Ocean Marine v. Koch Carbon

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Ocean Marine Navigation Limited v Koch Carbon Inc ("The Dynamic")
English Commercial Court: Simon J: 31 July 2003
Rebecca Sabben-Clare, instructed by Middleton Potts, for the Claimants, Ocean Marine
Jawdat Khurshid, instructed by Richards Butler, for the Defendants, Koch Carbon
Is a vessel on-hire during the time it is under arrest? This charter provided that it would be off-hire, unless the arrest was the consequence of the act or omission of the charterers. The problem was that it was the charterers who arrested the vessel. The judge found that the charter provision did not apply where the charterers arrested the ship in the course of the charter. On a separate point, a purported redelivery in breach of the charterparty terms could amount to a repudiatory breach but Owners were not bound in every instance to accept the repudiation. They could, in appropriate cases, validly elect to keep the charter contract alive.

DMC Category Rating: Confirmed

This case note is based on an Article in the October 2003 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA. DLA is an International Contributor to this website.

In April 1999, The Dynamic was chartered by Ocean Marine to Koch Carbon on an amended New York Produce Exchange form for a time charter trip from China to the Mississippi River. After a delay at Singapore for repairs (during which time it was off-hire), the vessel arrived at Myrtle Grove on the Mississippi River on 28 July and completed discharge of its cargo on 3 August.

On 2 August, however, the charterers arrested the vessel to obtain security for various performance claims, which were subsequently arbitrated. The vessel remained under arrest until 17 August.

The issue was whether the vessel was on-hire during the arrest period. Clause 60 of the charterparty provided that, if the vessel was arrested during the currency of the charterparty "at the suit of any persons having, or purporting to have, a claim against or any interest in the vessel, hire under this Charterparty shall not be payable in respect of any period whilst the vessel remains under arrest or remains unemployed as a result of such arrest. However, if the arrest is the consequence of an act or omission by Charterers and/or their agents and/or their servants, hire to continue".

The owners said that the vessel was on hire until it was released on 17 August. The charterers, however, argued that re-delivery had taken place shortly after completion of discharge on 3 August. If that were not the case, then, the charterers argued, in reliance on clause 60, the vessel was off-hire from the date of her arrest until her release. As long as the vessel was arrested by someone who had a claim against it, it made no difference who made the arrest. It was irrelevant that the arrest happened to be made by the charterers.

The arbitrator held that the arrest was the consequence of an act by the charterers and so, under clause 60, the vessel was still on hire. But he also implicitly found that the purported re-delivery on 3 August was not effective and was in repudiatory breach of the charterparty. Consequently, the charter ended and the owners were not entitled to hire, although they could claim damages for the breach if they had suffered loss, but they had not suffered any loss. The parties appealed.

The judge started from the principle that hire is payable continuously and it is for charterers to bring themselves within an off-hire clause (The Mareva AS [1977] 1 Lloyd's Rep 368). In this case, the charterers had failed to convince him. In his view, Clause 60 was never intended to deal with an arrest by charterers during the currency of the charterparty. If that had been the intention, much clearer words would have been required.

The arrest did not stop hire accruing. But did the charterers' attempt to redeliver end the charter? The owners argued that the purported re-delivery was not in breach of the charterparty or, if it was, it was not a repudiatory breach. Consequently the charterparty had not come to an end and the charterers' obligation to pay hire continued.

The judge, however, agreed with the arbitrator that, if a charterparty was not terminated in accordance with its terms, it followed that the charterers were in repudiatory breach. Correspondence between the parties demonstrated that this was the view they had taken at the time and it was not open to the owners to open the issue now.

But there was a valid question whether the owners were entitled to decide not to accept the repudiation and insist on the contract continuing. In certain circumstances, if the injured party has a legitimate interest (financial or otherwise) in performing the contract rather than claiming damages, it may decide not to accept the breach, continue to perform its own obligations and claim what is due under the contract (White and Carter (Councils) Ltd v McGregor [1962] AC (HL). There is no general rule to say that, whenever charterers repudiate, the owners are bound to take the vessel back (Gator Shipping v Trans-Asiatic Oil Ltd S.A. and Occidental Shipping Establishment (The Odenfeld) [1978] 2 Lloyd's Rep 357).

In extreme cases, however, where damages would be an adequate remedy, it may be unreasonable for the injured party to insist on keeping the contract alive (Clea Shipping Corporation v Bulk Oil International Ltd (The Alaskan Trader No. 2 [1983] 2 Lloyd's Rep 645). The burden, however, is on the contract-breaker to show that the innocent party has no legitimate interest in performing the contract rather than claiming damages. This will not be discharged by showing that the benefit to the injured party is small compared to the cost to the contract-breaker.

The owners argued that it was not unreasonable to have kept the contract alive. They had been prevented from finding alternative employment for the vessel because of the arrest. The arbitrator did not think this was sufficient, but his reasoning was not entirely clear on this or on the question whether the owners had suffered any loss. These issues were, therefore, referred back to him for further consideration.

On a procedural note, the judge commented that the arbitration had involved unusually lengthy and detailed written submissions when a short oral hearing would have clarified the issues more effectively. Under the LMAA rules, however, once the parties have agreed that the arbitration is to be conducted by way of written submissions, the arbitrator is not able to call for an oral hearing. Yet there will be cases, such as this one, that develop in such a way as to make an oral hearing appropriate. In such circumstances, an inflexible approach to procedural rules is unhelpful. If necessary, the arbitrator should be given the power to order a



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