John Habergham, Myton Law, Hull U.K.
The recently reported case of SK Shipping Europe PLC v VLCC 3 Corporation and another raised a number of legal issues which are of general interest as a matter of English commercial law and arise from time to time but do not often occur all within the same case.
The brief details of the case are that eight months into a two year time charter the charterer purported to rescind the charterparty on various grounds. The ship owner objected and commenced proceedings arguing that the charterers termination was unlawful.
Speed / performance warranties
The first point was whether a ship owner, entering into a charter party which contains typical speed and consumption warranties is taken to have represented the accuracy of those warranties.
The court held not.
Basically, the fact is that it was accepted that much could change between the negotiations leading to the charterparty and the onset of the life of the charterparty itself. There were so many uncertainties which could arise during the term of the charter and any number of issues which have an impact upon the warranties such as hull fouling, efficiency of the engine and so on and so forth, such that it was unlikely that, in these circumstances, the owners would represent such matters.
The next issue was whether, due to the lapse in time between the commencement of the charter and the purported rescission of it, the charterer could be taken to have affirmed the charter, following a repudiatory breach by the owners.
This is a species of waiver by election. It is the right given to one party to choose between inconsistent remedies – does it accept repudiatory breach and terminate the contract; or does it choose to affirm the contract it in the light of the breach and continue with it.
The case did suggest that for a party to be able to elect, it must be aware of both the facts giving rise to the inconsistent rights and its legal rights.
In fact, that is an issue which has not been settled and was specifically left open in early appellate cases and, in fact, in one case, Bremer v Mackprang, a case involving a buyer entitled to reject goods on the grounds of defects in the notices required to be given by the seller, where the buyer conducts himself so as to leave the seller to believe it won’t rely on the defects, the court found the buyer could not later set up the defect as grounds for rejection whether it knew of a defect or not.
Reservation of rights
In the C CHALLENGER, the charterer said it could not have affirmed because it had reserved its rights in communications with the ship owner – therefore, anything it did could not be seen as an unequivocal representation that it was going to continue with the charter.
Reservations of rights are a regular mechanism used when a dispute is on the go to negotiate a resolution. But the court found that it couldn’t be said that, notwithstanding the reservation of rights, the charterer wasn’t committed to the contract. It did give further voyage instructions. It demanded a substantial contractual performance. In short, a party can say what it likes under the banner of a reservation of rights, but it is what the party does that counts.
The next issue was the position of the guarantor and the impact that the Statute of Frauds 1677 (Yes – you read correctly – 1677).
Guarantors are commonplace in charters where the actual charterer is a new company or vehicle or an insubstantial company in its own right.
The issue that arose in this particular case was the requirement under the Act that means any guarantee is only valid if there is a signed written memorandum.
In this regard, there was a shipbroker involved.
Could the actions of the shipbroker fulfil the functions of the Act on behalf of the relevant party who was guarantor?
The court found there was little authority on this point where it was accepted that the broker in question was an intermediate broker. It was neither, outright, the broker of the owners or the charterer.
In the end, the court decided that in decided the point on the following basis – for whom the broker was acting at the relevant time? In essence, whose message was it passing on? Owner or charterer? If it was passing on a charterers message, it was the charterers broker. Whatever it did, was for and on behalf of that party.
Finally, the court also found that there were a number of requirements of the charterparty which the owners had breached – such as conditions of class, the vessel’s condition on delivery, failure to maintain the vessel eg hull cleaning and so on. These are typical features which arise in shipping disputes. The court found that, if any confirmation were needed, that they were all innominate terms. The charterer sought to rely upon these to throw up the charter. On their own, they are generally not considered to be of such seriousness that they go to the root of the contract which would give the other party the right to accept the breaches and repudiate the contract. The court went further and said that, even taken together, they did not have this effect. In the circumstances, there was no repudiatory breach on the part of the owners which, in turn, made the charterers termination of the charterparty in itself a wrongful repudiation of the charter entitling the owners to damages.
A number of lessons to be learnt from this case, even though, as mentioned, they don’t always arise within the body of one dispute.