Contract construction in time charter disputes – vessel detained by pirates

Eleni Shipping Ltd v Transgrain Shipping BC (The Eleni P) [10.04.2019]

In a short judgment delivered by Mr Justice Popplewell, the High Court applied principles of contract construction in time charter disputes. Owners’ appeal against an award arising out of their claim for hire following capture of the vessel ELENI P by pirates focused on the construction of two additional clauses to the charterparty.

Background

The vessel, time-chartered on an amended NYPE 1946 form from Ukraine to China, was routed via the Suez Canal and the Gulf of Aden. Following transit of the canal on her laden voyage, she sailed through the Gulf of Aden without incident and into the Arabian Sea where she was captured by pirates. Released some seven months later, she proceeded to China to discharge her cargo. Owners claimed over US$5.6 million from charterers, consisting mostly of time hire from the vessel’s seizure until she was again equidistant from her destination to her point of capture. The Tribunal rejected owners’ claim for hire for this period on the grounds that it was off-hire due to two additional clauses, 49 and 101. Owners appealed.

The decision

Clause 49

Should the vessel be captures [sic] or seized or detained or arrested by any authority or by any legal process during the currency of this Charter Party, the payment of hire shall be suspended for the actual time lost...

The Tribunal accepted charterers’ argument that only the word “arrested” was qualified by the phrase “by any authority or by any legal process”, leaving the word “captured” freestanding and capable of covering capture by any cause, including pirates.

The court disagreed, preferring the construction put forward by owners that each of the expressions “capture[d]”, “seized”, “detained” and “arrested” were governed and qualified by “by any authority or by any legal process”.

The court also disagreed with the Tribunal’s finding that “capture[d]” could not be effected “by any authority or by any legal process” and considered that as a matter of ordinary use of language, “captured” did not necessarily connote use of force. The court saw no difficulty in the concept of a governmental authority or ruler capturing a vessel.

Owners’ appeal on Clause 49 was allowed.

Clause 101

Charterers are allowed to transit Gulf of Aden any time, all extra war risk premium and/or kidnap and ransom as quoted by the vessel’s Underwriters, if any, will be reimbursed by Charterers. Also any additional crew war bonus if applicable will be reimbursed by Charterers to Owners against relevant bona-fide vouchers. In case vessel should be threatened/kidnapped by reason of piracy, payment of hire shall be suspended. It’s remain understood [sic] that during transit of Gulf of Aden the vessel will follow all procedures as required for such transit...

The Tribunal found the expression “Gulf of Aden” incapable of geographical definition, a finding of fact not susceptible to challenge.

However, owners argued that the last sentence allowed suspension of hire only if the threat or kidnap occurred during transit of the Gulf of Aden. The majority Tribunal, supporting charterers’ position, considered the clause operative within the Gulf of Aden “or as an immediate consequence of her transiting or being about to transit the Gulf”.

The court agreed with the Tribunal for three reasons:

  1. For the clause’s purpose in a charter of this nature, the expression referred to an area that was unascertainable in purely geographical terms.
  2. The principal purpose of the clause, to enable charterers to trade the vessel through the Suez Canal, made it more attractive to potential charterers and it therefore benefitted owners to agree to the transit. The clause then allocates the risk in relation to the transit by providing charterers bear additional costs and owners bear the risk of loss of time from piracy. Therefore the natural construction of the sentence is that the vessel should be off-hire if detained by piracy as an immediate consequence of the transit.
  3. There was no evidence that the extra premiums borne by charterers were tied to a single area. It follows that the clause refers to payments arising by reasons of transit of the Gulf of Aden and not by reference to a strictly defined geographical limit.

Owners’ appeal on Clause 101 failed.

Comment

The decision provides useful clarity on two commonly used additional clauses found in charterparties. In respect of Clause 49, charterers may have previously considered that piracy would be adequately covered - they now know that it is not. However where a clause similar to Clause 101 is incorporated, charterers will know that the vessel can be placed off-hire, although that would only be as a consequence of transiting the Gulf of Aden (leaving the vessel on hire for piracy in other parts of the world).

Given the large amounts that can be at stake (seven months’ hire in this case), this is a useful reminder to both owners and charterers that a clear statement with respect to the consequences of piracy attack is recommended.

This case review was co-authored by Brittany Ling and Ingrid Hu, trainee solicitors, London.

Read other items in Marine Brief - May 2019