The High Court of England & Wales has overturned an arbitration Award in a rare appeal on a performance dispute.
The facts are largely matter-specific, but in brief recap Polaris Shipping (charterers) chartered the vessel "OCEAN VIRGO" from Sinoriches Enterprise (owners) for one TCT via the North Pacific to Singapore / Japan range.
The charterparty was on the NYPE form, and speed and performance warranties were given on the basis of:
"good weather/smooth sea up to max BF SC 4 / Douglas Sea State 3. No adverse currents, no negative influence of swell"
Charterers brought a speed and consumption claim, alleging that the vessel could not meet its performance warranties in good weather.
The sole arbitrator, an experienced Master Mariner, held that:
- For a good weather period to be admissible, it had to run for 24 hours from noon to noon; and
- Any speed and consumption analysis involved a sampling exercise, and the sample size must be sufficiently large to be representative of the voyage in its entirety.
The arbitrator went on to dismiss the charterers' claim, on the basis that there had been insufficient good weather periods during the course of the charterparty.
High Court Judgment
Charterers obtained permission to appeal against the Award on the basis that the arbitrator had erred in law:
- By excluding periods of good weather which did not last a full 24 hours; and
- By indicating that he would assess any performance claim by reference to the individual 'leg' of the voyage, rather than with regard to whole of the charter period (regardless of the weather conditions).
The Court upheld charterers' appeal on both counts.
Mr Justice Teare held (at paragraph 18 of the Judgment) that:
"The charterparty merely referred to "good weather". There are no words in the charterparty which justify construing good weather as referring to good weather days of 24 hours from noon to noon."
However, the Court stressed that the arbitrator was free to decide whether a particular period of good weather represented a large enough sample to be included for consideration.
For instance, on the second leg of the voyage, good weather was only observed for 5.51% of the time. The arbitrator found that this was too small a sample to be representative. The Court held that he was entitled to reach this conclusion, which was a finding of fact, not law.
By reference to the oft-cited key authorities of The "DIDYMI" and The "GAS ENTERPRISE" the Court held that a breach of the performance warranty (if identified) must be applied to the whole of the charter period, not just the voyage or leg on which it occurred. The only exception is for periods of slow steaming on charterers' orders.
The Award was remitted to the arbitrator for him to determine whether the periods of good weather on the first leg amounted to a sufficient sample to establish a breach of the performance warranty.
Although a short Judgment (at only 23 paragraphs), this decision has potential implications for all performance claims.
First, it makes it clear that it is not acceptable to imply a reference to 'good weather days' into clauses which do not contain it. Therefore, periods of less than 24 hours cannot be excluded on that basis alone.
Secondly, the Judgment is a welcome restatement of the principle that where a breach of the performance warranty is identified, the shortfall in performance must be applied to the entire charter period (see also "Time Charters", 7th Edition at paragraph 3.67).