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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bulk Carriers Ltd v Andre Et Cie SA  EWCA Civ 588 (10 April 2001)
Cite as:  2 LLR 65,  2 Lloyd's Rep 65,  2 All ER (Comm) 510,  EWCA Civ 588
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM COMMERCIAL COURT
(MR JUSTICE LONGMORE)
Tuesday, 10th April 2001
B e f o r e :
LORD JUSTICE CLARKE
MR JUSTICE BENNETT
|IN THE MATTER OF THE ARBITRATION ACTS 1950-1979|
|IN THE MATTER OF AN ARBITRATION|
|UNIVERSAL BULK CARRIERS LIMITED||Claimant|
|- v -|
|ANDRE ET CIE SA||Defendant|
Smith Bernal Reporting Limited
190 Fleet Street, London EC4A 2AG
Telephone No: 020 7421 4040
Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
MR M DAVEY (instructed by Ince & Co, London EC3 1LT) appeared on behalf of the Respondent
Crown Copyright ©
LORD JUSTICE POTTER: Lord Justice Clarke will give the first judgment.
LORD JUSTICE CLARKE:
Ie lines 7 to 10.
"That the vessel shall... with all convenient speed sail and proceed to 1/2 safe berth(s), 1 safe port [US Gulf excluding Brownsville] or Charterers' option 1/2 safe berth(s) Mississippi River and there load... a full and complete cargo of bulk HSS.
... PERFORMING VESSEL TO BE NOMINATED 13 DAYS PRIOR ETA LOADPORT DURING EUROPEAN WORKING HOURS, TOGETHER WITH FULL ITINERARY AND APPROXIMATE LOADABLE CARGO QUANTITY.
The Owners to give the Charterers... ten (10) days' notice of the vessel's expected readiness at the loading port and the approximate quantity of cargo required.
The Master to make wireless application for the loading port orders to the Charterers... 96 hours prior to the vessel's expected readiness, and the Charterers are to wireless the Master the loading-port-orders within 48 hours of receipt of the Master's application.
On above mentioned cargo Charterers to have the option to 'Wash Out' the nominated voyage, which is to be declared by Charterers latest on the day when narrowing of laycan is due. In case of such occurrence, settlement to be made without penalties for both parties, and a commission of 1.25% on 55,000 metric ton to be paid to broker and equally shared between both parties.
Laycan on first half December to be narrowed to 10 days spread 32 days prior of the first layday."
"(1) The charterparty was negotiated and concluded by Mr Alberto Molaschi, the chartering broker employed by the charterers in Switzerland, and Mr Andrea Molaschi, his brother, a broker employed by the ship brokers Pacific Dragon Co Ltd in Hong Kong ("Pacific Dragon") and Mr Raza Taqi, the chief executive of the shipowners in Singapore. It was made for the charterers to fulfil obligations undertaken by them under a sale contract dated 14th December 1995 which was for shipments of cargo during the period 1st -31st December 1996
(2) Charterers sent a telex to Pacific Dragon narrowing the laycan to 1st - 10th December 1996 on 24th October 1996 but Pacific Dragon failed to pass the message on due to some technical problem, perhaps with the owners' telex machine. Whatever the explanation, however, it was common ground that no laycan narrowing notice was received by the owners at that time, or indeed by 12 noon 4th November 1996, the last possible day.
(3) On 20th November 1996 Mr Alberto Molaschi telephoned his brother Andrea Molaschi at Pacific Dragon to ask when the charterers could expect to receive the owners' nomination for vessel and what its estimated time of arrival was. Andrea Molaschi then telephoned Mr Raza Taqi and apparently informed him that the laydays was 1st -10th December and asked that the owners nominate a vessel to perform the fixture. The owners refused to accept the notice of narrowing and contended that they were no longer obliged to nominate a vessel because the charterers had failed to comply with the contractual laycan narrowing provision. That was followed up by a telex from the owners in these terms:
'Received today charterers' verbal notice of
narrowing of laydays to 1/10 December.
Please note as per charterparty: "Laycan
first half December to be narrowed to 10 days
spread 32 prior first layday.' Regret this
is not acceptable to owners. Therefore
charterers' notice is rejected.
(4) Pacific Dragon replied the same day on the charterers' behalf:
'Charterers note owners' last. Dates
verbally mentioned this afternoon over the
phone were not intended as an official notice
of narrowing. On behalf of charterers we
must insist that laycan was agreed as first
half December to be narrowed to a 10 day
spread within that period and that agreement
is still valid and in place. If charterers'
narrowing option is not exercised, the laycan
becomes entirely open within the 15 days
spread as fixed, and charterers therefore
await owners' nomination within that laycan
spread as per charterparty, i.e. latest 13
days prior ETA of the vessel.'
