The obligation to pay hire at specified intervals until redelivery is one of the most important charterers’ obligations under time charter parties. Unless otherwise specified in the off-hire clause, the hire should be payable in all circumstances. Based on construction of the charter party clauses, the High Court has provided a fair justification on a recent appeal by the Owner of The “Eleni P” where hire was suspended during the period of captivity.

The facts

On 29 April 2010, the charterer gave voyage orders for the vessel to load a cargo of iron ore at a port in Ukraine for discharge at Xiamen in China. The vessel sailed through the Suez Canal and the Gulf of Aden without incident but was attacked and captured by pirates on 12 May 2010 at a point near 60 °E in the Arabian Sea. She was only released by the pirates some seven months later on 11 December 2010. Following emergency repairs, bunkering and supplies, she in due course proceeded to China for cargo discharge and redelivery.

The argument

The Owner’s claim was for a total of a little over US$5.6 million, the greatest part of which was for hire from the time of the vessel’s seizure, an amount exceeding US$4.5 million. The charterers said that hire should be suspended during that period pursuant to additional clauses 49 and 101 of the charter party, which was supported by the arbitrators. The owners said that clause 49 did not apply because the “capture” had to be by a legal authority; and clause 101 did not apply because the vessel was captured outside the Gulf of Aden, and clause 101 only applied to captures that took place within the confines of the Gulf.

The decision

The court considered construction of the charterparty from three approaches. It looked at general principles that are applicable to all contracts, then clause 49 and clause 101 respectively, and finally reached a conclusion.

1. General principles

Pursuant to the principles derived from The Ocean Neptune [2018] 1 Lloyd’s Rep 654, the court first stated that its task is to ascertain the objective meaning of the language which the parties have chosen in which to express their agreement. The court must consider the language used and ascertain what a reasonable person with all the background knowledge available to the parties at the time of the contract, would have understood the parties to have meant. The court must consider the contract as a whole and if there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.

Under a time charter the risk of delay is fundamentally on the charterer who remains liable to pay hire in all circumstances unless exempt from doing so under an off-hire provision. Accordingly, the burden lies on a charterer to bring himself within the plain words of an exception from the obligation to pay hire.

2. Clause 49

Clause 49 provided:

“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 Charter Party, the payment of hire shall be suspended for the actual time lost …”

The Owners contended that off-hire is not applicable as pirate captures are not actions by government authorities and that each of the expressions “capture[d]”, “seized”, “detained” and “arrested” were governed and qualified by the words “by any authority or any legal process”. The Charterers submitted that the words did not govern or qualify the word “captured”, which was freestanding and covered capture by any cause or protagonist including capture by pirates.

The Owners’ construction of the clause was preferred for the following reasons. First and foremost, the disjunctive categories of the four enumerated off-hire events “capture[d]”, “seized”, “detained” and “arrested”, are all separated by the word “or”. That is in itself neutral as to whether the words “by any authority or any legal process” qualify all four or only the last. However, the words which follow those (“during the currency of this charterparty”) undoubtedly govern all four, suggesting that the same applies to the words sandwiched between them. Moreover, if the fourth event (“arrested”) were the only one qualified by the words “by any authority or by any legal process” the latter words would be superfluous. Neither side was able to suggest how a vessel could be arrested other than by one of those two methods.

Secondly, clause 49 would not sit consistently with clause 15 on the Charterers’ construction because clause 15 treats as an off-hire event a limited type of detention, namely “detention by average accidents to ship or cargo”. This qualification would be rendered inoperative if clause 49 treated any detention as off-hire regardless of cause or nature.

Third, the construction contended for by the Charterers would lead to surprising and uncommercial results. The natural meaning of detention of a vessel is anything which prevents its movement. Yet if the vessel being “detained” were a freestanding off-hire event under clause 49, unqualified by the act of an authority or legal process, it would cast on to the Owners the risk of loss through a raft of circum­stances where the risk is traditionally borne by charterers as part of the inherent nature of a time charter, such as detention of the vessel at a berth as a result of weather or port conditions or congestion. The arbitrators reached the contrary conclusion because they do not think “capture” by an authority is possible in today’s context. However, the tribunal do not agree that “capture” is something which an authority is incapable of carrying out. As a matter of the ordinary use of language, capture does not necessarily connote the use of force. The arbitration between Tonnevold and Finn Friis [1916] 2 KB 551 and The Captain Stefanos case both demonstrated that capture is a word which can properly be applied to acts of a governmental authority.

Finally, in circumstances where there are doubts about the construction of clause 49 and it would be capable of bearing either of the meanings for which the parties contend, the doubt would be resolved in favour of the Owners.

3. Clause 101

Clause 101 provided:

“Clause 101 – Piracy Clause

Charterers are allowed to transit Gulf of Aden any time, all extra war risk premium and/or kidnap and ransom as quoted by 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 the vessel should be threatened/kidnapped by reason of piracy, payment of hire shall be suspended. It’s remain understood [sic] that during transit of Gulf of Aden the vessel will follow all procedures as required for such transit including but not limited the instructions as received by the patrolling squad in the area for safe participating to the convoy west or east bound.”

The Owners contended that the third sentence put the vessel off-hire only if the kidnap or threat of kidnap by piracy took place during transit of the Gulf of Aden, which was a finite geographical area capable of identification. The Charterers did not maintain that the third sentence provided for off hire as a result of piracy anywhere in the world. They supported the finding by the majority of the tribunal that the clause was operative if the threat/kidnap took place within the Gulf of Aden, however defined, “or as an immediate consequence of her transiting or being about to transit the Gulf”.

The charterers’ construction was supported for four reasons. First, the majority have found that the expression “Gulf of Aden” is not capable of being given a meaning by way of any geographical definition in the context of a time charter of this kind. That is a finding of fact which is not susceptible to challenge on an appeal under section 69.

Secondly, clause 101 as a whole is concerned with voyages through the Gulf of Aden. Its principal and critical purpose in a term time charter of this nature is to enable the Charterers to trade the vessel through the Suez Canal. The clause then allocates risk in relation to such transit by providing that the Charterers are to bear the additional cost in insurance premium and crew war risk bonus; but that the Owners are to bear the risk of loss of time from piracy putting the vessel off-hire. The natural construction of the allocation of risk in the third sentence against that background is that the vessel should be off hire if the piracy detains her as an immediate consequence of the transit, rather than by reference to a particular geographical area.

Third, the allocation of risk in the second half of the first sentence (war risk and kidnap and ransom premium) and in the sentence of the clause (crew war bonus) is not defined by reference to a single geographical area.

Finally, the owner argued that the charterers’ construction was anomalous because the vessel might have been captured by pirates in exactly the same spot when making a journey from Dubai or Muscat to east coast Africa, in which case the vessel would not have been off-hire. The tribunal disagrees. Clause 101 addresses the passage through the Gulf of Aden. If the vessel were ordered to take an alternative course, Conwartime 2004 would permit the Owners to refuse such a voyage order, but clause 101 has nothing to say about such circumstances.

The appeal succeeds on clause 49 but fails on clause 101.

Conclusions

Apparently, the tribunal has made this decision based on comprehensive consideration over not only understanding on the charterparty clauses, but also general principles, backgrounds, the language implications and common senses. In terms of a time charterparty, business practice and risk allocation can be relative as well. When there are doubts about a clause that is not clearly negotiated, in addition to analysis on the text itself, the court will also consider the consistency and relevance of other clauses.

For further information, please contact the FD&D team of the Association.