HBC Hamburg Bulk Carriers GmbH & Co KG v. Huyton Inc (Glory Sanye) [2014] EWHC 4176 (Comm)

This was an appeal from an arbitration award on a point of construction in relation to the wording of an addendum to a charterparty.

The Commercial Court held that the costs of transiting the Suez Canal arising as a result of amended voyage orders were for the Charterers’ account, even though the Disponent Owners would have had to incur them anyway in order to redeliver the vessel.

The background facts

The Claimant Disponent Owners (“Owners”), chartered the vessel to the Respondents for a voyage from Constanza to Djibouti. The vessel arrived at Djibouti but was unable to discharge because there were no receivers for the cargo. After the vessel had spent three months off Djibouti, the Owners and the Charterers agreed an addendum (“addendum no. 1”) to the charterparty whereby the discharge port was changed to Ain Sukhna, Egypt, a port to the south of the Suez Canal.

Addendum no. 1 provided:

“Owners and Headowners to be held harmless and indemnified against all losses, expenses, damages, risk whatsoever and howsoever arising including but not limited to those which may arise from any 3rd party including but not limited to Egyptian authority’s rejection refusal or inability to accept delivery of the cargo or from charterer’s failure to discharge cargo.”

Later, by a further addendum (“addendum no. 2”), the discharge port was changed again from Ain Sukhna to Damietta, an Egyptian port on the Mediterranean coast, meaning that the vessel would have to transit the Suez Canal northbound in order to arrive at the discharge port. Materially, addendum no. 2 provided:

“…the cargo is to be discharged at the port of Damietta (Egypt) instead of Ain Sukhna (Egypt) and all other terms, conditions, clauses and paragraphs as per Charter Party dated 23 October 2009 and addendum no. 1 and reservations of rights to remain in force.”

Under the head charterparty, a time trip charter, the Owners had to re-deliver the vessel at Port Said after completion of the voyage. She would, therefore, have had to transit the Suez Canal irrespective of the change of discharge port under addendum no. 2. The head charterparty provided that the Owners (as charterers under that charter) were responsible for all canal tolls and, therefore, as between them and the registered Owners, would have to bear the costs of transiting the Suez Canal.

In the arbitration, the Tribunal held that the costs of transiting the Suez Canal were not an expense that the Charterers had agreed to bear in the addenda on the basis that the Owners would have had to transit the Suez Canal anyway and:

“in the context, “losses” or “expenses” [in addendum no. 1, as cited above] must be construed as limited to additional losses and expenses which would not have been incurred in any event.”   

It was this finding that was the subject of the Owners’ appeal.

The Commercial Court decision

The Court found that the commercial aim of the addenda had been to allow the Charterers to bring the voyage (and therefore their liability to pay demurrage) to an end and to allow the Owners to discharge the cargo and redeliver the vessel. The Court considered both the commercial objectives of the parties and their background knowledge when they agreed the addenda. The Court noted that the Owners’ liability under the head charterparty to bear the costs of transiting the Suez Canal was not within the knowledge of the Charterers and should not therefore be taken into account when assessing the scope of the Charterers’ indemnity.

Given the Court’s finding on the facts, the question which it had to answer was simply whether the expense of transiting the Suez Canal arose from the Charterers’ failure to discharge the cargo at Djibouti. The Court found that the Suez Canal transit would not have been required in order to perform the original voyage to Djibouti but was required to perform the amended voyage to Damietta and, as such, the costs of the transit were ones that the Charterers had agreed to bear. The appeal was therefore allowed. 

Comment

This judgment shows the Court applying the clear wording used by the parties, since the expense arose from the Charterers’ failure to discharge the cargo at Djibouti, and that is what was expressly covered by the indemnity. The decision also emphasises that the background knowledge against which contracts will be interpreted is limited to that knowledge available to both parties.