(5) The owners relied on 22nd November noting that the dates mentioned on the telephone were not dates for narrowing laycan and rejecting the charterers' contention as to the continuing 15 days spread. The charterers replied the same day that if the owners were not willing to comply with the charterers' request for the nomination of the vessel with a laycan of 1st -10th December the owners were nevertheless bound to nominate a vessel within a laycan of 1st - to 15th December and they requested confirmation that the owners would perform accordingly, failing which they would consider the owners to be in breach of the charterparty.
(6) On 25th November 1996 the owners maintained their position and contended that the giving of the notice of narrowing of laydays was a condition precedent to the requirement that they nominate a vessel."
Like the judge I can omit certain exchanges which take the matter no further.
"(7) On 29th November 1996 the charterers purported to remind the owners that they had not yet received the nomination of the vessel and warning them that they had until latest midnight on 2nd December in which to nominate, failing which they would be in repudiatory breach. They again asked the owners to confirm that they intended to comply with their obligations.
(8) On 2nd December the owners replied, maintaining that it was the charterers who were in breach of the charterparty in failing to give the owners the required contractual notice to enable the owners to nominate a suitable vessel under the charterparty. They purported to accept that repudiation.
(9) On 3rd December 1996 the charterers replied saying:-
(a) that it was clear that the owners had no
intention of nominating a vessel and
performing their obligations under the
(b) that the owners were wrongfully claiming
that the charterers were in repudiatory
breach of charterparty; and
(c) that the owners had without any grounds
unilaterally terminated the contract and
that this itself was a repudiatory
breach which the charterers accepted."
As the judge put it, battle lines were thus drawn.
"(10) On the same day, 3rd December, the charterers chartered the vessel 'MARIA BOTTIGLIERI' to carry the cargo in question at a higher rate of freight with a laycan of 10th – 15th December 1996. She completed loading on 29th December, at which point freight was payable under the charterparty for that vessel. The charterers claim the loss of $304,425, which the majority of the tribunal awarded to them."
It will be apparent that the market was rising.
The Decisions of the Arbitrators and the Judge
Issues on the Appeal
Option or Obligation?
"In my view the giving of the laycan narrowing notice referred to in clause 42 is not an option but an obligation. It is clear that the parties were quite able to express a provision as an option if they wished to (see, for example, clause 40) but clause 42 contains no words which might fairly be regarded as pertaining to an option but, on the contrary, states that the laycan is 'to be narrowed'. It is silent as to which party is to do the narrowing but it was common ground that whether it was an obligation or an option, it was that of the charterers. I accept that the narrowing of laydays would appear to be of greater benefit to the Charterers than to the Owners in that the wider the laycan spread, the greater the flexibility the Owners would have in fixing the appropriate tonnage to perform under the Charterparty and, in all probability, the wider the choice of such tonnage. However, I cannot accept that it follows that it is consequently a mere option. The fact is that the parties agreed that such notice would be given (for whosoever's benefit it might in fact inure) and, having so agreed, the timing of the laycan narrowing notice must assume considerable importance to the parties in arranging their affairs. "
"A charterer manifestly wants, if he can get it, a fixed date for the arrival of the ship at the port of loading. He has to make arrangements to bring down the cargo and to have it ready to load when the ship arrives and he wants to know as near as he can what that date is going to be. On the other hand, it is to the interest of the shipowner, if he can have it, to have the date as flexible as possible because of the inevitable delays due to bad weather or other circumstances that there might be in the course of a voyage. He can never be sure that he can arrive at a port on a fixed and certain day. Therefore, in order to accommodate these two views as far as possible it has been the general practice for a long time past to have a clause under which the shipowner, without pledging himself to a fixed day, gives a date in the charterparty of expected readiness, that is the date when he expects that he will be ready to load. "
Is Clause 42 a Condition?
"481. The modern law, in the case of contracts of all types, may be summarised as follows. Time will not be considered to be of the essence unless: (1) the parties expressly stipulate that conditions as to time must be strictly complied with; or (2) the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence; or (3) a party who has been subjected to unreasonable delay gives notice to the party in default making time of the essence.
482. Apart from express agreement or notice making time of the essence, the court will require precise compliance with stipulations as to time wherever the circumstances of the case indicate that this would fulfil the intention of the parties. Broadly speaking, time will be considered of the essence in 'mercantile' contracts and in other cases where the nature of the contract or of the subject matter or the circumstances of the case require precise compliance."
Lord Roskill added:
"My Lords, I venture to doubt whether much help is necessarily to be derived in determining whether a particular term is to be construed as a condition or as an innominate term by attaching a particular label to the contract. Plainly there are terms in a mercantile contract, as your Lordships' House pointed out in Bremer Handelsgesellschaft m.b.H. v Vanden Avenne-Izegem P.V.B.A.  2 Lloyd's Rep. 109, which are not to be considered as conditions. But the need for certainty in mercantile contracts is often of great importance and sometimes may well be a determining factor in deciding the true construction of a particular term in such a contract."
