difficulty in this case were MARPOL Regulations 13F, 13G and 13H, which set out requirements for the carriage of fuel oil. The regulations were effective as from 5 April 2005, a date which fell some 19-20 months before the end of the two charter periods. The critical question on appeal was whether the fact that the vessels did not comply with the new provisions of the MARPOL Convention for double-hulled vessels meant that the Owners were in breach of charter after the regulations came into force.

The Facts

The effect of the MARPOL Regulations on Elli and Frixos, which were sister vessels, was that from 5 April 2005 onwards, neither of the vessels was permitted to carry fuel oil unless the vessels were fully double sided and had obtained letters of authorisation from their flag state. However, due to a quirk in the design of these vessels, built in the mid 1980's, a small 2.6m section of the vessels' sides were not deemed as "double-sided" since there was a small section of overlap between the vessels' sloptanks and bunker tanks. Accordingly, the vessels' did not comply with the new regulations and could not obtain letters of authorisation to carry fuel oil.

The Owners alleged that they were not obliged to repair or modify the vessels so as to complete the double-sides and enable the carriage of fuel oil under the MARPOL Regulations. The vessels had not changed their physical condition during the course of the charters and there was no obligation upon the owners to convert the vessels into something they were not, that is, vessels that complied with the MARPOL regulations. The costs of the repairs would have been approximately US$600,000 per vessel, excluding any potential offhire time.

The Charterers argued that they had chartered the vessels for the carriage of crude oils and fuel oils and that the effect of clauses 1 and 3 of the Shelltime 4 charterparty was to place an on-going obligation upon the Owners to keep the vessels 'in every way fit to carry" the cargoes stipulated in the charterparties, which were effectively crude oil and fuel oil. The charterparties also contained a continuing obligation upon the Owners in the form of a warranty of compliance with MARPOL 'as amended and extended'.

The Commercial Court

In the Commercial Court, Mr Justice Cooke rejected the Owners' argument. The charterparties had to be construed in the proper context. The charterparties contained a warranty that the vessels would, at the time of delivery to the Charterers, be fit for the ordinary service for which the vessels had been chartered for, namely the carriage of the stated cargoes between the places listed, as specified at clause 4 of the Shelltime 4 form.

This obligation did not simply relate to the vessels' physical condition but extended to a wider obligation which included compliance with applicable laws and regulations, such as MARPOL. The on-going obligation under clause 3 of the Shelltime 4 form required the Owners to maintain the vessels in such condition, and absent questions of frustration, which did not arise in the present case, the financial implications for the Owners of compliance with the new MARPOL regulations were not a relevant factor.

The Court of Appeal

The case was heard in the Court of Appeal before an eminent and experienced shipping and commercial panel comprising The Master of the Rolls, Lord Justice Longmore and Lord Justice Lawrence Collins.

In argument the parties relied upon essentially the same submissions that had been adopted in the court below. Owners sought to emphasise the fact that the judge had held that it was no breach of charter to describe the vessels as double-sided. If that was so, Owners submitted, Charterers had to make the best of the vessel which they had chartered, complying as she did with her contractual description. Furthermore, it was pointed out that that both parties initially regarded the vessels as double-sided and that, although there was considerable uncertainty about how the new Regulation 13H(5) would be interpreted, there was a common view that the chartered vessels would be considered to be double-sided and would obtain the necessary dispensation.

The arguments did not sway the Court of Appeal however, given that they did not address the essential question of what had been provided for in the contract itself. As Lord Justice Longmore put it in delivering the unanimously approved leading judgment: "The real difficulty is that none of the matters on which Owners have sought to rely take them very far on what is largely a question of construing the printed terms of a well-known and standard form of charter. There is a limit to which the background (or matrix) against which the parties contracted can affect the proper construction of such a contract." Analysis of the relevant case law also provided little assistance to Owners. Longmore LJ noted:

"The authorities do not, on analysis, yield any principle of law that the terms of a time charter as to fitness to carry the cargo or seaworthiness relate only to the physical condition of the vessel and can never embrace legal fitness to carry the cargo."

Turning to the provisions of the contract - particularly clause 1(g) which provided that the vessel was to have on board from time to time all certificates required to perform the charter service, and clause 52 in which owners warranted that the vessel "does and will" comply with MARPOL as amended - the court confirmed that Owners had been in breach of their obligations.

Both provisions provided for future compliance with regulations as amended or applicable from time to time. The expense required to be incurred by owners in ensuring compliance is not a relevant factor in determining the effect of the contract although the court did confirm that the doctrine of frustration is, in theory, available if events occur which render the contracts radically different from what the parties contemplated at the outset.


The decision confirms the wide scope of the Owners' maintenance obligation under the Shelltime 4 form, which is similar in its terms to most standard form time charterparties for the carriage of both wet and dry cargoes. The obligation goes beyond the simple issue of seaworthiness in the physical sense, and will extend to a wider spectrum of issues, including legal and other regulatory issues affecting the vessels' ability to perform the service required.

The Court of Appeal has provided a reminder that, ultimately, the crucial issue is the expression in the terms of the charterparty itself of the bargain struck by the parties. It is never easy, particularly in circumstances where the shipping community is continually striving to promote higher safety standards at sea and to reduce pollution risks, to anticipate the commercial cost of ensuring compliance. Parties who contract to bear that risk must be aware of the consequences (particularly upon the renewal or extension of charterparties) and note the willingness of the courts to hold them to their bargain.

It remains to be seen whether Owners will seek leave to appeal to the House of Lords.

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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Ben Knowles
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