No implied term qualifying free standing demurrage provision in sale contract

 In Gunvor SA v CruGas Yemen Ltd [2018] EWHC 2061 (Comm) a term contract of sale was made for the sale of  gasoline by 12 monthly consignments cif Hodeidah. The buyer was named as CruGas Ltd but the claimant argued that the contract was made with CruGas Yemen Ltd, and that it had been unaware that within the relevant group there was a Cayman Islands company named CruGas Ltd. The claimant obtained performing vessels from a separate entity within its group of companies, Clearlake Shipping Pte Ltd (Clearlake), under a long-term contract of affreightment on an amended Asbatankvoy form. It claimed demurrage totalling $18m under the sale contract and claimed against CruGas Yemen Ltd and CruGas Ltd in the alternative. The defendants denied liability for demurrage on three grounds. First, the demurrage claims were time-barred by reason of a demurrage time bar provision in the COA. Second, a term should be implied into the sale contract that the claimant was required to prove the demurrage rates claimed were “in line with the market rate”. Third, the claimant had to prove that it paid the demurrage sums it claimed under the sale contract.

Phillips J first found that the contract had been made with CruGas Yemen Ltd, and then proceeded to reject all three of the buyer’s arguments. First, it was established in OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd’s Rep 160 that words of general incorporation in a sales contract concerning demurrage provisions in a separate charter did not bring in terms ancillary to the accrual of demurrage, such as time bars relating to the presentation of demurrage claims. Second, there was no justification for the implication of the term contended for, which was neither necessary for the business efficacy of the sale contract, nor would give effect to the obvious but unexpressed intentions of the parties at the time they contracted. In any event, expert evidence from a chartering expert, was that the demurrage rates were all consistent with the market, insofar as such a thing could be said. Third, the demurrage provision under the sale contract was free-standing and not an indemnity.

 

Shipbuilding options – worth the paper they’re written on?

Shipbuilding contracts often contain an element of “buy one, get a special offer on another”. In other words, an order for one vessel may well give the buyer an option on one or more further ships to be built at a later date. Unfortunately option provisions of this kind, can be of doubtful value, as Teekay Tankers found to its cost this week. As part of an order for four vessels from Korean builders STX, the parties included a clause aimed at giving an option on a further dozen vessels as follows:

“The Delivery Dates for each [of the] Optional Vessels shall be mutually agreed upon at the time of [Teekay’s] declaration of the relevant option … but [STX] will make best efforts to have a delivery within 2016 for each [of the] First Optional Vessels, within 2017 for each [of the] Second Optional Vessels and within 2017 for each [of the] Third Optional Vessels.”

STX went into Korean-style Chapter 11 bankruptcy, failed to build the original four ships and unsurprisingly repudiated the extra options. For the purpose of establishing its rights in the Korean administration (since recognised in England under the Model Law on Cross-border Insolvency), Teekay with the court’s permission got an arbitration award in respect of the original vessels, and in Teekay Tankers Ltd v STX Offshore & Shipbuilding Co Ltd [2017] EWHC 253 (Comm) sued for damages for the repudiation of the options. It failed in the latter.  Although it was clear that both parties had intended the option provision to have legal effect, and also that the courts disliked striking down a clause for uncertainty, this was simply too vague, since there was no way of establishing what criteria were to apply if Teekay gave notice to exercise the options and the parties could not agree dates. Cutting through a lot of verbiage, the conclusion appears to be simply this: to be sure of being able to enforce options of this kind, there is little alternative to providing for some kind of arbitration or third-party decision to be binding in the absence of some other agreement. Unpalatable, to be sure, especially to the yards, which need to maintain flexibility: but there seems little choice in the matter.

 

 

‘Light ballast condition’ and slow steaming clause under Towcon.  

 

Regulus v Lundin [2016] EWHC 2674 (Comm)involved a towage contract on BIMCO’s TOWCON form for the tow of Lundin’s FPSO from Tunisia to Malaysia by Regulus’ tug. Regulus asserted a claim for delay for breach of the express term of Towcon that the FPSO would be provided in ‘light ballast condition’ and Lundin counterclaimed that the slow progress of the convoy, averaging 3.54 knots was a breach of an implied obligation that the convoy would maintain an average speed of 4.5 knots. Towards the end of the voyage, Regulus diverted the convoy to Singapore so as to exercise a lien over the tow in respect of its delay claim and whilst there the two ropes were cut and Lundin entered a new towage contract to complete the voyage.

Phillips J held

1. The tow was not in ‘light ballast condition’ at the start of the voyage. The test was one of the minimum ballast required for physical safety and seaworthiness and was not expanded so that the condition of the tow must be in accordance with the requirements of the marine warranty surveyor. From departure and for the first eleven days of the voyage Lundin was in breach of this obligation but Regulus were unable to prove that the breach caused any delay to the voyage and were therefore limited to nominal damages.

  1. Regulus were not entitled to delay payments under the slow steaming provisions in cl. 17(a)(ii) of Towcon. The clause contemplates that the tugowner makes a decision to slow steam because it considers that the tow cannot be towed at the originally contemplated speed. Here there was no evidence that Regulus made a decision to steam slowly, or that it did so. There was no suggestion that the FPSO was incapable of being towed at 4.5 knots, merely that the tug could not average that speed using just two engines.