"... in particular by asserting (1) that the court will require precise compliance with stipulations as to time whenever the circumstances of the case indicate that this would fulfil the intention of the parties and (2) that broadly speaking time will be considered of the essence in 'mercantile' contracts."
Application of the Principles to the Facts
"It remains true, as Lord Roskill has pointed out in Cehave N.V. V Bremer Handelsgesellschaft m.b.H. (The Hansa Nord)  QB 44, that the courts should not be too ready to interpret contractual clauses as conditions. And I have myself commended, and continue to commend, the greater flexibility in the law of contracts to which Hongkong Fir points the way (Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as H.E. Hansen-Tangen)  1 W.L.R. 989, 998). But I do not doubt that, in suitable cases, the courts should not be reluctant, if the intentions of the parties as shown by the contract so indicate, to hold that an obligation has the force of a condition, and that indeed they should usually do so in the case of time clauses in mercantile contracts. To such cases the 'gravity of the breach' approach of the Hongkong Fir case  2 QB 26 would be unsuitable."
To like effect Lord Roskill said at page 727D to F:
"In short, while recognising the modern approach and not being over-ready to construe terms as conditions unless the contract clearly requires the court so to do, none the less the basic principles of construction for determining whether or not a particular term is a condition remain as before, always bearing in mind on the one hand the need for certainty and on the other the desirability of not, when legitimate, allowing rescission where the breach complained of is highly technical and where damages would clearly be an adequate remedy. It is therefore in my opinion wrong to use the language employed by Diplock LJ in the Hongkong Fir case  2 QB 26 as directed to the determination of the question which terms of a particular contract are conditions and which are only innominate terms."
On the facts of that case Lord Wilberforce summarised the position as follows (at page 716G):
"In this present context it is clearly essential that both buyer and seller (who may change roles in the next series of contracts, or even in the same chain of contracts) should know precisely what their obligations are, most especially because the ability of the seller to fulfil his obligation may well be totally dependent on punctual performance by the buyer."
See also per Lord Lowry at page 720D.
"To my mind the most important single factor in favour of Mr Staughton's submission is that until the requirement of the 15-day consecutive notice was fulfilled, the respondents could not nominate the 'one Gulf port' as the loading port, which under the instant contract it was their sole right to do. I agree with Mr Staughton that in a mercantile contract when a term has to be performed by one party as a condition precedent top the dots dot ^^ term, especially an essential term such as the nomination of a single loading port, the term as to time for the performance of the former obligation will in general fall to be treated as a condition. Until the 15 consecutive days' notice had been given, the respondents could not know for certain which loading port they should nominate so as to ensure that the contract goods would be available for loading on the ship's arrival at that port before the end of the shipment period."
It was accordingly held that clause 7 was a condition of the contract.
"Owners to narrow laycan to a 15 day spread 25 days prior to the narrowed laycan."
Mance J held that that clause was a condition of the charterparty. Mr Mawrey submitted that similar reasoning to that adopted by Mance J leads to the conclusion that clause 42 in this charterparty is also a condition of it.
"Vessel to be placed at the disposal of the Charterers on dropping last outward sea pilot via one safe port Singapore/Japan range port, in Owners' option any time day or night..."
Clause 14 (lines 94-96) provided:
"That if required by Charterers, time not to commence before 20th February, 1992 and should vessel not have delivered as per lines 18 and 19 above on or before 28th April 1992 but not later than 24.00 hours their Agents to have the option of cancelling this Charter at any time not later than the day of vessel's readiness."
After setting out clause 14 Mance J said at page 68:
"It was common ground before the arbitrators that in accordance with the exchange of fixture telexes a further provision (described before me as "the laycan narrowing provision") was incorporated in the charter, relating to cl.14:
Owners to narrow laycan to a 15 day spread 25 days prior to the narrowed laycan.
Clause 29 reads:
Owners to give Charterers 30/20/15/10 days approximate notice of delivery date and probable port. Then five days approximate notice of delivery time and exact delivery port. Owners to give Charterers 30/20/15/10 days approximate notice of delivery date and probable port. Then five days approximate notice of redelivery time with exact delivery port. Charterers will do their utmost to give an accurate redelivery notice."
On the facts the owners did not "narrow laycan to a 15 day spread 25 days prior to the narrowed laycan" in accordance with clause 14, but they did tender delivery under the charterparty. The charterers asserted that the tender was non-contractual, although in the event they accepted delivery at 0001 on 17th April 1992. Mance J held that hire was only payable from that time as the time of actual delivery.
