In Ravennavi Spa New Century Shipbuilding Co Ltd – Lawtel 7.2.07 (reported previously in the May 2006 bulletin) the Court of Appeal heard a dispute concerning the construction of an option agreement and a subsequent shipbuilding contract. The appellant was an Italian shipowner and the respondent was a Chinese shipbuilder. The respondent had granted the appellant an option to purchase two new crude and product tankers for delivery by particular dates. The period for the exercise of the option was a little over six weeks. Clause 4(ii) of the option provided that the respondent would make earlier delivery dates available to the appellant if it became possible to do so. After exercising the option and entering into shipbuilding agreements for the two vessels the appellant discovered that the respondent was offering to build vessels for delivery dates earlier than those set out in the option.

The question before the court was whether the obligation under the option agreement to make available an earlier delivery date continued to exist after the execution of the formal shipbuilding contracts, which made no mention of such an obligation and contained an "entire agreement" clause.

The Court of Appeal upheld the decision at first instance, holding that clause 4(ii) had to be construed in the context of the option agreement as a whole and in the light of the previous course of dealings between the parties and established shipbuilding practices. Clause 5 of the option agreement expressly provided that if the appellant exercised the option a shipbuilding contract should automatically come into effect between the parties on agreed terms including the delivery date. The terms of that shipbuilding contract, as amended by the option agreement, formed part of the context in which clause 4(ii) was to be construed. Those contract terms contained no provision corresponding to clause 4(ii) and therefore if the respondent was to be under a continuing obligation to offer the appellant an earlier date for delivery, if it became possible to do so, it would be necessary to amend the contract terms. Clause 4(ii) was not intended to give rise to a continuing obligation and only obliged the respondent to offer the appellant any earlier date for delivery that might become available prior to the exercise of the option.

The court therefore held that it was unnecessary to consider the effect of the entire agreement clause.


In London Arbitration 3/07 – LMLN 711 3 the vessel was chartered on an amended NYPE form.

Rider Clause 46 to the charterparty provided: “All and any shortage claims at Yemen, howsoever arising, and even if caused by the owners’ fault or neglect, to be 100% for charterers’ account and charterers are to indemnify owners against all losses, damages, costs consequences arising therefrom….”

The charter also provided for provision of a letter of indemnity in return for the owners agreeing to call at Yemen. It is provided “2. To indemnify you and hold harmless in respect of any liability loss or damage of whatsoever nature which you may sustain by reason of your compliance with this request”.

The vessel loaded a cargo of soft white wheat in the USA for Hodeidah and Aden. A shortage was alleged at Aden, and at Hodeidah damage to cargo was found, leading to discharge being stopped by the Yemeni Government Quality Control. Receivers claimed damages for the allegedly damaged cargo which was rejected by the Yemen Quality Authorities, and also for the short landing in Aden.

The vessel was detained pending settlement of the receivers’ claims. Charterers deducted various sums from hire and in the arbitration the owners claimed a balance of account which included the amount paid to settle the receivers’ claim, the sum deducted by the charterers as off-hire at Hodeidah, various other sums which they said the charterers had unlawfully deducted from hire, and the estimated cost of repairing stevedore damage to certain frames.

The claim was brought pursuant to addendum no. 1 of the charterparty and the letter of indemnity.

It was held that the wording of the letter of indemnity was wider than the addendum required and was not limited to shortage claims. However, the charterers were not obliged to indemnify the owners for losses arising from any breaches by the owners of their seaworthiness obligations. The question was whether the settlement paid by the owners related to a cargo shortage claim or a cargo damage claim, and which claim caused the vessel’s detention at Hodeidah. It was found that there were elements of both claims involved, and the settlement did not differentiate between the two. The alleged off-hire was also found to be caused by both damaged and short-landed cargo.

It was found that in this case the claim for cargo damage was the proximate cause of the detention, and the vessel was therefore off-hire and /or charterers were entitled to damages in the like amount. The owners therefore had no claim for an indemnity under the charter, addendum no. 1 or the letter of indemnity.