In this appeal the Commercial Court considered whether, under the terms of a trip time charter of the “ELENI P” (the Vessel), the claimants (the Owners) were entitled to hire from the defendants (the Charterers) for the period that the Vessel was seized and detained by pirates.
The owners time chartered the Vessel to the charterers on amended NYPE terms on 15 October 2009 (the Charterparty). Under the terms of the Charterparty, the Vessel was due for redelivery between 20 June and 20 August 2010. Under a sub-time charter trip, the Vessel was ordered to load a cargo of iron ore in Ukraine and discharge in Xiamen, China.
The proposed route was via the Suez Canal and the Gulf of Aden, before entering the Arabian Sea and proceeding to the Far East. The Vessel navigated the Gulf of Aden without problem, but was captured by Somali pirates upon entry into the Arabian Sea on 12 May 2010. She was released by the pirates some seven months later, on 11 December 2010.
The owners claimed approximately USD $5.6 million, including USD $4.5 million of hire for the period that the Vessel was seized. The matter was referred to arbitration, where the majority of the tribunal decided that the owners’ claim for hire was precluded by clauses 49 and 101 of the Charterparty.
Clause 49 – capture, seizure and arrest
‘Should the vessel be captures [sic] or seized or detained or arrested by any authority or by any legal process during the currency of this Charterparty, the payment of hire shall be suspended for the actual time lost’
The Owners argued that each of the expressions ‘capture[d]’, ‘seized’, ‘detained’ and ‘arrested’ were governed and qualified by the phrase ‘by any authority or by any legal process’. The Charterers, submitted, and the majority of the tribunal held, that that phrase did not govern or qualify the word ‘captured’ which was free-standing and covered capture by any cause or protagonist including capture by pirates.
Popplewell J (the Judge) disagreed with the tribunal’s reasoning. He held that the word ‘capture’ did not necessarily connote the use of force. He saw no difficulty as a matter of the ordinary use of language in the concept of a governmental authority or ruler capturing a vessel.
Furthermore, if the phrase ‘by any authority or legal process’ did not qualify all of the preceding words and only applied to ‘arrest’ then the phrase would be superfluous. In his view, arrests could only occur under authority or via a legal process. Therefore, it would have involved surprisingly inept drafting if the phrase had been added after the word ‘arrested’ to provide an ‘unnecessary and meaningless qualification’ to it. The Judge concluded that the phrase had to apply to all the preceding words. The appeal was allowed on this point.
Clause 101 – piracy
‘Charterers are allowed to transit Gulf of Aden any time, all extra war risk premium and/or kidnap and ransom as quoted by the vessel’s Underwriters, if any, will be reimbursed by Charterers. Also any additional crew war bonus, if applicable will be reimbursed by Charterers to Owners against relevant bona fide vouchers. In case vessel should be threatened/kidnapped by reason of piracy, payment of hire shall be suspended’.
The Owners argued that, under Clause 101, the Vessel was only to be put off-hire if the kidnap or threatened kidnap by pirates took place during transit of the Gulf of Aden (as a definable geographic location). The Charterers contended that the clause was operative if the kidnap or threat took place either during transit through the Gulf of Aden (an area with no generally understood precise definition) or as an immediate consequence of the Vessel’s transition through the Gulf.
The majority of the tribunal had preferred the Charterers’ construction of Clause 101 holding that (a) there was no generally understood precise geographical definition of the Gulf of Aden and (b) the parties knew that the risk of piracy was increasing, not only in the Gulf of Aden, but also expanding into the Arabian Sea (where the Vessel was eventually captured).
The Judge noted that the wording of the clause was silent as to the ambit of the off-hire provision: both the Owners’ and the Charterers’ interpretations required words to be read into the third sentence of clause 101.
However, the Judge agreed with the tribunal’s construction for three reasons:
- The majority had found that the expression ‘Gulf of Aden’ was not capable of geographical definition in the context of a time charter of this kind. This was a finding of fact which was not susceptible to challenge on appeal under section 69 of the Arbitration Act 1996.
- Clause 101 was concerned with voyages through the Gulf of Aden. Its principal purpose in a charterparty of this nature was to enable the Charterers to trade the Vessel through the Suez Canal. The clause allocated risk in relation to this transit by providing that the Charterers were to bear the additional cost of insurance premium and crew bonus, with the Owners bearing the risk of loss of time from piracy putting the Vessel off-hire.
The allocation of risk in the third sentence of Clause 101 had to be read in the context of the tribunal’s finding that the parties knew that the risk of piracy was expanding outside the Gulf of Aden. Against that background, the natural construction of the third sentence was that the Vessel should be off-hire if pirates detained her as an immediate consequence of the transit, rather than by reference to a particular geographical area.
- Finally and similarly to point two above, the Judge found that the allocation of risk of the extra war risk premium in the first sentence of Clause 101, was not defined by reference to a single geographical area. There was no evidence that the war risk and kidnap and ransom premiums were tied to a single, definable geographical location. The same was also true for the crew war bonus. In these circumstances, it would be strange if the provisions to place the Vessel off-hire were, in fact, tied to a specific geographical area.
In the circumstances, the Vessel was off-hire for the period that she was detained by pirates in the Arabian Sea and the appeal on clause 101 failed.
In his approach to construction, the Judge noted that time charters gave rise to particular considerations because of the allocation of risk which was inherent in their nature. Under a time charter the risk of delay was fundamentally on the charterer who remained liable to pay hire in all circumstances unless exempt from doing so under an off-hire provision. Accordingly, the burden lied on a charterer to bring himself within the plain words of an exception from the obligation to pay hire; and, all other things being equal, doubts as to the meaning of such exceptions were to be resolved in favour of owners. This approach, described as ‘a cardinal rule’, has been articulated and applied in several cases and it is important that the parties ensure that the risk is allocated in accordance with their intentions, in order to avoid any subsequent disputes.
The judge also gave a helpful summary of the recent authorities on interpretation of contracts.