HBC v Tangshan Haixing Shipping
DMC Category Rating: Developed
This case note is based on one written by Jim Leighton, BSc (Hons) (University of Plymouth), LLM (Maritime Law) (University of Southampton), Claims Consultant and International Contributor to DMC’s CaseNotes
The dispute between the parties centred on the entitlement of the charterer ("HBC") to cancel a charterparty ("the charter") made between them and the disponent owner ("Tangshan"), under clause 56, on the grounds that the vessel had (allegedly) been off-hire for a period of more than 30 days. The vessel, "Fu Ning Hai", was owned by Cosco Bulk Carrier Co Ltd ("Cosco") who had chartered it to Tangshan on 7 June 2004. Tangshan had then chartered the vessel to HBC.
The dispute centred on Cosco’s need to drydock the vessel. As the time for drydocking approached, the vessel was engaged in on a voyage charter. As the discharge port was outside the re-delivery range agreed for the drydocking, it was agreed between Tangshan and HBC that Cosco could make use of the vessel for a voyage lasting about 15 days, carrying coal to a port close to her drydock port. In agreeing this arrangement, HBC insisted that "all terms and conditions of C/P remain unaffected".
The vessel was in drydock for more than 15 days but less than 30 days, but the time from the date of the vessel’s redelivery to Cosco and her anticipated return to HBC’s service would have exceeded 30 days. As the market had fallen over the period of the charter, HBC, in reliance on clause 56 of the charter, gave notice of cancellation, claiming that the vessel had been off-hire in excess of the 30 days allowed by clause 56. Tangshan maintained that HBC were not entitled to cancel the charter as the conditions of clause 56 were not fulfilled or, if they were fulfilled, HBC was defeated by waiver or estoppel.
The relevant terms of the charter were:
"15. That in the event of the loss of time from… dry-docking for the purpose of examination or painting bottom, or by any other cause whatsoever preventing the full working of the vessel, the payment of hire shall cease for the time thereby lost…
56 – Off-hire
…If the vessel has been off-hire for a period of more than 30 days, the Charterers are at liberty to cancel the balance of this Charter Party…
70 – Drydocking
Vessel’s next drydocking is due in May/July, 2005, owners intend to drydock the vessel in P.R. China for about 15 days (without guarantee). For which charterers endeavour to bring the vessel to Singapore/Japan range and deliver to Owners for drydock.
Vessel to be placed off-hire upon Dlosp one safe port Singapore/Japan range with sufficient notice from Charterers and sufficient fuel on board….
Vessel shall be put back on hire at Dlosp dockyard or in charterers’ option at a position or equivalent distance from last discharge port to the charterers’ next destination….
The dispute was arbitrated in London before Sir Christopher Staughton, who made an award in Tangshan’s favour. In particular, the award found that the agreement between Tangshan and HBC regarding the intermediate voyage performed by Cosco took the situation outside the scope of clause 56; so, clause 56 was inapplicable to the situation in which Tangshan and HBC found themselves, thus the terms and conditions of the charter as between them had not been affected. "I hold," said Sir Christopher, "that there was no agreement that Cosco’s coal fixture would count as part of thirty days of off-hire" As to the term that "all rights/obligations under the C/P otherwise to be unaffected" on which HBC had insisted, Sir Christopher found that "the words used convey no meaning. If an important statement is to appear in a contract, it must be given at least some degree of clarity. The most that the words say is that what has not been changed remains." As a result, he found it unnecessary to deal with the issues of waiver or estoppel.
The charterer obtained leave to appeal the award on the grounds of a ‘serious irregularity’ under s.68 of the Arbitation Act 1996 and under s.69 on a question of law. All the applications were dismissed, but this note concentrates on that under s.69. Under that section, HBC argued that the effect of the agreement (as regards the coal voyage) and that of clauses 15, 56 and 70 of the charter was that the vessel was ‘off-hire’ for a period of more than 30 days, thereby triggering the option of cancellation under clause 56.
On reviewing the award, the judge made an analysis of the messages exchanged between Tangshan and HBC which led to the agreement to allow Cosco to make the voyage fixture of "about 15 days" before drydocking. As the drydocking under clause 70 was going to take about 15 days, the judge considered that 'it must have been in the parties’ contemplation that it was likely that the vessel would be off hire for 30 days or more'. Tangshan sought HBC’s consent because HBC was entitled to have the use of the vessel prior to the drydocking. HBC's reply was not an acceptance of Tangshan's offer but was a counterproposal. HBC wanted to ensure that, as a condition of their agreement to the proposal, Tangshan were prepared to modify clause 70, so as to allow HBC to re-deliver the vessel for drydocking at a port outside the agreed Singapore/Japan range. Tangshan's response plainly thought that there would be no cancellation of the charter under clause 56 merely through time off hire, since the date contemplated for the vessel's return to HBC's service was about 36 days after the vessel was redelivered for the Cosco voyage. HBC's reply noted the position and merely asserted that all terms and conditions of the charter remained unaffected.
As a result, the arbitrator had found that there was no agreement that the duration of the coal voyage would count as part of the 30 days off hire. It followed that while no hire was being paid by the HBC to Tangshan, or by Tangshan to Cosco, the vessel was not off hire within the meaning of clauses 15, 70 or 56. This was a period when hire was not paid pursuant to a special arrangement, with the charter effectively being suspended. In order for HBC to ensure that this period counted as ‘off-hire’ they had to say so more precisely than simply referring to the terms and conditions of the charterparty remaining unaffected. If this analysis was correct, the arbitrator was not required to say anything more and the various challenges under s.68 failed.
The judge next addressed the issue arising on the application under s.69, namely, whether, under clause 15, the off-hire clause, a loss of time by reason of the agreed suspension of the charter could be categorised as "any other cause whatsoever preventing the full working of the vessel". This had been rejected by the arbitrator, on the grounds that the special arrangement for the coal voyage took the vessel outside the terms of the charter altogether.
For his part, the judge remarked that clause 15 had attracted so much judicial and academic attention over the years that it was "in danger of being made invisible through gloss painted over it". In his view, it seemed "most improbable that clause 15 could have been intended to cover an event of off hire to which the charterer had agreed. Clause 15 deals with events which prevent the full working of the vessel, for example breakdowns or arrests. But what must be prevented is the use of the vessel required for service under the charterparty. The consequence of prevention must be to stop the charterer from making use of the vessel so that it is commercially sensible for the payment of hire to cease. But if a charterer agrees to the vessel being taken out of service, so that he pays no hire, the element of prevention [against his will] is missing. The charterer is not being prevented from using the vessel; he has agreed not to use it during the period of [Cosco’s] involvement. I regard the contention that clause 15 applied to the facts of this case as obviously wrong." As a result, the case on clause 15 was unsustainable.
On the s.69 point, therefore, the judge concluded that not only was the arbitrator not obviously wrong but that rather he was obviously right. HBC were content to have the benefit of a lengthy period when hire was not due, following the fall in the market rate. Rather than seeking to rely on a statement that all terms of the charter remained unaffected, HBC ought to have dealt with the point expressly, as it was clear that Tangshan anticipated that the vessel would be brought back into service after the drydocking. So, by leaving the question of cancellation unspoken, the charterer had to pay the price. As a result, what was agreed was a venture outside the contemplation of the charter, thus outside clauses 15, 56 and 70 altogether.
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