The "Silver Constellation"
Bernard Eder QC and Michael Ashcroft (instructed by Hill Dickinson LLP) for the Claimant shipowner, Seagate
Timothy Hill (instructed by Elborne Mitchell) for the Defendant/Claimant charterer, Glencore
Timothy Young QC (instructed by Holman Fenwick Willan) for the Defendant subcharterer, Swissmarine
TIME CHARTERPARTIES: NYPE FORM WITH RIDER CLAUSES: COAL AND IRON ORE BULK CARRIER: WHETHER OWNER OBLIGED TO PROVIDE AND MAINTAIN A VESSEL WITH RIGHTSHIP APPROVAL: WHETHER OWNER OBLIGED TO PERMIT RIGHTSHIP INSPECTION AND VETTING PROCEDURES: MEANING AND SCOPE OF TERM "EMPLOYMENT" UNDER CLAUSE 8 OF NYPE FORM: SHIPOWNER’S IMPLIED DUTY OF CO-OPERATION WITH CHARTERER
In the context of a Capesize bulk carrier time-chartered for the iron ore and coal trades, the shipowner was not obliged to provide a vessel with RightShip approval and to maintain such approval for the currency of the charterparties. The obligations under the relevant charterparty clauses only extended to keeping the vessel seaworthy and keeping onboard the certificates required to comply with laws and regulations in the ports within the trading limits of the vessel. This did not extend to the essentially private and commercial requirements of the RightShip approval system. The shipowner was, however, obliged to permit a RightShip inspection of the vessel and other RightShip vetting procedures as and when required by the charterer, pursuant to clause 8 of the charterparties, because an order requiring a vetting questionnaire to be completed or to permit RightShip inspection were orders "as regards employment" of the vessel.
DMC Category Rating: Developed
Case note contributed by Jim Leighton, BSc (Hons), LLB (Hons), LLM (Maritime Law), Trainee Solicitor and International Contributor to DMC’s CaseNotes
The vessel concerned was the Silver Constellation, a Capesize gearless single deck self-trimming bulk carrier of 146,351 m.t. built in 1986.
At the time of the arbitration references, which were heard together (as were these appeals), the shipowner was Seagate Shipping Limited ("Seagate"), the charterer was Glencore International AG ("Glencore") and the subcharterer was Swissmarine Services SA ("Swissmarine").
The central issues which the arbitrators were asked to determine (and which were the focus of this appeal) were:
The arbitrators found in favour of Glencore and Swissmarine, as charterers, on both issues. Seagate appealed to the High Court.
RightShip, which was set up in 2001, is a ship approval/vetting information system maintained by the three major players in the coal and iron ore markets: BHP Billiton, Rio Tinto Shipping and Cargill Ocean Transportation. The aim is to identify those vessels that are suitable and safe for the carriage of iron ore or coal cargoes. The clients of the system are said to include shipowners, charterers, terminal operators, port state control authorities and insurers. RightShip is effectively a dry cargo equivalent to the "oil majors’" vetting/approval systems invariably demanded by charterers of oil and petroleum products tankers.
The system rates vessels in three principal categories. The rating is based on an analysis using "algorithm software". This involved a "complex analysis" taking account of no less than 50 factors, which include: yard, owner operator/manager, vessel age, casualty history, port state control history, condition of class and class changes, trading patterns and cargo history, terminal inspections and ISP certificate data. Any vessel with a 1 star or 2 star risk rating will not obtain approval without the submission of an approval form by the "subscriber" to the system and subsequent processing by a RightShip vetting officer, including, where appropriate, inspection of the vessel. Significantly, vessels over the age of 18 years, such as the Silver Constellation, are automatically downgraded to a 2* rating, which subjects them to greater RightShip scrutiny.
The arbitrators had accepted evidence to the effect that "RightShip approval today is necessary in order to be able to trade effectively in the iron ore and coal industries." The charterers sought damages of US$900,000 per month, which was indicative of the reduced freight and/or hire chargeable for vessels without RightShip approval.
The key terms of the charterparties (text in bold is added wording and/or clauses) were:
"1. That whilst on hire the Owners shall … and maintain her class and seaworthiness and keep the vessel in a thoroughly efficient state in hull, holds and hatch covers machinery and equipment with all certificates necessary to comply with current requirements of all ports of call and canals for the service and at all times during the currency of this Charter, also see Rider Clauses [collectively referred to as Line 38]…
8. That the Captain shall prosecute his voyages with the utmost
despatch, and shall render all customary assistance with ship's crew and boats.
