Change in owner’s permissions

The Bulk Uruguay [2014] EWHC 885 covered a number of important chartering issues. At a base level, it considered the effect of the amended BIMCO Piracy Clause and whether the owner’s consent is needed for each transit of piracy areas. But the over-arching consideration was whether the disponent owner was in anticipatory breach of a three year charter so as to entitle the charterer to treat it as discharged from further performance.

The facts were as follows:
The charterparty was concluded at a time when the piracy situation in the Gulf of Aden was causing a number of shipowners to refuse to transit that area. In this case, the charterer made clear to the disponent owner that they were only prepared to charter a vessel from the disponent owner if there was no requirement for them to seek the disponent owner’s consent to transit the Gulf of Aden. This, the disponent owner advised, was not a problem for them and the parties then proceeded to negotiate the charter terms.

The concluded charter contained an amended BIMCO Piracy Clause and an unamended Conwartime 2004 Clause. The Conwartime 2004 Clause was incorporated in an annex after the negotiated rider clauses, with some standard printed provisions, namely a New Jason Clause, P&I Bunkering Clause and Both to Blame Collision Clause. The BIMCO Piracy Clause had been specifically negotiated between the parties and amended so that paragraphs (a) and (b) were deleted. These deletions, the charterer understood, gave effect to the agreement that the disponent owner’s consent did not need to be sought to send the vessel through the Gulf of Aden.

New rules

Prior to delivery of the vessel to the charterer, the disponent owner advised the charterer (in response to an enquiry from the charterer as what would be the costs that would be charged for sending the vessel through the Gulf of Aden) that the head owner had refused to allow the vessel to transit the Gulf of Aden on her maiden voyage. Subsequently (and after numerous exchanges between the various parties) the disponent owner advised the charterer that they had persuaded the head owner to grant permission for such a transit, but it was stated that this was for this one voyage only and was not to form a precedent for the future as the head owner’s usual position would be “no”. The disponent owner made clear that their position on Gulf of Aden transit would always be dictated by that of the head owner.

When the charterer protested that this was not what had been agreed, the disponent owner contended that the charterer was wrong to assert that the disponent owner’s consent did not have to be obtained for Gulf of Aden transits and relied in this regard on the unamended CONWARTIME 2004 clause in the charter, which still contained provisions referring to “owners’ consent”. With the disponent owner refusing to back down, the charterer recognised that they would be unable to market the vessel as “GOA OK” and would be at a competitive disadvantage to other vessels which were marketed as “GOA OK”. The charterer accordingly treated the disponent owner’s insistence that their prior consent would have to be sought on each occasion that the charterer wished to transit the Gulf of Aden as being a renunciatory or repudiatory breach of the charter and terminated the charter.

In London arbitration proceedings, a three man tribunal of commercial arbitrators concluded that there was a common market understanding that the effect of deleting paragraphs a.) and b) from the BIMCO Piracy Clause was that the vessel could transit piracy areas without needing to seek the owner’s consent. The tribunal further concluded that notwithstanding the reference to “owners’ consent” in the CONWARTIME 2004 Clause, on a true construction of the charterparty, the charterer was not required to obtain the disponent owner’s permission to transit the Gulf of Aden.

Forward looking

Having found in the charterer’s favour on this construction issue, the tribunal then turned their attention to what they stated was the more difficult issue; whether the charterer was entitled to terminate the charter for the disponent owner’s renunciatory or repudiatory breach. On this issue, the tribunal were split. The majority concluded that a reasonable person viewing all the messages from the disponent owner would not have concluded that the disponent owner had evinced an intention not to comply if at some point in the future the charterer gave orders to transit the Gulf of Aden. The majority further concluded that such a refusal would not in any event have substantially deprived the charterer of the whole benefit of the contract and that damages would have been an adequate remedy.

The dissenting arbitrator, however, saw matters very differently on both these legal points. The dissenting arbitrator concluded that the disponent owner had made it clear that they would not comply and comply promptly with an order from the charterer to transit the Gulf of Aden as their position would be dependent upon the decision of the head owner, which the disponent owner had indicated was likely to be “no”. The dissenting arbitrator further concluded that this refusal by the disponent owner to comply was an essential one which entitled the charterer to treat the charter as terminated.

The dissenting arbitrator considered that this refusal by the disponent owner would have been a serious impediment on the charterer’s ability to trade the vessel and the notion that it would be sufficient to allow the charterer the right to sue for damages for any specific fixture they had lost was unrealistic. Accordingly, the dissenting arbitrator found in the charterer’s favour on both legal points.

Appeal made

The charterer sought leave to appeal the majority decision of the tribunal pursuant to section 69 of the Arbitration Act. Mr Justice Males granted permission to appeal stating that the decision of the majority was open to serious doubt. The appeal was duly heard before Mr Justice Popplewell, who decided that the majority’s findings of fact could not be overturned and that the charterer’s submissions that the tribunal had erred in law were not correct. He ruled that the tribunal’s finding was one of fact rather than law.

In relation to the first issue of whether the disponent owner had evinced an intention not to perform, Mr Justice Popplewell stated:
“The majority addressed the correct question and reached a conclusion of fact which was open to them and which is not susceptible of review on appeal. The minority arbitrator concluded that the Owners made clear that they not be able to comply with orders to transit GOA promptly. That was an alternative conclusion which may have been available on the facts, but it was not the view of the majority.”

While that alone was sufficient to dispose of the appeal, Mr Justice Popplewell also went on to consider the secondary issue of whether if there was a breach by the disponent owner it was an essential one which went to the root of the contract so as to deprive the charterer of substantially the whole benefit of the charter. Here too, Mr Justice Popplewell concluded that the majority arbitrators had not erred in law and their findings of fact were not open to challenge under section 69.

The result for the unfortunate charterer was that despite having concluded a charter on the express understanding and agreement of the disponent owner that their consent would not be required to transit the Gulf of Aden, they were stuck with a vessel which they could not market as “GOA OK” and their termination of the charter was held to be wrongful. For many charterers, such a decision of the majority arbitrators would be considered surprising and completely uncommercial. Although the majority’s decision was considered by Mr Justice Males as open to serious doubt, the charterer was stuck with the majority’s findings of fact.

Author information

Mike Lax is a partner at London-based Lax & Co. He specialises in international trade litigation and arbitration, charter party disputes, cargo claims, marine insurance disputes, oil pollution claims, fraud disputes, ship finance and sale and purchase, shipbuilding contracts. Mike can be contacted on +44 (0) 20 7623 9434 or email: mike.lax@laxlaw.co.uk.