"Under this time charter, which is not by demise, delivery refers to the placing by the owners of the vessel at the disposal of the charterers as provided by lines 18-19, with a view to starting the time for payment of hire running. It is common ground (a) that, under cl.14, the charterers were under no obligation to accept the vessel as delivered and time as having commenced for charter-party purposes before Feb.20, 1992 and were entitled to cancel the charter-party if she was not delivered by 24 00 hours on Apr.28, 1992, and (b) that, had owners narrowed the laycan dates 25 days prior to the narrowed laycan in compliance with the laycan narrowing provision, the narrowed dates so specified would have had a like effect to the dates originally specified in clause 14. A proper 25-day notice given under the laycan narrowing provision on Mar.17 1992 should have specified a 15-day laycan spread commencing not earlier than Apr.11, 1992."
At page 69:
"In my judgment compliance by owners with the laycan narrowing provision is as a matter of contractual construction to be regarded as a condition precedent to delivery and the running of time. I mean in this context both that the laycan requires to be narrowed and that this narrowing requires to be done by advance notice given at least 25 days prior to the start of the narrowed laycan. The whole purpose of the provision is to give charterers 25 days notice of a narrower band of dates than provided by cl.14. This narrower band would define the limits of charterers' liability for hire in replacement of the original dates mentioned in cl.14 (the breadth of which probably reflected the fact that the charter was entered into as long previously as mid-November, 1991). On owners' case, owners can avoid defining the limits of charterers' liability in the contractually prescribed manner, and can thereby force the vessel on charterers at short notice either without identifying any new substitute laycan dates at all, or by identifying them at the shortest notice that they wish. Bearing in mind, firstly, that cl.14 introduces what are in effect pre-conditions to charterers' liability, and, secondly, that the laycan narrowing provision is intended to redefine those pre-conditions more narrowly, it is natural in my judgment to view compliance with the laycan narrowing provision as a pre-condition to the tendering of delivery."
At page 70:
"The common-sense of the matter is, in my judgment, that the laycan narrowing provision is part of the machinery of delivery which must be complied with before any valid delivery can be tendered. In the language of the old cases, the delivery was, according to the evident sense and meaning of the parties,'dependent' upon the laycan dates being first narrowed under the laycan narrowing provision (cf. Cehave NV v Bremer Handelsgesellschaft m.b.H (The Hansa Nord),  2 Lloyd's Rep 445 at p.449, col.1;  1 QB 44 AT P.58b-c)."
Mance J then preferred to Bunge v Tradax and added at page 70:
"There are similarities between the present situation and that arising under a contract calling for presentation of documents. The presentation of documents complying with such a contract is a pre-condition to the buyers' obligation to accept the documents. But a rejection of non-complying documents does not terminate any further obligation or right to perform on either side. The seller may re-present complying documents, within the contractually appointed period. Only if the seller fails to present complying documents by the conclusion of the contract may the buyer treat himself as discharged from further performance and claim damages for non-delivery.
The question whether the laycan narrowing provision operates as a condition precedent to delivery and the running of time must certainly be answered by considering the role and significance of the provision in its context in the particular charter. Here the context of the laycan narrowing provision is cl.14 which demonstrates the importance which the parties attached to the dates between which delivery takes place and time may commence to run. Submissions that breach of a laycan narrowing clause in the context of a charter of 18 months, 40 days more or less, 'can hardly, if ever' justify any remedy other than damages fail to address this point."
"Neither of these cases was concerned with a provision in a time charter or is directly parallel to the present. But I have already stated that the context and purpose of the laycan narrowing provision demonstrates its importance in the present time charter. In other respects the reasoning in both cases is also very much in point. The laycan narrowing provision was self-evidently designed to enable charterers to arrange their affair – whether they chose to do so in advance of sub-charter(s) with others which might well have contained parallel laycan provisions, or to do so only after receipt of a proper 25-day notice. It was for owners to arrange their affairs so as to give proper notice. By attempting to deliver at short notice in the present case, owners were seeking to throw onto charterers the onus of showing why hire should not be paid for a period for which charterers should not have been asked to pay hire in the first place, without having the stipulated advance notice."
"Here, by contrast, it is actually found by the majority of the arbitrators that the charterers' failure to narrow the laydays conferred no advantage on the owners so it just cannot be 'self-evident' (to use Mance J's phrase) that the provision for laydays to be narrowed was designed to enable the owners to arrange their affairs if by that one means, as I think one must, arrange their affairs more advantageously to themselves than in the absence of any such narrowing. It is not necessary to say that the owners could obtain no conceivable benefit from a narrowing of the laydays but one can say with considerable confidence that any disadvantage they might theoretically suffer from the laydays not being narrowed would be a disadvantage which could be compensated in damages.
In these circumstance, I do not think that clause 42 can have been intended to be a condition any breach of which would entitle the owners to terminate the charter."
I entirely agree.
MR JUSTICE BENNETT: I agree.
LORD JUSTICE POTTER: I also agree.