 

  1. Lundin’s counterclaim failed because there was no provision in Towcon to the effect that the convoy would average 4.5 knots and on the evidence there was no collateral agreement to that effect, nor was there an implied term to this effect. Towcon is a well-recognised form which provides an entirely efficacious set of terms of the towage and a term as to contractual speed is neither necessary nor obviously required.  

 

  1. Regulus committed an anticipatory breach in purporting to terminate the contract at Singapore. Lundin had refused to proceed with the towage for two days prior to this, but this delay of two days was not sufficiently significant to amount to a repudiation. Regulus’s email of 23 March 2013 did, however, constitute a renunciation in that it made clear that the tug was immediately being withdrawn from service and did not amount to an effective contractual notice of termination. Regulus’ email backdated the required 48 hours notice period of cancellation under cl 16 of Towcon to before the sending of the email. A salutary warning here for a party exercising an option to terminate the contract. Terminate according to the terms of the option, otherwise your purported termination will amount to an anticipatory breach and you will be liable in damages to your contractual counterparty.

OW Bunkers — common sense prevails, and a few answers given

The appeal in the OW Bunkers case, previously noted in this blog, was dismissed today by the UK Supreme Court. To recap (and simplify), what happened was that OW contracted to supply, and supplied, bunkers to a vessel in a Russian port. The bunkers were supplied on 60-day credit and reservation of title terms, and it was expected that by the time the 60 days were up they would have been consumed. OW had obtained the bunkers from Rosneft, again on reservation of title terms. OW then became insolvent. Rosneft argued that the shipowners owed them the value of the bunkers, since OW had never had any title to them and hance had had none to pass to the shipowners. At the same time OW, or rather its bank as assignee of its claims, sought payment under OW’s supply contract with the shipowners. The shipowners, wishing to guard against having to pay twice, said they didn’t have to pay OW because of s.12 of the Sale of Goods Act and also because, whatever the contract between them and OW said, s.49 of the same Act precluded a claim for the price of goods to which no property had passed except in the limited circumstances of s.49(2). Males J and the CA disagreed. The contract between OW and the owners was not, they said, a contract of sale, since the parties envisaged that no property in the fuel would ever pass (since it would have been consumed by the time the price became payable). Thus ss.12 and 49 did not apply.

The Supreme Court essentially agreed. The contract between OW and the owners was sui generis, a licence to use followed by an agreement to pass title to any bunkers left after 60 days. It followed that ss.12 and 49 were irrelevant. The only implied term related to title was a promise by OW that the shipowners would have a valid licence to burn the bunkers. But Lord Mance (who gave the only judgment) also went on to say that even if the contract had been for the sale of goods the result would have been the same because s.49 did not preclude agreements to make the price payable outside the circumstances it mentioned, as was the case here. The section was not, he said, a complete code: in so far as F G Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2014] 1 WLR 2365 said it was, it was wrong.

So the owners had to pay OW. What of Rosneft’s claim? Nothing definite was said of that, but reading between the lines the SC seems to indicate that it might well fail on the basis that by selling the bunkers to OW on the terms they did, Rosneft had acquiesced in their consumption.

Overall, this seems the sensible  result (though there is still something odd about the idea that sales for consumption morph into something else as soon as you introduce a reservation of title clause).

One further thought. One simple piece of legislation would have avoided all this, and also a great many other problems related to reservation of title. What about a provision that no reservation of title clause can be asserted against a third party obtaining, using or consuming goods in the ordinary course of business, whether or not the latter knows of the clause concerned? If we want to encourage the retention of English law as the system of choice for supply contracts of this sort, we need to keep ahead of the game. Does anyone in the Dept for Business, Innovation and Skills follow this blog, and if not might someone point it out to them?

Implied terms — again

These days cases at the highest level about implied terms in commercial contracts seem to appear like London buses. Another today, in the Supreme Court, was Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd & Anor [2015] UKSC 72 (available on BAILII). The issue was of little interest except to landlord and tenant enthusiasts: namely, if a tenant exercises a break clause having paid a whopping quarter’s rent shortly beforehand, is there an implied term allowing him to get back a proportionate part of it? (the answer, if you must know, is No).

What matters is that their Lordships showed a distinctly conservative trend, emphasising that business necessity, or something close it it, had to be shown: the cases requiring it, said Lord Neuberger at [21], represented “a clear, consistent and principled approach”. Distinct scepticism was shown towards any attempt to move to “just and reasonable” or some similar formulation, on the basis of suggestions in the Belize Telecom case that implication of terms and interpretation of contracts were really just different sides of the same Rubik’s cube.

For the benefit of shipping enthusiasts, Bingham LJ’s statements in The APJ Priti [1987] 2 Lloyd’s Rep 37, on implications of a prospective safe port warranty in a voyage charterparty, received the imprimatur of Lord Neuberger (with whom Lords Sumption and Hodge agreed).

AT