Ark Shipping Company LLC v Silverburn Shipping (IOM) Ltd, "ARCTIC" [2019] EWCA Civ 1161

The question of law on this appeal was whether the term in a bareboat charterparty obliging charterers to "keep the vessel with unexpired classification of the class indicated in Box 10 and with other required certificates in force at all times" was a condition or an innominate term.

In their partial final award, two experienced LMAA arbitrators held that the term was not a condition.

On appeal, Carr J held that the term was a condition, any breach of which entitled the Owners to terminate the charterparty.

The Court of Appeal disagreed. The term was innominate. To terminate for breach of the term therefore required the owner to show a breach going to the root of the contract and depriving it of substantially the whole benefit of the charter (something the owner did not even allege). Given the similarity of wording of time charter terms where the corresponding obligation is on the owner, the decision is of importance in this context also.

The Court reasoned as follows:

  1. Wording. The term was not expressed to be a condition. This was significant, especially given that the BARECON 89 Form is an industry standard form.
  2. Not a time clause. The term was not a time clause of the nature under consideration in Bunge v Tradax [1981] 1 WLR 711.
  3. No inter-dependence. There was no interdependence of obligations. There were no sequencing issues in relation to the performance of the contract.
  4. Type of breach. Although the term goes to the classification status of the vessel and only one kind of breach is possible, this was outweighed by a plethora of other factors.
  5. Clause 9A as a whole. The term was found in the middle of clause 9A dealing with Charterers' maintenance obligations. If the classification obligation was intended to be a condition, this was a surprising place to find it. The classification and maintenance obligations are closely connected and Charterers' obligation as to the physical maintenance of the vessel was plainly not a condition.
  6. "Other required certificates". The term also required Charterers to keep "other required certificates in force at all time". This wording could not be limited to certificates required by class because it would add nothing to Charterers' obligation to maintain class. Therefore the Owners were driven to say either that only part of the term is a condition (not including the "other required certificates" wording or the maintenance obligation) or that Charterers' obligation as to "other required certificates" forms part of the condition for which they contend. The former was unattractive and improbable. The latter was hopelessly open ended and would mean that this 15 year charterparty could be terminated if Charterers committed any breach in respect of various minor certificates.
  7. The scheme of the charterparty: insurance. An important strand of Owners case was that breach of the term puts at risk Owners' insurance. But Charterers' obligation in clause 13B to insure the vessel against P&I risks is not a condition. If leaving the vessel uninsured does not constitute a breach of condition, putting the vessel at risk of being uninsured is or ought not to be classified as a condition. The same scheme applied in relation to hull or war risks cover under clause 12 of the standard BARECON 89 Form.
  8. Consequences of breach. The consequences of breach of the term may likely result in trivial, minor or very grave consequences, thus suggesting that the term is innominate. On the facts of this case, the breach of the term resulted in no adverse consequences.
  9. A continuing obligation. It is one thing to conclude that a statement as to the vessel's class at the commencement of the charterparty is a condition or condition precedent (as suggested in The Seaflower [2001] 1 All ER (Comm) 24). However, there is no authority which decides that a continuing warranty as to classification status is a condition.

Simon Rainey QC and Natalie Moore (neither of whom appeared below) were instructed for the successful appellant in the Court of Appeal by Menelaus Kouzoupis at Stephenson Harwood LLP.

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