The Captain (although appointed by the Owners) shall be under the orders and
directions of the Charterers as regards employment….
b) It is a condition of this Charter that the vessel is and will remain during the currency of this Charter in possession of the necessary valid equipment and all certificates, records and documents necessary to comply with safety and health regulations, international regulations and all current requirements at all ports of call, Suez Canals included."
Seagate’s position was that:
Glencore and Swissmarine’s position, as charterers, was that:
The case also dealt with an interesting pre-contractual negotiations issue in the head reference but that is not be dealt with here for the sake of brevity (see the judgment at paragraphs - and -).
On the basis of the Court of Appeal’s decision in particular, the judge was of the opinion that the focus of line 38 and clause 31 was "upon requirements legally imposed either by the law of the flag, the law of the country to which the vessel has been ordered or by the laws of the port of call." This was "further emphasised by the heading to clause 31 ‘Certificates, Laws and Regulations’." Equally it was not suggested "that RightShip approval is ‘lawfully’ required by the ports at which coal or iron ore may be loaded … it is simply a commercial requirement ..."
As the judged noted "the RightShip scheme does not give rise to the provision of any documentary form of certification." He considered that it was "not an answer … that approval (or lack of it) is recorded in the computer hard drive of the RightShip vetting organisation." He also considered that this feature was "a further reflection of the extra-legal and private nature of the system". The judge was concerned also that because the "basis of any approval remained obscure" this meant that the secrecy of the methodology in evaluating vessels rendered "the scope and standard of the requirement difficult to comply with and exposes the owners to the unpublished requirements of a third party".
The judge also thought that it was significant that the charterparties had specific provision for a whole range of certificates required by law and regulations. He stated that "this gives rise to a strong inference that, given the absence of RightShip approval (something the tribunal would expect to be included) no such approval is required under the charterparty. This is all the more so where the charterparty focuses almost exclusively on iron ore and coal cargoes and thus involves trading to the ‘hotbeds’ of the RightShip system such as Australia."
Seagate had argued also that clause 31 was a condition and as such would enable Glencore to terminate the charterparty for non-compliance with any RightShip approval required – this being a "commercial nonsense". However, the judge thought that there was "no want of commercial realism in treating the provision of RightShip approval, if applicable, as a condition strictly so called." He considered that in any event it was "by no means clear that the clause is a condition. Line 35 describes all the terms of the charter as conditions yet it is clear that some are mere warranties or at most innominate terms."
The judge nonetheless concluded that "the tribunal erred in concluding that on its proper construction the charterparty required the owners to obtain and retain RightShip approval."
The judge considered that it could "be assumed that the owners have complied with their obligation to maintain seaworthiness of the vessel. But if RightShip vetting is excluded, the charterers would be stymied as to nominating any loading port and/or any cargo: in short although hire would remain payable, the vessel would be unemployable."
Seagate contended that RightShip approval was a stand-alone obligation akin to Class. So, merely because the charterer might be concerned about the state of the vessel’s Class, this was not accompanied by any entitlement to insist on an inspection by a Classification surveyor. However, the judge was of the mind that "RightShip approval is to be obtained voyage by voyage. It is dependent on the requirements of the relevant shipper/loading terminal. Classification in contrast is a continuous survey system by the society selected and paid for by the owners and conducted in accord with the rules of the selected society. A much closer analogy is the need to allow shore inspectors on board to inspect the cleanliness of holds."
On this basis the judge held that the arbitrators were correct in their interpretation of the shipowner’s obligation under clause 8. As a result, the judge did not consider it necessary to decide the issue of an implied duty of co-operation.
In The "Hill Harmony" Lords Bingham and Hobhouse expressly approved the speech of Lord Porter in Larrinaga Steamship Co Ltd v The King  AC 246. Lord Porter made a distinction between orders as to the employment of a vessel (which charterers are entitled to make) and orders as to how a vessel shall act in the course of employment and in relation to things incidental to employment (which charterers are not entitled to make). It follows that the speeches of Lords Bingham and Hobhouse cannot be read as contradicting Lord Porter’s distinctions.
One can readily accept that the RightShip vetting and inspection regime may be pertinent to the employability of a vessel (viz. its attractiveness to potential charterers and the rates of hire and freight achievable) but orders as to vetting and inspection more clearly relate to how a vessel shall act in the course of employment and in relation to things incidental to employment than a vessel’s employment in the natural sense of that word.Back to Top
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